SETH MADAN LAL PALRIWALA FOUNDATION ,NEW DELHI vs. CIT(EXEMPTION), NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER Appellant, M/s. Seth Madan Lal Palriwala Foundation (hereinafter referred to as ‘the assessee’) by filing the present

appeal sought to set aside the impugned order dated 18.03.2019 passed by the Commissioner of Income-tax (Exemptions), New Delhi qua the assessment year 2014-15 on the grounds inter alia

that :-

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“1. That the Learned CIT (Exemption), New Delhi, has erred both in law and on facts in invoking the provisions of section 263 of the Act stating that the assessment order dated 28.12.2016 passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue. 2. That the Learned CIT (Exemption), New Delhi, has erred both in law and on facts in cancelling the assessment order dated 28.12.2016, passed u/s 143(3) of the Act by the ITO [Exemption], Ward-2(1), New Delhi, accepting the returned income at NIL in the case of the assessee, when the said Order is neither erroneous nor prejudicial to the interests of the revenue. 3. That the Learned CIT (Exemption), New Delhi, has erred both in law and on facts in not accepting the fact that the all due enquiries were made by the AO during the course of the assessment proceedings and has grossly erred in merely substituting his own views without showing any error in the said Order and/or himself making any enquiries and investigations. 4. That the Learned CIT (Exemption), New Delhi, has grossly erred in applying Explanation 2 to section 263 which is not applicable for the given assessment year (2014-15) and also without prejudice the said explanation can only be applied in case the assessment order is passed without making inquiries or verification which in this case have been fully made, replied to, considered and accepted. 5. That the Learned CIT (Exemption), New Delhi, has failed to appreciate the principle of consistency since assessments have been made consistently and continuously U/S 143(3) on the said issue after making full and complete enquiries for several previous assessment years and being satisfied with the replies & evidence produced by the Assessee.”

controversy at hand are : Assessee is into the business of mobile

health care services in uncovered and remote island villages of

Sunderban area with the objective to reach effective health care to

improve the health status and reducing burden of disease in the

locality. For the year under assessment, initial assessment was

framed at nil income and deficit is not allowed to be carried

forward.

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came to the conclusion that the assessment order is erroneous

insofar as it is prejudicial to the interest of Revenue under section

263 of the Income-tax Act, 1961 (for short ‘the Act’). Show-cause

notice was issued. Declining the contentions raised by the

assessee, CIT (E) reached to the conclusion that Assessing Officer

(AO) during the course of proceedings have failed to make any

enquiry about the source of funds being received from abroad, the

true existence of the entity in the principality of Liechtenstein and

activities undertaken by the said foundation abroad. CIT (E) also

noted that AO ought to have made enquiries about the source of

funds in the light of the Agreement for Exchange of Information

with respect to taxes with principality of Liechtenstein effective for

taxable period comprising of AY 2014-15 onwards through the

Competent Authorities in the Foreign Tax Division of the Central

Board of Direct Taxes (CBDT). CIT (E) also noted that the

assessee has filed numerous foreign documents relied upon in the

submissions which were not filed and examined by the AO during

the assessment proceedings which was necessary for examination

of receipt of funds. Moreover, authenticity of those documents has

also not been examined. Assessee has also failed to explain

whether the amount received is a specified grant or a corpus

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donation. Relying upon the amended provisions, CIT (E) also

declined the contentions of the assessee that when two views are

possible and AO has taken one of the possible views to which

CIT(E) does not agree, the order is not amenable to the provisions

contained u/s 263 of the Act. Ld. CIT (E) relied upon the

Explanation (2) to section 263 of the Act and thereby cancelled the

assessment order passed u/s 143(3) of the Act and directed the AO

to pass a fresh assessment order in view of the observations made

by the ld. CIT (E).

assessee has come up before the Tribunal by way of filing the

present appeal.

parties to the appeal, gone through the documents relied upon and

orders passed by the revenue authorities below in the light of the

facts and circumstances of the case.

contended that Explanation (2) to section 263 of the Act inserted

by the Finance Act, 2015 w.e.f. 01.06.2015 is not applicable to the

present case pertaining to AY 2014-15.

ld. AR for the assessee, ld. DR for the Revenue contended that

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Explanation (2) to section 263 is applicable to the year under

assessment and further contended that donation has been received

by the assessee trust from foreign entity but no third party

verification has been done and relied upon the decision rendered by

Hon’ble Supreme Court in the case of Daniel Merchants Pvt. Ltd.

vs. ITO (Appeal No.2396/2017 dated 29.11.2017).

determined by the Bench at this stage is :-

“as to whether Explanation (2) to section 263 is applicable to the present case pertaining to AY 2014-15”.

The issue decided by Hon’ble Supreme Court in the case of Daniel

Merchants Pvt. Ltd. (supra) that AO did not make any proper

enquiry while making adjustment and explaining the assessment of

the assessee would be decided on merit. So, we are of the

considered view that the judgment (supra) relied upon by the ld.

DR for the Revenue is not applicable to the proposition at hand.

Explanation (2) to section 263 are extracted for ready perusal as

under :-

“263 ….. Explanation 2.—For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the

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interests of the revenue, if, in the opinion of the 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.”

same was inserted by the Finance Act, 2015 w.e.f. 01.06.2015

which is not applicable to the present case pertaining to AY

2014-15 being deeming provisions

lack of enquiry nor even inadequate enquiry conducted by the AO

at the time of framing assessment u/s 143 (3) of the Act nor any

contravention of facts has been pointed out and relied upon the

questionnaire issued by the AO and reply filed thereto by the

assessee. However, ld. DR for the Revenue contended that AO has

failed to make proper enquiry or verification which should have

been made because the AO has not decided the issue if it was

actually a corpus donation received by the assessee as exempted

u/s 11(1)(d) of the Act.

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by the AO to the assessee, available at pages 1 to 3 of the paper

book, questions no.2 to 11, 17 & 21 are relevant pertaining to the

controversy at hand, which are extracted for ready perusal as

under:-

“2. Please furnish a detailed note on the activities carried out by your Trust/Society/Institution during the year under consideration and also in the last two preceding years. Please also state the limb in which your activities are covered within the meaning of section 2 (15) of the Income Tax Act and how they are charitable as per section 11, 12 & 13. 3. Whether the trust/society is registered under section 12A/12AAA of the I. T. Act. If so, furnish legible copy of certificate. Further, please also state whether the Trust/Society is also notified under section 80G or u/s 10 of the I.T. Act, 1961, if so, file legible copy of certificate. 4. Furnish name, complete address and assessment particulars of each trustee / Member of the company in the following format.

Name Circle/ Ward PAN Source of Mobile No. / & of Income Income Contact No. Address Tax

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a. Return of Income and revised return, if any b. Receipt & Payment Account c. Income & Expenditure Account. d. Balance Sheet, e. Audit report u/s 12A(b) of the Act. f. Computation of Income indicating as to how 85% of income derived has been applied for objects of the Trust/Institution.

Name / Total Cheque Date of entry in Details of Current amount No. bank statement any Address/ (mark the entry relation to PAN of in the bank the party the party statement)

……..

to prove that AO has called for minute detail as to the activities

being carried out by the assessee trust with complete details of each

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trustee/member, called for return of income, revised return if any

for the last two years, receipt and payment account, income &

expenditure account etc; complete details of the parsons who have

been given fee concessions/grants/benefits/charity etc.; called for

source and mode of donation with justification; detail of

application/utilization of income or property of the trust; called for

detail of additions to corpus fund in tabulated form and also called

for detail of FCRA registration with FC-3 return for AY 2014-15,

if filed.

available at pages 4 to 6 of the paper book along with requisite

documents, relevant portion thereof is extracted for ready perusal

as under :-

“9. Details regarding names, addresses of persons/organizations to whom SMPF has given grant/donation during the FY 2013-14, relevant to the A Y 2014-15 is enclosed as Annexure No.6. 10. During the year, the Trust received a sum of Rs.3,31,50,325/- as corpus contribution from Palriwala India Foundation (PIF), Landstrssee 97, PO Box 27, F-19494, Schaan, Principality of Liechtenstein, through Runbridge Investments. A chart showing the remittances received during the year are given in Annexure No.7. The copy of bank advice along with relevant ledger account is also enclosed. All these remittances received by the trust in the account with Indian Overseas Bank, New Delhi. The trust is duly registered with the Ministry of Home Affairs, Govt. of India under FCRA for foreign contribution and a copy of its registration, along-with copy of r/ filed in FC-6, is being filed as Annexure No.8. 11. No payments were made by the Trust u/s 13(3) during the year. However, a sum of Rs.6,35,284/- was paid towards medical

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expenses reimbursement of Mr.Gajanand Palriwala, Managing Trustee of the Trust, who was more than 80 years old and was managing the Trust for a very long period at that point of time. This reimbursement is made out of funds received from Palriwala India Foundation (PIF) as per their direction in terms of contribution given to the Trust. No other payment in the form of salary, etc., has been paid to the Managing Trustee or any other Trustee or their relatives during the year. However, Mr.Palriwala has expired in the year 2014. ………… 17. As explained in para-10 above, the Trust received foreign donation of Rs.3,31,50,325/- during the year. This contribution was received from Palriwala India Foundation (PIF), Landstrssee 97, PO Box 27, F-19494, Schaan, Principality of Liechtenstein through Runbridge Investments. The Trust is duly registered with the Ministry of Home Affairs, Govt. of India under FCRA for foreign contribution.”

pages 9 to 14 of the paper book, furnished in Form FC-3 to the

Secretary to the Government of India, Ministry of Home Affairs,

New Delhi shows that every minute details have been given by the

assessee in the same as to the total number of foreign contribution

received during the year with purpose for which the foreign

contribution has been received and utilized.

with the donation amount have been given. When we examine

detail of corpus receipt available at page 15 of the paper book,

again there is minute detail called for by the AO. Assessee has

also given detail of remittance information, available at pages 16 &

17 of the paper book. When assessee has again given the complete

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details of donees with PAN, addresses and the amount of

grant/donation, available at page 25 of the paper book, all these

documents have been examined by the AO at the time of framing

assessment u/s 143(3) of the Act.

details called for by the AO and furnished by the assessee in the

light of the impugned order passed by the ld. CIT (E) so as to work

out if the assessment u/s 143 (3) has been framed by the assessee

without making enquiries/information which should have been

made.

4.2 of the impugned order passed by the ld. CIT shows that the ld.

CIT has proceeded on the basis of conjectures and surmises. For

ready perusal, para 4.2 is extracted as under :-

“4.2 During the course of present proceedings, the assessee has also filed various foreign documents as mentioned in the gist of submissions of the assessee mentioned above. The filing of new documents to support its claim clearly shows these documents were not filed and examined by the AO during the course of the proceedings, which even the assessee concedes that the same were necessary for examination of receipt of the funds. Secondly, these documents being foreign documents are required to be examined for its authenticity by making reference to the competent authority under the exchange of information route. As can be seen from the above, the assessing officer has failed to undertake any such exercise and accepted the claim of the assessee without properly enquiring into the same.”

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proceeded on the basis of surmises that various foreign documents

filed by the assessee during proceedings u/s 263 of the Act have

not been examined by the AO which even assessee concedes that

the same were necessary for admission of receipt of the funds. It is

very surprising that without discussing nature and relevancy of

those foreign documents, how ld. CIT can reach the conclusion that

the AO has accepted those documents without making proper

enquiry thereof. Ld. AR for the assessee also contended that

assessee has never conceded that those documents were necessary

for receipt of funds. When nature and veracity of the said

documents have neither been brought on record nor examined by

the ld. CIT, it is difficult to accept the findings returned by the ld.

CIT that AO has accepted the same without properly been enquired

into those documents.

corpus fund is concerned, the assessee has come up with specific

plea that the treatment of application out of corpus fund is only an

accounting entry as equivalent amount has been transferred from

the corpus fund to the income and expenditure account and as such,

no extra application is claimed. Ld. CIT though admitted argument

advanced by the assessee that no deficit has been credited by

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claiming the application out of corpus fund, it is again surprising as

to how ld. CIT reached the conclusion that, “AO ought to examine

the vacillating stands of the assessee” and to find out the correct

nature of the receipt which have not been done merely on the

premise that, “assessee itself was not sure whether the amount

received as a specific grant or it is a corpus donation” without

returning any specific findings.

been credited as explained in documents available at pages 25 to 27

and 29 & 30 of the paper book, all these documents now available

at pages 1 to 37 of the paper book have been duly placed before

AO during the assessment proceedings in reply to the queries

raised by para 2 of the letter dated 11.04.2016, available at page 1

of the paper book issued by the AO.

AO and reply thereto was filed, as is evident form pages 1 to 48 of

the paper book, and all these documents were examined and

accepted by the AO and details thereof have never been disputed.

Perusal of the documents brought on record by the assessee from

pages 55 to 57 of the paper book which is correspondence between

National Tax Administration Swiss Authorities and Palriwala India

Foundation, and a certificate issued by the Swiss Authorities in

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favour of the Palriwal India Foundation, available at page 63 of the

paper book, that the assets of the Foundation have been managed

and utilized by the Foundation Board in conformity with the

Foundation aim and in accordance with the provisions of Law and

the Foundation documents. It goes to prove that the contention

raised by the ld. CIT qua donation received from foreign country,

no third party verification has been done and relied upon the

decision rendered by Hon’ble Supreme Court in Daniel Merchants

Pvt. Ltd. (supra) which is however on different facts and is not

applicable to the facts and circumstances of the case.

have been brought on file by the assessee is not sustainable because

the entire details called upon by the AO as well as by the ld. CIT

have themselves brought on record and as such corpus donation is

exempted u/s 11(1)(d) of the Act. Ld. CIT was required to return

independent findings in this regard so as to reach the conclusion u/s

263 of the Act.

remittance information, available at pages 32 & 33 of the paper

book, wherein it is mentioned that Palriwala India Foundation has

donated US $ 2,00,000 to the assessee trust to be used for corpus

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fund for PIF Projects according to the Object for AY 2013-14. So,

all these facts were examined and found to be correct by the AO.

expenditure account, form FC-3 showing detail of total number of

foreign contribution etc. as discussed in preceding para 14, all

these details have been duly examined by the AO during

assessment u/s 143(3) of the Act.

taken one possible view with which ld. CIT does not agree, the

provisions contained u/s 263 of the Act are not attracted. Findings

of the ld. CIT in Para 4.4 of the impugned order in this regard also

shows that this argument of the assessee has been summarily

rejected on the ground that the assessee’s return has been accepted

without any necessary enquiry and invoked the deeming provisions

contained under Explanation (2) to section 263 of the Act. As

discussed in the preceding paras 8 to 10, we are of the considered

opinion that deeming provisions contained under Explanation (2)

to section 263 of the Act are not applicable to the present case

which pertains to AY 2014-15.

view that first of all, we have to examine whether AO has applied

his mind on the issue in question and to determine the validity of

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order u/s 263 of the Act, the stark difference has to be made out

between “lack of enquiry” and “inadequate enquiry”.

(1993) 203 ITR 108 (Bom.) held as under :-

“……..The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) . . . From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income-tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income- tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion . . . There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed . . . We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in

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regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case. Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be „ erroneous‟ simply because in his order he did not make an elaborate discussion in that regard.” 16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question. 17. This distinction must be kept in mind bythe CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to

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decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, (1998) 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.”

Foundation (2013) 357 ITR 388 (Delhi) held that when enquiries

were certainly conducted by the AO as in the instant case, ld. CIT

u/s 263 is required to conduct the enquiry himself to record the

finding that assessment order was erroneous in case he reaches the

conclusion that it is a case of no enquiry.

ld. CIT has conducted the enquiry himself so as to record the

finding that assessment order was erroneous rather set aside the

order and directed the AO to conduct the said enquiry which is not

sustainable in the eyes of law. So, it is not a case of no enquiry nor

the ld. CIT himself has conducted any independent enquiry so as to

reach a different conclusion than reached by the AO to make out

that assessment order was erroneous and prejudicial to the interest

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of the Revenue. We are of the considered view that the impugned

order passed u/s 263 is not sustainable.

Metro Express (P.) Ltd. (2017) 398 ITR 8 (Delhi) held that in

case, ld. CIT is of the view that AO did not undertake any enquiry,

it becomes incumbent on the CIT to conduct such enquiry himself

by returning following findings :-

“10. For the purposes of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interests of the Revenue has to be preceded by some minimal inquiry. In fact, if the PCIT is of the view that the AO did not undertake any inquiry, it becomes incumbent on the PCIT to conduct such inquiry. All that PCIT has done in the impugned order is to refer to the Circular of the CBDT and conclude that “in the case of the Assessee company, the AO was duty bound to calculate and allow depreciation on the BOT in conformity of the CBDT Circular 9/2014 but the AO failed to do so. Therefore, the order of the AO is erroneous insofar as prejudicial to the interest of revenue”. 11. In the considered view of the Court, this can hardly constitute the reasons required to be given by the PCIT to justify the exercise of jurisdiction under Section 263 of the Act. In the context of the present case if, as urged by the Revenue, the Assessee has wrongly claimed depreciation on assets like land and building, it was incumbent upon the PCIT to undertake an inquiry as regards which of the assets were purchased and installed by the Assessee out of its own funds during the AY in question and, which were those assets that were handed over to it by the DMRC. That basic exercise of determining to what extent the depreciation was claimed in excess has not been undertaken by the PCIT.”

considered view that when it is not a case of no enquiry rather

thorough enquiry has been conducted by the AO by issuing a

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detailed questionnaire and after examining reply and documents

furnished by the assessee framed assessment u/s 143 (3) of the Act,

the ld. CIT has invoked the provisions contained u/s 263 of the Act on the basis of conjectures and surmises without conducting any

such enquiry himself so as to reach the conclusion that the

assessment order is erroneous and prejudicial to the interest of the

Revenue rather set aside the matter to AO for further enquiry

which is not permissible under law, hence order passed by the ld.

CIT is set aside by allowing the appeal filed by the assessee. Order pronounced in open court on this 31st day of January, 2020.

sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 31st day of January, 2020 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT(E), New Delhi 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.