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2024 (5) TMI 948
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..... PCIT has grossly erred in holding the order of the AO as erroneous on the basis of assessment made in earlier AY (2017-18) without considering the fact that the additions in the earlier year were made on estimation. Appellant prays that estimation is always a basis of opinion and one of the possible views, revision action under section 263 is bad in law if addition needs to be made on the basis of an estimation or one of the possible views. 3. That Ld. PCIT has further erred in passing revisionary order u/s 263 of the Act. Appellant prays that the order of AO neither being erroneous nor prejudicial to the interest of Revenue, hence the order of Ld. PCIT being without jurisdiction deserves to be quashed. 4. That Ld. PCIT has grossly erred in holding the order of AO as erroneous and prejudicial on the grounds that in earlier years exemption u/s 11 and 12 was withdrawn, by disallowing salary to specified persons and the same was being fully allowed in the relevant year. Appellant prays that specific details relating to salary paid to both specified and non-specified persons were duly called for and examined and based on same a view was taken by the AO. Holding such....
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....f earlier year. The relevant observations as made by the ld. PCIT in his order are mentioned as under: ''5. I have studied the issue at hand alongwith the assessment records and the submissions of the assessee. The Counsel has been duly heard. 6. The taxpayer (through Counsel) has pleaded, among other things, that on grounds of consistency an adverse view cannot be taken in this year particularly when revenue has been holding that the taxpayer is eligible for grant of exemption as per provisions of sections 11 and 12 of the Income Tax Act 1961. 7. The taxpayer also pleaded that there was no need or no occasion or no necessity for triggering the said disallowance in this year. The petitioner also pointed out that the disallowance was specific to findings of that year. Since there were no findings in this year, therefore, the AO did not need to make any disallowance and therefore no prejudice whatsoever has been caused to revenue. The assessing officer, pleads the assessee, has proceeded to make this disallowance on the basis of view arrived at by him on the basis of facts of earlier year which too are contested in appeal and not final. The taxpayer, throug....
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.... assessment order for AY 2017-18 was based on survey carried out under section 133A of the Income Tax Act 1961 relating to the post Demonetization period, that is in March 2017. The irregularities found (without prejudice) pertain to that period only and cannot be a basis for taking action in this year particularly when no evidence thereof was available with the assessing officer during the course of assessment proceedings for AY 2018-19. Furthermore, pleads the taxpayer, that proceedings under section 263 cannot be made to uncover evidence on a supposed / hypothetical basis, particularly when the information that was available was specific and additions to be made in this year will be merely based, if at all, on the basis of projection in future/ estimation. This kind of approach is not acceptable in the courts of law, pleads the assessee. 12. It is noted that the assessing officer has failed to take note of the fact that there were disallowances on account of salary payments in the earlier year, which might have needed to he disallowed in this year too and therefore consequential denial of exemption might have followed. Further on the basis similar to the earlier year, t....
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.... officer 15. Summing up, the assessing officer is directed to examine the eligibility of salary payments on the basis as in the earlier year, Further, the assessing officer consequently may also examine whether the petitioner is eligible for exemption within the meaning of provisions of Income Tax Act 1961. To this extent, the assessment order made on 21.04.2021 is hereby set side to be made afresh within the parameters as above.'' 2.3 During the course of hearing, the ld.AR of the assessee prayed that the ld. PCIT has wrongly invoked the provisions of Section 263 as well as wrongly set aside the order of the AO whereas the AO after examination of the information and other details submitted by the assessee, accepted the returned income of the assessee for which the ld. AR of the assessee filed the detailed written submission as under:- ''The assessee is a charitable entity engaged in imparting education through various schools and colleges in Jaipur. The return of income for the relevant year was filed on 31.10.2018 declaring NIL income by claiming exemption u/s 11 of the Act. The case of the assessee was taken up for "Limited scrutiny" on the basis of CASS for....
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....d persons is much below. The highest salary paid to nonspecified person is of Rs 4,44,000/- only to one Shri A K Gupta. Though nothing is on record to show as to what qualifications and posts are held by the specified/non specified persons, but it can be inferred from the very basic details that the highest qualified person is Shri A K Gupta, who might be the principal/head of any of the Colleges run by the trust, to whom salary of Rs 4,44,000/- only has been paid. Apparently there is excessive and unreasonable payment of salary to the specified persons which clearly attracted provisions of section 13(1)(c)(ii) of the Act. They may at the most have been reasonably paid @ Rs. 4,44,000/-p.a totaling to Rs. 22,20,000/-. As against this they have been paid total salary of Rs. 49,66,800/-. As such, there is excess payment of Rs. 27,46,800/- .All these 5 persons are specified persons within the meaning of u/s 13(3) of the Act. As against such high payment of salary to specified persons, the salary payment to non-specified persons is at a far lower figure. b. As such the trust has made excessive and unreasonable payments to specified persons, with high salaries paid to them and f....
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....uch amounts were given. 11. In view of above, it was a case of a trust where substantial expenses were not for charitable purpose and the trust has violated provisions of section 13(1)(c) and 13(1)(d)" The assessee filed complete details and explanations vide its replies dated 17.05.2023 and 19.05.2023. It was stated by the assessee that to initiate proper proceedings u/s 263 of the Act the order of ld. AO has to be found both erroneous and prejudicial to the revenue. The assessee also stated its reply on each of the points above and relying on case laws submitted that the case was not a fit case for revision u/s 263 of the Act. The contention of the assessee was not appreciated and Ld. PCIT finally found the assessment order on the point of salaries paid to specified persons as being excessive based on the order of earlier year and held the order of the AO to be erroneous as well as prejudicial to the interest of the Revenue and set aside the assessment order dated 21.04.2021 passed u/s 143(3) with the direction to make fresh assessment order on this point. The order of Ld PCIT passed u/s 263 of the Ld. PCIT is challenged before Your Honors It i....
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....to groom the future of the Nation. Atal labs and Innovative labs of School are Providing Practical Learning Environment. Best CBSE and RBSE Board Results make it a shining group in the Educational Field. The above brief of the Samiti and its institution would help you to understand the intent and the actual carrying of charitable activities by the Samiti as also its commitment towards them. Coming to the facts of the relevant year, we would like to bring your kind attention to the fact that the return of income for the relevant year was filed on 31.10.2018 declaring NIL income by claiming exemption u/s 11 of the Act. The case of the assessee was taken up for "Limited scrutiny" on the basis of CASS for examining the 'expenditure for charitable and religious purposes'. Various documents and explanations called for were duly examined and an order u/s 143(3) of the Act was passed on 21.04.2021 accepting the returned income. Ld PCIT has passed order u/s 263 of the Act, pointing out that the order of ld. AO was erroneous and prejudicial to the extent that the salary payments to specified persons should have been examined by ld. AO in light of the disallowance o....
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.... and unjustified and based on absolute incorrect footing. Further that the disallowance made in AY 2017-18 was based merely on one of the incomplete registers found during survey which probably belonged just to one of the institutions operating under the samiti, without considering the salaries that were paid by other institutions of the samiti, and thus holding only 42% of the entire salaries claimed as being genuine was totally an unjustified and incorrect observation made in the earlier year. Also that no such disallowance was made in any of the earlier assessment years which were also re-opened pursuant to the survey proceedings held in AY 2017-18 where such salaries were paid, claimed and allowed consistently. Moreover complete details regarding the salaries paid to specified persons were specifically called for and examined by ld. AO during the assessment proceedings of the year under consideration. And after due verification of the same, ld. AO had formed an opinion and allowed the salaries as genuine. Merely because nothing specific was mentioned regarding the verification and allowability of salaries, it cannot be presumed that the same was not scrutinized during ....
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....h the explanation of assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order not make an elaborate discussion in that regard Commissioner Of Income Tax vs Ganpat Ram Bishnoi (2005) 198 CTR Raj 546, 2008 296 ITR 292 Raj (copy enclosed) held that, "Undoubtedly, the jurisdiction under Section 263 is wide and is meant to ensure that due revenue ought to reach the public treasury and if it does not reach on account of some mistake of law or fact committed by the AO, the CIT can cancel that order and require the concerned AO to pass a fresh order in accordance with law after holding a detailed enquiry. But when enquiry in fact has been conducted and the AO has reached a particular conclusion, though reference to such enquiries has not been made in the order of the assessment, but the same is apparent from the record of the proceedings, in the present case, without anything to say how and why the enquiry conducted by the AO was not in accordance with law, the invocation of jurisdiction by the CIT was unsustainable. As the exercise of jurisdiction by the CIT is founded on no material, it was liable to be set aside. Jurisdiction un....
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....t be sustained. CIT Vs. Sunbeam Auto Ltd., reported in 227 CTR 133, the Hon'ble Delhi High Court drew a distinction between "Lack of inquiry" and "inadequate enquiry" and held that, 'in the case of inadequate enquiry, provisions under section 263 cannot be invoked.' It may however, be noted that the instance case is neither the case of inadequate enquiry nor lack of enquiry during assessment proceedings as it can be seen that due enquiries were conducted by the Ld. AO. Therefore, in view of such legal position, no action u/s 263 can be taken. The above contention of assessee is further fortified by the judgment of Hon'ble Supreme Court in the case of CIT v. Gabriel India Ltd. reported in 203 ITR 109 (Bom) wherein it has been held as under: Revision--Exercise of power of CIT to make revision suomotu--Conditions precedent--CIT cannot revise order merely because he disagrees with conclusion arrived at by ITO--Expenditure allowed by ITO as being revenue in nature--CIT reopening matter under section 263 and hearing assessee--CIT directing ITO to re-hear matter--Order not valid--Income-tax Act, 1961, s. 263- It has also been held by the Court that sect....
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....Antala Sanjaykumar Ravjibhai v. CIT [2012] 135 ITD 506 (Rajkot) (Trib.), Roshan Lal Vegetable Products (P) Ltd. v. ITO [2012] 51 SOT 1 (URO) (Asr.)(Trib.), Fine Jewellery (India) Ltd. v. ACIT [2012] 19 ITR 746 (Mum.)(Trib.) held that in these cases, since the Assessing Officer made proper enquiry and examined accounts, it could not be said that there was non-application of mind by him. Hence, the action under Section 263 was held invalid. Anil Shah v. ACIT [2007] 162 Taxman 39 (Mum.)(Trib.) held that if the Assessing Officer allows the claim, on being satisfied with the explanation of assessee, on an enquiry made during the course of Assessment Proceedings, the decision of the Assessing Officer cannot be held to be erroneous, on ground that there is no elaborate discussion in that regard in the order. It is the practice that whenever any claim of the assessee is accepted, the A.O may not discuss the same in his order".` It is humbly submitted the salaries paid to the specified persons mentioned above is completely genuine and in accordance with the services offered by each of them for the smooth working of the noble cause for which the assessee society was formed ....
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....se also find attached CVs of above mentioned specified persons which duly reflect their strength and eligibility to contribute to the betterment of the society.] In this regard kind attention is also invited to the provisions of Section 13(2) as applicable for the relevant AY that reads as under:- "(2) Without prejudice to the generality of the provisions of clause (c) and clause (d) of sub-section (1), the income or the property of the trust or institution or any part of such income or property shall, for the purposes of that clause, be deemed to have been used or applied for the benefit of a person referred to in sub-section (3),- (a) .................. (c) if any amount is paid by way of salary, allowance or otherwise during the previous year to any person referred to in sub-section (3) out of the resources of the trust or institution for services rendered by that person to such trust or institution and the amount so paid is in excess of what may be reasonably paid for such services; .............." A bare reading of the provisions of section 13(2)(c) does not restrict the payment of salary to the specified persons at all rather it at....
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.... of mind as a duly instructed person on law and facts and any conclusion having been reached to a reasonable satisfaction of accepting the returned income, thus the order of Ld. AO is neither erroneous nor prejudicial to the interest of the revenue on any count. Indeed, in the instant case the Ld. AO has passed this order after considering entire material available on record, called for and submitted by assessee during the course of assessment proceedings. It is not the case that the Ld. AO had passed the order without conducting inquiries into the issue under consideration and specific details regarding salary to specified persons and allowability of the same was duly asked for and have been submitted by the assessee, which after due verification have been allowed by ld.AO. The entire material as also the order passed for AY 2017-18 was duly available with ld. AO. Also the observation made by Ld. PCIT regarding the salary expenses is based merely on inference drawn for AY 2017-18, which was under totally different situation and also that except AY 2017-18 no other assessment year bears any disallowance in this regard, where assessments were re-opened pursuant to survey pr....
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....ll 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 under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person." A bare reading of clause (a) to the Explanation 2 of Section 263(1) enables a deeming fiction for the CIT to treat the order of AO erroneous in so far as prejudicial to the interest of revenue if in the opinion of CIT the order is passed withou....
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....s so much so that it is prejudicial to the interest of the revenue. This statutory enjoinment carves out an extremely constricted ambit of such discretionary jurisdiction. The word 'considers' applied in the statutory provision involved, signifies a genuine satisfaction of that authority that the order of the Assessing Officer is erroneous and that the interest of revenue is prejudicing thereby. Any exercise of the revisional jurisdiction, bereft of such satisfaction and / or finding that the order of the Assessing Officer is erroneous and that it is prejudicial to the interest of the revenue and that too, based on tangible materials on record, is impermissible rendering the resultant order void. 3. CIT Vs. Green World Corporation 314 ITR 81 (SC) The Income-tax Officer, while passing an order of assessment performs a judicial function. A revision application lies before the Commissioner. It is trite that the jurisdiction exercised by the revisional authority pertains to his appellate jurisdiction. The jurisdiction under section 263 can be exercised only when both the following conditions are satisfied (i) the order of the Assessing Officer should be erroneous, and....
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....s duly available with AO. Also the observation made by Ld. PCIT regarding the salary expenses is based merely on inference drawn for AY 2017-18, which was under totally different situation and also that except AY 2017-18 no other assessment year bears any disallowance in this regard, where assessments were re-opened pursuant to survey proceedings carried out in AY 2017-18. Therefore, a disallowance made in just one year, that too on incorrect footing cannot be made basis for doubting the claim made in current year and duly allowed by AO after due verification. This in our considered opinion renders the revision proceedings invoked by ld. PCIT beyond jurisdiction and against the legal principals laid down through various judicial pronouncements. We rely the ITAT Jaipur Bench decision dated 03-07-2023 in the case of Agrani Buildestate vs the PCIT-1, Jaipur (JP - Tribunal 2023 ITL 2216) wherein it is held that as under:- ''2.4......therefore after considering the totality of the facts of the case and keeping in view the legal position as discussed hereinabove, it is clear that the assessment order passed by the AO was after full enquiry and therefore, the cases does not fall ....