TaxTMI 
TaxTMI 
2024 (5) TMI 948
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.... 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holding the order of AO as erroneous and prejudicial on the grounds that in earlier years exemption u/s 11 and 12 was withdrawn, by disallowing salary to specified persons and the same was being fully allowed in the relevant year.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 view as erroneous and prejudicial without bringing any new material ....
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....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, through counsel, pleaded that there was no positive evidence specific to this year which could have led to disallowance. Thus, pleaded the petitioner that t....
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....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, the exemption needed to be disallowed. It has therefore been noted in the show cause notice issued to the taxpayer that this is a case of a trust where substantial expenses (primarily sa....
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....hether 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 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....
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....red 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 far lower salaries paid to non-specified persons. This violates the provisions of Section 13(1)(c)(ii) of the Act, and the excessive payment of salaries to specified persons cannot be considered for charitable purposes. Further the trust has claimed a high amount of ....
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....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 is humbly submitted as under:- At the outset the assessee invites Your kind attention to the FACTS of the case which are summarized as below: The assessee is a charitable entity engaged in imparting education through various schools and colleges in Jaipur. As regards the establishment and purpose of assessee tr....
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....ies 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 of salaries made in the earlier year and the consequent withdrawal of exemption u/s 11 & 12 of the Act in that year Regarding observation of Ld. PCIT that "expenses on account of Salary paid to persons specified u/s 13(3) of the Act were not examined in light of sec 13(2)(c) and violation of sec 13(1)(c)(ii) of the Act was not brought out by ld.AO by overloo....
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....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 the assessment proceedings. (Copies of specific replies filed by the assessee with regards to genuineness of salaries paid to specified persons are enclosed herewith.) 2. Assessee further prays that: a. Each year is a different year and merely because something was disallowed in an earlier year, the same need not be disallowed in the current year, especially when the facts of both years are not identical. b. There was no survey conducted in the y....
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.... 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 under Section 263 cannot be invoked for making short enquiries or to go into the process of assessment again and again merely on the basis that more enquiry ought to have been conducted to find something. The finding of the Tribunal that the ITO had passed assessment order after relevant enquiries and considering the aspects of the matter required by the CIT to be considered by him is a finding of fact and on the basis of which, the jurisdiction assumed by the CIT being non-existent must be held to be not sustaina....
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....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 section 263 does not arm the CIT to trespass into this peculiar jurisdiction of the Assessing Officer so as to direct him to exercise this discretion with a bent of mind conforming to the CIT's opinion or in other words, towards generation of some extra revenue. It is a well established law by now that section 263 does not contemplate mere substitution of the opinion of AO with that of CIT. It has been held in the case of CIT v. Max India Ltd. reported in 295 ITR 282 (SC) that 'every loss of revenue cannot be said to be prejudicial to the interests of revenue'....
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....ssee, 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 (the curriculum vitae of each such specified person is attached for your perusal) which clearly reveal that the kind of services provided by these persons were definitely their genre and fully deserved the remuneration given to them . The comparison of specified persons who not only manage the entire samiti, which includes all the schools and colleges run from various areas, the entire staff engaged in all such schools and colleges (which also includes the dean or the principal) but also includes working towards managing funds and grants received for the overall functioning of the samiti. This requires co....
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.... 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 attracts the provisions of section 13(1)(c) only when the payment of salary etc. to a specified person is in excess of what may be reasonable paid for their services. Since in the present case the payments made to the specified person were towards their complete dedication and involvement in the activities of charitable purpose which were not limited to a single institution rather for the group of institutions run by the assessee hence treating the payment of salary as unreasonable without having a reference to the real facts of the case or understanding them in light of the specific circumstances of the case of assessee in totality would be a pure injustice to the assessee. In view of the above humble subm....
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....erification 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 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 ld. AO after due verification. Kind attention is also invited to the provisions of Section 263 as applicable for the relevant AY (2018-19): "Revision of orders prejudicial to revenue. 263. (1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing....
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....dered 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 without making inquired or verification which should have been made. This again substantiates that the assessee challenging the validity of Sec 263 is completely valid as in the present case the assessment order was passed after making due enquiry as well as verification from the assessee hence the CIT has no power to invoke the power provided under section 263 of the Act at all. In light of the facts / circumstances of the case, submissions made above, and the case laws relied upon (including the decisions of this Hon'ble bench quoted supra), it is very humbly prayed that the revisionary order passed u/s 263 of the Act, may kindly be quashed as the order passed by Ld. AO does not come in the purview of holding it to be either erroneous or prejudicial to the interest of the revenue entailing the consequence of order to be either modified....
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....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 (ii) it should be prejudicial to the interests of the Revenue. These conditions are conjunctive. An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible. 4. M/s Emgee Cables & Communication Ltd. Vs. CIT (2014) 51 TW (IV) 197 Section 263 - power of revision by commissioner - AO completed assessment at NIL - assessee involved in manufacture / trading of cable/copper/wire - declared income from interest & commission as business income - accepted by AO - CIT invoked sec 263 and set-aside the order of AO directing him to consider the said income as income from other sources and not from business - whether CIT justified in invoking sec 263? Held : No - CIT only wanted AO to make re-verification - cannot be said that that order of AO was without making proper enquiry - AO having taken one of the possible view - cannot be said ....
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....der:- ''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 within the clause (a) and (b) of Explanation 2 to Section 263 of the Act. Hence, the ld PCIT has erred in assuming jurisdiction u/s 263 of the Act and the order passed by him stands quashed. Our view in this case is restricted only to the invocation of Section 263 of the Act by the ld. PCIT and our findings are restricted only to this case considering the peculiar facts contained. Therefore, our this decision may not become precedent upon the merits of contemplated additions by the ld PCIT. Since we have not adjudicated or commented upon the merits of contemplated additions and have decided only invocation of provisions of Section 263 of the I.T. Act under peculiar circumstances in this case alone. Thus keeping in view the above deliberations, the appeal of the assessee is allowed. 3. In the result, the above appeal of the assessee is allowed.'' We also rely the ITAT Jaipur Bench decision dated 15-09-2021 in the case....