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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI PRASHANT MAHARISHI, AM
O R D E R
Per Amit Shukla, Judicial Member:
The aforesaid appeal has been filed by the assessee against the impugned order dated 25.03.2022, passed by Ld. CIT (Exemp.), Mumbai in his revisionary jurisdiction u/s 263 for AY 2017-18.
Pathare Prabhu Charities 2. In various grounds of appeal, assessee has challenged, firstly; the validity of revision u/s 263, secondly; direction to treat rental income of Rs. 43,56,000/- as royalty /business income taxable u/s 11(4A) and lastly; direction given to the AO to examine the revocation of the bank guarantee as well as municipal taxes recoverable from the developer despite these transaction has no bearing on the income of the relevant year.
The facts in brief are that, assessee’s trust has been registered u/s 12A for the objects of relief of poverty education, medical relief and religious in nature. The return of income was filed on 27.09.17 alongwith the income and expenditure account, declaring total income of Rs. 9,77,620/-. Ld. AO had passed order u/s 143(3) dated 25.11.2019 computing the taxable income of Rs. 16,03,059/- after disallowing depreciation of Rs. 6,25,420/-.
4. Thereafter, Ld. CIT (E) in his revisionary jurisdiction noted that the case was selected for compulsory scrutiny under the following category:-
cases involving addition in an earlier assessment year(s) on a recurring issue of law or fact in excess of Rs. 25 lakhs or more, Pathare Prabhu Charities which has been confirmed by any appellate authority or have been accepted by the assessee
He further noted that during the year under consideration, the assessee trust had shown rent received for Andheri Hall at Rs. 43,56,000/- in the profit and loss account, which according to him, should have been taxed u/s 11(4A). The second issue which has been raised in his revisionary order is that, assessee trust has revoked bank guarantee of Rs. 4 crores and has also shown municipal taxes recoverable from the developer. However, no details were available on record specifying the treatment given to these items in the books of account and AO has not verified these issues during the course of the assessment proceedings.
Before the Ld. CIT (E), it was submitted that in AY 2010-11 and 2011-12, the similar issue of rental income for Andheri Hall had come up for consideration, wherein Tribunal in & 4966/Mum/2015 vide order dated 5th October 2016 had deleted the addition on rent made by the AO treating it as business income and no further appeal has been filed before the High Court against the said order. Apart from that, submissions on merits were also made Pathare Prabhu Charities which has been noted in the impugned order. However, Ld. CIT (E) on this issue had made following observations:-
The submissions of the assessee are considered. It must be stated here that the Revenue did not accept the decision of Ld. ITAT on merits for AYs.2010-11 and 2011-12. Further appeal to the Hon'ble High Court was recommended by the AO for both the AYs. However, the same was withdrawn later on account of low tax effect, in view of the revised monetary limits for filing the appeal specified by the CBDT. Hence, it must be stressed here that the order of Ld. ITAT for AYs.2010-11 and 2011-12 was not accepted on merits by the AO and the AO himself had sent proposal for filing further appeal. The revised monetary limit specified by the CBDT through Circular NO.17/2019 to be r.w.s. Circular No.3/2010. The relevant Circular No.3/2010: 7. In so far as issue relating to bank guarantee of Rs. 4 crores, assessee has stated that the revocation of the bank guarantee from the developer has not taken place during the relevant previous year at all as the same has taken place in the FY 2014-15, i.e., AY 2015- 16. Ld. CIT (E) has called for the factual report from the AO on this issue which reads as under:-
On perusal of case assessment records it is seen that in response to the notice u/s 142(1) No. ITBA/AST/F/142(1)/2018- Pathare Prabhu Charities 19/1014736518(1), dated: 11.01.2019 the assessee submitted financials for the A.Y. 2015-16 to A.Y. 2017-18. It emerges from the balance sheet for the A.Y. 2015-16 that the assessee has invoked Bank Guarantee of Rs.4,00,00,000/- received from the developer which is refundable and the same is shown as liability side of the Balance Sheet as 'Suspense pending settlement'. Further, on the issue of municipal taxes recoverable from the developer assessee in his submission made in the ongoing proceedings u/s 263 stated that "the aggregate amount of Rs. 26,69,379/- paid on behalf of the developer for the properties under Development is recoverable from the developer. It is seen that such taxes recoverable from the developer have not been claimed as an application of income, since they are not expenses of the assessee. On perusal Balance sheet for the A.Y 2016-17 in the asset side, the assessee has shown Rs. 18,05,179/- as property tax paid for redevelopment properties receivable from Developer and in the AY 2017-18 in the asset side, the assessee has shown Rs. 27,69,379/- as „Property tax paid for Redevelopment properties receivable from Developer‟ as Rs. 9,64,200/- had been paid during the year under consideration. The same are not claimed as an application of income for the both years.
However, Ld. CIT(E) despite the factual report sent by the AO still proceeded to hold that AO should have analyzed this issue in Pathare Prabhu Charities the entirety, therefore matter require proper verification. Further, Ld. CIT (E) noted that there may not be any tax implication on the issue for the year under consideration, however still it needs to be subjected to verification. The relevant observations of Ld. CIT (E) are read as under:- 10. A plain reading of the explanation 2 (supra) clearly indicates that an order can be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if the AO has not conducted necessary or required verification. The statute clearly states that mere non verification of the requisite issue would render an assessment liable to be held as erroneous within the meaning of Section 263 of the Act. It is clear from the appraisal of the assessment records that the issue has not been verified or examined. Though prima facie, it appears that there may not be any tax implication on the issue for the year under consideration, this view needs to be subjected to verification reference to the documents vis-à-vis the provision of the Act. Hence, I am of the considered opinion that this matter requires to be sent back to the file of the AO for an appropriate analysis of facts and circumstances and the accounting entries in order to arrive at a clear finding on the issues. Hence, on this issue, I deem the order to be erroneous in so far as it is prejudicial to the interest of revenue.
Pathare Prabhu Charities 9. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material placed on record. Ld. PCIT has set aside the assessment mainly to examine two issues, firstly; whether the rental income of Rs. 43,56,000/- is taxable as Royalty /Business income liable to tax u/s 11(4A); and secondly; direction to examine the revocation of the bank guarantee as well as municipal taxes recoverable from the developer. In so far as the first issue is concerned, it was specifically pointed out before the Ld. CIT that on merits for AY 2010-11 and 2011-12, ITAT has decided this issue in favour of the assessee and he even noted that no appeal has been filed before the Hon’ble High Court as the same was withdrawn due to low tax effect. Once the matter has been decided in favour of the assessee on a particular issue by the Tribunal which has attained finality, then Ld. CIT cannot hold that the assessment order is either erroneous or prejudicial to the interest of revenue. Once it has been accepted that the rental income is a business income then the receipts are subject to computation for benefit u/s 11. Thus, we hold that Ld. CIT was not justified in simply setting aside the matter for verification without giving any findings as to why the earlier Pathare Prabhu Charities position should not be accepted. Therefore, the findings of Ld. PCIT is setting aside to the file of AO on this issue is unjustified and the same is quashed.
In so far as second issue of revocation of bank guarantee and municipal taxes recoverable from the developer, it has been clearly accepted by the AO in his remand report that, firstly the bank guarantee of Rs. 4 crores received from the developer was receivable and same has been shown as liability side in the balance sheet which does not have element of the income; and secondly, municipal taxes recoverable from the developer have not been claimed as application of income. Moreover, neither the issue of bank guarantee nor the municipal taxes pertain to AY 2017-18 except for property taxes paid of Rs. 9,64,200/- receivable from the developer which too has not been claimed as application of income. Therefore, we do not find any reason as to why this matter should be re-examined or is there any prejudicial caused to the revenue. Even Ld. CIT vide his order in para 10 himself has noted that there may not be any tax implication for the year under consideration. If that is so, how the order of the AO can be set aside to re-examine Pathare Prabhu Charities the issue. It is sine qua non that Ld. PCIT can only set aside the assessment if both the conditions are satisfied, i.e., order is erroneous and also prejudicial to the interest of revenue. Once it is not prejudicial to the interest of revenue, the revisionary jurisdiction u/s 263 cannot be invoked. Thus, on this issue also, the order of Ld. CIT is quashed.
In the result, the appeal filed by the assessee stands allowed.