Kolkata ITAT Clarifies: Section 12A Registration Not a Prerequisite for Section 10(23C)(iiiad) Exemption — Development Fee Issue Sent Back for De Novo Assessment

Case Overview

Case Name: Khandra Primary Institution Vs ITO (ITAT Kolkata)
Appeal Number: ITA No(s). 1954/KOL/2026
Date of Order: 25/08/2026
Assessment Year: 2017-18
Tribunal: Income Tax Appellate Tribunal, Kolkata Bench

Background and Factual Matrix

Khandra Primary Institution, a primary educational institution registered under the West Bengal Government, found itself in a prolonged dispute with the Income Tax Department after failing to file its return of income for Assessment Year 2017-18. The case was selected for scrutiny primarily on account of cash deposits of ₹12,66,052/- made during the demonetization period.

Since no return was filed, the Assessing Officer (AO) proceeded to frame a best judgment assessment under Section 144 of the Income-tax Act, 1961. In doing so, the AO computed gross receipts at ₹53,31,981/- and allowed expenditure of ₹43,50,927/-, thereby arriving at a surplus of ₹9,81,054/-. The AO proceeded to tax this surplus after denying the exemption claimed under Section 10(23C)(iiiad) of the Income-tax Act, 1961, citing two principal reasons:

  1. The assessee lacked registration under Section 12A of the Act.
  2. The assessee had not filed its return of income as mandated under Section 139(4C) of the Act.

The total income was accordingly assessed at ₹9,81,050/-.

First Appeal — Addl./JCIT(A)'s Ruling

The assessee challenged the assessment order before the Additional/Joint Commissioner of Income Tax (Appeals) [Addl./JCIT(A)]. However, the appellate authority upheld the AO's findings. The Addl./JCIT(A) observed that the assessee had failed to comply with the eligibility requirement under sub-section (4C) of Section 139 by not filing its return for the relevant year. It was also noted — though erroneously, as was subsequently established — that the assessee possessed registration under Section 12A / Section 10(23C) of the Act. On these grounds, the Addl./JCIT(A) dismissed the appeal and confirmed the assessment.

Grounds Raised Before the ITAT

Dissatisfied with the first appellate outcome, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Kolkata Bench, raising the following grounds:

  1. That the Ld. CIT(A) NFAC erred in law as well as on facts to affirm the order of the Assessing Officer for addition of Rs. 9,81,054, ignoring the submissions, documentary evidences and explanations furnished, which ought to be deleted in full.

  2. That the Ld. CIT(A) NFAC erred in law as well as on facts to confirm the order of the AO about the requirement of registration u/s 12A for an educational institute availing the exemption u/s 10(23C)(iiiad) of the Act, thereby denying the exemption claimed.

  3. That the Ld. CIT(A) NFAC erred in law as well as on facts to confirm the order of the AO about the requirement of filing of return u/s 139(4C) clause (e) of the act for availing exemption u/s 10(23C)(iiiad), even when the assessee the returned income does not exceeds the maximum amount which is not chargeable to tax.

  4. That the Ld. CIT(A) NFAC erred in law as well as facts to affirm the order of the AO to take the total annual receipts of the assessee at Rs.53,31,981 against the amount reported in annual accounts at Rs.32,57,481 and also expenditure at Rs.43,50,927 instead of Rs.32,49,628, thus affirming the income at Rs. 9,81,054, against the actual loss of Rs.7,852.92. The Ld. CIT(A) NFAC erred in law as well as facts to affirm the order of the AO by substituting the phrase from annual receipt to gross receipt and vice versa for expenditure.

  5. That the Appellant craves leave to add or amend or omit any grounds of appeal and crave leave to produce additional evidences by complying the rule 46A of Income tax rule.