2024 (1) TMI 838 - AT - Income Tax

Assessment order quashed under Section 263 as AO conducted proper enquiries about trust activities and expenditure

Narada Gana Sabha Trust Versus The Income Tax Officer- (Exemptions), Ward-1, Chennai.

ITAT Chennai set aside CIT(Exemptions) order under Section 263 regarding trust assessment. The tribunal held that AO's assessment was neither erroneous ... Revision u/s 263 - assessment of trust - as per CIT(Exemptions), AO failed to carry out required enquiries he ought to have been carried out in light of objects and activities of the Trust and gross receipts earned by the Trust for the impugned assessment year - HELD THAT:- We find that when the AO has taken up the case for verification of expenditure incurred for charitable and religious purpose and further, during the course of assessment proceedings, he has called for various details about objects and activities of the Trust, financial statement, break up of income and expenditure, then, in our considered view, the Ld.CIT(Exemptions) cannot presume that, said information was not in the knowledge of the AO. This is because, the AO might have taken independent view de hors decision taken by the AO for earlier assessment years based on appraisal of relevant facts in light of objects and activities of the Trust. As res judicata is not applicable to the Income Tax proceedings. In other words, there is no rule that different view cannot be taken for subsequent years when a view has been taken for earlier assessment years. In our considered view, it is always possible to take a different view, in case, the facts brought on record is apprised in right perspective of law. Therefore, the arguments of the Ld.DR that the AO has failed to take note of earlier assessment orders while completing assessment is incorrect and not acceptable We are of the considered view that assessment order passed by the AO is neither erroneous nor prejudicial to the interest of the Revenue. First of all, the AO has considered the issue of exemption u/s. 11 of the Act, while completing assessment u/s. 143(3) of the Act, which is evident from the assessment proceedings, where, the AO has called for various details, and in reply, the assessee has submitted relevant details. The sole basis for the CIT(Exemptions) to invoke provisions of Sec.263 of the Act, is the decision of the Hon’ble Supreme Court in the case of ACIT(Exemptions) v. Ahmedabad Urban Development Authority (2022 (10) TMI 948 - SUPREME COURT] and in our considered view, said judgment cannot be applied retrospectively for earlier assessment year as clarified by the Hon’ble Supreme Court in their subsequent judgement dated 02.11.2022. Therefore, we are of the considered view that the Ld.CIT(Exemptions) is erred in invoking their jurisdiction and set aside the assessment order passed by the AO u/s. 263 of the Act and thus, we quash the order passed by the Ld.CIT(Exemptions) u/s. 263 of the Act. Appeal filed by the assessee is allowed. Issues Involved:1. Jurisdiction of CIT(Exemptions) under Section 263 of the Income Tax Act, 1961.2. Nature of activities of the assessee's Trust and its classification under Section 2(15) of the Income Tax Act.3. Applicability of the Supreme Court decision in the case of ACIT(Exemptions) v. Ahmedabad Urban Development Authority.Summary:Issue 1: Jurisdiction of CIT(Exemptions) under Section 263 of the Income Tax Act, 1961The assessee contested the jurisdiction assumed by the CIT(Exemptions) under Section 263, arguing that the twin conditions for invoking Section 263 were not satisfied. The Tribunal noted that for Section 263 to be invoked, the order must be erroneous and prejudicial to the interest of the Revenue. The AO had issued notices and scrutinized the Trust's activities and income details, concluding that the Trust's activities were charitable and thus eligible for exemption under Section 11. The Tribunal found that the assessment order was neither erroneous nor prejudicial to the Revenue's interest, as the AO had taken a plausible view based on the facts and law.Issue 2: Nature of Activities of the Assessee's Trust and its Classification under Section 2(15)The CIT(Exemptions) argued that the Trust's income from hall hiring, rent, advertisement, and license fees were commercial in nature, falling under the 'General Public Utility' (GPU) category, and thus not eligible for exemption under Section 11. The Tribunal disagreed, stating that the nature of income/receipts alone does not determine whether the activities are charitable. The Trust's activities, such as conducting music classes and organizing cultural events, were aligned with its charitable objects. The Tribunal emphasized that GPU activities are charitable unless they involve trade, commerce, or business significantly above cost, which was not demonstrated in this case.Issue 3: Applicability of the Supreme Court Decision in ACIT(Exemptions) v. Ahmedabad Urban Development AuthorityThe CIT(Exemptions) relied on the Supreme Court's decision in the Ahmedabad Urban Development Authority case to argue that the Trust's activities were commercial. However, the Tribunal noted that the Supreme Court had clarified that this decision would apply prospectively and not to past assessment years. Therefore, the CIT(Exemptions) could not use this decision to retrospectively justify the revision of the assessment order.Conclusion:The Tribunal quashed the order passed by the CIT(Exemptions) under Section 263, holding that the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The appeal filed by the assessee was allowed.