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Facts
The assessee challenged an order passed by the CIT(E) under Section 263 of the Income Tax Act, which revised an assessment order. The revision was based on the CIT(E)'s opinion that accumulated funds from FY 2011-2012 were not utilized and should have been taxed, and that the AO failed to verify this.
Held
The Tribunal held that the CIT(E) erred in invoking Section 263. The Assessee had consistently disclosed the utilization of funds, and the Assessing Officer had conducted proper inquiries and accepted the Assessee's submissions in previous assessment years. The CIT(E)'s order was based on a misunderstanding of the facts.
Key Issues
Whether the CIT(E) correctly invoked Section 263 to revise the assessment order, or if the AO had conducted sufficient inquiries and the assessment was not erroneous or prejudicial to revenue.
Sections Cited
263, 143(3), 144B, 11(2), 10(23C), 142(1), 12A(B)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
order : 29.04.2025 O R D E R [ Per Rahul Chaudhary, Judicial Member:
1. 1. By way of the present appeal the has challenged the order, dated 18/03/2024, passed by the Commissioner of Income Tax (Exemptions), Mumbai [hereinafter referred to as ‘the CIT(E)’] under Section 263 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(E) had decided the appeal of the Assessee against the Assessment Order, dated 31/05/2021, passed under Section 143(3) read with Section 144B of the Act for the Assessment Year 2018-2019.
2. With consent of both the sides, we proceed to admit the appeal after condoning the delay of 28 days in filing the present appeal in the Assessment Year 2018-2019 reasons stated in the application seeking condonation of delay which is supported by affidavit. Accordingly, we proceed to adjudicate the following grounds raised by the Assessee:
“1. BREACH OF THE PRINCIPLES OF NATURAL JUSTICE 1.1. The Learned Commissioner of Income-tax (Exemptions), Mumbai ["Ld. CIT(E)"], erred in framing the revision order u/s. 263 of the Income-tax Act, 1961 ["the Act"] by not giving proper, sufficient and effective opportunity of being heard to the Appellant. 1.2 It is submitted that in the facts and the circumstances of the case, and in law, the revision order is required to be held as bad and illegal as the same is passed in breach of the principles of natural justice, as well as with non application of mind to the facts and the contentions brought on record by the Appellant. WITHOUT PREJUDICE TO THE ABOVE 2. REVISION ILLEGAL 2.1 The Ld. CIT(E) erred in passing the order u/s. 263 of the Act, revising the assessment order passed by the A.O. u/s. 143 (3) of the Act. 2.2 It is submitted that in the facts and the circumstances of the case, and in law, the order is bad, illegal and void as necessary pre conditions for initiating the revision proceeding as well as the completion thereof were not fulfilled. 2.3 Without prejudice to the generality of the above, the Ld. CIT(E) failed to appreciate that: (1) The assessment order framed was not "erroneous" within the meaning of section 263 of the Act, and (ii) In any case, the assessment order was not "prejudicial to the interest of the revenue" within the meaning of section 263 of the Act. 2.4 It is submitted that in the facts and the circumstances of the case, and in law, no revision u/s. 263 of the Act was called for. WITHOUT FURTHER PREJUDICE TO THE ABOVE 3. ON MERITS 3.1 Otherwise also, it is submitted that in the facts and the circumstances of the case, and in law, on merits also, no 2 Assessment Year 2018-2019 revision u/s. 263 of the Act was called for.”
The Assessee-company was formed under section 617 of the Companies Act, 1956 by Central Government (51% shareholding) and State Government (49% shareholding) as a special purpose vehicle to carry on the work on behalf of Ministry of Railways. The annual accounts of the Assessee are also audited by the Comptroller & Auditor General of India. For the Assessment Year 2018-2019, assessment was framed on the Assessee under Section 143(3) of the Act vide Assessment Order, dated 31/05/2021. No addition was made by the Assessing Officer in relation to the non-utilisation of the amounts accumulated in the Financial Year 2011-2012. The Ld. PCIT, after analyzing the details furnished by the Assessee in the return of Income for the Assessment Year 2018-2019, formed an opinion that an amount of INR.3,86,30,919/- accumulated in Financial Year 2011- 2012 remained utilised during the relevant previous year and therefore, the same should have been brought to tax in the hands of the Assessee. According to the Ld. PCIT, the Assessing Officer had failed to verify this aspect. Therefore, vide order, dated 18/03/2024, the Ld. PCIT set aside the assessment order for the Assessment Year 2018-2019 concluding that the same was erroneous as well as prejudicial to the interest of Revenue in terms of Section 263 of the Act read with Explanation 2 thereto. Being aggrieved, the Assessee has preferred the present appeal on the grounds reproduced in paragraph 2 above.
We have heard both the sides and have perused the material on record.
The primary contention advanced on behalf of the Assessee is that Assessment Order, dated 31/05/2021, passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue and that the same was passed after undertaking proper enquiry/investigation into the issue of application/accumulation of 3 Assessment Year 2018-2019 income of the Assessee-Trust. It was submitted on behalf of the Assessee that the reason for revising the Assessment Order given by the learned PCIT is that the Assessee has, in the return of income filed for the Assessment Year 2018-2019, stated that out of accumulations of INR.16,27,18,575/- made for the Financial Year 2011-2012 an amount of INR.3,86,70,919/- was not utilised within the prescribed time, and that the same should have been brought to tax in the hands of the Assessee during the relevant previous year. The aforesaid aspect was not verified by the Assessing Officer during the assessment proceedings and therefore, the Assessment Order is erroneous and prejudicial to the interest of the Revenue. It was submitted on behalf of the Assessee that in the return of income for the Assessment Year 2018-2019 : ‘Schedule-I - Details of amount accumulated/set part within the meaning of Section 11(2) of the Act or in terms of Proviso of Section 10(23C) of the Act’ was incorrectly filled which was taken note of by the Learned PCIT. The correct factual position is that the entire accumulations pertained to Financial Year 2011-2012 stood completely utilized at the beginning of the relevant previous year. The Assessee had placed before the Learned PCIT, documentary evidence (including income tax returns and assessment order for preceding assessment years) in support of the aforesaid contention. It was contended on behalf of the Assessee that the same were not taken into consideration by the Learned PCIT who proceeded to set aside the Assessment Order, dated 31/05/2021, by way of the impugned order.
Per Contra, it was submitted that on behalf of the Revenue that on bare perusal of ‘Schedule-I’ of the Income Tax Return for the Assessment Year 2018-2019 it becomes clear that funds accumulated for the Financial Year 2011-2012 were not utilised completely till the end of the relevant previous year. The Assessee had stated in the aforesaid return of income that an amount of 4 Assessment Year 2018-2019 INR.3,86,30,919/- was available for application as on 31/03/2018. Therefore, the Assessing Officer was duty bound to make enquiry in relation to the same and also to make disallowance of the aforesaid amount. Therefore, the Assessment Order was, both, erroneous well as prejudicial to the interest of Revenue. It was further, submitted that the learned PCIT had invoked provisions contained in Explanation 2 to Section 263 of the Act and formed an opinion that the Assessment Orders was passed without making any enquiries/verifications which should have made and therefore, the order, dated 18/03/2024, passed by the Learned PCIT under Section 263 of the Act and ought to be sustained.
Having considered the rival submissions and on perusal of record, we find merit in the contention advanced on behalf of the Assessee in view of the following:
7.1. On perusal of the material on record, it becomes clear that the Learned PCIT had proceeded to set aside the Assessment Order on the basis of mistake committed by the Assessee in filling ‘Schedule-I - Details of amount accumulated/set part within the meaning of Section 11(2) of the Act or in terms of Proviso of Section 10(23C) of the Act’ in the Return of Income for the Assessment Year 2018-2019. On perusal of Audited Report in Form 10B issued by Chartered Accountant under Section 12A(B) of the Act for the Assessment Year 2018-2019, we find that the accumulations made during the Financial Year 2011-2012 were not available for utilisation as on the beginning of the relevant previous year.
7.2. During the course of assessment proceeding for the Assessment Year 2018-2019, notice under Section 142(1) of the Act was issued to the Assessee wherein the Assessee was required to furnished details of utilisation in the specified form. The relevant extract of the aforesaid notice reads as under:
5 Assessment Year 2018-2019 “8. With respect to large amount applied for charitable or religious purpose out of preceding previous years accumulation, kindly furnish following details/information/documents: a. Details of utilization as below S.No. Accumulated Purpose of Purpose of Treatment Balance Amount Utilized Accumulation Utilization in ITR Amount Unutilized 1 2 3 4 5 6 Total Total b. Duly signed copies of Form 10 filed or preceding previous years. c. Documentary evidences to prove that amount is utilized for activities as per purpose of accumulation.” 7.3. In response the above notice, the Assessee filed reply letter, dated 12/01/2021, [placed at Page No. 227 to 240 of the Paper book]. Along with the said reply, Assessee also furnished the details of accumulation for the preceding 10 years as Annexure E [placed at Page No. 240 of the Paper Book]. On perusal of the same, it becomes clear that the funds accumulated for the Financial Year 2011-2012 were utilized during the Financial Year 2015-2016 and 2016-2017. 7.4. The above position was also brought to the notice of the Ld. PCIT during the revision proceedings by the Assessee. In response to the show cause notice issued under Section 263(1) of the Act, the Assessee filed reply on 07/02/2024 clearly stating that total accumulation of INR.16,27,18,575/- made for the Financial Year 2011-2012 was utilized during the Financial Year 2015-2016 (INR.3,86,70,919/-) and 2016-2017 (INR.12,40,47,656/-). As per the details furnished, the amount accumulated in Financial Year 2011-2012 pending for utilization as on 31/03/2017 was ‘Nil’. During the proceedings before the Tribunal it was submitted on behalf of the Assessee that the assessment proceedings for the Assessment Year 2016-2017 (relevant to the Financial Year 2015-2016) and Assessment Year 2017-2018 (relevant to the Financial Year 2016-2017) were concluded under Section 143(3) of the Act after carrying out 6 Assessment Year 2018-2019 verification of amounts accumulated and utilized. The Assessing Officer had accepted and allowed the utilization of income. The Assessee has placed on record copy of response letter dated, 16/02/2024, filed before the CIT(E), wherein it has been stated as under: “1. In AY 2016-17 relevant to previous year 2015-16:- 1.1 It is submitted that during the assessment proceedings u/s.143(3) of the Act, in response to notice по. ITBA/AST/S/143(2)/2017-18/1006489241(1) dated 21.09.2017 (copy enclosed), the assessee provided details for scrutiny assessment containing 22 points on 27.12.2017 (copy of the submission is enclosed). In its submission, the assessee at point no. 11 had submitted details of the accumulation of Income of previous FYs and utilisation thereof during the FY 2015-16. The said details in a chart were submitted as Annexure "F". 1.2 Further to above, the office of DCIT(E) Circle - 2 issued another notice u/s. 142(1) vide notice no. ITBA/AST/F/142(1)/2018-19/1012776898(1) dated 03.10.2018. Among other requirements, at point no. 11 on page no. 02 of the said notice, the Ld. AO specifically asked for details of the Accumulation of Income made u/s.11(2) in the last 10 years and utilisation thereof. The assessee vide its reply dated 15.10.2018 provided details as asked for and along with its reply dated 15.10.2018 the assessee had again attached the entire submission dated 27.12.2017 including the details of 10 years of Accumulation of Income and utilisation thereof in FY 2015-16 for the perusal of the Ld. AO. The assessee had provided details in respect of the accumulation of Income amounting to Rs. 16,27,18,575/- related to FY 2011-12 and utilisation of a sum of Rs.3,86,70,919/- from such accumulation towards the object of the assessee in the FY 2015-16. The said details in a chart were submitted as Annexure "F".
In AY 2017-18 relevant to previous year 2016-17- 2.1 It is submitted that vide Department's notice no. ITRA/AST/F/142(1)/2018-19/1014928110(1) dated 30.01.2019, the Ld. AO had specifically asked for, among other requirements, at point no. 11 on page no. 02 and 03, the details of Accumulation made u/s.11(2) in the last 10 years and utilisation thereof. The Ld. AO again vide notice no. 7 Assessment Year 2018-2019 ITBA/AST/F/142(1)/2019-20/1017440506(1) dated 19.08.2019 called for various details. Among other requirements, at point no. 11 on page no. 03, the Ld. AO had specifically called for details of Accumulation of Income made u/s.11(2) in the last 10 years and utilisation thereof. The assessee vide its reply dated 11.11.2019 had submitted details as required by the above-stated both the notices including the details of Accumulation and Utilisation of Income for the last 10 years as Annexure E. The said Annexure "E" contained the details of the accumulation of Income including FY 2011-12 amounting to Rs. 16,27,18,575/- and utilisation thereof. It may be noted here that out of the accumulated Income of FY 2011-12 amounting to Rs. 16,27,18,575/-, Rs.3,86,70,919/- was utilised in the FY 2015-16 and the remaining amount of income amounting to Rs. 12,40,47,656/- (Rs. 14,85,44,509 (-) Rs.2,44,96,853/- was utilised in FY 2016-17 and details of such utilisation were provided to the Ld. AO in the respective FYs during the assessment proceedings. 2.2 The Ld. AO again vide notice no. ITBA/AST/F/142(1)/2019-20/1021151033(1) dated 27.11.2019 called for three details and the 03 detail required was related to the Accumulation of Income made u/s.11(2) in the last 10 years and utilisation thereof. The assessee submitted the details as called for vide its reply dated 11.12.2019. In the said reply the assessee had furnished all three details and had attached the details of Accumulation of Income and utilisation thereof in Annexure "A". The said annexure contained details of the accumulation of Income including the accumulation of Income of FY 2011-12 and its entire utilisation as explained in para 2.1 above.
3. In AY 2018-19 relevant to previous year 2017-18: The assessee has already submitted the details in respect of specific inquiries made by the Ld. AO during assessment proceedings u/s.143(3) for AY 2018-19 about the accumulation of Income and utilisation thereof in its hearing on 08.02.2024. Copies of notices and the assessee's replies have also been submitted on 08.02.2024 along with documentary evidence. Thus from the above facts and circumstances of the case, it can be concluded that the Ld. AO has made specific 8 Assessment Year 2018-2019 inquiries and verifications repeatedly about the utilisation of accumulated income of FY 2011-12 during assessment proceedings of AY 2016-17, AY 2017-18 and AY 2018-19 and after verification of the submission made by the assessee in all the three AYs the Ld. AO accepted and allowed the utilisation of Income Hence, based on the facts and circumstances of the case and binding judicial precedents of the jurisdictional Appellate Tribunal and Court the proposed revision proceedings on the ground that "the Ld. AO has passed the order without making inquiries or verification which should have been made and therefore the order is erroneous and prejudicial to the interest of revenue" is not maintainable under the provisions of the law and may be dropped.” (Emphasis Supplied) 7.5. On perusal of the above it becomes clear that the Assessee had taken a consistent position that the accumulated Income of Financial Year 2011-12 was utilised in the Financial Years 2015-16 & 2016-17 [relevant to Assessment Years 2016-2017 & 2017-2018, respectively]. Disclosure to this effect was made in the return of income for the Assessment Year 2016-2017 and 2017-2018 and details of such utilisation were provided to the Assessing Officer during the assessment proceeding of the Assessment Years 2016- 2017 and 2017-2018. We have also perused the queries raised in relation to the income accumulation and utilization for the Assessment Year 2018-2019 and find that the Assessing Officer had called for details relating to accumulation of income and had examined the same. We note that similar inquiries and verification were undertaken in the assessment proceedings for the Assessment Years 2016-2017, 2017-2018 and 2018-2019 by the Assessing Officer and the stand taken by the Assessee was accepted. We reject the contention of the Revenue that the Assessing Officer had failed to carry out necessary inquiry/verification in relation of application of income accumulated for the Financial Year 2011-2012. 7.6. In view of the above, we accept the contention of the Assessee that the Assessment Order, dated 31/05/2021, passed by the Assessing 9 Assessment Year 2018-2019 Officer can neither be regarded as erroneous nor prejudicial to the interest of Revenue in terms of Section 263 of the Act read with Explanation 2 thereto. The CIT(E) entered upon jurisdiction on the basis of incorrect understanding of facts whereas the correct set of facts were available with and examined by the Assessing Officer. Accordingly, the order, dated 18/03/2024, passed by the Learned CIT(E) under Section 263 of the Act is set aside and the Assessment Order, dated 31/05/2021, passed under Section 143(3) read with Section 144B of the Act for the Assessment Year 2018-2019 is restored. In terms of the aforesaid, Ground No.2 to 2.4 raised by the Assessee are allowed while all other grounds raised by the Assessee are dismissed as having been rendered in fructuous.
In result, in terms of paragraph 7.6 above, the appeal preferred by the Assessee is allowed.