The ITAT Agra (SMC Bench) has held that exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961 cannot be denied for Assessment Year 2020-21 on the ground of non-filing of return under Section 139(4C), as the statutory condition linking exemption to return filing was introduced only by the 20th proviso to Section 10(23C) through the Finance Act, 2022 with effect from 01.04.2023. The Tribunal set aside the CIT(A)'s order confirming the addition of Rs. 43,27,497 to the assessee's income.
Background & Facts
The Dispute
The appellant, Shaskiye Polytechnic Mahavidyalaya, a Government Polytechnic College established by the Government of Madhya Pradesh at Post Daurana, AB Road, Guna-473226 (PAN: AAHAS8733Q), claimed exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961 for Assessment Year 2020-21. The assessee is an educational institution existing solely for educational purposes and not for profit, with annual receipts below the prescribed threshold of Rs. 1 crore applicable for the relevant assessment year.
Key Facts
- The assessee was a non-filer; the department reopened the case based on information showing TDS under Section 194A of Rs. 29,82,266 from State Bank of India and cash deposits of Rs. 11,61,110 under SFT-004
- Notice under Section 148 was issued on 26.03.2024; the assessee filed a return on 27.05.2024 declaring nil income after claiming exemption of Rs. 43,27,497 under Section 10(23C)(iiiad)
- Statutory notices under Sections 143(2) and 142(1) were issued and served
- The assessee submitted it is a Government Polytechnic wholly and substantially financed by the Government, eligible for exemption under Section 10(23C)(iiiab) and alternatively under Section 10(23C)(iiiad)
- Provisional registration under Section 12A in Form No. 10AC was obtained on 03.12.2024, valid from AY 2025-26 to AY 2027-28
- The Assessing Officer observed the documents did not pertain to the year under consideration and that government grants did not exceed 50% of total receipts
- The AO disallowed the exemption claim of Rs. 43,27,497 vide assessment order dated 06.03.2025 passed under Section 147 read with Section 144B
Procedural History
- 06.03.2025: Assessment order passed under Section 147 r.w.s. 144B disallowing exemption of Rs. 43,27,497
- 29.05.2026: CIT(A) (NFAC, Delhi) dismissed the assessee's appeal (Appeal No. NFAC/2019-20/10497208)
- 14.10.2026: Hearing before ITAT Agra (SMC Bench)
- 28.10.2026: Order pronounced in open court allowing the appeal
The Parties' Positions
Appellant (Assessee): Contended that for AY 2020-21, Section 10(23C)(iiiad) did not prescribe filing of return under Section 139(4C) as a condition precedent; the 20th proviso to Section 10(23C) introducing this requirement was inserted by Finance Act, 2022 w.e.f. 01.04.2023; the assessee satisfied all substantive conditions; coordinate bench decisions in Haringhata Mahavidyalaya (ITAT Kolkata), Suraj Gyan Shiksha Prasar Samiti (ITAT Agra), and Shri Guptnath Bal Shikshan Samiti (ITAT Indore) supported the claim; consistency principle required following the appellate order for AY 2019-20 on identical facts.
Respondent (Revenue): Contended that the assessee did not file return under Section 139(4C) and had no valid registration under Section 12A; therefore, the revenue authorities rightly disallowed the exemption claim under Sections 10(23C)(iiiab) and 10(23C)(iiiad).
Relief Sought
The appellant sought setting aside of the CIT(A)'s order dated 29.05.2026, allowance of exemption under Section 10(23C)(iiiad) for the claimed amount of Rs. 43,27,497, and deletion of the addition made by the Assessing Officer.
The Legal Issue
The central question was whether exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961 can be denied for Assessment Year 2020-21 solely on the ground of non-filing of return under Section 139(4C), when the statutory provision making return filing a condition precedent for exemption was introduced by the 20th proviso to Section 10(23C) through the Finance Act, 2022 with effect from 01.04.2023 (AY 2023-24).
Arguments Presented
For the Appellant
The learned Authorised Representative submitted that the assessee, being a Government Polytechnic College, satisfies all substantive conditions under Section 10(23C)(iiiad): it exists solely for educational purposes, is not for profit, and has annual receipts below the Rs. 1 crore threshold applicable for AY 2020-21. Section 10(23C)(iiiad) does not prescribe registration, trust deed, funding details, or return filing as conditions. The 20th proviso to Section 10(23C), which mandates furnishing of return under Section 139(4C) within the time allowed under Section 139(1) or (4) as a condition for exemption, was inserted by the Finance Act, 2022 w.e.f. 01.04.2023 and cannot be applied retrospectively to AY 2020-21. The AR relied on three coordinate bench decisions: (i) ITAT Kolkata in Haringhata Mahavidyalaya (ITA No. 11/Kol/2024, order dated 01.10.2024) holding no provision disentitles exemption for non-filing/late filing of return; (ii) ITAT Agra in Suraj Gyan Shiksha Prasar Samiti (ITA No. 72/Agr/2023, order dated 16.04.2025) holding the CIT(A) erred in denying exemption for non-filing of return under Section 139(4C); and (iii) ITAT Indore in Shri Guptnath Bal Shikshan Samiti (ITA No. 313/Ind/2025, order dated 30.09.2025) following Haringhata and discussing the 20th proviso insertion. The principle of consistency required following the appellate order for the assessee's own case for AY 2019-20 where exemption was allowed on identical facts.
For the Respondent
The learned Senior Departmental Representative contended that the assessee did not file a return under Section 139(4C) and had no valid registration under Section 12A during the year under consideration. The revenue authorities were therefore justified in disallowing the exemption claim under both Sections 10(23C)(iiiab) and 10(23C)(iiiad). The DR could not point to any provision treating a return filed in response to a Section 142(1) notice as invalid, and had no answer to the Tribunal's reference to Section 234A which recognises belated returns filed in response to such notices by levying interest.
The Court's Analysis
The Tribunal examined the statutory scheme and held that Section 139(4C)(e) only prescribes the requirement for certain institutions to furnish a return of income; it does not state that exemption will be denied if the return is not filed, nor does it make the benefit of exemption conditional upon filing. The provision merely identifies the persons and circumstances in which returns must be filed. The Tribunal reproduced Section 139(1) and (4C)(e) to demonstrate that the section is procedural, not substantive.
"The section does not state that the exemption will be denied if return of income is not filed by the assessee or for that matter benefit of exemption is available only if the return of income is filed by the assessee in terms of section 139 of the Act. Therefore, clearly, Ld CIT(Appeals) misinterpreted the provisions of section 139(4C)(e) of the Act to hold that since the assessee has not filed return of income as prescribed in the said section, it is not eligible to exemption in terms of section 10(23C)(iiiad) of the Act."
The Tribunal then turned to the 20th proviso to Section 10(23C), inserted by the Finance Act, 2022 with effect from 01.04.2023. This proviso explicitly states that the fund, institution, trust, university, or educational institution shall furnish the return of income under Section 139(4C) within the time allowed under Section 139(1) or (4). The Tribunal found it "clearly evident" that denial of exemption for non-filing of return was introduced only from AY 2023-24 and "cannot be made applicable retrospectively to assessee's case, which pertains to A.Y. 2020-21."
Regarding the return filed in response to the Section 142(1) notice, the Tribunal noted that Section 234A expressly provides for interest on returns furnished after the due date or in response to a Section 142(1) notice, thereby recognising such returns as valid. The DR could not identify any provision treating a belated return filed under Section 142(1) as non-est. The Tribunal therefore held that the return filed by the assessee claiming exemption was valid.
Respectfully following the coordinate bench decisions in Haringhata Mahavidyalaya, Suraj Gyan Shiksha Prasar Samiti, and Shri Guptnath Bal Shikshan Samiti, the Tribunal concluded that the revenue authorities were not right in denying exemption on the premise of non-filing of return under Section 139(4C), as the assessee satisfied all substantive conditions under Section 10(23C)(iiiad) during the year under consideration.
The Verdict
The appellant succeeded. The ITAT Agra (SMC Bench) allowed the appeal and set aside the impugned order of the CIT(A) dated 29.05.2026. The Tribunal held that the assessee is entitled to exemption under Section 10(23C)(iiiad) for AY 2020-21, and directed the Assessing Officer to delete the addition of Rs. 43,27,497 made to the assessee's income on account of business income. The order was pronounced in open court on 28.10.2026.
What This Means For Similar Cases
Return Filing Not A Condition Precedent For Pre-2023 Assessment Years
For assessment years prior to 2023-24, educational institutions claiming exemption under Section 10(23C)(iiiad) cannot be denied the benefit solely on the ground of non-filing or late filing of return under Section 139(4C). The substantive conditions under Section 10(23C)(iiiad) - existence solely for educational purposes, not for profit, and annual receipts below the prescribed threshold - are the only requirements. Practitioners should:
- Argue that Section 139(4C) is a procedural provision mandating return filing, not a substantive condition for exemption
- Highlight that the 20th proviso to Section 10(23C) introduced the return-filing condition only from AY 2023-24
- Cite the coordinate bench decisions of ITAT Kolkata, Agra, and Indore as persuasive authority
Belated Returns In Response To Section 142(1) Notices Are Valid
A return filed in response to a notice under Section 142(1) cannot be treated as invalid or non-est merely because it is belated. Section 234A expressly contemplates such returns by providing for interest on late filing. Practitioners should:
- File returns in response to Section 142(1) notices without hesitation
- Contest any attempt by the AO to treat such returns as invalid
- Rely on Section 234A as statutory recognition of the validity of belated returns
Consistency Principle Binds Revenue Authorities
Where an appellate authority has allowed exemption for an assessee on identical facts for an earlier assessment year, the revenue cannot take a contrary stand in a subsequent year without demonstrating distinguishing features. The Tribunal's reference to the assessee's own case for AY 2019-20 reinforces that judicial discipline requires consistency in administrative and quasi-judicial decisions.
