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Facts
The appellant, a charitable trust, filed Nil income for AY 2014-15 after claiming exemption u/s 11, which was initially accepted by the AO u/s 143(3). The PCIT subsequently invoked Section 263, finding the assessment erroneous and prejudicial because the AO failed to verify the charitable nature and objects of 72 donee institutions to which the trust made significant donations, setting aside the assessment. After a delay condonation process involving the High Court and a Third Member of the Tribunal, the appeal challenging the PCIT's order was heard on merits.
Held
The Tribunal upheld the PCIT's revisionary order, concluding that the AO's failure to examine whether the objects of the donee institutions were charitable and aligned with the appellant's, crucial for eligibility of donations for exemption u/s 11, rendered the original assessment erroneous and prejudicial to the revenue. Merely being registered u/s 12AA or FCRA does not automatically qualify for exemption of donations made to them without such an inquiry by the AO.
Key Issues
Whether the PCIT was justified in revising an assessment order under Section 263 when the AO failed to examine the charitable objects of donee institutions for granting exemption under Section 11 of the Income Tax Act.
Sections Cited
11, 11(2), 12A, 12AA, 143(3), 263, 260A
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI INTURI RAMA RAO, AM & SHRI SOUNDARARAJAN K., JM
O R D E R Per: Inturi Rama Rao, AM This is an appeal restored to this Tribunal by the Hon'ble Kerala High Court vide order dated 06.12.2023 in of 2023.
The factual backgrounds leading to the present appeal are that the appellant is a charitable trust formed under the Trust Act. It is also duly registered u/s. 12A of the Income Tax Act, 1961 (hereinafter "the Act") and Foreign Contribution Regulation Act (FCRA). The return of income for 2014-15 was filed on 10.12.2014 declaring Nil income after claiming exemption u/s. 11 of the Act. The said return of income was accepted by
Subsequently, on examination of the assessment record the learned Pr. Commissioner of Income Tax (PCIT), Kochi formed an opinion that the assessment order is erroneous and prejudicial to the interests of Revenue for the failure of the DCIT (Exemption), Kochi (hereinafter the “AO”) to examine the objects of the donee institutions to whom donations were given by the appellant trust to the tune of Rs. 20,23,14,475/-. Accordingly a show cause notice u/s. 263 of the Act was served upon the appellant trust on 06.02.2017 calling upon the appellant to show cause, as to why the assessment order should not be set aside.
In response to the show cause notice, the appellant filed a detailed submission by stating that all the 72 donee institutions are having charitable activities and they were granted registration u/s. 12AA of the Act and also FCRA certificates and claimed exemption of income u/s. 11 of the Act. It is further submitted that even if some of the trusts are having religious objects, benefit of exemption cannot be denied in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Dawoodi Bohara Jamat in Civil Appellate No. 2492 of 2014. However, the PCT (Exemption) placing on reliance on the decision of the Hon'ble Delhi High Court in the case of Toyota Motor Corporation v. CIT, Civil Appeal No. 5313 of 2008 held that non examination of the issue renders the assessment order erroneous and prejudicial to the interests of Revenue. Accordingly, set aside the assessment order with the direction to redo the
Being aggrieved by the above order the appellant filed appeal before the Tribunal in 265 days. The said appeal came to be disposed off by this Tribunal vide order dated 03.07.2023 dismissing the appeal in limini without condoning the delay by holding that the appellant had failed to show sufficient reasonable cause for delay of 263 days.
Being aggrieved by the order of this Tribunal, the appellant trust filed an appeal before the Hon'ble Kerala High Court u/s. 260A of the Act. The Hon'ble Kerala High Court set aside the order passed by this Tribunal in 03.07.2023 with the following directions: - “i. The appellant shall file the additional affidavit explaining the reasons for the delay occasioned in filing the appeal before the Tribunal within two weeks from today. ii. On receipt of the said affidavit, the Tribunal shall consider the application preferred by the appellant for condonation of delay in filing the appeal before the Tribunal within a further period of three weeks after hearing the appellant. iii. To enable the Tribunal to do so, we set aside the impugned order dated 03.07.2023 of the Tribunal.”
Pursuant to the directions of the Hon'ble High Court, the matter was heard on 05.03.2024 by the Tribunal on difference of opinion between the Hon'ble Members on the issue of condonation of delay, the matter was referred to Third Member by the Hon'ble President on 18.11.2024. The Save A Family Plan (India) Third Member, namely, the Hon'ble Vice President, Bangalore Zone, who was nominated to decide the issue and held that there is sufficient reasonable cause in filing the appeal with a delay of 265 days, accordingly condoned the delay. Thus, the delay in filing appeal stands condoned by the order passed by Third Member. We now proceed to dwell into the merits of the order passed u/s. 263 of the Act.
The learned counsel for the assessee submits that the appellant is a charitable trust registered u/s. 12A of the Act and also enjoying registration under FCRA. The appellant trust had received foreign contribution of Rs. 20,81,28,826/-, out of which a sum of Rs. 20,23,14,474/- was given as donations to 72 other institutions which are stated to be registered u/s. 12A of the Act as well as FCRA. He further submits that there is nothing wrong in making claim for exemption on such donations u/s. 11 of the Act. He further submits that even if, the donee institutions are religious in nature still they qualifies for exemption u/s. 11 of the Act in view of the decision of the Hon'ble Supreme Court in the case of CIT v. Dawoodi Bohara Jamat in Civil Appellate No. 2492 of 2014. He also placed reliance on the decision of the Hon'ble Calcutta High Court in the case of CIT (Exemption) v. St. Joseph Convent Chandannagar.
On the other hand, the ld. CIT-DR submits that non examination of the issue by AO whether the objects of the donee trusts are charitable in nature or not renders the assessment order erroneous in view of the law laid down by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and requires no interference.
Save A Family Plan (India) 10. We have heard rival contentions and perused the material available on record. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim took one of the plausible views, the assessment order cannot be termed as an “erroneous”.
In the background of above legal position, we proceed to examine the facts of the present case. Undisputedly the appellant trust made donations to 72 institutions stated to be institutions duly registered u/s. 12A of the Act as well as registered under FCRA. The said donations were made out of the current year’s income of the appellant trust. Therefore, it is only out of current income and not from accumulated income u/s. 11(2) of the Act. Therefore, such donation is not hit by provisions of Explanation inserted to section 11(2)(a) by the Finance Act, 2022 w.e.f. 01.04.2023. Therefore, donations by the charitable trust to another charitable trust amount to Save A Family Plan (India) application of income for charitable purposes as held by the Hon'ble Madras High Court in the case of CIT vs. Sri Aurobindo Memorial Fund Society 247 ITR 93 affirmed by the Hon'ble Supreme Court in 239 ITR 502. However, the only condition is that such donations should be consistent with the objects of the trust as laid down by the Hon'ble Delhi High Court in the case of Shriram Education Foundation v. DIT (Exemption) 262 ITR 164 (Del) following the judgement of Hon'ble Supreme Court in the case Aditnar Educational Institution v. Addl. CIT [1997] 224 ITR 310 (SC). In the present case the assessment order is totally silent on this aspect, nor was it is the case of the appellant trust that the AO had examined the aspect whether the donee trusts are having similar objects as that of the appellant trust. Merely because the donee trusts were duly registered u/s. 12AA of the Act ispo facto does not qualify for deduction u/s. 11 of the Act. The appellant trust could not demonstrate before us that this aspect of the issue was examined by the AO during the course of assessment proceedings which is crucial and important to decide the eligibility of the donations made to other trusts for exemption u/s. 11 of the Act. Thus, the AO had clearly failed to examine the question of the eligibility of the donations made by the trust to another institution and, therefore, the said assessment was palpably wrong and falls within the meaning of erroneous order. The Hon'ble Kerala High Court recently in the case of Cochin International Airport v. ACIT (ITA No. 77 of 2018 dated 07.01.2025) held as under: - Save A Family Plan (India) “10. It is true that all orders, which are erroneous, are not liable to be subjected to proceedings under Section 263 of the Income Tax Act, 1961. To invoke Section 263, the Principal Commissioner of Income Tax must be satisfied that the erroneous order also causes prejudice to the Revenue. The real purport of Section 263 is to remove the prejudice caused to the Revenue by the erroneous order passed by the assessing officer and it empowers the Commissioner to initiate suo motu proceedings, when either the assessing officer takes a wrong decision without considering materials available on record or renders a decision without enquiry. The role of the assessing officer under the Income Tax Act, 1961 is not only that of an 2025:KER:298 OF 2018 adjudicator but also of an investigator and he cannot remain oblivious in the face of a claim without any enquiry. The assessing officer must exercise a dual role of protecting the interest of the Revenue as well as that of the assessee and that is the reason why he is expected to pass orders with utmost diligence. If, on facts, a claim made is assumed to be correct, then the assessing officer must necessarily state reasons as to why he is allowing the claim.
In Malabar Industrial Company Ltd. v. Commissioner of Income Tax [243 ITR 83 (SC)], the Hon'ble Supreme Court held as follows: "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."
Therefore, in the light of the principle discussed above, we find that Section 263 of the Income Tax Act, 1961 applies in the following cases: (a) the order sought to be revised contained error for lack of reasoning; Save A Family Plan (India) (b) the order sought to be revised proceeds on incorrect assumption of facts and applies the law incorrectly, and (c) stereotype orders passed by the assessing officer simply accepting the version of the assessee.” 12. In the light of the above discussion, we are of the considered opinion that the ld. PCIT (Exemption) was justified in exercising the power of revision u/s. 263 of the Act by setting aside the assessment order dated 30.12.2016.
In the result, the appeal filed by the assessee stands dismissed.