Clerical Error in Return Filing Does not Discredit Income Tax Exemption to Educational Institution: ITAT Directs Rectification of₹3.84 Cr Tax Demand [Read Order]

The Income Tax Appellate Tribunal (ITAT) Agra Bench has held that an educational institution cannot be denied exemption under Section 10(23C)(iiiab) of the Income-tax Act merely due to a clerical error in the income tax return, granting relief against a tax demand of ₹3.84 crore.

The appeal arose from an order passed by the Commissioner of Income Tax (Appeals), NFAC, Delhi, for the assessment year 2016–17. The assessee National P.G. College, Bhongaon is an educational institution substantially financed by the Government that had not originally filed its return under Section 139(1) of Income Tax Act 1961. Subsequently, following reopening under Section 148 based on cash deposit information flagged through the Income Tax Business Application (ITBA) and Insight Portal the institution filed its return declaring nil income.

During assessment proceedings, the assessee furnished detailed records including bank statements, fee registers and other supporting documents. The Assessing Officer found the explanation satisfactory and did not draw any adverse inference on the merits of the case.

However, while filing the return under Section 148 the assessee inadvertently disclosed exempt income of ₹3.97 crore under the head income from other sources along with actual taxable income of ₹6.81 lakh, resulting in a system generated tax demand of ₹3.84 crore.

However the assessee argued that the disclosure was a typographical error and that the institution was otherwise eligible for exemption under Section 10(23C)(iiiab) being solely engaged in educational activities and substantially funded by the Government. The Revenue Department contended that fresh claims could not be entertained without a revised return.

The Tribunal comprising S. Rifaur Rahman and Sunil Kumar Singh observed that the mistake was apparent from record and that substantive exemption rights could not be denied on account of an inadvertent reporting error.

Accordingly, the Tribunal directed the Assessing Officer to verify the exemption claim and rectify the mistake under Section 154 and allowed the appeal for statistical purposes.

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