IT Appeal No. 338 (LKW.) of 2012
[ASSESSMENT YEAR 2008-09]

SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND A.K. GARODIA, ACCOUNTANT MEMBER

Rakesh Garg, Advocate for the Appellant.
Amit Nigarm for the Respondent.

ORDER

Sunil Kumar Yadav, Judicial Member - This appeal is preferred by the assessee against the order of the ld. CIT(A), inter alia, on the following grounds:—

2. Though various grounds are raised, but they all relate to denial of exemption under section 10(23B) of the Income-tax Act, 1961 (hereinafter called in short "the Act") on account of non-production of certificate for exemption from Khadi and Village Industries Commission under the KVIC Act.

3. The facts in brief culled out from the orders of the lower authorities are that the assessee is engaged in the manufacturing and processing of spices. The return of income was filed claiming exemption under section 10(23B) of the Act on the pretext that its unit of manufacturing and processing of spices is duly registered with the Khadi and Village Industries Commission. The profit during the previous year under consideration has been credited into the capital fund account which is reflected in the balance sheet as on 313.2008.

4. During the course of assessment proceedings, the assessee was required to furnish the copy of exemption certificate on the basis whereupon it claimed exemption under section 10(23B) of the Act. But the certificate was not furnished before the Assessing Officer. Having carefully examined the provisions of section 10(23B) of the Act, the Assessing Officer was of the view that as per provision (ii) below section 10(23B) of the Act, the institution must be approved for the purpose of this clause by the Khadi and Village Industries Commission and as per second proviso such approval shall not be granted by the Commission for more than three assessment years and such approval is subject to withdrawal by the Commission in case it is found that the activities of the Institution are not being carried out in accordance with all or any of the conditions subject to which such institution was approved, after reasonable opportunity of being heard have been provided to the assessee. During the course of assessment proceedings, the assessee was reportedly asked to furnish the Certificate of exemption from the Khadi and Village Industries Commission, but it was not furnished before the Assessing Officer. Vide letter dated 10.12.2010, it was stated by the assessee that the society was registered under the Societies registration Act, 1860. For obtaining the income exemption certificate for the year under consideration, all the required compliances for issuing the exemption certificate by Khadi and Village Industries Commission stands complied with by the assessee society and so moved an application for exemption certificate and the same is pending with the concerned authority. In the absence of certificate of exemption, the Assessing Officer has denied the benefit of exemption under section 10(23B) of the Act.

5. The assessee has preferred an appeal before the ld. CIT(A), but assessee could not furnish exemption certificate even before the ld. CIT(A) and the ld. CIT(A) has confirmed the assessment order denying exemption under section 10(23B) of the Act.

6. Now the assessee has preferred an appeal before the Tribunal. But exemption certificate from Khadi and Village Industries Commission has not been furnished before the Tribunal. The ld. counsel for the assessee, however, has placed reliance upon the provisions of section 139 (4C)(d) of the Act relating to mode of filing and assessment of returns filed by an institution referred to in clause (23B) of section 10 of the Act. Reliance was also placed upon the provisions of section 143(3) (d) of the Act in support of his contention that the returns filed under section 139(4C)(d) of the Act are to be processed as per the procedure laid down in section 143(3)(d) of the Act and the Assessing Officer shall not deny benefit of provisions of section 10(23B) of the Act unless the Assessing Officer intimated the Central Government or the prescribed authority about the contraventions of the provisions of clause (23B) of section 10 of the Act, as the case may be. The ld. counsel for the assessee has further contended that in the light of the aforesaid provisions, the benefit of exemption under section 10(23B) of the Act cannot be denied by the Assessing Officer unless he intimate the prescribed authority with regard to the contraventions of the provisions of section 10(23B) of the Act. He has further invited our attention to the letter dated 16.6.2009 appearing at page 22 of the compilation of the assessee, through which the Director of State was requested for issuance of exemption certificate for assessment year 2008-09.

7. Per contra, the ld. D.R., besides placing reliance upon the orders of the authorities below, has contended that benefit of section 10(23B) of the Act can only be granted on production of exemption certificate from the prescribed authority, but the assessee could not produce exemption certificate either before the Assessing Officer or before the ld. CIT(A) or the Tribunal. He has also placed reliance upon the second proviso to section 10(23B) of the Act with the submission that the Commission shall not at any one time grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted. Therefore, exemption once granted does not mean that it is granted forever. He has also invited our attention to the exemption certificate dated 19.11.2008 appearing at last page of the compilation of the assessee, which was issued for one assessment year i.e. 2007-08 only. Thereafter no exemption certificate was issued to the assessee for the assessment year under consideration. Therefore, assessee is not entitled for any exemption under section 10(23B) of the Act in the absence of exemption certificate.

8. Having heard the rival submissions and from a careful perusal of the relevant provisions of the Act, we find that separate clause for assessment of the Institutions falling under section 10(23B) of the Act has been provided in sections 139 and 143 of the Act. As per provisions of section 10(23B) of the Act, if the institution existing solely for development of Khadi and Village Industries or both fulfils other required conditions prescribed in sub-section (23B) of section 10 of the Act, are entitled for exemption, if the institution is approved by the prescribed authority. The approval once granted can be withdrawn if the activities of the institution are found in contravention to the provisions of section 10(23B) of the Act. We have also examined the provisions of section 143(3) of the Act and we find that in the case of an institution referred to in clause (23B) of section 10 of the Act, which is required to furnish the return of income under sub-section (4C) of section 139 of the Act, no order making an assessment of total income or loss of such institution shall be made by the Assessing Officer without giving effect of provisions of section 10 of the Act unless the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (23B) of section 10 of the Act. In this sub-section also, a provision is made that if the Assessing Officer is satisfied that the activities of the institution is not being carried out in accordance with all or any of the conditions subject to which such institution was approved, he may, after giving reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution, recommend the Central Government to withdraw the approval and the Government may order for withdrawal of the approval and forward copy of the order to the concerned institution. Meaning thereby, a specific procedure has been laid down for framing an assessment in the case of an institution referred to in clause 10(23B) of the Act while granting exemption therein. For the sake of reference, we extract the relevant provisions as under:—
'SECTION 10(23B):

(23B) any income of an institution constituted as a public charitable trust or registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act, in force in any part of India, and existing solely for the development of khadi or village industries or both, and not for purposes of profit, to the extent such income is attributable to the business of production, sale, or marketing, of khadi or products of village industries:
Provided that —

Provided further that the Commission shall not, at any one time, grant such approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted:
Provided also that where the institution has been approved by the Khadi and Village Industries Commission and subsequently that Commission is satisfied that—

it may, at any time after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution, by order, withdraw the approval and forward a copy of the order withdrawing the approval to such institution and to the Assessing Officer.
Explanation.— For the purposes of this clause,—

SECTION 139(4C):
(4C) Every —

shall, if the total income in respect of which such research association, news agency, association or institution, fund or trust or university or other educational institution or any hospital or other medical institution or trade union or body or authority or Board or Trust or Commission or infrastructure debt fund is assessable, without giving effect to the provisions of section 10, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).

SECTION 143(3):
(3) On the day specified in the notice,—

Provided that in the case of a—

which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such scientific research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless—

9. From a bare reading of the aforesaid provisions of the Act relating to assessment of an institution constituted as a public charitable trust or registered under the Societies Registration Act or under any law corresponding to that Act enforce and exists solely for development of Khadi or Village Industries or both and not for the purpose of profit, we find that such institution can claim exemption of such income attributable to the business or production, sale or marketing of Khadi or products of Village Industries, if it obtains approval from the Khadi and Village Industries Commission.

10. As per proviso below sub-section (23B) of section 10 of the Act, the Commission shall not grant approval for more than three assessment years beginning with the assessment year next following the financial year in which it is granted. As per third proviso, the approval once granted can also be withdrawn if the Commission is satisfied that the institution has not applied or accumulated its income in accordance with the provisions contained in the first proviso or the activities of the institution are not being carried out in accordance with all or any of the conditions subject to which such institution was approved, after affording reasonable opportunity of showing cause against the proposed withdrawal to the concerned institution. The return filed by the institution under section 139(4C) of the Act is to be processed under section 143(3) of the Act and as per first proviso to clause (d) of section 143(3), no order making an assessment to the total income or loss of such institution shall be made by the Assessing Officer without giving effect to the provisions of section 10(23B) of the Act. Meaning thereby, if an assessee obtains approval from the Commission under section 10(23B) of the Act, the Assessing Officer shall not make an assessment of the total income of the assessee without giving effect to the provisions of section 10 of the Act. But the benefit of section 10 of the Act can also be denied, if the Assessing Officer has noted that the said institution has acted in contravention of the provisions of clause (23B) of section 10 of the Act, but before denial of exemption, the Assessing Officer is required to intimate the Central Government or the prescribed authority about the contravention of provisions of clause (23B) of section 10 of the Act. The benefit of exemption can also be denied by the Assessing Officer if the approval granted to such institution has been withdrawn or notification issued in this regard has been rescinded. Meaning thereby, during the course of assessment proceedings, the Assessing Officer is required to examine the activities of the assessee and to ascertain the fact whether the assessee/institution has been granted approval by the prescribed authority for the relevant assessment year.

11. Having read the aforesaid provisions of the Act together, we are of the considered view that while completing the assessment of an association or institution referred to in clause (23B) of section 10 of the Act, the Assessing Officer is required to examine the nature of activities of the assessee/institution/society whether it was in pursuant to the object of the institution or association as prescribed under section 10(23B) of the Act and also availability of exemption certificate from the prescribed authority for the relevant assessment year. It is also clear from the provisions of section 10(23B) of the Act that exemption certificate cannot be granted for more than three years. Therefore, from time to time the assessee is required to obtain exemption certificate from the prescribed authority. If it is not obtained for a particular relevant assessment year, the benefit of exemption cannot be granted to the assessee. The contention of the ld. counsel for the assessee that once exemption certificate is granted, the benefit of exemption cannot be denied without intimating the Central Government or the prescribed authority with regard to the contravention of the provisions of clause (23B) of section 10 of the Act cannot be accepted, as this condition is required to be complied with by the Assessing Officer where the assessee is having a valid exemption certificate for a particular assessment year. If the assessee does not have exemption certificate for a particular assessment year, the benefit of exemption for that year cannot be granted to the assessee.
12. Turning to the facts of the case, it is an admitted fact that during the course of assessment proceedings, the assessee could not place exemption certificate for the impugned assessment year. Similar was the position before the ld. CIT(A). Even before us, the assessee could not furnish exemption certificate for the impugned assessment year duly granted by the prescribed authority. He has simply placed reliance upon the earlier certificate granted for assessment year 2007-08. He has also placed reliance upon the recommendation of the U.P. Khadi and Village Industries Board, Planning Division, Lucknow vide letter dated 16.6.2009 to the State Director, Khadi and Village Industries Commission. This recommendation was made in June 2009 and till date exemption certificate has not been granted to the assessee. Therefore, it cannot be presumed or assumed that once recommendations are made, exemption certificate will certainly be granted to the assessee. Therefore, the contention of the ld. counsel for the assessee that the assessee has made best efforts for obtaining the exemption certificate and in the light of its efforts, exemption may be granted, cannot be accepted, as before allowing exemption, assessee must have exemption certificate as per provisions of section 143(3) of the Act. Moreover, this exemption certificate is to be granted for a particular assessment year, therefore, it cannot be used for other assessment year for which it was not granted. In the light of the totality of the facts and circumstances of the case, we are of the considered opinion that the ld. CIT(A) has rightly denied the benefit of exemption under section 10(23B) of the Act to the assessee. We accordingly confirm his order. Accordingly the assessee fails.

13. In the result, appeal of the assessee is dismissed.