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WILLINGDON CHARITABLE TRUST Versus DIRECTOR OF INCOME-TAX (EXEMPTIONS)

2015 (11) TMI 434 - ITAT CHENNAI

Revision u/s 263 - direct the Assessing Officer to make fresh assessment after keeping in view the law relating to charity in provisos to section 2(15) of the Income-tax Act with effect from April 1, 2009 and issue of application of accumulated income of the assessment year 2004-05 within the stipulated period up to March 31, 2008 - Held that:- The Commissioner of Income-tax (Administration) cannot sit on the order of the Commissioner of Income-tax (Appeals) to decide the same issue differently. .....

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f the Commissioner of Income-tax (Appeals) as a whole hence the order was no more amenable to revisional jurisdiction of the Commissioner of Income- tax in view of Explanation (c) of section 263 of the Act and to that extent we are not agreeing with the order of the Commissioner of Income-tax passed under section 263 of the Act.

It is mentioned in Form 10 that amount would be accumulated till the previous year ending March 31, 2008. The assessee was required to utilise the accumulated .....

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are inclined to agree with the findings of the Commissioner of Income-tax that the Assessing Officer is required to examine this issue afresh and gave a finding on this. Accordingly, to this extent, we confirm the order of the Commissioner of Income-tax. The issue of application of accumulated income of the assessment year 2004-05 within the stipulated period, i.e., up to March 31, 2008 is to be examined while framing the fresh assessment and decide fresh as directed by the Commissioner of Incom .....

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f the Income-tax Act, 1961, vide order dated March 31, 2014. 2. The ground in this appeal with regard to assumption of jurisdiction of the Commissioner of Income-tax and thereafter, observing that there is failure on the part of the Assessing Officer to apply the correct provisions of law to the facts of the assessee's case, and hence passed the assessment order for the year 2009-10 both "erroneous" and "prejudicial to the interests of the Revenue" and direct the Assessin .....

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women's hostel and hostel for girls is not liable for tax. 4. Learned counsel submitted that the activities are carried on by the assessee which is instrumental to the object of the assessee. According to learned counsel the Assessing Officer had gone into the details of the activities of the trust and taken the conscious decision that income of the assessee from kalyanamandapams, auditoriums, working women's hostel and hostel for girls are not liable for taxation. He submitted that the .....

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the object of the trust. Therefore, the matter is to be remitted to the Assessing Officer to decide as to whether the said business income is used for the object, in accordance with law. 5. He also submitted that the Assessing Officer has adopted one course of possible view under law when two views are possible. Learned counsel submitted that the Commissioner of Income-tax is not right when he held that the assessment order is both "erroneous" and "prejudicial to the interests of .....

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e assessee and it is established for this purpose. He relied on the judgment of the Supreme Court in the case of Queen's Educational Society v. CIT in Civil Appeal No. 5167 of 2008 dated March 16, 2015 [2015] 372 ITR 699 (SC). Further, he submitted that activities carried on by the assessee did not fall within the ambit of trade, commerce, business or fall within the ambit of any activities or rendering any service in relation to trade, commerce or business. Further, he relied on the judgmen .....

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before us and also gone through all the judgments cited by the parties before us. First we take up the legal issue with reference to the jurisdiction of invoking the provisions of section 263 of the Act by the learned Commissioner of Income-tax. The scheme of the Income-tax Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to erroneous order of the Assessing Officer, the Revenue is losing tax lawfully payable by a person .....

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ack's Law Dictionary (seventh Edition) thus' ; "'erroneous, adj. Involving error, deviating from the law'. The word 'error' has been defined at the same page in the same dictionary thus : 'Error No. 1 : A psychological state that does not conform to objec tive reality ; a brief that what is false is true or that what is true is false'. At page 649/650 in P. Ramanatha Aiyer's Law Lexicon Reprint 2002, the word 'error' has been defined to mean- ' .....

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ct ; fault respect the agent, an error may lay in the judgment, or in the conduct, but a fault lies in the will or intention." 8. At page 650 of the aforesaid Law Lexicon, the scope of error, mistake, blunder, and hallucination has been explained thus : "An error is any deviation from the standard or course of right, truth, justice or accuracy, which is not intentional. A mistake is an error committed under a misapprehension or misconception of the nature of a case. An error may be fro .....

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, the other of disordered imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgment or fact ; especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived." 9. In order to ascertain whether an order sought to be revised under section 263 is erroneous, it sh .....

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rejudice to the interests of the Revenue. 10. Section 263 of the Income-tax Act seeks to remove the prejudice caused to the Revenue by the erroneous order passed by the Assessing Officer. It empowers the Commissioner to initiate suo motu proceedings either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be .....

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ive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under section 14 .....

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claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the public exchequer. The Assessing Officer has got to protect, on one hand, the interests of the assessee in the sense that he is not subjected to any amount of tax in excess of that is legitimately due from him, and on the other hand, he has a duty to protect the interests of the Revenue and to see that no one dodged the Revenue and escaped without paying the legitimate tax. The Asse .....

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been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the face of it but also when it is a stereotyped order which simply accepts what the asse .....

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as under (page 87) : "There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall the orders passed without applying the principles of natural justice or without application of mind. .....

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ected by invoking revisional jurisdiction of the Commissioner under section 263. Arbitrariness in decision-making causing prejudice to either party cannot therefore be allowed to stand and stare at the legal system. It is difficult to countenance such arbitrariness in the actions of the Assessing Officer. It is the duty of the Assessing Officer to adequately protect the interest of both parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary .....

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into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S. N. Mukherjee v. Union of India, AIR 1990 SC 1984, it has been observed by the hon'ble Supreme Court as follows : 'Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But .....

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nnot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact whether the decision is subject to appeal, revision or judicial review. It may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of .....

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n the order under challenge.'" 13. Similar view was earlier taken by the hon'ble Supreme Court in Siemens Engg. and Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the Income-tax Officer acts in a quasi-judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judg .....

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and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the Revenue. As a matter of fact such orders are prejudicial to the interests of both pa .....

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ceeds on incorrect assumption of facts or incorrect application of law. In the same category fall the orders passed without applying the principles of natural justice or without appli cation of mind. (iii) The order passed by the Assessing Officer is a stereotype order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case. 15. We shall now turn .....

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n of the issues on the part of the Assessing Officer that the return filed by the assessee was not automatically accepted. The assessment order placed before us was passed after examination or enquiry or verification or objective consideration of the claim made by the assessee. However, the Assessing Officer has omitted to examine the issues relating to accumulation of income. His order is a completely non-speaking order on this issue. In our view, it was a fit case for the learned Commissioner .....

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ssing Officer had taken a possible view in accepting the return of the assessee with reference to the issue raised by the Commissioner of Income-tax and hence, the Commissioner was not justified in assuming the revisional jurisdiction under section 263. We have given our thoughtful consideration to the aforesaid submissions. As already stated earlier, an order becomes erroneous because inquiries, which ought to have been made on the facts of the case, were not made and not because there is anyth .....

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ad made the requisite inquiries or examined the claim of the assessee in accordance with law. He could have accepted the assessee's claim. Equally, he could have also rejected the assessee's claim depending upon the results of his enquiry or examination into the claim of the assessee. Thus, the formation of any view by the Assessing Officer would necessarily depend upon the results of his inquiry and conscious, and not passive examination into the claim of the assessee. If the Assessing .....

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he interests of the Revenue. Nothing else is required to be established in such a case to show that the order sought to be revised is erroneous and prejudicial to the interests of the Revenue. 17. Further in the present case, the assessment order dated December 29, 2011, the Assessing Officer considered the income of auditoriums as business income and brought the same into taxation. The Commissioner of Income-tax while proceeding under section 263 of the Act vide order dated March 31, 2014 obser .....

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ent order. There is no prejudice to the interests of the Revenue though he has not properly applied proviso of section 2(15) of the Act. The order of the Assessing Officer is erroneous against wrong assumption of facts. However, it is not prejudicial to the interests of the Revenue as there is no revenue loss to the Department. Moreso, the Commissioner of Income-tax in his order commenting on the order of the Commissioner of Income-tax (Appeals) for the same assessment year stating the Commissio .....

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ls). In our opinion, the issue relating to treating the income from kalyanamandapams, auditoriums, working hostel is subject-matter of appeal by the assessee before the Commissioner of Income-tax (Appeals). The said issue in assessment order merged with the order of the Commissioner of Income-tax (Appeals) as a whole hence the order was no more amenable to revisional jurisdiction of the Commissioner of Income- tax in view of Explanation (c) of section 263 of the Act and to that extent we are not .....

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