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2020 (3) TMI 941
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....ts & in the circumstances of the case and in law, the claim of accumulation u/s 11(2) at Rs. 5.50 crores was allowed by the learned A.O. in the scrutiny assessment after making enquiries and verification of the claim and, therefore, the order of the assessing officer is not erroneous in so far as it is prejudicial to the interest of revenue, hence the order of the CIT u/s 263 is unlawful and, therefore, be cancelled. 4. That on the facts & in the circumstances of the case and in law, that the assessee had satisfied all the relevant conditions as prescribed u/s 11(2) of the Act and, therefore, the claim of deduction of Rs. 5.50 crores u/s 11(2) is a fully admissible claim hence the A.O. was fully justified in allowing the claim in the assessment. 5. That on the facts & in the circumstances of the case and in law, the learned CIT erred and not justified in setting aside the assessment of the A.O. u/s 143(3) dated 3.3.2016 de-novo. 2. The only effective ground is against initiation of proceedings u/s 263 of the Income Tax Act, 1961 (hereinafter called as 'the Act'). The brief facts are that in this case assessment u/s 143(3) of the Act was framed vide order dated ....
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....r set apart has been invested in FDR with Oriental Bank of Commerce. [PB 18] (c) The statement referred to in clause (a) is furnished on or before the due date specified u/s 139(1) for furnishing the return of income Form 10 has been submitted on 20.09.2013. Due date of furnishing of return of income for A.Y. 2013-14 (impugned year) was 30.09.2013. From the above table it is evident that all the three conditions as mentioned in section 11(2) have been fully satisfied by the assessee. Thus, the claim of assessee u/s 11(2) is in accordance to law and validly claimed by assessee. 4. Ld. AO in the assessment proceedings has correctly allowed the claim of assessee u/s 11(2). Assessment order passed u/s 143(3) is in accordance to law allowing the claim of assessee u/s 11(2). 5. One of the twin conditions for invoking the provisions of section 263 i.e. prejudicial to the interest of revenue is not satisfied. Thus, provisions of section 263 cannot be invoked. Order passed by Ld. Pr. CIT -2, Indore u/s 263 has no legal sanctity. 6. It is a well settled law that to invoke the provisions of section 263 both the conditions that the order mu....
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....lso prejudicial to revenue and if one of them is absent, i.e., if order of Income-tax Officer is erroneous but is not prejudicial to revenue or if it is not erroneous but is prejudicial to revenue, recourse cannot be had to section 263(1) - Held, yes - Whether if due to an erroneous order of ITO, revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to interests of revenue - Held, yes - Assessee-company entered into agreement for sale of estate of rubber plantation - As purchaser could not pay instalments as scheduled in agreement, extension of time for payment of instalments was given on condition of vendee paying damages for loss of agricultural income and assessee passed resolution to that effect - Assessee showed this receipt as agricultural income - Resolution passed by assessee was not placed before Assessing Officer - Assessing Officer accepted entry in statement of account filed by assessee and accepted same - Commissioner under section 263 held that said amount was not connected with agricultural activities and was liable to be taxed under head 'Income from other sources' - Whether, where Assessing Officer had accepted entry in statem....
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....rests of the revenue. Unless both these factors co-exist or exist simultaneously, the Commissioner cannot invoke or resort to section 263. It cannot be exercised to correct every conceivable error committed by an ITO. Before the suo moto power of revision can be exercised, the Commissioner must at least prima facie find both the requirements of section 263, namely, that the order sought to be revised is prima facieerroneous and prejudicial to the interests of the revenue. If one of the other factor was absent, the Commissioner cannot exercise the suo moto power of revision under section 263." [emphasis supplied] 7. In the instant case, since one of the conditions for invoking the provisions of section 263 the assessment order i.e. erroneous is not satisfied. Since the twin conditions are not satisfied the impugned order ought to be quashed. 8. Without prejudice to above, provisions of section 11(3) are triggered in following circumstances - Clause of section 11(3) Condition as per the relevant clause of section 11(3) when income referred to in section 11(2) is Fulfilment of the conditions mentioned by section 11(3) a Applied to purposes other than c....
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....eligious purposes. c. Spent - signifies actually paid. There must be an outgoing expenditure to qualify this. B. Basis to invoke the provisions of section 263 vis-à-vis direction given in the order passed u/s 263 1. Show cause notice u/s 263 was issued by Ld. CIT(Exemption) stating that the accumulation u/s 11(2) was not allowable and the same was not disallowed in the scrutiny assessment by Ld. AO. [PB 04] 2. Ld. CIT(Exemption) while passing the order u/s 263 set aside the assessment order passed u/s 143(3) dated 03.03.2016 and directed assessing officer to reframe the assessment order denovo and after verifying the method of accounting actually followed on year to year basis. [order passed u/s 263 page 5] 3. Assessee submits that show cause notice issued by Ld. CIT(Exemption) did not raise the issue of assessment order itself being erroneous and prejudicial to the interest of the Revenue nor was the assessee confronted with the during the revisionary proceedings. No opportunity was given to meet the ground on which the order u/s 263 has been passed by Ld. CIT(Exemption). It will be against the principle of natural justice that a....
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....gs were initiated and notice u/s 143(2) was issued on 18.09.2014. Various notices and questionnaires were issued in response to which replies and supporting documents were duly submitted before Ld. AO. In the assessment proceedings a specific question was raised on admissibility of claim made by assessee u/s 11(2). In response to which necessary documents and submission was made. Ld. AO after considering and examining all these documents allowed the claim of assessee. Assessment order was passed u/s 143(3) on 03.03.2016 accepting the returned income as assessed income. 2. Revisionary proceedings u/s 263:- Show cause notice u/s 263 was issued on 13.03.2018 stating that the accumulation u/s 11(2) of the Act was not allowable to assessee. The same was not disallowed in the scrutiny assessment. Reply to the above mentioned show cause notice was submitted on 19.03.2018. In this assessee submitted that accumulation of fund u/s 11(2) has been correctly allowed by Ld. AO after examining the said claim during the assessment proceedings. Ld. CIT(Exemption) rejected the submission of assessee and passed the order u/s 263 on 21.03.2018 setting aside the asse....
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....bunal do not warrant interference of this Court. That being the position, the present case would not be one of 'lack of inquiry' and, even if the inquiry was termed as inadequate, following the decision in Sunbeam Auto Ltd.'s case (supra), "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the said Act, merely because he has a different opinion in the matter". No substantial question of law arises for our consideration. Consequently, the appeal is dismissed." [emphasis supplied] c. Hon'ble Jurisdictional High Court of Madhya Pradesh in the case of Mehrotra Brothers - [2004] 270 ITR 157 - "Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Commissioner invoked provision of section 263 against assessment order passed in case of assessee-firm on ground that Assessing Officer did not make proper enquiry regarding genuineness of certain cash credits found in books of firm - However, Tribunal held that since assessee had explained satisfactorily cash credit in books of account and discharged burden and Department had not brought out material or evidence to rebut sam....
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.... making assessment, Assessing Officer has made an inadequate enquiry , that would not, by itself, give occasion to Commissioner to pass order under section 263, merely because he has different opinion in matter, it is only in cases of 'lack of inquiry' that such a course of action would be open - Held, yes - Assessee-company was engaged in business of manufacturing and supplying auto parts - In assessment for relevant assessment year, it had been allowed deduction of expenditure incurred on tools and dyes as revenue expenditure - Commissioner, however, set aside assessment order in exercise of his powers under section 263 on ground that Assessing Officer had allowed aforesaid expenditure without making proper enquiry - He, accordingly, remitted matter back to Assessing Officer to re-examine issue - Whether when facts clearly showed that Assessing Officer had undertaken exercise of examining as to whether expenditure incurred by assessee in replacement of dyes and tools was to be treated as revenue expenditure or not and on being satisfied with assessee's explanation, he accepted same, it could be said to be a case of lack of inquiry - Held, no - Whether further, on fact....
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....ever any claim of the assessee is accepted, Assessing Officer may not discuss the same in his assessment order. 3. Distinction is to be appreciated between lack of enquiry and in-adequate enquiry. If there was any enquiry, even inadequate that would not by itself give occasion to Ld. CIT(Exemption) to pass order u/s 263, merely because he has different opinion in the matter. It is only in cases of "lack of enquiry" that such a course of action would be open for the Ld. Pr. CIT. 4. Reliance is placed on following judicial precedents - a. Hon'ble Allahabad High Court in the case of Krishna Capbox (P) Ltd - [2015] 60 taxmann.com 243 - order pronounced on 23.02.2015 - HEAD NOTE - "Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue (erroneous order) - Assessment year 2008-09 - Assessee filed its return - Case was selected for scrutiny and statutory notice was issued - Assessing Officer made certain queries, which were replied by assessee and after inquiry, being satisfied in respect to queries replied by assessee, Assessing Officer accepted declared income and passed assessment order - Commissioner, however, issue....
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....674 - order pronounced on 14.05.2009 - HEAD NOTE - "Section 263 of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessment year 2002-03 - Whether merely because an assessment order does not refer to queries raised by Assessing Officer during course of scrutiny and response of assessee thereto, it can be said that there has been no enquiry and, hence, assessment is erroneous and prejudicial to interest of revenue - Held, no - Whether it is requirement of section 263 that assessee must have an opportunity of being heard in respect of those errors which Commissioner proposes to revise - Held, yes - Whether to accord such an opportunity after setting aside assessment order would meet mandate of section 263 - Held, no - Whether where notice issued by Commissioner before commencing proceedings under section 263 referred to four issues and final order passed referred to nine issues, revisional proceedings were vitiated as a result of breach of principles of natural justice - Held, yes" [emphasis supplied] d. Hon'ble Mumbai Bench of ITAT in the case of Anil Shah - [2007] 162 Taxman 39 - order pronounced on 21.01.2006 - HEAD NOTE - "Section 2....
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....ssee. However, the same was not disallowed in the scrutiny assessment by the AO' 3. From the above it is evident that in the assessment proceedings Ld. AO raised a specific query about admissibility of claim u/s 11(2). In response to which relevant documents were submitted. No enquiry was conducted by Ld. CIT(Exemption) to ascertain the claim made u/s 11(2) and its actual utilization. Ld. CIT(Exemption) chose to invoke the provisions of section 263 on the basis of documents which were already on record and dealt with by Ld. AO in the assessment proceedings. 4. Section 263 confers a power to the Ld. CIT(Exemption) to make further enquiry before passing the final order. This power of further enquiry is to enable to reach a conclusion that the order of the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue. Ld. CIT(Exemption) ought to have made the necessary enquiry. He has failed to do so. Instead he has directed the Ld. AO to reframe the assessment order denovo and to verify the method of accounting actually followed on year to year basis. Reliance is placed on the decision of Raghav Chandra ITA No. 425/Ind/2014 (Ind....
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....b-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or subclause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (3) Any income referred to in sub-section (2) which- (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, (d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or an....
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.... .02.2020. ============= Document 1 2. Perusal of the order u/s 143(3) dated 03-03-2016 reveals that the assessee had set apart Rs. 5.50 crores u/s 11(2) of the Act for several purposes which includes for the purposes of Oriental University, which is an University of Oriental Group. The Oriental University is a separate entity in itself having separate PAN. The section 11(2) of the Act doesn't allow any trust or institution to set apart its fund for use of any other person. The set apart or accumulation of funds u/s 11(2) is only allowed for charitable purposes of the assessee which it should specify by filing Form 10. Considering such a misuse of the provisions of the section 11(2) only, in the section 11(3)(d) of the Act it is clearly mentioned that any sum credited or paid to any trust or institution out of income set apart u/s 11(2) shall be deemed to be income of the assessee trust. The section 11(3) of the Act is reproduced as under:- (3) Any income referred to in sub-section (2) which- (a) ***** (b) ***** (c) ***** (d) 311 is credited or paid to any trust or institution registered under section, 12A....