TMI Blog2018 (7) TMI 2185X X X X Extracts X X X X X X X X Extracts X X X X ..... st objects. Objects of the trust are of general public utility and beneficial to the public at large as the centers are located at village level in various blocks (Tallukas) in the state of Rajasthan and in each center, gopals are deputed who are responsible for the objects of the assessee trust and such gopals organizes meetings with the villagers. When calf is borne out of the activities carried out by the trust then calf borne certificate is issued, which contains the complete details of calving. We have also perused the objects of the trust (available in the paper book) which are of clearly in the nature of charitable purposes, therefore, the objections observed in the impugned order are fully satisfied. So far as the contention of the Ld. CIT-DR and observed by the Ld. CIT(E) also that a detailed assessment order has not been framed is concerned, we find that firstly, AO was having the benefit of earlier assessment orders, wherein, identical claim of the assessee was allowed and secondly, the assessment was framed after issuance of notices, queries so raised, and on consideration of various replies filed by the assessee as discussed in earlier paras of this order and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministrative of the trust in a senior level position for which our attention was invited to page 84, 116, 118 (appointment letter), 119 and 120 of the paper book. It was contended that there is no error in the assessment order, which was framed after due verification/examination of facts and even the Ld. CIT(E) is not sure and it merely says it appears that the assessee is doing business , thus, it is the personal feeling of the Ld. Commissioner(E), which cannot be said to be justified for invoking revisional jurisdiction under section 263 of the Act. Reliance was placed upon the decision in 243 ITR 83 (Supreme Court) and 362 ITR 539 (Guj.). The crux of the submissions/arguments of the assessee is that Shri B. K. Kedia is an experienced person and is an instrumental in enhancing the charitable activities of the assessee trust and further the cattle breeding improvement through establishment of integrated livestock development centers (in short ILDC) are funded by the government from which the farmers at large are benefited. It was also explained that the main objective of this programmed is to upgrade the local indigenous low milk Yielding cattle by cross breeding them with the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by the Ld. Assessing Officer on the issues raised by the Ld. CIT(E) and also by the Ld. CIT-DR and the proviso does not hit the assessee and the scope of enquiry by the ld. CIT(E) is limited to the points raised in the impugned order for which reliance was placed upon the decision in 335 ITR 83 (Del.) and other cases mentioned in the case laws paper book. A plea was raised whether the Ld. CIT(E) can invoked section 263 on different views, for which reliance was placed upon the decision in 140 ITR 490 (P H). A strong plea was raised by the Ld. counsel for the assessee that services are provided to the villagers and not to the government for which grants are given to the assessee by the government for which our attention was invited to page 4, clause-b of the agreement. 2.2. Before adverting further, now we shall analyze the relevant provision of section 263 of the Act, along with the amendment made by the Finance Act, 2015 w.e.f. 01/06/2015, in the light of the contention made by Ld. CIT-DR. The provision of the Act is reproduced hereunder for ready reference:- 263. (1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.] (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, [National Tax Tribunal,] the High Court or the Supreme Court. Explanation.- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Commissioner failed to appreciate that whereas in assessment year 1996-97, the appellant was allowed deduction under section 80HHC, in assessment year 1998-99, business loss on sale of license has been allowed under section 37(1) and therefore, there had not been allowance of double deduction. 2. The facts of the case, in brief, are that the assessee, a partnership firm, was engaged, during the previous year relevant to the assessment year under appeal, in the business exporting pens and ball pens. It filed its return of income declaring loss of ₹ 11,32,829 on 30-10-1998 for the assessment year under appeal. The assessment was completed on 29-122000 under section 143(3) of the IT Act accepting the loss shown by the assessee. The entire order of assessment passed by the Assessing Officer reads, in verbatim, as under : The assessee-firm filed its return of income for assessment year 1998-99 on 30-10-1998 admitting a net loss of ₹ 11,32,828. This return of income was processed under section 143(1)(a) without any prima facie adjustment on 31-3-1999. Subsequently, notice under section 143(2) of the IT Act was issued and served on the assessee. In response to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and prejudicial to the interest of the revenue. 4. In view of the aforesaid, the Ld. Commissioner issued a show-cause notice under section 263 asking the assessee to explain as to why the order passed by the Assessing Officer for the assessment year under appeal should not be set aside for being made afresh as per law after giving a reasonable opportunity of hearing to the assessee. The assessee submitted its reply to the show-cause notice which the learned Commissioner considered and, after consideration of the submissions made by the assessee, passed the impugned order setting aside the assessment made by the Assessing Officer with the direction to him to frame a fresh assessment as per law after giving a reasonable opportunity of hearing to the assessee. It is this order of the learned Commissioner, which is the subject-matter of appeal by the assessee before us. 5. In support of the appeal, the Ld. Authorised Representative for the assessee took us through the relevant notices issued and orders passed by the Departmental authorities. He submitted that the Assessing Officer had accepted the profit as shown in Profit Loss Account for assessment year 1996-97 as eligible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the learned Commissioner under section 263 of the Income-tax Act, 1961. He submitted that the Assessing Officer had not expressed any view in the assessment order and hence, there was no question of the Commissioner taking a different view in his order or substituting his own view for the view taken by the Assessing Officer. He submitted that the assessment order passed by the Assessing Officer was a non-speaking order, which did not reflect any application of mind on the part of the Assessing Officer. According to him, the Assessing Officer simply accepted mechanically what the assessee had claimed before him without any objective consideration or evaluation of the issues involved. He argued that mere passing of a mechanical and stereotyped order without any application of mind or objective evaluation of the relevant materials and issues by the Assessing Officer would render his order not only erroneous but also prejudicial to the interest of the revenue. Applying the aforesaid principles, the learned DR submitted that the learned Commissioner was, on the facts of the case, absolutely justified in exercising revisional jurisdiction under section 263 of the Income-tax Act. He su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls such licences. He however cannot make profit on the mere receipt of licences without selling them. Section 28(iii) of the Income-tax Act seeks to bring the profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 to the charge of tax. Two aspects thus clearly emerge; one, there can only be profit (and, in no case loss) on sale of import licences obtained by the assessee directly from the Government as incentive on the basis of exports made; and two, the profits can accrue to the assessee only in the year in which such licences are sold and not before. It is fairly wellsettled that an assessee cannot adopt a method of showing profit or loss contrary to law. The Assessing Officer ought to have, therefore, examined as to whether the assessee, in the first instance, was justified in law in showing a higher profit (without selling licences) in an earlier year in order to claim exemption, e.g., under section 80HHC and further thereafter in claiming loss in the year under consideration on the ground that the licences obtained earlier were sold without there being any actual loss to the assessee on such sale. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and S. 215, Cr.P.C.). Error, Fault. Error respects the act; fault respects the agent, an error may lay in the judgment, or in the conduct; but a fault lies in the will or intention. 12. 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 from the absence of knowledge; a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. An error may be overlooked or atoned for, a mistake may be rectified; but the shame or ridicule which is occasioned by a blunder, who can counteract. Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of disordered imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In other words, the Assessing Officer was statutorily required to make the assessment under section 143(3) after scrutiny and not in a summary manner as contemplated by sub-section (1) of section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the 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 interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what 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 Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the parties, namely, the assessee as well as the State. If he fails to discharge his duties fairly, his arbitrary actions culminating in erroneous orders can always be corrected either at the instance of the assessee, if the assessee is prejudiced or at the instance of the Commissioner, if the revenue is prejudiced. The underlying philosophy of section 263 is the removal of the prejudice caused to the revenue by the erroneous orders of the Assessing Officer. In CIT v. V.P. Agarwal [1993] 68 Taxman 236(All.), the Hon ble Allahabad High Court has held as under : 14. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have reproduced above the relevant portion of the observations made by the learned Judges. They have held that orders, which are subversive of the administra-tion of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of revenue is bound to suffer. If without discussing the nature of the transaction 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 the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case. 16. In view of the foregoing, it can safely be said that an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with law after giving a reasonable opportunity of hearing to the assessee. In our view, the assessee should have no grievance in that the learned Commissioner has simply asked the Assessing Officer to consider the claim of the assessee as per law. The assessee can neither contend nor expect that loss returned by it should be accepted by the Department without proper scrutiny and objective consideration of the issues by the Assessing Officer. 18. It was however contended by the learned counsel that the Assessing Officer had taken a possible view in allowing the loss claimed by the assessee 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 anything wrong with the order if all the facts stated or the claims made in the return are assumed to be correct. Thus, it is mere failure on the part of the Assessing Officer to make the necessary inquiries or to examine the claim made by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings under section 147/148 that the claim for depreciation has been considered and hence cannot be disallowed on mere change of opinion was rejected because there was no conscious consideration of the materials which were on record. As already stated earlier, no material was placed before the Assessing Officer at the assessment stage on the basis of which he could take any view. The assessee has also not been able to show to us that any inquiry was made by the Assessing Officer in this regard. Therefore mere allegation that the Assessing Officer has taken a view in the matter will not put the matter beyond the purview of section 263 unless the view so taken by the Assessing Officer is a judicial view consciously based upon proper inquiries and appreciation of all the relevant factual and legal aspects of the case. The judicial view taken by the Assessing Officer may perhaps place the matter outside the purview of section 263 unless it is shown that the view so taken by the Assessing Officer contains some apparent error of reasoning or of law or of fact on the face of it. 20. The learned counsel has strongly relied upon the following observations made in Malabar Industrial C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision else he would neither be able to adopt a course permissible in law nor take a view where two or more views are possible. In other words, it is the Assessing Officer who has to adopt a permissible course of law or take a view where two or more views are possible. It is difficult to comprehend as to how the Assessing Officer can be attributed to have adopted a permissible course of law or taken a view where two or more views are possible when the order passed by him does not say so. We cannot assume, in order to provide legitimacy to the assessment order, that the Assessing Officer has adopted a permissible course of law or taken a possible view where his order does not say so. The submissions made by the learned counsel, if accepted, would require us to form, substitute and read our view in the order of the Assessing Officer when the Assessing Officer himself has not taken a view. It could have been a different position if the Assessing Officer had adopted or taken a view after analysing the facts and deciding the matter in the light of the applicable law. However, in the case before us, the Assessing Officer has not at all examined as to whether only one view wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gality. It is quite possible that a long order, which is sought to be revised under section 263 may suffer from the same errors as pointed out above. It is equally possible that even a short order, which is sought to be revised under section 263 may reflect proper application of mind by the Assessing Officer and thus may not be amenable to revision under section 263. Therefore, it is not the length of the order but the judicial strength of the order that is material in deciding whether the order sought to be revised is erroneous and prejudicial to the interest of the revenue. In the case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under section 263. 24. As held in V.P. Agarwal s case (supra), the Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the scheme of the Income-tax Act. If he commits an error while discharging the aforesaid roles and consequently passes an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the matter in the fresh round of assessment initiated as a result of the order of the learned Commissioner on merits and in accordance with law without being influenced by the aforesaid observations. 26. In view of the above, the appeal filed by the assessee is dismissed. 2.6. The next case relied upon by the Ld. CIT-DR is COLORCRAFT KASHIMIRA CERAMIC COMPOUND v. INCOME-TAX OFFICER, WARD-4(4), THANE [2007] 105 ITD 599 (ITAT [Mum]), order dated 12/05/2006, which is also reproduced hereunder:- The assessee has preferred this appeal against the order of the Learned CIT under section 263 of the Income-tax Act, 1961 ( Act ). 2. The brief facts giving rise to this appeal are these: The assessee filed its income-tax return for the year under consideration disclosing total income at ₹ 7,45,780 after claiming deduction under section 80HHC of the Act for ₹ 69,98,537. The original assessment under section 143(3) of the Act was made by the Assessing Officer on 31-32003, determining the total income at ₹ 7,88,376. Subsequently, the Learned CIT received a proposal from the Assessing Officer to the effect that the assessment was erroneous and prejudicial to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity of hearing to the assessee. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 3. The Learned Counsel for the assessee has assailed the impugned order of the Learned CIT by raising various submissions. Firstly, it was submitted that there was no co-relation between the reason given by the Learned CIT in the show-cause notice and the reasons given in the impugned order vis-a-vis the deduction under section 80HHC for holding that the order of the assessment was erroneous. He drew our attention to the show-cause notice to point out that the reason given in the notice was that duty drawback could not be considered as profit derived from export activities in view of the Hon ble Supreme Court judgment in the case of CIT v. Sterling Foods [1999] 237 ITR 579, while the reasons given in the impugned order are quite different for holding the order of assessment to be erroneous. Thus, the impugned order of the Learned CIT cannot be sustained in view of the judgment of the Hon ble Andhra Pradesh High Court in the case of CIT v. G.K. Kabra [1995] 211 ITR 336, and the decision of the Tribunal in the case of Sanco Trans Ltd. v. Asstt. CIT [1997] 61 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the assessment order is in consonance with one of the views, then the order of assessment cannot be said to be erroneous. 7. On the other hand, the Learned D.R. has vehemently relied on the reasoning given by the Learned CIT. Further, he relied on the judgment of the Hon ble Supreme Court in the case of Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 and the judgment of the Hon ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, for the proposition that lack of proper enquiry on the part of Assessing Officer would result assessment order to be erroneous and prejudicial to the interest of the Revenue. Proceeding further, it was submitted by him that mere collection of information is not sufficient. It is the duty of the Assessing Officer to apply his mind to the evidences so collected and ascertain whether such material is sufficient and in consonance with the provisions of the Act. He then drew our attention to the details filed by the assessee and reference to its claim under section 40A(2)(b). According to him, the details of bills issued by the sister concerns were not sufficient evidence for coming to the conclusion that expenditure inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is proposed. Obviously, therefore, the notice issued must indicate the reasons on which the order of assessment is considered to be erroneous and prejudicial to the interest of Revenue [Rawani Dal Flour Mills v. CST [1992] 86 STC 409 (Ori.)]. This means, there must be nexus between the reasons given in the show-cause notice and the order of the Learned CIT under section 263. Consequently, in our opinion, it has to be held that order of the Learned CIT would be badin-law where such order is not passed on the reasons given in the show-cause notice. 9. The view taken by us is fortified by the judgment of the Hon ble Andhra Pradesh High Court in the case of G.K. Kabra ( supra). In that case, the notice under section 263 related to the assessment of capital gain while the final order related to the inference of escapement of hire charges. The Tribunal held that the order of Learned CIT under section 263 was vitiated in law and, therefore, had to be cancelled. The Hon ble High Court upheld the order of the Tribunal after making the following observations : Inasmuch as the Commissioner had not chosen to show these two points as the errors in making the final order and the final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the penalty was based on a different footing altogether viz. on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the Incometax Officer disappeared when the Appellate Assistant Commissioner held that there was no supervision of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under section 271(1)(c) for concealment of income was correct. [As per Head Note] In the present case, the reason given in the show-cause notice was that duty drawback received by the assessee could not be considered as profit derived from export in view of the Supreme Court judgment in the case of Sterling Foods (supra) and, therefore, the said amount did not qualify for deduction under section 80HHC. However, the order under section 263 held the assessment order as erroneous on different grounds namely ( i) the Assessing Officer should have excluded the export ince ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer to evaluate the material or evidence collected and then ascertain whether such materials are enough to sustain the claim of the assessee. 11. In the above backdrop, let us examine the facts of the present case. Regarding the payments made by the assessee falling under section 40A(2)(b), the assessee had given details of sister concerns to whom the payments were made (Page 26 of the Paper Book). He also gave details of bills issued by M/s. Mineral India International (Pages 42 and 43 of Paper Book). This detail provides the dates and invoice numbers as well as the total amount of purchases. No other information was given by the assessee. In our opinion, this information by itself is not sufficient for holding that payments made to sister concern under section 40A(2)(b) was reasonable and not excessive. Whether the payment was excessive or not would depend upon the prevalent market prices. However, the Assessing Officer did not make any enquiry regarding prevalent market price of the goods purchased by the assessee from the sister concern. In the absence of such enquiry on the part of Assessing Officer, in our opinion, the assessment order became erroneous. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer was required to make enquiry before rejecting the case of assessee. Similarly, in the case before the Gujarat High Court, Their Lordships referred to Supreme Court judgment in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 781and observed that where names and addresses of the creditors and GIR numbers are disclosed, then the burden shifted to the Department to establish the Revenue s case and in order to sustain the addition, the Revenue has to pursue the enquiry and to establish the lack of creditworthiness (Page 369 of 256 ITR). This judgment of the Supreme Court also shows that the Department is required to make enquiries to prove the lack of creditworthiness before making any addition under section 68. Therefore, these two decisions relied upon by the assessee s counsel do not help the case of the assessee. In our opinion, the fact of creditworthiness must be established and the primary onus is on the assessee to establish the same. In the present case, no evidence was furnished regarding the creditworthiness of the parties. Even otherwise, in such situation, the Assessing Officer should have made enquiries in this regard before accepting the explanation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any material to show that the said property would have fetched a higher rent, it was not possible for the Commissioner to exercise his power of revision. The Tribunal had found that there was no error of fact in the order of assessment. The ITO had completed the assessment after making due enquiry and after grant of certain deductions. The Commissioner had not indicated that there was any error in law in determination of the annual rental value of the property. He had also not indicated anywhere in his order that there was any error of law in determination of the rental value of the properties. In the absence of any material, the Commissioner had exercised his power of revision and set aside the order of the ITO and directed him to make further investigation in the matter and determine the annual rental value of the properties. The ITO, in the instant case, had taken the actual rent received from the two properties and had determined the annual rental value of the properties on the basis of the materials. Unless it was established that the materials relied upon by the ITO were not relevant and some irrelevant materials had been taken into consideration before determining the an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner exercised his revisional jurisdiction as also whether the Tribunal was right in taking the view that the reconditioned belt was a result of manufacture is correct, have been referred to us. 4. On the question as to whether the recondition of a conveyor belt can be regarded as the result of a process of manufacture, and as having brought into existence a new article, the counsel for the revenue referred us to the decision of this Court in the case of CIT v. Madurai Pandian Engg. Corpn. Ltd. [1999] 239 ITR 375, wherein it was held in the context of a claim for investment allowance for a unit which retrea- ded tyres, that a retreaded tyre was not a new article, and that the pro- cess of retreading was not manufacture. It was emphasized by the Court that for claiming relief under section 80J a new article should emerge from the manufacture. The counsel submitted that reconditioning of a conveyor belt, the conveyor belt being made of rubber is qualitatively not different from the retreading of an old tyre and that the law laid down in that case would apply to the facts of this case as well. 5. Attention was also invited to the observations of the Apex Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80J ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Income-tax Officer's order cannot be said to be prejudicial to the revenue for the assessment year 1977-78 as there is no tax effect ? in favour of the revenue and against the assessee. The revenue will be entitled to costs in the sum of ₹ 1,500. 2.9. So far as, the scope of revision u/s 263 of the Act is concerned, the Hon ble Bombay High Court has enlightened us in its order dated 15/04/1993 in CIT vs Gabrial India Ltd. (1993) 203 ITR 108 (pages 9 to 15 of the paper book), wherein discussion was made at length and finally decided in favour of the assessee. The relevant portion of the order is reproduced hereunder:- 7. We have heard learned counsel for the parties and carefully perused the orders of the Income-tax Officer, the Commissioner and the Tribunal. On perusal of the admitted facts, it appears that the Income-tax Officer in the instant case had examined the allowability of the claim of the assessee for deduction of the above amount of ₹ 99,326. While doing so, he asked for an explanation from the assessee in regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue . It is not an arbitrary or unchartered power. It can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasijudicial power vested in him in accordance with law and arrived at conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the Revenue. But that by itself will not be enough to vest the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of suo motu revision under such circumstances will amount to arbitrary exercise of power. It is well-settled that when exercise of statutory power is dependent upon the existence of certain objective facts, the authority before exercising such power must have materials on record to satisfy it in that regard. If the action of the authority is challenged before the court it would be open to the courts to examine whether the relevant objective factors were available from the records called for and examined by such authority. Our aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. In the celebrated case of Malabar Industrial Company Ltd. vs CIT (243 ITR 83) (SC), it was held that for invoking jurisdiction u/s 263 by the ld. Commissioner, the order should be either erroneous and prejudicial to the interest of Revenue. In that case, the assessment was framed without making an enquiry by the Assessing Officer, in that situation, exercise of revisional jurisdiction by the CIT was held to be justified. However, in the present case, due enquiries was made by the Assessing Officer and the necessary details, filed by the assessee were examined, therefore, this judicial pronouncements supports the case of the assessee. Identical ratio was laid down in CIT vs Max India Ltd. (2007) 295 ITR 282, wherein, the decision of Malabar Industrial Company Ltd. was also considered and the appeal of the Department was dismissed. It is elementary, as was held by Hon ble Supreme Court in the case of Malabar Industrial Co Ltd Vs CIT [(2000) 243 ITR 83 (SC)], Every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndhar Association vs Principal CIT (I.T.A. No. 789/Mum/2016) Order dated 21/03/2016 has discussed the scope of revisional jurisdiction u/s 263 of the Act. The relevant portion from the order is reproduced hereunder:- The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be erroneous in so far as it is prejudicial to the interests of the Revenue . This provision has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded. 2.14. The aforesaid decision clearly and the ratio laid down by the Ahmadabad Bench of the Tribunal in the case of Aditya medisales vs addl. CIT (ITA No.1334/Ahd/2015) order dated 16/02/201 supports the case of the assessee, wherein, the revisional jurisdiction invoked u/s 263 of the Act was quashed. The relevant portion from the aforesaid order is reproduced hereunder for ready reference:- 7. We have noted that as on the time of passing the impugned revision order, the matter regarding disallowance under section 14 A was pending for I . T.A . No. 1334/Ahd/15 Assessment Year : 2010 -1 1 consideration before the CIT(A). The assessee had filed the appeal before the CIT(A) on 22nd March 2013 and even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve analysis, as also bearing in mind entirety of the case, we are of the considered view that the learned Commissioner was indeed in error in exercising his revision powers under section 263 on the facts and in the circumstances of this case. As learned CIT(A) was in seisin of the same matter, i.e. disallowance under section 14A, in the appellate proceedings, learned Commissioner could not have invoked his revision powers on the issue before the CIT(A). The view adopted by the learned Assessing Officer was after due examination of the matter and a considered view after taking into account all the relevant factor and even if a different view, on the same set of facts, was possible, the possibility of another view in favour of the assessee did not render the assessment erroneous and prejudicial to the interest of revenue so as to trigger revision under section 263. In any event, even on merits, the stand of the Commissioner was incorrect and unsustainable in law. For all these reasons, we are not inclined to uphold the impugned order. Accordingly, the revision order stands quashed. 2.15. So far as, the contention of the Ld. CIT-DR that explanation-2 was inserted by the legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received from the Investigation Wing during the course of search operations in the case of' M/s. R.N. S. Infrastructure Ltd. on 16/02/2012. During the course of the search operations, certain documents were found and seized, which indicated the payments made to several persons holding public office. As per the information received, Shri Naravan Tatu Rane is one of the recipients, which is reflected as per the notings given below: Rane - CM 16.11.2006 10,00,000/- NAVEEN 09.03.2007 25,00,000/ KUDAL The notings have been made in a diary seized from the chamber of Shri Suni D. Sahasrabuddhe. Vice-President, Finance. R.N.S. Infrastructure Ltd. and inventorised as A/RNS IL/ 17 dated 16/02/2012 (page 9). (2) On further scrutiny of the above mentioned sheet, the following points are notable which prove the fact that payments made to Rane-CM is to the same person Shri Narayan T. Rane, who is the Ex-Chief Minister of Maharashtra, and who has received the above payments i. An amount of 50 lakhs is shown to have been paid on 10/4/1999 against which birt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 of the Income Tax Act, 1961 may not be passed in his case. Similar notice was issued for A.Y. 2008-09 as well with minor modifications.' 4. The assessee contended before the Ld Pr. CIT that the assessing officer has reopened the assessment of both the years for the specific purpose of assessing the income, if any, noticed in the incriminating documents. The assessee had objected to the reopening, but the AO has overruled the same by giving detailed reasoning. The assessing officer issued notice u/s 142(1) of the Act calling for various details. The assessee replied to all the queries raised by the assessing officer by giving a detailed reply, wherein the assessee had denied the entire transactions noted down in the incriminating documents. It was further submitted that the assessing officer was satisfied with the explanations and replies given by the assessee and accordingly he did not make any addition. The assessee further contended that the assessing officer has applied his mind on the incriminating documents, correctly appreciated the facts and has come to reasoned conclusion that no addition is required to be made to the income of the assessee. It was also submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167, also held that the opinion of the Assessing Officer in treating the revenue expenditure was plausible and thus, there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. In the case of the assessee, on the other hand, on examination of records as they exist now, it is evident that the Assessing Officer did not appreciate the full facts of the case and vital evidences being the date of birth, the date of assumption of the public office and the constitutency etc. which all linked the transactions in the seized document with the assessee and thereby passed an order which is now held to be erroneous and prejudicial to the interests of the revenue. Hence, the decision is not applicable to the facts of the case of the assessee. In CIT v. Vikas Polymers [2012] 341 ITR 537, Hon'ble Delhi High Court held that the order of the Assessing Officer might be erroneous but how it was prejudicial to the interest of revenue had not been stated by the Commissioner as he did not deal with the explanation given by the assessee in the course of the proceedings under section 263. This decision al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e objection raised by the assessee for reopening of the assessment was overruled by the AO. Thereafter the assessee has cooperated fully with the assessing officer by furnishing necessary details and has strongly denied the transactions noted down in the document. The Ld A.R submitted that the assessing officer was satisfied with the explanations given by the assessee and hence did not make any addition. He submitted that the assessing officer has taken a possible view after due application of mind and hence the Ld Pr. CIT was not justified in holding that the assessment orders were erroneous, since the assessing officer did not make enquiries in the way the Ld CIT thought that it should have been done. He submitted that the Ld CIT has initiated the revision proceedings in respect of the very same issue, since he was of the view that the assessing officer should have conducted the enquiries in a particular manner and the enquiries made by the AO were not sufficient. Thus, the Ld CIT has initiated revision proceedings in order to carry out fishing and roving enquiries in the matters which have already been concluded, which is not permissible u/s 263 of the Act as held in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the following observations made by Hon'ble Apex Court:- 37. In Beni v. Bisan Dayal (AIR 1925 Nag 445: 89 IC 371), it was observed that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another...... 10. On the contrary, the Ld D.R submitted the assessing officer has simply extracted the explanations furnished by the assessee in the assessment order and he did not give his conclusion on the submissions made by the assessee. Accordingly he contended that the assessing officer has not taken any view at all and hence there is no justification in contending that the assessing officer has taken a possible view. He submitted that the incriminating document contained sufficient entries to indicate that the payment was made to the assessee only. He submitted that a part of su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that the said Explanation 2 is clarificatory in nature and hence the same should be applied retrospectively. 11. In the rejoinder, the Ld A.R submitted that the assessing officer has made due enquiries with regard to the impugned incriminating document, since the AO has reopened the assessment to examine the same only. He submitted that the alleged incriminating document was a dumb document and even the person from whom it was seized, did not implicate the assessee at all in the statement taken from him u/s 132(4) of the Act. He submitted that the assessing officer has accepted the explanations of the assessee by considering all these factual details and hence he did not make any addition. He further submitted that the assessment orders of the two years under consideration have been passed by two different assessing officers and both have taken the view that no addition was called for on the basis of the impugned incriminating document. The Ld A.R further submitted that the assessing officer has carried out necessary enquiries with regard to the impugned incriminating documents and was satisfied with the explanations given by the assessee. He submitted that, even though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue . This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it is only when an order is erroneous that the section will be attracted . The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression prejudicial to the interests of the Revenue , the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see has filed a reply, wherein he has denied any connection with the incriminating document. The assessing officer was satisfied with the said explanations and accordingly did not make any addition to the total income in both the years. 15. However, the Ld Pr. CIT has taken the view that the assessing officer has completed the assessments without making proper enquiries with regard to the incriminating documents. According to Ld Pr. CIT, the AO should have made further enquiries in this matter. Accordingly he has passed the impugned revision order. 16. We have noticed earlier that the Ld Pr. CIT can revised the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as erroneous was explained by Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) as under:- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the assessing officer could not be held to be erroneous. 18. In the case of CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi), the Hon'ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 as under:- Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he facts and circumstances of the case and the incriminating document was not considered to be strong by the AO to implicate the assessee. Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pr. CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous. 22. We have also seen that, in order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by Ld CIT for the two years under consideration. 24. In the result, both the appeals filed by the assessee are allowed. 2.16. We find that in the aforesaid case, while coming to a particular conclusion, the Bench considered the following cases:- i. CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (para 4), ii. CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (para 4), iii. CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (para 4), iv. CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) (para 4), v. CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329 (Bom.) (para7), vi. Malabar Industrial Co. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (para 8), vii. CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) (para 8), viii. Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 (para 9), ix. CIT v. Amalgamations Ltd. [1999] 238 ITR 963 (Mad.) (para 10), x. CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.) (para 10), xi. Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 (Bom.) (para 12), xii. CIT v. Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessment order is not sustainable in law and order for revision. He can also force the Assessing Officer to conduct the enquiries in the manner preferred by the Commissioner, thus prejudicing the independent application of mind of the Assessing Officer. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to section 263, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. [Para 19] ■ Further, clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by the Commissioner cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the Assessing Officer vis -vis its reasonableness in the facts and circumstances of the case. Hence, what is relevant for clause (a) of Explanation 2 to section 263 is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the impugned assessment orders were erroneous. [Para 21] ■ In order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the time of hearing, it was pointed out to department that there are references to various names. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to department as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The department replied that these aspects require examination at the end of the Assessing Officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edia one of the trustees and a person covered u/s. 13(3) of the I.T. Act The nature of the payment and reasonableness thereon is not evident or record and accordingly it appears that the issue of reasonability of the payment and correlation with the objective of the trust has not been examined. The provisions of section 13 provides that if any income of the trust is utilized for the benefit of a person or any payment in the nature of salary, allowances etc. is in excess of the reasonable amount payable for such services to persons covered u/s. 13(3) shall be held to be violation of the provisions of section 13 and consequently the assessee shall not be eligible for any exemption u/s. 11 or 12 of the Act. In view of the same it is imperative to ascertain whether there is any violation of the relevant provision. 4. I have examined the records as well as the order passed by the Assessing Officer as discussed above and I am of the opinion that the order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue and therefore requires revision. 5. In view of the above facts, you are requested to explain as to why order u/ s. 263 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I. T. Act, As the A. 0. not applied the provisions of Section 2(15) and allowed the exemption u/s. 11 of the Act, which lead to under assessment. 7. I have examined the records as well as the order passed by the A0 as discussed above and I am of the opinion that the order passed by the A0 is erroneous in so far as it is prejudicial to the interests of the revenue and requires revision. In view of the above facts, you are requested to explain as to why order u/s. 263 of the Act should not be passed enhancing or modifying the assessment or cancelling the assessment and directing afresh assessment in your case. In this regard, you are requested to attend in person or through your authorized representative before the undersigned and file the written submissions and argue the matter on 15,03.2017 at 03.00 P.M. in my office. 3. In response to the above show cause notice, Shri R. K. Khandelwal, C.A., attended on various dates and also made written submissions vide letter dated 15.03.2017, the relevant contents of which are reproduced as under:- With reference to the above and further to our letter dated 811, March 2017 and as instructed by our above client, we submit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or farmers, tribal inhabitants and youth of the country. The mission of J.K. Trust Gram Vikas Yojna is to significantly improve the quality of life in India's rural area through a Cattle Breed Improvement Programme (C13IP) that achieves the following goals; Alleviating Poverty: Increase milk production enables participating farmers to effectively supplement their income by sale of surplus milk. Creating Employment: To provide direct employment opportunities to educated, unemployed, rural youth and indirect employment opportunities to farmer households. Reducing infant Mortality and Malnutrition: Surplus milk generated by high milk yielding cows and buffaloes helps to reduce infant mortality, especially caused by malnutrition in the age group of less than 12 months and malnutrition among children. The trust is supported for its activities for rural welfare by various ministries of central government, state government as Well as cooperative of various projects. It is submitted that, the trust is engaged purely on charitable activities and there is no commercial activity or service related to commercial activity were carried out. It is submitted wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is otherwise for general public utility, and, therefore, of charitable nature. The assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. The Assessing Officer applied the proviso to section 2(15) holding that the trust could not be considered as one created for charitable purposes. He analysed the accounts of the assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. Therefore, for the assessment year 2009-10, he denied the benefit of sections 11 and 12 to the assessee. The Tribunal noted that the objects were admittedly charitable in nature'. The surplus generated was wholly secondary. Therefore, it held that the proviso to section 2(15) of the Act would not apply and the assessee was entitled to the exemption. On appeal to the High Court: Held, dismissing the appeal, that the main objectives of the trust were to breed cattle and endeavour to improve the quality of the rows and oxen in view of the need for good oxen as India is prominently an agricultural country. All these were objects of general public utility and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of the proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any 'trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Minister's speech in Parliament. The relevant portion of which reads as under: 1.4 I once again assure the House that genuine charitable organizations will not in any way be affected. The Central Board of Direct Taxes will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalisation is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business. 1.9 What thus emerges from the statutory provisions, as explained in the speech of the Finance Minister and the Central Board of Direct Taxes Circular, is that the activity of a trust would be excluded from the term charitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility . In the view of the above it is submitted that the trust's activities are charitable and trust is not engaged in any trade or commerce. Therefore in view of the above decision the proviso to the section 2(15) is not applicable, hence the Income of the Trust is not liable for the Tax. It is therefore once again submitted that, the original order for assessment year 2012-13 was properly passed therefore the order passed by the A.O is neither erroneous nor it is prejudicial to the interest of the revenue. It is therefore requested to kindly drop the proceeding initiated u/ s 263. 3.1 Further, the assessee trust vide letter dated 29.03.2017 also made further submissions, the relevant portion of which is reproduced herebelow With reference to the above case fixed for hearing on 29/ 03/ 2017 and as instructed by our above client we submit as under:- We have earlier filed various replies to the notice u/ s 263 vide our letter dated 08/ 03/ 2017 and 15/ 03/ 2017. In the letter dated 15/ 03/ 2017 we have stated the objects of the trust and the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commerce, or business or renders any service in relation to trade, commerce, or business for cess, fee or any other consideration. It is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as charitable purpose . Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any censideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating surplus is wholly incidental to the principal activities of the trust ; which is otherwise for general public utility, and, therefore, of charitable nature. The assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or application, or retention of the income from such activity : Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year., 1.3 The legal controversy in the present tax appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term charitable purposes and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of charitable trust . However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if .such. organizations have dealings with nonmembers, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 1.8 In the final analysis, however; whether the assessee has for its object 'the advancement of airy other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; to establish other allied institutions like leather work and to recognise and help them in order to make the cow keeping economically viable,' to publish study materials, books, periodicals, monthlies, etc., in order to publicise the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects. 2.1 All these were the objects of the general public utility and would he squarely fall under section 2(15) of the Act_ Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the Central Board of Direct Taxes in its Circular No. 11 of 2008, dated December 19, 2008, the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of public utility . In para 2 of your show cause notice your good self have stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he objects of the trust were of general public utility, hence the activities carried on by it would squarely fall within the purview of section 2(15) of the I.T. Act. I have also examined the records as well as the order passed by the From the records it is observed that the assessee had claimed an amount of ₹ 17,78,321/- as expenses on account of payment to one of the trustees and a person covered u/s. 13(3) of the I.T. Act. The nature of the payment and reasonableness thereon is not evident for record and accordingly it appears that the issue of reasonability of the payment and correlation with the objective of the trust has not been examined by the A.O. The provisions of section 13 provides that if any income of the trust is utilized for the benefit of a person or any payment in the nature of salary, allowances etc. is in excess of the reasonable amount payable for such services to persons covered u/s. 13(3) it shall be held to be in violation of the provisions of section 13 and consequently the assessee shall not be eligible for any exemption u/s. 11 or 12 of the Act. It appears that this aspect has not been examined by the AO that whether the salary/ remuneration p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al to the interest of the Revenue has to be decided from case to case. The relevant provisions of section 263 read as under: 263(1) The Commissioner may call for the examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and making or causing to made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment..... 7. The Commissioner gets power of revision under Section 263 where the assessment order is erroneous and prejudicial to the interest of revenue. The twin conditions are required to be satisfied simultaneously. As per the detailed discussion in para 5 and 5.1 above, the order of the AO is erroneous and has caused revenue loss which is why the same is also prejudicial to the interest of revenue. The Apex Court in the case of Malabar Industries Co Ltd Vs CIT [2000] 109 Taxman 66 has held that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee filed reply on 15/03/2017 (paper book pages 18 to 22). Another notice dated 24/03/2017 (received on 29/03/2017) was issued (pages 23 24 of the paper book), to which also the assessee filed reply on 29/03/2017 (pages 25 to 29 of the paper book). 2.21. Before adverting further, it is our bounded duty to examine the assessment order whether it was properly framed and also whether before framing the assessment whether any enquiry was made by the ld. Assessing Officer. We find that notice under section 142(1) dated 13/10/2014 was issued to the assessee (pages 30 to 31 of the paper book), which was replied, annexed with various details vide letter dated 10/11/2014 (pages 32 to 96 of the paper book). A copy of the amended trust deed dated 30/10/1996 was filed before the Ld. Assessing Officer (page 97 to 115 of the paper book.). One of the objection raised by the ld. Commissioner (E) is with respect to justification of remuneration paid to Shri B.K. Kedia, under section 13(2)(c), the same was replied (pages 116 to 119 of the paper book). Another query was raised by the Ld. Assessing Officer with respect to charitable activities done by the assessee that was also replied vide, commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of public charitable activities etc, Shri Kedia agreed to work as whole time consultant and thus was given the overall responsibility of the trust to look after the work of the assessee trust. The assessee trust utilized his vast experience and considering his ability, efficiency, he agreed to work on a consultancy fee of ₹ 1,70,000/- per month (total ₹ 17,78,321/- including service tax) for the period from 01/04/2011 to 15/01/2012, which was much less what he was getting in the earlier employment, thus, we are convinced that the payment made to him cannot be said to be unreasonable. No evidence was brought on record by the Revenue evidencing the claim of the assessee. The total consultancy fee paid during the year under reference was ₹ 16,12,258/- plus service tax of ₹ 1,66,063/- on which TDS was also deducted. He was appointed as full time consultant for 16/06/2008 and thereafter he gave tremendous result to the assessee. In this reply, the facts has been duly elaborated by the assessee and neither the factum of payment nor providing services by him has been disputed by the Revenue, therefore, we find merit in the argument of the ld. counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecision from Hon'ble Gujarat High Court, on identical facts in the case of DIT(E) vs Sabarmati Ashram Gaushala Trust (2014) 44 taxmann.com 141 (Guj.), wherein, Circular No.11/2008 dated 19/12/2008 and proviso to section 2(15) has also been discussed. The relevant portion from the order is reproduced hereunder:- Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad ( Tribunal for short) dated 7th June 2013, raising following questions for our consideration :- (A) Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to provide exemption u/s. 11 of the I.T Act to the assessee ? (B) Whether the Appellate Tribunal has substantially erred in holding that the proviso to Section 2(15) of the I.T Act was not applicable to the facts and circumstances of the case? 2. The controversy centers around activities of the respondent-assessee-Sabarmati Ashram Gaushala Trust. The said Trust is engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The question raised by the Assessing Officer was with respect to granting exemption to the Trust unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , medical relief, preservation of environment; including watersheds, forests and wildlife and preservation of monuments or places or objections of artistic or historic interest and advancement of any other object of general public utility. Proviso to Section 2 (15) and further proviso whereof inserted by Finance Act 2010 w.e.f 1st April 2009 read, thus - Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year. 6. The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term Charitable p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under ' any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business - particularly if generating ' surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. The Tribunal took into account the objects of the Trust, which are as under :- 1. To breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country and the cow milk as food is both conducive to and requisite for good health and longevity of human life. In order to improve the quality of the cattle, it is very essential to use a high quality bulls. Hence to produce and to get produced the best pedigreed bulls and to castrate the scrub bulls and propagate the work to prepare bullocks by castrating the bulls which do not become good bulls. 2. To produce and to sell the cow milk and its various preparations so as to popularize the use of cow milk and do all other works for the same. 3. To hold and cul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is prominent agricultural country; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Bharwads; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc.; to establish other allied institutions like leather work and to recognize and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies etc., in order to publicize the objects of the trust as also to open schools and hostels for imparting eduction in cow keeping and agriculture having regard to the trust objects. 12. All these were the objects of the general public utility and would squarely fall under section 2 (15) of the Act. Profit making was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the petitioner-Institute pursues the activity of business, trade or commerce. To our mind, the respondent while dealing with the said question has not applied their mind to the legal principles enunciated above and have taken a rather narrow and myopic view by holding that the petitioner-Institute is holding coaching classes and that this amounts to business. 14. In the result, we do not find that the Tribunal has committed any error and the Tax Appeal is therefore dismissed. 2.24. We find that the above decision is on identical facts, thus, the ratio laid down therein, clearly fortifies the case of the assessee. It is also noted that the during hearing, ld. CIT-DR raised a query that the assessee is not doing charitable activities rather engaged in trade, commerce or business. This objection of the Ld. CIT-DR and also the observation of the Ld. CIT(E) has also been replied in the aforesaid order, wherein, it was observed/held that many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied by the CBDT in its Circular No. 11/2008 dated 19-12-2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of 'public utility'. [Para 12]. While coming to the aforesaid conclusion, the Hon'ble High Court affirmed the decision of the Tribunal in Sabarmati Ashram Gaushala Trust vs DIT(E) (2013) 35 taxmann.com 552(Ahd. Trib.) and also considered the decision in Institute of Chartered Accountants of India vs DIT(E) (2012) 347 ITR 99(Del.). If the conclusion drawn in the present appeal is applied to the facts of the case, we find that the objects of the trust are of general public utility and beneficial to the public at large as the centers are located at village level in various blocks (Tallukas) in the state of Rajasthan and in each center, gopals are deputed who are responsible for the objects of the assessee trust and such gopals organizes meetings with the villagers. When calf is borne out of the activities carried out by the trust then calf borne certificate is issued, which contains the complete details of calving. We have also perused the obje ..... X X X X Extracts X X X X X X X X Extracts X X X X
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