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Facts
The assessee, a charitable trust, claimed exemption under Section 11, which was initially accepted under Section 143(3). Subsequently, the CIT(E) reopened the assessment under Section 263, directing re-examination of the exemption. The assessee successfully challenged this Section 263 order before the ITAT, which set it aside. Despite this, the AO issued a fresh assessment order under Section 143(3) denying the exemption, based on the now-quashed Section 263 order. The Ld. CIT(A) allowed the assessee's appeal, leading the revenue to appeal to the Tribunal.
Held
The Tribunal affirmed that since the foundational revisional order under Section 263, which led to the reassessment, was set aside by the Tribunal, the consequential assessment order under Section 143(3) became invalid. The mere pendency of a departmental appeal against the Tribunal's previous order in the High Court, without a stay, does not negate the validity of the Tribunal's decision. Therefore, the Ld. CIT(A) was correct in allowing the assessee's appeal.
Key Issues
Whether a consequential assessment order passed under Section 143(3) is valid if the revisional order under Section 263, which formed its basis, has been set aside by the Tribunal, and what is the impact of a pending High Court appeal against the Tribunal's order on the validity of subsequent proceedings.
Sections Cited
12AA, 11, 143(3), 263, 2(15), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, COCHIN BENCH : COCHIN
Before: SHRI INTURI RAMA RAO & SHRI SOUNDARARAJAN K.
ORDER PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the revenue challenging the order of the NFAC, Delhi dated 17/05/2024 in respect of the A.Y. 2017-18 and raised the following grounds: “
1. The order of the Ld. CIT(A) is opposed to law on the facts and in the circumstances of the case.
2. The Ld.CIT(A) erred in allowing the assessee's appeal by relying the decision of ITAT Cochin bench's order No. ITA 633/Coch/2022 dated 08.03.2023, in the assessee's own case against the order u/s 263 of the IT Act dated 21.03.2022.
3. The Ld. CIT(A) failed to consider the fact that the department has filed an appeal against the ITAT's decision in ITA 633/Coch/2022 dated 08.03.2023 which is still pending in the Hon'ble High Court of Kerala under ITA 27/2023 dated 19.10.2023, seeking the restoration of the order u/s 263 of the IT Act.
The Ld.CIT(A) failed to consider the substantive issues raised in the assessment order u/s 143(3) r.w.s 263 of the IT Act dated 01.03.2023, which pertained to the applicability of the definition of charitable purpose u/s 2(15) of the IT Act.
5. The Ld.CIT(A) failed to sustain the order u/s 143(3) r.w.s. 263 of the IT Act, dated 01.03.2023 which was passed after thorough scrutiny and compliance with legal procedures without providing adequate justifications. 6. For these and such other grounds that may be adduced at the time of hearing, it is prayed that the order of the Ld.CIT(A) may be reversed and that of the Assessing Officer restored.”
The brief facts of the case are that the assessee is a charitable trust registered u/s. 12AA of the Act. During the A.Y. 2017-18, the assessee filed their return of income and claimed the income as exempt u/s. 11 of the Act. The assessment was initially completed u/s. 143(3) of the Act in which the AO had accepted the claim of exemption u/s. 11 of the Act. Subsequently, the Ld.CIT(E) reopened the assessment u/s. 263 and directed the assessing officer to pass a fresh assessment order after examining the claim of exemption u/s. 11 of the Act with reference to the business activities being carried out by the assessee. The assessee challenged the said order passed u/s. 263 of the Act before this Tribunal in and the Tribunal had allowed the appeal filed by the assessee by setting aside the order passed by the Ld.CIT(E) u/s. 263 of the Act.
In the meanwhile, the assessment unit issued a notice u/s. 142(1) and thereafter show cause notice was also issued. The assessee filed an interim reply and requested the assessment unit to keep the proceedings in 15/03/2023 since the appeal against the order made u/s. 263 was pending before the Tribunal. The assessment unit without considering the request made by the assessee had passed the order u/s. 143(3) by denying the exemption claimed u/s. 11 and also relying on the proviso to section 2(15) of the Act.
4. In the meanwhile, on 08/03/2023, the Tribunal had passed an order in in which the Tribunal had set aside the order passed by the Ld.CIT(E) u/s. 263 of the Act. In view of the subsequent development, the order passed by the assessment unit on 01/03/2023 in which the exemption claimed u/s. 11 was denied becomes illegal and therefore the assessee filed an appeal before the Ld.CIT(A) on the ground that the consequential assessment order passed on 01/03/2023 based on the order passed by the Ld.CIT(E) u/s. 263, which was set aside by the Tribunal on 08/03/2023 becomes invalid. The Ld.CIT(A) considered the submissions made by the assessee and allowed the appeal. As against the said order, the revenue is in appeal before this Tribunal.
At the time of hearing, the Ld.DR submitted that the order of the Tribunal in dated 08/03/2023 was not accepted by the department and therefore further appeal before the Hon’ble Jurisdictional High Court was filed in ITA 27/2023 and the same is still pending and therefore contended that the order of the Ld.CIT(A) is liable to be set aside.
The Ld.AR submitted that this Tribunal had set aside the revision order passed u/s. 263 of the Act by the Ld.CIT(E) and therefore the consequential order passed by the assessment unit is also an illegal order and therefore the Ld.CIT(A) had rightly allowed the appeal filed by the assessee. The Ld.AR further submitted that the mere pendency of appeal would not be a ground to attack the order of the Ld.CIT(A) that too when the Hon’ble High Court had not granted any stay order as against the order of the Tribunal made in and therefore submitted that as on today there is no order passed u/s. 263 of the Act and therefore the consequential order passed by the assessment unit is liable to be set aside which the Ld.CIT(A)had done correctly and requires no interference.
We have heard the arguments of both sides and perused the materials available on record.
There is no dispute with regard to the fact that the assessment unit has made the assessment u/s. 143(3) on 01/03/2023 in which the exemption claimed u/s. 11 was disallowed by relying on the proviso to section 2(15) of the Act, which was made based on the order passed by the Ld.CIT(E) u/s. 263 of the act. The appellate authority viz., the Tribunal, which heard the challenge made to the order passed u/s. 263, set aside the said order and therefore the consequential order passed is not a valid order. When the main order which authorises the AO to make the assessment was not there, the consequential order would not stand by itself. The Ld.CIT(A) had considered the said facts and gave its finding in the following paragraphs. “5.1 During the appellate proceedings, the appellant submitted its reply with supporting documentary evidences. On perusal of the material on record, it has been observed that the appellant had filed an appeal before the Hon'ble ITAT. Cochin, against the order u/s 263 of the IT Act,1961 dated 21.03.2022. However, during the assessment proceedings the appellant had mentioned about that appeal filing but the AO had passed an order u/s 143(3) r.w.s. 263 dated 01.03.2023 on compliance of the above mentioned order u/s263 of the IT Act,1961. Further, the Hon'ble ITAT, Cochin quashed the above said order u/s 263 of the IT Act,1961 and passed the order in the favour of the appellant vide order No. ITA 633/COCH/2022 dated 08.03.2023. 5.2 In view of the above, the order u/s 143(3) r.w.s. 263 dated 01.03.2023 of the assessment year 2017-18, does not sustain and accordingly the appeal against this order is infructuous and hence treated as allowed.”
9. The Ld.DR raised the plea that the Tribunal order setting aside the order passed u/s. 263 is under challenge before the Hon’ble High Court of Kerala and therefore the Ld.DR requested the Tribunal to set aside the order of the Ld.CIT(A). The Ld.DR had not produced any stay orders of the Hon’ble High Court in support of his argument and only submitted that the matter is under subjudice before the Hon’ble High Court and therefore find fault with the order of the Ld.CIT(A). We are not accepting the argument advanced by the Ld.DR for the simple reason that as on date, the order of the Tribunal was not set aside and a mere filing of the appeal would not be a reason for terming the order of the Ld.CIT(A) as illegal. We also found that the Ld.CIT(A) had explained the reasons in his order for allowing the appeal filed by the assessee which was not disputed by the Ld.DR and in that circumstances, we have no hesitation to dismiss the appeal filed by the revenue and we confirm the finding of the Ld.CIT(A) as a valid one.
In the result, the appeal filed by the revenue is dismissed.
Order pronounced in the open court on 11th March, 2025.