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Facts
The assessee, a charitable trust, appealed against the PCIT's revisional order under Section 263 of the Income Tax Act, 1961, for AY 2015-16 and 2016-17. The PCIT invoked Section 263 alleging the AO's assessment order was erroneous and prejudicial to revenue, primarily concerning income from hostels, stationery, and transport fees.
Held
The Tribunal held that the PCIT's assumption of jurisdiction under Section 263 was invalid. The assessment orders under Section 153C were correctly made, and the AO was not bound to inquire into incidental income in that context. Furthermore, any attempt to revise the original Section 143(3) assessment orders would have been time-barred.
Key Issues
Whether the PCIT validly invoked revisional jurisdiction under Section 263 when the AO's assessment under Section 153C was made on unassailable grounds, and if any revision of original assessment orders would be time-barred.
Sections Cited
143(3), 153C, 263, 11(4A)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R PER ABY T. VARKEY, JM: These are appeals preferred by the assessee against the order of the Learned Principal Commissioner of Income Tax (Central), (hereinafter referred to as “the Ld.PCIT”), Chennai-1, dated 28.03.2025 for the Assessment Year (hereinafter referred to as "AY”) 2015-16 and order dated 26.03.2025 for AY 2016-17 exercising his revisional power u/s.263 of the Income Tax Act, 1961 (hereinafter referred to as "the Act”). Both sides agreed that the facts and issues involved in both the appeals are & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust :: 2 ::
1. same and therefore, with the consent of both the parties, the facts pertaining to AY 2015-16 is taken as the lead case, result of which will be followed for AY 2016-17.
The brief facts pertaining to AY 2015-16 are that the assessment in the case of assessee’s trust was completed by the AO vide order dated 25.10.2017 u/s.143(3) of the Act without making any addition [original assessment]. Thereafter, pursuant to search conducted at the premise of Chettinad Builders [third party], the AO based on material found at the premises of Chettinad builders, recorded his satisfaction on 29.01.2022 for invoking action under Section 153C of the Act and consequently issued notice u/s.153C of the Act; and thereafter, is noted to have passed the reassessment order on 31.03.2023 by making certain additions inter-alia alleging certain undisclosed transactions with Chettinad Builders and determined total income at ₹2,32,57,930/-. Similarly, for AY 2016-17, original assessment u/s.143(3) of the Act was completed vide order dated 24.12.2018 accepting the ITR filed by the assessee. As noted supra, pursuant to the search, re-assessment order was passed by making certain addition related to materials found at the premises of Chettinad Builders at total income of ₹1,64,06,776/-.
The Ld.PCIT is noted to have perused the assessment records of the assessee’s Trust and noted that the assessee has shown to have received & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust other income of ₹14,50,92,622/- in the form of Hostel Fees, stationery and transportation fees and value added course fees for AY 2015-16 [herein after the ‘other-income’]. According to Ld PCIT, the assessee for earning of these ‘other income’ (except the mess income), didn’t maintain separate books of accounts as mandated by Section 11(4A) of Act and hence, he was of the view that such other-income earned by the assessee [for running transport, hostel and stationery, etc,] are not from educational activities and can’t be termed as incidental to the objectives of the Trust. Therefore, citing Section 11(4A) of the Act, the Ld.PCIT was of the view that unless the business is incidental to attainment of the objectives of the trust and the assessee maintains separate books of accounts for such incidental activity, exemption can’t be granted for such income. And thus in this regard found fault with the AO on two counts (i) for not verifying whether the receipt of ₹14,50,92,622/- in the form of Hostel fees, transportation fess, Stationery and value added courses for AY 2015-16 are incidental to the objects of the Trust and (ii) whether any separate books of accounts are maintained for these receipts as mandated by Section 11(4A) of Act. Thereby found fault with the AO’s action allowing exemption on these receipts (supra). Hence, he issued show cause notice (SCN) to the assessee dated 12.03.2025 ‘as to why’ the assessment order passed by the AO u/s.153C of the Act dated 31.03.2023 shouldn’t be interfered u/s.263 of the Act. Pursuant to the & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust notice, the assessee is noted to have filed reply on 18.03.2025 and objected to the proposed revisional action by the Ld.PCIT on the following grounds:
All the required details/documents were furnished during the course of proceedings u/s 143(3) and 153C of the Act.
2. Detailed division -wise income and expenditure statement for A.Y. 2015-16 was furnished before the AO during the course of assessment proceedings u/s 153C of the Act.
3. The assessment was completed on the basis of seized materials and other various details submitted by the Trust.
The proposed revision u/s 263 is barred by limitation, as the Original assessment order u/s 143(3) of the Act passed on 25.10.2017 and the limitation date to pass order u/s 263 within 2 years from the end of the financial year in which order sought to be revised and assessee trust relied on various judicial decisions:
i) Alegendran Finance Limited, (2007), 162 taxman 465, (SC) ii) Commissioner of Income Tax -3, Mumbai vs Industrial Development Bank of India [2023][2023] 152 taxmann.com 591(SC) iii) [2025] 170 taxmann.com 543 (Rajasthan) Chambal Fertilisers and Chemicals Ltd. Vs PCIT
5. CIT(A) in assessee trust own case for other A.Yrs., viz., 2017-18, 2018-19 & 2019-20, performed due verification of the books and accounts of the Trust, and concluded that the Assessee Trust has maintained division-wise accounts in the computerized format and complied with section 11(4A) of the Act and is eligible for exemption u/s 11 of the Act with respect to surplus generated out of activities such as running as hostels, stationery, transportation of students.
6. The proposed revision proceedings without considering the decision of CIT(A) based on the examination on the same ground viz. 11(4A) is not tenable in the eyes of law.
7. The assessee trust also relied on the following judicial decisions:
i) Pr.CIT v Meeta Gulgutia [2017] 82 Taxmann.com 287/248 Taxman 384 (Delhi)
& 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust ii) Hon'ble ITAT decision in the case of M/s. Essel Mining & Industries Ltd. v. PCIT [3202/Mum/2018] 4. The Ld.PCIT is noted to have ignored the assertion of the assessee that (i) ₹14,50,92,622/- was incidental income to its educational activity and (ii) it was maintaining separate books of accounts in respect of earning such incidental income and there was no violation of section 11(4A) and objected to the proposal of the Ld.PCIT to revise the assessment order. And even though, the assessee brought to the notice of the Ld.PCIT that the issue being raked upon by him [Ld.PCIT], has already undergone adjudication in the hands of the First Appellate Authority i.e. the Ld.CIT(A) [i.e. while adjudicating the appeals emanating from very same reassessment orders passed by the AO (pursuant to search)] who held in favor of assessee after verifying the accounts of the assessee [albeit for subsequent years i.e. AYs 2017-18, 2018-19 & 2019- 20] found that the assessee indeed had maintained division-wise accounts in the computerized format and thus had complied with the mandate of Section 11(4A) of the Act and hence, contented before Ld PCIT that the basis for assuming revisional jurisdiction was incorrect/erroneous.
However, the Ld.PCIT on a specious plea that such an enquiry or action/verification was done only for subsequent years and not done in the instant years, viz., AYs 2015-16/2016-17, held that the assessment order u/s.153C of the Act dated 31.03.2023 for AY 2015-16 & 2016-17 was erroneous and prejudicial to the interest of the Revenue and & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust therefore, directed the AO to revise the assessment order for AYs 2015- 16 & 2016-17 after causing necessary inquiries and verification with regard to incidental income of ₹14,50,92,622/- for AY 2015-16 & ₹20,93,08,219/- for AY 2016-17. And also to examine whether the twin conditions prescribed in Sec.11(4A) of the Act are cumulatively satisfied.
In other words, the Ld.PCIT directed the AO to examine whether the activities [Hostel fees, transportation fess, Stationery and fees for value added courses] are incidental to attainment of the objectives of the trust and whether separate books of accounts are maintained by the trust with regard to income and expenditure of these activities. Further, he directed the AO to decide on allowability of exemption on these receipts after due verification in accordance with the provisions of the Income tax Act after giving assessee opportunity of hearing.
Aggrieved by the aforesaid action of the Ld.PCIT, the assessee is before us.
We have heard both the parties and perused the material available on record. We find in this case that the Ld.PCIT has invoked his revisional jurisdiction u/s.263 of the Act principally on the allegation that there was no enquiry/verification by the AO in respect of incidental income of Rs 14,50,92,622/- earned by the assessee while framing the assessment. As a result, in the opinion of Ld. Pr. CIT, AO’s order was erroneous and & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust therefore, liable for revision u/s 263 of the Act. The said findings of the Ld Pr. CIT have been seriously contested by the assessee challenging the jurisdiction of the Ld.PCIT to have invoked jurisdiction u/s.263 of the Act.
Hence, before adjudicating the issues arising from the impugned order, we have to first examine the scope of revisional jurisdiction u/s.263 of the Act. For that, let us take the guidance of judicial precedence as laid down by the Hon'ble Apex Court in the case of Malabar Industries Ltd. v. CIT [2000] 243 ITR 83 (SC) wherein their Lordships have held that twin conditions should be satisfied before jurisdiction u/s.263 of the Act is exercised by the Ld.PCIT/CIT. The twin conditions which need to be satisfied are that (i) the order of the AO must be erroneous and (ii) as a consequence of passing an erroneous order, prejudice is caused to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous i.e. (i) if the AO’s order was passed on assumption of incorrect facts; or assumption of incorrect law; (ii) AO’s order is in violation of the principles of natural justice; (iii) if the AO's order is passed without application of mind; or (iv) if the AO has not investigated/discharged his dual role of an Investigator as well as that of an Adjudicator to assess the income of the assessee and if it is found that the AO failed in one of his duty, then the order passed by the AO can be termed as erroneous. In the circumstances enumerated above only the assessment order passed by the AO can be termed as erroneous for the & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust purpose of Sec.263 of the Act. Coming next to the second limb, the AO's erroneous order can be revised by the Ld. CIT only when it is shown that the said order is prejudicial to the interest of Revenue. When this aspect is examined, one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to the interest of the Revenue'' has to be read in conjunction with an "erroneous" order passed by the AO. The Hon’ble Supreme Court, held that for invoking powers conferred by Sec.263 of the Act; the Ld.CIT should not only show that the AO's order is erroneous as a result of any of the situations enumerated above but the Ld.CIT(A) must also further show that as a result of an erroneous order, some loss is caused to the interest of the revenue. Their Lordships in the said judgment held that every loss of revenue as a consequence of an order of the AO can’t be treated as prejudicial to the interest of the Revenue. It was further observed that when the AO adopts one of the course permissible in law and it has resulted in loss to the Revenue, or where two views are possible and the AO has taken one view with which the Ld. CIT doesn’t agree, it can’t be treated as an order prejudicial to the interest of the Revenue unless the view taken by the AO is unsustainable in law.
& 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust :: 9 ::
Coming back to the case in hand, the Assessee is noted to be a registered Charitable Trust u/s.12AA of the Act and is running one college in the name of M/s. Bannari Amman Institute of Technology and one School in the name of M/s.Bannari Amman Vidya Niketan Matric Higher Secondary School. It is further noted that scrutiny assessments u/s.143(3) of the Act was carried out against the assessee for AY 2015– 16 and AY 2016–17 on 25.10.2017 and 24.12.2018 respectively, accepting the returned income. Thus, the assessee is noted to have undergone scrutiny assessment before the survey was carried out at the assessee’s premise on 25.02.2020.
A search under Section 132 of the Act was conducted in the premises of Chettinad Builders in 09.12.2020 [i.e. a third party], and the search party is noted to have come across some loose papers allegedly indicating cash payments by the assessee to Chettinad Builders towards construction of buildings. Based on the statements of the employees of Chettinad builders alleging cash payments by the assessee to Chettinad Builders in connection with buildings constructed by Chettinad Builders for the assessee, the AO is noted to have recorded his ‘Satisfaction Note’ u/s.153C and notice was issued on 29.01.2022; and then the assessment from AY 2015-16 to 2020-21 was reopened for assessment u/s.153C of the Act.
& 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust :: 10 ::
At this juncture, it is crucial to note that the relevant assessment year under consideration are AYs 2015-16 & 2016-17, which are “unabated assessments” because undisputedly the assessment for these years were not pending before the AO on the date of issue of notice u/s.153C of the Act. In such a scenario, the settled position of Law is that the AO while framing assessment u/s.153C of the Act can only make addition based on incriminating material unearthed from search in the 3rd party premises; and for taking such a view, we rely on the Hon’ble Supreme Court decision in the case of CIT v. Singhad Technical Education Society (397 ITR 344)(SC). Hence, in the absence of incriminating material unearthed from the premises of searched party i.e.
Chettinad Builders, no addition/disallowance could have been made by the AO while framing the assessment u/s.153C of the Act for AYs 2015-16 & 2016-17. And it is nobody’s case that there was any incriminating material qua AYs 2015-16 & 2016-17 in respect of the issue of assessee earning incidental income (Hotel, transport, etc.). Hence, the action of the AO not enquiring/verifying the ibid incidental income, can’t be faulted with. Therefore, the action of the AO framing assessment u/s.153C of the Act for AYs 2015-16 & 2016-17 are found to be in line with the order of the Hon’ble Supreme Court in the case of Singhad Technical Education Society (supra). Therefore, the impugned action of the Ld.PCIT raking up the issue which the AO was not bound by law to look into while framing & 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust assessment u/s.153C of the Act is found to be erroneous. Hence, the impugned action of the Ld.PCIT to invoke revisional jurisdiction to interfere with the AO’s action u/s 153C is held to be wholly without jurisdiction. In such a scenario, if the Ld PCIT felt that AO erred in not enquiring/verifying the incidental income, then he should have found fault with the action of AO framing the original assessment orders passed u/s 143 (3) for AY 2015–16 and AY 2016–17 on 25.10.2017 and 24.12.2018 respectively, since the compliance of section 11(4A) was the subject matter of original assessment orders passed u/s.143(3) for AY 2015-16 AY 2016-17. And if at all the Ld PCIT desired to invoke his jurisdiction u/s 263 on the issue of incidental income, then only those assessment orders could be revised. But, he couldn’t have done so, because it would be time-barred, as limitation is two years from end of FY when S.143(3) order was passed. Hence, in the present case, the Ld PCIT couldn’t have exercised his jurisdiction u/s 263 against assessment orders passed u/s 143 (3) for AY 2015–16 and AY 2016–17 on 25.10.2017 and 24.12.2018 respectively being time-barred. [Refer Alagendran Finance Limited, (2007), 162 taxman 465, (SC)] In the light of us holding the impugned action of Ld PCIT to be wholly without jurisdiction, other grounds raised by the assessee are not adjudicated and are left open.
& 1379/Chny/2025 (AYs 2015-16 & 2016-17) M/s.Bannari Amman Educational Trust :: 12 ::
Accordingly, the assumption of jurisdiction under Section 263 of the Act for the AY 2015-16 and 2016-17 is held to be invalid and the impugned orders passed by Ld PCIT u/s.263 are quashed.
In the result, appeals filed by the assessee are allowed.
Order pronounced on the 26th day of November, 2025, in Chennai.