TaxTMI 
TaxTMI 
2023 (3) TMI 1107
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....d being void ab-initio, the same may kindly be quashed. 2. The Id. CIT(E), Jaipur seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act without recording a specific and categorical finding that the subjected assessment order passed u/s 143(3) dated 12.12.2019 is erroneous and prejudicial to the interest of the revenue, in absence of which the entire proceedings u/s 263 is vitiated. Therefore, the impugned order dated 30.03.2022 u/s 263 of the Act kindly be quashed. 3. The Id. CIT(E), Jaipur seriously erred in law as well as on the facts of the case in assuming jurisdiction u/s 263 of the Act by wrongly and incorrectly holding that the AO failed to examine the applicability of proviso to S. 2(15) and seriously erred in cancelling/ setting aside the subjected assessment order passed u/s 143(3) dated 12.12.2019, with a direction to the AO to examine the deduction so claimed by the assessee. The assumption of jurisdiction u/s 263 and the impugned direction, being contrary to the provisions of law and facts on record hence, the proceedings initiated u/s 263 of the Act and the impugned order dated 30.03.2022 deserves to b....
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....d by the provisions of the Rajasthan Urban Improvement Trust Act, 1959. It derives income from maintenance and development of areas and civic amenities including sale of land within Ajmer District. In this case, the assessment was originally completed vide order dated 12.12.2019 u/s 143(3) r.w.s. 147 by the ACIT, Circle (Exemption), Jodhpur (the AO), with NIL income. Thereafter, Proceedings have been initiated with reference to the said order on the following grounds: "On perusal of the assessment records, it is noticed that: (i) Assessee had a surplus income of Rs.1,46,35,981/-. It had further claimed capital expenditure of Rs.5,25,52,586/-. Thus after it has been concluded that assessee is hit by provisions of section 2(15) of the I.T. Act, 1961, the total taxable income comes to Rs.6,71,88,566/-. 3. In view of the above, it appears that the assessment order passed u/s 147 r.w.s. 143(3) of the IT. Act 1961 in your case for A.Y. 2012-13 on 12.12.2019 is erroneous in so far as it is prejudicial to the interest of the revenue." The grounds for invoking S. 263 are summarized as under: 1. That the assessee has a surplus income and had also ....
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.... In the view of the above discussion, it is very evident the there is no merit in the claim of assessee and the AO is correct in denying the benefits of Section 11 and 12 to the assessee trust vide amended provisions of section 13(8)(effective from 01.04.2009) read with first and second proviso of section 2(15). However, on review of the said assessment order and records, for the relevant year, it was found that though the AO has denied the benefits of Section 11 and 12 of the Act to the assessee but at the same time, failed to tax the surplus income of Rs. 1,46,35,981/- and disallow the claimed capital expenditure of Rs.5,25,52,586/-. Since, the assessee was hit by provision of section 2(15) of the I.T. Act, 1961 the total taxable income comes to Rs.6,71,88,566/- (Rs.1,46,35,981/- + Rs.5,25,52,586/-), therefore, the assessment done at NIL income by the AO is erroneous as the final computation as per the order is not in line with the findings of the said Assessment Order. Consequently, the order of the Assessing Officer sought to be revised is erroneous; and it is prejudicial to the interests of the Revenue. 5.3 In view of the above discussion and legal position the order ....
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....se 'prejudicial to the interests of the Revenue" in S. 263 of the Income Tax Act, 1961, has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when the Assessing Officer adopts one of two courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Assessing Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the Revenue, unless the view taken by the Assessing Officer is unsustainable in law." Ratio of these cases fully apply on the facts of the present case in principle. 2. No error at all committed by AO - Activates of ADA held Charitable: 2.1 At the outset it is submitted that the assessee is undisputedly registered u/s 12AA of the Act and eligible for exemption u/s 11 to 13 of the Act. In the order passed by the Hon'ble ITAT Jaipur vide ITA No. 1019/JPR/ 2011 dated 16.01.2015 (PB 15-18), it was held that various activities by the asse....
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....lved or engaged in activities in the nature of trade, commerce or business...." Thus, the activities of housing development and town planning, which is the core activity of the appellant in this case also, has been held to be charitable activities within the meaning of Section 2(15) of the Act fully considering the scope of the proviso below S. 2(15). The law as understood and declared thus by the Hon'ble Apex Court shall relate back to the date on which subjected assessment order was passed. No doubt the Hon'ble Apex Court made the effect prospective but the interpretation made by the Hon'ble court shall be applicable on all pending matters. Recently the Hon'ble apex court in the case of Principal CIT(Exemption) v Servants of People Society (2023) 330 CTR 617(SC) (DPB 40-43) has partly allowed the appeal of the department and restored the matter to AO for fresh consideration in the light of the decision of Ahmedabad Development Authority. In that view of matter, the AO has committed no error while assessing the income at nil. Therefore, there is no valid assumption of jurisdiction and consequently S. 263 cannot be invoked. 3. Due applicat....
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....en UIT, Ajmer for A.Y. 2005-06 to 2007-08 and A.Y. 2009-10 to A.Y. 2011-12 which were duly replied by assesse, vide letters dated 31.08.2017 (PB 43-44) mentioning the fact that the assessee was entitled/registered u/s 10(20)/ 12AA and was enjoying exemption of income accordingly till AY 2011-12. Pertinently in AY 2011-12 the assessment was reopened u/s 147 on account of cash deposits but finding that Ld. COIT had already granted registration u/s 254/ 12AA(1)(b) on 26.12.2018 (PB 49), assessed the income at nil vide order dated nil (PB 45-49). Accordingly, the department did not proceed further in any of these matters and they attained finality. All these admitted facts were available on record, when the AO passed the subjected order. 3.5 The law is well settled that where the AO acted following the decisions of the judicial High Court his order cannot be termed as erroneous. Kindly refer CIT v. G.M. Mittal Stainless Steel (P.) Ltd. [2003] 263 ITR 255 (SC), wherein it is held: "Precedent-Binding nature of judgment-Decision of the jurisdictional High Court-Where the decision of the jurisdictional High Court has not been set aside or at least has not been appended fr....
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....der 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 laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the 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 jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres....
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....ope of enquiry contemplated u/s 263: 5.1 The law is well settled that the reopening of reassessment as contemplated u/s 147 of the Act is for a specific purpose of assessing the escaped income and therefore, the AO, in the reassessment proceedings can assess only those item of income which have escaped assessment and find place in the reasons to believe but the income not being a part of the reasons recorded cannot be considered in the reassessment proceedings and also therefore, cannot be subject matter of revisionary proceedings u/s 263 of the Act. The facts are not disputed that in this case, the Assessment Order passed u/s 147 / 143 dt. 12.12.2019 has been subjected to revision u/s 263 by the Ld. CIT. A Notice u/s 148 was issued on 29.03.2019 for A.Y. 2012- 13 under consideration, and reasons to believe are recorded (PB 1) as communicated to the appellant by the AO vide his letter No. 128 dt. 08.05.2019. For a ready reference the same are being reproduced hereunder. "The assessee has not filed its return of income for the period in which it had deposited substantial cash, earned interest income 85 purchased immovable property. Since, the assesse has not filed ....
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.... ld. CIT did not touch or did not even whisper anything stated in the reasons to believe based on which only, the proceedings u/s 147 was initiated. 6. Supporting Case Laws: 6.1 In case of CIT vs. Alagendran Finance Ltd, (2007) 211 CTR (SC) 69 (DPB 12-19) The Hon'ble Supreme Court, while dealing with more or less an identical issue of revisionary power exercised under s. 263 of the Act in respect of an assessment order passed under s. 143(3) r/w s. 147 of the Act, has held in the following manner: - "15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstances of this case and, in particular, having regard to the fact that the CIT exercising its revisional jurisdiction reopened the order of assessment only in relation to lease equalization fund which being not the subject of the reassessment proceedings, the period of limitation provided for under sub-s. (2) of s. 263 of the Act would begin to run from the date of the order of assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the CIT beyond the period of limitation, it was wholly without jurisdiction ....
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....sis that the benefit of section 72A had been wrongly allowed to the assessee. In the order of reassessment, that was passed on 27¬12-2007, the claim made by the assessee with reference to the provisions of section 72A was disallowed. On 30-4-2009, the Commissioner issued the impugned notice under section 263 on the ground that the assessment order passed on 27-12-2007 was erroneous and prejudicial to the interests of the revenue. The assessee challenged said notice contending that though, in form, the Commissioner had sought to revise the order dated 27-12-2007 which was passed on a reassessment made under section 143(3) read with section 147, in substance and in essence, what was sought to be revised was the original order of assessment dated 27-12-2006 and since in respect of that order, the period of limitation for exercising the revisional powers had expired on 31-3-2009 having regard to the provisions of section 263(2), the notice issued on 30-4- 2009 was barred by limitation. 6.4 In Tata Power Company Ltd. Vs. PCIT (2021) 90 ITR TRIB (Trib) 554 (Mum), it was held that: "10. A perusal of the reasons recorded for reopening of assessment under s. 147 of the....
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....ted under s. 147 of the Act is for the specific purpose of assessing the escaped income. Therefore, in a reassessment proceeding, the AO can only assess those incomes which have escaped assessment. The income which is subjectmatter of assessment in the original assessment proceeding, certainly, cannot be considered in the reassessment proceeding. In the facts of the present case, a perusal of the draft assessment order as well as the final assessment order passed under s. 143(3) r/w s. 144C(13) would make it clear that the issue relating to claim of deduction under s. 80IA of the Act was a subject-matter there. In fact, the AO has dealt with the issue of deduction claimed under s. 80IA of the Act at length in the final assessment order passed under s. 143(3) r/w s. 144C (13) of the Act. Thus, the issue relating to deduction claimed under s. 80IA of the Act, cannot be a subject matter of re-assessment under s. 147 of the Act, as, such reopening of assessment was for assessing a particular income, which escaped assessment. Pertinently, to justify his action of revising the re-assessment order, learned Principal CIT has referred to the third Proviso to s. 147 of the Act, which reads a....
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....assessment and not from the order of reassessment. The revisional jurisdiction having, thus, been invoked by the CIT beyond the period of limitation, it was wholly without jurisdiction rendering the entire proceeding a nullity." 16. Following the aforesaid decision of the Hon'ble Supreme Court, the Hon'ble jurisdictional High Court in case of Asoka Buildcon Ltd vs. Asstt. CIT (supra), has held, as under: - xx.xxx 17. Similar is also the view expressed by the Hon'ble Jurisdictional High Court in case of CIT vs. ICICI Bank Ltd. (supra). 19. In any case of the matter, in our considered opinion, the ratio laid down by the Hon'ble Supreme Court in case of CIT vs. Alagendran Finance Ltd (supra) and the Hon'ble jurisdictional High Court in the case of Ashoka Buildcon vs. CIT (supra) clinches the issue in favour of the assessee. Further, a reading of the original assessment order would reveal that the issue relating to deduction claimed under s. 80IA was a subject-matter therein. In fact, the draft assessment order passed by the AO on the issue of deduction claimed under s. 801A of the Act was disputed before learned DRP and after passing of t....
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....eedings would start afresh but it would not disturb the issues which were not subject-matter of reopening of the assessment and even not falling under the purview of Expin. 3 to s. 147. Therefore, for the purpose of limitation under s. 263(2), if the jurisdiction under s. 263 is invoked on an issue which was not subject-matter of reassessment, then the limitation would reckon from the original assessment order and not from the reassessment order. 7. Even Expln. III to s.147 was not applicable: 7.1 It is further submitted that none of the reasons/ basis adapted by the learned CIT for passing the impugned Order u/s 263 came to the notice of the AO subsequently in the course of the reassessment proceedings. Pertinently, even the ld CIT neither in the impugned show cause notice u/s 263, nor in the impugned Order u/s 263, whispered even remotely placing reliance on the Expin. III to s.147 of the Act which clearly implied that the ld. CIT has not taken the shelter of the said Explanation to find error in the impugned assessment order. In view of these admitted facts and legal positions, the AO could not have expanded the scope for the reassessment of the proceedings bef....
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....any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section; and (iv) though the notice under s. 148(2) does not include a particular issue with respect to which income has escaped assessment, he may nonetheless, assess or reassess the income in respect of any issue which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section." 7.3.3. CIT vs. Shri Ram Singh (2008) (DPB 44-50) 217 CTR (Raj) 345 ,118: (2008) 306 ITR 343 (Raj) in which it has been observed as under: "It is only when in proceedings under s. 147 the AO, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had 'reason to believe' to be so, then only, in addition, he can also put to tax, the other income, chargeable to tax, which has escaped assessment, and which has come to his notice subsequently, in the course of proceedings under s. 147. To clarify it further, or to put it in other words, in our opinion, if in the course of proceedings under s. 147, the AO we....
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....nd therefore, the CIT cannot invoke S. 263 on the issues, which were not made basis for selection of the case. Obviously for the reason that the AO is not legally entitled to enter into those issues, not selected for first scrutiny. Here also the scope inquiry of section 263 is limited to the extent of the reasons to believe but not beyond that. 8.2 Supporting Case Laws: Kindly refer Mahendra Singh Dhankar (HUF) vs. ACIT, (2021) 35 NYPTTJ 458 (Jp) (DPB 81- 90) held that: "Revision-Erroneous and prejudicial order-Limited scrutiny assessment-Case of the assessee was selected for limited scrutiny under CASS on account of mismatch of sales turnover as reported in audit report, ITR, AIR and CIB data-AO issued notice under s. 143(2) and enquired about the issues under consideration-Being satisfied, the AO completed the assessment under s. 143(3) without any adverse finding regarding the issues for which the matter was selected for limited scrutiny-Scope of enquiry in case of limited scrutiny is limited to the extent of the issues for which case is selected for scrutiny under CASS-However, in case during the assessment proceedings the AO is of the view that substantial v....
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....on on issues in the reasons to believe (reproduced above), what to talk of making additions thereon. Consequently, therefore, the subjected re-assessment order dated 30.03.2022 subjected to revision, is completely non-existent being legally invalid and therefore the same could not be revised u/s 263. Other additions than what was stated in the Reasons, could not be made as already submitted in detail in this written submission and the cases of Jet Airways (supra), Ram Singh (Supra) and so on cited. 9.2 Supporting Case Laws: 9.2.1 In the case of Supersonic Technologies (P) Ltd. Vs. Principal Commissioner of Income Tax (2019) 197 TI'J (Del) 889 (DPB 63-80), it was held that: "It is well-settled law that before passing the reassessment order, AO shall have to prepare and serve notice upon the assessee under s. 143(2). The Principal CIT observed that "no formal notice under s. 143(2) has been issued to the assessee". Therefore, these facts clearly show that before framing the reassessment order under s. 147/ 148, no notice under s. 143(2) was prepared, issued and served upon the assessee. Therefore, reassessment order is illegal, invalid and bad in law an....
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....r s. 263 on the ground that the assessment order was non est. Since the reassessment order itself is bad in law, therefore, learned counsel for the assessee, rightly contended that the same cannot be revised under s. 263 of the IT Act. Only valid reassessment order can be revised under s. 263 of the IT Act. On this ground itself the proceedings under s. 263 of the IT Act are bad in law and liable to be quashed. We accordingly, set aside the order of learned Principal CIT passed under s. 263 of the IT Act and quash the same. In view of the above, the remaining pleas of the assessee are not required to be adjudicated 10. Clear attempt to win limitation already expired u/s 148/149: Apparently, the limitation for taking action u/s 147/148 of the Act has already got time barred in as much as the provisions of section 149, a notice u/s 148 could have been issued only within a period of six years from the end of relevant assessment year i.e. AY 2012-13 which, in the present case falls on dated 31.03.2019 and therefore, no further action u/s 147 was permissible. The ld. CIT being conscious of this fact, issued the showcase notice under S. 263 on 23.02.2022, taking altogether new g....
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....parties and perused the material placed on record. We find that Ld.CIT(Exemption) in notice issued u/s 263 of the Act observed as under:- "Assessee had a surplus income of Rs.1,46,35,951/-. It had further claimed capital expenditure of Rs.5,25,52,586/-. Since the assessee hit by provision of section 2(15) of the I.T.Act, 1961 the total taxable income comes to Rs.6,71,88,566/-." 8. In view of the aforesaid, he held that the assessment order passed u/s 147 r.w.s 143(3) of the Act in assessee's own case for AY 2012-13 on 12.12.2019 was erroneous insofar as it was prejudicial to the interest of the Revenue. We find that the AO in paras 4.9 and 4.10 of the assessment order has observed as under:- 4.9 "Regarding sale of plots, which is included in the development receipts the properties such as residential and commercial are sold. The amount received shows the magnitude and nature of the main activity carried out by the institution. Commercial principal of business is to derive maximum price of the product/service of the business and the institution is following the same principal by selling property. Builders or real estate developers do the same activity which is b....
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....he assessment order, such order would be open for revision u/s 263 of the Act, if such order is erroneous and prejudicial to the interest of justice. The controversy related to application of section 2(15) of the Act, has now been set at rest by the decision of the Hon'ble Supreme Court in the case of ACIT(E) vs Ahmedabad Urban Development Authority (supra) by holding that as per provision of section 2(15) of the Act, such advancement of the object would not be considered charitable if an institution is engaged in "trade, commerce or business" or provides any service relating to "trade, commerce or business" for which cess, fee or other consideration is received. In the case in hand, the AO despite having recorded that though the assessee trust's activity fall under the ambit of "general public utility", they are of commercial in nature and are covered by first and second proviso of section 2(15) of the Act. However, he erroneously assessed income of the assessee at Rs.NIL. Thus, the case laws relied by the Ld. Counsel for the assessee would not help as it is the clear case where the assessment order is erroneous and self-contradictory. Under these undisputed facts, there is no inf....
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....at feeling aggrieved, the appellant filed an appeal before the Hon'ble ITAT Jaipur on dt. 02.06.2022 vide acknowledgement no. 1652955419 and registered as ITA no. 89/JODH/2022. [However thereafter, the appeal was transferred to the Hon'ble ITAT Jodhpur] 5. That the said appeal is lying pending before the Hon'ble ITAT Jodhpur for want regular functioning in absence of the regular posting of the Hon'ble members al Jodhpur. 6.1 That Pertinently, prima facie there is a very strong case in favour of the applicant assessee in as much as the Id. CIT(E) seriously lacked a valid jurisdiction u/s 263 for the simple reason that (1) The Reasons to Believe recorded u/s 148(2) of the Act states that cash deposits in bank account of Rs. 16.79 crores, interest income of Rs. 20.07 lakh and purchased property at Rs. 17.77 crores totalling to Rs 34.86 crores has escaped assessment. However, the issue of denial for benefit u/s 11&12 in view of the application of S. 2(15) Proviso has never been raised in these reasons as done by the learned CIT(E) now is under challenge. In the reassessment proceeding u/s 147, the AO was supposed to have assessed the income in accordan....