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Facts
The assessee, an association of computer media dealers, claimed exemption under Section 11. During the year, it sold office premises for Rs. 26,29,833/-, which was set apart for application of income. The AO denied exemption, treating it as a 'mutual concern'. The CIT(E) invoked Section 263 twice, first to set aside the order to reframe it considering the income from property and later to consider the sale of the asset for short-term capital gains under Section 50.
Held
The Tribunal held that the CIT(E) erred in invoking Section 263 as the premises sold was not part of the block of assets and no depreciation was claimed by the assessee on these premises. Therefore, Section 50 was not applicable. The revisional jurisdiction invoked by the CIT(E) was not sustainable.
Key Issues
Whether the CIT(E) was justified in invoking Section 263 for a second time to consider capital gains under Section 50 when the asset was not part of a block of assets and no depreciation was claimed? Whether the AO's original assessment order was erroneous and prejudicial to the revenue?
Sections Cited
263, 11, 11(2), 143(3), 2(11), 32(1), 50, 48, 49, 42A, 28(iii), 43(6)
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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN
ORDER
PER OM PRAKASH KANT, AM
1. This appeal has been preferred by the assessee against revision order dated 31.03.2025 passed by the Ld. Commissioner of Income-tax (Exemption), Mumbai [in short ‘the Ld. CIT(E)’] for assessment year 2017-18, wherein he has set aside the order passed by the Ld. Assessing Officer dated 02.03.2023.
The grounds raised by the assessee are reproduced as under:
The appellant prefers the following Appeal against the The appellant prefers the following Appeal against the The appellant prefers the following Appeal against the order dated 31/03/2025 of the Commissioner of Income order dated 31/03/2025 of the Commissioner of Income order dated 31/03/2025 of the Commissioner of Income Tax (Exemptions), Mumbai (hereinafter referred to as Tax (Exemptions), Mumbai (hereinafter referred to as Tax (Exemptions), Mumbai (hereinafter referred to as "The CIT") passed under section 263 of the Income Tax "The CIT") passed under section 263 of the Income Tax "The CIT") passed under section 263 of the Income Tax Act, 1961 ("The Act"). Act, 1961 ("The Act"). Each of the grounds is in Each of the grounds is in alternative and without prejudice to other. alternative and without prejudice to other.
2. On facts of this case, the CIT was not justified in passing On facts of this case, the CIT was not justified in passing On facts of this case, the CIT was not justified in passing the order under S. 263 of the Act. The CIT failed to the order under S. 263 of the Act. The CIT failed to the order under S. 263 of the Act. The CIT failed to appreciate that In this case, the Assessment Unit has appreciate that In this case, the Assessment Unit has appreciate that In this case, the Assessment Unit has only given effect only given effect to the clear direction passed in his to the clear direction passed in his earlier order dated 19/03/2022 passed under S. 263 of earlier order dated 19/03/2022 passed under S. 263 of earlier order dated 19/03/2022 passed under S. 263 of the Income tax Act, 1961. He failed to appreciate that an the Income tax Act, 1961. He failed to appreciate that an the Income tax Act, 1961. He failed to appreciate that an order giving effect to the order passed under S. 263 order giving effect to the order passed under S. 263 order giving effect to the order passed under S. 263 cannot be subjected to action under S. 263 again on the cannot be subjected to action under S. 263 again on th cannot be subjected to action under S. 263 again on th same issue. same issue. 3. 3: The CIT failed to appreciate that the Assessment Unit 3: The CIT failed to appreciate that the Assessment Unit 3: The CIT failed to appreciate that the Assessment Unit while passing the assessment order giving effect to the while passing the assessment order giving effect to the while passing the assessment order giving effect to the directions passed by the CIT (Exemptions) has made directions passed by the CIT (Exemptions) has made directions passed by the CIT (Exemptions) has made detailed inquiries in respect of the issue and therefore detailed inquiries in respect of the issue and therefore detailed inquiries in respect of the issue and therefore the said Assessment O the said Assessment Order cannot be deemed to be rder cannot be deemed to be erroneous in so far as it is prejudicial to the interest of erroneous in so far as it is prejudicial to the interest of erroneous in so far as it is prejudicial to the interest of the revenue. the revenue. 4. 4: The CIT failed to appreciate that the office premises 4: The CIT failed to appreciate that the office premises 4: The CIT failed to appreciate that the office premises ('the asset') in question has not at all entered into 'Block ('the asset') in question has not at all entered into 'Block ('the asset') in question has not at all entered into 'Block of Assets' as defined under S. 2(11) of Assets' as defined under S. 2(11) of the Income Tax of the Income Tax Act, 1961 and the appellant has never claimed Act, 1961 and the appellant has never claimed Act, 1961 and the appellant has never claimed depreciation under S. 32(1) of the Income Tax Act, 1961. depreciation under S. 32(1) of the Income Tax Act, 1961. depreciation under S. 32(1) of the Income Tax Act, 1961. 5. 5: The CIT failed to appreciate that any gain on sale of 5: The CIT failed to appreciate that any gain on sale of 5: The CIT failed to appreciate that any gain on sale of asset could be subject matter of S. 50 only in a case asset could be subject matter of S. 50 only in a case asset could be subject matter of S. 50 only in a case where an assessee is de where an assessee is declaring its Income under the claring its Income under the heading 'Profits & Gains of Business' and the asset has heading 'Profits & Gains of Business' and the asset has heading 'Profits & Gains of Business' and the asset has been forming part of 'Block of Assets' in respect of which been forming part of 'Block of Assets' in respect of which been forming part of 'Block of Assets' in respect of which depreciation has been allowed under section 32(1) of the depreciation has been allowed under section 32(1) of the depreciation has been allowed under section 32(1) of the Income Tax Act, 1961. Income Tax Act, 1961. 6. 6: On facts and in law, the CIT f 6: On facts and in law, the CIT failed to appreciate that ailed to appreciate that he was not empowered to pass an order under S. 263 in he was not empowered to pass an order under S. 263 in he was not empowered to pass an order under S. 263 in respect of an Assessment order passed by respect of an Assessment order passed by the respect of an Assessment order passed by the the Assessment Unit. He failed to appreciate that the Assessment Unit. He failed to appreciate that the Assessment Unit. He failed to appreciate that the jurisdiction under S. 263 could be invoked only in respect jurisdiction under S. 263 could be invoked only in respect jurisdiction under S. 263 could be invoked only in respect of an order passed by t of an order passed by the Assessing Officer or the he Assessing Officer or the Transfer Pricing Officer and not in respect of any order Transfer Pricing Officer and not in respect of any order Transfer Pricing Officer and not in respect of any order passed by the Assessment Unit. The order so passed passed by the Assessment Unit. The order so passed passed by the Assessment Unit. The order so passed under under under S. S. S. 263 263 263 is is is thus thus thus bad bad bad in in in law, law, law, illegal illegal illegal and void void ab initio.
Briefly stated, facts of the case are that Briefly stated, facts of the case are that the assessee, the assessee, an association of computer media dealers, filed its association of computer media dealers, filed its return of income return of income wherein claimed exemption of income u/s 11 of the Income-tax Act, wherein claimed exemption of income u/s 11 of the Income wherein claimed exemption of income u/s 11 of the Income 1961 (in short ‘the Act’) treating itself as charitable institution and 1961 (in short ‘the Act’) treating itself as charitable institution and 1961 (in short ‘the Act’) treating itself as charitable institution and declared Nil total income. total income. During the year under consideration, the consideration, the assessee assessee sold sold office office premises premises for for sale consideration consideration of of Rs.26,29,833/- and in the return of income filed, in the return of income filed, said consideration said consideration was set apart by the assessee for further application of income was set apart by the assessee for further application was set apart by the assessee for further application invoking section 11(2) of the Act. The case of invoking section 11(2) of the Act. The case of the assessee was the assessee was selected for scrutiny and in the scrutiny assessment order was selected for scrutiny and in the scrutiny assessment order selected for scrutiny and in the scrutiny assessment order passed u/s 143(3) of the Act passed u/s 143(3) of the Act, wherein the Assessing Officer denied he Assessing Officer denied the claim of the assessee for exemption the claim of the assessee for exemption of income u/s 11 u/s 11 of the Act by treating the assessee as a by treating the assessee as a ‘mutual concern’ and and assessed the total income at Rs.1,44,922/ income at Rs.1,44,922/-. The assessee carried the matter to . The assessee carried the matter to the Ld. First Appellate Authority but later on withdrew the same by the Ld. First Appellate Authority but later on withdrew the same by the Ld. First Appellate Authority but later on withdrew the same by opting for settlement under Vivad se Vishwas Scheme, 2020. opting for settlement under Vivad se Vishwas Scheme, 2020 opting for settlement under Vivad se Vishwas Scheme, 2020 Subsequently, the Ld. CIT( ubsequently, the Ld. CIT(E) invoked jurisdiction u/s 263 jurisdiction u/s 263 of the Act and issued notice to the assessee as consideration received from and issued notice to the assessee as consideration and issued notice to the assessee as consideration sale of the office premises sale of the office premises and set apart for further set apart for further application of funds invoking section 11(2) of the Act was not available to the invoking section 11(2) of the Act was not available to the invoking section 11(2) of the Act was not available to the assessee as assessee was assessee as assessee was held to be a “mutual concern mutual concern” and not a charitable organisation by the AO, charitable organisation by the AO, therefore, the consideration therefore, the consideration received on office premises was subject to tax which the Assessing received on office premises was subject to tax which the Assessing received on office premises was subject to tax which the Assessing Officer omitted to do so. The relevant part of the finding of the Ld. Officer omitted to do so. The relevant part of the finding of the Ld. Officer omitted to do so. The relevant part of the finding of the Ld.
CIT(E) vide his order u/s 263 of the Act dated 19.03.2022 (first order u/s 263 of the Act dated 19.03.2022 (first order u/s 263 of the Act dated 19.03.2022 (first order u/s 263) is reproduced as under: order u/s 263) is reproduced as under:
“10. Accordingly, by virtue of powers vested in the undersigned 10. Accordingly, by virtue of powers vested in the undersigned 10. Accordingly, by virtue of powers vested in the undersigned vide provisions of Section 263 of the Act, I deem it appropriate to vide provisions of Section 263 of the Act, I deem it appropriate to vide provisions of Section 263 of the Act, I deem it appropriate to set aside the assessment order date set aside the assessment order dated 13/11/2019 to the file of d 13/11/2019 to the file of the AO to reframe the assessment order with following the AO to reframe the assessment order with following the AO to reframe the assessment order with following direction: (a) As the assessee has been considered to be non charitable (a) As the assessee has been considered to be non charitable (a) As the assessee has been considered to be non charitable entity, it may be clearly mentioned in the assessment order that entity, it may be clearly mentioned in the assessment order that entity, it may be clearly mentioned in the assessment order that the rules of accumulation, applicatio the rules of accumulation, application as well as benefits of n as well as benefits of Section 11 and 12 of the Act are not available for the assessee Section 11 and 12 of the Act are not available for the assessee Section 11 and 12 of the Act are not available for the assessee in the AY.2017 in the AY.2017-18 (b) The immunity under VSVS 2020 is not available to the (b) The immunity under VSVS 2020 is not available to the (b) The immunity under VSVS 2020 is not available to the assessee with regard to the income from the property assessee with regard to the income from the property assessee with regard to the income from the property amounting to Rs.26,29,833/ amounting to Rs.26,29,833/-. Accordingly, the assessee being a y, the assessee being a mutual association, this income from sale of property from non mutual association, this income from sale of property from non mutual association, this income from sale of property from non- mutual sources may be brought to tax accordingly. Necessary mutual sources may be brought to tax accordingly. Necessary mutual sources may be brought to tax accordingly. Necessary indexation following the computational rules in Chapter V of the indexation following the computational rules in Chapter V of the indexation following the computational rules in Chapter V of the Act may be granted as per law. Act may be granted as per law. (c) The scope of assessment proceeding pursuant to this order is of assessment proceeding pursuant to this order is of assessment proceeding pursuant to this order is limited to above issues only and the AO is directed not to travel limited to above issues only and the AO is directed not to travel limited to above issues only and the AO is directed not to travel beyond the scope of this issue. No other findings in the beyond the scope of this issue. No other findings in the beyond the scope of this issue. No other findings in the assessment order dated 13/11/2019 may be disturbed. assessment order dated 13/11/2019 may be disturbed. assessment order dated 13/11/2019 may be disturbed. (d) The AO is directed to fol (d) The AO is directed to follow principles of natural justice and low principles of natural justice and grant the assessee adequate opportunity grant the assessee adequate opportunity of being heard. heard.” Consequent to the direction of the PCIT, the Assessing Officer 3.1 Consequent to the direction of the PCIT, the Assessing Officer Consequent to the direction of the PCIT, the Assessing Officer issued notice issued issued notice notice for for considering the for considering the taxability in respect of considering the taxability in respect of taxability in respect of consideration received on the sale consideration received on the sale of the office premises. The of the office premises. The Assessing Officer in para 2 of the impugned assessment order Assessing Officer in para 2 of the impugned assessment order Assessing Officer in para 2 of the impugned assessment order mentioned mentioned mentioned that that that various various various opportunities opportunities opportunities from from from 19.08.2022 19.08.2022 19.08.2022 to to to 15.02.2023 were provided to the assessee. The Assessing Officer provided to the assessee. The Assessing Officer provided to the assessee. The Assessing Officer after considering the sub after considering the submission of the assesse mission of the assessee treated the transaction of the sale of the office premises as subjected to capital transaction of the sale of the office premises as subjected to capital transaction of the sale of the office premises as subjected to capital gain and in view of holding period of the office premises, the gain and in view of holding period of the office premises, the gain and in view of holding period of the office premises, the Assessing Officer computed the long term capital gain at Assessing Officer computed the long term capital ga Assessing Officer computed the long term capital ga Rs.2,72,683/-, which was , which was accepted by the assessee. by the assessee. Accordingly, the Assessing Officer assessed the said income while giving effect to the Assessing Officer assessed the said income while giving effect to the Assessing Officer assessed the said income while giving effect to the order of the Ld. CIT(E) passed u/s 263 of the Act on 19.03.2022 the order of the Ld. CIT(E) passed u/s 263 of the Act on 19.03.2022 the order of the Ld. CIT(E) passed u/s 263 of the Act on 19.03.2022 (First order u/s 263). .
3.2 Subsequently, again the Ld. CIT(E) called for the assessment Subsequently, again the Ld. CIT(E) called for the assessment Subsequently, again the Ld. CIT(E) called for the assessment record and after examination he was of the view that sale of the examination he was of the view that sale of the examination he was of the view that sale of the transaction of the office premises was liable transaction of the office premises was liable for short term capital short term capital gain u/s 50 of the Act and since the Assessing Officer did not carry gain u/s 50 of the Act and since the Assessing Officer did not carry gain u/s 50 of the Act and since the Assessing Officer did not carry out any inquiry on this issue out any inquiry on this issue, therefore, the impugned assessment therefore, the impugned assessment order passed while giving effect to the order of ld CIT(E) while giving effect to the order of ld CIT(E) by the while giving effect to the order of ld CIT(E) Assessing Officer, is erroneous in so far as prejudicial to the is erroneous in so far as prejudicial to the is erroneous in so far as prejudicial to the interest of the Revenue. Accordingly, interest of the Revenue. Accordingly, he set aside the said order set aside the said order with the direction to pass a speaking order after taking into with the direction to pass a speaking order after taking into with the direction to pass a speaking order after taking into consideration his direction for examining the taxability of the sale of nsideration his direction for examining the taxability of the sale of nsideration his direction for examining the taxability of the sale of the depreciable asset amounting to Rs.26,29,833/ the depreciable asset amounting to Rs.26,29,833/- - in the light of the section 50 and accordingly charge ction 50 and accordingly charge short term capital gain. short term capital gain.
Aggrieved with the above finding of the Ld. CIT(E) examining Aggrieved with the above finding of the Ld. CIT(E) examining Aggrieved with the above finding of the Ld. CIT(E) examining the assessee is in appeal before the Tribunal by way of raising in appeal before the Tribunal by way of raising in appeal before the Tribunal by way of raising grounds as reproduced above. grounds as reproduced above.
4.1 We find that before the Ld. CIT(E), the assessee challenged We find that before the Ld. CIT(E), the assessee challenged We find that before the Ld. CIT(E), the assessee challenged jurisdiction acquired by the Ld. CIT( jurisdiction acquired by the Ld. CIT(E) and also challenged the E) and also challenged the finding of the Ld. CIT(E) on the law. Before us, the Ld. Counsel for finding of the Ld. CIT(E) on the law. Before us, the Ld. Counsel for finding of the Ld. CIT(E) on the law. Before us, the Ld. Counsel for the assessee also submitted that the office premises sold was submitted that the office premises sold was submitted that the office premises sold was neither part of the block of asset nor any depreciation was claimed neither part of the block of asset nor any depreciation neither part of the block of asset nor any depreciation by the assessee on said office the assessee on said office premises, therefore, the provision of therefore, the provision of section 50 were not applicable not applicable. For ready reference, section 50 is or ready reference, section 50 is reproduced as under: reproduced as under:
[Special provision for computation of capital gains in case of depreciable Special provision for computation of capital gains in case of depreciable Special provision for computation of capital gains in case of depreciable assets. 51 50. Notwi Notwithstanding anything contained in clause (42A) of thstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a , where the capital asset is an asset forming part of a , where the capital asset is an asset forming part of a block of assets block of assets 52 in respect of which depreciation has been in respect of which depreciation has been allowed under this Act or under the Indian Income allowed under this Act or under the Indian Income allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 1922 (11 of 1922), the provisions of sections 48 and 49 shall be and 49 shall be subject to the following modifications : subject to the following modifications :- (1) where where the full value of the consideration received or accruing the full value of the consideration received or accruing as a result of the transfer of the asset together with the full as a result of the transfer of the asset together with the full as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result value of such consideration received or accruing as a result value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the of the transfer of any other capital asset falling within the of the transfer of any other capital asset falling within the block of ass block of assets during the previous year, exceeds the ets during the previous year, exceeds the aggregate of the following amounts, namely : aggregate of the following amounts, namely : aggregate of the following amounts, namely :- (i) expenditure expenditure incurred incurred wholly wholly and and exclusively exclusively in in connection with such transfer or transfers; connection with such transfer or transfers; (ii) the written down value of the block of assets at the the written down value of the block of assets at the beginning of the previous year; and beginning of the previous year; and (iii) the actual cost of any asset falling within the block of the actual cost of any asset falling within the block of assets acquired during the previous year, assets acquired during the previous year, such excess shall be deemed to be the capital gains arising such excess shall be deemed to be the capital gains arising such excess shall be deemed to be the capital gains arising from the transfer of short from the transfer of short-term capital assets; assets; (2) where any block of assets ceases to exist as such, for the where any block of assets ceases to exist as such, for the where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during reason that all the assets in that block are transferred during reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of the previous year, the cost of acquisition of the block of the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets assets shall be the written down value of the block of assets assets shall be the written down value of the block of assets at the begin at the beginning of the previous year, as increased by the ning of the previous year, as increased by the actual cost of any asset falling within that block of assets, actual cost of any asset falling within that block of assets, actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the acquired by the assessee during the previous year and the acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or income received or accruing as a result of such transfer or income received or accruing as a result of such transfer or transfers shall be deemed to transfers shall be deemed to be the capital gains arising from be the capital gains arising from the transfer of short the transfer of short-term capital assets:] 53 [Provided that in a case where goodwill of a business or profession that in a case where goodwill of a business or profession that in a case where goodwill of a business or profession forms part of a block of asset for the assessment year beginning on forms part of a block of asset for the assessment year beginning on forms part of a block of asset for the assessment year beginning on the 1st day of April, 2020 and depreciation thereon has been the 1st day of April, 2020 and depreciation thereon has been the 1st day of April, 2020 and depreciation thereon has been obtained by the assessee under the Act, the written down value of obtained by the assessee under the Act, the written down value of obtained by the assessee under the Act, the written down value of that block of asset and short at block of asset and short-term capital gain, if any, shall be term capital gain, if any, shall be determined in such manner as may be prescribed determined in such manner as may be prescribed 54.] 55 [Explanation.-For the purposes of this section, reduction of the For the purposes of this section, reduction of the For the purposes of this section, reduction of the amount of goodwill of a business or profession, from the block of nt of goodwill of a business or profession, from the block of nt of goodwill of a business or profession, from the block of asset in accordance with sub asset in accordance with sub-item (B) of item (ii) of sub item (B) of item (ii) of sub-clause (c) of clause (6) of section 43 section 43 shall be deemed to be transfer.] 4.2 In view of plain reading In view of plain reading of the provisions of section 50 it is of the provisions of section 50 it is evident that the asset under consid evident that the asset under consideration should be, firstly, a eration should be, firstly, a depreciable asset and asset and, secondly, it should be part of block of asset. it should be part of block of asset. In such circumstances, the In such circumstances, the excess if any over the written down excess if any over the written down value, expenses incu value, expenses incurred for sale of asset and amount invested in rred for sale of asset and amount invested in purchase of new asset, purchase of new asset, would be deemed to be short term capital deemed to be short term capital gain.
Before us, learned counsel appearing on behalf of the assessee Before us, learned counsel appearing on behalf of the assessee Before us, learned counsel appearing on behalf of the assessee has contended that although the status of the assessee has been has contended that although the status of the assessee has been has contended that although the status of the assessee has been treated as a “mutual concern” by the Assessing Officer, it is not s a “mutual concern” by the Assessing Officer, it is not s a “mutual concern” by the Assessing Officer, it is not engaged in any business activity and, therefore, falls outside the engaged in any business activity and, therefore, falls outside the engaged in any business activity and, therefore, falls outside the scope of Section 28(iii) of the Act. It has been submitted that both scope of Section 28(iii) of the Act. It has been submitted that both scope of Section 28(iii) of the Act. It has been submitted that both the income and expenditure of the assessee pertain to mutual the income and expenditure of the assessee pertain to mutual the income and expenditure of the assessee pertain to mutual activities, and any surplus arising there from is not liable to tax, in tivities, and any surplus arising there from is not liable to tax, in tivities, and any surplus arising there from is not liable to tax, in view of the principle of mutuality. It is further submitted that in the view of the principle of mutuality. It is further submitted that in the view of the principle of mutuality. It is further submitted that in the event any income accrues outside the framework of mutuality, such event any income accrues outside the framework of mutuality, such event any income accrues outside the framework of mutuality, such income, if at all, may be assessed under the hea income, if at all, may be assessed under the head "Income from d "Income from Other Sources" and not under the head "Profits and Gains of Other Sources" and not under the head "Profits and Gains of Other Sources" and not under the head "Profits and Gains of Business or Profession." Business or Profession."
5.1 Learned counsel also submitted that the assessee has never Learned counsel also submitted that the assessee has never Learned counsel also submitted that the assessee has never claimed depreciation on the office premises in question, and claimed depreciation on the office premises in question, and claimed depreciation on the office premises in question, and therefore, the provisions of Sec therefore, the provisions of Section 50 of the Act, which apply to tion 50 of the Act, which apply to capital gains on the sale of depreciable assets, would have no capital gains on the sale of depreciable assets, would have no capital gains on the sale of depreciable assets, would have no application. Consequently, the Assessing Officer was under no application. Consequently, the Assessing Officer was under no application. Consequently, the Assessing Officer was under no obligation to inquire into the applicability of Section 50, and the obligation to inquire into the applicability of Section 50, and the obligation to inquire into the applicability of Section 50, and the observation of the CIT(E) CIT(E)—that the Assessing Officer failed to make at the Assessing Officer failed to make such inquiry—is both unwarranted and misplaced in the facts of is both unwarranted and misplaced in the facts of is both unwarranted and misplaced in the facts of the present case.
6. We have heard the rival submissions advanced by the learned 6. We have heard the rival submissions advanced by the learned 6. We have heard the rival submissions advanced by the learned counsel for the parties and have perused the material available on counsel for the parties and have perused the material available on counsel for the parties and have perused the material available on record. Upon careful consideration, we find merit in the contentions d. Upon careful consideration, we find merit in the contentions d. Upon careful consideration, we find merit in the contentions advanced on behalf of the assessee. The learned CIT(E), in the advanced on behalf of the assessee. The learned CIT(E), in the advanced on behalf of the assessee. The learned CIT(E), in the impugned revisionary order passed under Section 263 of the Act, impugned revisionary order passed under Section 263 of the Act, impugned revisionary order passed under Section 263 of the Act, has proceeded on the presumption that the assessee had claimed has proceeded on the presumption that the assessee had claimed has proceeded on the presumption that the assessee had claimed depreciation on the office premises in earlier assessment years, preciation on the office premises in earlier assessment years, preciation on the office premises in earlier assessment years, without verifying the relevant records. The factual position, without verifying the relevant records. The factual position, without verifying the relevant records. The factual position, however, as discernible from the record, is that the Assessing however, as discernible from the record, is that the Assessing however, as discernible from the record, is that the Assessing Officer neither treated the income of the assessee as arising from Officer neither treated the income of the assessee as arising from Officer neither treated the income of the assessee as arising from business activity nor allowed any depreciation on the said premises usiness activity nor allowed any depreciation on the said premises usiness activity nor allowed any depreciation on the said premises in the past.
6.1 It is an undisputed position that the assessee functions as a It is an undisputed position that the assessee functions as a It is an undisputed position that the assessee functions as a mutual concern, and that the surplus, if any, generated within the mutual concern, and that the surplus, if any, generated within the mutual concern, and that the surplus, if any, generated within the fold of mutuality is not taxable, except to fold of mutuality is not taxable, except to the extent it is earned the extent it is earned from sources outside the scope of mutual activities. In the absence from sources outside the scope of mutual activities. In the absence from sources outside the scope of mutual activities. In the absence of any finding to the contrary by the Assessing Officer, and there of any finding to the contrary by the Assessing Officer, and there of any finding to the contrary by the Assessing Officer, and there being no claim of depreciation by the assessee, the provisions of being no claim of depreciation by the assessee, the provisions of being no claim of depreciation by the assessee, the provisions of Section 50 of the Act could no Section 50 of the Act could not have been invoked. As such, there t have been invoked. As such, there was no occasion for the Assessing Officer to initiate an inquiry in was no occasion for the Assessing Officer to initiate an inquiry in was no occasion for the Assessing Officer to initiate an inquiry in respect of the said provision. respect of the said provision.
6.2 In this view of the matter, we find no infirmity in the In this view of the matter, we find no infirmity in the In this view of the matter, we find no infirmity in the assessment assessment assessment order order order passed passed passed by by by the the the Assessing Assessing Assessing Officer, Officer, Officer, and and and consequently, the invocation of revisional jurisdiction under Section ently, the invocation of revisional jurisdiction under Section ently, the invocation of revisional jurisdiction under Section 263 by the learned CIT(E), predicated upon Explanation 2 thereto, 263 by the learned CIT(E), predicated upon Explanation 2 thereto, 263 by the learned CIT(E), predicated upon Explanation 2 thereto, is not sustainable on the facts of the present case. is not sustainable on the facts of the present case.
6.3 Accordingly, the impugned order passed by the learned CIT(E) Accordingly, the impugned order passed by the learned CIT(E) Accordingly, the impugned order passed by the learned CIT(E) is set aside, and the assessment order passed by the Assessing ide, and the assessment order passed by the Assessing ide, and the assessment order passed by the Assessing Officer is restored. Grounds No. 3 and 5 raised by the assessee are, Officer is restored. Grounds No. 3 and 5 raised by the assessee are, Officer is restored. Grounds No. 3 and 5 raised by the assessee are, therefore, allowed.
6.4 In light of the above conclusion, the remaining grounds In light of the above conclusion, the remaining grounds In light of the above conclusion, the remaining grounds—i.e., Grounds No. 1, 2, and 6, which pertain to the j Grounds No. 1, 2, and 6, which pertain to the jurisdictional validity urisdictional validity of the revisionary proceedings initiated under Section 263 in of the revisionary proceedings initiated under Section 263 in of the revisionary proceedings initiated under Section 263 in consequence of an earlier order consequence of an earlier order—are rendered academic and do not are rendered academic and do not warrant adjudication at this stage. warrant adjudication at this stage.
In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 31/07/2025. /07/2025.