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Income Tax Appellate Tribunal, ‘A‘ BENCH
आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in ITA No.525/Mum/2021 for A.Y.2016-17 preferred by the assessee against the revision order of the Pr. Commissioner of Income Tax, Mumbai-17 in appeal dated 23/02/2021 u/s.263 of the Act. 2. The only issue to be decided in this appeal is as to whether the ld PCIT was justified in invoking revisionary jurisdiction u/s 263 of the Act in the facts and circumstances of the instant case.
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We have heard the rival submissions and perused the materials available on record. We find that the return of income for the Asst Year 2016-17 was filed by the assessee on 13.9.2016 declaring total income of Rs 5,53,500/-. The return was selected for “Limited Scrutiny” exclusively for verification of claim of weighted deduction u/s 35(1)(ii) of the Act by the assessee. The undisputed fact is that the ld AO proceeded to make enquiry with regard to the contribution made by the assessee to Shri Arvindo Institute of Applied Scientific Research Trust in the sum of Rs 12,00,000/- on 10.03.2016 vide Cheque No. 516798 drawn on Indian Overseas Bank ,Churchgate Branch, Mumbai from Current Account No. 097302000002608. This payment was made pursuant to an appeal letter dated 05.02.2016 addressed by Shri Arvindo Institute of Applied Scientific Research Trust (Donee Trust) to the assessee, seeking for contributions. In the said letter dated 05.02.2016, the Donee Trust had categorically stated that they had been approved by CBDT u/s 35(1)(ii) of the Act and that the said approval has been renewed and updated till that date (i.e as on 05.02.2016). This letter is enclosed in page 70 of the paper book dated 31.12.2021 filed before us.
The assessee claimed weighted deduction @ 175% of contribution amount totalling to Rs 21,00,000/- (1200000 * 175%) u/s 35(1)(ii) of the Act in the return. The ld AO had even mentioned the fact of his intention to verify this weighted deduction u/s 35(1)(ii) of the Act in the notice issued u/s 143(2) of the Act itself. Accordingly, the ld. AO issued notice u/s 142(1) of the Act asking the assessee to justify the claim of weighted deduction u/s 35(1)(ii) of the Act. The assessee filed replies in this regard on 19.7.2018, 23.10.2018 and 26.10.2018. The assessee furnished vide letter dated 19.7.2018 the complete details of donation made for scientific research along with the receipt from the donee. The
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assessee also furnished the bank statement evidencing the payment of Rs 12,00,000/- for which deduction u/s 35(1)(ii) of the Act was claimed by it. The ld AO sought to examine the veracity of the documents furnished by the assessee by issuing notice u/s 133(6) of the Act, which was returned unserved. Later the assessee furnishes the latest address of the Donee Trust to the ld. AO. The Donee Trust also furnishes the reply in response to notice u/s 133(6) of the Act directly addressed to the ld. AO on 01.11.2018 confirming the fact of receipt of donation from the assessee and had even attached the receipt. This letter is enclosed in page 81 of the paper book dated 31.12.2021 filed before us. In the said letter, the Donee Trust had categorically submitted that their trust is eligible to receive donation u/s 35(1)(ii) of the Act and that the said approval had been subsequently renewed also. Thereafter, the assessee also files further reply dated 26.10.2018 before the ld AO wherein the following documents were enclosed :-
a) Copy of letter dated 05.02.2016 issued by Donee Trust requesting contributions from the assessee. b) Receipt of Rs 12,00,000/- issued by the Donee Trust. c) Notification No. S.O. 503 dated 04.11.1991 for eligibility of the Donee Trust to receive donation u/s 35(1)(ii) of the Act. d) Notification No. S.O. 11560 dated 24.11.2000 for eligibility of the Donee Trust to receive donation u/s 35(1)(ii) of the Act. e) Notification No. S.O. 1856(E) dated 30.10.2006 for eligibility of the Donee Trust to receive donation u/s 35(1)(ii) of the Act. This Notification specifically provided that the amended provisions of section 35 of the Act now provide for one time approval and that no renewal was necessary.
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The ld. AO on verification of all the aforesaid documents did not have any occasion to suspect the transactions of the assessee and accordingly accepted the claim of weighted deduction u/s 35(1)(ii) of the Act of the assessee and completed the assessment u/s 143(3) of the Act on 13.11.2018 accepting the returned income.
Subsequent to the completion of assessment, CBDT vide its Instruction in F.No. 225/351/2018-ITA(II) dated 14.12.2018 on the subject of Bogus Donation Racket under section 35(1)(ii) had informed to all the field officers that the approval u/s 35(1)(ii) of the Income Tax Act granted to the Donee Trust expired on 31.03.2006 and the said trust without being recognised to receive donations, had been in the habit of receiving donations from various donors for undertaking scientific research and had issued forged certificates thereon.
This apparently triggered the invocation of revisionary jurisdiction u/s 263 of the Act by the ld. PCIT, who sought to treat the order passed by the ld AO as erroneous in as much as it is prejudicial to the interests of the revenue. The main case of the ld. PCIT is that the ld . AO had merely accepted the evidences submitted by the assessee without causing further enquiries thereon. Accordingly an order u/s 263 of the Act was passed by the ld. PCIT on 23.02.2021 setting aside the order passed by the ld AO with a direction to conduct the requisite enquiries and frame the order of assessment de novo in accordance with law. Aggrieved, by this order , the assessee is in appeal before us.
The ld. DR before us vehemently argued that the ld. AO had approached the issue completely from a wrong perspective in the
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assessment , which is evident from the fact that the ld. AO in para 3 had stated as under:-
The assessee has been approved by Director General of Income Tax Exemption in concurrence with the Secretary, Department of Scientific and Industrial Research for the purposes of section 35(1)(ii) of the Income Tax Act. 8.1. According to ld. DR, the assessee need not be approved at all. It is the Donee Trust which requires to be approved and recognised u/s 35(1)(ii) of the Act by the competent authority. This itself goes to prove that the ld AO had not applied his mind and had proceeded on incorrect assumption of law. The ld DR vehemently argued that on receipt of confirmation from the Donee Trust in response to notice u/s 133(6) of the Act, the ld. AO had remained silent and had not caused further enquiries. The ld DR further argued that pursuant to the CBDT Advisory dated 14.12.2018, the confirmation given by the Donee Trust had been found to be false as the approval granted to the Donee Trust u/s 35(1)(ii) of the Act had expired on 31.03.2006 itself. Hence the falsity of the documents filed which were relied upon by the ld. AO itself makes his order erroneous warranting revision u/s 263 of the Act.
At the outset, we find from the narration of the aforesaid facts and sequence of events, the ld AO had indeed carried out the verification for examination of claim of weighted deduction u/s 35(1)(ii) of the Act. All the relevant documents including the Notification dated 30.10.2006 referred supra wherein the need to seek renewal of approval u/s 35(1)(ii) of the Act was taken away, pursuant to an amendment in the Taxation Laws (Amendment) Act, 2006 which was passed by the Parliament and received the assent of the President on 13.07.2006. The same was enacted as Act No. 29 of 2006. For the sake of convenience, the
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relevant Circular No. 1/2007 dated 27.4.2007 issued by the CBDT giving the Explanatory Notes on the Amendments brought in Taxation Laws (Amendment) Act, 2006 is reproduced below:-
INTRODUCTION 1.1 The Taxation Laws (Amendment) Act, 2006 (hereafter referred to as the Act) as passed by the Parliament, received the assent of the President on the 13th July, 2006 and has been enacted as Act No. 29 of 2006. This circular explains the nature and effect of the amendments with reference to provisions existing before these amendments to the Income-tax Act, 1961.
Guidelines, manner and conditions on the basis of which approval is to be granted under section 35(1)(ii) and section 35(1)(iii). 9.1 Prior to amendments by the Taxation Laws (Amendment) Act, 2006 (No.29 of 2006), the provisos to clauses (ii) and (iii) of sub-section (1) of section 35 did not provide for any guidelines or manner or conditions in relation to grant of approval of the Central Government to a scientific research association, university, college or other institution. This had been resulting in delay in the processing of applications received for approval from such entities. There was, therefore, a need to provide for a step-by-step manner to be followed by the applicants, the manner in which their applications would be processed and the conditions subject to which the approval was to be granted to a scientific research association under clause (ii) of sub-section (1) of section 35 and to a university, college or other institution under clause (iii) of sub-section (1) of section 35. 9.2 The existing provisos to clause (ii) and clause (iii) of sub-section (1) of section 35 have, therefore, been amended to lay down that the applicant scientific research association, university, college or other institution shall be approved in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed. The guidelines, manner (including application Forms) and conditions have since been prescribed vide notification bearing S.O. 1856 (E) dated 30.10.2006. 9.3 Further, the Taxation Laws (Amendment) Act, 2006 has envisaged the possibility of the Assessing Officers denying deduction in the computation of income in the case of the donors if approval granted to a scientific research association, university, college or other institution is withdrawn for not fulfilling the prescribed conditions or for not following the guidelines. Keeping such possibility in view, an Explanation has been inserted after clause (iii) of sub- section (1) of section 35 to clarify that the deduction to which an assessee (i.e.
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donor) is entitled on account of payment of any sum by him to a scientific research association or university or college or other institution, shall not be denied merely on the ground that subsequent to payment of such sum by the assessee, the approval granted to any of the aforesaid entities is withdrawn. 9.4 The expression "prescribed authority" appearing in the second proviso to sub-section (1) of section 35 had been substituted by the expression "Central Government" by the Finance Act, 1999. While doing so, the word "authority" appearing towards the end of the said second proviso had been missed to be substituted by the word "Government". The Taxation Laws (Amendment) Act, 2006 has, thus, made a corrective amendment in the said second proviso. The word "authority" has been substituted by the word "Government". 9.5 Further, the Act has amended the third proviso to provide that the outer limit of the period of effectivity of a notification for three assessment years shall be applicable in respect of a notification issued by the Central Government under clause (ii) or clause (iii) before the date of assent of the President to the Taxation Laws (Amendment) Bill, 2005. Resultantly, any notification issued on or after the date of assent shall remain in force until approval granted to any entity is withdrawn. 9.6 The Act has inserted the fourth proviso to provide that in respect of an application received on or after the date of assent to the Taxation Laws (Amendment) Bill, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed before expiry of twelve months from the end of the month in which application for approval is received by the Central Government. 9.7 Applicability: Assessment year 2006-07 onwards. [Section 5]
We find that even the CBDT Advisory dated 14.12.2018 did not point out that the recognition granted to the Donee Trust u/s 35(1)(ii) of the Act had been withdrawn. In view of the aforesaid Taxation Laws (Amendment) Act, 2006, the bonafide belief of the ld. AO while framing the assessment on 13.11.2018 that the approval sought by the Donee Trust is existing in perpetuity cannot be faulted or doubted in the instant case. Admittedly, the CBDT Advisory to the field officers was issued only on 14.12.2018, which is after the completion of assessment by the ld. AO on 13.11.2018. Hence on the date of passing the assessment order, the ld. AO had no occasion to even suspect that the recognition granted to
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the Donee Trust u/s 35(1)(ii) had been withdrawn or the same was not existing perpetually. Hence no error could be attributed in the order passed by the ld. AO on 13.11.2018. Once it is held that there is no error in the order of ld. AO, the ld. PCIT would be precluded from assuming revisionary jurisdiction u/s 263 of the Act as one of the twin conditions mandated in section 263 is not satisfied. The law is very well settled that in order to invoke revision jurisdiction u/s 263 of the Act, the ld. PCIT is duty bound to bring on record that a) The order passed by the ld. AO is erroneous and b) It should be prejudicial to the interest of the revenue. Reliance in this regard is placed on the decision of the Hon‟ble Supreme Court in the case of Malabar Industrial Co. Ltd reported in 243 ITR 83 (SC).
Moreover, all the Notifications were even placed on record by the assessee before the ld. PCIT during the course of revision proceedings u/s 263 of the Act. The ld. PCIT had not even doubted those documents and had not found them to be forged or false. He merely relies on the CBDT Advisory dated 14.12.2018 to come to the conclusion that adverse inference need to be drawn on the Donee Trust and consequentially claim of deduction u/s 35(1)(ii) of the Act in the hands of the assessee requires re-examination. In our considered opinion, for the purpose of invoking revision jurisdiction u/s 263 of the Act, the ld. PCIT is expected to examine the records as was available with the ld AO at the time of framing of assessment and not subsequent materials / information that had come to the knowledge of the department. In this regard, we would like to place reliance on the decision of Hon‟ble Calcutta High Court in the case of Ganga Properties vs ITO reported in 118 ITR 447 (Cal) wherein it was held as under:-
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Held The word "record" had been used in section 263 in a context different from that in section 154. In section 263, the words "is erroneous" did not mean "has subsequently become erroneous". The Commissioner could only call for and examine the record of the proceeding which was before the ITO. Materials which were not in existence at the time of original assessment could not form part of the record of the proceeding and, as such, the Commissioner was not entitled to take such materials into consideration for invoking the provisions of section 263. He is not an appellate authority and exercises only a revisional jurisdiction. However, after lawfully initiating proceeding under section 263 on the basis of materials which were before the ITO, the Commissioner could take into consideration any material which might come into existence later, in view of the expression "after making or causing to be made such inquiry as he deems necessary" used in the second limb of this section.
In any case, we find from the narration of the aforesaid facts, the ld . AO had indeed carried out requisite enquiries on the issue of deduction u/s 35(1)(ii) of the Act. Once an assessment is framed after conducting enquiries as detailed supra, then the order passed by the ld AO cannot be subject matter of revision u/s 263 of the Act. The law is now very well settled that the revision jurisdiction u/s 263 of the Act could be invoked by the ld. PCIT only in the event of „lack of enquiry‟ by the ld AO and not on account of „inadequate enquiry‟. Reliance in this regard is placed on the decision of Hon‟ble Delhi High Court in the case of CIT vs Sunbeam Auto Ltd reported in 332 ITR 167 (Del).
We further find that the ld. AR placed reliance on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Development Credit Bank Ltd reported in 323 ITR 206 (Bom) which would also squarely be applicable to the facts of the instant case. The relevant operative portion of the said judgement is reproduced hereunder:- 7. A reading of the order passed by the Commissioner of Income-tax would show that the principal objection which the Revisional Authority expressed against the order of the Assessing Officer was an alleged failure of the Assessing Officer to examine; firstly whether the capital gain of Rs. 1.26 crores has been earned by the assessee on transactions relating to investments 'held to maturity', and secondly whether the depreciation of Rs. 622.39 lakhs was claimed on investments which were held as stock-in-trade. Now from the material on record
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before the Court it is evident that the assessee, in response to a specific query of the Assessing Officer dated 20-9-2004 supplied details of the long-term investments held for a period in excess of one year which the assessee treated as investments held to maturity. The profit on these investments was computed at Rs. 1.26 crores. Insofar as the aspect of depreciation of Rs. 622.39 lakhs on investments held as stock-in-trade was concerned, the assessee had similarly supplied to the Assessing Officer details of the current investments in response to the query of the Assessing Officer. In addition, it would also have to be noted that, in pursuance of the order passed by the Commissioner of Income-tax under section 263, an assessment order came to be passed on 28-12-2007. During the course of the assessment order, the Assessing Officer noted that the assessee has explained depreciation claimed against the investments held and classified as stock-in-trade. The explanation of the assessee in this connection was accepted and the Assessing Officer came to the conclusion that depreciation of Rs. 622.39 lakhs has been claimed towards investments held and classified as stock-in- trade. We have indicated this only as and by way of an illustration in aid of our finding that there was no basis or justification for the Commissioner of Income- tax to invoke the provisions of section 263. In the order of assessment, the Assessing Officer had after making an enquiry and eliciting a response from the assessee come to the conclusion that the assessee was entitled to depreciation to the extent of Rs. 622.39 lakhs on the value of securities held on the trading account. In the absence of any tangible material to the contrary, the Commissioner of Income-tax could not have treated this finding to be erroneous or to be prejudicial to the interest of the revenue. The observation of the Commissioner of Income-tax that the Assessing Officer had arrived at his finding without conducting an enquiry was erroneous, since an enquiry was specifically held with reference to which a disclosure of details was called for by the Assessing Officer and made by the assessee. We have adverted earlier to the directions which have been issued by the Commissioner of Income-tax to the Assessing Officer with regard to the holding of a fresh enquiry. Before us it is common ground between counsel that the first and the second issues therein relating to the capital gain of Rs. 1.26 crores and depreciation of Rs. 622.39 lakhs constitute the basis of the view of the Revisional Authority and the others follow in consequence. Once we come to the conclusion that the Revisional Authority was not justified in exercising the jurisdiction under section 263 with reference to the aforesaid issues [(i) and (ii) in the directions of the Commissioner of Income-tax noted earlier], the other issues are consequential to the enquiry which was directed in respect of the first and second issues. This has not been disputed. 8. In these circumstances, for the reasons which we have set out herein above, we are of the view that the Tribunal was justified in coming to the conclusion that recourse to the powers under section 263 was not warranted in the facts and circumstances of the case. The question of law which has been formulated shall stand answered in the aforesaid terms. The appeal shall, accordingly, stand dismissed. There shall be no order as to costs.
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In view of the aforesaid observations in the peculiar facts and circumstances of the instant case, we deem it fit and appropriate to hold that the ld. PCIT could not have validly invoked revision jurisdiction u/s 263 of the Act and hence the order passed u/s 263 of the Act by him is hereby quashed. Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced on 05/04/2022 by way of proper mentioning in the notice board.
Sd/- Sd/- (KAVITHA RAJAGOPAL) (M.BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 05/04/2022 KARUNA, sr.ps
Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. 6. Guard file. //True Copy//
BY ORDER,
(Asstt. Registrar) ITAT, Mumbai