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(Tax Case No.54/2024)

2025:CGHC:23005-DB

AFR

HIGH COURT OF CHHATTISGARH AT BILASPUR

TAXC No. 54 of 2024

{Arising out of order dated 7-9-2023 passed by the

Income Tax Appellate Tribunal, Raipur Bench, Raipur

in ITA No.02/RPR/2020}

Chhattisgarh Rajya Open School Madhyamik Siksha

Mandal, Pension Bada, Raipur, Chhattisgarh 492-001.

Pan : AAAGC0179F

... Appellant

versus

The Deputy Commissioner of Income Tax, Exemption

Circle, Raipur, Chhattisgarh.

... Respondent

For Appellant :Mr. S. Rajeswara Rao, Advocate.

For Respondent:Mr. Ajay Kumrani, Advocate on behalf

of Mr. Amit Chaudhari, Advocate.

Division Bench: -

Hon'ble Shri Sanjay K. Agrawal and

Hon'ble Shri Deepak Kumar Tiwari, JJ.

Order On Board

(10/06/2025)

Sanjay K. Agrawal, J.

1.Invoking the appellate jurisdiction of this Court

under Section 260A of the Income Tax Act, 1961,

the assessee/appellant has preferred this appeal

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(Tax Case No.54/2024)

questioning the judgment and order dated 7-9-2023

passed by the Income Tax Appellate Tribunal,

Raipur Bench, Raipur in ITA No.02/RPR/ 2020,

which was admitted for hearing on 16-4-2025 by

formulating the following substantial question of

law: -

“Whether the Income Tax Appellate Tribunal is

justified in dismissing the appeal by

ignoring the order granting approval under

Section 12 AA of the IT Act which was passed

on 14.07.2023 during the pendency of appeal

by holding that first proviso to sub-section

(2) of Section 12 A is not attracted and

further ignoring the fact that appeal was

already pending before it (ITAT), by

recording a finding which is perverse to the

record?”

2.The aforesaid question of law arises for

consideration on the following factual backdrop:-

3.The appellant/assessee Society was established

with the direction of the Education Department,

State of Chhattisgarh on 10-1-2008. The assessee

filed its return for the assessment year 2016-17

on 31-3-2018 declaring the income as NIL. On

₹

30-9-2018, the case of the assessee Society was

selected for scrutiny assessment under Section

143(2) of the Income Tax Act, 1961 (for short,

‘the IT Act’). In the meanwhile, the appellant

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(Tax Case No.54/2024)

herein filed an application for registration

under Section 12AA of the IT Act in prescribed

form claiming exemption on the ground that it is

an education institution and involved in

charitable purposes which was eventually rejected

on 29-4-2019 against which it has preferred an

appeal and ultimately, on second round, on 14-7-

2023, the Commissioner of Income Tax (Exemption)

granted approval under Section 12AA of the IT Act

to the appellant with effect from 1-4-2019.

However, the scrutiny assessment was completed

and the Assessing Officer declined the assessee’s

claim for exemption of the excess of income over

expenditure of 5.24 crores (approx.) under

₹

Section 10(23C)(iiiab) of the IT Act and passed

assessment order on 12-12-2018 against which the

assessee preferred appeal before the Commissioner

of Income Tax (Appeals) which was ultimately

rejected on 17-10-2019. The assessee preferred

appeal before the Income Tax Appellate Tribunal

(ITAT) questioning the order of the Assessing

Officer as affirmed by the Commissioner of Income

Tax (Appeals) and an additional ground was taken

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(Tax Case No.54/2024)

that approval under Section 12AA of the IT Act

has been granted by the Commissioner of Income

Tax (Exemption) on 14-7-2023 and therefore by

virtue of first proviso to Section 12A(2) of the

IT Act, exemption would apply retrospectively.

4.The learned ITAT by the impugned order rejected

the appeal holding that first proviso to Section

12A(2) of the IT Act has wrongly been construed,

as the assessment proceeding was not pending

before the Assessing Officer on the date of

registration i.e. 14-7-2023 and accordingly

proceeded to dismiss the appeal which is sought

to be challenged by filing this appeal under 260A

of the IT Act.

5.Mr. S. Rajeswara Rao, learned counsel appearing

for the appellant/assessee, would submit that

first proviso to Section 12A(2) of the IT Act

would also apply once appeal against the

assessment proceeding is completed and order is

even affirmed and appeal is pending before the

ITAT, as the said amendment to first proviso to

Section 12A(2) also applies to the appeal

proceeding and therefore the learned ITAT has

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(Tax Case No.54/2024)

committed grave legal error in holding that it

would not apply to the appeal proceeding and

first proviso to Section 12A(2) would confine to

the appeal proceeding before the Commissioner of

Income Tax (Appeals) from the Assessing Officer,

therefore, the impugned order is liable to be set

aside. He would rely upon the decision of the

Rajasthan High Court in the matter of

Commissioner of Income-tax (Exemptions) v. Shree

Shyam Mandir Committee

1

and the decision of the

Karnataka High Court in the matter of

Commissioner of Income-tax (Exemptions) and

another v. Karnataka State Students Welfare Fund

2

to buttress his submission. As such, the appeal

deserves to be allowed.

6.Mr. Ajay Kumrani, learned counsel appearing for

the respondent/Revenue, would support the

impugned order and submit that the learned ITAT

has taken the correct view of the matter, as the

Legislature has clearly confined the benefit to

the assessee as the assessment proceedings are

pending before the Assessing Officer on the date

12017 SCC OnLine Raj 4367

22021 SCC OnLine Kar 15982

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(Tax Case No.54/2024)

of registration and in the instant case, the

assessment proceeding had already completed on

12-12-2018 and appeal has also been dismissed by

the CIT (Appeals) on 17-10-2019, and only appeal

was pending before the ITAT when the registration

was granted under Section 12AA of the IT Act on

14-7-2023. As such, the learned ITAT has rightly

held that the benefit of first proviso would not

flow to the appellant/assessee and as such, the

appeal deserves to be dismissed.

7.We have heard learned counsel for the parties and

considered their rival submissions made herein-

above and also went through the record with

utmost circumspection.

8.It is not in dispute that assessment proceeding

under Section 143(2) of the IT Act was

adjudicated by the Assessing Officer on 12-12-

2018 and on that day, though the appellant/

assessee made application under Section 12AA of

the IT Act, it was rejected on 29-7-2019 and

after assessment by the Assessing Officer, on

second round, ultimately, exemption was granted

on 14-7-2023 with effect from 1-4-2019 and

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(Tax Case No.54/2024)

thereafter, assessment proceeding was subjected

to appeal by the CIT (Appeals) and the CIT

(Appeals) also dismissed the appeal on 17-10-

2019, as such, on the date of registration i.e.

on 14-7-2023, appeal under Section 253 of the IT

Act was pending before the ITAT, but the ITAT

rejected the contention of the appellant herein

holding that first proviso to Section 12A(2) of

the IT Act would not be applicable as the

assessment proceedings were not pending as on the

date of registration and therefore first proviso

to Section 12A(2) would not be applicable to the

appellant herein.

9.In order to decide the substantial question of

law, it would be appropriate to notice first

proviso to Section 12A(2) of the IT Act, which

states as under: -

“Provided further that where

registration has been granted to the trust or

institution under section 12AA or section

12AB, then the provisions of sections 11 & 12

shall apply in respect of any income derived

from property held under trust of any

assessment year preceding the aforesaid

assessment year, for which assessment

proceedings are pending before the Assessing

Officer as on the date of such registration

and the objects and activities of such trust

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(Tax Case No.54/2024)

or institution remain the same for such

preceding assessment year.”

First proviso to Section 12A(2) of the IT Act has

been inserted with effect from 1-10-2014.

Section 12A(2) of the IT Act was brought into the

statute book by the Legislature to prevent

genuine hardship that could be caused on the

assessee due to non-registration under Section

12AA of the IT Act and accordingly, the provisos

to Section 12A(2) is to be construed as

retrospective in nature.

10.At this stage, it would also be appropriate to

notice the CBDT Circular No.01/2015 dated 21-5-

2015 which has been made applicable with effect

from 1-10-2014 in order to remove hardships to

charitable organisations due to non-application

for registration for the period prior to the year

of registration, relevant portion of which states

as under: -

“8.2Non-application of registration for the

period prior to the year of registration

caused genuine hardship to charitable

organisations. Due to absence of

registration, tax liability is fastened even

though they may otherwise be eligible for

exemption and fulfill other substantive

conditions. However, the power of

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(Tax Case No.54/2024)

condonation of delay in seeking registration

was not available.”

11.A careful perusal of the aforesaid circular would

show that it mandates that registration will have

the effect for the period prior to the year of

registration or in respect of which the

assessment proceedings are pending and the

provisions of Section 12A of the IT Act entailed

unintended consequences of non-application of

registration for the period prior to the year of

registration and, thereby, non-grant of exemption

under Sections 11 and 12 up to grant of

registration. This position was also recognised

by the Central Board of Direct Taxes while

issuing the Explanatory Notes to the provisions

of the Finance (No.2) Act, 2014, vide Central

Board of Direct Taxes Circular No.1 of 2015,

dated January 21, 2015. It is, thus, a curative

proviso, which is but merely declaratory of the

previous law. It has, by removal of the

hardship, rendered the procedure more relief-

oriented. It adequately complies with the

natural justice principle of fairness to all.

Hence, it has to be presumed and construed as

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(Tax Case No.54/2024)

retrospective in nature, in order to give the

section a purposive interpretation. {See Shree

Shyam Mandir Committee’s case (supra), paragraph

26.}

12.In the instant case, admittedly, on the date of

registration i.e. 14-7-2023, the assessment

proceeding which has been affirmed by the

Commissioner of Income Tax (Appeals), was pending

before the ITAT, which came to be dismissed on 7-

9-2023. The question for consideration would be,

whether the assessment proceeding as stated in

first proviso to Section 12A(2) of the IT Act can

be taken as pending appeal, in other words,

whether the assessment proceeding pending in

appeal can be taken to be the proceeding pending

before the Assessing Officer? Since appeal was

pending before the ITAT under Section 253 of the

IT Act, though it was second appeal, but in that

appeal, substantial question of law was not

required to be formulated which was required to

be formulated in appeal under Section 260A of the

IT Act, as such, that appeal pending before the

ITAT against the assessment order affirmed by the

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(Tax Case No.54/2024)

CIT (Appeals) is the continuation of original

assessment proceedings by the Assessing Officer.

13.It is a settled position of law that an appeal is

a continuation of the proceedings of the original

court. Ordinarily, the appellate jurisdiction

involves a rehearing on law as well as on fact

and is invoked by an aggrieved person. The first

appeal is a valuable right of the appellant and

therein all questions of fact and law decided by

the trial court are open for reconsideration.

Therefore, the first appellate court is required

to address itself to all the issues and decide

the case by giving reasons. The court of first

appeal must record its findings only after

dealing with all issues of law as well as fact

and with the evidence, oral as well as

documentary, led by the parties. The judgment of

the first appellate court must display conscious

application of mind and record findings supported

by reasons on all issues and contentions [see:

Santosh Hazari v. Purushottam Tiwari

3

followed in

Madhukar v. Sangram

4

, B.M. Narayana Gowda v.

3(2001) 3 SCC 179

4(2001) 4 SCC 756

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(Tax Case No.54/2024)

Shanthamma

5

, H.K.N. Swami v. Irshad Basith

6

and

Sri Raja Lakshmi Dyeing Works v. Rangaswamy

Chettiar

7

].

14.It is held that appeal pending before the ITAT

against the order of the CIT (Appeals) affirming

the order of the Assessing Officer is the

continuation of the original proceedings of the

Assessing Officer and thus, the assessment

proceeding in appeal pending before the appellate

Court i.e. ITAT is deemed to be the assessment

proceeding before the Assessing Officer within

the meaning of first proviso to Section 12A(2) of

the IT Act and we accordingly hold that appeal

proceedings pending before the ITAT are deemed to

be the assessment proceeding before the Assessing

Officer within the meaning of Section 12A of the

IT Act. The impugned order so passed after the

effective date of grant of registration and

subsequent grant of registration on 14-7-2023

operates retrospectively for all relevant years

in the present case, assessment year 2016-17,

though registration was granted with effect from

5(2011) 15 SCC 476

6(2005) 10 SCC 243

7(1980) 4 SCC 259

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(Tax Case No.54/2024)

1-4-2019, as we find that the object of the

appellant Society is charitable in nature within

the meaning of Section 12A(2) of the IT Act and

on which there is absolutely no dispute.

Accordingly, we are unable to sustain the

impugned order and set aside the same. The

appellant Society is entitled for exemption under

Sections 11 & 12 of the IT Act. The Assessing

Officer is directed to pas consequential order as

stated above for the assessment year 2016-17,

expeditiously.

15.The substantial question of law is answered in

favour of the assessee and against the Revenue.

16.The tax appeal stands allowed. No order as to

cost(s).

Sd/- Sd/-

(Sanjay K. Agrawal) (Deepak Kumar Tiwari)

JUDGE JUDGE

Soma