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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Shri Manish Borad
Per Rajpal Yadav, Vice-President (KZ):- The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Exemptions), Kolkata dated 25th March, 2021 passed under
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust section 263 of the Income Tax Act, 1961 for assessment year 2016-17.
The assessee has taken eleven grounds of appeal, but these are not in consonance with Rule 8 of Income Tax Appellate Tribunal Rules. They are argumentative in nature. In brief, grievance of the assessee is that the ld. CIT has erred in taking cognizance under section 263 of the Income Tax Act and thereby setting aside the assessment order dated 25.08.2021 passed under section 143(3) of the Income Tax Act by treating it as erroneous as well as prejudicial to the interest of the revenue.
The brief facts of the case are that the assessee is a Society registered under section 12A of the Income Tax Act. It has filed its return of income on 30th September, 2016 declaring total income at ‘NIL’. The case of the assessee was selected for scrutiny assessment and a notice under section 143(3) was issued and served upon the assessee. After perusing the details submitted by the assessee, the ld. Assessing Officer has determined the taxable income of the assessee at ‘NIL’.
On perusal of the record, ld. Commissioner formed an opinion that assessment order is erroneous as well as prejudicial to the interest of the revenue. Therefore, action under section 263 is required to be taken. The ld. CIT has issued a show-cause notice under section 263, whose copy is available on page 19 of the paper book, which reads as under:-
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust
Office of the Commissioner of Income Tax, (Exemptions), Kolkata 6th Floor, 10B, Middleton Row, Kolkata-700071
No. CIT(E)/Kol/263/AAATPS3SSC/202f Dated: 02.03.2021 To The Secretary, H.P. Budhia Charitable Trust 3C, Camay Street Kolkata- 700016 Sir, Sub: initiation of proceedings u/s. 263 of Income Tax Act, 1961 for A.Y. 2016-17- regarding
Verification of assessment folder for the A.Y. 2016-17, revealed that, tire assessee has filed the return of income on 30.09.2016 declaring total income of Rs. Nil. Scrutiny assessment u/s. 143(3) of the Income Tax Act, 1961 was completed on 30.10.2018 determining total income at Rs. Nil.
On further verification of assessment records, it was found that, total income of the assessee during the year was 1,90,87,716/- which include an amount of Rs. 1,45,00,000/-, which was received as corpus donation with specific purpose. In the assessment order the assessee had allowed exemption of Rs.1,45,00,000/- under section 11(1 )(d) of the act, and an application o! income of Rs. 39,78,341/- was allowed towards the objective. The surplus of Rs. 4,05,668/- was exempted under section 11(1) as accumulation of income. However, during verification of the balance sheet it was observed that the corpus had been reduced by 176 Lakhs but no details were available in the note attached to the balance sheet, further, mere w as no reflection in the schedule of the assets and in the application of income. As the corpus donation is for specific purpose, in absence of details of expenditure it could not be ascertained whether it funds was used towards the objective of the trust.
In view of die above, the assessment order passed by the Assessing Officer is found to be erroneous and is prejudicial to the interests of the revenue. As such, the assessment order is proposed to be reviewed in exercise of power conferred under section 263 enhancing/ modifying the assessed income on the above said issues and any other issue revealed during the proceedings.
You are requested to offer your .comments regarding acceptability of the above observation and furnish a written explanation in support of your claim (if not agreed with the view) and supporting documents within seven (07) days of receipt of this notice through e-mail/Income tax Portal.
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust
Yours faithfully, Sd/-
(Pankaj Kumar) Commissioner of Income Tax /Exemptions), Kolkata
On receipt of this notice, the assessee has filed detailed submission and it has explained the utilisation of Corpus Donation. The explanation of the assessee is available on page 23, which reads as under:- Sub.: Reply to proceedings u/s 263 of Income Tax Act, 1961 for A.Y. 2016-17 Dear Sir, The above assessment has been completed u/s 143(3) of Income Tax Act, 1961 dt. 30/10/2018 showing taxable income as nil.
In our earlier reply to the said order vide letter dt. 5/09/18, we have forwarded all the details relating to amount spent on corpus donation. We also intimated you running of charitable hospital and construction of Government run school for the benefit of poor.
Once again please find enclosed herewith details of Corpus fund utilization as on 31.03.16 in H.P. Budhia Charitable Trust:- Sr. No. Particulars Amount(Rs.) 1. Amount spent on maintenance 15,66,114/- & running of R.C. Agarwal Memorial Hospital & Research Centre (RCMHRC) at Tinsukia (owned by us) 2. Paid to Medica Super- 19,40,000/- Speciality Hospital for reimbursement of Doctor’s remuneration who attended R.C.M.H.R.C., Tinsukia 3. Paid for construction of Govt. 1,41,57,500/- School in the name of Smt. Kamla devi Budhia- Rajaykiaya Uchha Madhyamik Vidyalaya, Hirapur, Jaipur 1,76,63,614/-
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust
Somehow ld. Commissioner was not satisfied with the explanation of the assessee and observed that Corpus Donation received by a Charitable Institution is required to be used as per the specific condition for receiving such donation. The assessee has passed on/transfer the money to other Organisation without 5
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utilising the same for the purpose for which donation was received. In this connection, the last paragraph of ld. Commissioner’s order is required to be noted, which reads as under:- “As per Section 1(1)(d) of the Act, any voluntary contribution received by a trust/institution, with a specific direction that, they shall form part of the corpus, shall not be included in the total income of the Trust/Institution. Since, the donation was made with specific direction for utilising the same as corpus which imply that, it should be used for the object of the trust only. The donation itself is of a binging nature and create a specific condition for application of the corpus donation. However, in this case, the Trust/Institution has passed on/transfer the money to other organisation without utilising the same for the purposes for which donation was made. In view of above facts, claim of Rs.1,76,63,614/- from Corpus fund should not be an allowable application. The issue is therefore set aside and restore back to the Assessing Officer to pass an order considering the fact discussed above and compute the income accordingly. Ordered accordingly”.
While impugning the order of the ld. CIT, ld. counsel for the assessee took us through page no. 42 of the paper book, wherein the order of the Director, Secondary Education, Rajasthan, Bikaner is available. According to the assessee, on the asking of the Government of Rajasthan, the Trust has made a contribution of Rs.1,41,57,500/- for School Building. The assessee has not only produced the correspondence between the Trust and various Government Departments of Rajasthan but also produced the Site Plan of the School and demonstrated with complete details as to how a sum of Rs.1,41,00,000/- was
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust
transferred to the Government of Rajasthan for utilisation of Smt. Kamla Devi Budhia- Rajyakiya Uchha Madhyamik Vidyalaya. All these details have been placed on the paper book. For reference we are taking Office Order dated 2nd January, 2015 by the Director, Secondary Education, Rajasthan, Bikaner, which is available on page 47 of the paper book and the same reads as under:-
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust
The ld. Counsel for the assessee further took us through various correspondences with regard to the utilisation of its Corpus Donation. On the strength of these details, he submitted that all the details with regard to Rs.1,76,00,000/- was brought to the notice of ld. Commissioner, but he did not take any step to verify. He simply set aside the assessment order for re- adjudication.
On the other hand, ld. CIT(DR) contended that first objects of the assessee-Trust are to be seen whether these donations were made in the line of objects of the Trust or not. He submitted that on the last occasion, the assessee was directed to produce the Trust Deed.
We have heard the ld. Representatives and with their assistance gone through the record carefully. Before we embark upon an enquiry on the facts and issues agitated before us to find out whether the action u/s 263 of the Act, deserves to be taken against the assessee or not, it is pertinent to take note of this section. It reads as under:- “263(1) The 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 is erroneous in so far as it is prejudicial to the interest 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, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. [Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- 8
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(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer 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 conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (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 Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the 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. (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, National Tax 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.”
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
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust 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 CIT taken u/s 263. The ITAT in the case of Mrs. Khatiza S. Oomerbhoy Vs. ITO, Mumbai, 101 TTJ 1095, analyzed in detail various authoritative pronouncements including the decision of Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83 and has propounded the following broader principle to judge the action of CIT taken under section 263. (i) The CIT must record satisfaction that the order of the AO is erroneous and 10
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prejudicial to the interest of the Revenue. Both the conditions must be fulfilled. (ii) Sec. 263 cannot be invoked to correct each and every type of mistake or error committed by the AO and it was only when an order is erroneous that the section will be attracted. (iii) An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous. (iv) If the order is passed without application of mind, such order will fall under the category of erroneous order. (v) Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the AO has adopted one of the courses permissible under law or where two views are possible and the AO has taken one view with which the CIT does not agree. If cannot be treated as an erroneous order, unless the view taken by the AO is unsustainable under law. (vi) If while making the assessment, the AO examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the CIT, while exercising his power under s 263 is not permitted to substitute his estimate of income in place of the income estimated by the AO. (vii) The AO exercises quasi-judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the CIT does not fee stratified with the conclusion. (viii) The CIT, before exercising his jurisdiction under s. 263 must have material on record to arrive at a satisfaction. (ix) If the AO has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the AO allows the claim on being satisfied with the explanation of the assessee, the decision of the AO cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard.
Apart from the above principles, we deem it appropriate to make reference to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Sun Beam Auto reported in 227 CTR 113 and Gee Vee Enterprises Ltd vs. Addl. Commissioner of Income Tax (99 ITR 375). In the case of Sun Beam 11
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Auto, the Hon'ble High Court has pointed out a distinction between lack of inquiry and inadequate inquiry. If there is a lack of enquiry, then the assessment order can be branded as erroneous. The following observations of the Hon'ble Delhi High Court are worth to note:
“12. We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between “lack of inquiry” and “inadequate inquiry”. If there was any inquiry, even inadequate, that would not by itself, give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open”. 13. In the case of Gee Vee Enterprise vs. Commissioner of Income Tax reported in 99 ITR page 375, the Hon’ble court has expounded the approach of ld. Assessing Officer while passing assessment order. The observation of the Hon’ble court on pages 386 of journal read as under:-
“…it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return. 12
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust The reason is obvious. The position and function of the Income-tax Officer is very diffident from that of a civil court. The statement made in a pleading proved by the minimum amount of evidence may be adopted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only on adjudicator but also an investigator. He cannot remain passive in the face of the return which is apparently in order but called for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry… It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would made such an inquiry prudent that the word ‘erroneous’ in section 263 includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.” 14. In the light of the above, let us examine the facts and circumstances. Before adverting to the specific details brought to our notice by the ld. counsel for the assessee, we deem it appropriate to take note of clause (d) from the objects of the Trust, which reads as under:- “(d) to establish or give and/or grant aid to universities, schools, colleges, hostels, libraries and other educational institutions for the development of education and diffusion of knowledge and for public rest houses and to provide for amenities for the public there at”;
A perusal of the above would indicate that the assessee- Trust has taken an object of establishing Schools and Universities, Libraries and other Educational Institutions for the development of education. It has used major contribution of Rs.1,41,00,000/- out of the alleged Rs.1,76,00,000/- for constructing Smt. Kamla Devi Budhia Government School. If the details brought to our notice are fitted against the finding of ld.
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust Commissioner recorded in the last paragraph, then it would reveal that ld. Commissioner has not applied his mind to any of the information given by the assessee. At the cost of repetition, we would like to take note the last two lines of his finding on page 2, which reads as under:- “However, in this case, the Trust/Institution has passed on/transfer the money to other Organisation without utilising the same for the purposes for which donation was made”.
The above finding is factually incorrect. It suggests the power under section 263 has been exercised without evaluating the material available on record. Hence, the impugned order is not sustainable in the eyes of law. It is quashed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on July 20th, 2022.
Sd/- Sd/- (Manish Borad) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 20th day of July, 2022
ITA No. 456/KOL/2021 A.Y. 2016-2017 H.P. Budhia Charitable Trust
Copies to : (1) H.P. Budhia Charitable Trust, C/o. RSVPC & Company, 41A, A.J.C. Bose Road, Suite No. 613, 6th Floor, Kolkata-700017
(2) Commissioner of Income Tax (Exemption), Kolkata, 10, Middleton Row, 6th Floor, Kolkata-700071
(3) Commissioner of Income Tax- ,, (4) The Departmental Representative (5) Guard File