TaxTMI 
TaxTMI 
2026 (5) TMI 331
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....r (AY) in question is AY 2017-2018. By the present Appeal, the Appellant-Revenue has raised the following re-framed questions of law:- "1. Whether the Hon'ble ITAT was justified in allowing the appeal, when the order revised did not make any inquiries and verification with regard to claim of utilization of accumulated income of Rs 6 crores under section 11(2) thereby rendering the assessment order erroneous and prejudicial to the interest of revenue? 2. Whether the Hon'ble ITAT was justified in setting aside the order passed under section 263 of Income Tax Act without considering that Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (243 ITR 83) has clearly held that the Commissioner of Income Tax is within his jurisdiction to set aside the assessment order if it is passed without examination of the relevant details or without application of mind and both these criteria are fulfilled in the present case? 3. Whether the Hon'ble Tribunal was justified in setting aside the order revising under section 263 when Hon'ble Bombay High Court in the case of Sesa Starlite Ltd Vs Commissioner of Income Tax 430 ITR 121 (Bom) held th....
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....2th December 2019 was erroneous insofar as it was prejudicial to the interest of the Revenue within the meaning of Section 263 of the Act. The CIT (Exemptions), formed the aforesaid prima facie belief on the reason that on verification of the assessment records, it was observed by him that from Schedule I of the ROI filed for the relevant AY, the Respondent-Assessee had claimed utilization of Rs. 6 crores from the accumulation under Section 11(2) of the Act of Rs. 14.51 crores for AY 2016-2017. It was further observed by the CIT (Exemptions), that during the assessment proceedings, the Respondent-Assessee had neither submitted the details, nor furnished any documentary evidence for the utilization of the aforesaid substantial amount of Rs. 6 crores. The CIT (Exemptions) was therefore of the view that the AO had not verified the issue and proceeded to accept the Respondent-Assessee's claim, and on account of the non-verification of the utilization of Rs. 6 crores, which was out of the accumulation for the AY 2016-17, it was his prima facie view that the assessment order was erroneous insofar as it was prejudicial to the interest of the Revenue within the meaning of Section 263 of th....
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....of the Act with appropriate directions to the AO. You are accorded an opportunity to furnish a written response on/The electronically through your e-filing account in incometaxindia.gov.in on or before 20.01.2022. You may further note that if nothing is heard from you at the specified date, it will be presumed that you have no submissions to make and order will be passed accordingly on the information available on the record." iv. In response to the aforesaid show-cause notice issued under Section 263 of the Act, the Respondent-Assessee filed legal submissions dated 14th February 2022 and 11th March 2022, wherein the Respondent-Assessee submitted that the assessment order dated 12th December 2019 was neither erroneous, nor prejudicial to the interest of the Revenue, and sought to place reliance on several judicial pronouncements on the said issue. A personal hearing was also accorded to the Respondent-Assessee on 8th March 2022, and post that further factual submissions were filed by the Respondent Assessee, wherein details of the accumulation of Rs. 6 crores under Section 11 of the Act, along with the utilization thereof in AY 2017-18, was provided. v. The Respondent-Assesse....
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....amount of Rs. 6,00,00.000/-. (b) Obtain supporting evidences confirming the same. (c) Examine whether the utilisation is in sync with the object/MOA of the assessee foundation. (d) Conduct third party verification based on the details submitted as deemed appropriate vii. Being aggrieved by the order passed by the CIT (Exemptions), the Respondent-Assessee preferred an Appeal before the ITAT and contended that the CIT (Exemptions), had erred in passing the order dated 24th March 2022 under Section 263 of the Act inasmuch as the original assessment order passed under Section 143(3) of the Act dated 12th December 2019 was passed after conducting the requisite enquiry/verification and on proper application of mind, and thus was not an order which was erroneous and prejudicial to the interest of the Revenue warranting the exercise of jurisdiction under Section 263 of the Act. viii. The ITAT by the impugned order dated 2nd January 2023, allowed the Appeal filed by the Respondent-Assessee, on the ground that the order passed by the CIT (Exemptions), was incorrect inasmuch as the assessment order dated 12th December 2019 was not erroneous or prejudicial to t....
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.... Section 263 of the Act. The ITAT also referred to the provisions of Section 11(2) and 11(3) of the Act to hold that in the facts of the present case, the aforesaid Section is not attracted, inasmuch as on a perusal of Form-10, it was apparent that the accumulated amount in AY 2016-17, which was to the tune of Rs.14.51 crores, which could be accumulated up to 31st March 2021 i.e. AY 2021-22, and if at all, the non-utilization of the accumulated amount thereof as per clause (c) of Section 11(3) would attract taxation in the previous year immediately following the expiry of the period, i.e., in AY 2022-23. The ITAT noted that this was not the case in the present facts of non-utilization of the amount accumulated in AY 2016-17, however, the fault pointed out by the CIT (Exemptions), Mumbai was regarding the issue of non-examination by the AO of Rs. 6 crores expended by the Respondent-Assessee in the relevant AY, out of the accumulated amount of Rs. 14.51 crores, in which situation clause (a) or (d) of Section 11(3) would be applicable. Section 11(3)(a) of the Act specifies that if the amount so accumulated is applied to purposes other than charitable or religious purposes, or ceases t....
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....ding which would show that AO's view despite enquiry was erroneous/unsustainable in law. 9. And we note that even before Ld CIT(E), the assessee has furnished the specific details of utilization of funds. The case of the Ld CIT(E) is that the AO has failed to examine the break-up of the details of the said expenditure in order to satisfy himself that the said amount of Rs. 6.00 crores was indeed used for the purpose for which it was accumulated. However, the question is whether the Ld CIT(E) can hold such a view when the AO has enquired about the issue and that too without pointing out the error, if any, in the assessment order in the revision proceeding u/s. 263 of the Act?. According to us, the Ld. CIT(E) cannot do so, because AO has enquired about it and in such an event the Ld. CIT(E) himself has to enquire about the issue and point out that AO's view was erroneous/un-sustainable in law. 10. In this context, it would be gainful to refer to case-law in the case of Gabriel India Ltd. (supra) wherein their Lordship answered the question as to when an order can be termed as "erroneous" which was explained as under:- "From the aforesaid definitions....
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....order is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the Commissioner of Income tax must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax can also show and establish that the facts un record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must b....
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....ny court, shall be excluded. Explanation.-Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter. (3) Any income referred to in sub-section (2) which (a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or (b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or....
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....be accumulated or set apart for application thereto, then in such an event [when there is violation of clause (a)], then, the amount so applied shall be deemed to be the income of the previous year in which it is so applied; or as per clause (d) of sec 11 (3) of the Act, if the amount is credited or paid to any Trust or Institution as stated therein, then the amount so credited or paid to the Trust or Institution-shall be deemed to be the income of assessee of the previous year in which it is so credited or paid. Therefore, according to us, the AO is duty bound to enquire about the accumulated amount which has been claimed to have been expended and examine whether it has violated clause (a), or (b) or (d) of sec. 11(3) of the Act because in the event here is any breach then it shall be deemed to be the income of the previous year in which it-is so applied or ceases to be invested or credited/paid-as the 'case may be. So in the event if there is any expenditure of accumulated amount within the-set-apart period and if there is any violation of clause (a), or (b) or (d) -of sec. 11(3) of the Act; then in such a factual situation only, the tax liability could be imposed upon the assess....
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....as not conducted any such enquiry or verification. In such a scenario, we have to hold that he has initiated revision jurisdiction on mere conjectures, suspicions and surmises, which is not permitted. 16. As noticed earlier the AO has conducted necessary enquiries regarding utilization of the accumulated income of Rs.6 crores was for the purpose for which it was accumulated and has accepted the same which is a plausible view. Therefore Ld. CIT(E) could have invoked jurisdiction u/s 263 of the Act only after enquiring himself, which we have already noticed that he has omitted to do so. In such a scenario, his impugned action of finding the action of AO to accept the claim of expenditure of Rs.6 crores as erroneous and prejudicial to the interests of revenue is untenable. Accordingly, we are of the view that the impugned revision order passed by Ld PCIT is not sustainable in law and assessee succeeds on the legal issue raised before us. Accordingly, we quash the impugned revision order passed by Ld CIT(E). 17. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 02/01/2023." 3. Learned Counsel Mr. Pritish Chatterj....
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....on of funds under Section 11(2) of the Act in the earlier AYs, details of utilization of funds, copy of Form No. 10, and board resolutions, and it is only once the AO was satisfied with the details furnished by the Respondent-Assessee that the AO had taken a possible view of the matter and assessed the income of the Respondent-Assessee at Nil. He therefore submitted that this was not a case of non-enquiry as sought to be made out by the Appellant-Revenue, and hence the revisionary power by the Appellant-Revenue was wrongly invoked. He also submitted that the funds accumulated during the year ending 31st March 2016 could be utilized by the Respondent-Assessee within the next five years, and hence the question of non-utilization of funds and consequences thereon could be only examined in AY 2022-23 and not in the relevant AY. He therefore submitted that the CIT (Exemptions), had not given any finding on the aforesaid submission and passed the revisionary orders only on the ground that a proper enquiry was not made by the AO. In respect of the invocation of Explanation 2 to Section 263 of the Act, learned Counsel for the Respondent-Assessee sought to place reliance on the decision of ....
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....ation of funds in the earlier years, and also submitted details of the amounts utilized out of those funds. The Respondent-Assessee had furnished all the relevant details of Rs. 6 crores spent by it during the year under consideration, out of the amounts accumulated in the preceding year, and therefore the CIT (Exemption), erroneously held that the Respondent-Assessee had furnished utilization of accumulated amounts under broad heads. The CIT (Exemptions), was therefore of the view that the AO could have asked for breakup details, and examined with supporting evidences that the said utilization is as per the objects of the Respondent-Assessee. 8. Such view and approach to our mind, did not warrant invoking the provisions of Section 263 of the Act, inasmuch as it is not the case that the AO had not verified any details. In fact, it is very clear that the Respondent-Assessee had, by letters dated 30th January 2019 and 3rd December 2019, along with the required board resolutions, Form No. 10, and details of utilization of funds, along with details of the accumulation of funds made under section 11(2) of the Act, given complete details to the AO, and on the basis of the verification....
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....gesh Knitwears (P.) Ltd. [2012] 22 taxmann.com 309 (Delhi), wherein the Delhi High Court has elucidated and explained the scope of the provisions of Section 263 of the Act, and has therefore rightly come to the conclusion that when the AO had conducted an inquiry on the issue, in that event, the Commissioner, before holding that an order is erroneous, should conduct necessary inquiries or verification in order to ascertain that the findings arrived by the AO on that issue are erroneous, perverse and/or unsustainable in law. In the facts of the present case, this exercise has not been carried out by the CIT (Exemptions) and therefore the ITAT has rightly come to the conclusion that the CIT (Exemptions) could not show that the order passed by the AO was unsustainable in law and no inquiries had been made. 11. Further, even otherwise, on merits, the ITAT has rightly considered the provisions of section 11(2) and (3) of the Act so as to reach to a conclusion that the Respondent-Assessee had shown that the accumulation and utilization of funds has been rightly made, and therefore, if at all, the taxability of the same was to be decided, then it had to be decided in the year in which ....
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....oresaid Explanation, hence, such an order, without confronting the Respondent-Assessee with the invocation of Explanation 2 to Section 263 was not appropriate and sustainable in law. We are therefore in agreement with learned Counsel on behalf of the Respondent-Assessee on this issue. 14. Learned counsel on behalf of the Respondent-Assessee has placed reliance on the decision of the Supreme Court in Principal Commissioner of Income Tax, Surat, Vs. Shreeji Prints Pvt. Ltd. (supra) in support of the above proposition. We are of the view that the reliance on the aforesaid decision is apposite to the facts of the present case, inasmuch as the aforesaid decision also supports the propositions as canvassed on behalf of the Assessee. The relevant paragraph of the decision in Principal Commissioner of Income Tax, Surat, Vs. Shreeji Prints Pvt. Ltd. (supra) is reproduced hereunder:- "5. The Tribunal has found that in the order passed by the PCIT, Explanation 2 of section 263 of the Act, 1961 is made applicable. The Tribunal observed that the PCIT has not mentioned in the show cause notice to invoke the Explanation 2 of section 263 of the Act 1961. Therefore, by invocation of Exp....
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....gs queries were raised and the assessee responded to the same, then even if an Assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issues. It would be well-nigh impossible for an Assessing Officer to complete all assessments assigned to him under Section 143(3) of the Act if he is required to deal with all issues which arose during the Assessment Proceedings. Thus, the Assessment Order primarily deal with only those issues in respect of which the Assessee has not been able to satisfy him and give reasons for his conclusion. This would enable the Assessee to challenge the same, if aggrieved. In fact the Gujarat High Court in CIT v. Nirma Chemical Works Ltd. [2009] 309 ITR 67/182 Taxman 183 has observed that if an assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evi....
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....CIT v. Vikas Polymers [2012] 341 ITR 537/194 Taxman 57 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable. 10. The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders ....
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....epted the same and did not make any further enquiry. The CIT in exercise of its powers under Section 263 of the Act noticed that the Assessee had after having pressed his claim for expenditure in cash, withdrew the claim by withdrawing the revised return of income. This was done only after the enquiry had commenced. This withdrawal of revised income and consequent claim for cash expenditure was contrary to the stand of the Assessee himself. This change on the part of the Assessee on commencement of enquiry, made further enquiry into his claim for cash expenditure necessary. In the above facts, the CIT while exercising his powers under Section 263 of the Act found that the facts on record per se mandated an enquiry to be made into the claim of the Assessee and not doing the same resulted in the order being erroneous. Thus, the Bachchan's case was a case where once the claim was withdrawn, then enquiry which was to be conducted, was aborted by the Assessing Officer. Therefore, a case of non-enquiry. It may have been different, if the Assessing Officer had enquired into the cash expenditure and its source as claimed, to come to his own conclusion and even accepted the stand of the....