2016 (1) TMI 798 - AT - Income Tax

Tribunal cancels tax assessment revision finding no jurisdiction, order not erroneous or prejudicial.

Slum Rehabilitation Authority Versus Director of Income Tax (Exemption)

The Tribunal held that the Director of Income Tax lacked jurisdiction to revise the assessment order under Section 263 as it had merged with the appellate ... Revision u/s 263 - exemption of claim u/s 11 denied - Held that:- As whole of the surplus amount has been challenged before the CIT(A), then the entire assessment order including taxing of the entire exempt income u/s 11 is the subject matter of appeal and there is complete merger with the order of the CIT(A) within the terms and ambit of section 263 read with clause (c) Explanation 1. Thus, if the subject matter of revision u/s 263 is again the denial of exemption u/s 11, though on different footing, then same is beyond the scope of section 263. On these facts, it can be very well held that the issue of exemption u/s 11 which was the subject matter of appeal before CIT(A) and then before the Tribunal, the Ld. DIT do not have the power to consider and decide “such matter” within the scope of section 263. On the second aspect also, which is purely academic, it is seen that, so far as tax effect is concerned, there is no difference at all between the income which was assessed in the original assessment order and the income which is now being sought to be assessed in wake of order u/s 263. Under both the assessments the surplus amount of ₹ 83.98 crores will get taxed. Hence, no prejudice is caused to the revenue so far as tax effect is concerned, except for the fact that section 11 is being sought to be examined from a different perspective. Accordingly, we hold that, firstly, the subject matter of revision u/s 263 has been merged with the order of the Tribunal, therefore, Ld. DIT is precluded to revise or set aside such order as it is beyond the second of section 263; and secondly, such an order cannot be held to be ‘prejudicial to the interest of the revenue’, because the income which has been sought to be assessed in pursuance of order u/s 263, is the same which was originally assessed by the AO. - Decided in favour of assessee. Issues Involved:1. Denial of exemption under Section 11 of the Income Tax Act.2. Application of Proviso to Section 2(15) of the Income Tax Act.3. Jurisdiction of the Director of Income Tax (Exemptions) under Section 263.4. Concept of merger of assessment orders with appellate orders.5. Determination of whether the assessment order is erroneous and prejudicial to the interest of the revenue.Issue-wise Detailed Analysis:1. Denial of Exemption under Section 11:The assessee, a Slum Rehabilitation Authority (SRA), was initially recognized as a charitable institution and granted exemption under Section 11 of the Income Tax Act. However, the Assessing Officer (AO) denied this exemption for the assessment year 2009-10, taxing the entire surplus income of Rs. 83,98,10,894. The AO contended that the SRA did not qualify as a lawful trust under Sections 11, 12, 12A, 12AA, and 13 of the Income Tax Act, and thus, the exemption was not applicable. The AO's denial was based on the interpretation that the SRA, being a local authority, could not be considered a public trust or charitable trust.2. Application of Proviso to Section 2(15):The Director of Income Tax (Exemptions) [DIT] invoked Section 263, arguing that the AO failed to consider the Proviso to Section 2(15), inserted by the Finance Act, 2008, effective from AY 2009-10. This proviso states that entities involved in trade, commerce, or business activities cannot be considered as advancing charitable purposes. The DIT contended that the AO did not examine whether the SRA's activities fell within this proviso, which could potentially disqualify it from claiming exemption under Section 11.3. Jurisdiction of the DIT under Section 263:The DIT sought to revise the assessment order under Section 263, claiming it was erroneous and prejudicial to the interest of the revenue due to the AO's failure to consider the amended provisions of Section 2(15). However, the assessee argued that the assessment order had merged with the appellate orders of the CIT(A) and the Tribunal, which allowed the exemption under Section 11. Therefore, the DIT lacked jurisdiction to revise the order under Section 263.4. Concept of Merger of Assessment Orders with Appellate Orders:The assessee contended that the entire assessment order, including the denial of exemption under Section 11, had merged with the appellate orders of the CIT(A) and the Tribunal. The Tribunal had confirmed the CIT(A)'s decision to allow the exemption, and the income was assessed at 'nil.' The assessee argued that since the assessment order had merged with the appellate orders, the DIT could not revise it under Section 263. The Tribunal agreed, stating that the issue of exemption under Section 11 was the subject matter of appeal and had merged with the appellate orders, precluding the DIT from revising it.5. Determination of Whether the Assessment Order is Erroneous and Prejudicial to the Interest of the Revenue:The Tribunal also examined whether the assessment order could be considered erroneous and prejudicial to the interest of the revenue. It noted that the AO had already taxed the entire surplus income, and revising the order under Section 263 would not result in any additional tax liability. Therefore, the Tribunal held that the assessment order was not prejudicial to the interest of the revenue, as the tax effect would remain the same.Conclusion:The Tribunal concluded that the DIT lacked jurisdiction to revise the assessment order under Section 263, as it had merged with the appellate orders of the CIT(A) and the Tribunal. Additionally, the assessment order was not erroneous or prejudicial to the interest of the revenue, as the tax effect would remain unchanged. Consequently, the Tribunal canceled the impugned order passed under Section 263 and allowed the assessee's appeal.