KALINGA INSTITUTE OF INDUSTRIAL TECHNOLOGY,PATIA BHUNANESWAR vs. CIT(EXEMPTION), HYDERABAD

8. Once the original order stands rectified then it loses its identity at least to the extent it stood rectified. In such circumstances, the Commissioner should have invoked his suo motu powers under s. 263 of the Act against the subsequent rectified order dt. 14th March, 1989, if he was of the view that the same is erroneous and prejudicial to the interests of the Revenue.

It was further submitted that even on merits, the ld. CIT(E) had followed the revisonary order in assessee’s own case for the immediately assessment year being the A.Y.2017-2018, wherein the identical issue of the development fee was considered. It was the submission that the 2017-2018 was the subject matter of an appeal before the coordinate bench of this Tribunal in dated 13.09.2022, wherein the coordinate bench of this Tribunal had held that the order passed u/s.263 of the Act was liable to be quashed on account of no enquiry by the ld. CIT(E). The coordinate bench for the assessment year 2017-2018 in para 7 to 8 in its order has held as follows :- 7. At the outset, what is to be understood is that the assessment in the present case has been done under the faceless scheme. A perusal of the notice issued u/s.142(1) of the Act shows that a query in respect of development fees has been raised. A perusal of the reply filed by the assessee in response to the notice u/s.142(1) of the Act shows that the issue of development fees has been responded in full. The response type whether it is full or partial is system generated. It is not in the control of the assessee. A perusal of the attachment mentioned in the compliance report shows that three files have been uploaded. It is after receiving the response from the assessee that the assessment has been completed u/s.143(3) of the Act. It is an admitted fact that the assessee cannot be expected to lead the AO in respect of the assessment proceedings. The liberty is with the AO to call for the details and it is the duty of the assessee to comply with the requirement as called for by the AO. Then the issue rests on the AO to examine the evidence produced and to draw appropriate conclusion. In this case, the assessee has complied by producing all the evidences as called for insofar as the compliance report which is a system generated report shows that the compliance is in full. Thus, this cannot be said that there is "lack of enquiry" by the AO much less "inadequate enquiry" and far less "no enquiry". 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 application of income to arrive at a loss of Rs.1,10,61,219/-. 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 ld. 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 order is erroneous and prejudicial to the interest of revenue and set aside the same. This is not permissible. A perusal of para 14 of the decision of the Hon'ble Jurisdictional High Court of Orissa in the case of Orissa State Police Housing & Welfare Corporation Ltd., reported in [2022] 139 taxmann.com 207 (Orissa), as read out by the ld. CIT-DR, categorically shows that after hearing the assessee, to pass an order by making "such enquiry as he deems necessary". In the present case, clearly no enquiry has been done by the ld. CIT(E). The Hon'ble Jurisdictional High Court of Orissa in the said case further goes on to hold that "the purpose of such an enquiry would be to arrive at a subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of Revenue". Here, the ld. CIT(E) has done nothing to arrive at the subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of revenue. In fact, this is a case where there is "no enquiry" by the ld. CIT(E).

It would be worthwhile to mention here the fact that the ld. CIT(E) has also made a calculation which attempts to show escapement of income u/s.11 of the Act which is taxable, by excluding the application of income which is permissible u/s.11(1) of the Act, is nothing but a jugglery in arithmetic. This is not a case where there is incorrect application of law. This being so, we are of the view that the principle of law laid down by the Hon'ble Jurisdictional High Court of Orissa in the case of Orissa State Police Housing & Welfare Corporation Ltd (supra), is squarely applicable in the case of present assessee, insofar as there is no enquiry done by the ld. CIT(E) after receipt of the reply filed by the assessee. This view of ours also support by the decision of the coordinate bench of the Tribunal in the case of Saroj Kumar Mishra (supra) and in the case of M/s Earth Minerals Co. Ltd., in order dated 29.08.2022. In these circumstances, we are of the view that the order passed by the ld. CIT(E) is unsustainable and consequently, the same stands quashed.

It was further submitted that the order of the Tribunal was the subject matter of an appeal by the Revenue before the Hon’ble High Court of Orissa in of 2023 and vide order dated 02.03.2023, the Hon’ble Jurisdictional High Court had upheld the order of the Tribunal holding as follows :- 4. The Assessee is a Trust running an educational institution. The original assessment for the aforementioned AY came to be concluded on 29th December 2019 under Section 143 (3) of the Act accepting the returned income.

On 12th January 2022, the CIT (E) issued a show cause notice (SCN) to the Assessee under Section 263 of the Act stating that a sum 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 being routed through the income and expenditure account. This was then treated as part of the Revenue and therefore the taxable income under Section 11 (1) of the Act was taken to be Rs.51,97,46,092/-.

The Court is satisfied that no error has been committed by the ITAT in concluding that the order of the CIT (E) is unsustainable in law. No substantial question of law arises. The appeal is dismissed. 5. It was the submission that the ld. CIT(E) was aware of the said order of the Tribunal in assessee’s own case for the immediately preceding assessment year and consequently under the guise of an enquiry, the ld. CIT(E) called for the explanation of the assessee. The assessee has specifically submitted before the CIT(E) that the development fund had been specifically offered as income of the assessee and to prove this the details and comparison of the income between the IT Return and the annual financial report for the Financial Year 2017-2018, had already been placed before the ld. CIT(E), the same was shown at page 32 of the paper book which is as follows :-

It was the submission that without considering these evidences, the ld. CIT(E) in para 15.2 has held that the assessee could not satisfactorily establish the claim of the application of income of Rs.940,24,12,653/- and it needed detailed verification through reassessment. It was the submission that the fact that the ld. CIT(E) has mentioned detailed verification and also says that it should be done through reassessment clearly shows that the ld. CIT(E) was aware that proper verification had been done but only a fishing and roving enquiry is now been attempted under the guise of a revision u/s.263 of the Act. It was the submission that the order passed u/s.263 of the Act is liable to be quashed.

In reply, ld. CIT-DR vehemently supported the order of the AO and ld.CIT(E). 8. We have considered the rival submissions. A perusal of the order passed u/s.263 of the Act by the ld. CIT(E) for the impugned assessment year with that of the assessment year 2017-2018 which is already quashed by the coordinate bench of the Tribunal, shows that for the impugned assessment year the ld. CIT(E) has extracted the various submissions of the assessee. Nowhere in the order the ld. CIT(A) is able to point out any error in the submissions made by the assessee. What the nature of the shortfall in the examination as done by the AO in the course of original assessment, is also not coming out of the order of the ld. CIT(E). The fact that the ld. CIT(E) has taken a stand in para 16 of his order that “correct enquiry” was not carried out while allowing the claim of application of the income, shows that the ld. CIT(E) was well aware that AO. The order of the ld. CIT(E) also does not speak of the “correct enquiries” that he wants to be done by the AO. Thus, clearly shows that this is nothing but an attempt of the ld.CIT(E) to dislodge an opinion as arrived at by the AO without pointing out any error in such opinion arrived. The power u/s.263 of the Act, admittedly, for revising an order which is erroneous and prejudicial to the interest of revenue. It cannot be used for directing a detailed verification through reassessment nor can it be used for re-examination of issues which have already been examined and an opinion in respect of which the AO has already reached to the conclusion without pointing out how such opinion is not as per law or is perverse to the facts. This being so, we are of the view that the order passed u/s.263 of the Act is unsustainable in the facts of the case. Consequently, the order passed u/s.263 of the Act by the ld. CIT(E) for the impugned assessment year stands quashed in view of the reasonings given above as also the reasoning given in the order of the coordinate bench of the Tribunal for the assessment year 2017-2018, which has already been upheld by the Hon’ble Jurisdictional High Court, referred above.

It must be mentioned here that in view of the principle laid down by the Hon’ble Madhya Pradesh High Court in the case of Kalyan Solvent Pvt. Ltd., referred to supra, as the ld. CIT(E) has invoked his powers u/s.263 of the Act on the assessment order passed u/s.143(3) r.w.s.144B of the Act, the same has already been rectified vide an order dated 29.07.2021 u/s.154 r.w.s.143(3) of the Act, thus, the order passed u/s.263 Act is unsustainable and on this ground also the order passed by the ld. CIT(E) u/s.263 of the Act stands quashed.

In the result, appeal of the assessee is allowed. Order dictated and pronounced in the open court on 15/07/2024.