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Facts
The assessee, a society, was assessed as an AOP after its registration under Section 12A was denied. The ITAT later granted registration retrospectively. The CIT(E) initiated revision proceedings under Section 263, setting aside the AO's assessment order due to alleged lack of proper inquiry and erroneous allowance of claims.
Held
The Tribunal held that the CIT(E) erred in quashing the assessment order without considering that the assessee had been granted registration under Section 12A, which mandated assessment under Sections 11, 12, and 13. The CIT(E)'s order was quashed as it ignored this crucial fact.
Key Issues
Whether the CIT(E) was justified in invoking Section 263 to set aside the assessment order without considering the assessee's granted registration under Section 12A and the resultant assessment procedure.
Sections Cited
263, 143(3), 147, 148, 11, 12A, 12AA, 13, 260A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, LUCKNOW ‘A’ BENCH, LUCKNOW
O R D E R PER NIKHIL CHOUDHARY, A.M.: [ This is an appeal filed by the assessee against the orders of the ld. CIT (Exemption), Lucknow under section 263 of the Income Tax Act dated 30.03.2021 setting aside the orders of the ld. Assessing Officer passed under section 143(3) of the Income Tax Act for the A.Y. 2016-17 on 15.12.2018. The grounds of appeal
are as under:- “01. Because the order passed by CIT(E) u/s 263 of the Act dt. 30.03.2021 is without jurisdiction, bad in law and be quashed.
02. Because the order passed by AO, being neither erroneous nor prejudicial to the interest of the revenue the action of the CIT(E) set-asiding the said order is without jurisdiction, contrary to the provisions of law, be quashed.
03. Because the order passed by the AO being neither erroneous nor prejudicial to the interest of the revenue, the CIT(E) has erred in law in setting aside the same, the order passed by CIT(E) be quashed and that as passed by the AO be restored.
04. Because the CIT(E) has failed to appreciate that the initial assessment was a deep scrutiny assessment framed u/s 143(3) wherein voluminous queries were raised which were complied with and thoroughly examined/ verified by the AO, the necessary enquiring having being done, it is neither a case of no inquiring or lack of enquiring, as such the CIT(E) has erred in setting aside the assessment order, the order passed by CIT(E) be quashed.
Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17
5. Because on merits the entire details as called for by the AO, having being furnished, and available on record the CIT(E) having not made any independent enquiry, the order passed by CIT(E) suffers from mandatory requisites in as much as there is no satisfaction recorded by CIT(E) that the order passed by the AO both erroneous and has caused prejudice to the revenue, the order be quashed. 06. Because there being no loss to the revenue, in as much as there being no tax payable either on the income returned or the income to be determined, the order passed by the CIT(E) is contrary to the mandate of section 263 of the Act, the order passed by CIT(E) be quashed.” 2. It is observed that the assessee’s appeal is delayed by 116 days. Subsequently, a petition has been filed for the condonation of delay in which it has been submitted that the order of the ld. CIT (Exemption) was served on the assessee on 15.04.2021 and according to the same, the appeal should have been filed by 14.06.2021. However, the appeal had been filed on 8.10.2021 and thus there was a delay of 116 days. It was submitted that this delay was on account of the prevailing Covid-19 pandemic. It was further submitted that in fact the appeal was within time because the limitation period was extended in view of the decision of the Hon’ble Supreme Court in Suo Moto Writ Petition (Civil) No. 3 of 2020, wherein the Hon’ble Supreme Court vide its order dated 10.01.2022 had extended the period of limitation to 90 days w.e.f. 1.03.2022 in all cases where the limitation would have expired during the period between 15.03.2020 to 28.02.2022. In the circumstances, it was prayed that the appeal may be admitted for hearing. After consideration of its submission, it is observed that in view of the orders of the Hon’ble Supreme Court, there is in fact no delay which requires condonation and therefore, the appeal is taken up for adjudication. 3. The facts of the case are that the assessment of the assessee was completed under section 143(3) on 15.12.2018 in the status of an AOP in which exemption under section 11 was not allowed. The society had applied for grant of registration under section 12A of the Income Tax Act, 1961, vide its application dated 8.12.2008 but the ld. CIT(A)-1, Kanpur vide his order dated 23.06.2009 had denied the registration on the grounds that the genuineness of the activities of the society and Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17 the application of its fund for charitable purposes could not be verified. The society had filed an appeal before the ITAT against the orders of the ld. CIT(A)-1, Kanpur and the Hon’ble ITAT vide its order dated 13.04.2010 had allowed registration to the society w.e.f. 1.04.2008 with the direction that the CIT(A) would issue a formal registration certificate as required under the law. However, the Department did not accept the order of the ITAT and filed an appeal before the Hon’ble High Court under section 260A of the Act. At the time of assessment, the appeal in the Hon’ble Allahabad High Court had yet to be finalized. Therefore, the ld. AO decided to assess the assessee society as an AOP and deny it the benefit of exemption under section 11. He observed that the society was running an Engineering College under the name of Bhabha College of Engineering at Rasoolabad. As per the income and expenditure account, the total receipt during the year had been shown as Rs. 2,63,62,770/- against which the society had incurred expenditure over income amounting to Rs. 64,43,604/-. The ld. AO therefore, computed the assessment at nil income. Subsequently, the Addl CIT (Exemption), Ghaziabad brought it to the notice of the ld. CIT (Exemption), Lucknow, that the order passed under section 143(3) of the Income Tax Officer by the Assessing Officer was erroneous in so far as it was prejudicial to the interest of Revenue, inasmuch as necessary enquiries to verify the genuineness and correctness of the claim of the assessee had not been made. After considering this reference, the ld. CIT (Exemption) issued a show cause notice to the assessee to explain how; a. depreciation of Rs. 5,22,987/- could be allowed to the society / trust. b. why unsecured loans to the tune of Rs. 11,09,907/- for which genuineness and creditworthiness of creditors was not submitted, should not be regarded as its income. c. why sundry credit of Rs. 1,48,46,391/- relating to Bhabha Institute of Technology, which was not confirmed as per Audit Report should not be added back Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17 d. why the addition of Rs. 9,11,615/- in respect of fixed assets that were not verified should not be disallowed f. and why advances to UPTU and Samaj Kalyan to the tune of Rs. 16,24,800/- which had not been subjected should not be allowed. In response, the assessee submitted that as the case had been completed under the status of AOP and not as a society or trust, therefore, its claim of depreciation of Rs. 5,22,987/- is allowable. It was further submitted that during the year, the society had not received any new unsecured loans and the sum of Rs. 11,09,907/- were loans which have been carried forward into the books of the assessee for the last three years. Due to the seizure of the society’s bank accounts (by the bank for failure of the society to repay the loans), the old unsecured loans could not be squared up. Regarding the balance of Rs. 1,48,46,391/- as on 31.03.2016 against the Bhabha Institute of Technology, it was submitted that the same was an engineering college run by another society of the same group. The society’s accounts had been seized by the bank due to its failure to repay a bank loan and therefore, the Bhabha Institute of Technology had borne some payment of expenses and salary to the employees of the assessee society. It was in this context that this credit amount was shown in its books against Bhabha Institute of Technology and a copy of the society’s account i.e. Bhabha College of Engineering in the books of Bhabha Institute of Technology were attached to demonstrate that the society had been shown as a debtor to the said institute. The addition of Rs. 9,11,615/- was sought to be explained with a chart of fixed assets alongwith copy of account of building under construction, mobile account, library books account and lab equipment account, which were all attached. It was further submitted that the society received fees pertaining to student of SC, ST & OBC categories from the Samaj Kalyan department of Government of Uttar Pradesh and as on 31.03.2016, Rs. 16,24,800/- were due from the Department, which the society had shown under the head, “loans and advances” in its books of accounts. Copies of such accounts were attached.
Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17 4. After considering the submissions made by the assessee, the ld. CIT (Exemption) rejected them on the grounds that the assessee had submitted its return in the capacity of a society hence it could not claim depreciation. The issue of unsecured loans, sundry creditors and addition to fixed assets could only be verified with enquiry and AO had not made the enquiry during the course of assessment proceedings and this made the assessment order erroneous as well as prejudicial to the interest of Revenue. The story with regard to dues from Samaj Kalyan department pertaining to students of SC, ST & OBC category was not believable as in their books of accounts, the assessee had shown that it had given advances to UPTU and Samaj Kalyan. Therefore, after considering various case laws including CIT vs. Amitabh Bachhan (2016) 384 ITR 200 (SC). Rajmandir Estates (P.) Ltd. vs. PCIT-3, Kolkata (2017) 245 taxman 127 (SC). PCIT, Ludhiana vs. Venus Woollen Mills (2019) 412 ITR 188 (P&H) and CIT vs. Ballarpur Industries (2017) 85 taxman.com 10 (Bombay), the ld. CIT(A) held that there was clear non- application of mind on the part of the ld. AO inasmuch as necessary enquiries should have been made, which were not made. This made the order erroneous and prejudicial to Revenue within the meaning of section 263 read with clause A of explanation 2. She therefore, set aside the order passed by the ld. AO under section 143(3) of the Income Tax Act with a direction to pass a fresh order after obtaining the required details and examination of the issues as raised above and after providing due opportunity to the assessee.
The assessee is aggrieved by these orders passed by the ld. CIT (Exemption). Sh. Rakesh Garg, Advocate (hereinafter referred to as the ld. AR) submitted that the order passed by the ld. CIT (Exemption) under section 263 of the Act dated 30.03.2021 was bad in law and deserving of being quashed because the order passed by the ld. AO was not prejudicial to the interest of Revenue nor erroneous inasmuch as that initial assessment order had been passed after a deep scrutiny assessment framed under section 143(3) where a number of queries had been raised which had been complied with and which had been thoroughly Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17 examined / verified by the ld. AO. It was submitted that the necessary enquiries having been done, this was neither a case of no enquiry nor a case of lack of enquiry and therefore, the ld. CIT (Exemption) had erred in setting aside the assessment order on the grounds of lack of enquiry. It was further submitted that the entire details as called for by the ld. AO had been furnished. Our attention was invited to pages 23 to 27 of the paper book in which the list of students’ fees, the list of sundry creditors and the list of loans and advances was furnished to the ITO (Exemption). Our attention was also invited to pages 28 to 31 which contained the previous reply of the assessee alongwith annexures. Among these, our specific attention was invited to the previous order of the Hon’ble ITAT, Lucknow Bench in wherein the ITAT had directed that the society be granted exemption under section 12A of the Income Tax Act and it was submitted that the Income Tax Authorities were duty bound to follow the orders of the ITAT and complete the assessment according to the provisions of section 11, 12 and 13 till such time as this order of the ITAT had been reversed by the Hon’ble High Court. It was further submitted that since the assessee had satisfactorily replied to all the questions raised by the ld. CIT (Exemption) alongwith documents, there was no occasion for the ld. CIT (Exemption) to further remand the matter back to the ld. AO for a fresh assessment. If the ld. CIT (Exemption) was not convinced with the replies of the assessee, then as per the judgment of the Hon’ble Supreme Court in the case of PCIT vs. M/s V-Con Integrated Solutions P. Ltd. in IA No.79463/2024 arising out of ITA No.88/2024 passed by the Hon’ble Punjab & Haryana High Court on 12.09.2024, the Hon’ble Supreme Court had held that where the ld. AO having made enquiries erred by not making additions, the power under section 263 could be exercised by the Commissioner by going into the merits and making the addition and not by way of remand recording that there was a failure to investigate. It was only in cases where there was failure or absence of investigations that the ld. CIT (Exemption) could justifiably remand a case back to the ld. AO. However, the ld. AR pointed out that previously the Hon’ble Delhi High Court in the case of PCIT-III vs.
Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17 Delhi Airport Metro Express Pvt. Ltd. had held that where the PCIT was of the view that certain enquiries were necessary, it was incumbent upon the PCIT to conduct that enquiry before remanding the matter back to the ld. AO for a fresh assessment and that this view had been followed by the Delhi Bench of the ITAT in the case of Arun Kumar Garg (HUF) vs. PCIT-13, Delhi in ITA No. 3391/DEL/2018. Therefore, it was submitted that since in this case, the ld. AO had conducted the necessary enquiries and the PCIT disagreed with the results of the enquiries, he should have either made the additions himself or if he felt that certain enquiries were necessary, he should have conducted those enquiries before sending the matter back for fresh assessment. The ld. PCIT could not cancel the assessment under section 263 for doing a fresh enquiry and this decision of his vitiated the order in the eyes of law making it deserving of being quashed.
On the other hand, Sh. R.K. Agarwal, CIT DR (hereinafter referred to as the ld. DR) pointed out that the ld. CIT (Exemption) had pointed out that certain specific shortcomings in the accounts of the assessee which had not been looked into by the ld. AO during the course of assessment. The ld. ld. CIT (Exemption) had provided an opportunity to the assessee to respond alongwith evidences and after considering those evidences had noticed contradictions in the submissions made by the assessee and the accounts of the assessee with regard to the issues of depreciation and advances made by the assessee to UPTU and Samaj Kalyan and with regard to others, the ld. CIT (Exemption) had observed that further enquiries were necessary to consider the submissions of the assessee which had not been done during the assessment proceedings. Therefore, he had invoked the provisions of clause (a) of explanation 2 of section 263 and the orders of the ld. CIT (Exemption) were therefore, perfectly in accordance with the provisions of law. He further, pointed out that the assessee had not made any submissions before the ld. AO in the subsequent proceedings consequential to the order of the ld. CIT (Exemption) under section 263, which in itself justified the actions of the ld. PCIT because it demonstrated that the assessee had no explanation to offer on these inconsistencies Navudai Shikshan and Jan Kalyan Sewa Samiti A.Y. 2016-17 recorded by the ld. CIT (Exemption). The ld. CIT DR further argued that sending the matter back to the ld. AO was basically to provide the assessee with an opportunity to make out its case and such opportunity could not be a basis to hold his order to be illegal. Accordingly, it was prayed that the orders of the ld. CIT (Exemption) be sustained.
We have duly considered the facts and circumstances of the case. At the very outset, we would like to point out that the assessment of the assessee trust has been conducted as an AOP on account of the fact that the ld. CIT-1, Kanpur had denied the registration of the assessee trust on 23.06.2009. However, we note that the ITAT vide its orders in has granted the registration to the assessee trust under section 12AA of the Income Tax Act w.e.f. 1.04.2008 and directed the ld. CIT (Exemption) to issue a formal registration certificate as required under the law. The ld. AR has informed us during the course of hearing that such a registration certificate has been issued by the ld. CIT (Exemption) on 13.04.2010. It is true that the Department has not accepted the orders of the ITAT and has filed an appeal before the Hon’ble Allahabad High Court but at the time of hearing, neither party could confirm that any orders had been passed by the Hon’ble Allahabad High Court in respect of such appeal till date. That being the case, once the registration under section 12A had been allowed to the assessee trust, it was incumbent upon the Income Tax Authorities to follow judicial discipline and assess the income / expenditure of the assessee in accordance with the special provisions laid down in sections 11, 12 and 13 of the Income Tax Act, 1961. It appears that this has not been done by the ld. AO and it further appears that the entire proceeding under section 263 has been carried out by the ld. CIT (Exemption), ignoring the fact that the registration to the assessee trust stood granted w.e.f. 1.04.2008 as per the registration certificate issued by the ld. CIT on 13.04.2010, on account of the orders of the ITAT in ITA No. 477/LUC/2009. Since this basic essential fact has been omitted to be considered, no order of revision under section 263 is sustainable, as no conclusion regarding the prejudice caused