2016 (8) TMI 916 - AT - Income Tax

Tribunal affirms Commissioner's order in tax case, citing errors in AO's assessment.

The Tribunal upheld the Commissioner of Income Tax (Exemptions)'s order, concluding that the Assessing Officer's assessment was erroneous and prejudicial ... Revision u/s 263 - applicability of provisos to Sec.2(15) of the IT Act and the failure on the part of the Assessing Officer to consider the same - Held that:- We have gone through the assessment order passed u/s.143(3) of the Act dated 28.02.2013. In this assessment order, AO admittedly not discussed anything about the proviso below to sec.2(15) of the Act and it is admitted fact that assessee is earning huge income from the Working Women’s Hostel, Rani Meyyammai Hostel and also running Kalayanamandapam and Auditorium. After insertion of First and Second proviso to sec.2(15) of the Act with effect from 01.04.2009, the AO has to look into whether the above activities carried by the assessee is in commercial nature or not. There is no whisper in the order of the AO on this isuse and had the AO examined applicability of amended provisions of the section 2(15) of the Act, he would have denied the exemption u/s.11 of the Act as the assessee’s object was of “General Public Utility” and the activities of the assessee were in the nature of trade, commerce or business In the present case, the issue relating to applicability of proviso to sec.2(15) of the Act, thereby its entitlement of exemption u/s.11 is not at all before the CIT(A) for the assessment year under consideration i.e. 2010-11. As rightly observed by the CIT(E) in para- 37, the proviso to sec.263(1) which provides that the powers of the Commissioner u/s.263 shall extend and shall always to have extended to such matters who had not been considered and decided in appeal. Being so, we do not find any infirmity in the order of CIT(E) and the same is confirmed on both legal as well as on merits. - Decided against assessee Issues Involved:1. Assumption of jurisdiction by the Commissioner of Income Tax (Exemptions) under Section 263 of the Income Tax Act.2. Failure of the Assessing Officer (AO) to apply the correct provisions of law, specifically the first and second provisos to Section 2(15) of the Income Tax Act.3. Failure to bring to tax the accumulated income of Rs. 1.25 crore under Section 11(3)(c) of the Income Tax Act.4. Allowance of application on account of 'capital work-in-progress' without proper claim in the return of income.Issue-wise Detailed Analysis:1. Assumption of Jurisdiction by CIT(E) under Section 263 of the Income Tax Act:The appeal revolves around the order passed by the Commissioner of Income Tax (Exemptions), Chennai, under Section 263 of the Income Tax Act, which pertains to the assessment year 2010-11. The CIT(E) assumed jurisdiction under Section 263, citing that the AO's assessment order dated 28.02.2013 was erroneous and prejudicial to the interest of the Revenue. The CIT(E) observed that the AO failed to apply the correct provisions of law, specifically the first and second provisos to Section 2(15) of the Act, which were introduced with effect from 01.04.2009.2. Failure to Apply Correct Provisions of Law (Section 2(15)):The CIT(E) noted that the AO did not consider the decision of the Madras High Court in the assessee's own case, which held that commercial activity was being carried out by the assessee using buildings as Kalyanamandapams, Auditoriums, and Working Women Hostels. The AO failed to examine the applicability of the first and second provisos to Section 2(15) of the Act. The CIT(E) emphasized that the assessee's activities, such as running marriage halls and hostels on commercial lines, fell under the 'advancement of general public utility' and were subject to the amended provisions of Section 2(15), which excluded such activities from being considered charitable if they involved trade, commerce, or business.3. Failure to Bring to Tax Accumulated Income (Section 11(3)(c)):The CIT(E) observed that the assessee failed to apply the accumulated income of Rs. 1.25 crore within the stipulated period of 10 years as mentioned in Form No.10 dated 24.10.2000, as required under Section 11(3)(c) of the Income Tax Act. The AO did not bring this amount to tax, which rendered the assessment order erroneous and prejudicial to the interest of the Revenue.4. Allowance of Application on Account of 'Capital Work-in-Progress':The CIT(E) noted that the AO allowed application on account of 'capital work-in-progress' to the extent of Rs. 9,12,60,698 without any claim made by the assessee in its return of income. The CIT(E) pointed out that the capital work-in-progress made out of borrowed funds could not be considered as an application of income since it was out of loan funds and not the income of the trust. The AO failed to provide any reason for allowing excess application, which was another instance of the assessment order being erroneous and prejudicial to the interest of the Revenue.Conclusion:The Tribunal upheld the CIT(E)'s order, affirming that the AO's assessment was indeed erroneous and prejudicial to the interest of the Revenue. The Tribunal emphasized that the AO failed to consider the amended provisions of Section 2(15) and did not bring the accumulated income to tax as required under Section 11(3)(c). Additionally, the allowance of 'capital work-in-progress' without proper claim further justified the invocation of Section 263 by the CIT(E). The appeal of the assessee was dismissed, and the order of the CIT(E) was confirmed on both legal and merit grounds.