DAWAT E ISLAMI HIND,MUMBAI vs. COMMISSIONER OF INCOME TAX(EXEMPTION) , MUMBAI
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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the assessee challenging the impugned order dated 24/03/2022 passed under section 263 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Exemptions), Mumbai (“learned CIT”), for the assessment year 2017-18.
In this appeal, the assessee has raised the following grounds:
“1. On the facts and in law, the Ld. CIT has erred in holding that the assessment order was erroneous and prejudicial to the interest of revenue. Therefore, your appellant prays to quash the order passed u/s. 263 of the Act
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On the facts and in law, the Ld. CIT has erred in directing for fresh verification of cash deposits in Specified Bank Notes (SBN) which is already a subject matter of appeal before the Commissioner of Income Tax-Appeals, Circle-1, Mumbai. Since, the said issue is already a subject of matter of appeal, Ld. CIT lacks power u/s. 263 of the Act for reverification of an issue which is subject of matter of an appeal. Therefore, your appellant prays to quash the order related to fresh verification of cash deposits in SBNs 3. On the facts and in law, the Ld. CIT has erred in directing for fresh verification of allowance of deduction u/s. 11(1)(d) of the Act which was disallowed by the Ld. A.O. in order u/s. 143(3) of the Act but later on allowed by passing rectification order u/s, 154 of the Act. Since, in the order u/s 143(3) of the Act, the Ld. A.O. has disallowed the claim of deduction u/s. 11(1)(d) of the Act, the said order u/s. 143(3) of the Act cannot be considered as prejudicial to the interest of the revenue and therefore the Ld. CIT lacks power u/s. 263 of the Act in directing fresh verification of claim u/s. 11(1)(d) of the Act. Therefore, your appellant prays to quash the order related to fresh verification of claim u/s, 11(1)(d) of the Act 4. On the facts and in law, the Ld. CIT has erred in directing for fresh verification of allowance of deduction u/s. 11(1)(d) of the Act which was disallowed by the Ld. A.O. in order u/s. 143(3) of the Act but later on allowed by passing rectification order u/s. 154 of the Act. Since the order u/s. 154 of the Act itself is order for correcting mistake apparent from records cannot be considered as erroneous and therefore the Ld. CIT lacks power u/s. 263 of the Act in directing fresh verification of claim u/s. 11(1)(d) of the Act. Therefore, your appellant prays to quash the order related to fresh verification of claim u/s 11(1)(d) of the Act 5. Your appellant craves leave to add, alter, amend, and/or delete any grounds as mentioned above during the course of appeal hearing.”
At the outset, the learned Authorised Representative (“learned AR”) wishes not to press ground no.4 raised in assessee‟s appeal. Accordingly, ground no.4 is dismissed as not pressed.
The only grievance of the assessee, in grounds no.1-3, is against the revision order passed by the learned CIT under section 263 of the Act.
The brief facts of the case pertaining to this issue are: The assessee is a charitable trust registered under section 12A of the Act. During the year under consideration, the assessee e-filed its return of income on 29/03/2018, declaring a total income of Rs.Nil. The assessee also filed an audit report in Page | 2
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Form No. 10B on 28/03/2018. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) and section 142(1) along with the questionnaire were issued and served on the assessee. During the assessment proceedings, it was noticed that the return of income in ITR 7 was filed on 29/03/2018, and the audit report in terms of provisions of section 12(A)(1)(b) of the Act in Form No.10B has been filed on 28/03/2018, i.e., after the due date prescribed under section 139(1) of the Act. It was also observed that the assessee has not fulfilled all the conditions of CBDT Circular No. 10/2019, as the audit report is dated 28/03/2018 which is beyond the due date of filing the return of income as per provisions of section 139(1) of the Act. Since the assessee failed to satisfy the condition for the condonation of delay provided in the aforesaid Circular No. 10/2019, the Assessing Officer (“AO”) vide assessment order dated 30/12/2019 passed under section 143(3) of the Act denied the exemption claimed by the assessee under section 11 of the Act and computed the assessee‟s total income as per normal provisions of the Act under the head „income from business and profession‟ as AOP. Further, since the assessee had deposited cash of Rs.1,10,40,950, during the period of demonetisation from 09/11/2016 to 31/12/2016, the assessee was asked to furnish details of the cash deposit made along with the necessary evidence in support of the source of cash deposit. In reply, the assessee submitted that the cash in hand as on 09/11/2016 was Rs.1,15,57,330, and out of these old currency notes/Specified Bank Notes (“SBN”) of Rs.1,10,40,950, has been deposited in the bank account maintained with Axis Bank. The assessee further submitted that out of these deposits, a sum of Rs.10,07,000, was declared in the PMGKY. The AO vide assessment order did not accept the submissions of Page | 3
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the assessee and held that the assessee has not furnished cash book for the period prior to 09/11/2016 so the source of opening cash in hand and a period of holding as cash in hand could not be verified. The AO also held that there is no justification for keeping such huge cash for more than Rs.1 crore as cash in hand when the assessee is having bank transactions on a date-to-day basis. The AO also noted that no justification has been provided for working out the quantum of Rs.10,07,000, declared under PMGKY. Accordingly, the AO held that part of the huge cash deposit of more than Rs.1 crore is out of the unexplained cash, and in absence of evidence to prove the genuineness of the source of the cash in hand it was held that the assessee has provided accommodation for part of the cash deposits made for the unrecorded cash which has been deposited in his bank account. However, the AO considered it fair and reasonable to treat the cash deposits made immediately after the demonetisation period i.e. from 10/11/2016 to 16/11/2016 as a sufficient time for depositing its own cash in hand and the deposits made thereafter are just accommodation for the unaccounted cash receipts used for deposit in SBN in its bank accounts. Thus, in absence of any acceptable and cogent explanation with documentary evidence regarding the source of the deposit of Rs.56,92,000, made in the bank accounts during the demonetisation period after 16/11/2016, the AO treated the aforesaid amount as unexplained money under section 69A of the Act and added the same to the total income of the assessee and taxed under section 115 BBE of the Act. Accordingly, the AO assessed the total income of the assessee at Rs. 7,43,38,560.
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Subsequently, the AO passed the rectification order on 30/12/2019, under section 154 of the Act and assessed the total income of the assessee at Rs.60,99,090, after allowing the expenses claimed by the assessee in the income and expenditure account and making the addition on account of unexplained cash deposits.
Thereafter, vide notice dated 24/12/2021, issued under section 263 of the Act revision proceedings were initiated in the case of the assessee on the basis that the assessee had deposited Rs.1,10,40,950, of SBN during the demonetisation period i.e. from 09/11/2016 to 31/12/2016 in its bank account. However, in the assessment order, the AO has bifurcated cash deposits of Rs.53,40,950, from 09/11/2016 to 16/11/2016 as explainable cash deposit and taxed balance amount of cash deposits after 16/11/2016 aggregated to Rs.56,92,000, as unaccounted cash deposited post 16/11/2016. Thus, the learned CIT vide aforesaid show cause notice under section 263 of the Act alleged that the bifurcation for treating cash deposits in SBNs is not in line with the instructions issued by the CBDT for treatment of deposits made in the SBN bank account after 08/11/2016. It was further alleged that since the AO has failed to examine the genuineness of cash deposits amounting to Rs.53,43,950, during the period 09/11/2016 to 16/11/2016, and framed an order allowing the same, the order is erroneous in so far as it is prejudicial to the interest of Revenue. Vide 2nd show cause notice dated 17/02/2022, it was alleged that the AO has denied exemption under section 11 of the Act on account of non-filing of the audit report online in Form 10B before the specified date. However, despite the denial of exemption under section 11, at the
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threshold level, the AO passed an erroneous order in allowing deduction under section 11(1)(d) of the Act amounting to Rs.3,20,11,780.
In response thereto, the assessee submitted that the assessment order passed under section 143(3) was rectified by an order under section 154 and therefore the original order under section 143(3) of the Act so passed loses its identity and merges with the rectification order and therefore, learned CIT had no jurisdiction to revise the said order under section 263 of the Act. The learned CIT, vide impugned order, rejected the submissions of the assessee and held that the issue which is the subject matter of the rectification by the AO under section 154 of the Act and the issue which has been impugned in the present proceedings under section 263 of the Act are entirely distinct. The learned CIT further held that the rectification order under section 154 of the Act was passed since the expenses claimed by the assessee were not allowed while computing the business income. The learned CIT set aside the assessment order only to the extent of bifurcation of cash deposits of SBNs in 2 periods and allowing the claim of the assessee for the period from 09/11/2016 to 16/11/2016 without inquiring into the merits of the claim and allowing assessee‟s claim of corpus donation under section 11(1)(d) of the Act, by treating the same to be erroneous insofar as it is prejudicial to the interest of the Revenue. The relevant findings passed by the learned CIT in the impugned order are as under:
“7. Plain reading of Explanation clearly implies that in the present case, the AO passed an order allowing bifurcation and cash deposits of SBNs in 2 periods and accepted the explanation of the assessee for the period 09/11/2016 to 16/11/2016 without enquiring into the merits of the claim. Similarly after having denied the claim of exemption under Section 11 of the Act, the AO has Page | 6
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passed an order which clearly erroneous in so far as it is prejudicial to the interest of revenue by allowing assessee’s claim of corpus donation under Section 11(1)(d) of the Act. Both these acts of the AO while passing the assessment order 30/12/2019 make it erroneous with reference to the provisions of Explanation 2 to Section 263 of the Act. In view of the same, I am satisfied that the assessment order dated 30/12/2019 is erroneous in so far as it is prejudicial to the interest of revenue. Accordingly by virtue of powers vested in the undersigned vide Section 263 of the Act, I deem it appropriate to set aside the assessment to the file of the AO with a directions to undertake fresh proceedings as under: (i) The AO will conduct necessary verifications with regard to the cash deposits of SBNS during the period 09/11/2016 to 31/12/2016. Necessary third party verifications as deemed appropriate, may be carried out and a clear finding on the issue in terms of the CBDT instructions in this regard may be given in the consequential order. (ii) The allowance of deduction under Section 11(1)(d) amounting to Rs.3,20,11,780/- may be reversed in the consequential order. 8. The AO may note that the remit of the consequential order is limited to the above issue only and the AO is directed not to travel beyond this scope. No other findings in the assessment order dated 30/12/2019 including denial of exemptions under Section 11 of the Act it may be disturbed. Needless to mention, the AO will accord adequate opportunity to the assessee and pass a well reasoned and speaking order on the issues involved.”
Being aggrieved, the assessee is in appeal before us.
We have considered the rival submissions and perused the material available on record. As noted above, the revision proceedings under section 263 of the Act were initiated on two issues, viz, (i) bifurcation of cash deposits of SBNs in two periods and accepting the explanation of the assessee for the period from 09/11/2016 to 16/11/2016 without inquiring into the merits of the claim; and (ii) even after rejecting the claim of exemption under section 11 of the Act, the AO allowed assessee‟s claim of corpus donation under section 11(1)(d) of the Act.
As per the assessee, against the partial disallowance made by the AO in respect of cash deposited during the demonetisation period, the assessee has Page | 7
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preferred an appeal before the learned CIT(A) and therefore the learned CIT has no power to pass a revision order under section 263 of the Act on this issue. From the perusal of the grounds of appeal filed before the learned CIT(A), forming part of the paper book, we find that the assessee‟s grievance before the learned CIT(A) against the assessment order is only restricted to the addition of Rs.56,92,000 as unexplained money under sections 69A of the Act. In the present case, the assessee claimed that as on 09/11/2016 it had cash in hand of Rs.1,15,57,330, and out of the same, old currency notes/SBN of Rs.1,10,40,950 was deposited in the bank account maintained with the Axis Bank. As per the assessee, it has also deposited a sum of Rs.10,07,000, out of this deposit in the PMGKY. The AO vide assessment order passed under section 143(3) of the Act treated the cash deposited immediately after the demonetisation i.e. from 09/11/2016 to 16/11/2016 as sufficient time for depositing the assessee‟s cash in hand, however, the amount of Rs.56,92,000, deposited after 16/11/2016, was treated as unaccounted cash receipts used for deposit in SBN and the same was added to the total income of the assessee under section 69A of the Act. It is only against this partial addition of Rs.56,92,000, made in the assessment order, the assessee is in appeal before the learned CIT(A). Further, since the aforesaid amount has already been added under section 69A of the Act, the assessment order passed under section 143(3) of the Act to that extent cannot be said to be prejudicial to the interest of Revenue. It is trite law that in order to invoke section 263, the assessment order must be erroneous and also prejudicial to revenue and if one of them is absent, i.e., if the order of the Income-tax Officer is erroneous but is not prejudicial to Revenue or if it is not erroneous but is prejudicial to Page | 8
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Revenue, recourse cannot be had to section 263 of the Act. Therefore, as one of the limbs is absent in respect of the addition of Rs.56,92,000, made by the AO under section 69A of the Act, the impugned revision order passed under section 263 of the Act is set aside to this extent. However, as regards the amount of Rs.53,48,950, deposited in cash in SBN from 09/11/2016 to 16/11/2016, which has been allowed by the AO without making enquiries or examinations/verification of the source of cash deposit, we are of the considered view that the assessment order to this extent is erroneous insofar as it is prejudicial to the interest of Revenue in view of the Explanation 2 to section 263 of the Act. Accordingly, the impugned order passed by the learned CIT to this extent is upheld. As a result, ground no.2 raised in assessee‟s appeal is partly allowed.
As regards the direction to reverse the allowance of deduction under section 11(1)(d) amounting to 3,20,11,780, of the Act, we find that even though the AO has rejected the exemption claimed by the assessee under section 11 of the Act and computed the total income of the assessee as per the normal provisions of the Act under the head „income from business and profession‟, however, the AO allowed the deduction claimed under section 11(1)(d) of the Act. The learned AR placed reliance upon decisions of the coordinate bench of the Tribunal, wherein it has been held that the corpus donation received by the interest which is not registered is not taxable, as they assume the nature of „capital receipt‟ the moment the donations are given to the corpus of the trust. As per the assessee, late filing of Form No. 10B will not lead to disallowance under section 11(1)(d) of the Act. In this regard, the
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learned AR, during the hearing, placed reliance upon the decision of the Hon‟ble Madhya Pradesh High Court in CIT vs Devradhan Madhavlal Genda Trust, [1998] 230 ITR 714 (MP), wherein it was held that filing of audit report in Form No. 10B with the return of income is not mandatory and it would be sufficient compliance with section 12A(b) of the Act if the report is filed during the course of assessment proceedings. On the other hand, the learned Departmental Representative placed reliance upon the decision of Hon‟ble Supreme Court in PCIT vs Wipro Ltd. [2022] 446 ITR 1 (SC), wherein it has been held that for claiming the benefit under section 10B of the Act requirement of filing the declaration before the AO before the due date of filing the return of income under section 139(1) of the Act is mandatory.
We are of the considered opinion that whether Form No. 10B was filed by the assessee before the prescribed date as per the Act read with CBDT Circular and therefore whether the assessee is entitled to exemption under section 11 of the Act are the aspects which can only be considered in an appeal against the assessment order. As in the present appeal, only the revision order passed by the learned CIT under section 263 of the Act is under challenge, therefore, the scope of the present appeal is limited to the examination of whether the jurisdiction under section 263 of the Act has been rightly invoked. As is evident from the record, the AO on the basis that Form No. 10B was not filed before the due date under section 139(1) rejected the claim of exemption under section 11 of the Act. However, on the contrary, while computing the total income of the assessee, the AO allowed the exemption under section 11(1)(d), and therefore, on this issue, the learned
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CIT, inter-alia, invoked the provisions of section 263 of the Act. Upon perusal of the record, we are of the considered opinion that the learned CIT has rightly invoked the provisions of section 263 of the Act on this issue, as once the AO has held the assessee to be not eligible for exemption under section 11 of the Act, the allowance of exemption under section 11(1)(d) of the Act is contradictory to its own finding in the order, which is not only erroneous but is also prejudicial to the interest of the Revenue. It is the plea of the assessee that the amount allowed under section 11(1)(d) vide assessment order passed under section 143(3) was disallowed vide rectification order passed under section 154 of the Act and thus no prejudice is caused to the Revenue. In view of the above, we deem it appropriate to direct the AO to examine the aforesaid plea of the assessee while passing the consequential order and if the disallowance has already been made then there should be no double disallowance. The direction of the learned CIT vide impugned order on this issue is accordingly modified. As a result, ground no.3 raised in assessee‟s appeal is dismissed.
In view of our aforesaid findings, ground no.1, raised in assessee‟s appeal, is partially allowed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 31/01/2023
Sd/- Sd/- OM PRAKASH KANT SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 31/01/2023
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Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai
