TaxTMI 
TaxTMI 
TaxTMI 
2023 (2) TMI 812
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....CIT, (Exemptions) holding that revisionary order of CIT(E) under Section 263 dated 31.03.2021 is not sustainable being bad in law and passed in violation of principle of natural justice where the CIT, (Exemptions) has categorically found that the order under Section 143(3) passed by the AO is erroneous and prejudicial the interest of revenue? ii) Whether on the facts and in the circumstances of the case and in law is the order of the Hon'ble ITAT not perverse in holding that the Assessing Officer has made sufficient enquiry during the course of assessment proceedings under Section 143(3) when the assessee has failed to submit the details in respect of the claim of depreciation for Rs.4,77,03,665/-? iii) Whether on the facts and in the circumstances of the case and in law is the order of the Hon'ble ITAT not perverse in holding that the Assessing Officer has made sufficient enquiry during the course of assessment proceedings under Section 143(3) when the assessee has failed to submit the details in respect of claim of depreciation for Rs.4,77,03,665/- even during the reassessment proceedings completed under Section 143(3) read with Section 263 read with Section 144B on 26.03.2....
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....ion of the issues, in accordance with law." 2.3. The respondent-assessee questioned the hot-haste decision of the CIT (Exemption) before the ITAT and distinguishing the case of Grama Vidiyal Trust (supra), submitted that in a case where the cost of asset was allowed under Section 11 of the IT Act in favour of the assessee-charitable trust as application of income in the year of purchase, the assessee could not claim or be allowed deprecation on the said assets. Nonetheless, in the instant case, the respondentcharitable trust having not claimed the amount as application of income at the time of purchase, there is no restriction of claiming depreciation on those assets which have not been included in the amount of application of receipts in the financial statement. 2.4. It was the case of the respondent-assessee before the ITAT that notice under Section 263 being issued on 26.03.2021 at the verge of time barring on 31.03.2021, inadequate opportunity was afforded to the respondent to present material. 2.5. While appreciating that the basic requirement to exercise power under Section 263 of the IT Act was not adhered to by the CIT (E), it is observed that during the course of scrut....
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.... by the assessee. The CIT (E), therefore, was incompetent to invoke power under Section 263 without causing any enquiry. The Order in revision being passed with undue haste without affording reasonable opportunity there has been flagrant violation of the principles of natural justice. 4.1. The learned ITAT having rendered its positive finding on the grounds urged by the assessee that not only there was inadequate time granted for placing material, but also there was inherent lack of jurisdiction in initiating proceeding under Section 263 by the CIT (E) coupled with illogical appreciation of basic fact in deviation of rule of consistency that the assessee had been claiming depreciation since several previous assessment years for which audited financial statements for the financial years 2012-13 to 2015- 16 were available on concerned record. Consideration of rival contentions: 5. It is first contended by Sri Chimanka, the learned Senior Standing Counsel that the Assessing Officer while completing assessment under Section 143(3) of the IT Act pertaining to Assessment Year 2016-17 failed to conduct enquiry as to the claim of depreciation to the tune of Rs.4,77,03,665/-, which fac....
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.... the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. Rampyari Devi Saraogi Vrs. CTT[1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal Vrs. CIT[1973] 88 ITR 323 (SC)." 5.3. There is difference between purported incomplete or inadequate verification or no verification whatsoever by the assessing officer. One has to keep in mind the distinction between 'lack of inquiry' and 'inadequate inquiry'. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the IT Act, merely because he has a different opinion in the matter. It is only in cases of 'lack of inquiry' that such a course of action would be open. Refer: CIT Vrs. Sunbeam Auto Ltd., (2011) 332 ITR 167 (Del). 5.4. From 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, on examination of the records of any proceedings under the 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 ....
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....lusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. Refer: CIT Vrs. Gabriel India Ltd., (1993) 203 ITR 108 (Bom). 5.5. The Hon'ble Andhra Pradesh High Court in Spectra Shares & Strips Pvt. Ltd. Vrs. CIT, (2013) 354 ITR 35 (AP) culled out the following propositions: (a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent- if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue- recourse cannot be had to Section263(1) of the Act. (b) 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, ....
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....f give occasion to the Commissioner to pass orders under Section 263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. (f) The power of the Commissioner under Section 263(1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 5.6. In Malabar Industrial Co. Ltd. Vrs. CIT, (2000) 2 SCC 718 the Assessing Officer accepted the entry in the s....
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....India in CIT Vrs. Amitabh Bachchan, (2016) 384 ITR 200 (SC) stated that it may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the Section 263 of the IT Act to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the CIT to confine himself to the terms of the notice and foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the CIT is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the CIT prior to the finalization of the decision. 5.10. In the instant case, the notice contemplating initiation of proceeding for revision was issued on 26.03.2021 and the order in revision was passed on 31.03.2021 by rej....
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....he time of acquisition or purchase of assets as application of income. Therefore, there arose no necessity for the Assessing Officer to go further to analyse and examine the issue as he is duty bound to follow the "rule of consistency" and, hence, it is not a case of "no enquiry". Rather the Assessing Officer has made proper, sufficient and adequate enquiry with regard to claim with reference to books of account, which is evident from the Assessment Order itself. 6.2. The aforesaid observation may find support of Gee Vee Enterprise Vrs. Additional Commissioner of Income Tax, (1975) 99 ITR 375 (Del). In the said Judgment, it has been made clear as follows: "*** The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income Tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply ....
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....e Court in Jayaswals NECO Ltd. Vrs. CCE, (2007) 13 SCC 807: "7. This Court in Birla Corpn. Ltd. Vrs. CCE [(2005) 6 SCC 95] relying upon an earlier decision of this Court, held that the Department having accepted the principles laid down in the earlier case cannot be permitted to take a contra stand in the subsequent cases. In para 5 of the said judgment it was observed, thus: (SCC p. 97) '5. In the instant case the same question arises for consideration and the facts are almost identical. We cannot permit the Revenue to take a different stand in this case. The earlier appeal involving identical issue was not pressed and was therefore, dismissed. The respondent having taken a conscious decision to accept the principles laid down in Pepsico India Holdings Ltd. [CCE v. Pepsico India Holdings Ltd., (2001) 130 ELT 193 (cegat)] cannot be permitted to take the opposite stand in this case. If we were to permit them to do so, the law will be in a state of confusion and will place the authorities as well as the assessees in a quandary.' ..." 6.5. The Hon'ble Supreme Court of India while accepting that though principle of binding precedents cannot be applied to interlocutory orders, e....
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....ere is a value which the Court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. No doing so will only result in uncertainty and displacement of settled expectations. This is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable." 6.8. Coming back to the present subject-matter, it is not gainsaid by the Revenue that the respondent-assessee has been following the practice of claiming depreciation in earlier years as that is claimed in the present year under assessment. Furthermore there is no denial of fact by the Income Tax Department that the assessee is consistently claiming the depreciation as application of income without making the claim under Section 11 of the IT Act at the time of acquisition or purchase of assets as application of income. Me....
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.... Section 263 of the IT Act is not tenable either on facts or in law, the learned ITAT has rightly quashed the consequential proceedings and orders allowing claim of depreciation on the assets. Interpretation of statutory provision and views expressed by different Courts qua dispute sought to be raised by initiating proceeding for revision: 9. Taking note of Section 11 of the IT Act, the Hon'ble Gujarat High Court in the matter of Commissioner of Income Tax Vrs. Shri Plot Swetamber Murti Pujak Jain Mandal, (1995) 211 ITR 293 (Guj) made the following observation: "3. A bare perusal of the above-referred provisions of the Act shows that the income derived from property held under trust wholly for charitable or religious purposes to the extent to which such income is applied to such purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen. The word "applied" means "to put to use" or "to turn to use" or "to make use" or "to put to practi....
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....e derived from the trust property has to be determined on commercial principles and if commercial principles for determining the income are applied, it is but natural that the adjustment of the expenses incurred by the trust for charitable and religious purposes in the earlier year against income earned by the trust in the subsequent year will have to be regarded as application of income of the trust for charitable and religious purposes in the subsequent year in which such adjustment has been made having regard to the benevolent provisions contained in Section 11 of the Act and will have to be excluded from the income of the trust under Section 11(1)(a) of the Act. In view of the above discussion, we are of the opinion that, on the facts and in the circumstances of the case, the assessee is entitled to carry forward expenses for set off in the subsequent year. The question referred to us is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue." 9.1. This Court is not oblivious of the decision of the Hon'ble Bombay High Court rendered in the case of CIT Vrs. Institute of Banking, (2003) 264 ITR 110 (Bom). In the said case the said Court....
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....mal depreciation can be considered as a legitimate deduction in computing the real income of the assessee on general principles or under Section 11(1)(a) of the Income Tax Act. The court rejected the argument on behalf of the Revenue that Section 32 of the Income Tax Act was the only section granting benefit of deduction on account of depreciation. It was held that income of a charitable trust derived from building, plant and machinery and furniture was liable to be computed in a normal commercial manner although the trust may not be carrying on any business and the assets in respect whereof depreciation is claimed may not be business assets. In all such cases, Section 32 of the Income Tax Act providing for depreciation for computation of income derived from business or profession is not applicable. However, the income of the trust is required to be computed under Section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust. In view of the aforesaid judgment of the Bombay High Court, we answer question No. 1 in the affirmative, i.e., in favour of the assessee and against the Department." 9.2. Afores....
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....igned to the expression "total income", vide Section 2(45)... 4. Where the trust derives income from house property, interest on securities, capital gains, or other sources, the word "income" should be understood in its commercial sense, i.e., book income, after adding back any appropriations or applications thereof towards the purposes of the trust or otherwise, and also after adding back any debits made for capital expenditure incurred for the purposes of the trust or otherwise. It should be noted, in this connection, that the amounts so added back will become chargeable to tax under Section 11(3) to the extent that they represent outgoings for purposes other than those of the trust. The amounts spent or applied for the purposes of the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent., of the latter, if the trust is to get the full benefit of the exemption under Section 11(1). 5. To sum up, the business income of the trust as disclosed by the accounts plus its other income computed as above, will be the "income" of the trust for purposes of Section 11(1). Further, the trust must spend at least 75 per cent., of this income an....