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Income Tax Appellate Tribunal, “F” Bench, Mumbai
Per B.R.Baskaran (AM) :-
The assessee has filed this appeal challenging the revision order dated 18.03.2021 passed by Learned CIT (Exemptions), Mumbai for assessment year 2013-14. The assessee is challenging the validity of revision order passed by Learned CIT.
The facts relating to the case are stated in brief. The assessee herein is a Charitable trust registered u/s 12A of the Income tax Act. It filed its return of income for the year under consideration on 01.10.2013. Subsequently, the AO re-opened the assessment by issuing notice u/s 148 of the Act on 30-03-2017. The reasons for re-opening, in a nutshell, are that:- (a) the assessee has received corpus and non-corpus donations aggregating to Rs.2,02,00,000/- from a trust named M/s Amar Seva Samiti. The assessee, in turn, has given donation of Rs.73.00 lakhs to M/s Apostolic Carmel Education Society group. The above said society, viz., M/s Apostolic Carmel has given corpus donation of Rs.1,48,40,000/- to M/s Amar Seva Samiti. It is noticed that the
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assessee did not carry on any charitable activity and it has given donations to other trust in order avail exemption u/s 11(1)(a) and sec. 11(2) of the Act. Such inter-se donation of funds without utilising it for charitable purpose is only diversion of funds.
(b) Further, the assessee trust and M/s Amar Seva Samiti have common trustees and is having substantial interest in the trusts. Hence the provisions of sec.13(3) are applicable.
(c) Hence the income of Rs.2,02,00,000/- has escaped the assessment within the meaning of sec.147 of the Act.
2.1 In response to the notice issued u/s 148 of the Act, the assessee asked for reasons for re-opening of assessment and the same was supplied to it. The assessee also filed objections before the AO objecting to the reopening of assessment. It, inter alia, specifically submitted that the donations given to other charitable trusts are treated as “application of income” within the meaning of sec. 11 of the Act. It also submitted that the provisions of sec.13 are not attracted, since there is no element of receipt of any personal benefit by the trustees. In support of its objections, the assessee placed its reliance on the following case laws:- (a) CIT vs. Sarla Devi Sarabhai Trust (172 ITR 698)(Guj) (b) CIT vs. Shri Ram Memorial Foundation Trust (269 ITR 35)(Del.) (c) Hamdard Laboratories (India) & Anr (379 ITR 393)(Delhi).
2.2 Though the AO disposed of the objections raised by the assessee, it is pertinent to note that the AO did not address the objections raised on the above discussed two points. Thereafter, the AO completed the assessment accepting the return of income filed by the assessee, i.e., he did not make addition of Rs.2,02,00,000/-, which was considered as escapement of income in the reasons recorded by him for reopening of assessment.
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The Learned CIT (Exemptions), upon examination of assessment record, took the view as under:- “The AO has passed order without the basic verification of the above facts stated above and therefore the order is prejudicial to the interests of revenue.”
The facts referred to by Learned PCIT are the very same facts for which the assessment was reopened by the assessing officer. Accordingly, the Ld PCIT initiated revision proceedings u/s 263 of the Act.
After hearing the assessee, the Ld PCIT concluded as under:- “3. The submissions filed by the assessee trust has been carefully examined with reference to the records. On verification of assessment records, I find that there is no evidence on record that the corpus donations given by M/s Amar Seva Samiti are for specific purpose. Though the assessee in its submissions has relied on judicial precedence stating that for AY 2013-14 there was no restriction on one charitable trust giving donation to another, and that all restrictions came subsequently. However, it is expected that the AO would undertake required verification in the light of unique facts and circumstances of a case. The facts on record clearly point out that the assessee trust has not undertaken any charitable activity and the donation received have been round tripped to other trusts just to claim the exemption under Section11(1)(a) and accumulation under Section 11(2) of the Act. Facts on record also reveal that there are a number of common trustees I the assessee trust as well as M/s Amar Seva Samiti. The AO of M/s Amar Seva Samiti established that these trusts did not carry on any charitable activity in respect of surplus generated except giving donations to each other. The AO despite these facts available on record has not conducted verifications with regard to the applicability of the provisions of Section 13(3)(b) of the Act.”
The Learned CIT(E) also held that Explanation 2 to sec. 263 of the Act is applicable in the instant case. After referring certain case laws on the subjection of revision proceedings u/s 263 of the Act, the Learned CIT (E) set aside the assessment order and directed the AO to undertake assessment proceedings de novo.
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The Ld A.R submitted that the reasons for reopening of assessment u/s. 148 of the Act and the reasons given for initiation of revision proceedings are identical, viz., (a) donations given to other trusts in order avail exemption u/s. 11(1)(a) and 11(2) of the Act and (b) violations of provisions of sec. 13(3), since there are common trustees in the case of assessee and M/s Amar Seva Samiti.
The Ld A.R submitted that assessee has furnished objections on both the above said points before the AO relying upon certain case laws. On consideration of the same, the assessing officer has accepted the contentions of the assessee and accordingly, he did not make any addition. The Ld A.R, accordingly contended that the AO has applied his mind on both the issues and has taken a possible view on these matters. He submitted that the view so taken by the assessing officer is supported by judicial decisions. In this regard, the Ld A.R invited our attention to the decision rendered by Kolkatta bench of Tribunal in the case of St. Joseph’s Convent Chandannagar vs. JCIT (ITA No.1695/Kol/2012 dated 11.05.2016 and submitted that the Tribunal has held that the donation given by a charitable trust to another charitable trust is an application of income u/s. 11 of the Act and further it was held that the provisions of sec. 13(3) are not applicable when one trust gives donation to another trust. He submitted that this decision squarely supports the view taken by the AO. Accordingly, he submitted that the impugned revision order is not sustainable merely because the Learned CIT (E) has got another view on these matters.
5.1 The Learned AR further submitted that the Hon’ble Delhi High Court has held in the case of CIT vs. Sunbeam Auto Ltd (332 ITR 167) that inadequate enquiry cannot be a reason for initiation of revision proceedings. He submitted that the view of the Ld CIT(E) that there was inadequate enquiry is also not correct. The learned A.R. also invited our attention to the decision rendered by co-ordinate bench in the case of Shri Narayan Tatu Rane (ITA
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No.2690 & 2691/M/2016 dated 05-05-2016, wherein the Tribunal following the decision rendered by Hon’ble Delhi High Court in the case of Goetze (India) Ltd (361 ITR 505) has held that the PCIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous or the view taken by the AO is not sustainable in law. He submitted that the Ld CIT(E), in the instant case, has not carried out any such exercise. Accordingly, the Ld A.R submitted that the impugned revision order is liable to be quashed.
The ld D.R, on the contrary, submitted that the facts narrated by the AO in the reasons for reopening of assessment as well as by Ld CIT (E) in the revision order would show that the assessee is not carrying out any charitable activity and these group of trusts are simply round tripping the funds for the purpose of availing exemption u/s 11 of the Act. Even though the AO has reopened the assessment to assess the income so given as donation to a trust, yet he has completed the assessment without making necessary enquiries, which would have led to the addition. Hence the assessment order is rendered erroneous and prejudicial to the interests of revenue. Accordingly, the Ld D.R contended that the impugned revision order does not call for any interference.
We have heard rival contentions and perused the record. The legal position with regard to the power of Learned CIT to invoke revision proceedings under section 263 of the Act. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the Act and, if he considers that any order passed therein, by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh
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assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) :
“The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.”
The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.”
The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind, even if there is no detailed discussion in the assessment order. If there was any enquiry, even inadequate would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so
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far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded.
7.1 The Hon’ble Delhi High Court in the case of CIT vs. Goetz (India) Ltd (supra) has held that the PCIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous or unsustainable in law.
We notice that the issues considered by Ld PCIT, viz., (a) donations given to other trusts in order avail exemption u/s 11(1)(a) and 11(2) of the Act and (b) violations of provisions of sec. 13(3), since there are common trustees in the case of assessee and M/s Amar Seva Samiti. have been examined by the Kolkatta bench of Tribunal in the case of St. Joseph’s Convent Chandannagar (supra) and it was held that (i) Donation given by a charitable trust to another trust can be considered as application of income. In this regard, the Tribunal has referred to the Circular No.8 dated 27-08-2002 issued by CBDT, wherein also identical view has been expressed. Further decisions rendered by various High Courts have also been taken support of. (ii) The provisions of Sec.13(3)(b) does not refer to the payment made by one trust exceeding Rs.50,000/-to another registered charitable trust. Accordingly, it has been held that the payment made one trust to another trust as donation does not fall in any of the categories mentioned in section 13(3) of the Act.
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We noticed that the assessee has submitted above said contentions before the AO in the assessment proceedings and the same has been accepted by the assessing officer. The assessee also took support of certain case laws in support of above contentions. We notice that the AO has accepted them and accordingly, he did not make any addition. These discussions would show that the assessing officer has taken a possible view and therefore, merely because the Ld CIT(E) has entertained different view, the same would not give him power to initiate revision proceedings u/s 263 of the Act. At this stage, we may gainfully refer to the decision rendered by Hon’ble Supreme Court, in the case of Malabar Industrial Company Ltd (243 ITR 83)(SC), wherein the Hon’ble Apex Court has expressed the view that the assessment order passed on in correct assumption of fact or an incorrect application of law, an order passed in violation of the principles of natural justice or without application of mind would be termed as erroneous. The Hon’ble Supreme Court further held that where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law. We notice none of the above said deficiencies exists in the present case. Accordingly, we are of the view that the impugned revision order is not sustainable in law. Accordingly, we quash the impugned revision order.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 30.06.2022.
Sd/- Sd/- (RAHUL CHAUDHARY) (B.R. BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 30/06/2022 Copy of the Order forwarded to : 1. The Appellant
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The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Assistant Registrar) PS ITAT, Mumbai