2021 (7) TMI 772 - AT - Income Tax

Tribunal quashes PCIT's revision order, restores AO's assessment. Appeal by assessee allowed.

M/s. Mahasemam Trust Versus The Principal Commissioner of Income Tax, Central-2, Chennai.

The tribunal quashed the PCIT's revision order under Section 263 and restored the AO's assessment order under Section 143(3), ruling that the assessment ... Revision u/s 263 - Whether order passed by the AO is hit by provisions to section 263 of the Act or not? - AO has allowed benefit of section 11 & 12 of the Act to the trust, without appreciating fact that activity carried out by the assessee i.e micro financing is hit by proviso to section 2(15) and hence, entire income should be taxed as an AOP - HELD THAT:- The assessment order passed by the AO is neither erroneous nor prejudicial to the interests of revenue, because the AO has examined the issue at the time of assessment proceedings and has taken one of the possible view, which is supported by higher judicial forum and hence, the view taken by the AO cannot be held to be erroneous and prejudicial to the interests of revenue. Unless the view taken by the AO is unsustainable in law, there is no scope for the PCIT to term the assessment order passed by the AO is erroneous, insofar as it is prejudicial to the interests of revenue. As regards other two points questioned by the PCIT including consultation charges paid to trustees and also loan given to M/s. Viswas Promoters Ltd., Madurai, we are of the considered view that these two issues were not part of show cause notice issued by PCIT and hence, he does not have any power to examine issues other than those find place in show cause notice. Even otherwise, two issues questioned by the PCIT has already been examined by the Assessing Officer, which is evident from fact that the Assessing Officer has issued detailed questionnaire along with notice issued u/s.142(1) dated 13.07.2018, where he has called for details about payments made to related parties and also list of advances made to members. In response, the assessee has filed relevant details. AO after examining details filed by assessee, has accepted fact that activities carried out by the assessee are charitable in nature, which is not hit by proviso to section 2(15) of the Act. Therefore, we are of the considered opinion that the learned PCIT has erred in revising assessment order u/s. 263 of the Act. In this view of the matter and considering facts and circumstances of the case and also by following decision of Chennai Bench of the Tribunal in assessee’s own case in [2017 (8) TMI 1640 - ITAT CHENNAI] - we are of the considered view that assessment order passed by the Assessing Officer is neither erroneous nor prejudicial to the interests of revenue and hence, learned PCIT has erred in revising assessment order passed by the Assessing Officer u/s.263 - Appeal filed by the assessee is allowed. Issues Involved:1. Jurisdiction under Section 2632. Erroneous and prejudicial assessment3. Genuineness of Trust activities4. Directions based on non-final assessments5. Proposal to cancel registration under Section 12AA6. Lending money at high interest rates7. Payment of consultation charges8. Loan transactions with related parties9. Consideration of supporting evidence by Assessing Officer (AO)Issue-wise Detailed Analysis:1. Jurisdiction under Section 263:The assessee argued that the Principal Commissioner of Income Tax (PCIT) erred in acquiring jurisdiction under Section 263 of the Income Tax Act, 1961, as the assessment made under Section 143(3) was not erroneous or prejudicial to the revenue's interest. The tribunal emphasized that for the PCIT to exercise jurisdiction under Section 263, it must be proven that the assessment order is both erroneous and prejudicial to the revenue's interest.2. Erroneous and Prejudicial Assessment:The PCIT held that the AO's order was erroneous and prejudicial because the AO allowed exemptions under Sections 11 and 12 without proper verification. The tribunal noted that the AO had considered various materials and judicial precedents, including the ITAT's decision in the assessee's earlier years, concluding that the micro-financing activity was charitable. Hence, the tribunal found that the AO’s view was one of the possible views, making the PCIT's revision unjustified.3. Genuineness of Trust Activities:The PCIT questioned the genuineness of the Trust's activities, suggesting they were not charitable. However, the tribunal referred to earlier ITAT decisions which classified the Trust's micro-financing activities as charitable. Thus, the tribunal upheld that the AO's assessment was based on a legitimate view.4. Directions Based on Non-final Assessments:The PCIT’s revision was partly based on assessments from previous years (2011-12 and 2012-13) that had not reached finality. The tribunal found this approach flawed, emphasizing that the AO's reliance on the tribunal’s earlier decisions was appropriate.5. Proposal to Cancel Registration under Section 12AA:The PCIT directed the AO to re-do the assessment and consider canceling the Trust's registration under Section 12AA. The tribunal found this directive inappropriate as the AO had already considered the charitable nature of the Trust's activities in line with judicial precedents.6. Lending Money at High Interest Rates:The PCIT argued that the Trust's lending at a 24% interest rate was not charitable. The tribunal noted that the AO had examined this issue and, based on the ITAT's earlier decisions, concluded that the activity was charitable. Thus, the tribunal found no error in the AO’s assessment.7. Payment of Consultation Charges:The PCIT questioned the consultation charges paid to trustees, suggesting they were not commensurate with services provided. The tribunal observed that the AO had issued detailed questionnaires and examined the responses before concluding that the payments were legitimate.8. Loan Transactions with Related Parties:The PCIT highlighted a loan transaction with M/s. Viswas Promoters Pvt. Ltd., asserting that the AO did not adequately investigate it. The tribunal noted that the AO had indeed scrutinized related party transactions and found no irregularities, making the PCIT's revision unwarranted.9. Consideration of Supporting Evidence by AO:The tribunal emphasized that the AO had considered all supporting evidence and judicial precedents before concluding that the Trust's activities were charitable. The tribunal found that the AO's assessment was thorough and not erroneous or prejudicial to the revenue.Conclusion:The tribunal quashed the PCIT's revision order under Section 263 and restored the AO's assessment order under Section 143(3), concluding that the AO's assessment was neither erroneous nor prejudicial to the revenue's interests. The appeal filed by the assessee was allowed.