TaxTMI 
TaxTMI 
2018 (7) TMI 2185
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.... same has also been reproduced in para-3 onwards of the order under appeal and further submissions dated 29/03/2017. The ld. counsel explained that the assessee trust was constituted in 1945 and was approved by the Charity Commissioner 1966. It was contended that the present object is being done since 1966 and the project was assigned by the Animal Husbandry Department, Govt. of Rajasthan and this LSDCs are opened and operated in villages and at present there 3957 such centres are opened in the state of Rajasthan. The ld. counsel further explained that the trust picks up an educated youth from the village, employs him and thus employment is also generated. It was explained that the record of calf are maintained and as on today crossed breed calves are breeded to the extent of 10,78,839. The ld. counsel explained that such highly breeded cows gives thirty liters milk extra and thus improving the socioeconomic conditions of farmers/public at large. So far as, payment to Mr. B.K. Kedia is concerned, it was explained that he is looking after the administrative of the trust in a senior level position for which our attention was invited to page 84, 116, 118 (appointment letter), 119 and ....
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....(Exemption) in the impugned order. Plea was also raised that unreasonable amount was paid to Shri B.K. Kedia, in proportionate to his services rendered by him. Mr. Gulati, ld. CIT-DR, invited out attention to the notice issued on 24/03/2017, which itself speaks of non-compliance of the provision of the Act. It was claimed that the amount of Rs. 1.70 lakhs is highly excessive, which has not been examined by the Ld. Assessing Officer and Mr. Kedia is himself one of the trustee of the assessee trust. Our attention was invited to section 2(15) of the Act and further the second proviso to the section. It was strongly contended that the no charity is done by the assessee and payment is fixed for the calf breeding and the bills are raised on monthly basis. It was pleaded that it is simply a contract between two unrelated parties and amount is based upon production per calf. The crux of the argument is that there is a lack of enquiry by the Ld. Assessing Officer. In reply, the ld. counsel for the assessee, claimed that a conscious decision was taken by the Ld. Assessing Officer on the issues raised by the Ld. CIT(E) and also by the Ld. CIT-DR and the proviso does not hit the assessee and t....
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.... section 120; (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the [Principal Commissioner or] Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [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; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board un....
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....OME-TAX, RANGE 19(1), MUMBAI [2006] 101 ITD 495 (ITAT[Mum]), order dated 13/01/2006. The relevant portion of the order is reproduced hereunder:- "The appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 on the following grounds : "1. The order passed by the Ld. CIT under section 263 of the Income-tax Act, is bad in law. 2. The Ld. CIT erred in holding that loss of Rs. 13,90,096 incurred by the appellant on sale of import entitlement license is not admissible deduction. 3. The Ld. CIT failed to appreciate that appellant had shown the value of import entitlement at Rs. 73,01,184 in the closing stock of assessment year 1996-97 and after selling part of it in assessment year 1997-98 and making a profit, the appellant had sold the balance in assessment year 1998-99 in which loss of Rs. 13,90,096 was incurred and therefore, the same had been correctly allowed by the Assessing Officer as deduction. 4. The Ld. Commissioner failed to appreciate that whereas in assessment year 1996-97, the appellant was allowed deduction under section 80HHC, in assessment year 1998-99, business....
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....ction under section 80HHC with the result that it claimed a net loss of Rs. 11,32,829 in the return of income for the assessment year under appeal. The Ld. Commissioner was of the opinion that since the value of the aforesaid licences had already been considered while giving deduction under section 80HHC for assessment year 1996-97, the claim of the assessee for further deduction by way of loss of Rs. 13,90,096 on sale of the said licences during the year under consideration was untenable. He was also of the view that there was failure on the part of the Assessing Officer in not examining the said claim of the assessee on merits and in accordance with law at the assessment stage with the result that the said claim of the assessee stood accepted without any objective consideration and evaluation of the issues involved by the Assessing Officer. He therefore formed the belief that the order mechanically passed by the Assessing Officer without application of mind was both erroneous and prejudicial to the interest of the revenue. 4. In view of the aforesaid, the Ld. Commissioner issued a show-cause notice under section 263 asking the assessee to explain as to why the order passed by ....
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....he learned Commissioner was not justified in assuming jurisdiction under section 263 as the Assessing Officer had taken a plausible view while making the assessment. According to him, the Ld. Commissioner was not at all right in law in substituting his own view for the view taken by the Assessing Officer in the matter. In support of his submissions, he relied upon the following orders: 1. CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144(SC) 2. CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) 3. United Phosphorus Ltd. v. Jt. CIT [2002] 81 ITD 553(Ahd.) 4. Asstt. CIT v. Premier Consolidated Capital Trust India Ltd. [2004] 4 SOT 793(Mum.) 5. Wallfort Shares & Stock Brokers Ltd. v. ITO [2005] 96 ITD 1 (Mum.)(SB) 6. Order dated 16-5-2005 passed by "G" Bench Mumbai of the Tribunal in Red Rose Enterprise v. CIT [IT Appeal No. 117 (Mum.) of 2004] for assessment year 2000-01. 6. In reply, Shri Rai, the learned Departmental Representative supported the order passed by the learned Commissioner under section 263 of the Income-tax Act, 1961. He submitted that the Assessing Officer had not expressed any view in the assessment order and hence, there was no question of the Co....
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....iod. Import licences accrue to an exporter as incentive on the basis of exports made. Licences are neither sold by the Government nor are they purchased by the exporters. It is not a commodity but a licence or permit granted by the Government to the exporters as incentive to enable them to import the things specified therein. Such licences are also transferable. It therefore follows that an exporter cannot theoretically or otherwise suffer any loss on sale of import licences as he obtains them from the Government as incentive on the basis of exports made without paying separately any price for purchasing them. Loss is caused only when a thing's original cost exceeds its later selling price or when the dominion over the things are irretrievably destroyed or lost. An exporter does not pay any cost to the Government for obtaining the import licences and hence, there can be no loss to an assessee-exporter when he sells them. He always makes profit as and when he sells such licences. He however cannot make profit on the mere receipt of licences without selling them. Section 28(iii) of the Income-tax Act seeks to bring the "profits on sale of a licence" granted under the Imports (Control....
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....The word "erroneous" has not been defined in the Income-tax Act. It has however been defined at page 562 in Black's Law Dictionary (Seventh Edition) thus : "erroneous, adj. Involving error; deviating from the law." The word "error" has been defined at the same page in the same Dictionary thus : "error. N. 1. A psychological state that does not conform to objective reality; a belief that what is false is true or that what is true is false." 11. At page 649/650 in P. Ramanatha Aiyer's Law Lexicon (Reprint 2002), the term "error" has been defined to mean thus : "Error. A mistake in judgment or deviation from the truth in matters of fact, and from the law in matters of judgment; . . . 'Error', is a fault in judgment, or in the process or proceeding to judgment or in the execution upon the same, in a Court of Record; which in the Civil Law is called a Nullitie." (Termes de la Ley) "Something incorrectly done through ignorance or inadvertence (S. 99, C.P.C. and S. 215, Cr.P.C.)." "Error, Fault. Error respects the act; fault respects the agent, an error may lay in the judgment, or in the conduct; but a fault lies in the will or intention." 12. At page 650 of the aforesai....
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....s on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under section 143(3) after scrutiny and not in a summary manner as contemplated by sub-section (1) of section 143. Bulk of the returns ....
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....r is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind." 15. In our humble view, arbitrariness in decision-making would always need correction regardless of whether it causes prejudice to an assessee or to the State Exchequer. The Legislature has taken ample care to provide for the mechanism to have such prejudice removed. While an assessee can have it corrected through revisional jurisdiction of the Commissioner under section 264 or through appeals and other means of judicial review, the prejudice caused to the State Exchequer can also be corrected by invoking revisional jurisdiction of the Commissioner under section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both the parties,....
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....ndicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.' Similar view was earlier taken by the Hon'ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasijudicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgment of the Hon'ble Madras High Court on which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced above the relevant portion of the observations made by the learned Judges. They have held that orders, which are subversive of the administra-tion of revenue, must be regarded as erroneous and prejudicial to ....
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....No evidence has been placed before us that the claim made by the assessee was objectively examined or considered by the Assessing Officer either on record or in the assessment order. It is because of such non-consideration of the issues on the part of the Assessing Officer that the loss claimed by the assessee stood automatically allowed without any scrutiny. The assessment order placed before us is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the assessee. In our view, the assessee should have no grievance in that the learned Commissioner has simply asked the Assessing Officer to consider the ....
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....sts of the revenue. 19. We are unable to accept the aforesaid submission of the learned counsel for two other reasons also. First reason is that the view so taken by the Assessing Officer without making the requisite inquiries or examining the claim of the assessee will per se be an erroneous view and hence will be amenable to revisional jurisdiction under section 263. Second reason is that it is not the taking of any view that will take the matter outside the scope of section 263. The view taken by the Assessing Officer should not be a mere view in vacuum but a judicial view. It is well established that the Assessing Officer being a quasi-judicial authority cannot take a view, either against or in favour of the assessee/revenue, without making proper inquiries and without proper examination of the claim made by the assessee in the light of the applicable law. In Gruh Finance Ltd. v. Jt. CIT [2000] 243 ITR 482 (Guj.), the argument against the initiation of proceedings under section 147/148 that the claim for depreciation has been considered and hence cannot be disallowed on mere change of opinion was rejected because there was no conscious consideration of the materials which we....
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....ion of facts in the light of relevant law is a necessary concomitant in order to say that the Assessing Officer has adopted a permissible course of law or taken a view where two or more views are possible. It is only after such proper examination and evaluation has been done by the Assessing Officer that he can come to a conclusion as to what are the permissible courses available in law or what are the possible views on the issue before him. In case he comes to the conclusion that more than one view is possible then he has necessarily to choose a view, which is most appropriate on the facts of the case. In order to apply the aforesaid observations to a given case, it must therefore first be shown that the Assessing Officer has "adopted" a permissible course of law or, where two views are possible, the Assessing Officer has "taken" one such possible view in the order sought to be revised under section 263. This requires the Assessing Officer to take a conscious decision else he would neither be able to "adopt" a course permissible in law nor "take" a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or....
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.... interest of the revenue. If the order sought to be revised under section 263 suffers from any of the aforesaid vices, it cannot be said that the Assessing Officer has "adopted", in such an order, a course permissible in law or "taken" a view where two or more views are possible. 23. It was next contended by the learned Authorised Representa- tive that the Assessing Officer had considered all the relevant aspects of the case carefully while passing the order. According to him, the mere fact that the assessment order passed by the Assessing Officer was short would neither mean failure on his part in not examining the matter carefully nor would render his order erroneous so long as the view taken by him was a possible view. In our view, the aforesaid submission of the assessee must fail partly for the reasons already explained earlier in this order and partly for the reasons that it is not the size or the length of the order that matters in deciding upon its legality. It is quite possible that a long order, which is sought to be revised under section 263 may suffer from the same errors as pointed out above. It is equally possible that even a short order, which is sought to be revi....
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....ch are prejudicial to the interest of the revenue are allowed to stand, the consequences would be disastrous in that the honest tax payers would be required to pay more than others to compensate for the loss caused by such erroneous orders. For this reason also, we are of the view that the orders passed on an incorrect assumption of facts or incorrect application of law or without applying the principles of natural justice or without application of mind or without making requisite inquiries will satisfy the requirement of the order being erroneous and prejudicial to the interest of the revenue within the meaning of section 263. 25. Before we conclude the matter, we wish to clarify that the observations made by us in the preceding paragraphs are in the context of the provisions of section 263. They have been made in order to examine the legality of the impugned order passed by the learned Commissioner under section 263. The Assessing Officer is however free to decide the matter in the fresh round of assessment initiated as a result of the order of the learned Commissioner on merits and in accordance with law without being influenced by the aforesaid observations. 26. In view o....
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....business profits instead of Rs. 18,58,350 being 90 per cent of the export incentives, (ii) that the central excise refund and sales tax set-off should have been included in the total turnover, and (iii) that the central excise refund and sales tax set-off should have been excluded from the business profits as per clause (baa) of Explanation to section 80HHC. It was further held that there was lack of proper enquiry on the part of Assessing Officer for determining the genuineness of the loans as well as with reference to the transactions of purchase of Rs. 49,05,984 from the sister concern M/s. Mineral India International vis-a-vis section 40A(2)(b). Accordingly, it was held that order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Consequently, the order of the assessment was set aside to the file of Assessing Officer for fresh adjudication after making necessary enquiries and after giving opportunity of hearing to the assessee. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 3. The Learned Counsel for the assessee has assailed the impugned order of the Learned CIT by raising various submissions. Firstly, it ....
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....uiries. 6. Proceeding further, he also relied on the judgment of the Hon'ble Bombay High Court in the case of CIT v. Gabrial India Ltd. [1993] 203 ITR 108, for the proposition that no adverse inference can be drawn merely because that elaborate discussion is not made in the assessment order. He also referred to the judgment of the Hon'ble Patna High Court in the case of Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 and the judgment of the Hon'ble Gujarat High Court in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360 for the proposition that if the loan is received by cheque, then the onus upon the assessee is said to be discharged and, therefore, it could not be said, in the present case, that proper enquiry was not made. He also relied on the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83for the proposition that even if two views are possible and the assessment order is in consonance with one of the views, then the order of assessment cannot be said to be erroneous. 7. On the other hand, the Learned D.R. has vehemently relied on the reasoning given by the Learned CIT. Further, he relied on the jud....
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.... notice issued to the assessee. In our opinion, the answer is in the negative for the reasons given hereafter. The provisions of section 263 itself provide that an opportunity is to be provided to the assessee before passing an order. That means, that assessee is required to reply to the reasons given by the Learned CIT in show-cause notice. Consequently, the order of the Learned CIT must be confined to reasons given in the show-cause notice and, therefore, order of the Assessing Officer cannot be held to be erroneous on different ground. If the Learned CIT intends to deviate from the reasons mentioned in the show-cause notice, then before taking any decision, he must confront to assessee fresh reasons which he may in his mind and then allow assessee a fresh opportunity. The opportunity to be granted must be effective and cannot be an empty formality. A person, who is required to show cause, must know the basis on which action is proposed. Obviously, therefore, the notice issued must indicate the reasons on which the order of assessment is considered to be erroneous and prejudicial to the interest of Revenue [Rawani Dal & Flour Mills v. CST [1992] 86 STC 409 (Ori.)]. This means, th....
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....e, that it cannot be an empty formality, that a person who is required to show cause must know the basis on which the action is proposed and that obviously, therefore, the notice issued must indicate as to on what grounds the order is considered erroneous insofar as it is prejudicial to the interests of the Revenue. Since the under section 263 dated 22-3-1990 did not indicate the ground used by the Commissioner, in his order under section 263 dated 30-3-1990, the impugned order under section 263 cannot be sustained." The Hon'ble Gujarat High Court, though rendered in penalty proceedings in the case of CIT v. Lakhdhir Lal Ji [1972] 85 ITR 77, cancelled the penalty by giving similar reasonings. The relevant portion of the judgment is quoted below : "Held, that the penalty proceedings had been commenced against the assessee on a particular footing, viz. concealment of particulars of income but the final conclusion for levying the penalty was based on a different footing altogether viz. on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given reasonable opportunity of being heard before the order....
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....he case. Whenever expenditure is claimed by the assessee as deduction, the onus is on the assessee to prove its genuineness. However, where payment is made to the persons mentioned in section 40A(2), then it is the duty of the Assessing Officer to make proper enquiry to ascertain whether such expenditure is reasonable with reference to the prevailing market price. Similarly, where any receipt is claimed to be exempt from taxation, it is the duty of Assessing Officer to ascertain whether conditions for allowing expenditures are fulfilled or not. The duty of the Assessing Officer is to collect the correct tax due from the assessee neither a penny more nor a penny less. Therefore, if he fails in performing in his duty, then his order can be considered as erroneous and prejudicial to the interest of Revenue. In our opinion, mere collection of material is not enough in discharging of such duty. It is also the duty of the Assessing Officer to evaluate the material or evidence collected and then ascertain whether such materials are enough to sustain the claim of the assessee. 11. In the above backdrop, let us examine the facts of the present case. Regarding the payments made by the ass....
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....eir Balance Sheet were examined. Even the Assessing Officer had not made any enquiry from the concerned Assessing Officers with whom they were assessed. Therefore, in our opinion, the Assessing Officer failed to make proper enquiries before accepting explanation of assessee. Thus, there was lack of proper enquiry on the part of the Assessing Officer. 13. The Learned Counsel for the assessee has relied on the two decisions of High Courts namely (i) Bahri Bros (P.) Ltd.'s case (supra ) and (ii) Rohini Builders' case (supra). These cases are not on the point before us. The question before the Patna High Court was whether addition could be made where the assessee had disclosed the names of the creditors and the names of the Banks on which the cheques were drawn. The Court held that the assessee had discharged the primary onus and the onus shifted to the Department to verify the same. This itself shows that the Assessing Officer was required to make enquiry before rejecting the case of assessee. Similarly, in the case before the Gujarat High Court, Their Lordships referred to Supreme Court judgment in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 781and observed that wher....
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.... concerns of the assessee-company would not render the property as not tenanted one. Under the Rent Control Act of the State, there is a procedure for the determination of the fair rental value of the properties and it is not possible for the assessee to realise the rent more than the fair rent determined under the Rent Control Act. The Commissioner had not determined what would be the fair rental value of the property under the relevant rent control law of the State and on the basis of his own assumption that there was a steep increase in the rental value of the property, it was not possible for him to exercise the power of revision and direct the ITO to conduct further investigation and to determine the annual rental value of the same. The Commissioner should have some information or material to establish that the rental amount received by the assessee was too low than the fair rent of the properties. In the absence of any material to show that the said property would have fetched a higher rent, it was not possible for the Commissioner to exercise his power of revision. The Tribunal had found that there was no error of fact in the order of assessment. The ITO had completed the as....
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....ing was 75 per cent, of a new belt, while the cost of reconditioning was about 50 per cent of the cost of a new belt. 2. The assessee claimed relief under section 80J of the Income-tax Act, 1961 as a new industrial undertaking. That relief was granted by the ITO who also found that the assessee's taxable income for that year was 'nil'. The order of the ITO was revised by the Commissioner in exercise of his powers under section 263, as he thought that the order was erroneous and was also prejudicial to the interests of the revenue. The Commissioner's order, however, was set aside in appeal by the Tribunal which held that the reconditioned belt was the result of the process of manufacture, and that the assessee was, therefore, entitled to relief under section 80J. 3. At the instance of the revenue, the questions as to whether the precondition regarding prejudice to the revenue existed when the Commissioner exercised his revisional jurisdiction as also whether the Tribunal was right in taking the view that the reconditioned belt was a result of manufacture is correct, have been referred to us. 4. On the question as to whether the recondition of a conveyor belt....
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....e to be available to the assessee for a period of seven years. The fact that as on the date of the ITO's order, the tax leviable was 'nil' does not mean that the assessee was incapable of making profits in future years on which tax could have been levied. The Commissioner is not expected to be an astrologer being capable of foretelling future events to note as to what the commercial success of failure of the assessee would be at a later point of time. The Commissioner was, therefore, well within his jurisdiction in holding that the order of the ITO was prejudicial to the interests of the revenue. 8. We, therefore, answer the two questions referred to us, viz. : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the order of the Commissioner of Income-tax under section 263, holding that the assessee is eligible for deduction under section 80J ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Income-tax Officer's order cannot be said to be prejudicial to the revenue for the assessment year 1977-78 as there is no tax effect ?"....
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....d of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax 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 inquiry 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) No order shall be made under sub-section (1) - (a) to revise an order of reassessment made under section 147, or (b) after the expiry of two years from the date of the order sought to be revised. . . . 9. From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is "erroneous in so far as it is prejudicial to the interests of the Revenue". It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements lai....
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.... and is, therefore, invalid, and is a defect that is jurisdictional in its nature, and does not refer to the judgment of the Assessing Officer in fixing the amount of valuation of the property. 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". 12. From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making so....
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....al before the Commissioner to consider that the order passed by the Income-tax Officer was erroneous in so far as it is prejudicial to the interests of the Revenue. We have already held what is erroneous. It must be an order which is not in accordance with the law or which has been passed by the Income-tax Officer without making any enquiry in undue haste. We have also held as to what is prejudicial to the interests of the Revenue. An order can be said to be prejudicial to the interests of the Revenue if it is not in accordance with the law in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. There must be material available on the record called for by the Commissioner to satisfy him prima facie that the aforesaid two requisites are present. If not, he has no authority to initiate proceedings for revision. Exercise of power of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If ....
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....at the expenditure was not revenue expenditure but an expenditure of capital nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal. 16. In the light of the foregoing discussion, we answer the question referred to us in the affirmative, that is, in favour of the assessee and against the Revenue." 2.10. In the celebrated case of Malabar Industrial Company Ltd. vs CIT (243 ITR 83) (SC), it was held that for invoking jurisdiction u/s 263 by the ld. Commissioner, the order should be either erroneous and prejudicial to the interest of Revenue. In that case, the assessment was framed without making an enquiry by the Asse....
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....elf give occasion to the CIT to pass order us/ 263, merely because he has a different opinion in the matter. This judicial pronouncement squarely defends the case of the assessee. While coming to this conclusion, the Hon'ble Court duly considered the following decision a. Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 210 CTR (SC) 30 (2007) 291 ITR 500 (SC) b. CIT vs. Mysore Spun Concrete Pipe (P) Ltd. (1991) 97 CTR (Kar) 117 (1992) 194 ITR 159 (Kar) c. CIT vs. Seshasayee Paper & Boards Ltd. (2000) 242 ITR 490 (Mad) d. Gee Vee Enterprises vs. Addl. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) e. Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 (1997) 225 ITR 802 (SC) f. Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC) 2.13. The Mumbai Bench of the Tribunal in M/s. Simandhar Association vs Principal CIT (I.T.A. No. 789/Mum/2016) Order dated 21/03/2016 has discussed the scope of revisional jurisdiction u/s 263 of the Act. The relevant portion from the order is reproduced hereunder:- "The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'b....
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....icial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282." The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind to the issues. If the assessment order has been passed by causing enquiries, then it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdicti....
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....c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal. [Explanation c to Section 25(2)] (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal. xxxxxxxxxxxxxxxxxxxxx 10. In view of the above analysis, as also bearing in mind entirety of the case, we are of the considered view that the learned Commissioner was indeed in error in exercising his revision powers under section 263 on the facts and in the circumstances of this case. As learned CIT(A) was in seisin of the same matter, i.e. disallowance under section 14A, in the appellate pr....
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....sment without making any addition, i.e., accepting the income returned by the assessee. 3. On examination of the assessment records, the Ld Pr. CIT took the view that the assessing officer did not examine and verify the issues by correlating the evidences found during the course of search conducted in the hands of R.N.S. Infrastructure. Accordingly he held that the assessment orders passed for both the years under consideration is erroneous and prejudicial to the interests of revenue. The relevant observations made by Ld Pr. CIT in this regard are extracted below, for the sake of convenience. 2. . . . On perusal of records, the fo11owing issues were noticed in the aforesaid order u/s 143(3) r.w.s 147 of the Income-tax Act, 1961 dated 31.03.2015 for the A.Y. 2007-08:- (1) The case was reopened for scrutiny to verify information received from the Investigation Wing during the course of search operations in the case of' M/s. R.N. S. Infrastructure Ltd. on 16/02/2012. During the course of the search operations, certain documents were found and seized, which indicated the payments made to several persons holding public office. As per the information received, Shri Naravan T....
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.... the revenue. Hence, a notice u/s 263 of the Act dated 1.3.2016 was issued to the assessee as the order was found to be erroneous & prejudicial to the interest of the revenue within the meaning of section 263 of the Income-tax Act. 1961 and the assessee was allowed an opportunity of being heard and to show cause as to why an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment within the meaning of Section 263 of the Income Tax Act, 1961 may not be passed in his case. Similar notice was issued for A.Y. 2008-09 as well with minor modifications.' 4. The assessee contended before the Ld Pr. CIT that the assessing officer has reopened the assessment of both the years for the specific purpose of assessing the income, if any, noticed in the incriminating documents. The assessee had objected to the reopening, but the AO has overruled the same by giving detailed reasoning. The assessing officer issued notice u/s 142(1) of the Act calling for various details. The assessee replied to all the queries raised by the assessing officer by giving a detailed reply, wherein the assessee had denied the entire transactions noted down in the i....
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....he assessee and such decision cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. The decision is distinguishable on facts as in the instant case the issue is not the nature of expenditure being capital or revenue but failure to conduct inquiries and examine the evidence found in the course of the search in which transactions relating to the assessee were mentioned. Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167, also held that the opinion of the Assessing Officer in treating the revenue expenditure was plausible and thus, there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. In the case of the assessee, on the other hand, on examination of records as they exist now, it is evident that the Assessing Officer did not appreciate the full facts of the case and vital evidences being the date of birth, the date of assumption of the public office and the constitutency etc. which all linked the transactions in the seized document with the assessee and thereby passed an order which is now held to be erroneous and prejudicial to the interes....
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....nterests of revenue." 6. Aggrieved by the common order passed by Ld CIT, the assessee has filed these appeals before us. 7. The Ld A.R submitted that the assessing officer had reopened the assessment of both the years under consideration on the basis of the incriminating documents found during the course of search conducted in the hands of M/s R.N.S infrastructure in order to assess the income escaped in the hands of the assessee. He submitted that the objection raised by the assessee for reopening of the assessment was overruled by the AO. Thereafter the assessee has cooperated fully with the assessing officer by furnishing necessary details and has strongly denied the transactions noted down in the document. The Ld A.R submitted that the assessing officer was satisfied with the explanations given by the assessee and hence did not make any addition. He submitted that the assessing officer has taken a possible view after due application of mind and hence the Ld Pr. CIT was not justified in holding that the assessment orders were erroneous, since the assessing officer did not make enquiries in the way the Ld CIT thought that it should have been done. He submitted that the Ld C....
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....0] 243 ITR 83/109 Taxman 66 (SC) and CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC). 9. On merits, the ld A.R submitted that the impugned incriminating document was a dumb document and hence the tax authorities could not place any reliance on it. In this regard, he placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 and more particularly to the following observations made by Hon'ble Apex Court:- "37. In Beni v. Bisan Dayal (AIR 1925 Nag 445: 89 IC 371), it was observed that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another......" 10. On the contrary, the Ld D.R submitted the assessing officer has simply extracted the explanations furnished by th....
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....nd hence the said assessment order is liable for revision as held in the case of CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.). He further submitted that the Explanation 2 given under sec. 263(1), which was inserted by the Finance Act 2015 w.e.f. 1.6.2015, provides that the order passed without making inquiries or verification which should have been made shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. He submitted that the said Explanation 2 is clarificatory in nature and hence the same should be applied retrospectively. 11. In the rejoinder, the Ld A.R submitted that the assessing officer has made due enquiries with regard to the impugned incriminating document, since the AO has reopened the assessment to examine the same only. He submitted that the alleged incriminating document was a dumb document and even the person from whom it was seized, did not implicate the assessee at all in the statement taken from him u/s 132(4) of the Act. He submitted that the assessing officer has accepted the explanations of the assessee by considering all these factual details and hence he did not make any addition. He further submitted that the a....
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....ed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression "prejudi....
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....ments and the assessee has also objected to the reopening. The assessing officer has specifically addressed those objections and has also rejected the same. In the notice issued u/s 142(1) of the Act, the assessing officer has asked the assessee to clarify about the impugned incriminating document and also to give explanations as to why the amounts mentioned therein should not be added back to the total income of the assessee. In response thereto, the assessee has filed a reply, wherein he has denied any connection with the incriminating document. The assessing officer was satisfied with the said explanations and accordingly did not make any addition to the total income in both the years. 15. However, the Ld Pr. CIT has taken the view that the assessing officer has completed the assessments without making proper enquiries with regard to the incriminating documents. According to Ld Pr. CIT, the AO should have made further enquiries in this matter. Accordingly he has passed the impugned revision order. 16. We have noticed earlier that the Ld Pr. CIT can revised the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the ....
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....nbeam Auto Ltd. (supra). The Hon'ble Delhi High Court has also extracted following observations made by the Tribunal:- "38. Still further, the Hon'ble Supreme Court in Malabar Industrial Co. (2000) 243 ITR 83 has held that when two views are possible and the Assessing Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the Commissioner of Income tax could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the assessing officer could not be held to be erroneous." 18. In the case of CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi), the Hon'ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 as under:- "Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that th....
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....se of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the....
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....rs to have been satisfied with the explanations given by the assessee and did not make any addition. We have noticed that the Hon'ble Supreme Court has held in the case of Central Bureau of Investigation (supra) that the entries in the books of account by themselves are not sufficient to charge any person with liability. Hence, in our view, it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was not considered to be strong by the AO to implicate the assessee. Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pr. CIT has passed the impugned revision orders only to carry out fis....
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....s are required to be satisfied before invoking the revisional powers given u/s 263 of the Act. In the instant case, we are of the view that the Ld Pr. CIT has failed to show that both the conditions exist in the instant case. Accordingly we find merit in the contentions of the assessee that the revision orders passed by Ld Pr. CIT for the years under consideration are beyond the scope of sec. 263 and hence not valid. Accordingly we set aside the revision orders passed by Ld CIT for the two years under consideration. 24. In the result, both the appeals filed by the assessee are allowed." 2.16. We find that in the aforesaid case, while coming to a particular conclusion, the Bench considered the following cases:- i. CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (para 4), ii. CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (para 4), iii. CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (para 4), iv. CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) (para 4), v. CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329 (Bom.) (para7), vi. Malabar Industri....
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....Even though there is a doubt as to whether the said Explanation, which was inserted by Finance Act 2015 with effect from 1-4-2015, would be applicable to the year under consideration, yet it is observed that the said Explanation cannot be said to have over ridden the law interpreted by Delhi High Court. If that be the case, then the Commissioner can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the Assessing Officer to conduct the enquiries in the manner preferred by the Commissioner, thus prejudicing the independent application of mind of the Assessing Officer. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to section 263, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. [Para 19] ■ Further, clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order ....
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.... nature. Further, Commissioner had not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, it is observed that the Commissioner has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the Assessing Officer. Hence the Commissioner was not justified in law in holding that the impugned assessment orders were erroneous. [Para 21] ■ In order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the time of hearing, it was pointed out to department that there are references to various names. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to department as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as....
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....e assessee trust i.e. M/s. The J. K. Trust Bombay. On perusal of the said proposal, a show cause notice was issued to the assessee vide letter No. CIT(E)/263/2016-17 dated 12.08.20 16 which "2. In your case, the assessment was completed u/s. 143(3) on 11.1 1.2014 accepting the total income at Nil. 3. From the records it is observed by the Assessing Officer that the assessee had claimed an amount of Rs. 17,78,321/- as expenses on account of payment to Shri B. K. Kedia one of the trustees and a person covered u/s. 13(3) of the I.T. Act The nature of the payment and reasonableness thereon is not evident or record and accordingly it appears that the issue of reasonability of the payment and correlation with the objective of the trust has not been examined. The provisions of section 13 provides that if any income of the trust is utilized for the benefit of a person or any payment in the nature of salary, allowances etc. is in excess of the reasonable amount payable for such services to persons covered u/s. 13(3) shall be held to be violation of the provisions of section 13 and consequently the assessee shall not be eligible for any exemption u/s. 11 or 12 of the Act. In view of th....
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....e.f 01.04.2009 provides that no exemption u/ s.11 of the Act shall be available to such entities, which cannot be construed to be charitable on account of above amendment to Section 2(15) of the Act. 6. In view of the activities of the trust are in the nature of advancement of any other object of general public utility only and hence provision of Section 2(1S) of the I. T. Act, is applicable in your case and hence the trust is not eligible for exemption u/s. 11 of the I. T. Act, As the A. 0. not applied the provisions of Section 2(15) and allowed the exemption u/s. 11 of the Act, which lead to under assessment. 7. I have examined the records as well as the order passed by the A0 as discussed above and I am of the opinion that the order passed by the A0 is erroneous in so far as it is prejudicial to the interests of the revenue and requires revision. In view of the above facts, you are requested to explain as to why order u/s. 263 of the Act should not be passed enhancing or modifying the assessment or cancelling the assessment and directing afresh assessment in your case. In this regard, you are requested to attend in person or through your authorized representative before th....
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....how the employment generation is done through skills enhancement in remote area. Thus the J.K. Trust create the rural development structure which is framed on welfare of farmers and to empower the under privilege section of the society to secure better future as per rural development scheme of the various government, the strategy was to leverage appropriate technology, provide effective extension and create innovative employment opportunities for women's, poor farmers, tribal inhabitants and youth of the country. The mission of J.K. Trust Gram Vikas Yojna is to significantly improve the quality of life in India's rural area through a Cattle Breed Improvement Programme (C13IP) that achieves the following goals; Alleviating Poverty: Increase milk production enables participating farmers to effectively supplement their income by sale of surplus milk. Creating Employment: To provide direct employment opportunities to educated, unemployed, rural youth and indirect employment opportunities to farmer households. Reducing infant Mortality and Malnutrition: Surplus milk generated by high milk yielding cows and buffaloes helps to reduce infant mortality, especially caused....
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....cts from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating surplus" is wholly incidental to the principal activities of the trust ; which is otherwise for general public utility, and, therefore, of charitable nature. The assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. The Assessing Officer applied the proviso to section 2(15) holding that the trust could not be considered as one created for charitable purposes. He analysed the accounts of the assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. Therefore, for the assessment year 2009-10, he denied the benefit of sections 11 and 12 to the assessee. The Tribunal noted that the objects were admittedly charitable in nature'. The surplus generated was wholly secon....
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....he conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of the proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any 'trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Minister's speech in Parliament. The relevant portion of which reads as under: 1.4 "I once again assure the House that genuine charitable organizations will not ....
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.... to contributions front and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 1.8 In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalisation is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of sectio....
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....vity. Merely because whit/c carrying out the activities for the purpose of achieving the objects of the trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the Central Board of Direct Taxes in its Circular No. 11 of 2008, dated December 19, 2008, the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of "public utility". In the view of the above it is submitted that the trust's activities are charitable and trust is not engaged in any trade or commerce. Therefore in view of the above decision the proviso to the section 2(15) is not applicable, hence the Income of the Trust is not liable for the Tax. It is therefore once again submitted that, the original order for assessment year 2012-13 was properly passed therefore the order passed by the A.O is neither erroneous nor it is prejudicial to the interest of the revenue. It is therefore requested to kindly drop the proceeding initiated u/ s 263." 3.1 Further, the assessee trust vide letter dated 29.03.2017 also made furth....
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....ment of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". The statutory provisions, as explained in the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for cess, fee or any other consideration. It is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as "charitable purpose". Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any censideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not b....
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....Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity : Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year., 1.3 The legal controversy in the present tax appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term "charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". However, for the application....
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....business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 1.7 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if .such. organizations have dealings with nonmembers, their c....
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....te agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Rharwads ; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc. ; to establish other allied institutions like leather work and to recognise and help them in order to make the cow keeping economically viable,' to publish study materials, books, periodicals, monthlies, etc., in order to publicise the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects. 2.1 All these were the objects of the general public utility and would he squarely fall under section 2(15) of the Act_ Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the C....
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....has contended that the activities conducted by it were for general public utility and were for charitable purposes. Its main objectives were to breed the cattle and endeavour to improve the quality of the cows and oxen. It has further been contended that the trust's is not engaged in any trade or commerce and since the objects of the trust were of general public utility, hence the activities carried on by it would squarely fall within the purview of section 2(15) of the I.T. Act. I have also examined the records as well as the order passed by the From the records it is observed that the assessee had claimed an amount of Rs. 17,78,321/- as expenses on account of payment to one of the trustees and a person covered u/s. 13(3) of the I.T. Act. The nature of the payment and reasonableness thereon is not evident for record and accordingly it appears that the issue of reasonability of the payment and correlation with the objective of the trust has not been examined by the A.O. The provisions of section 13 provides that if any income of the trust is utilized for the benefit of a person or any payment in the nature of salary, allowances etc. is in excess of the reasonable amount paya....
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....the interest of the Revenue. While the power is not meant to be substitute for the power of the AO to make assessment, the same can certainly be exercised when the order of the AO is erroneous and prejudicial to the interest of the Revenue. Whether or not the order is erroneous and prejudicial to the interest of the Revenue has to be decided from case to case. The relevant provisions of section 263 read as under: "263(1) The Commissioner may call for the examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and making or causing to made such inquiry 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..... 7. The Commissioner gets power of revision under Section 263 where the assessment order is erroneous and prejudicial to the interest of revenue. The twin conditions are required to be satisfied simultaneously. A....
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....08/2016 was issued to the assessee on 07/09/2016 (page 1 & 32 of the paper book), which was replied on 07/09/2016 by the assessee (pages 3 to 16 of the paper book). Another notice dated 20/02/20017 for hearing (page 17 of the paper book) was issued. The assessee filed reply on 15/03/2017 (paper book pages 18 to 22). Another notice dated 24/03/2017 (received on 29/03/2017) was issued (pages 23 & 24 of the paper book), to which also the assessee filed reply on 29/03/2017 (pages 25 to 29 of the paper book). 2.21. Before adverting further, it is our bounded duty to examine the assessment order whether it was properly framed and also whether before framing the assessment whether any enquiry was made by the ld. Assessing Officer. We find that notice under section 142(1) dated 13/10/2014 was issued to the assessee (pages 30 to 31 of the paper book), which was replied, annexed with various details vide letter dated 10/11/2014 (pages 32 to 96 of the paper book). A copy of the amended trust deed dated 30/10/1996 was filed before the Ld. Assessing Officer (page 97 to 115 of the paper book.). One of the objection raised by the ld. Commissioner (E) is with respect to justification of remuner....
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.... per month and he joined ordinary trustee on 02/09/2003 and looking after his management skill and to look after the projects taken from State Government, Man Power Utilization, effective internal control measures, cost cutting measures, expansion of public charitable activities etc, Shri Kedia agreed to work as whole time consultant and thus was given the overall responsibility of the trust to look after the work of the assessee trust. The assessee trust utilized his vast experience and considering his ability, efficiency, he agreed to work on a consultancy fee of Rs. 1,70,000/- per month (total Rs. 17,78,321/- including service tax) for the period from 01/04/2011 to 15/01/2012, which was much less what he was getting in the earlier employment, thus, we are convinced that the payment made to him cannot be said to be unreasonable. No evidence was brought on record by the Revenue evidencing the claim of the assessee. The total consultancy fee paid during the year under reference was Rs. 16,12,258/- plus service tax of Rs. 1,66,063/- on which TDS was also deducted. He was appointed as full time consultant for 16/06/2008 and thereafter he gave tremendous result to the assessee. In thi....
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....is getting grants from the government and there is no evidence on record that anything was charged by the assessee from such cattle breeders, farmers or the public at large. The case of the assessee is further fortified by the decision from Hon'ble Gujarat High Court, on identical facts in the case of DIT(E) vs Sabarmati Ashram Gaushala Trust (2014) 44 taxmann.com 141 (Guj.), wherein, Circular No.11/2008 dated 19/12/2008 and proviso to section 2(15) has also been discussed. The relevant portion from the order is reproduced hereunder:- "Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad ("Tribunal" for short) dated 7th June 2013, raising following questions for our consideration :- "(A) Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to provide exemption u/s. 11 of the I.T Act to the assessee ? (B) Whether the Appellate Tribunal has substantially erred in holding that the proviso to Section 2(15) of the I.T Act was not applicable to the facts and circumstances of the case?" 2. The controversy centers around activities of the respondent-assessee-Sabarmati Ashram Gaushala Trust. The said T....
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....nder trust wholly for charitable or religious purposes shall not be included in the total income of the Trust. 5. Term "Charitable Trust" is defined in Section 2 (15) of the Act which includes the relief to the poor, eduction, medical relief, preservation of environment; including watersheds, forests and wildlife and preservation of monuments or places or objections of artistic or historic interest and advancement of any other object of general public utility. Proviso to Section 2 (15) and further proviso whereof inserted by Finance Act 2010 w.e.f 1st April 2009 read, thus - "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in....
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....y inserted proviso to section 2 (15) will apply only to entities whose purpose is ' advancement of any other object of general public utility' ie., the fourth limb of the definition of ' charitable purpose' contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under ' any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases....
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....products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the Trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business - particularly if generating ' surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. The Tribunal took into account the objects of the Trust, which are as under :- "1. To breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country and the cow milk as food is both conducive to and requisite for good health and longevity of human life. In order to improve the quality of the cattle, it is very essential to use a high quality bulls. Hence to produce and to get produced the best pedigreed bulls and to castrate the scrub bulls and propagate the work to prepare bulloc....
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....ame was for general public utility and where for charitable purposes. The main objectives of the trust are - to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting eduction in cow keeping and agriculture having regard to the trust objects. 12. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim ....
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....can be applied. The six indicia stipulated in Lord Fisher [1981] STC 238 are also relevant. Each case, therefore, has to be examined on its own facts. In view of the aforesaid enunciation, the real issue and question is that whether the petitioner-Institute pursues the activity of business, trade or commerce. To our mind, the respondent while dealing with the said question has not applied their mind to the legal principles enunciated above and have taken a rather narrow and myopic view by holding that the petitioner-Institute is holding coaching classes and that this amounts to business." 14. In the result, we do not find that the Tribunal has committed any error and the Tax Appeal is therefore dismissed. 2.24. We find that the above decision is on identical facts, thus, the ratio laid down therein, clearly fortifies the case of the assessee. It is also noted that the during hearing, ld. CIT-DR raised a query that the assessee is not doing charitable activities rather engaged in trade, commerce or business. This objection of the Ld. CIT-DR and also the observation of the Ld. CIT(E) has also been replied in the aforesaid order, wherein, it was observed/held that many ....
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....erely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19-12-2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of 'public utility'. [Para 12]. While coming to the aforesaid conclusion, the Hon'ble High Court affirmed the decision of the Tribunal in Sabarmati Ashram Gaushala Trust vs DIT(E) (2013) 35 taxmann.com 552(Ahd. Trib.) and also considered the decision in Institute of Chartered Accountants of India vs DIT(E) (2012) 347 ITR 99(Del.). If the conclusion drawn in the present appeal is applied to the facts of the case, we find that the objects of the trust are of general public utility and beneficial to the public at large as the centers are located at village level in various blocks (Tallukas) in the state of Rajasthan and in each center, gopals are deputed who are responsible for the objects of the assessee trust and su....