2025 (6) TMI 65 - AT - Income Tax

Revision u/s 263 - assessment order termed as an erroneous - Whether AO had properly examined the issue of utilisation of accumulated surplus from earlier years and the consequent taxability u/s 11(3) of the Act? - HELD THAT - During the course of assessment proceedings the assessing authority sought clarification on utilisation of accumulated surplus from the past years and explain the discrepancy in the return of income in Part B T1 of the ITR. The appellant had filed detailed explanation and after considering the explanation the AO had chosen not to make any addition on these issues. This could clearly demonstrate that the AO took a plausible view after examining the issue in detail. Furthermore nothing has been shown to us that the view taken by the AO is not a plausible view. In the circumstances it cannot be held that the assessment order is erroneous and prejudicial to the interests of Revenue. Therefore the CIT ought not have exercised jurisdiction u/s. 263 of the Act. Appeal filed by the assessee stands allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether the order of the Commissioner of Income Tax (Exemptions) revising the assessment order under section 263 of the Income Tax Act, 1961 (the Act) was justified.
• Whether the assessment order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interests of revenue, thereby warranting revision under section 263.
• Whether the AO had properly examined the issue of utilisation of accumulated surplus from earlier years and the consequent taxability under section 11(3) of the Act.
• The scope and limits of the revisional power under section 263 of the Act, especially in cases where the AO had taken a plausible view after due enquiry.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of revision under section 263 of the Act

Relevant legal framework and precedents: Section 263 empowers the Commissioner of Income Tax to revise an assessment order if it is "erroneous" and "prejudicial to the interests of the revenue." Both conditions must be satisfied cumulatively. The Supreme Court decisions in Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd. have clarified that the error must be such that the order is not debatable or based on a plausible view. If the AO has examined the issue and taken a plausible view, the order cannot be termed erroneous for the purpose of section 263.

Court's interpretation and reasoning: The Tribunal emphasized that the revisional power is not to be exercised lightly or merely because the Commissioner disagrees with the AO's view. The power is limited to cases where the assessment order suffers from a non-debatable error. The Tribunal reiterated that if the AO has conducted proper enquiry and taken a plausible view, the assessment order cannot be interfered with under section 263.

Key evidence and findings: The AO had issued specific queries during assessment regarding the utilisation of accumulated surplus and discrepancies in the return. The appellant submitted detailed explanations, which were duly considered. The AO chose not to make any addition, indicating that the issue was examined and a plausible view was taken.

Application of law to facts: Since the AO had conducted enquiry and taken a plausible view, the Tribunal held that the assessment order was not erroneous. Consequently, the Commissioner's revisional order was unjustified.

Treatment of competing arguments: The appellant argued that the AO had examined the issue and taken a plausible view, thus the revision was unwarranted. The Revenue contended that the surplus was unutilised and taxable, and the AO had failed to examine the issue properly. The Tribunal found the appellant's submissions more convincing based on the record.

Conclusion: The revisional order under section 263 was held to be without jurisdiction and liable to be quashed.

Issue 2: Examination of utilisation of accumulated surplus and taxability under section 11(3)

Relevant legal framework: Section 11 of the Act provides exemption for income of charitable trusts subject to certain conditions. Section 11(3) mandates that income not applied for charitable purposes within the prescribed period is taxable. The utilisation of accumulated surplus is critical to determine exemption.

Court's interpretation and reasoning: The Tribunal noted that the AO had specifically sought clarifications on utilisation of the carry forward surplus and discrepancies in the return's schedules. The appellant had explained utilisation of funds, and the AO, after considering these explanations, did not make any addition. This indicated a detailed examination of the issue.

Key evidence and findings: The return showed nil utilisation in schedule ER and partial utilisation in schedule EC. The AO's queries and the appellant's replies formed part of the record. The AO's decision to not add any income demonstrated acceptance of the appellant's explanation.

Application of law to facts: The Tribunal held that since the AO examined the utilisation and took a plausible view that no addition was warranted, the assessment order was not erroneous under section 11(3).

Treatment of competing arguments: The Revenue argued that the surplus was unutilised and taxable. The appellant countered that utilisation was explained and accepted by the AO. The Tribunal sided with the appellant based on the record.

Conclusion: The AO's treatment of the utilisation issue was proper and not liable to be disturbed.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following principles and conclusions:

• "The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an 'erroneous'."
• The AO had issued specific queries and considered detailed replies regarding utilisation of accumulated surplus, thereby conducting a proper enquiry.
• The Commissioner of Income Tax (Exemptions) erred in invoking section 263 to revise the assessment order where the AO had already taken a plausible view after enquiry.
• The revisional power under section 263 is to be exercised sparingly and only where the order is clearly erroneous and prejudicial to revenue.
• Final determination: The appeal was allowed, quashing the revision order and upholding the assessment order passed by the AO.