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2016 (1) TMI 798 - ITAT MUMBAI

2016 (1) TMI 798 - ITAT MUMBAI - TMI - Revision u/s 263 - exemption of claim u/s 11 denied - Held that:- As whole of the surplus amount has been challenged before the CIT(A), then the entire assessment order including taxing of the entire exempt income u/s 11 is the subject matter of appeal and there is complete merger with the order of the CIT(A) within the terms and ambit of section 263 read with clause (c) Explanation 1. Thus, if the subject matter of revision u/s 263 is again the denial of e .....

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l between the income which was assessed in the original assessment order and the income which is now being sought to be assessed in wake of order u/s 263. Under both the assessments the surplus amount of ₹ 83.98 crores will get taxed. Hence, no prejudice is caused to the revenue so far as tax effect is concerned, except for the fact that section 11 is being sought to be examined from a different perspective. Accordingly, we hold that, firstly, the subject matter of revision u/s 263 has bee .....

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T MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Appellant : Shri S E Dastur and Shri Nishant Thakkar For The Respondent : Shri Deepkant Prasad ORDER PER AMIT SHUKLA, JM: The aforesaid appeal has been filed by the assessee against impugned order dated 28.03.2014, passed by Director of Income Tax (Exemptions) DIT u/s 263 setting aside the assessment order dated 22.12.2011 passed u/s 143(3) for the assessment year 2009-10, on the ground that it is erroneous and prejudicial to the interest of .....

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since its inception till AY 2003-2004. However, after the amendment made in the said sections w.e.f. 1.4.2003, the assessee was required to seek registration u/s 12AA of the Act to seek exemption u/s 11, on the ground that the objects enumerated in the SRA Act was for carrying out legal obligations which fell within the definition and ambit of charitable purposes as defined in section 2(15). The assessee was duly recognized as a Charitable Institution and Registration u/s 12AA was granted, w.e.f .....

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he entire surplus amount of ₹ 83,98,10,894/- as per income & expenditure account. Such an exemption was denied by the AO in the assessment order on the following grounds which were akin to the reasoning given by the respective assessing officers in the earlier years :- (1) Within the meaning of preamble to the SRA Act, 1971, the handing over of ownership, control, management of the SRA hitherto belonging to the State Government is considered not to have created a lawful Trust within th .....

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f sections 11, 12,12A, 12AA and 13 of the I.T. Act, 1961, it appears that the tax incentive-proposed in the scheme of exemption from charge of income tax is more applicable to the cases of private individual and groups and association who create valid Public Trust and dedicate its income for the purpose of general public welfare. The scheme of section 11 to 13, specifically the restrictive provision of section 13 cannot be made applicable to the case of public enterprise / public sector undertak .....

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of providing various infrastructural facilities and also deriving income ancillary to its principal activities such as rental income from let out property / sale of Land and TDR to its customers, income from investments, etc. In view of the nature and activities being carried out by the authority as well as legal status discussed in the foregoing paragraphs, its claim for exemption u/s 11 of the I.T. Act cannot be entertained . 3. Accordingly, the exemption u/s 11 was denied to the assessee and .....

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orities after following the decision of Hon ble Supreme Court in the case of CIT vs Surat City Gymkhana [2008] 300 ITR 214 and CIT vs Gujarat Maritime Board [2007] 295 ITR 56, had allowed the assessee s appeal on the ground that the registration u/s 12AA has not been cancelled. Not only that the Tribunal has also decided this issue in favour of the assessee in the earlier years. The Ld. CIT(A) had referred and relied upon the order of the Tribunal for the AY 2007- 08. Thereafter, in the order gi .....

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also a matter of record that for the assessment years 2005-06, 2007-08 & 2008-09, the Department on similar issue had raised question of law in the appeal filed before the Hon ble Bombay High Court u/s 260A, against such a allowing of exemption u/s 11 by the Tribunal. The Hon ble High Court too has decided this issue in favour of the assessee. Not only that, the Department too has accepted the said decision of the High Court and no further SLP before the Hon ble Supreme Court had been filed. .....

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use the assessee is carrying out advancement of other object of general public utility and such activity falls within the realm of nature of trade, commerce or business. He observed that the AO during the course of the assessment proceedings had not mentioned or required the assessee to justify its claim in view of proviso to section 2(15), which was inserted by the Finance Act, 2008 w.e.f. AY 2009-10. Even in the course of First Appellate proceedings before the CIT(A) and in second appeal befor .....

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to the interest of the revenue. Thereafter, he analysed and dealt with the various objections raised by the assessee and also the amended proviso to section 2(15) and came to the conclusion that the assessment order is erroneous and prejudicial to the interest of the revenue and, therefore, has to be set aside and to be framed afresh after considering the proviso to section 2(15). 6. Before us Ld. Senior Counsel, Shri S.E. Dastur, after explaining the entire background of the case, submitted tha .....

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in the statute. The Tribunal too confirmed the order of the CIT(A). This inter alia means that the assessment order finally got merged with the order of the Tribunal. After giving effect to the appellate orders, the income has been determined at nil . At the time of issuing of the notice u/s 263 and passing of the impugned order, there was no assessment order in existence. What the Ld. DIT is trying, is to revise the order of the Tribunal in the garb of revision, because the whole of the assessm .....

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mption u/s 11 . The entire matter of exemption u/s 11 was subjudice and subject matter of appeal and, therefore, the entire assessment order and issue of exemption u/s 11 stood merged and such an order could not have been revised within the scope of section 263. Mr. Dastur, further submitted that, the Ld. DIT in his order has tried to find out the fault in the order of the CIT(A) inasmuch as he observes that, the Ld. CIT(A) had power to enhance or consider the newly inserted proviso to section 2 .....

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80I as claimed by the assessee. Thereafter revisionary action u/s 263 was initiated to disallow the relief u/s 80IA on a different ground. In this background, the Hon ble High Court held that CIT could not have exercised jurisdiction u/s 263 to undo the order of CIT(A) as the issue of deduction u/s 80I got merged. 7. Mr. Dastur s second limb of argument was that, now in the present case, whether the assessment order can be at all held to be erroneous in so far as it is prejudicial to the interes .....

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sments the tax on the assessed income would be the same. Hence, no prejudice is caused to the revenue. In support of this contention, he relied upon a decision of Madras High Court in the case of CIT vs Shakti [2002] 244 ITR 246. 8. Mr. Dastur s third limb of argument was that, during the course of the original assessment proceedings, the assessee had submitted a detailed reply before the AO with regard to the amended section 2(15), that is, with reference to the proviso itself. This fact he poi .....

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explained in detail before the AO. If the AO chose to deny the exemption to the assessee on a different footing this does not inter alia leads to inference that AO has failed to consider the assessee s submission or has not examined the issue. In fact AO in para 4 at page 3 of the order has taken note of the assessee s contention regarding absence of profit motive , which has a huge relevance while considering the Proviso to section 2(15). Thus, the AO after considering the entire material has a .....

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denying the exemption. He strongly relied upon the decision of Delhi High Court in the case of India Trading Promotion Organization vs DIT reported in [2015] 371 ITR 333, wherein the entire concept of proviso to section 2(15) have been explained and dealt with. Thus, he submitted that it cannot be held that order of the AO is erroneous in so far as it is prejudicial to the interest of the revenue. 9. On the other hand, Ld. CIT DR submitted that, once there was a specific amendment brought in se .....

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ntion about proviso to section 2(15) in the assessment order or in assessment records. The AO has just picked up the issues and grounds that were coming from the earlier years and has not tried to analyze the things independently or applied his mind on the proviso which he was required to do so. Thus, to this extent, the order of the AO is definitely erroneous. The phrase prejudicial to the interest of the revenue has to be seen from the broader perspective and cannot be narrowed down in the ter .....

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ned order of the DIT. 9. We have heard the rival contentions, perused the relevant finding given in the impugned order and the material placed on record. It is an undisputed fact that the entire exemption of claim u/s 11 was denied by the AO in the assessment order passed u/s 143(3) which is the subject matter of revision u/s 263 here in this appeal. As a result of such an order, the entire surplus amount revealed from income and expenditure account of ₹ 83.98 crores was assessed. The enti .....

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as failed to consider the amended provisions of section 2(15), that is, the Proviso inserted by Finance Act, 2008 w.e.f. assessment year 2009-10 has not been considered and examined. If the proviso would be applied then there might be a situation where assessee s activity may not be held to be for charitable purposes and exemption u/s 11 may not be available. In other words exemption u/s 11 is being sought to be denied on the ground of newly inserted Proviso to section 2(15). Even if such an exe .....

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he Ld. DIT u/s 263; and secondly, whether the impugned order can be considered to be erroneous in so far as it is prejudicial to the interest of the revenue, because even after giving effect to the impugned order, there is no revenue effect. 10. On both counts, we are inclined to agree with the contention of the Ld. Senior Counsel. Because, firstly, when the entire basis of the assessment and the whole of the surplus amount has been challenged before the CIT(A), then the entire assessment order .....

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