ITAT Delhi on Survival of Section 143(1) Intimation After Section 143(3) Assessment

1. Background of the Dispute

The matter before the Income Tax Appellate Tribunal, Delhi Bench, in South India Club Vs ITO (ITAT Delhi) related to Assessment Year 2018-19. The assessee, a long-established society, challenged an intimation issued under Section 143(1) by CPC, Bengaluru, wherein exemption under Section 11 was denied for non-filing of audit report in Form 10B along with the return of income.

Subsequently, a regular assessment under Section 143(3) was framed for the same year, again denying Section 11 exemption. Parallelly, the assessee pursued appeal remedies against both:

  • the Section 143(1) intimation, and
  • the Section 143(3) scrutiny assessment.

The core questions before ITAT Delhi were:

  1. Whether the Section 143(1) intimation and demand could independently survive once a regular assessment under Section 143(3) stood completed for the same year.
  2. Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in giving conclusions on the merits of Section 11 exemption in the appeal filed against the Section 143(1) intimation, when the same issue was already part of a separate appeal arising from the Section 143(3) assessment.
  3. How the first proviso to Section 12A(2) applied in the facts where registration under Section 12A/Section 12AA was granted while scrutiny assessment for an earlier year was still pending.

2. Facts in Brief

2.1 Status and Activities of the Assessee

  • The assessee, The South India Club (earlier named The South India Association), is a society registered on 14.02.1941 under the Societies Registration Act, 1860.
  • It is engaged in educational, social, cultural and recreational activities, including promotion of fine arts, and maintains a reading room and library.

2.2 Registration Proceedings Under Section 12A/12AA

  • Application for registration under Section 12A was filed on 27.03.2019 before the Commissioner of Income Tax (Exemptions), Delhi.
  • The application was initially rejected by order dated 30.09.2019.
  • On appeal, the ITAT, Delhi in I.T.A. No. 8338/Del/2019 vide order dated 13.08.2020 directed the Commissioner of Income Tax (Exemptions) to grant registration under Section 12AA.
  • Pursuant to this, registration under Section 12AA read with Section 12A/254 was granted on 05.01.2021, effective from Assessment Year 2019-20.

2.3 Return of Income and CPC Processing Under Section 143(1)

  • The assessee filed its return of income for AY 2018-19 on 30.03.2019 declaring Nil income and claiming exemption under Section 11.
  • The assessee claimed application of income for charitable purposes of Rs. 6,01,35,500/-, comprising:
    • Revenue account application: Rs. 72,224/-, and
    • Repayment of loan (capital account): Rs. 6,00,00,000/-.
  • This loan had been earlier taken for construction of a new building, and was repaid out of a voluntary contribution of Rs. 6,00,00,000/- received during Financial Year 2017-18 from a patron member, Shriram Transport Finance Company Ltd.

The CPC, Bengaluru processed the return under Section 143(1)(a) and:

  • Observed that the assessee’s total income, before giving effect to Section 11 and Section 12, exceeded the basic exemption limit.
  • Noted that Form 10B (audit report) had not been e-filed along with, or before, the filing of the return.
  • Consequently denied the exemption under Section 11 and treated Rs. 6,01,35,500/- as taxable income, resulting in a demand through the Section 143(1) intimation dated 10.11.2019.

The assessee filed an appeal before the CIT(A) against this intimation, challenging the denial of exemption and the addition.

2.4 Scrutiny Assessment Under Section 143(3)

Independently of the CPC processing:

  • Notice under Section 143(2) was issued on 22.09.2019, selecting the case for scrutiny under the e-assessment scheme.
  • Notices under Section 142(1) were subsequently issued on 09.12.2020 and 04.01.2021 seeking details.
  • Ultimately, an assessment order under Section 143(3) read with Section 143(3A) and Section 143(3B) was passed on 08.02.2021 by the National e-Assessment Centre.
  • In this regular assessment also, exemption under Section 11 to the extent of Rs. 6,00,35,500/- was disallowed.

The assessee separately appealed against the Section 143(3) assessment before NFAC, which appeal was pending at the time of the Tribunal’s decision.

3. Proceedings Before the CIT(A) and Assessee’s Contentions

Before the CIT(A), Coimbatore (who was assigned the appeal electronically), the assessee submitted detailed written arguments, including the following key points: