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Facts
The assessee, a university, declared Nil income after claiming exemption u/s 11 of the IT Act. Due to a clerical error, a higher amount of accrued interest income was initially reported. The Assessing Officer excluded this accrued interest income and completed the assessment, disallowing the exemption. The Ld. CIT invoked powers u/s 263, stating the assessment order was erroneous.
Held
The Tribunal held that the Ld. CIT's invocation of powers u/s 263 was justified. The issue regarding the accrued interest income was not under appeal before the CIT(A), and the Assessing Officer had erroneously provided relief by deducting it. Therefore, the order passed by the Ld. CIT u/s 263 was confirmed.
Key Issues
Whether the CIT's revisionary powers u/s 263 are valid when the original assessment order, though erroneous, was under appeal before the CIT(A) on other grounds. Whether accrued interest income needs to be included in taxable income for a mercantile system of accounting.
Sections Cited
263, 143(3), 11, 143(2), 142(1), 144B, 263(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI MANISH BORAD & SHRI VINAY BHAMORE
Assessment Year : 2021-22 Yashwantrao Chavan Vs. CIT, Exemption, Pune at Maharashtra Open Nashik. University, Block Dnyangangotri, YCMOU, Near Gangapur Dam Govardhan, Nashik- 422222. PAN : AAALY0016C Appellant Respondent Assessee by : Shri Sharad A. Shah Revenue by : Shri Amit Bobde Date of hearing : 31.07.2025 Date of pronouncement : 11.08.2025 आदेश / ORDER
PER VINAY BHAMORE, JM:
This appeal filed by the assessee is directed against the order dated 29.03.2025 passed u/s 263 of the IT Act by Ld. CIT, Exemption, Pune at Nashik [‘Ld. CIT(E)’] for the assessment year 2021-22.
The appellant has raised the following grounds of appeal :-
1. The Ld. Pr. CIT erred in invoking the powers under section 263 of the Income Tax Act, 1961.
2. The Ld. PCIT erred in concluding that the original order u/s 143(3) passed by the Ld. AO is erroneous and prejudicial to the interest of revenue.
The ld. PCIT ought to have appreciated the fact that interest income is duly recorded in the books of account and included in the total receipts shown in Income and expenditure account and therefore he ought not to have set aside the order passed u/s 143(3) on 28/12/2022.
The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case.”
3. Facts of the case, in brief, are that the assessee is a university engaged in providing education facilities in the capacity of a local authority. The assessee furnished its return of income declaring Nil income after claiming exemption u/s 11 of the IT Act. The case was selected for scrutiny. Statutory notices u/s 143(2) and 142(1) were issued to the assessee. It was admitted by the assessee that in Form 9A due to clerical error an amount of Rs.42,12,73,240/- was reported instead of Rs.15,44,74,562/- which relates to the accrued interest income not received by the assessee during the financial year under consideration. After considering the submissions of the assessee the Assessing Officer excluded the accrued interest income of Rs.15,44,74,562/- from gross receipt & completed the assessment vide order dated 28.12.2022 u/s 143(3) r.w.s. 144B of the IT Act by disallowing the claim of exemption u/s 11 of the IT Act and Rs.52,63,18,269/-. The above assessed income was arrived at in following manner :- 1 Gross Receipt as per ITR 1,66,61,49,930/- 2 Receipt accrued by the assessee 15,44,74,562/- 3 Net income received by the assessee 151,16,75,368/- 4 Revenue expenditure 98,53,57,099/- 5 Surplus 52,63,18,269/- 6 Profit percentage 31.58% 4. Being aggrieved with this assessment order, the assessee filed appeal before the Ld. CIT(A) and challenged the addition of Rs.52,63,18,269/-.
5. On further perusal of the records and the assessment order dated 28.12.2022 passed u/s 143(3) of the IT Act it was noticed by Ld. CIT(E) that the assessee is following Mercantile System of Accounting regularly and therefore as per settled principles of Income Tax Act he was required to consider the accrued interest income of Rs.15,44,74,562/- for computing his total income. However, the Assessing Officer excluded the above amount on the basis of accrued interest income which was not received in cash during the period under consideration and deducted the above amount from gross receipts. It was therefore found by Ld. CIT(E) that the Assessing Officer wrongly reduced the accrued interest of Rs.15,44,74,562/- from the gross receipts of Rs.1,66,61,49,930/- Rs.1,51,16,75,368/- from which revenue expenses of Rs.98,53,57,099/- were reduced to determine profit at Rs.52,63,18,269/-. Accordingly, Ld. CIT(E) is of the view that an amount of Rs.15,44,74,562/- remained to be included in the taxable income of the assessee which has resulted in under assessment of income to the tune of Rs.15,44,74,562/- which consequently lead to short levy of tax and therefore the order passed by the Assessing Officer is erroneous as well as prejudicial to the interests of the revenue. Accordingly, Ld. CIT(E) invoked the provisions of section 263 of the IT Act and issued notice to the assessee to explain as to why the assessment order dated 28.12.2022 should not be reviewed. After considering the submission of the assessee, Ld. CIT(E) vide order dated 29.03.2025 passed order u/s 263 of the IT Act & set-aside the impugned assessment order and directed the Assessing Officer to reframe the assessment as per the provisions of law after considering proper facts submissions of the assessee and also after affording proper opportunity to the assessee.
It is the above order against which the assessee is in appeal before this Tribunal.
7. Ld. AR appearing from the side of the assessee submitted before us that the order passed by Ld. CIT(E) u/s 263 of the IT Act is unjustified. It was the sole contention of Ld. AR of the assessee that since an appeal has already been filed against the impugned assessment order before Ld. CIT(A) which is still pending for consideration it is not open for Ld. CIT(E) to exercise the powers u/s 263 of the IT Act with regard to the same assessment order. In support of its contentions, Ld. AR relied on the order passed by Hon’ble Madras High Court in the case of Smt. Renuka Philip vs. ITO, Tax Case Appeal No.286 of 2012 dated 14.11.2018 [2018 (12) TMI 129 – Madras High Court]. Ld. AR further relied on the decision passed by the coordinate bench of this Tribunal in the case of JKG Construction Private Limited vs. ITO in order dated 10.01.2025 wherein reliance was placed on above judgement of Hon’ble Madras High Court (supra) and the appeal of the assessee was allowed and the order passed u/s 263 of the IT Act was quashed. Accordingly, Ld. AR requested the Bench to quash the order passed u/s 263 of the IT Act.
8. Ld. DR appearing from side of the Revenue relied on the order u/s 263 of the IT Act passed by Ld. CIT(E) and requested to confirm the same.
We have heard Ld. Counsels from both the sides and perused the material available on record including the paper book and copy of decisions furnished by the Counsel of the assessee. In this regard, we find that admittedly the assessee is regularly following mercantile system of accounting since past many years. During the course of hearing Ld. AR of the assessee also agreed to the proposition that the assessee is regularly following mercantile system of accounting and therefore he is required to add accrued income in its taxable income for the purposes of calculation of tax, however it was the contention of Ld. counsel of the assessee that since the assessee has preferred an appeal against the impugned assessment order before the Ld. CIT(A) which is still pending for consideration, Ld. CIT(E) is not empowered to exercise jurisdiction u/s 263 of the IT Act with regard to the same impugned assessment order. In support of this contention, reliance was placed on judgement passed by Hon’ble Madras High Court in the case of Smt. Renuka Philip (supra) and also on the decision passed by a Tribunal in the case of JKG Construction Private Limited (supra). Admittedly, the power u/s 263 of the IT Act is not exercisable under certain circumstances. In this regard, we may now refer the relevant provision of section 263(1) explanation 1(c) which reads as follows :- “Revision of orders prejudicial to revenue. 263(1)--- (a)-- (b)-- (c) where any order referred to in this sub-section and passed by the Assessing Officer or the Transfer Pricing Officer, as the case may be, had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Principal Commissioner or Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.”
In this regard, we find that although an appeal is admittedly pending before the Ld. CIT(A), the issue concerning the addition of accrued interest income amounting to Rs.15,44,74,562/- is not under challenge in that appeal. This is for the reason that no such addition of Rs.15,44,74,562/- was made by the Assessing Officer which could have been contested by the assessee before the Ld. CIT(A). On the contrary, the Assessing Officer erroneously gave relief of Rs.15,44,74,562/-, by deducting the same from the gross receipts, thereby giving rise to a valid occasion for Ld. CIT(E), to invoke revisionary jurisdiction u/s 263 of the Income Tax Act, 1961. Ld. AR appearing from side of the assessee also admitted that the issue pending before Ld. CIT(A) pertains solely to the determination of taxable income of Rs.52,63,18,269/- arising from denial of exemption u/s 11 of the IT Act & has nothing to do with the proposed addition of Rs.15,44,74,562/-.
Considering the totality of the facts of the case, we are of the considered opinion that the issue of proposed addition of Rs15,44,74,562/- is not the subject matter of appeal which is filed by the assessee therefore the case laws relied on by the counsel of the assessee are distinguishable on facts and hence not applicable to the instant case in hand.
In ground no.3 it has been claimed by the assessee that the interest income is duly recorded in the books of accounts therefore the assessment order should not have been set-aside with a direction to reframe the assessment. In this regard, we find that it is not the case of Ld. CIT(E) that the interest income have not been accounted for in the books of accounts rather the issue is regarding inclusion of accrued interest income in the computation of taxable income since the assessee is regularly following mercantile system of accounting and the Assessing Officer failed to consider this aspect and