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Facts
The assessee, a charitable trust, declared Nil income for AY 2016-17. The CIT(E) initiated revision proceedings u/s 263, holding that the re-assessment order passed u/s 147 was erroneous and prejudicial to the revenue.
Held
The Tribunal held that the Assessing Officer failed to conduct necessary enquiry regarding the huge receipt from PSSK and USPL and its treatment in the books of account. Therefore, the re-assessment order was erroneous and prejudicial to the interest of revenue.
Key Issues
Whether the re-assessment order passed u/s 147 was erroneous and prejudicial to the interest of revenue due to lack of proper inquiry by the Assessing Officer.
Sections Cited
263, 147, 143(3), 144B, 12AA, 11, 13, 194C
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Income Tax Appellate Tribunal, PUNE BENCHES “A”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
This appeal filed at the instance of assessee pertaining to the Assessment Year 2016-17 is directed against the order dated 30.03.2024 passed by CIT(Exemption), Pune u/s.263 of the Income-tax Act, 1961 (in short ‘the Act’) which inturn is arising out of the re-assessment order dated 30.03.2022 passed u/s.147 r.w.s.144B of the Act.
Assessee has raised following grounds of appeal :
“1. On the facts and in the circumstances of the case and in law the order u/s 263 is invalid and bad in law in as much as the primary order u/s 143(3) rws 147 which has been revised is invalid and bad in law and therefore the order u/s 263 does not survive 2. On the facts and in the circumstances of the case theOrder u/s 263 passed by the Id. Pr. CIT is bad in law in as much as the same is not erroneous in so far as prejudicial to the interest of the revenue.
3. On the facts and in the circumstances of the case and in law the Order u/s 263 is not erroneous in so far as prejudicial to the interest of the revenue in as much as the issue of variation in credits in Form 26AS and turnover as per books of accounts has been verified twice in the course of assessment proceedings u/s 143(3) as well as assessment proceedings w/s 143(3) rws 147 and the Assessing Officer has taken a plausible view after considering the submission of the appellant
4. On the facts and in the circumstances of the case and in law the order u/s 263 is invalid and bad in law in as much as the CIT exemption has not given any finding and simply set aside the assessment order to the file of Assessing Officer in order to verify the issue of difference in the credits in the form 26AS and turnover of the appellant society
5. On the facts and in the circumstances of the case and in law the issue of charitable nature of the activity of the appellant trust was not an issue in the proceedings u/s 147 and therefore the order u/s 263 is time barred to that extent
6. On the facts and in the circumstances of the case and in law the CIT Exemption failed to take cognizance of the submission of the appellant in as much as the impugned amount was received by the appellant as an advance and further used to advance to the H & T contractors and therefore no income has escaped assessment for the order to be erroneous in so far as prejudicial to the interest of revenue
On the facts and in the circumstances of the case and in law the and without prejudice to the above grounds of appeal even if the stand of the CIT exemption is adopted then the advance made by the appellant society to H & T contractors needs to be allowed as application of money and therefore the order is not prejudicial to the interest of revenue
8. The above grounds may be allowed to be altered, amended, modified, deleted etc in the interest of natural justice.”
Brief facts of the case are that the assessee is a Charitable Trust registered u/s.12AA of the Act vide order dated 27.05.2005 and it is duly registered under the Bombay Public Trust Act, 1950 and also under the Societies Registration Act, 1860, For A.Y. 2016-17, return of income filed on 08.10.2016 declaring Nil income claiming refund of TDS at Rs.46,52,574/-. Thereafter, the case selected for scrutiny and assessment order u/s.143(3) of the Act was framed on 22.11.2018 determining Nil income. Subsequently, it was noticed that on one hand the assessee has claimed TDS credit of Rs.42,49,567/- but the corresponding receipts have not been credited to the Income and Expenditure Account/Profit and Loss Account. Accordingly, case was reopened u/s.147 after obtaining the approval and notice u/s.148 of the Act issued on 24.03.2021. In compliance, the assessee filed the return of income on 13.04.2021 declaring Nil income. Ld. Assessing Officer (AO) carried out the re-assessment proceedings and has observed that the trust is running schools for the labourers near to the spot where labourers are staying. Ld. AO also observed that assessee has claimed to have received advance from Pandurang Sahakari Sakhar Karkhana (in short ‘PSSK’) at Rs.59,03,01,928/- and from Utopian Sugars Pvt. Ltd.(in short ‘USPL’) at Rs.4,62,38,363/-. However, no details were filed with regard to these advances. But then the re-assessment proceedings have been concluded by merely observing that “the submission/documents of the assessee have been examined. Assessment is concluded accepting the return of income submitted by the assessee”. In the assessment order after mentioning the reason to believe, there is no further discussion on the issue and straightaway the assessment has been completed at Nil income. Taking note of the assessment and re-assessment proceedings, CIT(Exemption) examined the assessment records and issued following show cause notice to the assessee :
“2 In the Assessment order u/s.143(3) of the Act for AY 2016-17 completed on 27.06.2018 assessing the total income at Rs. Nil. Subsequently, it is found that the assessee has claimed credit for TDS of Rs.42,49,567 in the original return which was subsequently revised to Rs.46,57, 574/- in the revised return of income filed on 27.02.2018. However, the corresponding receipts of Rs. 63.67,40,291/- (Rs.59,03,01,928/- - Rs.4,62,38,363/-) from Pandurang Sahakari Sakhar Karkhana and Utopian Sugars Pvt. Ltd. had not been credited to the Income Expenditure Account/ Profit & Loss Account. Therefore the case was reopened u/s. 147 of the Act. Assessment order u/s.143(3) r.ws 147 of the Act was passed by the NaFAC dated 30.03.2022 by accepting the return of income submitted by the assessee.
3. However, it is noticed that the AO has not examined the issue for which the case had been reopened u/s.147 of the Act. Therefore the receipts of Rs.63,67,40,291/- (Rs. 59,03,01,928/- - Rs.4,62,38,363/-) from Pandurang Sahakar Sakhar Karkhana and Utopian Sugars Pvt. Ltd. of which the assessee has claimed TDS were not bought to tax. This resulted in underassessment of the total income of the assessee thereby rendering the order erroneous in so far as it is prejudicial to the interest of the revenue.
4. In view of the above facts, the overall assessment order 143(3) r.w.s 147 of the Act dated 30.03.2022 is erroneous and is prejudicial to the interest of the revenue.
5. You are hereby given an opportunity to explain your stand in the matter w.r.t this notice of invoking proceedings u/s.263 of the Income tax Act, 1961 and submit the documents, account and any other information in support of your stand.”
In reply to the show cause notice, assessee submitted that it is registered u/s.12AA of the Act. It is running Balwadi Sakhar Shala for children of the labourers. It also helps the labourers and their families in case of natural calamity accident and Medical aids, conduct seminars for educating the labourers, provide financial help to needy labourers. It was submitted that books of account of the trust are maintained manually and as the trust is registered u/s.12A of the Act, books of accounts are duly audited and the income of the trust is deductible u/s.11 of the Act. So far as the advances received from PSSK and USPL, it was submitted that nature of transaction is advance taken from sugar factories for making payments to labourers and transporters who undertake the activities of harvesting and transportation of sugarcane and also for social and charitable work. As the amount is received by way of advance and payments are also made by way of advances without earning any income from such activities of charitable nature it is reflected in balance sheet only. In short, it was submitted that the amount received from PSSK and USPL is never routed through the profit and loss account and it is maintained as an advance account in the balance sheet and against the available credits, debits are made for the amount spent for the charity work allegedly claimed by the assessee. However, this reply of the assessee was not found tenable to the ld.CIT(E). He observed that in the instant case the Faceless Assessing Officer had intimated that due to technical glitches notices could not be issued to the assessee and therefore natural justice could not be given inspite of exhaustive attempts undertaken by the FAO to examine the issue. Taking note of this observation, ld CIT(E) came to conclusion that the issue needs to be examined by the AO because the re- assessment order framed on 30.03.2022 is erroneous so far as prejudicial to the interest of Revenue.
Aggrieved assessee is now in appeal before this Tribunal.
Ld. Counsel for the assessee stated that the issue mentioned in the show cause notice u/s.263 of the Act has been examined in detail by the AO during the course of assessment proceedings as well as re-assessment proceedings. Complete details of the transactions have been furnished with regard to the advance received from PSSK and USPL. He also referred to the following documents filed in the paper book which reads as follows :
7. Further, reliance placed on the following decisions :
On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld CIT(E).
We have heard the rival contentions and perused the record placed before us. Assessee is aggrieved with the revisionary powers invoked by the ld.CIT(E) u/s.263 of the Act and also holding that the re-assessment order is erroneous in so far as prejudicial to the interest of Revenue.
Before proceeding to examine the issues stated above, we find that the provision of Section 263 of the Act has direct bearing on the issue raised before us, therefore, it is pertinent to take note of this section which reads as under:
“Revision of orders prejudicial to revenue. 263. (1) The Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer 81a[or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, 81b[including,— (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under section 92CA; or (iii) an order cancelling the order under section 92CA and directing a fresh order under the said section.] Explanation 1.—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] shall include— (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] conferred on, or assigned to, him under the orders or directions issued by the Board or by the Principal Chief Commissioner or Chief Commissioner or Principal Director General or Director General or Principal Commissioner or Commissioner authorised by the Board in this behalf under section 120; [(iii) an order under section 92CA by the Transfer Pricing Officer;] (b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer 82[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. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer 82[or the Transfer Pricing Officer, as the case may be,] shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,— (a) the order is passed without making inquiries or verification which should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or (d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. [Explanation 3.—For the purposes of this section, "Transfer Pricing Officer" shall have the same meaning as assigned to it in the Explanation to section 92CA.] (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation.—In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the ld. Pr. CIT taken u/s 263.
Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act:
“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. 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 ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO 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 ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC)”. [Emphasis Supplied]
Hon’ble Apex Court in the case of CIT vs. Max India Limited as reported in 295 ITR 0282 has held that:
“2. At this stage we may clarify that under para 10 of the judgment in the case of Malabar Industrial Co. Ltd. (supra) this Court has taken the view that the phrase "prejudicial to the interest of the Revenue" under s. 263 has to be read in conjunction with the expression "erroneous" order passed by the AO. Every loss of revenue as a consequence of an order of the AO cannot be treated as prejudicial to the interest of the Revenue. For example, when the ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the ITO is unsustainable in law.”
Now examining the facts of the instant case in the light of the ratios laid down by the Hon’ble Courts, we notice that if the issue is adequately enquired by the AO and legally permissible view has been taken then ld. CIT(E) cannot invoke the revisionary powers and before setting aside the assessment order ld. CIT(E) needs to make necessary enquiries at its own end. In the instant case, the assessee is a charitable trust registered u/s.12AA of the Act. Audited Income and Expenditure Account only refers to the income from rent, miscellaneous income and management receipts totalling to Rs.4,30,177/- and the expenditure towards objects of the trust and other charitable objects totalling to Rs.4,23,320.03 leaving behind surplus of Rs.6,856.97. But now when we turn to the balance sheet, we find the transactions of huge magnitude are entered into. For instance, under the head deposits appearing on the liabilities side, last balance is Rs.5.27 crore, addition during the year at Rs.6.24 crore, deductions during the year at Rs.7.36 crore and the remaining amount left over is Rs.4.14 crore. Similarly, advance as per details in Schedule-B are shown at Rs.26.00 crore. Same situation is on the asset aside where the advances are shown at Rs.30.11 crore under the heard Harvesting Transport Contractors, the opening balance is Rs.15.28 crore, addition during the year at Rs.45.68 crore and deduction during the year is shown at Rs.59.29 crore. Now so far as the alleged transaction is concerned which is the advance received from PSSK and USPL totalling to Rs.63,67,40,291/- we notice that both PSSK and USPL have deducted tax at source on the payments made by them to the assessee amounting to Rs.46,52,574/-. It shows that they have deducted tax u/s.194C and it is also discernible from Form No.26AS. It prima-facie indicates that both the parties namely PSSK and USPL have claimed the sum of Rs.63.67 crore (approx.) as an expenditure in their books. But now coming to the books of account of the assessee, we find that it has been merely shown as advance and not as Revenue and then the amount claimed to have been spent has been reduced from such advances. It therefore means that the income of the trust and the application of income has not been shown in the Income and Expenditure Account but has been indicated in the balance sheet. Now the provisions of section 11 and 13 deals with various aspects including the income earned during the year and the application of income. Now once the assessee has not mentioned these details in the Income and Expenditure Account there was no occasion for the ld. AO to examine the applicability of section 11 and 13 of the Act. The AO in the instant case in the first round of scrutiny assessment has not touched upon this aspect which is very crucial for carrying out the scrutiny of a charitable trust. In the assessment order framed u/s.143(3) on 27.06.2018, there is no discussion about the issue under consideration and only it is stated that trust provides temporary shelters, medical help to labourers and animals and benefit of children of the labourers by providing education. Even in the re-assessment proceedings, it has been carried out through NFAC, Ld. CIT(E) has specifically observed that ld. FAO has duly intimated that due to technical glitches the notice could not be issued to the assessee. Even the body of the re-assessment order also supports the submissions of FAO given to the ld. CIT. In the re-assessment order in para 4, ld. AO states that the reasons to believe for reopening are recorded. In para 5, the assessment is concluded in two lines stating that “the submission/documents of the assessee have been examined. Assessment is concluded accepting the return of income submitted by the assessee”. No enquiry was conducted as to what is the claim made by the taxpayer for the alleged sum received as advance from PSSK and USPL in the regular books of account. It is also not clear why the assessee has not shown them as its gross receipts. It is also not clear that if the alleged sum paid by PSSK and USPL are towards contract charges then why assessee has not shown it as Revenue. In case it was a charity then such sum should not be allowed as expenditure in the hands of payers namely PSSK and USPL. Further, the tax deducted at source also proves that the taxpayers have claimed it as expenditure whereas the assessee is stating to be a charitable activity. We are thus of the considered view that since ld. AO failed to carry out necessary enquiry/investigation and examination of the issue regarding huge receipt of Rs.63.67 crore from PSSK and USPL and their treatment in the books of account directly shown in the balance sheet. Ld. AO has miserably failed to make necessary enquiry from assessee as well as PSSK and USPL regarding the allowability of the expenditure, we find that the re-assessment order is erroneous in so far as prejudicial to the interest of Revenue and therefore the directions and findings given by the ld.CIT(E) in the impugned order are hereby affirmed. Grounds of appeal raised by the assessee are dismissed.
In the result, the appeal of the assessee is dismissed.
Order pronounced on this 21st day of April, 2025.