Income Tax Appellate Tribunal - Delhi
Spreading Smiles,Gurgaon vs Ito-Ward Exemption-Faridabad, ... on 13 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'SMC': NEW DELHI
BEFORE SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER
ITA No.2314/DEL/2026
(ASSESSMENT YEAR: 2022-23)
Spreading Smiles, ITO-Ward Exemption,
C/o CA M.R. Sahu, New C.G.O.Complex,
House No.651, 1st Floor, v. B Block
Sector-10A, NH-IV,
Nr. G.D. Goenka Public School, Faridabad-121002, Haryana
Gurgram-122001, Haryana
PAN-AAXTS4290F
(Appellant) (Respondent)
Assessee by Shri M.R. Sahu, CA
Department by Shri Manoj Kumar, Sr. DR
Date of Hearing 06.05.2026
Date of Pronouncement 13.05.2026
ORDER
PER RAMIT KOCHAR, AM:
This appeal in ITA No. 2314/Del/2026 for Assessment Year: 2022-23 has arisen form the learned CIT(A)'s appellate order dated 23.02.2026 passed u/s 250 of the Income-tax Act, 1961(In Short "the Act") in DIN & Order No: ITBA/NFAC/S/250/ 2025-26/1086404620(1), which appeal in turn has arisen from the assessment order dated 13.02.2024 passed by the AO u/s 143(3) r.w.s 144B of the 1961 Act .
2. Brief facts of the case are that the assessee filed its return of income u/s 139 for the impugned assessment year on 25.09.2022 , declaring income of Rs. NIL after claiming exemption. The case of the assessee was selected for framing complete scrutiny assessment , and the AO issued notice dated 28.06.2023 u/s 143(2) of the 1961 Act to the assessee. One of the reason for selection of the case of the assessee for scrutiny 2 ITA No.2314/Del/2026 Spreading Smiles v. ITO, Ward-Exemption, Faridabad assessment was that the application for registration u/s 12A/12AB filed by the assessee on 05.05.2022 has been rejected by ld. CIT(E) vide order dated 17.11.2022, and the assessee has claimed exemption u/s 11 of the 1961 Act. Statutory notices u/s 142(1) and SCN were issued by the AO to the assessee during assessment proceedings. The details are recorded in assessment order. The assessee participated in assessment proceedings. It was submitted by the assessee before the AO that the assessee is a charitable trust based out of Nathupur , Gurugram, Haryana which has been working for last few years since 2014 ( although got trust registered on 2019) for the welfare of 600+poorest of the poor families of garbage collectors, waste pickers, domestic maids, rickshaw pullers and daily wagers living in jhuggies in very unhygienic and pathetic conditions. It was submitted that the trust got the provisional registration under sub-clause (vi) of clause (ac) of sub- section (1) of Section 12A vide provisional registration number AAXTS4290FE2020601 dated 27.05.2021 which is approved for the period from assessment year 2021-22 to ay:2023-24 . The assessee participated in the assessment proceedings and submitted documents as were called by the AO , which is recorded in para 4.1.2 of the assessment order. The AO observed that ld. CIT(E) has rejected assessee's registration application u/s 12A(1)(ac)(ii) of the 1961 Act vide orders dated 17.11.2022 due to non submissions of the replies/documents called for by ld. CIT(E), and the assessee appealed against the said order before ITAT, and the Tribunal has restored the matter back to the file of ld. CIT(E) to expeditiously decide the claim of the assessee for registration u/s 12A, but the assessee has not furnished any order of ld. CIT(E) pursuant to direction of the Tribunal , that the rejection order has been withdrawn or the assessee has been allowed to claim exemption u/s 11 of the 1961 Act. The AO while framing assessment held that the assessee does not hold valid registration for the year under consideration. The AO observed that the assessee has claimed exemption u/s 11 of the excess of income over expenditure to the tune of Rs. 1,70,635/- , which exemption AO denied and added the same to the income of the assessee. Further, it was observed by the AO that the assessee 3 ITA No.2314/Del/2026 Spreading Smiles v. ITO, Ward-Exemption, Faridabad has debited Rs. 3,10,239/- in income and expenditure account towards 'Gyan Kendra Infrastructure Expenses' which is capital in nature and not allowable as per provisions of the 1961 Act, which also stood added by the AO to the income of the assessee, vide assessment order dated 13th February 2024 passed by the AO u/s 143(3) r.w.s. 144B of the 1961 Act.. The AO applied MMR treating the assessee as AOP.
3.Aggrieved, the assessee filed first appeal before the Ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee on the grounds that the assessee is not entitled for exemption u/s 11 for the impugned assessment year as it did not possess valid registration u/s 12AB during the relevant previous year or at the time of filing of return of income. The ld. CIT(A) observed that the subsequent grant of registration on 22.02.2024 by ld. CIT(E) u/s 12AB does not validate the claim of exemption retrospectively for the impugned assessment year 2022-23. The ld. CIT(A) observed that the order of ld. CIT(E) granting registration u/s 12AB shall operate prospectively from the date of order unless specifically provided. The ld. CIT(A) also observed that the expenditure of Rs. 3,10,239/- incurred on 'Gyan Kendra Infrastructure Expenses' has been rightly treated as capital expenditure by the AO, as the assessee failed to furnish adequate details and supporting documents to establish that the expenditure is revenue in nature. The ld. CIT(A) observed that the income of Rs. 4,80,874/- has been correctly taxed at MMR in accordance with provision of Section 164(1) of the 1961 Act, treating the assessee as an AOP. The ld. CIT(A) observed that the AO has passed the assessment order after due application of mind and after affording opportunity of being heard to the assessee. Thus, as per ld. CIT(A) the assessment order is in accordance with law and does not suffers from any legal or factual infirmity. The ld. CIT(A) observed that the assessee failed to demonstrate any error in the assessment order or any other grounds which would warrant interference with the findings of the AO .
4 ITA No.2314/Del/2026Spreading Smiles v. ITO, Ward-Exemption, Faridabad
4. Still Aggrieved , the assessee filed second appeal before the Tribunal. The Ld. Counsel for the assessee at the outset submitted that the assessee is a Charitable Trust. It was submitted that the assessee is running school . It was submitted that the assessee is working for up-liftment of underprivileged section of society. It was submitted that the assessee is holding valid final registration u/s 12AB(1)(b) for impugned Assessment Year 2022-23 which was granted by Ld. CIT(E) vide orders dated 22.02.2024(PB/Page 38-41), and there is no reason and justification for denying exemption u/s 11 of the Act to the assessee. The ld. Counsel for the assessee submitted that the assessee held provisional registration granted u/s 12A(1)(ac)(vi) , dated 27.05.2021 for assessment year 2021-22 to 2023-24(Page 27-29/PB). It was submitted that the ld. CIT(E) rejected the application for grant of registration u/s 12A(1)(ac)(ii) vide orders dated 17.11.2022, which was rejected mainly due to the non-submissions of the replies before the ld. CIT(E) by the assessee. It was submitted that the ITAT vide order dated 17.08.2023 in ITA no. 925/Del/2023 restored the matter back to the file of ld. CIT(E) for deciding the application of the assessee for registration u/s 12A of the Act expeditiously after providing reasonable and fair opportunity of being heard , and the assessee was directed to submit the documentary evidences in support of its application. Thereafter, ld. CIT(E) granted registration u/s 12AB(1)(b) vide orders dated 22.02.2024. Thus, it is prayed that the exemption u/s 11 be granted to the assessee. The Ld. Counsel for the assessee has also raised the plea that notice of demand u/s 156 (DIN & Notice No. ITBA/AST/S/156/2023-24/1060884020(1) issued by the AO stipulates that there is no tax payable by the assessee, which it was stated is not correct. The said notice of demand dated 13.02.2024 u/s 156 is placed in PB at page 64. It was submitted that computation of income shows that the income computed by the AO is Rs. Nil and consequentially tax payable is Rs. Nil , which it was stated is again not correct. It was submitted that on this short ground itself the order of the authorities below ought to be quashed because Section 156 clearly stipulated that the AO shall serve upon the assessee notice of demand in the 5 ITA No.2314/Del/2026 Spreading Smiles v. ITO, Ward-Exemption, Faridabad prescribed form specifying the sum so payable by the assessee in consequence of the assessment order framed by the AO. The ld. Counsel for the assessee relied upon the judgment and order of Hon'ble High Court of Jammu & Kashmir in the case of S. Mubarik Shah Naqshbandi v. CIT (1977) 110 ITR 127(J&K) and also decision of ITAT, Delhi Bench in the case of B P Singh v. DCIT reported in (1999) 68 ITD 492(Del. Trib.). It was submitted that the word 'shall' is used in Section 156, and it is mandatory to serve by the AO Form No. 156 on the assessee specifying the sum so payable.
4.2 The Ld. Sr. DR, on the other hand relied upon the orders of the authorities below , and submitted that at the time the assessment was framed by the AO, the assessee registration u/s 12AB was already rejected by Ld. CIT(E) . It was submitted by ld. Sr. DR that at the behest of the Tribunal, the matter was restored back to the file of the Ld. CIT(E). It was submitted that Ld. CIT(E) has granted the registration u/s 12AB of the Act for AY 2021-22 to AY 2025-26 vide order dated 22.02.2024.It was submitted that when the assessment was framed by the AO on 13.02.2024, the assessee was not holding valid registration u/s 12AB, and the ld. CIT(A) rightly dismissed the appeal of the assessee.
5. I have considered rival contentions and perused the material on record. I have already culled out the brief facts and contentions of both the parties, which are not repeated again.The assessee has claimed itself to be a charitable. I have observed that the assessee was granted provisional registration u/s 12A(1)(ac)(vi) of the 1961 Act by the Revenue vide order dated 27.05.2021(PB/Page 27-29), for the assessment year 2021-22 to assessment year 2023-24. I am presently concerned with assessment year 2022-23. The application for final registration u/s 12A(1)(ac)(iii) of the 1961 Act was rejected by ld. CIT(E) vide order dated 17.11.2022(PB/Page 30-34). The assessee filed first appeal with the Tribunal , and the Tribunal vide order dated 17.08.2023 in ITA no. 925/Del/2023(Page 35-37/PB) was pleased to set aside the order dated 17.11.2022 passed 6 ITA No.2314/Del/2026 Spreading Smiles v. ITO, Ward-Exemption, Faridabad by ld. CIT(E) rejecting the application filed by the assessee for final registration, and the Tribunal restored the matter back to the file of ld. CIT(E) for fresh determination of the application of the assessee for final registration u/s 12A of the 1961 Act. In the meantime,the assessment in the case of the assessee was framed by the AO vide assessment order dated 13.02.2024 passed u/s 143(3) r.w.s. 144B , wherein the AO disallowed exemption u/s 11 to the tune of Rs. 1,70,635/- being excess of income over expenditure by adding the same to the income of the assessee on the grounds that the ITAT has restored the matter before ld. CIT(E) for considering application of the assessee for registration u/s 12A but the same has not yet been decided by ld. CIT(E), and further Rs. 3,10,239/- was added by the AO to the income of the assessee being 'Gyan Kendra infrastructure expenses' incurred by the assessee being capital in nature and not allowable. The assessee duly participated in the assessment proceedings. Thereafter, the ld. CIT(E) vide orders dated 22.02.2024 approved the application dated 05.05.2022 of the assessee for grant of registration u/s 12AB(1)(b) of the 1961 Act(PB/Page 38-41) for the period 2021-22 to 2025-26. The assessee has also brought on record registration granted by ld. CIT(E) vide orders dated 26.12.2025 u/s 12AB(1)(b) for assessment year 2026-27 to 2035-36. The ld. CIT(A) dismissed the appeal of the assessee vide orders dated 23.02.2026 on the grounds that the assessee was granted registration by ld. CIT(E) on 22.02.2024 , while the assessment order was passed on 13.02.2024 i.e. prior to grant of registration. The assessee on its part brought to the notice of ld. CIT(A) that ld. CIT(E) has now granted final registration for assessment year 2022-23. In my considered view based on the facts and circumstance as enumerated aboce, this decision of ld. CIT(A) in denying exemption u/s 11 and 12 for the assessment year 2022-23 is not in accordance with law, because it is the original application filed by the assessee on 05.05.2022 which was decided by ld. CIT(E) and the assessee was granted final registration for assessment years 2021-22 to 2025-26. The assessee was holding provisional registration for assessment years 2021-22 to 2023-24. Thus, the ld. CIT(E) decided the original 7 ITA No.2314/Del/2026 Spreading Smiles v. ITO, Ward-Exemption, Faridabad application dated 05.05.2022 filed by the assessee for registration although at the direction of the Tribunal as the matter was remanded back to ld. CIT(E) by the Tribunal to decide afresh the application dated 05.05.2022. Thus, doctrine of relating back shall apply. I hold that the assessee is eligible for exemption u/s 11 and 12 of the 1961 Act for the assessment year 2022-23. So far as expenditure incurred for 'Gyan Kendra Infrastructure Expenses' to the tune of Rs. 3,10,239/- are concerned which has been added to the income of the assessee on the grounds firstly that the assessee is not eligible for exemption u/s 11 and 12 and secondly being capital in nature. I have already held that the assessee is eligible for exemption u/s 11 and 12 for the impugned assessment year , and secondly that even if the expenditure being capital in nature , the same shall in any case be an application of income, and shall be allowable while determining income u/s 11 and 12 of the 1961 Act. The assessee has given an explanation that the said amounts were incurred towards repair and construction of class rooms and basic amenities for students and staff, which are incurred for running a school for poor and under privileged in the name of Spreading Smiles Gyan Kendra at the rented premises in slum area of Nathupur in Gurgaon . The Revenue is not disputing that these expenses were not genuine or were bogus expenses or were not incurred at all. Under these facts and circumstance, I allow Ground No. 1 filed by the assessee. Since , I have already allowed Ground No.1 , the Ground No.2 becomes academic and does not require separate adjudication in this appeal, and shall be decided in some other appropriate appeal. I order accordingly.
6. In the result, the appeal filed by the assessee is allowed in the manner as indicated above .
Order is pronounced in the Open Court on 13.05.2026 Sd/--
(RAMIT KOCHAR) ACCOUNTANT MEMBER Dated: 13.05.2026 *PK, Sr. Ps* 8 ITA No.2314/Del/2026 Spreading Smiles v. ITO, Ward-Exemption, Faridabad Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI
1. Date of dictation of Tribunal order 06 .05.2026
2. Date on which typed draft order is placed before the dictating 07 .05.2026 Member 3 Date on which typed draft order is placed before the other .05.2026 Member (in the case of DB)
4. Date on which the approved draft order comes to P.S/Sr.P.S .05.2026
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7. Date on which the Order comes back to P.S./Sr.P.S for .05.2026 uploading on ITAT website
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