2024 (7) TMI 1663 - AT - Income Tax

Revision u/s 263 - denial of benefit of section 11 and 12 as per CIT - As per CIT assessee had paid stipend to its trainees and claimed the same as application of income whereas the trainees are actually utilized for the work in the business entity in which settler and trustees have interest and the said company had also claimed expenses without actually incurring the same and had treated the money payable as stipend which has resulted into reduction of its tax liability by claiming said expenses and the settler and the trustees in the case are significantly benefitted by this arrangement made by the trust and hence the assessee has violated the provisions of section 13(1)(c ) r.w.s.13(2) and 13(3) of the IT Act 1961 HELD THAT - We find that at the outset the trust has not paid any monies to its sister concern and instead received the training fees from its sister concerns. Hence no part of the income of the trust has been diverted to any interested persons referred to in section 13(3) of the Act. This fundamental crucial fact has been misunderstood and misinterpreted by the ld. CIT(E). We find that the assessee had given detailed explanations about its activities. Nowhere the activities of the trust had been found to be non-charitable by the ld. CIT(E). The provisions of section 13(1)(c ) r.w.s. 13(2) and 13(3) of the Act are not at all applicable in the instant case. The assessee trust is engaged in providing vocational training to various trainees and persons in the weaker sections of the society irrespective of caste creed sex religion etc to make them employable in Electronics / Electrical Industries. For this purpose it had entered into an arrangement with its sister concern M/s Calcom Vision Limited which is a manufacturer of electrical and electronic applicances and which allows the trainees sourced by the assessee trust to learn work and train in their factory so that they have on site training and hands on work experience. This arrangement has actually benefitted only those trainees and not the sister concern i.e. Calcom Vision Limited. In any event whatever the stipend that is paid by the assessee to these trainees the assessee had recovered over and above the same from Calcom Vision Limited. It is not in dispute that both the assessee trust as well as the sister concern i.e Calcom Vision Limited maintain their books of accounts on accrual basis. Hence as on the balance sheet date of 31.3.2018 certain sums towards stipend stood recoverable in the books of assessee trust to the tune of 68, 54, 094/- and the same sum was reflected as stipend payable as on 31.3.2018 in the balance sheet of Calcom Vision Limited. This was duly paid by the said sister concern to the assessee trust in April 2018. Hence the assessee trust had not allowed the sister concern or its promoters or the trustees herein to derive any benefit whatsoever. Similarly the assessee trust had also reflected a sum of Rs 13, 59, 830/- as stipend payable to its trainees as at the end of the year i.e. 31.3.2018. Since certain stipend monies were not received from Cacom Vision Limited as stated supra the assessee could not make payment of stipend to its trainees for want of cash flow. This is the fundamental principle of accounting transactions on accrual basis under mercantile system of accounting which has not been appreciated by the ld. CIT(E) in the instant case. Either way there was no grievance raised by any of the trainees that they had not been paid any stipend by the assessee trust. No evidence to buttress this fact has been brought on record by the CIT(E). In any event we find that detailed enquiries were indeed made by the ld. NaFAC on the stipend expenditure to trainees and its recovery from Calcom Vision Limited by raising specific queries in this regard during the course of assessment proceedings which stood properly replied by the assessee also. Hence this cannot be stated to be a case of lack of enquiry by the NaFAC. We also find that assessee trust has been making payment of stipend to trainees in similar way and recovering over and above the payments from its sister concern in similar fashion way back from AY 2010-11 onwards. The assessee trust even placed on record the complete details of the same from Asst Years 2010-11 to 2023-24. We find that given the aforesaid income tax behavior of the assessee there could be no reason for the ld. AO to take a divergent stand during the year under consideration. Hence his order cannot be termed as erroneous at all by any stretch of imagination. We have no hesitation to quash the revision order passed u/s 263 of the Act by the ld. CIT(E) Delhi. Assessee appeal allowed.

Summary

ISSUES:

Whether the Principal Commissioner of Income Tax (PCIT) was justified in invoking revision jurisdiction under section 263 of the Income Tax Act, 1961 ("the Act") against the assessment order passed under section 143(3) of the Act.Whether the assessment order was "erroneous" and "prejudicial to the interests of the revenue" within the meaning of section 263 of the Act.Whether the trust's arrangement with a related company for vocational training and stipend payments violated provisions of section 13(1)(c) read with sections 13(2) and 13(3) of the Act, thereby disqualifying the trust from exemption under sections 11 and 12 of the Act.Whether the Assessing Officer (AO) conducted adequate inquiries and verifications before passing the assessment order.

RULINGS / HOLDINGS:

On the issue of invoking revision jurisdiction under section 263, the court held that the assessment order was neither "erroneous" nor "prejudicial to the interests of the revenue," and therefore the revision order under section 263 was not justified.The court found that the trust did not divert any income or property to the related company or trustees, and the stipend payments were fully recovered from the related company, negating any violation of section 13(1)(c) read with sections 13(2) and 13(3) of the Act.The AO had made "all necessary inquiries and verification" during the faceless assessment proceedings, including examination of stipend payments and recoveries, hence the assessment order was passed after due diligence.The alleged outstanding stipend receivable was explained as a normal feature of mercantile accounting on accrual basis, and was subsequently received, negating any claim of "loan or advance" to related parties.Therefore, the benefit of exemption under sections 11 and 12 of the Act rightly applied to the trust, and the revision order under section 263 was quashed.

RATIONALE:

The court applied the statutory framework of section 263 of the Income Tax Act, 1961, which allows revision only if the assessment order is "erroneous" and "prejudicial to the interests of the revenue." Explanation 2 to section 263 clarifies that an order is erroneous if passed without making necessary inquiries or verification or allowing relief without inquiry.The court relied on the principle that mere suspicion or difference of opinion is insufficient to invoke revision jurisdiction under section 263.The provisions of section 13(1)(c) read with sections 13(2) and 13(3) were examined in light of the facts that no part of the income or property of the trust was used or applied directly or indirectly for the benefit of any person specified under section 13(3).The court emphasized the mercantile system of accounting followed by both the trust and the related company, explaining the timing differences in stipend payments and recoveries.The court noted that the AO had issued multiple notices and made detailed inquiries, and the trust had consistently disclosed the stipend transactions over several assessment years without objection from the revenue.The court followed binding precedent holding that revision under section 263 is not sustainable where the AO has made proper inquiries and considered the assessee's explanations.The decision reflects a doctrinal adherence to the limits of revision jurisdiction under section 263 and safeguards against arbitrary interference with assessment orders where due process is followed.