TMI Blog2023 (2) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... view of categorical finding of fact by the AO as also the learned ITAT that the assessee-respondent did furnish statements, documents and details as sought for in compliance of notice issued for assessment u/s 143 of the IT Act before the Assessing Officer. Therefore, such finding of fact falsifies the statement of the Revenue in paragraph 7 of the appeal that no documentary evidence is submitted by the assessee in support of its claim . Thus, the view of the Tribunal in allowing the Assessee-Respondent s appeal on the principle of consistency cannot, in the present facts, be faulted with. Proceeding initiated by the Commissioner of Income Tax (Exemption), Hyderabad by exercise of power under Section 263 of the IT Act is not tenable either on facts or in law, the learned ITAT has rightly quashed the consequential proceedings and orders allowing claim of depreciation on the assets. Interpretation of statutory provision and views expressed by different Courts qua dispute sought to be raised by initiating proceeding for revision - Revisional Authority- CIT (E) in his order, while exercising power under Section 263 placed reliance on a decision of Grama Vidiyal Trust [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Rs.4,77,03,665/- even during the reassessment proceedings completed under Section 143(3) read with Section 263 read with Section 144B on 26.03.2022 consequent to the order passed under Section 263 of the Income Tax Act, 1961, prior to the date of passing of order by the Hon ble ITAT? iv) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in quashing the consequential proceedings and orders, allowing depreciation on the assets, the cost of which has been fully allowed as application of income under Section 11 in the past years? Fact of the case: 2. It is revealed from the record that the respondent- Dhaneswar Rath Institute of Engineering Medical Sciences, Cuttack, a charitable trust being granted registration under Section 12AA, claimed exemption under Section 11 of the Income Tax Act, 1961 (for brevity, IT Act ) which was selected for scrutiny. The Assessing Officer completed assessment under Section 143(3) on 23.10.2018 on a total income determined at Rs.NIL. 2.1. Keeping in view the decision of the ITAT, Chennai D Bench in the case of ACIT Vrs. Grama Vidiyal Trust, (2016) 71 taxmann.come 88 to the effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While appreciating that the basic requirement to exercise power under Section 263 of the IT Act was not adhered to by the CIT (E), it is observed that during the course of scrutiny assessment, the assessee, in compliance of notice under Section 142(1), furnished details of depreciation claimed before the Assessing Officer. Therefore, the CIT (E) could not have been apprehensive of the fact that the Assessing Officer without conducting any enquiry allowed the claim of depreciation. After taking note of further fact that there has been consistent claim of depreciation as application income for earlier years which stood allowed, the learned ITAT allowed the appeal of the respondent charitable trust and quashed not only the Order passed by the CIT (E) under Section 263, but also all consequential proceedings and orders related thereto. 2.6. Aggrieved, the department-CIT (E), therefore, has approached this Court under Section 260A of the IT Act. Argument(s) advanced by the Senior Standing Counsel: 3. Sri Radhashyam Chimanka, learned Senior Standing Counsel for Income Tax Department submitted that the assessee having complained inadequacy of time being granted to it for pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r while completing assessment under Section 143(3) of the IT Act pertaining to Assessment Year 2016-17 failed to conduct enquiry as to the claim of depreciation to the tune of Rs.4,77,03,665/-, which fact upon being noticed, the CIT (E), in exercise of power under Section 263 initiated proceeding for revision considering the assessment order as erroneous in so far as it is prejudicial to the interests of revenue. The learned Tribunal committed error of law in interfering with the revisional jurisdiction of the CIT (E). 5.1. In this regard the learned ITAT has found that when the CIT (E) viewed that the Assessing Officer did not conduct proper enquiry before allowing claim of relief by the assessee, it was incumbent upon it to call for the concerned record and examine the same. 5.2. It is well-settled that exercise of power of revision can only be permissible on fulfilment of twin condition laid in Section 263 of the IT Act. In Malabar Industrial Co. Ltd. Vrs. CIT, (2000) 243 ITR 83 (SC), the Supreme Court held that a bare reading of Section 263 makes it clear that the pre-requisite for exercise of jurisdiction by the Commissioner for suo motu revision is that the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the records of any proceedings under the 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 subsection (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 the 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 proceeding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is prejudicial to the Revenue- recourse cannot be had to Section263(1) of the Act. (b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue: or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. (c) To invoke the suo motu revisional powers to reopen a concluded assessment under Section 263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 5.6. In Malabar Industrial Co. Ltd. Vrs. CIT, (2000) 2 SCC 718 the Assessing Officer accepted the entry in the statement of the account filed by the assessee in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income Tax Officer was erroneous was considered to be irresistible. The Hon ble Supreme Court, therefore, was of the opinion that the High Court had rightly held that the exercise of jurisdiction by the Commissioner under Section 263(1) was justified. 5.7. Nevertheless, in the present case, the Assessing Officer vide Order dated 23.10.2018 passed under Section 143(3) of the IT Act recorded the following fact: *** Subsequently, the case was selected for scrutiny assessment through CASS under category of complete scrutiny to verify whether amount spent on charitable purposes is correctly shown in return of income, *** *** In response to the said notice, the assesse furnished the details and documents as asked vide notice referred as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be considered relevant by the assessee, must be afforded to him by the CIT prior to the finalization of the decision. 5.10. In the instant case, the notice contemplating initiation of proceeding for revision was issued on 26.03.2021 and the order in revision was passed on 31.03.2021 by rejecting request of the assessee for grant of 15days time. 5.11. The Hon ble Supreme Court in Zenit Mataplast (P) Ltd. Vrs. State of Maharashtra, (2009) 10 SCC 388 laid down that: 39. Anything done in undue haste can also be termed as arbitrary and cannot be condoned in law (vide M.P. Hasta Shilpa Vikas Nigam Ltd. Vrs. Devendra Kumar Jain, (1995) 1 SCC 638 and Bahadursinh Lakhubhai Gohil Vrs. Jagdishbhai M. Kamalia, (2004) 2 SCC 65). 5.12. Therefore, the learned ITAT was correct in holding that CIT (E) passed the order without giving any opportunity to the assessee and Hence, on the said ground the CIT (E) is not justified in directing the Assessing Officer to redo the assessment . The question No. (i) of paragraph 8 as posed by the Appellant is answered in the positive, i.e., in favour of the Assessee-Respondent and against the Revenue- Department. 6. Question raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in his return. The reason is obvious. The position and function of the Income Tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may he accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income Tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word erroneous in Section 263 emerges out of this context. It is because it is incumbent on the Income Tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word erroneous in Section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted to take the opposite stand in this case. If we were to permit them to do so, the law will be in a state of confusion and will place the authorities as well as the assessees in a quandary. 6.5. The Hon ble Supreme Court of India while accepting that though principle of binding precedents cannot be applied to interlocutory orders, enunciated that consistency in approach is to be maintained. In Vishnu Traders Vrs. State of Haryana, 1995 Supp (1) SCC 461 it has been observed as follows: In the matters of interlocutory orders, principle of binding precedents cannot be said to apply. However, the need for consistency of approach and uniformity in the exercise of judicial discretion respecting similar causes and the desirability to eliminate occasions for grievances of discriminatory treatment requires that all similar matters should receive similar treatment except where factual differences require a different treatment so that there is assurance of consistency, uniformity, predictability and certainty of judicial approach. 6.6. It is to be mentioned here that, in Bharat Sanchar Nigam Limited Vrs. Union of India, (2006) 3 SCC 1 the Hon ble Court of 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming depreciation in earlier years as that is claimed in the present year under assessment. Furthermore there is no denial of fact by the Income Tax Department that the assessee is consistently claiming the depreciation as application of income without making the claim under Section 11 of the IT Act at the time of acquisition or purchase of assets as application of income. Mere statement in the appeal filed by the Revenue before this Court that no documentary evidence is submitted by the assessee in support of its claim cannot be countenanced in view of categorical finding of fact by the Assessing Officer as also the learned ITAT that the assessee-respondent did furnish statements, documents and details as sought for in compliance of notice issued for assessment under Section 143 of the IT Act before the Assessing Officer. The learned ITAT at paragraph 25 of its Order has candidly made the following fact-finding which remained uncontroverted in the present appeal: In the present case from audited financial statement for assessment years 2011-12 to 2015-16 pertaining to assessment years 2012-13 to 2016-17 including the assessment year under consideration i.e. A.Y. 2016-17, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes in India is to be excluded for the purposes of computing the income of the trust for the purpose of assessment. There are no words of limitation in this section providing that the income should have been applied for charitable or religious purposes only in the year in which the income had arisen. The word applied means to put to use or to turn to use or to make use or to put to practical use . Having regard to the provisions of Section 11 of the Act, it is clear that when the income of a trust is used or put to use to meet the expenses incurred for religious or charitable purposes, it is applied for charitable or religious purposes. The said application of the income for charitable or religious purposes takes place in the year in which the income is adjusted to meet the expenses incurred for charitable or religious purposes. In other words, even if expenses for charitable and religious purposes have been incurred for the earlier year and the said expenses are adjusted against the income of a subsequent year, the income of that year can be said to have been applied for charitable and religious purposes in the year in which the expenses incurred for charitable and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the assessee is entitled to carry forward expenses for set off in the subsequent year. The question referred to us is, therefore, answered in the affirmative, i.e., in favour of the assessee and against the Revenue. 9.1. This Court is not oblivious of the decision of the Hon ble Bombay High Court rendered in the case of CIT Vrs. Institute of Banking, (2003) 264 ITR 110 (Bom). In the said case the said Court framed the following issue: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to allow depreciation on the assets the cost of which has been fully allowed as application of income under Section 11 of the past years? Answering said issue it held as follows: As stated above the first question which requires consideration by this court is: whether depreciation was allowable on the assets, the cost of which has been fully allowed as application of income under Section 11 in the past years? In the case of CIT Vrs. Munisuvarat Jain, [1994] Tax LR 1084 (Bom), the facts were as follows: The assessee was a charitable trust. It was registered as a public charitable trust. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss or profession is not applicable. However, the income of the trust is required to be computed under Section 11 on commercial principles after providing for allowance for normal depreciation and deduction thereof from gross income of the trust. In view of the aforesaid judgment of the Bombay High Court, we answer question No. 1 in the affirmative, i.e., in favour of the assessee and against the Department. 9.2. Aforesaid view taken by the Bombay High Court in Institute of Banking (supra) has been affirmed in the case of CIT Vrs. Rajasthani and Gujarati Charitable Foundation, (2018) 402 ITR 441 (SC). 9.3. This Court is also aware of the decision rendered in the case of CIT Vrs. Jayashree Charity Trust, (1986) 159 ITR 280 (Cal) wherein the following view was taken: The Madras High Court, in the case of CIT Vrs. Rao Bahadur Cala-vala Cunnan Chetty Charities, [1982] 135 ITR 485 (Mad) held that taking into account the purposes for which the conditions of Section 11(1)(a) were imposed, it would be clear that the income to be considered will be that which is arrived at in the context of what is available in the hands of the assessee subject to an adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust from out of the income computed in the aforesaid manner, should be not less than 75 per cent., of the latter, if the trust is to get the full benefit of the exemption under Section 11(1). 5. To sum up, the business income of the trust as disclosed by the accounts plus its other income computed as above, will be the income of the trust for purposes of Section 11(1). Further, the trust must spend at least 75 per cent., of this income and not accumulate more than 25 per cent., thereof. The excess accumulation, if any, will become taxable under Section 11(1). This circular makes it clear that the word income in Section 11(1)(a) must be understood in a commercial sense. The entire income of the trust in the commercial sense, has been spent for the purpose of charity. There is no reason to deny the benefit of exemption granted by Section 11 to that portion of the income which has been taken away by deduction at source on the ground that the amount has not been spent or accumulated for the purpose of charity. 9.4. The aforesaid view has been reaffirmed in the case of Commissioner of Income Tax Vrs. Siliguri Regulated Market Committee, (2014) 366 ITR 51 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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