Disallowance due to non-deduction of TDS to create no tax liability when income of assessee is exempt: ITAT

Brief facts of the case are that the assessee is a Board constituted under the Bihar Combined Entrance Competitive Examination Act, 1995 to provide for combined competitive examination for entrance in Graduate Level Vocational Courses of the Universities, Colleges, Institutions in the State. The examinations conducted by the assessee are for admission to Graduate and Post-Graduate Courses of different faculties of Medical, Engineering and Polytechnic Courses etc. The assessee has filed its return showing a total income at Rs. ‘NIL’ against which the assessment has been completed at a total income of Rs. 8,64, 28, 996. In making the assessment, the ld. Assessing Officer brought to tax the surplus of income over expenditure as shown in the Income and Expenditure Account. The assessee in its return has claimed exemption in respect of its total income under section 10( 23C)(iiiab) of the Act on the grounds that it is constituted and substantially financed by the Government. The assessee also claimed exemption under section 10( 23C)(iiiad) of the Act. The claim of exemption has, however, been disallowed on the ground inter alia that the assessee is not wholly and substantially financed by the Government and is also not involved in educational activities. The ld. Assessing Officer also disallowed payments made to printer amounting to Rs.2,85, 85, 395 under section 40(a)(ia) of the Income Tax Act (hereinafter called the ‘Act”). The disallowances of payments to printer for printing of examination question papers has been made on the ground that the assessee has failed to deduct tax at source on payment made for printing of examination question papers. The ld. Assessing Officer also mentions that there is no provision in the Act, which permit allowance of expenditure in certain contingent circumstances where tax at source is not deducted.

Being aggrieved by the aforesaid order of the ld. Assessing Officer, the assessee preferred appeals before the ld. CIT( Appeals), however, remained unsuccessful.

Being aggrieved, the assessee has come in appeals before Income Tax Appellate Tribunal (ITAT).

At the outset, the ld. counsel for the assessee has brought to attention that the assessee earlier had filed separate applications for exemption under section 10( 23C) of the Income Tax Act, which were rejected by the ld. CIT(Exemption). The assessee preferred appeal against the said orders before the Hon’ble High Court, whereupon the Hon’ble High Court vide its order dated 03. 12. 2020 remanded the matter back to the ld. CIT(Exemption) for consideration afresh. The ld. counsel for the assessee has further brought to our attention to the order dated 30. 03.2021 of the ld. CIT(Exemption), whereby, the application of the assessee for grant of exemption under section 10( 23C( vi) has been allowed for assessment year 2004- 05 to assessment year 2010- 11. Ld. Counsel has further brought to our attention to the order dated 27. 03.2022 of ld. CIT(Exemption), whereby, the ld. CIT(Exemption) following the direction of the Hon’ble High Court has granted exemption to the assessee under section 10(23C)( vi) for the assessment year 2014- 15 also i.e. for the assessment year under consideration. Since the application of the assessee for exemption under section 10( 23C)( vi) has already been allowed, therefore, the assessee is entitled to exemption under section 10( 23C)( vi) and, therefore, the income of the assessee stands exempted.

So far as the disallowance made by the ld. Assessing Officer under section 40(a)(ia) of the Income Tax Act is concerned, it is noted that since the income of the assessee is exempt under section 10( 23C)( vi), therefore, any disallowance made under section 40(a)(ia) by the ld. Assessing Officer will only add to the income of the assessee, which otherwise is exempt under section 10(23C) as stated above. Therefore, the disallowance made by the ld. Assessing Officer will not create any tax liability of the assessee.

In view of this, the impugned order of the ld. CIT( Appeals) was set aside and the additions made by the lower authorities are deleted.

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