TMI Blog2022 (9) TMI 1525X X X X Extracts X X X X X X X X Extracts X X X X ..... uiry . A perusal of the order passed u/s.263 of the Act shows that the ld. CIT(E) has taken the total revenue earned and amount is inclusive as development fees collected by the assessee from the students. When doing the computation, the ld. CIT(E) has granted 15% accumulation u/s.11(1) of the Act, he has not taken into consideration the capital expenditure which is an application. If this capital expenditure, which is application of income of Rs. 258 crores, is taken into consideration, the taxable income as computed by the ld. CIT(E) would automatically go into a loss. A perusal of the order of the ld. CIT(E) shows that after receiving this reply of the assessee no further verification much less an enquiry has been done by the CIT(E) to even make an attempt to show that the calculation as shown by the assessee is erroneous in any manner whatsoever. This is a minimum expectation. After the receipt of the reply of the assessee, the order has been passed after more than two months and there is nothing shown to show that the calculation as done by the assessee is erroneous. It is also not being rejected by the ld. CIT(E) but has just proceeded to hold that the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame to be completed u/s. 143(3) of the Act on 29.12.2019 accepting the returned income. It was the further submission that a show cause notice u/s. 263 of the Act came to be issued on the assessee on 12.1.2022, wherein, the ld CIT (Exemptions) was of the view that an amount of Rs. 1,11,54,33,001/- collected as development fees from its students had been directly carried to the balance sheet under the nomenclature Development fund instead of routed through the income and expenditure account. Consequently, he was of the view that the same is liable to be treated as part of the revenue and this result is a taxable income in terms of section 11(1) to an extent of Rs. 51,97,46,092/-. The assessee has filed its reply to the show cause notice on 22.1.2022, wherein, the assessee gave the calculation by including the development fund as revenue and after reducing the application of income on revenue field and in respect of capital expenditure representing application of income, the net result was a loss. Ld AR drew our attention to page 5 of the order of the ld CIT(E) passed u/s.263 of the Act, wherein, the calculation of the assessee had been extracted. It was the submission that the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose or not. So far as a voluntary donation or contribution for specific purpose is received by the trust or institution the same would be classified as capital receipt for being part of the corpus fund for specific purpose for which such donation is given by the donor. However the question arises in the case of the assessee is whether the receipt on account of development fee collected from the students is a voluntary contribution/donation or it is a compulsory payment by the students for continuing the studying in the educational institutions of the assessee. We find that the said payment is received by the assessee along with the tuition fee, term fee and other charges in a single receipt of fees which the students are making periodical payments. It is imperative to ascertain whether such payment received from the students along with the tuition fee, term fee and other charges is a voluntary payment/ contribution/donation for specific purpose of development or it is a compulsory payment by the students. The term voluntary refers to an act of one's own free will and discretion and not a compulsion or an obligatory. In the case of the assessee the development fee is part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout applying the principles of natural justice or without apphcation of mind. The findings of the Hon'ble Supreme Court in para-10 are reproduced as under: 10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified. The Hon'ble Supreme Court further held in para-8 that the scheme of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut any sort of enquiry as section 263(1) uses the words as he deems necessary . A plain reading of section 263 of the Act reveals that the CIT can make inquiry on his own if he deems so necessary and can also direct the A.O. to conduct inquiries. This very question was answered by the Hon'ble Delhi High Court in the case of Gee Vee Enterprises (99) ITR 375), as under: The question would naturally arise whether the firm was formed merely for the purpose of getting a tax advantage. Shri Sharma argued that there is nothing wrong if a legitimate advantage is sought by these means. But it was precisely for that reason that the Income-tax Officer had to be satisfied that the firm had existed in the previous year genuinely. It cannot be said that the Commissioner could not be reasonably of the opinion that the order of the Income-tax Officer was erroneous because previous inquiries were not made by the Income-tax Officer. Nor can it be said that it was necessary for the Commissioner himself to make such inquiry before cancelling the order of assessment. In view of the decisions of the Supreme Court in Rampyari Devi and Tara Devi Aggarwal, the challenge of the petitioners to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the farts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further renquiries without a finding that the order is erroneous . iii.) In the present case, the A.O. has simply issued a questionnaire dated 03.10.2019 and submissions of the appellant trust were placed on record without applying the law or mind with due diligence. Hence it is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e question raised has not been responded to by some explanation which would render the enquiry commenced, futile. In fact, the CIT in his order dated 20th March, 2002 specifically exercised powers under Section 263 of the Act on the basis that the necessary information was not furnished by the Appellant in support of its claim nor the Assessing Officer enquired into the same. Thus, this is a case of non-enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer is certainly erroneous. There is no dispute that the order of the Assessing Officer is prejudicial to the Revenue . In the case of Renu Gupta vs. CIT (301 ITR 45), the submissions of the assessee were placed on record by the A.O. without causing any inquiry. The Hon'ble Rajasthan high Court held that the assessment order was passed by the A.O. in a routine manner without applying his mind. In the case of CIT vs. Deepak Kumar Garg (299 ITR 435), it was held by the Hon'ble Madhya Pradesh High Court in para-4 that issuing a questionnaire and placing submissions on record by the A.O. is a case of no enquiry. If the AR of the assessee still emphasizes that the A.O. had made an enquiry for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assive 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 if all the facts stated therein are assumed to be correct . iv.) The Id. AR of the appellant has failed to demonstrate as to what kind of inquiries were conducted by the A.O. on this issue. In the case of NUT vs. Commissioner of Income-tax (Central-II) (60 taxmann.com 313), the Hon'ble Delhi ITAT analyzed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the AO is required to conduct the inquiry in a manner whereby he places on record the material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan would be in the category of 'no enquiry' where he while accepting genuineness of loan taken by assessee from various creditors, did not take into consideration creditworthiness of lenders, mere examination of their bank statements or letter of confirmation was not enough and therefore, impugned revisional order passed by Commissioner setting aside assessment was upheld. In para-12, it was held by the Hon'ble Kolkata High Court that In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the bank pass book, profit and loss account and balance sheet of the creditors is not enough. When the requisite enquiry was not made, the order is bound to be erroneous and prejudicial to the interest of the revenue. The Tribunal proceeded on the theory that it was not a case of no enquiry; that no doubt is true, but that is not enough. If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind. In para-16, it was held by the Hon'ble Kolkata High court that The power under section 263 can be exercised where the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een produced before the AO, there was no enquiry by the AO and consequently, the order passed u/s.263 by the ld CIT (E) is valid. Ld CIT DR also read out from his written submissions the various case laws in respect of the issues. It was the submission that clearly, there is wrong application of law by the AO insofar as the Co-ordinate Bench of this Tribunal, Jaipur Bench in the case of ACIT (E) vs Scholars Education Trust of India (2017) 88 taxmann.com 158 (Jaipur-Trib) has given a finding that the development fund or development fees, which is compulsory payable by the students was in the nature of fees for continuing the study and same could not be considered nor classified as capital receipts. It was the submission that the Hon ble Supreme Court in the case of Malabar Industries Ltd., 243 ITR 83 (SC) has categorically held that incorrect application of the law will satisfy the requirement of the order being erroneous. In respect of the decision of the Hon ble Jurisdictional High Court in the case of Orissa State Police Housing Welfare Corporation Ltd., (supra), it was submitted that in para 14 of the said order, the provisions of section 263 requires the CIT, after hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . A perusal of the order passed u/s.263 of the Act shows that the ld. CIT(E) has taken the total revenue earned at Rs. 855,46,22,497/-, this amount is inclusive of Rs. 111 crores as development fees collected by the assessee from the students. When doing the computation, the ld. CIT(E) in page 2 of his order has granted 15% accumulation u/s.11(1) of the Act, he has not taken into consideration the capital expenditure which is an application of Rs. 258 crores. If this capital expenditure, which is application of income of Rs. 258 crores, is taken into consideration, the taxable income as computed by the ld. CIT(E) in page 2 of his order, would automatically go into a loss. It would absorb even the accumulation of 15%, which he has granted to the assessee. A perusal of the page 5 of the order of the ld. CIT(E) shows that the assessee has adopted the figure of total revenue earned at Rs. 855,46,22,497/-, which is same as adopted by the ld. CIT(E) by treating the development fees of Rs. 111 crores as revenue income, which after the assessee has reduced the application in respect of the revenue expenditure without considering the depreciation and the total expenditure treated as applica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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