TaxTMI 
TaxTMI 
2023 (6) TMI 1426
X X X X Extracts X X X X
X X X X Extracts X X X X
....urisdiction u/s.263 of the Act, 1961. 3. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr. Commissioner of the Income Tax has erred in violating the principles of natural justice by not the mentioning the grounds for initiating action u/s.263 of Income Tax Act, 1961 in the show cause notice issued. As such the order passed u/s.263 is void ab-initio. The action of the Ld. CIT was wholly unreasonable, uncalled for the bad in law. 4. On the facts and in the circumstances of the case as well as law on the subject, that the order of u/s.263 is merely 'change in opinion'. The action of the Ld. Pr. CIT was wholly unreasonable, uncalled for and bad in law. 5. On the facts and in the circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income Tax has grievously erred in assuming that the assessing officer had not verified the amount of Rs.4,21,54,142/- towards interest on FD and shown in Balance Sheet as per capital under the head of Reserve and Surplus and not made proper inquiry on finalized the order of assessment u/s. 143(3) of the I.T. Act. 6. On the facts and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....delay should not be condoned. 3. We note that the power to condone the delay is discretionary and the discretion must be judicially exercised. In considering the condonation petition, it is to be remembered that statutes conferring a right of appeal must be construed in furtherance of justice and the provision limiting the time for bringing an appeal must be liberally interpreted, so that the party pursuing such remedy allowed to him by the law is not non-suited on mere technicalities. We that the reasons given in the affidavit for condonation of delay were convincing and these reasons would constitute reasonable and sufficient cause for the delay in filing this appeal. After having gone through the affidavit as well the delay condonation application, we are of the considered opinion that in the interest of justice, the delay deserves to be condoned. We, accordingly, condone the delay and admit the appeal for hearing. 4. Succinctly, the factual panorama of the case is that assessee before us is deemed Municipality working in the name and style as 'Sachin Notified Area'. The assessee had filed its return of income for assessment year (A.Y.) 2017-18 on 24/03/2018, declaring tot....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee is availing exemption from applicable taxes. Hence there is no loss of revenue. The assessee further argued that an appeal has already been filed against the assessment order passed by the AO before the CIT(A), therefore, assessment order has merged with the order of ld CIT(A), hence ld PCIT should not have exercised his power under section 263 of the Act, to revise such assessment order, which has been merged with the order of Ld CIT(A). 7. After considering the reply of the assessee, the ld PCIT observed that in the assessee's case, the AO passed assessment order by not allowing exemption of Rs.13,08,46,530/- claimed u/s 10(20) of the Act stating that the assessee was not covered by the definition of Local Authority, as contained in Explanation to Section 10(20) of I.T. Act. The assessee shown such amount of Rs.13,08,46,530/-, as Net profit as per Profit and Loss account. During the year under consideration, the assesses has also earned income of Rs.4,21,54,142/- from Interest on FDs. The said income was neither credited to the Profit & Loss account nor included in computation of income filed during the assessment proceedings. Rather the income of Rs.4,21,54,142/- is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ira Notified Area", which is a semi-government body, and its assessment was carried out under section 143(3) of the Act, wherein the assessing officer accepted exemption u/s 10(20) of the Act. The Copy of assessment order of "M/s Hazira Notified Area" is placed before the Bench, and ld Counsel contended that assessee under consideration, "Sachin Notified Area" is having the same objectives and activities therefore its entire income is exempted under section 10(20) of the Act. 10. The Ld. Counsel for the assessee further submitted that Assessing Officer has disallowed the exemption u/s 10(20) claimed by the assessee and therefore made addition to the tune of Rs.13,08,46,528/-, against this disallowance, the assessee is in appeal before the Ld. CIT(A). Therefore, assessment order has merged with the order Ld. CIT(A) and therefore the said assessment order should not be revised by the Ld. PCIT under section 263 of the Act. The ld Counsel also stated that the direction given by ld PCIT (vide para 9 of his order) to the assessing officer to examine the entire issues (which were already verified by the AO), is bad in law. 11. On merit, Ld. Counsel also submitted that assessee is a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble under the head 'income from other sources', and such interest income has been earned by the assessee, by way of making fixed deposit, from the surplus and unutilized contribution received from its members. Therefore, as per ld DR, the contribution received from members is exempted from tax under section 10(20) of the Act, and not the interest on fixed deposit which was earned by the assessee by parking the exempted contribution in the bank by way of fixed deposit. Hence, ld DR contended that this issue is not the subject matter of Commissioner of Income Tax (Appeal), therefore, the same is not merged with the order of Commissioner of Income Tax (Appeal). The ld DR further stated that in order to avoid the payment of taxes, the interest on fixed deposit of Rs.4,21,54,142/- has been taken directly to the balance sheet and it was not routed through profit and loss account, and such interest income has not been shown under the head 'income from other sources, and the assessee has not paid the taxes thereon, therefore to that extent, the order passed by the assessing officer is erroneous and prejudicial to the interest of revenue. Such issue has not been merged with order of CIT(A).....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed contribution in the bank by way of fixed deposit and said interest on fixed deposit was not routed through profit and loss account therefore it is a violation of the accounting principles. We do not agree with the proposition canvassed by ld DR for the Revenue. First of all, the bare section 10(20) of the Act, it self includes "income from other sources". The Section 10(20) of the Income Tax Act is reproduced below for ready reference: "(20) the income of a local authority which is chargeable under the head "Income from house property", "capital gains" or "income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]. [explanation - For the purposes of this clause, the expression "local authority" means - (i) Panchayat as referred to in clause (d) of article 243 of the Constitution, or (ii) Municipality as referred to in clause (e) of article 243P of the Constitution. Or (iii) Municipal Committee and Dis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e receipts and not go by the entry in the books of account, vide landmark judicial precedent in the case of CIT vs. India Discount Co. Ltd. (1970) 75 ITR 191 (195) and Kedernath Jute Manufacturing Co. Ltd. vs. CIT (1971) 82 ITR 363 (367). Hence, we do not agree with ld DR for the Revenue that because of violation of accounting principles, there is a tax avoidance on the part of the assessee under consideration. Therefore, order passed by the assessing officer is neither erroneous nor prejudicial to the interest of Revenue. 20. We note that similar identical issue by applying the provisions of section 10(20) of the Act, has been decided by the Coordinate Bench of ITAT Chandigarh, in the case of Haryana State Agricultural Marketing Board, 88 taxmann.com 800, wherein it was held as follows: "Section 10(20) of the Income-tax Act, 1961 - Local authority - Assessment years 2000-01 to 2003-04 - Where entire income of assessee has been held to be exempt under section 10(20) there is no case for making disallowance of any expense at all [In favour of assessee] Section 10(20) of the Income-tax Act, 1961 - Local authority - Assessment years 2000-01 to 2003-04 - Where asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue "unless the view taken by the Assessing Officer is unsustainable in law". 22. Taking note of the aforesaid dictum of law laid down by the Hon'ble Apex Court, let us examine assessee`s case. We note that assessee is acting within the four corners of law of the Income Tax and claimed deduction under section 10(20) of the Act, in respect of interest on fixed deposit of Rs.4,21,54,142/- which is assessable under the head 'income from other sources', and the same is exempted under section 10(20) of the Act, hence order passed by the assessing officer is not erroneous. In fact, order passed by the assessing officer is sustainable in law. 23. Apart from this we note that issue of interest on fixed deposit of Rs.4,21,54,142/- which is assessable under the head 'income f....