AI Drafter 
TaxTMI 
TaxTMI 
2020 (12) TMI 1121
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....tion 263 of the Act against the Appellant The Appellant prays that the order passed under section 263 of the Act be set aside. 2. On the facts and under the circumstances of the case and in law, the learned CIT(E) erred in holding that the assessment order passed by the Deputy Commissioner of Income-tax (Exemptions) - 2(1) ('the learned Assessing Officer') was erroneous as due verification was not undertaken by the learned Assessing Officer. The Appellant prays that it be held that the assessment order passed was not erroneous since adequate verification had been undertaken by the learned Assessing Officer. 3. On the facts and under the circumstances of the case and in law, even assuming the assessment order was erroneous, the learned CIT(E) erred in exercising jurisdiction under section 263 of the Act by holding the assessment order was prejudicial to the interest of the Revenue without appreciating that there is no tax effect of the proposed directions given by the CIT(E). The Appellant prays that it be held that assessment order was not prejudicial to the interest of the Revenue since there is no tax effect of the proposed directions ....
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.... Ltd. to Mr. A.N. Singh for the services rendered by him to the trust. It was further found that Mr. A.N Singh was also one of the trustee of the assessee trust. The trust deed available on record in its clause 9 mentions that the trustee shall be entitled to be paid a sum of Rs. 1000/- only. No other details as to why this sum was paid to Mr. A. N Singh is available on record and as per documents available on record, this is in contravention to the provisions of the Act. 3. The Tata Sons Ltd. vide its letter dated 21.12.2016, vide para 3 of the letter, admitted that up to February 11, 2014 , Mr. R. Venkataramanan served as Vice President of the Company and from February 12, 2014 when he was appointed as Executive Trustee of the assessee trust, his entire remuneration has been reimbursed to Tata Sons and born by the trust. The reason for the amount reimbursed by the trust to the Tata Sons Ltd. is also not available on record and it appears that it has not been examined by the A.O. 4. I have examined the records as well as the order passed by the Assessing Officer as discussed above and I am of the opinion that the order passed by the Assessing Officer is erroneous....
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....time and he was further issued a letter on 24 May 2012 for engaging his services as a Trustee & Advisor to the organization, thereby extending the retainership services for a period of 3 years (i.e. from 1 April 2012 to 31 March 2015). A c.opy of the aforesaid letter is attached as Annexure 3. * In this regard, a copy of minutes of the meeting of Board of Trustees of SDTT held on 7 February 2012 appointing Mr Singh as a Trustee and Advisor who would perform the role of a Managing Trustee, for a further period of 3 years effective from 1 April 2012, on prevailing terms and conditions is attached as Annexure 4. The role and responsibilities of Mr Singh were quite expansive in terms of the scope and its importance to the work of the Trust which included close oversight and management of all administrative and operational aspects. He was instrumental in ensuring the institution of mechanisms for: (i) Internal Audit (ii) Evaluation of grant proposals and their recommendation to Trustees; within the approved strategic areas of focus (iii) Scheduling and convening of Grants Committee and Board meeting (iv) Compliance review of the Trus....
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.... Administration * Setting up an administrative framework for processing of the Trust's transactions, such as delegation matrix * Activities related to human resource management including recruitment, increments, performance awards etc against approved budget and performance appraisal system * Facilitating building of IT infrastructure with requisite approvals; such as the development of an Integrated grant management system * Developing a framework for individual grant program and automation of the same while ensuring efficient turnaround time and least hardship to applicant. * Deciding on the design, layout and content of the Annual Report of the Trust in consultation with the process owners and vendor B. Remuneration paid to Mr R. Venkataramanan Please note that no remuneration was paid by the Trust to Mr R. Venkataramanan for AY 2014- 15. We request your goodself to take above on record and oblige. We will be glad to furnish any further information which your goodself shall so desire. 5. The assessee also filed a copy of letter dated 1st October 2007 appointing Shri A N Singh as Managing Trustee....
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....(1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquired as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment." 2. From a plain reading of the above. it is clear that the provisions for revision under section 263 of the Act can be invoked only if the following conditions are satisfied: * the order of the Assessing Officer sought to tse revised is erroneous; and * it is prejudicial to the interests of the Revenue. 3. In this regard, the assessee submits that it is legally settled position that the provisions of section 263 of the Act can be invoked only if both the conditions stipulated are satisfied i.e. the order of the AO is not only erroneous but also prejudicial to t....
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....umstances must exist to enable the Commissioner to exercise power of revision under this sub-section viz., (i) the order is erroneous, (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the revenue 'Erroneous assessment' refers to an assessment that deviates from the law and is, therefore, invalid, and is a defect that is jurisdictional in its nature and does not refer to the judgment of the AO. Similarly, 'erroneous judgment' means 'one rendered according to course and practice of Court, but contrary to law upon mistaken view of law, or upon erroneous application of legal principles' * Jitindar Singh Chadha v. PCIT [2019] 102 taxmann.com 93 (Delhi Tribunal) wherein it is stated that, where AO has applied his mind and taken a possible view and the Commissioner cannot come to a conclusion on the basis of the relevant record pertaining to subsequent assessment years, that the order passed by AO is erroneous or prejudicial to the interest of the revenue. 4. Accordingly, in the instant case a revisional action under section 263 can be initiated only if the order of the AO is not only erroneous but such erroneo....
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....ssessment, the AO had access to all the records of the assessee, after perusing such record the AO framed the assessment, such assessment could not have been re-opened in exercise of revision power under Section 263 of the Act for making further inquiries. * The Madhya Pradesh High Court in the case of CIT v. Mehrotra Brothers [2004] 270 ITR 157 (MP) also held that the CIT cannot invoke provisions of section 263 on the ground that the AO did not make proper enquiry regarding the genuineness of certain cash credit. * Director of Income Tax v. Jyoti Foundation [2013] 38 taxmann.com 180 (Delhi) wherein it was held as under: "Revisionary power under section 263 of the Income Tax Act, 1961 is conferred by the Act on the Commissioner/Director of Income tax when an order passed by the lower authority is erroneous and prejudicial to the interests of the Revenue. Orders which are passed without inquiry or investigation ate treated as erroneous and prejudicial to the interests of the Revenue, but orders which passed after inquiry/investigation on the question/issue are not per se or normally treated as erroneous and prejudicial to the interests of the Revenue becau....
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....section (1) of section 263 of the Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the AO is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assesses an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the AO or cancelling the assessment and directing fresh assessment 53.2 The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue, section 263 of Income-tax Act has been amended to provide that an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner - (a) the order is passed without making inquiries or verification which, should have been made, (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under sectio....
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....every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law. This would inevitably mean that every order of the lower authority would thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. The relevant extract of the order is reproduced as under:- "9.1 The object of such Explanation is probably to dissuade the AO from passing order in routine and perfunctory manner and where he failed to carry out the relevant and necessary inquiries or where the AO has not applied mind on important aspects. However, in the same vain where the preponderance of evidence indicates absence of culpability, an onerous burden cannot obviously be fastened upon the AO while making assessment in the name of inadequacy in inquiries or verification as perceived in the opinion of the Revisional Authority. It goes without saying that the exercise of statutory powers is dependent on existence of objective facts. The powers outlined under section 263 of the Act are extraordinary and drastic in nature and thus c....
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....cannot be said to be erroneous so as to invoke the provisions of Section 263 of the Act. Whether order passed by Assessing Officer is Prejudicial to the Interest of Revenue 13. The assessee submits that the term "prejudice" contemplated under section 263 is prejudice to the income-tax administration as a whole. In the case of Dawjee Dadabhoy & Co v. CIT (1957) 31 ITR 872 (CaI.) it is stated that, the words, 'prejudicial to the interests of the revenue', have not been defined, but it must mean that the orders or assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realised. It can mean nothing else. 14. The assessee submits that in the event even post the proposed revision under section 263 of the Act, if there is no tax effect, the order of the AO cannot be said to be prejudicial. Attention in this connection is invited to the following decision: * Punjab Wool Syndicate, Ludhiana v ITO, [2012] 27 taxmann.com 110 (Chandigarh) wherein it has been held that where the tax effect because of an order passed by the Assessing ....
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....d manufacturing Co. Ltd. iii) Tata Motors Ltd. iii) Tata Mills Co. Ltd. iv) Tata Powers Ltd. v) Tata Chemical Ltd. vi) Associated Cement Co. Ltd. vii) State Bank of India (b) In the details so provided, the shares were shown as held on 01 June, 1973 and subsequently, accretion of bonus shares it there. However, nowhere, it is mentioned that the shares were part of the corpus as on 01.04.1973. The only other facts mentioned in the column seeking details of consideration paid for acquisition/value are the amounts. The amounts so mentioned do not make it clear as to it represent cost of acquisition or Face Value and in any case does not show that the shares were part of corpus. Thus, the above reply and details on records do not show as to whether the above investments are covered by exception provided in proviso (i) & (ia) to section 13(1)(d) or not. As the investment in shares such m above is normally a prohibited mode of investment and unless it is covered by exceptions, it results into denial of exemptions. It is clear that the AO has failed to make basic but necessary verification on this issue. ....
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.... its examination the AO ride another notice u/s. 133(6) dated 13.12.2016 asked for some more details and explanation citing various Article of Association of the company. This notice was issued to the company as well as by the e-mail to 4 directors. The details were received from Tata Sons Ltd. on 21.12.2016 and also from one of the directors on 22.12.2016. (c) After receipt of this information, the AO again vide show notice dated 26.12.2016 raised the issue of close relationship of trustees of the trust and Tata Sons Ltd. through appointed directors seeking reply as to whether the activities are in accordance with the objects of the trust, what kind of control trust is exercising on business of Tata Sons Ltd. and also the issue that the trustee who were earlier directors/employees of Tata Sons Ltd. are taking benefit from the company because of through the control of directors appointed by the trust. (d) In response to this show cause, a reply was submitted on 28.12.2016 by you. In the reply besides giving some explanation to the queries of AO, the material/factual basis of allegations in show cause was sought from the AO. On the same date, Tata Sons Ltd. also su....
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....t should not be passed enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment in your case. In this regard, you are requested to attend in person or through your authorized representative before the undersigned and file the written submission and ague the matter on 22.03.2019 at 12:15 PM in my office. In case you fail the avail of this opportunity, the matter may be decided on merits. 7. Once again, the assessee made elaborate submissions in response to the show cause notice. His detailed reply, as set out in the letter dated 27th March 2019, is set out below: Background The Trust is one of India's oldest philanthropic organizations was established to catalyse development across the nation through contemporary initiatives. It supports an assortment of causes, institutions and individuals n a wide variety of areas including a whole range of community development programmes across the country. As per the Trust Deed the objects of the Trust are briefly as under: "From and after the death of the Settlor the Trustees shall apply the said net rents profits and income of the s....
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....tc. Further, some of the projects undertaken by the Trust with the Government are as under: * National Nutrition Mission Fellowship Programme (Zilla Poshan Prerak); * Applying the DELTA framework in 85 most backward districts of India in collaboration with Niti Aayog and Bill and Melinda Gates Foundation * A programme for supporting teh Model Urban Primary Health Centre in Nagpur * Data Driven Governance Current proceeding. The Trust is now in receipt of the notice dated March 15, 2019 (received on March 18. 2019) wherein your °misc. has asked it to explain why an order under section 263 of the Act should not be passed enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment for the captioned AY (a copy of the said notice is enclosed as Annexure 1). The assessee submits that it is a legally settled position that the provisions of section 263 Of the A. can be invoked only if both the conditions stipulated are satisfied 1.e. the order Of the AO is not only erroneous and also prejudicial to the interest of the Revenue. Also the error should be a patent error which results in p....
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....n respect of those shares is not relevant for the current assessment 4) Without prejudice to the above, the assessee submits that all the shams held during financial year 2013-14 are either shares held by the assessee prior to June 1, 1973 or subsequent accretions thereto by way of bonus. The assesee further submits that all these shares are held by it as corpus and the income earn. by way of dividend from these shares is used by the trust for carrying out its charitable objects. Further, the assessee submits that virtually all the shares held by it today (except shares received as bonus) were held by it prior to enactment of Incometax Act,1961 Even the conduct shows that the Two held these shares for more than 45 years at least. 5) There has been no change in the above position for more than 4 decades. In all the past years, the assessee has been more granted exemption under section 11. It may be pointed out that in the past, assessments of the Trust have been I completed under section 143(3) and no additions has been made on this issue. It is submitted that section 263 cannot be applied to a matter on which no addition has been made by the revenue for several de....
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....none of the Trustees as on March 31, 2014 held substantial interest in TSL and therefore the provisions of section 132(2)(h) would not be applicable. Further, the assessee submits that the Trustees have not received any benefit from TSL in their capacity as Trustees. No part of the Trust's property or income has been applied directly or indirectly for the benefit of Trustees. 13) The assessee submits that the Learned AO sought the details which were duly filed by the Trust. Therefore, it cannot be said that the Learned AO has not examined the applicability of the provision of section 13(2)(h). Trust - haying control over affairs of TSL 14) As regards pars 3 of the notice, the assessee respectfully submits that the Learned AO has made proper verification and investigation and has reached a conclusion regarding whether the assessee controls the business of TSL. 15) In respect of pars 3(a) wherein your goodself has stated that the requisite information relating to benefit derived by the Trustees was not available with the assessee, the assessee states that vide letter dated December 28, 2016 it has submitted that no benefit has been derived by t....
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....27,281 11(5)(iii) ICICI Bank Ltd. 93,29,943 11(5)(iii) Credit Agricole Corporate & Investment Bank 34,19,153 11(5)(iii) Standard Chartered Bank 1,05,93,666 11(5)(iii) Interest on Savings bank a/c 1748959 11(5)(iii) Total 33,55,97,988 The assesses also have interest on loans given to staff of Rs. 43,241, interest on the 8% Government of India Bonds of Rs. 2,86,02,666 and on Permanent deposit with Tata Sons Ltd of Rs. 1,89,750. Exempt dividend income - application tends object of the Trust 19) The jurisdictional Hon'ble Bombay High Court in the case of DIT-(E) v Jasubhai Foundation (ITA 1310 of 2013) has held that in computing the income of charitable Institutions exempt under section 11, income exempt under section 10 has to be excluded. The Court further held that the requirement in section 11 with regard under section 10. 20) Thus, the action of the assessee in not including dividend in its income-tax computation is in accordance with the jurisdictional High Court decision. 21) The assessee submits that the exclusion of dividend income from total income is only for the purpose o....
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....uested to furnish details of any fees, remuneration or salary or perquisites has been paid by the Trust to any person referred to in sub-section 3 of section 13 for 3 years. iv) In response to question no. 8 in a changed stand, the assesse submitted details vide letter dated 09/12/2016 which are as per annexure 6. In Annexure 6, fees of Rs. 1,000/- paid each to nine trustees (Rs. 9000/-) for A.Y. 2012-13 to A.Y. 2014-15 is mentioned. In response to question no. 20, the assessee submitted that the details of salary, allowances or otherwise paid to persons referred to in Section 13(3) of the I.T Act for A.Y. 2012-13 to A.Y. 2014-15 vide annexure 10 are attached to letter dated 09/12/2016. The details submitted by assessee in Annexure-10 are as under: "Payment made to Tata Services Ltd" Name Amount (In Rs.) FY 2011-12 8,012,166 FY2012-13 8,326,299 FY2013-14 9,111,654 Total 25,450,119 "the amount represents what is paid by Tata Services Ltd to Mr A. N. Singh Trustee, being amount apportioned by Tata Services Ltd for services by him to the trust. " The assessee has also stated that above payment is in addition to Rs. 1000/- pai....
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....h submissions made during these proceedings. The discussion in subsequent paras however clearly show why further verification are clearly required in the case, which the Assessing Officer failed to do. c) It is clear from the reply that after they have given some facts and justification relating to payments made to one Trustee, Shri A.N. Singh, it is mentioned that in Para B of the above reply dated 18.04.2018 that no remuneration was paid by the Trust to Shri R. Venkataramanan for A.Y. 201415. d) The above reply appears factually incorrect because the assessee, along with letter dated 26/12/2016, submitted to the Assessing Officer, has filed a letter dated 27/12/2016 to Tata Sons Ltd. wherein it has been stated that Shri R. Venkataramanan, who was serving the Company as Vice President, was appointed as Executive Trustee of Sir Dorabji Tata Trust on 22nd February 2014. His entire remuneration with effect from February 2012 was borne by Sir Dorabji Tata Trust. The above evidence makes it very clear that for the period from February 2014 to 31st March, 2014 falling in the Previous Year relevant to Asstt.Year 201415, remuneration was paid to 2 Trustees - One to Shri ....
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....ct of their business and otherwise as to the management of the trusts of these presents. Clause para 16(c) : At their uncontrolled discretion instead of acting personally to employ and pay any agent (including any banks) to transact any business or to do any act whatever relation to the trusts of these presents including the receipts and payment of monies without being liable for loss and shall be entitled to be allowed and paid all charges and expenses incurred thereby. And any trustee being a Solicitor or engaged in any other profession or business shall be entitled to charge and be paid all usual professional or other charges (in addition to the remuneration payable under these presents) for business done by him or his firm in relation to the trust promises or the trusts of these presents whether in the ordinary course of his profession or business or not and although not of a nature requiring the employment of a Solicitor or other professional person. 5.1 From the first reading of the above clauses it is clear that Trustees are permitted to payments as under, by the Trust Deed : a) Payment of Rs. 1,000/- per year only: b) The Trustees a....
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....roceedings. The constitution of trust deed and payment of trustees routed through Tata Services Ltd. and Tata Sons Ltd. clearly show that even after obtaining basic details further verification were required. In the absence of any details, no further verification, in fact was possible. Therefore, it is very clear that the Assessing Officer has failed to make the due verifications and necessary enquiries about the remuneration reimbursed by the trust in respect of the above mentioned trustees to find out whether any benefit is being taken by any connected persons including trustees. Further, section 13(1)(c) provides that if the trust or institution has directly or indirectly benefited any specified person, as referred to in section 13(3), then exemption u/s 11 and 12 shall not be allowed to the assessee. Section 13(3) defines such persons which include trustees, their relatives and their related concerns etc. The idea is that the management of the trust or institutions shall not derive any benefit either directly or indirectly. Under these circumstances, I am satisfied that the impugned order of the Assessing Officer is erroneous and prejudicial to the....
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.... Sector Company or as prescribed u/s.11(5)(xii) are held after 30th November 1983, unless they are covered by exceptions provided in Proviso (i) and (ia). The provisions are reproduced hereunder: Section 13(1)(d) : in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year- (i) any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or (ii) any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii) any shares in a company, other than- (A) Shares in a public sector company; (B) Shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983 Pr....
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....e not there in other years. 8.5 Regarding the assessee's contention reproduced in Para (vi) & (vii) of para 8.2 above, it is clear from the discussion made in Para 8.3 of this order that the Assessing Officer did not seek complete details which were required for due verification of this aspect. From the details it does not come out that the shares were held as corpus on 01.06.1973, which is an exempt category. For this reason, due compliance of assessee also does not help its case because it is the failure of Assessing Officer to make due verification on the basis of which jurisdiction u/s.263 can be invoked. It is further contended by the assessee that as the details relate back to a period of more than 45 years, it craves leave to produce further information and documents to substantiate its position, if required. In this regard, it is stated that the undersigned has not formed any opinion about the applicability of section 13(1)(d) of the I.T. Act on the basis of facts available on record. The conclusion drawn by the undersigned is that due verification required to reach to a conclusion on this issue has not been made. Therefore, the assessee is free ....
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....o examine the applicability of Section 13(2)(h) of the I.T Act, which he has failed to do. Therefore on this ground the impugned order is erroneous and prejudicial to the interest of the revenue. 12. On the question as to whether there was any failure on the part of the Assessing Officer to examine the issue of control of affairs of Tata Sons Limited, as also the question as to whether any direct or indirect benefit in terms of the provisions of Section 13(1)(c) is being taken by the connected persons, learned Commissioner's conclusions were as follows: 10.3 The assessee's contention that all the points raised in the show cause notice u/s.263 of the IT. Act were put to it by the Assessing Officer and appropriate response to the same was submitted by the assessee, there is no infirmity of verification undertaken by the Assessing Officer, is not acceptable for the following reasons : i) As confronted in Para 3(b) of the show cause notice u/s.263 of the IT. Act, it was noticed on receipt of these basic details from Tata Sons Ltd. and its examination, the Assessing Officer vide another notice u/s. 133(6) dated 13.12.2016 asked for some more details and explanat....
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....M/s. Tata Sons Ltd. But Trust, in response to show cause notice issued, replied that same services/benefit are being received in the capacity of ex-chairman and not in the capacity of Trustee. After going through the said reply/all the emails/internal communication between Tata Sons Ltd. and the trustees, prima facie, it appears that Trustees are having control over the affairs of the company. Presently, since the case is getting time barred on 31/12/2016, order is being passed. Remedial action may be taken as per I.T. Act, 1961, if required, on detailed examination of submissions/allegations made by Mr. Cyrus P. Mistry, which are on record and any new facts which may come to notice subsequently. This clearly shows that the Assessing Officer did not use the material available with him to take the matter to the logical conclusion and has acted against his own prima facie opinion. This note itself makes the order of Assessing Officer on this issue erroneous and prejudicial to the interest of revenue. To sum up, on the basis of the above facts, I am of the opinion that despite the material being available on records, which could lead to prima facie opinion t....
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.... follows: 15. Without prejudice to the above discussion, which makes it very clear that it was always a consistent interpretation of various Courts, that not making proper enquiry or failure to make due verification by the Assessing Officers gives jurisdiction under section 263, now the legal position itself has been made it clear by inserting Explanation (2) to Section 263 of the I.T. Act, which is declaratory nature of providing clarity on the issue. The amended law is also squarely applicable in the case of the assessee for the following reasons : 15.1 By Finance Bill 2015, Explanation 2 to section 263 was inserted w.e.f. 1st June 2015 to declare the law which reads as under:- "[Explanation 2, - For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,- (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (....
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....er modifying the assessment made by the assessing officer or cancelling the assessment and directing fresh assessment. The interpretation of expression "erroneous in so far as it is prejudicial to the interests of the revenue" has been a contentious one. In order to provide clarity on the issue it is proposed to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it prejudicial to the interests of the revenue, if, in the opinion commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or the order has not been passed in accordance with any decision, prejudicial (d) to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. This amendment will take effect from 1st day of June, 2015." Thus, as can be seen above, the amendment to section 263 of ....
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....f the I.T. Act. In this regard, it is stated that the discussion made so far on facts of each issue and in view of judicial pronouncements discussed in Para 14 above, it is very clear that on facts and circumstances of this case, it is a fit case for invoking provisions of Section 263 of the I.T. Act. 15. It was in this light that the learned Commissioner set aside the assessment framed under section 143(3) of the Act, and concluded as follows 16. Thus, it clearly comes out from the above judgments that not conducting due verification amounts to the order being erroneous and prejudicial to the interest of revenue. No enquiry or due verification, even in cases where the issue was debatable also amounts to the order being erroneous and prejudicial to the interest of revenue. Similarly, adopting the pertinent line of enquiry but not taking it to the logical end also renders the order erroneous and prejudicial to the interest of revenue. 17. In the light of the discussion in the preceding paragraphs, I am of the opinion that the order u/s 143(3) dated 30.12.2016 for the assessment year 201415 is erroneous in so far as it is prejudicial to the interests of the reven....
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....n that the view so formed by the Commissioner is not subject to any judicial scrutiny or that such a view being formed is at the unfettered discretion of the Commissioner. The formation of his view has to be in a reasonable manner, it must stand the test of judicial scrutiny, and it must have, at its foundation, the inquiries, and verifications expected, in the ordinary course of performance of duties, of a prudent, judicious and responsible public servant- that an Assessing Officer is expected to be. If we are to proceed on the basis, as is being urged by the learned Departmental Representative and as is canvassed in the impugned order, that once Commissioner records his view that the order is passed without making inquiries or verifications which should have been made, we cannot question such a view and we must uphold the validity of revision order, for the recording of that view alone, it would result in a situation that the Commissioner can de facto exercise unfettered powers to subject any order to revision proceedings. To exercise such a revision power, if that proposition is to be upheld, will mean that virtually any order can be subjected to revision proceedings; all that w....
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....n, and that is what a prudent, judicious, and responsible Assessing Officer is to do in the course of his assessment proceedings. Is he to doubt or test every proposition put forward by the assessee and investigate all the claims made in the income tax return as deep as he can? The answer has to be emphatically in negative because, if he is to do so, the line of demarcation between scrutiny and investigation will get blurred, and, on a more practical note, it will be practically impossible to complete all the assessments allotted to him within no matter how liberal a time limit is framed. In scrutiny assessment proceedings, all that is required to be done is to examine the income tax return and claims made therein as to whether these are prima facie in accordance with the law and where one has any reasons to doubt the correctness of a claim made in the income tax return, probe into the matter deeper in detail. He need not look at everything with suspicion and investigate each and every claim made in the income tax return; a reasonable prima facie scrutiny of all the claims will be in order, and then take a call, in the light of his expert knowledge and experience, which areas, if a....
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....IT [(2000) 243 ITR 83 (SC)], Hon'ble Supreme Court has held that "Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law." The test for what is the least expected of a prudent, judicious and responsible Assessing Officer in the normal course of his assessment work, or what constitutes a permissible course of action for the Assessing Officer, is not what he should have done in the ideal circumstances, but what an Assessing Officer, in the course of his performance of his duties as an Assessing Officer should, as a prudent, judicious or reasonable public servant, reasonably do bonafide in a real-life situation. It is also important to bear in mind the fact that lack of bonafides or unreasonableness in conduct cannot be inferred on mere suspici....
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....be no point in sending the matter back to the Assessing Officer for fresh inquiries or verification because an adverse inference against the assessee can be legitimately drawn, based on material on record, by the Commissioner. In exercise of his powers under section 263, the Commissioner may as well direct the Assessing Officer that related addition to income or disallowance from expenditure be made, or remedial measures are taken. The second category of cases could be when the Commissioner finds that necessary inquiries are not made or verifications not done, but, based on material on record and in his considered view, even if the necessary inquiries were made or necessary verifications were done, no addition to income or disallowance of expenditure or any other adverse action would have been warranted. Clearly, in such cases, no prejudice is caused to the legitimate interests of the revenue. No interference will be, as such, justified in such a situation. That leaves us with the third possibility, and that is when the Commissioner is satisfied that the necessary inquiries are not made and necessary verifications are not done, and that, in the absence of this exercise by the Asses....
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....rred to in section 13(3)", are being furnished. In Annexure 10 to the said letter, it was stated that the payment of Rs. 91,11,654 was made, during the relevant previous year i.e. the financial year 2013-14, which "represents what is paid by Tata Services Limited to Mr A N Singh, Trustee, being the amount apportioned by Tata Services Limited for services rendered by him to the Trust". It is also an uncontroverted position that no payment has been made, during the relevant financial period, to R Venkatraman or to anyone else on his behalf. The question that, according to the learned Commissioner, the Assessing Officer ought to have examined was whether the payments to the trustees was in accordance with the trust deed, whether the payment so made was reasonable, and whether the payment to A N Singh, Managing Trustee, being routed through the Tata Services Ltd, should have provoked a more in-depth inquiry in the matter. 26. So far as the payments which are permitted to be made to the trustees, we have noted that the trust deed, a copy of which was admittedly available to the Assessing Officer, inter alia, provides as follows: 9. The arrangement and control of the property....
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.... to R Venkatraman in the present year, and, as such, there cannot be any occasion to examine that aspect of the matter. When a payment is made not in terms of the trust deed, to that extent, the application of monies will not be treated as an application for the purposes of the trust, and, to that limited extent, the tax exemption could possibly be declined. However, when in the year in which no payment is made, no such implications are possible at all. This engagement of R Venkatraman, so far as the year before us is concerned, is entirely tax neutral, and, therefore, not taking into account his engagement cannot, by any stretch of logic, render the impugned order erroneous or prejudicial to the interests of the revenue. As we have noted earlier, all these details were duly submitted before the Assessing Officer, and the copies of the related submissions have been filed before us. The question now is whether the Assessing Officer could be said to be in error in not examining the reasonableness of payment made to A N Singh. We have noted that the Board of Trustees of the assessee trust, in its 204th meeting held on 17th September 2007, invited A N Singh to join the Board of Trustee....
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....bservation is incorrect as there is a categorical finding by the Assessing Officer, at page 1 of the assessment order which was subjected to the impugned revision proceedings, that form the assessee duly filed 10 B. In any case, we find that given the undisputed facts of the case, and given the fact that even in the proceedings before us, the unreasonableness of the payments or violation of the trust deed provisions, even prima facie, could not be demonstrated, and, therefore, the order sought to be revised by the impugned order could not be said to be 'prejudicial to the interest of the revenue'. 29. In view of these discussions, as also bearing in mind the entirety of the case, we are of the considered view that the learned Commissioner was not justified in invoking the jurisdiction under section 263 in respect of allegedly deficient inquiries about remuneration paid to the trustees. 30. The next issue raised by the learned Commissioner is with respect to the alleged failure of the Assessing Officer in not examining whether investments held by the assessee are in conformity with the provisions of Section 11(5) of the Act, and in not examining whether the assessee is covered....
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.... part of the corpus or not. Unless, according to the learned Commissioner, these shareholdings were held to be part of the corpus of the trust, these investments can not be held to be permissible investments under section 13(1)(d), and it is Assessing Officer's not looking into this aspect of the matter that rendered the subject assessment order erroneous and prejudicial to the interests of the revenue. 32. There is no dispute with the proposition that in terms of the provisions of Section 11(1)(d)(iii) the assessee trust could not have invested in the shares of a company, other than in shares of a public sector company or shares prescribed as a form or mode of investment under clause (xii) of Section 11 (5), after 30th November 1983. None of these conditions are satisfied in the present case. However, proviso to Section 13(1) (d) states that nothing in the clause, containing aforesaid provision, will apply to, inter alia, " (i) any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; and (ia)any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of bonus sh....
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....hares form part of the corpus. The assessee trust, vide letter dated 21st August 1992, had clarified the said position, and it was only thereafter, on 10th May 1993, notification was issued by the Government of India notifying the assessee trust under section 10(23C). These facts, which are set out on page 17 of the second compilation filed before us, do show that the assessee trust was accepted to be holding these shares as part of the corpus by the CBDT itself. When an issue has been decided in a certain way by the CBDT, it cannot normally be open to the field officers to question the correctness of that position- particularly when it's a factual aspect, and this factual aspect has been found in a particular manner, and no interference in these settled facts is warranted on account of any particular reason. 34. While it is indeed true that there is no res judicata in the assessment proceedings, the principle of consistency, nevertheless has its firm roots in the income tax jurisprudence. Hon'ble Supreme Court's has, in the case of Radhasoami Satsang v. CIT [(1992) 193 ITR 321 (SC)] held that, while strictly speaking, res judicata does not apply to income-tax proceeding....
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.... new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same, no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subject only to the usual gateways of distinguishing the earlier decision of where the earlier decision is per incuriam. However, these are fetters only on a coordinate Bench which, failing the possibility of availing of either of these gateways, may yet differ with the view expressed and refer the matter to a Bench of superior strength or in some cases to a Bench of superior jurisdiction." (emphasis supplied) 9. The principle accepted by the Revenue for 10 earlier years and 4 subsequent years to the Assessment Years 2007-08 and 2008-09 was that the entire expenditure is to be allowed against business income and no expenditure is to be allocated to c....
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.... held by the trust after 30-11-1983 shall result in forfeiture of exemption. By virtue of the proviso (iia) it has been laid down that any asset which does not form part of permissible investment under section 11(5) shall be disposed of within one year from the end of the previous year in which such asset is acquired or by 31-3-1993, whichever is later. In the present case, the assessee was required to dispose of the shares under the said proviso by 31-3-1993 [See the judgment of this Court in IT Appeal No. 81 of 1999 dated 14-9-2000]. The shares have not been disposed of even during the assessment year in question. Now, under section 164(2), it is, inter alia, laid down that in the case of relevant income which is derived from property held under trust for charitable purposes, which is of the nature referred to in section 11(4A), tax shall be charged on so much of the relevant income as is not exempt under section 11. Section 164(2) was reintroduced by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989. Earlier it was omitted by the Direct Tax Laws (Amendment) Act, 1987. However, the Legislature inserted a proviso by the Finance Act, 1984 with effect from 1-4-1985....
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....pter which is titled "Incomes Which Do Not Form Part of Total Expenditure" (Chapter III). Section 10 deals with incomes not included in total income whereas section 11 deals with income from property held for charitable or religious purposes. We have not found anything in the language of the two provisions nor was Mr. Malhotra able to point out as to how when certain income is not to be included in computing total income of a previous year of any person, then, that which is excluded from section 10 could be included in the total income of the previous year of the person/assessee. That may be a person who receives or derives income from property held under trust wholly for charitable or religious purposes. Thus, the income which is not to be included in computation of the total income is a matter dealt with by section 10 and by section 11 the case of an assessee who has received income derived from property held under trust only for charitable or religious purposes to the extent to which such income is applied to such property in India and that any such income is accumulated or set apart for application for such purposes in India to the extent of which the income so accumulated or s....
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....taka High Court, in the case of DIT Vs Shri Ramakrishna Seva Ashram [(2013) 357 ITR 731 (Kar)] has observed as follows: 11. The word 'corpus' is not defined under the Act. We do not find any judgment explaining the meaning of 'corpus'. In the Chambers. 21st Century Dictionary, the meaning of the word 'corpus' has been given as under: (i) body of writings, eg: by a particular author, on a particular topic, etc.; (ii) a body of written and/or spoken material for language research; (iii) anatomy any distinct mass of body tissue that may be distinguished from its surroundings. Latin: meaning- 'body'. 12. In the Law Lexicon of P. Ramanatha Aiyar, 2nd Edition reprint-208 the meaning of the word 'Corpus' is given as under: "A Body; human body; an artificial body created by law; as a corporation; a body or collection of laws; a material substance; something visible and tangible; as the subject of a right; something having legal position as distinguished from an incorporeal physical substance as distinguished from intellectual conception; the body of estate; or a capital of on estate". ....
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.... the recipient-trust. Therefore, what ultimately reveals that,-(i) the intention of the donor and (ii) how the recipient-assessee treat the said income. If the intention of the donor is that the amount/donation given is to be treated as capital and the income from that capital has to be utilised for the charitable purposes, then the said voluntary contribution is towards the part of the corpus of the trust. Similarly, the assessee after receiving the amount, keeps the amount in deposit and only utilise the income from the deposit to carry out the charitable activities, then also the said amount would be a contribution to the corpus of the trust and the nomenclature in which the amount is kept in deposit is of no relevance as long as the contribution received are kept in deposit as capital and only the income from the said capital which is to be utilised for carrying on charitable and religions activities of the institute/corpus of the trust, for which Section 11(i)(d) of the Act is attracted and the said income is not liable for tax tinder the Act. [Emphasis, by underlining, supplied by us] 41. What essentially follows is that it's not the declaration of an investment bei....
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....ne without mentioning the facts or evidence on the basis of which the above preliminary inference was drawn by the Assessing Officer". What essentially follows is that not putting the material on the basis of which this preliminary inference was drawn rendered the inquiry insufficient. It is difficult to understand this approach. The issue is admittedly looked into by the Assessing Officer and the Assessing Officer has come to certain conclusions. No infirmities are pointed out in this process. The deficiency is said to be that the material, on the basis of which preliminary inference was drawn, is not confronted. How does it make inquiry deficient or order erroneous and prejudicial to the interest of the revenue? If at all non-disclosure of this material is prejudicial to the interest of someone, that is to the interests of the assessee, but that is not relevant inasmuch as the matter has been looked into. We, therefore, see no merits in the stand of the learned Commissioner on this point. It is then noted that "In the reply besides giving some explanation to the queries of Assessing Officer, the material/factual basis of allegations in the show cause notice was sought by the asse....
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.... coming to knowledge, will be taken. Learned Commissioner's stand is that these observations "clearly shows that the Assessing Officer did not use the material available with him to take the matter to the logical conclusion and has acted against his own prima facie opinion" and that "this note itself makes the order of Assessing Officer on this issue erroneous and prejudicial to the interest of revenue." 46. Let's not lose sight of the legal position that so far as the exercise of powers under section 263 is concerned, these powers can only be exercised when the subject order is erroneous and prejudicial to the interest of the revenue. The fundamental fact that we must examine is whether the action of the Assessing Officer, on the given set of facts, could be said to be erroneous at all. The Assessing Officer receives some complaint against the assessee, and additional material against the assessee, at the fag-end of the assessment proceedings, and based on this additional last-minute material he is not able to come to a definite conclusion withing the statutory time limit for completing the assessment. He, therefore, records an office note to the effect that these allegations m....
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.... done indirectly either. If receipt of some inputs at the last minute from a third party cannot result in an extension of time for completion of assessment under section 143(3) directly, it cannot be done by way of invoking Section 263 either. 38. It is well known that Cyrus Mistry, a former Chairman of the Tata Group, was removed from his position in the Tata Group on 24th October 2016, and within eight weeks of his removal, he sends this material, against the trusts in the Tata group- including the assessee before us, to the Assessing Officer. The objectivity of the averments made by Cyrus Mistry, in such a situation and to say the least, seems to be extremely doubtful. His action of supplying documents to the income tax department, without any authorization of the company even though which were apparently obtained by him in the fiduciary capacity, almost immediately after being removed as Chairman of the Tata Sons, cannot be said to be influenced by call of a pure conscious and high ground of morality. He was Chairman of Tata Sons Ltd since 2013 and its director since 2006, but apparently, knowing everything very well, he keeps quiet all along. Just as he is expelled from the....
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.... the learned Commissioner has raised apprehensions about, whether any direct or indirect benefit as stated in section 13(l)(c) is being taken by the connected persons as referred in section 13(3). However, as we do so, it is important that we understand the scheme of the Income Tax Act, 1961, in this respect. 42. Section 13(1)(c) provides that "nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof..... in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof (i) if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or (ii) if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied. directly or indirectly for the benefit of persons referred to in sub section (3)". In plain words, the benefit of exemption under section 11 will not be available in respect of income which is enured or a....
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....s hold more than 20% equity shares, carrying not less than 20% voting powers, in a company in which the trust has made investments, such an investment can be treated, to be an application of trust funds for the benefit of the specified persons, disentitling itself of the benefits of section 11 accordingly. 43. As noted by the learned Commissioner in para 9.4 of his order, "the assessee has submitted that none of the trustees as on 31.3.2014 hold substantial interest in Tata Sons Ltd and, therefore, the provisions of Section 13(2)(h) of the Income Tax Act, 1961 are not applicable". His objection, however, is that "the submission of the assessee, however, requires verification because in section 13(3), there are different clauses the application of which needs to be examined to find out whether the investment is with any connected person" and that the assessee itself has more than 20% equity investment in Tata Sons Ltd. Learned Commissioner has also relied upon a decision of the Tribunal, in the case of Jamshedji Tata Trust Vs JCIT (ITA No. 7006/Mum/2013; AY 2010-11), to justify the need for greater probe into the matter. These objections are, however, devoid of any legally sustai....
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....nterest in Tata Sons Ltd, and when there is nothing on record to even suggest incorrectness of this averment of the assessee, the question of direct or indirect benefit under section 13(1)(c) read with section 13(2)(h) does not arise, and, as is well settled, provisions under section 263 cannot put into service to make some roving and fishing inquiries. 44. As repeated references are made to assessee's shareholding of more than 20%, approximately 23.5%, to be more precise) in the Tata Trust Limited, and its control over the Tata Sons for that reason, it is necessary to deal with that aspect of the matter in some detail. The assessee before us is one of the shareholders in Tata Sons Ltd, a company incorporated over a century ago, which is the holding company of the Tata Group of companies. Sir Dorabji Tata, founder shareholder of Tata Sons Ltd, had endowed his personal shareholdings in Tata Sons in favour of the charities, and he set up this Trust in 1932, and he left most of his personal wealth to this Trust. Similarly, many other Trusts, including Sir Rata Tata Trust and J R D Tata Trust, were set up from time to time. If the shareholdings of all these trusts are taken into acc....
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....ere is, thus, no occasion to revisit those factual findings. The application of Section 13(2)(h), in such a situation, is wholly academic. It is so for the reason that, as held by Hon'ble Bombay High Court in the case of CIT Vs Trustees of Mrs Kasturbai Walchand [(1990) 181 ITR 47 (Bom)] the benefit given by proviso to section 13(1)(c) cannot be taken away by invoking section 13(2)(h). By the same logic, in our considered view, the benefit given proviso to Section 13(1)(d) cannot be taken away by invoking Section 13(2)(h). Be that as it may, even on merits, there is nothing on record, barring some suspicion lurking in the mind of the learned Commissioner, to even suggest that the provisions of Section 13(2)(h) can be invoked on the facts of this case. In response to a question by us, the learned Departmental Representative could not even point out as to which specified person under section 13(3) needs to be probed for holding a substantial interest in the companies in which investments are made by the assessee trust. All that he has emphasized is that the matter needs to be probed in more detail and that submission is no more than a submission pleading for more roving and fishing i....
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....granted certain rights to these charitable institutions on a collective basis- as long as these charitable institutions collectively hold not less than 40% of the shareholdings in Tata Sons. It is important to bear in mind the fact that these rights have been granted to these charitable trusts, and the assessee before us is only of these trusts, on a collective basis, and not to this assessee alone. Therefore, these rights, even if material, are not relevant in so far as control by this assessee is concerned. The assessee trust cannot, therefore, be said to be having control over the affairs of Tata Sons. In any case, as held by Hon'ble Supreme Court in the case of Arcelor Mittal India Pvt Ltd Vs Satisk Kumar Gupta & Ors [(2019) 2 SCC1], the expression 'control' implies a 'positive and proactive' power and not 'merely a negative or reactive power'. Undoubtedly, by virtue of article 104 B of the articles of association, the Tata Trusts can collectively nominate one-third of the prevailing number of directors, but these directors on their own cannot pass the resolutions, they can at best stall the resolution in the exercise of their powers. Nothing much turns on these rights under th....
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....the considered view that learned Commissioner was not justified in subjecting the assessment order to revision proceedings on the ground that the Assessing Officer did not examine the matter regarding assessee's control over Tata Sons Ltd, and whether, by virtue of such alleged control, any of the specified persons under section 13(3) received any benefits, and whether the investments made by the assessee trust were in violation of Section 13(2)(h). 52. That brings us to the Commissioner's stand that non-verification of accumulation of unspent surplus under section 11(2) was wrongly stated to be allowed though the same was neither asked nor required as the surplus was less than 15%. Learned Commissioner has been fair enough to state that though the order is erroneous on this issue, it is "not prejudicial to the interest of the revenue". He has, however, also added that "the claim of deduction of 15% of income under section 11(1)(a) is subject to verification of other issues". That, however, is irrelevant inasmuch as once it is not a legitimate ground on which revision proceedings can be initiated, inasmuch as to subject an order to revision proceedings it should be "erroneous" a....