THE J.K. TRUST BOMBAY,MUMBAI vs. CIT (E), MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order

dated 29/03/2017 of the Ld. Commissioner of Income Tax

Act, 1961 (hereinafter the Act) (Exemption), Mumbai,

invoking revisional jurisdiction under section 263 of the

Income Tax Act, 1961 (hereinafter the Act).

the assessee, Shri Rakesh Mohan explained the nature of

activities done by the assessee and the show cause notice

issued to the assessee dated 12/08/2016, which has also

been reproduced in the impugned order. Our attention was

also invited to another letter dated 24/03/2017, which has

also been reproduced in the impugned order. It was

claimed that the assessee also filed written submissions

vide letter dated 15/03/2017 the contents of the same has

also been reproduced in para-3 onwards of the order under

appeal and further submissions dated 29/03/2017. The ld.

counsel explained that the assessee trust was constituted

in 1945 and was approved by the Charity Commissioner

1966. It was contended that the present object is being

3 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

done since 1966 and the project was assigned by the

Animal Husbandry Department, Govt. of Rajasthan and

this LSDCs are opened and operated in villages and at

present there 3957 such centres are opened in the state of

Rajasthan. The ld. counsel further explained that the trust

picks up an educated youth from the village, employs him

and thus employment is also generated. It was explained

that the record of calf are maintained and as on today

crossed breed calves are breeded to the extent of 10,78,839.

The ld. counsel explained that such highly breeded cows

gives thirty liters milk extra and thus improving the socio-

economic conditions of farmers/public at large. So far as,

payment to Mr. B.K. Kedia is concerned, it was explained

that he is looking after the administrative of the trust in a

senior level position for which our attention was invited to

page 84, 116, 118 (appointment letter), 119 and 120 of the

paper book. It was contended that there is no error in the

assessment order, which was framed after due

verification/examination of facts and even the Ld. CIT(E) is

not sure and it merely says “it appears that the assessee is

doing business”, thus, it is the personal feeling of the Ld.

4 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Commissioner(E), which cannot be said to be justified for

invoking revisional jurisdiction under section 263 of the

Act. Reliance was placed upon the decision in 243 ITR

83(Supreme Court) and 362 ITR 539 (Guj.). The crux of

the submissions/arguments of the assessee is that Shri B.

K. Kedia is an experienced person and is an instrumental

in enhancing the charitable activities of the assessee trust

and further the cattle breeding improvement through

establishment of integrated livestock development centers

(in short ILDC) are funded by the government from which

the farmers at large are benefited. It was also explained

that the main objective of this programmed is to upgrade

the local indigenous low milk Yielding cattle by cross

breeding them with the use of frozen semen of high

pedigree exotic bull through technique of artificial

insemination, resulting into crossbreed for better milk

yielding and surplus milk will improve the socio-economic

status of the farmers. It was contended that the

assessment order is neither erroneous nor prejudicial to the

interest of Revenue. Plea was also raised that for

Assessment Year 2010-11 (page 125 of the paper boo)

5 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

identically, the claim of the assessee was allowed by the

Department itself. Our attention was further invited to

pages 128, 129 and 130 of the paper book, where the Ld.

Assessing Officer was having the benefit of these orders. A

strong plea was raised that the activity carried out by the

assessee is being done for the last 20 years and the

Department had been accepting that no business activity is

carried out by the assessee, therefore, how the same

activity is classified as business activity now. Our attention

was invited section 11 and section 11(4A) of the Act.

2.1. On the other hand, Shri C.S. Gulati, Ld. CIT-DR,

strongly defended the impugned order by contending that

the assessee is involved in a systematic business activity

and no charity is done by the assessee, therefore, the

revisional jurisdiction was rightly invoked by the Ld.

CIT(Exemption). Our attention was invited to the

observation made by the Ld. CIT(Exemption) in the

impugned order. Plea was also raised that unreasonable

amount was paid to Shri B.K. Kedia, in proportionate to his

services rendered by him. Mr. Gulati, ld. CIT-DR, invited

out attention to the notice issued on 24/03/2017, which

6 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

itself speaks of non-compliance of the provision of the Act.

It was claimed that the amount of Rs.1.70 lakhs is highly

excessive, which has not been examined by the Ld.

Assessing Officer and Mr. Kedia is himself one of the

trustee of the assessee trust. Our attention was invited to

section 2(15) of the Act and further the second proviso to

the section. It was strongly contended that the no charity is

done by the assessee and payment is fixed for the calf

breeding and the bills are raised on monthly basis. It was

pleaded that it is simply a contract between two unrelated

parties and amount is based upon production per calf. The

crux of the argument is that there is a lack of enquiry by

the Ld. Assessing Officer. In reply, the ld. counsel for the

assessee, claimed that a conscious decision was taken by

the Ld. Assessing Officer on the issues raised by the Ld.

CIT(E) and also by the Ld. CIT-DR and the proviso does not

hit the assessee and the scope of enquiry by the ld. CIT(E)

is limited to the points raised in the impugned order for

which reliance was placed upon the decision in 335 ITR

83(Del.) and other cases mentioned in the case laws paper

book. A plea was raised whether the Ld. CIT(E) can invoked

7 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

section 263 on different views, for which reliance was

placed upon the decision in 140 ITR 490 (P & H). A strong

plea was raised by the Ld. counsel for the assessee that

services are provided to the villagers and not to the

government for which grants are given to the assessee by

the government for which our attention was invited to page

4, clause-b of the agreement.

2.2. Before adverting further, now we shall analyze

the relevant provision of section 263 of the Act, along with

the amendment made by the Finance Act, 2015 w.e.f.

01/06/2015, in the light of the contention made by Ld.

CIT-DR. The provision of the Act is reproduced hereunder

for ready reference:-

“ 263. (1) The [Principal Commissioner or] 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 interests 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 1.]—For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,— (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;

8 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

(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 [Principal Chief Commissioner or] Chief Commissioner or [Principal Director General or] Director General or [Principal Commissioner or] Commissioner authorised 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 [Principal Commissioner or] 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 [Principal Commissioner or] 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. [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 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.] (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.”

9 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

2.3. If the aforesaid insertion of Explanation -2 is analyzed the revisional jurisdiction can be invoked only when

(a) The order is passed without making enquiries or verification which should have been made

(b) The order is passed allowing any relief without enquiring into the claim

(c) The order has not been made in accordance with any order, direction or instruction issued by the Board u/s 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 a case of the assessee or any other person.

2.4. If the aforesaid insertion, w.e.f. 01/06/2015, if

kept in juxtaposition with the facts of the present appeal, it

can be said that there is no violation of the insertion by the

Assessing Officer because the assessment order was passed

after considering the details and on

examination/verification of the same and the relief was

granted to the assessee after making due enquiry,

therefore, so far as, explanation-2(a) and (b) is concerned,

10 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

consequently, on this count also, we find no merit in the

assertion made on behalf of the Revenue.

2.5. Now, we shall deal with the cases relied upon by

Ld. CIT-DR. One such case is ARVEE INTERNATIONAL v.

ADDITIONAL COMMISSIONER OF INCOME-TAX, RANGE

19(1), MUMBAI [2006] 101 ITD 495 (ITAT[Mum]), order

dated 13/01/2006. The relevant portion of the order is

reproduced hereunder:-

“The appeal filed by the assessee is directed against the order passed by the learned Commissioner of Income-tax under section 263 of the Income-tax Act, 1961 on the following grounds : "1. The order passed by the Ld. CIT under section 263 of the Income-tax Act, is bad in law. 2. The Ld. CIT erred in holding that loss of Rs. 13,90,096 incurred by the appellant on sale of import entitlement license is not admissible deduction. 3. The Ld. CIT failed to appreciate that appellant had shown the value of import entitlement at Rs. 73,01,184 in the closing stock of assessment year 1996-97 and after selling part of it in assessment year 1997-98 and making a profit, the appellant had sold the balance in assessment year 1998-99 in which loss of Rs. 13,90,096 was incurred and therefore, the same had been correctly allowed by the Assessing Officer as deduction. 4. The Ld. Commissioner failed to appreciate that whereas in assessment year 1996-97, the appellant was allowed deduction under section 80HHC, in assessment year 1998-99, business loss on sale of license has been allowed under section 37(1) and therefore, there had not been allowance of double deduction." 2. The facts of the case, in brief, are that the assessee, a partnership firm, was engaged, during the previous year relevant to the assessment year under appeal, in the business exporting pens and ball pens. It filed its

11 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

return of income declaring loss of Rs. 11,32,829 on 30-10-1998 for the assessment year under appeal. The assessment was completed on 29-12- 2000 under section 143(3) of the IT Act accepting the loss shown by the assessee. The entire order of assessment passed by the Assessing Officer reads, in verbatim, as under :

"The assessee-firm filed its return of income for assessment year 1998-99 on 30-10-1998 admitting a net loss of Rs. 11,32,828. This return of income was processed under section 143(1)(a) without any prima facie adjustment on 31-3-1999. Subsequently, notice under section 143(2) of the IT Act was issued and served on the assessee.

In response to notice under section 143(2) of the IT Act, Mr. L.R. Bajaj, Advocate, attended from time to time, furnished the details called for and the case was discussed.

The loss returned by the assessee at Rs. 11,32,828 is accepted.

Assessed under section 143(3) of the IT Act, the above loss is allowed to be carry forward. Credit for prepaid taxes and tax payable is determined as per ITNS 150 separately. Demand notice and challan is issued accordingly."

12 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

accordance with law at the assessment stage with the result that the said claim of the assessee stood accepted without any objective consideration and evaluation of the issues involved by the Assessing Officer. He therefore formed the belief that the order mechanically passed by the Assessing Officer without application of mind was both erroneous and prejudicial to the interest of the revenue.

13 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

one, the learned Commissioner was not justified in assuming jurisdiction under section 263 as the Assessing Officer had taken a plausible view while making the assessment. According to him, the Ld. Commissioner was not at all right in law in substituting his own view for the view taken by the Assessing Officer in the matter. In support of his submissions, he relied upon the following orders:

14 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

ITR 611(Ker.) affirmed by the Hon’ble Supreme Court in Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83.

15 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

contrary to law. The Assessing Officer ought to have, therefore, examined as to whether the assessee, in the first instance, was justified in law in showing a higher profit (without selling licences) in an earlier year in order to claim exemption, e.g., under section 80HHC and further thereafter in claiming loss in the year under consideration on the ground that the licences obtained earlier were sold without there being any actual loss to the assessee on such sale. He did not examine the aforesaid issues at all while making the assessment. We are not suggesting as to what view the Assessing Officer should have taken in the matter. We are simply highlighting the arbitrariness in the decision making of the Assessing Officer when the facts available on record should have provoked him to judicially inquire and examine the matter in accordance with law. We have therefore, no hesitation to hold that the assessment order mechanically passed by him without due application of mind was not only erroneous but was also prejudicial to the interest of the revenue within the meaning of section 263 of the Income-tax Act.

"error. N. 1. A psychological state that does not conform to objective reality; a belief that what is false is true or that what is true is false."

"Error. A mistake in judgment or deviation from the truth in matters of fact, and from the law in matters of judgment; . . . ‘Error’, is a fault in judgment, or in the process or proceeding to judgment or in the execution

16 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

upon the same, in a Court of Record; which in the Civil Law is called a Nullitie." (Termes de la Ley)

"Something incorrectly done through ignorance or inadvertence (S. 99, C.P.C. and S. 215, Cr.P.C.)."

"Error, Fault. Error respects the act; fault respects the agent, an error may lay in the judgment, or in the conduct; but a fault lies in the will or intention."

"An error is any deviation from the standard or course of right, truth, justice, or accuracy, which is not intentional. A mistake is an error committed under a misapprehension or misconception of the nature of a case. An error may be from the absence of knowledge; a mistake is from insufficient or false observation. Blunder is a practical error of a peculiarly gross or awkward kind, committed through glaring ignorance, heedlessness, or awkwardness. "An error may be overlooked or atoned for, a mistake may be rectified; but the shame or ridicule which is occasioned by a blunder, who can counteract." Strictly speaking, Hallucination is an illusion of the perception, a phantasm of the imagination. The one comes of disordered vision, the other of disordered imagination. It is extended in medical science to matters of sensation, whether there is no corresponding cause to produce it. In its ordinary use it denotes an unaccountable error in judgment or fact; especially in one remarkable otherwise for accurate information and right decision. It is exceptional error or mistake in those otherwise not likely to be deceived. (Smith, Syn. Dis)"

17 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

either where the Assessing Officer takes a wrong decision without considering the materials available on record or he takes a decision without making an enquiry into the matters, where such inquiry was prima facie warranted. The Commissioner will be well within his powers to regard an order as erroneous on the ground that in the circumstances of the case, the Assessing Officer should have made further inquiries before accepting the claim made by the assessee in his return. The reason is obvious. Unlike the Civil Court which is neutral in giving a decision on the basis of evidence produced before it, the role of an Assessing Officer under the Income-tax Act is not only that of an adjudicator but also of an investigator. He cannot remain passive in the face of a return, which is apparently in order but calls for further enquiry. He must discharge both the roles effectively. In other words, he must carry out investigation where the facts of the case so require and also decide the matter judiciously on the basis of materials collected by him as also those produced by the assessee before him. The scheme of assessment has undergone radical changes in recent years. It deserves to be noted that the present assessment was made under section 143(3) of the Income-tax Act. In other words, the Assessing Officer was statutorily required to make the assessment under section 143(3) after scrutiny and not in a summary manner as contemplated by sub-section (1) of section 143. Bulk of the returns filed by the assessees across the country is accepted by the Department under section 143(1) without any scrutiny. Only a few cases are picked up for scrutiny. The Assessing Officer is therefore, required to act fairly while accepting or rejecting the claim of the assessee in cases of scrutiny assessments. He should be fair not only to the assessee but also to the Public Exchequer. The Assessing Officer has got to protect, on one hand, the interest of the assessee in the sense that he is not subjected to any amount of tax in excess of what is legitimately due from him, and on the other hand, he has a duty to protect the interests of the revenue and to see that no one dodged the revenue and escaped without paying the legitimate tax. The Assessing Officer is not expected to put blinkers on his eyes and mechanically accept what the assessee claims before him. It is his duty to ascertain the truth of the facts stated and the genuineness of the claims made in the return when the circumstances of the case are such as to provoke inquiry. Arbitrariness in either accepting or rejecting the claim has no place. The order passed by the Assessing Officer becomes erroneous because an enquiry has not been made or genuineness of the claim has not been examined where the inquiries ought to have been made and the genuineness of the claim ought to have been examined and not because there is anything wrong with his order if all the facts stated or claim made therein are assumed to be correct. The Commissioner may consider an order of the Assessing Officer to be erroneous not only when it contains some apparent error of reasoning or of law or of fact on the

18 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

face of it but also when it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make enquiries or examine the genuineness of the claim which are called for in the circumstances of the case. In taking the aforesaid view, we are supported by the decisions of the Hon’ble Supreme Court in Rampyari Devi Saraogi v. CIT [1968] 67 ITR 84, Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323and Malabar Industrial Co. Ltd.’s case (supra). In Malabar Industrial Co. Ltd.’s case (supra) the Hon’ble Court has held as under :

"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."

"14. While making an assessment, the ITO has a varied role to play. He is the investigator, prosecutor as well as adjudicator. As an adjudicator he is an arbitrator between the revenue and the taxpayer and he has to be fair to both. His duty to act fairly requires that when he enquires into a

19 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

substantial matter like the present one, he must record a finding on the relevant issue giving, howsoever briefly, his reasons therefor. In S.N. Mukherjee v. Union of India AIR 1990 SC 1984, it has been observed by the Hon’ble Supreme Court as follows :

‘35. Reasons, when recorded by an administrative authority in an order passed by it while exercising quasi-judicial functions, would no doubt facilitate the exercise of its jurisdiction by the appellate or supervisory authority. But the other considerations, referred to above, which have also weighed with this Court in holding that an administrative authority must record reasons for its decision are of no less significance. These considerations show that the recording of reasons by an administrative authority serves a salutary purpose, namely, it excludes chances or arbitrariness and ensures a degree of fairness in the process of decision- making. The said purpose would apply equally to all decisions and its application cannot be confined to decisions which are subject to appeal, revision or judicial review. In our opinion, therefore, the requirement that reasons be recorded should govern the decisions of an administrative authority exercising quasi-judicial functions irrespective of the fact may, however, be added that it is not required that the reasons should be as elaborate as in the decision of a court of law. The extent and nature of the reasons would depend on particular facts and circumstances. What is necessary is that the reasons are clear and explicit so as to indicate that the authority has given due consideration to the points in controversy. The need for recording of reasons is greater in a case where the order is passed at the original stage. The appellate or revisional authority, if it affirms such an order, need not give separate reasons if the appellate or revisional authority agrees with the reasons contained in the order under challenge.’

Similar view was earlier taken by the Hon’ble Supreme Court in Siemens Engg. & Mfg. Co. Ltd. v. Union of India AIR 1976 SC 1785. It is settled law that while making assessment on assessee, the ITO acts in a quasi- judicial capacity. An assessment order is amenable to appeal by the assessee and to revision by the Commissioner under sections 263 and 264. Therefore, a reasoned order on a substantial issue is legally necessary. The judgment of the Hon’ble Madras High Court on which reliance was placed by the learned counsel for the assessee also points to the same direction. We have reproduced above the relevant portion of the observations made by the learned Judges. They have held that orders, which are subversive of the administra-tion of revenue, must be regarded as erroneous and prejudicial to the interests of the revenue. If the Assessing Officers are allowed to make assessments in an arbitrary manner, as has been done in the case before us, the administration of

20 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

revenue is bound to suffer. If without discussing the nature of the transaction and materials on record, the Assessing Officer had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. We find no reason why the same view should not be taken when an order is against the interests of the revenue. As a matter of fact such orders are prejudicial to the interests of both the parties, because even the assessee is deprived of the benefit of a positive finding in his favour, though he may have sufficiently established his case."

"(i) The order sought to be revised contains error of reasoning or of law or of fact on the face of it.

(ii) The order sought to be revised proceeds on incorrect assumption of facts or incorrect application of law. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

(iii) The order passed by the Assessing Officer is a stereo-typed order which simply accepts what the assessee has stated in his return or where he fails to make the requisite enquiries or examine the genuineness of the claim which is called for in the circumstances of the case."

21 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

objective consideration of the claim made by the assessee. The Assessing Officer has completely omitted the issue in question from consideration and made the assessment in an arbitrary manner. His order is a completely non-speaking order. In our view, it was a fit case for the learned Commissioner to exercise his revisional jurisdiction under section 263 which he rightly exercised by cancelling the assessment order and directing the Assessing Officer to pass a fresh order in accordance with law after giving a reasonable opportunity of hearing to the assessee. In our view, the assessee should have no grievance in that the learned Commissioner has simply asked the Assessing Officer to consider the claim of the assessee as per law. The assessee can neither contend nor expect that loss returned by it should be accepted by the Department without proper scrutiny and objective consideration of the issues by the Assessing Officer.

22 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

show that the order sought to be revised is erroneous and prejudicial to the interests of the revenue.

". . . Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an

23 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

erroneous order prejudicial to the interests of the revenue, unless the view taken by the Income-tax Officer is unsustainable in law." [Emphasis supplied]

24 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

whether only one view was possible or two or more views were possible and hence, the question of his adopting or choosing one view over the other does not arise. The aforesaid observations of the Hon’ble Supreme Court do not, in our view, help the assessee; rather they go against the assessee.

25 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

interest of the revenue. In the case before us, the assessment order passed by the Assessing Officer lacks judicial strength to stand. It is not a case where the order is short but is supported by judicial strength. It is in this view of the matter that we feel that the learned Commissioner has correctly exercised his revisional jurisdiction under section 263.

26 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

under section 263. The Assessing Officer is however free to decide the matter in the fresh round of assessment initiated as a result of the order of the learned Commissioner on merits and in accordance with law without being influenced by the aforesaid observations. 26. In view of the above, the appeal filed by the assessee is dismissed.”

2.6. The next case relied upon by the Ld. CIT-DR is

COLORCRAFT KASHIMIRA CERAMIC COMPOUND v.

INCOME-TAX OFFICER, WARD-4(4), THANE [2007] 105

ITD 599 (ITAT[Mum]), order dated 12/05/2006, which is

also reproduced hereunder:-

“The assessee has preferred this appeal against the order of the Learned CIT under section 263 of the Income-tax Act, 1961 (‘Act’). 2. The brief facts giving rise to this appeal are these: The assessee filed its income-tax return for the year under consideration disclosing total income at Rs. 7,45,780 after claiming deduction under section 80HHC of the Act for Rs. 69,98,537. The original assessment under section 143(3) of the Act was made by the Assessing Officer on 31-3- 2003, determining the total income at Rs. 7,88,376. Subsequently, the Learned CIT received a proposal from the Assessing Officer to the effect that the assessment was erroneous and prejudicial to the interest of Revenue inasmuch as deduction under section 80HHC was allowed in excess. Further, no enquiry was carried out with reference to the genuineness of the loans as well as the transactions falling under section 40A(2)(b) of the Act. Accordingly, the Learned CIT issued notice under section 263 on the following grounds : "1.In the order under section 143(3), deduction under section 80HHC of Income-tax Act of Rs. 70,46,582 was allowed. It is seen that the eligible business profits include duty draw-back of Rs. 20,64,833. As per the Supreme Court decision in the case of Sterling Foods, 237 ITR 579, the said amount was not derived from export activity and hence does not qualify for deduction under section 80HHC of Income-tax Act. Further the deduction under section 80HHC allowed on the duty drawback received as per proviso to section 80HHC(3) was erroneously allowed.

27 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

2.Purchases of Rs. 49,05,984 from M/s. Mineral India International were not verified in terms of section 40A(2)(b) of the Income-tax Act.

3.Loans appearing in the Balance Sheet and loans squared off during the year were not verified in terms of section 68 of the Income-tax Act."

After considering the reply of the assessee, the Learned CIT held that excessive deduction was allowed under section 80HHC for three reasons namely (i) that the Assessing Officer should have excluded the entire export incentive of Rs. 18,99,015 from the business profits instead of Rs. 18,58,350 being 90 per cent of the export incentives, (ii) that the central excise refund and sales tax set-off should have been included in the total turnover, and (iii) that the central excise refund and sales tax set-off should have been excluded from the business profits as per clause (baa) of Explanation to section 80HHC. It was further held that there was lack of proper enquiry on the part of Assessing Officer for determining the genuineness of the loans as well as with reference to the transactions of purchase of Rs. 49,05,984 from the sister concern M/s. Mineral India International vis-a-vis section 40A(2)(b). Accordingly, it was held that order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. Consequently, the order of the assessment was set aside to the file of Assessing Officer for fresh adjudication after making necessary enquiries and after giving opportunity of hearing to the assessee. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal.

28 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

29 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Aggarwal v. CIT [1973] 88 ITR 323 and the judgment of the Hon’ble Delhi High Court in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375, for the proposition that lack of proper enquiry on the part of Assessing Officer would result assessment order to be erroneous and prejudicial to the interest of the Revenue. Proceeding further, it was submitted by him that mere collection of information is not sufficient. It is the duty of the Assessing Officer to apply his mind to the evidences so collected and ascertain whether such material is sufficient and in consonance with the provisions of the Act. He then drew our attention to the details filed by the assessee and reference to its claim under section 40A(2)(b). According to him, the details of bills issued by the sister concerns were not sufficient evidence for coming to the conclusion that expenditure incurred by the assessee is reasonable to the market price. Since the Assessing Officer did not make further enquiries with reference to the reasonableness of the price paid by the assessee against the purchases made from the sister concerns, there was failure on the part of the Assessing Officer to make proper enquiries. Similarly, it was further submitted that mere confirmations and payment by cheque is not sufficient to prove the creditworthiness of the creditors and the genuineness of the loan transactions. According to him, it is the settled legal position that assessee is required to prove identity and capacity of the cash creditors as well as the genuineness of the transactions. It was pointed out by him that there was no evidence on record to prove the genuineness of the transactions as well as the creditworthiness of the cash creditors. Thus, there was lack of proper enquiry on the part of Assessing Officer. In view of the above arguments, it was submitted by him that order of the Learned CIT be upheld.

30 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

the show-cause notice, then before taking any decision, he must confront to assessee fresh reasons which he may in his mind and then allow assessee a fresh opportunity. The opportunity to be granted must be effective and cannot be an empty formality. A person, who is required to show cause, must know the basis on which action is proposed. Obviously, therefore, the notice issued must indicate the reasons on which the order of assessment is considered to be erroneous and prejudicial to the interest of Revenue [Rawani Dal & Flour Mills v. CST [1992] 86 STC 409 (Ori.)]. This means, there must be nexus between the reasons given in the show-cause notice and the order of the Learned CIT under section 263. Consequently, in our opinion, it has to be held that order of the Learned CIT would be bad- in-law where such order is not passed on the reasons given in the show-cause notice.

"Inasmuch as the Commissioner had not chosen to show these two points as the errors in making the final order and the final order under section 263 refers only to the inference of hire charges being exigible to tax which was not mentioned at all in the show-cause notice, obviously the assessee had no opportunity to meet that point. Moreover, a reading of the show-cause notice cannot give the assessee or even us, for that matter, any indication with reference to the hire charges which are sought to be assessed by the revision."

Similar view has been taken by the Tribunal, Madras Bench in the case of Sanco Trans Ltd. ( supra). The relevant portion of the same is reproduced as under :

"The Hon’ble Calcutta High Court in the case of CIT v. General Trade Agencies [1973] Tax LR 1383 held that where the show-cause notice did not fairly indicate the grounds used by the Commissioner in his order under section 263, the assessee was deprived of fair opportunity to show cause against proposed action and in such a case, the revisional order of the Commissioner cannot be sustained. The same Calcutta High Court in the case of Bagsu Devi Bafna v. CIT [1966] 62 ITR 506, affirmed in Bagsu Devi Bafna v. CIT [1967] 63 ITR 333,

31 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

held that the Commissioner must disclose in his notice to the assessee, the grounds on which he proposes to revise, to enable the assessee to show cause and to give him an opportunity of being heard. The Hon’ble Orissa High Court held in the case of Rawani Dal & Flour Mills v. CST [1992] 86 STC 409 that the opportunity to be granted must be effective, that it cannot be an empty formality, that a person who is required to show cause must know the basis on which the action is proposed and that obviously, therefore, the notice issued must indicate as to on what grounds the order is considered erroneous insofar as it is prejudicial to the interests of the Revenue. Since the under section 263 dated 22-3-1990 did not indicate the ground used by the Commissioner, in his order under section 263 dated 30-3-1990, the impugned order under section 263 cannot be sustained."

The Hon’ble Gujarat High Court, though rendered in penalty proceedings in the case of CIT v. Lakhdhir Lal Ji [1972] 85 ITR 77, cancelled the penalty by giving similar reasonings. The relevant portion of the judgment is quoted below :

"Held, that the penalty proceedings had been commenced against the assessee on a particular footing, viz. concealment of particulars of income but the final conclusion for levying the penalty was based on a different footing altogether viz. on the footing of furnishing inaccurate particulars of income. Under the circumstances, it could not be said that the assessee had been given reasonable opportunity of being heard before the order imposing the penalty was passed. The very basis for the penalty proceedings against the assessee initiated by the Income- tax Officer disappeared when the Appellate Assistant Commissioner held that there was no supervision of income by the assessee. The conclusion of the Tribunal that the Inspecting Assistant Commissioner had no jurisdiction to impose a penalty under section 271(1)(c) for concealment of income was correct." [As per Head Note]

In the present case, the reason given in the show-cause notice was that duty drawback received by the assessee could not be considered as profit derived from export in view of the Supreme Court judgment in the case of Sterling Foods (supra) and, therefore, the said amount did not qualify for deduction under section 80HHC. However, the order under section 263 held the assessment order as erroneous on different grounds namely ( i) the Assessing Officer should have excluded the export incentives of Rs. 18,99,015 instead of Rs. 18,58,350, (ii) Central Excise refund and Sales Tax set-off should have been excluded from the business profits under clause (baa) of Explanation to section 80HHC, and (iii) Central Excise refund and Sales Tax set-

32 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

off should have been included in the total turnover. However, there is no mention of the basis mentioned in the show-cause notice. This clearly shows that there was no nexus between the reasons given in the show cause and the reasons given in the impugned order for holding the order of Assessing Officer as erroneous qua deduction under section 80HHC. Therefore, following the reasons given by us in the preceding Paras, we quash the order of the Learned CIT (A) to the extent mentioned above.

33 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

information by itself is not sufficient for holding that payments made to sister concern under section 40A(2)(b) was reasonable and not excessive. Whether the payment was excessive or not would depend upon the prevalent market prices. However, the Assessing Officer did not make any enquiry regarding prevalent market price of the goods purchased by the assessee from the sister concern. In the absence of such enquiry on the part of Assessing Officer, in our opinion, the assessment order became erroneous. Therefore, the order of the Learned CIT (A) has to be held to be valid in this regard.

34 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

the primary onus and the onus shifted to the Department to verify the same. This itself shows that the Assessing Officer was required to make enquiry before rejecting the case of assessee. Similarly, in the case before the Gujarat High Court, Their Lordships referred to Supreme Court judgment in the case of CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 781and observed that where names and addresses of the creditors and GIR numbers are disclosed, then the burden shifted to the Department to establish the Revenue’s case and in order to sustain the addition, the Revenue has to pursue the enquiry and to establish the lack of creditworthiness (Page 369 of 256 ITR). This judgment of the Supreme Court also shows that the Department is required to make enquiries to prove the lack of creditworthiness before making any addition under section 68. Therefore, these two decisions relied upon by the assessee’s counsel do not help the case of the assessee. In our opinion, the fact of creditworthiness must be established and the primary onus is on the assessee to establish the same. In the present case, no evidence was furnished regarding the creditworthiness of the parties. Even otherwise, in such situation, the Assessing Officer should have made enquiries in this regard before accepting the explanation of the assessee. Therefore, in our opinion, there was lack of enquiry on the part of Assessing Officer and the same rendered the assessment order to be erroneous and prejudicial to the interest of Revenue. The order of the Learned CIT(A) is, therefore, sustained on this issue. 14. In view of the above discussion, the order of the Learned CIT under section 263 is partly quashed. Consequently, the appeal of the assessee is partly allowed.

2.7. Another case relied upon is from Hon'ble Madras

High Court in CIT vs Amalgamations Ltd. (1999) 238 ITR

963 (MAD). The relevant portion of the same is reproduced

hereunder:-

“It was no doubt true that the value of the property was determined for 1972-73 and the same value was adopted for the assessment years in question. The Commissioner undoubtly noticed the area of the building and the extent of the land occupied by the tenant, but there was no investigation or enquiry by him whether there was any actual increase in the rental value

35 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

of the property and if so what was the extent of increase in the rental value of the properties. The Commissioner, on the basis of his own assumption that there was general increase in the rental value of the property, had directed the ITO to investigate further and determine the rental value of the property. It was undoubtly true that the two properties were let out to two sister concerns of the assessee-company, but the mere fact that they were let out to the sister concerns of the assessee-company would not render the property as not tenanted one. Under the Rent Control Act of the State, there is a procedure for the determination of the fair rental value of the properties and it is not possible for the assessee to realise the rent more than the fair rent determined under the Rent Control Act. The Commissioner had not determined what would be the fair rental value of the property under the relevant rent control law of the State and on the basis of his own assumption that there was a steep increase in the rental value of the property, it was not possible for him to exercise the power of revision and direct the ITO to conduct further investigation and to determine the annual rental value of the same. The Commissioner should have some information or material to establish that the rental amount received by the assessee was too low than the fair rent of the properties. In the absence of any material to show that the said property would have fetched a higher rent, it was not possible for the Commissioner to exercise his power of revision. The Tribunal had found that there was no error of fact in the order of assessment. The ITO had completed the assessment after making due enquiry and after grant of certain deductions. The Commissioner had not indicated that there was any error in law in determination of the annual rental value of the property. He had also not indicated anywhere in his order that there was any error of law in determination of the rental value of the properties. In the absence of any material, the Commissioner had exercised his power of revision and set aside the order of the ITO and directed him to make further investigation in the matter and determine the annual rental value of the properties. The ITO, in the instant case, had taken the actual rent received from the two properties and had determined the annual rental value of the properties on the basis of the materials. Unless it was established that the materials relied upon by the ITO were not relevant and some irrelevant materials had been taken into consideration

36 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

before determining the annual value of the properties, it could not be said that the determination of annual rental value of the properties made by the ITO was erroneous. Therefore, the Commissioner had exercised his power of revision on his own assumption and exercised his power without any material or any evidence on record. As rightly pointed out by the Tribunal the trend was that there was an increase in rental value of the properties in the city it could not be assumed that the ITO had overlooked or missed the upward trend in the valuation of the city properties. The Tribunal had come to the correct conclusion in holding that the determination of annual rental value of the properties in respect of two assessment years made by the ITO had not been established to be erroneous in law and it could not be revised under section 263. 2.8. The Ld. CIT-DR also relied upon the decision

from Hon'ble Madras High Court in CIT vs Neyveli Lignite

Corporatoin Ltd., order dated 06/11/2000, [2001] 118

Taxman 230 (Madras)/[2001] 248 ITR 611 (Madras)/[2001]

171 CTR 154 (Madras). The relevant portion of the same is

reproduced hereunder:-

“The assessment year with which we are concerned in this matter is 1977-78. The assessee had set up in the year 1977, a belt reconditioning plant designed for retreading of conveyor belts. The process involved cleaning, inspection, peeling, drying, reconditioning, buffing, vulcanizing and trimming, etc. The life of the belt after such processing was 75 per cent, of a new belt, while the cost of reconditioning was about 50 per cent of the cost of a new belt. 2. The assessee claimed relief under section 80J of the Income-tax Act, 1961 as a new industrial undertaking. That relief was granted by the ITO who also found that the assessee's taxable income for that year was 'nil'. The order of the ITO was revised by the Commissioner in exercise of his powers under section 263, as he

37 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

thought that the order was erroneous and was also prejudicial to the interests of the revenue. The Commissioner's order, however, was set aside in appeal by the Tribunal which held that the reconditioned belt was the result of the process of manufacture, and that the assessee was, therefore, entitled to relief under section 80J. 3. At the instance of the revenue, the questions as to whether the precondition regarding prejudice to the revenue existed when the Commissioner exercised his revisional jurisdiction as also whether the Tribunal was right in taking the view that the reconditioned belt was a result of manufacture is correct, have been referred to us. 4. On the question as to whether the recondition of a conveyor belt can be regarded as the result of a process of manufacture, and as hav- ing brought into existence a new article, the counsel for the reve- nue referred us to the decision of this Court in the case of CIT v. Madurai Pandian Engg. Corpn. Ltd. [1999] 239 ITR 375 , wherein it was held in the context of a claim for investment allowance for a unit which retrea- ded tyres, that a retreaded tyre was not a new article, and that the pro- cess of retreading was not manufacture. It was emphasized by the Court that for claiming relief under section 80J a new article should emerge from the manufacture. The counsel submitted that reconditioning of a conveyor belt, the conveyor belt being made of rubber is qualitatively not different from the retreading of an old tyre and that the law laid down in that case would apply to the facts of this case as well. 5. Attention was also invited to the observations of the Apex Court in the case of Indian Hotels Co. Ltd. v. ITO [2000] 245 ITR 538 wherein the Court observed, inter alia, thus : "...The word 'manufacture' has various shades of meaning but unless defined under the Act it is to be interpreted in the context of the object and the language used in the sections. In the context of the provisions which deal with grant of investment allowance or deduction under section 80J it is apparent that it is used to mean production of a new article or bringing into existence some new commodity by an industrial undertaking. . . ." (p. 544) 6. According to the assessee's claim here, what it does is to recondition the old belts. The article remains a belt before and after such reconditioning. It becomes more useful after reconditioning. The belt, however, does not change its character as a belt as a result

38 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

of the reconditioning. It cannot, therefore, be said that any new article comes into existence when the old belt is reconditioned and made fit for use for some more time. The life of a reconditioned belt is not the same as that of a new belt. The purpose which a reconditioned belt is to serve is the same as the purpose that the belt before reconditioning was serving. We must, therefore, hold that the Tribunal was not right in taking the view that a new article came into existence as a result of reconditioning of the old belt. 7. As regards the other question, the relief claimed under section 80J once allowed, would continue to be available to the assessee for a period of seven years. The fact that as on the date of the ITO's order, the tax leviable was 'nil' does not mean that the assessee was incapable of making profits in future years on which tax could have been levied. The Commissioner is not expected to be an astrologer being capable of foretelling future events to note as to what the commercial success of failure of the assessee would be at a later point of time. The Commissioner was, therefore, well within his jurisdiction in holding that the order of the ITO was prejudicial to the interests of the revenue. 8. We, therefore, answer the two questions referred to us, viz. :

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in cancelling the order of the Commissioner of Income-tax under section 263, holding that the assessee is eligible for deduction under section 80J ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the Income-tax Officer's order cannot be said to be prejudicial to the revenue for the assessment year 1977-78 as there is no tax effect ?" in favour of the revenue and against the assessee. The revenue will be entitled to costs in the sum of Rs. 1,500.”

2.9. So far as, the scope of revision u/s 263 of the Act

is concerned, the Hon’ble Bombay High Court has

enlightened us in its order dated 15/04/1993 in CIT vs

Gabrial India Ltd. (1993) 203 ITR 108 (pages 9 to 15 of the

39 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

paper book), wherein discussion was made at length and

finally decided in favour of the assessee. The relevant

portion of the order is reproduced hereunder:-

“7. We have heard learned counsel for the parties and carefully perused the orders of the Income-tax Officer, the Commissioner and the Tribunal. On perusal of the admitted facts, it appears that the Income-tax Officer in the instant case had examined the allowability of the claim of the assessee for deduction of the above amount of Rs. 99,326. While doing so, he asked for an explanation from the assessee in regard to the nature thereof. The assessee furnished a detailed explanation, vide his letter dated September 19, 1975. It was on a consideration of the said explanation and on being satisfied that it was a revenue expenditure that the Income-tax Officer allowed the claim for deduction. It is, however, correct that in his order, he did not make any discussion in regard to the query made by him and the explanation submitted by the assessee thereto.

40 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

"263. Revision of orders prejudicial to Revenue. - (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 Income-tax Officer is erroneous in so far as it is prejudicial to the interests 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.

(2) No order shall be made under sub-section (1) -

(a) to revise an order of reassessment made under section 147, or

(b) after the expiry of two years from the date of the order sought to be revised. . . .

41 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

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 ).

42 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

43 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

44 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

aforesaid conclusion gets full support from a decision of Sabyasachi Mukharji J. (as his Lordship then was) in Russell Properties Pvt. Ltd. v. A. Chowdhury, Addl. CIT . In our opinion, any other view in the matter will amount to giving unbridled and arbitrary power to the revising authority to initiate proceedings for revision in every case and start re-examination and fresh enquiries in matters which have already been concluded under the law. As already stated it is a quasi judicial power hedged in with limitation and has to be exercised subject to the same and within its scope and ambit. So far as calling for the records and examining the same is concerned, undoubtedly, it is an administrative act, but on examination "to consider" or in other words, to form an opinion that the particular order is erroneous in so tar as it is prejudicial to the interests of the Revenue, is a quasi-judicial act because on this consideration or opinion the whole machinery of re-examination and reconsideration of an order of assessment, which has already been concluded and controversy which has been set at rest, is set again in motion. It is an important decision and the same cannot be based on the whims or caprice of the revising authority. There must be materials available from the records called for by the Commissioner.

45 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

nature. He simply asked the Income-tax Officer to re-examine the matter. That, in our opinion, is not permissible. Further inquiry and/or fresh determination can be directed by the Commissioner only after coming to the conclusion that the earlier finding of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue. Without doing so, he does not get the power to set aside the assessment. In the instant case, the Commissioner did so and it is for that reason that the Tribunal did not approve his action and set aside his order. We do not find any infirmity in the above conclusion of the Tribunal.

Company Ltd. vs CIT (243 ITR 83)(SC), it was held that for

invoking jurisdiction u/s 263 by the ld. Commissioner, the

order should be either erroneous and prejudicial to the

interest of Revenue. In that case, the assessment was

framed without making an enquiry by the Assessing Officer,

in that situation, exercise of revisional jurisdiction by the

CIT was held to be justified. However, in the present case,

due enquiries was made by the Assessing Officer and the

necessary details, filed by the assessee were examined,

therefore, this judicial pronouncements supports the case

of the assessee. Identical ratio was laid down in CIT vs Max

India Ltd. (2007) 295 ITR 282, wherein, the decision of

46 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Malabar Industrial Company Ltd. was also considered and

the appeal of the Department was dismissed. It is

elementary, as was held by Hon’ble Supreme Court in the

case of Malabar Industrial Co Ltd Vs CIT [(2000) 243 ITR 83

(SC)], “Every loss of revenue as a consequence of an order

of Assessing Officer cannot be treated as prejudicial to the

interests of the Revenue, for example, when an ITO adopted

one of the courses permissible in law and it has resulted in

loss of revenue; or where two views are possible and the

ITO has taken one view with which the CIT does not agree,

it cannot be treated as an erroneous order prejudicial to the

interests of the Revenue unless the view taken by the ITO is

unsustainable in law”. Learned Principal Commissioner

was thus in error in holding that the ld. Assessing Officer

did not made enquiries while framing the assessment and

rendered the assessment order erroneous and prejudicial to

the interest of the revenue, we find no such error, which

can lead to the assessment order being subjected to the

revision proceedings under section 263.

2.11. The case of the assessee is further fortified by

the decision in Siddhi Real Estate Developers vs CIT (ITA

47 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

No.2630 to 2635/Mum/2012) order dated 13/05/2014,

wherein, various decisions like Mudhit Madanlal Gupta vs

ACIT (51 DTR 217), DCIT vs Magapatta Township

Development and Construction Company (141 ITD

682)(Pune), Rahul Construction Company vs ITO (ITA

No.1250/Pn/2009), CIT vs Vandana Properties (2012) 353

ITR 36 (Bom.) and various decisions were considered and

finally decided in favour of the assessee.

2.12. Hon’ble Delhi High Court in CIT vs Sunbeam

Auto Ltd. (2011) 332 ITR 167 order dated 11/09/2009,

after considering various decisions, made an elaborate

discussion and decided in favour of the assessee by holding

that there is distinction between “lack of enquiry” and

“inadequate enquiry” and hold that if there is an enquiry,

even inadequate, that would not by itself give occasion to

the CIT to pass order us/ 263, merely because he has a

different opinion in the matter. This judicial

pronouncement squarely defends the case of the assessee.

While coming to this conclusion, the Hon’ble Court duly

considered the following decision

a. Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd.

48 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

(2007) 210 CTR (SC) 30 (2007) 291 ITR 500 (SC) b. CIT vs. Mysore Spun Concrete Pipe (P) Ltd. (1991) 97 CTR (Kar) 117 (1992) 194 ITR 159 (Kar) c. CIT vs. Seshasayee Paper & Boards Ltd. (2000) 242 ITR 490 (Mad) d. Gee Vee Enterprises vs. Add!. CIT 1975 CTR (Del) 61 : (1975) 99 ITR 375 (Del) e. Madras Industrial Investment Corporation Ltd. vs. CIT (1997) 139 CTR (SC) 555 (1997) 225 ITR 802 (SC) f. Malabar Industrial Co. Ltd. vs. CIT (2000) 159 CTR (SC) 1 : (2000) 243 ITR 83 (SC)

2.13. The Mumbai Bench of the Tribunal in M/s.

Simandhar Association vs Principal CIT (I.T.A. No.

789/Mum/2016) Order dated 21/03/2016 has discussed

the scope of revisional jurisdiction u/s 263 of the Act. The

relevant portion from the order is reproduced hereunder:-

“The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: “Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the 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 interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be “erroneous in so far as it is prejudicial to the interests of the

49 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Revenue”. This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision “cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer” and “it is only when an order is erroneous that the section will be attracted”. The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural justice or without application of mind, would be an order falling in that category. The expression “prejudicial to the interests of the Revenue”, the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : “The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law.” The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.” The principles laid down by the courts are that the Learned CIT cannot invoke his powers of revision under section 263 if the Assessing Officer has conducted enquiries and applied his mind to the issues. If the assessment order has been passed by causing enquiries, then it would not give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. The consideration of the Commissioner as to whether an order is erroneous in so far it is prejudicial to the interests of Revenue must be based on materials on record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of

50 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to start fishing and roving enquiries in matters or orders which are already concluded.” 2.14. The aforesaid decision clearly and the ratio laid

down by the Ahmadabad Bench of the Tribunal in the case

of Aditya medisales vs addl. CIT (ITA No.1334/Ahd/2015)

order dated 16/02/201 supports the case of the assessee,

wherein, the revisional jurisdiction invoked u/s 263 of the

Act was quashed. The relevant portion from the aforesaid

order is reproduced hereunder for ready reference:-

“ 7. We have noted that as on the time of passing the impugned revision order, the matter regarding disallowance under section 14 A was pending for I . T.A . No. 1334/Ahd/15 Assessment Year : 2010 -1 1 consideration before the CIT(A). The assessee had filed the appeal before the CIT(A) on 22nd March 2013 and even the written submissions were filed on 14th October 2013. Learned CIT(A) was thus in seisin of the question as to whether the disallowance under section 14A was correctly made, and let us not forget that the CIT(A) had all the powers, co terminus with the powers of the Assessing Officer, including the powers of enhancement. As to whether the learned Commissioner could have exercised his revision powers under section 263 at this point of time, we find guidance from Hon'ble Madras High Court's judgment, in the case of CWT Vs Sampathmal Chordia [(2002) 256 ITR 440 (Mad)], which observes, inter alia, as follows:

51 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

when an appeal, has, in fact, been filed in respect of those matters and was pending before the appellate authority. The Explanation to s. 25(2) in cl. (c) thereof, after its amendment by the Finance Act of 1989 makes this abundantly clear. That provision sets out that where the order sought to be revised is one passed by the AO and had been made the subject-matter of an appeal, the power of the CWT will extend to such matters as had not been considered and decided in such appeal.

(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. [Explanation c to Section 25(2)] (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 Principal Commissioner or 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. xxxxxxxxxxxxxxxxxxxxx

52 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

appellate proceedings, learned Commissioner could not have invoked his revision powers on the issue before the CIT(A). The view adopted by the learned Assessing Officer was after due examination of the matter and a considered view after taking into account all the relevant factor and even if a different view, on the same set of facts, was possible, the possibility of another view in favour of the assessee did not render the assessment erroneous and prejudicial to the interest of revenue so as to trigger revision under section 263. In any event, even on merits, the stand of the Commissioner was incorrect and unsustainable in law. For all these reasons, we are not inclined to uphold the impugned order. Accordingly, the revision order stands quashed.”

2.15. So far as, the contention of the Ld. CIT-DR that

explanation-2 was inserted by the legislature w.e.f.

01/06/2015 is concerned, the ld. counsel for the assessee,

invited our attention to the decision of the Mumbai Bench

of the Tribunal in the case of Narayan Tatu Rane vs Income

Tax Officer (2016) 70 taxman.com 227 (Mum. Trib.),

therefore, the relevant portion of the aforesaid order is

reproduced hereunder:-

“1. - Both the appeals filed by the assessee are directed against the common order dated 29-03-2016 passed by Ld Pr. CIT-27, Mumbai u/s 263 of the Act and they relate to the assessment years 2007-08 and 2008- 09. The assessee is challenging the validity of the revision orders passed by Ld CIT. 2. The facts relating to the issue are stated in brief. The assessee originally filed returns of income for both the years under consideration u/s 139(1) of the Act. Subsequently information was received from Bangalore office of Income tax that they had carried out search and seizure operations in the case of M/s R.N.S Infrastructure Ltd on 16.02.2012 and during the course of the search, certain documents

53 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

indicating payments made to persons holding public office were seized. One of the said documents contained certain payment details under the heading "Rane C M". Based on this information, the assessing officer reopened the assessment of both the years under consideration by issuing notices u/s 148 of the Act. The AO completed the assessments u/s 143(3) r.w.s. 147 of the Act, accepting the explanations of the assessee that the said incriminating document do not relate to him. Thus the assessing officer completed the assessment without making any addition, i.e., accepting the income returned by the assessee. 3. On examination of the assessment records, the Ld Pr. CIT took the view that the assessing officer did not examine and verify the issues by correlating the evidences found during the course of search conducted in the hands of R.N.S. Infrastructure. Accordingly he held that the assessment orders passed for both the years under consideration is erroneous and prejudicial to the interests of revenue. The relevant observations made by Ld Pr. CIT in this regard are extracted below, for the sake of convenience. '2. . . . On perusal of records, the fo11owing issues were noticed in the aforesaid order u/s 143(3) r.w.s 147 of the Income-tax Act, 1961 dated 31.03.2015 for the A.Y. 2007-08:-

(1) The case was reopened for scrutiny to verify information received from the Investigation Wing during the course of search operations in the case of' M/s. R.N. S. Infrastructure Ltd. on 16/02/2012. During the course of the search operations, certain documents were found and seized, which indicated the payments made to several persons holding public office. As per the information received, Shri Naravan Tatu Rane is one of the recipients, which is reflected as per the notings given below: Rane - CM 16.11.2006 10,00,000/- NAVEEN 09.03.2007 25,00,000/ KUDAL The notings have been made in a diary seized from the chamber of Shri Suni D. Sahasrabuddhe. Vice-President, Finance. R.N.S. Infrastructure Ltd. and inventorised as A/RNS IL/ 17 dated 16/02/2012 (page 9). (2) On further scrutiny of the above mentioned sheet, the following points are notable which prove the fact that payments made to "Rane-CM" is to the same person Shri Narayan T. Rane, who is the Ex-Chief Minister of Maharashtra, and who has received the above payments i. An amount of 50 lakhs is shown to have been paid on 10/4/1999 against which birthday is mentioned. The date of birth of Shri Narayan Rane, Ex Chief-Minister of Maharashtra is 10thApril,

54 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

1952 which is the same as mentioned above. ii. An amount of 50 lacs is shown to have been paid in March, 1999 (end of Mar). It is hereby pointed out that Shri Narayan T. Rane became the Chief Minister of Maharashtra in February, 1999. iii. Further, there are following entries on the same page in date-wise sequence: 3rd week September, 1999 50,00,000 Kudal 4th week September, 1999 50,00,000 Kudal 7/4/2003 5,00,000 Panch Elect. Vijaya 29/12/07 10,00,000 Election, Kudal Similarly for the A.Y. 2008-09, similar payments were noticed as mentioned hereunder: Rane - CM 14.3.2008 50,00,000/- NAVEEN 14.3.2008 17,00,000/- SITE The Assessing Officer did not examine and verify the above issues while completing the assessment u/s 143(3) r.w.s 147 of the Act for both the A.Ys. and accepted the assessee's explanation that he did not have any transactions with M/s. R. N. S. Infrastructure Ltd. or Shri Sunil D. Sahastrabudhe, Vice President, Finance and had not received any cash from him and assessed the total income at Rs. 21,18,945 and Rs.13,68,103/- respectively without examining and correlating the evidences found in the course of the search, which resulted in incorrect computation of income for both the years as the amounts shown to be received were not been added to the total income by the Assessing Officer. For the said reasons, the assessment order made by the Assessing Officer was found to be erroneous in so far as it was prejudicial to the interest of the revenue. Hence, a notice u/s 263 of the Act dated 1.3.2016 was issued to the assessee as the order was found to be erroneous & prejudicial to the interest of the revenue within the meaning of section 263 of the Income-tax Act. 1961 and the assessee was allowed an opportunity of being heard and to show cause as to why an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment within the meaning of Section 263 of the Income Tax Act, 1961 may not be passed in his case. Similar notice was issued for A.Y. 2008-09 as well with minor modifications.' 4. The assessee contended before the Ld Pr. CIT that the assessing officer has reopened the assessment of both the years for the specific purpose of assessing the income, if any, noticed in the incriminating documents. The assessee had objected to

55 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

the reopening, but the AO has overruled the same by giving detailed reasoning. The assessing officer issued notice u/s 142(1) of the Act calling for various details. The assessee replied to all the queries raised by the assessing officer by giving a detailed reply, wherein the assessee had denied the entire transactions noted down in the incriminating documents. It was further submitted that the assessing officer was satisfied with the explanations and replies given by the assessee and accordingly he did not make any addition. The assessee further contended that the assessing officer has applied his mind on the incriminating documents, correctly appreciated the facts and has come to reasoned conclusion that no addition is required to be made to the income of the assessee. It was also submitted that the revision proceedings have been initiated for examining the very same issue on which the assessments were reopened. Accordingly it was contended that the revision proceedings initiated u/s 263 of the Act is not valid in law. The assessee relied upon following case law in support of his contentions:—

(i) CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (ii) CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (iii) CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (iv) CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) 5. The Ld Pr. CIT was not convinced with the contentions of the assessee and accordingly held that the assessment order is erroneous and prejudicial to the interests of revenue. Accordingly he set aside the assessment orders of both the years under consideration and directed the AO to redo the assessment de novo. The Ld Pr. CIT also observed that the AO may pass the assessment order within six months under the guidance and after obtaining prior approval of the Jt. Commissioner of Income tax. For the sake of convenience, we extract below the operative portion of the revision order passed by Ld Pr. CIT.

"7. I have considered the facts of the case, the assessment records, show cause notice issued and appellant's submission and the case laws relied upon by the assessee. In CIT v. Gabriel India Ltd. [1993] 203 ITR 108 (Bom.), the assessee had claimed a deduction of Rs.99,326 under the head plant 're-lay- out expenses' which was allowed by the Assessing Officer while the CIT was of the view that it was a capital expenditure. Hon'ble Bombay High Court held that the Commissioner could not be vested with the power to re- examine the accounts and determine the income himself at a higher figure. The claim was allowed by the Assessing Officer on being satisfied with the explanation of the assessee and such decision cannot be held to be 'erroneous' simply because in his order he did not make an elaborate discussion in that regard. The decision is distinguishable on facts as in the

56 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

instant case the issue is not the nature of expenditure being capital or revenue but failure to conduct inquiries and examine the evidence found in the course of the search in which transactions relating to the assessee were mentioned. Hon'ble Delhi High Court in the case of CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167, also held that the opinion of the Assessing Officer in treating the revenue expenditure was plausible and thus, there was no material before the Commissioner to vary that opinion and ask for fresh inquiry. In the case of the assessee, on the other hand, on examination of records as they exist now, it is evident that the Assessing Officer did not appreciate the full facts of the case and vital evidences being the date of birth, the date of assumption of the public office and the constitutency etc. which all linked the transactions in the seized document with the assessee and thereby passed an order which is now held to be erroneous and prejudicial to the interests of the revenue. Hence, the decision is not applicable to the facts of the case of the assessee. In CIT v. Vikas Polymers [2012] 341 ITR 537, Hon'ble Delhi High Court held that the order of the Assessing Officer might be erroneous but how it was prejudicial to the interest of revenue had not been stated by the Commissioner as he did not deal with the explanation given by the assessee in the course of the proceedings under section 263. This decision also being distinguishable, is not applicable to the facts of the case of the assessee. Thus, all the decisions relied upon by the Ld A.R being distinguishable on facts are not applicable to the facts of the case of the assessee. 8. The objection of the assessee that the order is no erroneous for the purpose of section 263 of the Act is also not borne out from the facts of the case. The relevant facts of these cases relied upon are not similar to the facts of the case of the assessee as the Assessing Officer has not examined and verified the information with reference to the assessee. Secondly, the assessee has maintained silence on the issue in para no.3(2) of the show cause notice wherein it was mentioned that the payments were made to "Rane CM" who is the same person as Shri Narayan T Rane, the Ex-Chief Minister of Maharashtra. Kudal is the assembly constituency of Shri Narayan Rane which is also mentioned in the first two entries. The last entry indicates that the amount was paid to Shri Narayan Rane for the election expenses. Further, it is also observed that no notices u/s 133(6) were issued to M/s R.N.S Infrastructure Pvt Ltd and neither was any opportunity given to the assessee to cross examine the said person Shri Sunil Sahasrabudhe (VP - Finance) on the basis of whose statement the case was reopened. Merely on the basis of the assessee's submissions and arguments, the proceedings u/s 148 were completed. It is, therefore, evident that the information was not verified properly. Thus it is held that the requisite inquiry and verification was not carried out before passing the

57 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

orders u/s 143(3) r.w.s. 147 of the Act as the Assessing Officer did not make necessary enquiry on this issue and accordingly, in view of clause (a) of Explanation 2 below sub section (1) of section 263 of the Income tax Act, 1961, the order passed by the Assessing Officer is deemed to be erroneous and prejudicial to the interests of revenue."

58 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

shown as to how the entries made in the incriminating document could translate into income in the hands of the assessee. He further submitted that the impugned incriminating document was a dumb document and even the official of M/s R.N.S. Infrastructure also did not implicate the assessee, when specific questions were put to him about the impugned incrimating document. Accordingly he submitted that the assessment order cannot be considered to be prejudicial to the interest of the revenue. He further submitted that the Ld Pr. CIT has also not shown as to how the assessment order is erroneous one. He further submitted that the Ld CIT can initiate revision proceedings only if both the conditions specified in sec. 263 of the Act is satisfied, viz., the assessment order was erroneous and it was prejudicial to the interest of the revenue. For this proposition he placed strong reliance on the decisions rendered by Hon'ble Supreme Court in the case of Malabar Industrial Co. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) and CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC). 9. On merits, the ld A.R submitted that the impugned incriminating document was a dumb document and hence the tax authorities could not place any reliance on it. In this regard, he placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 and more particularly to the following observations made by Hon'ble Apex Court:— "37. In Beni v. Bisan Dayal (AIR 1925 Nag 445: 89 IC 371), it was observed that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another......" 10. On the contrary, the Ld D.R submitted the assessing officer has simply extracted the explanations furnished by the assessee in the assessment order and he did not give his conclusion on the submissions made by the assessee. Accordingly he contended that the assessing officer has not taken any view at all and hence there is no justification in contending that the assessing officer has taken a possible view. He submitted that the incriminating document contained sufficient entries to indicate that the payment was made to the assessee only. He submitted that a part of sum was given to the assessee on his birth day and further, a reference is there as "Rane C M", which is nothing but "Rane Chief Minister". He submitted that the assessee has not rebutted this inference before the assessing officer. He further submitted that there is a reference to a place called "Kudal" and the said

59 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

place happened to be the assembly constituency from where the assessee had won elections. He submitted that the assessing officer did not make enquires about these facts, which create link between the assessee and the incriminating document. He submitted that all these factual aspects clearly point out that the entries made in the impugned incriminating document are factually correct. Further he did not make any enquiries with M/s R.N.S Infrastructure, from whom the document was seized. He further submitted that the assessing officer should have made necessary enquires and should have provided opportunity to the assessee to cross examine them. Accordingly he submitted that the assessing officer has completed the assessment upon incorrect presumption of facts and without making proper enquiries and without taking a view. The Ld D.R placed reliance on the decision rendered by Hon'ble Madras High Court in the case of CIT v. Amalgamations Ltd. [1999] 238 ITR 963 to contend that the incorrect assumption of facts renders the assessment order as erroneous. He further relied upon the decision rendered by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) to contend that non-application of mind on the part of the AO on the facts collected would render the assessment order erroneous. He further submitted that omission on the part of the assessing officer to consider various factual aspects such as the date of birth of the assessee, date of assumption of public officer, constituency form which he won election etc. has led the AO to frame the assessment in an arbitrary manner and hence the said assessment order is liable for revision as held in the case of CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.). He further submitted that the Explanation 2 given under sec. 263(1), which was inserted by the Finance Act 2015 w.e.f. 1.6.2015, provides that the order passed without making inquiries or verification which should have been made shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. He submitted that the said Explanation 2 is clarificatory in nature and hence the same should be applied retrospectively. 11. In the rejoinder, the Ld A.R submitted that the assessing officer has made due enquiries with regard to the impugned incriminating document, since the AO has reopened the assessment to examine the same only. He submitted that the alleged incriminating document was a dumb document and even the person from whom it was seized, did not implicate the assessee at all in the statement taken from him u/s 132(4) of the Act. He submitted that the assessing officer has accepted the explanations of the assessee by considering all these factual details and hence he did not make any addition. He further submitted that the assessment orders of the two years under consideration have been passed by two different assessing officers and both have taken the view that no addition was called for on the basis of the impugned incriminating document. The Ld A.R further submitted that the assessing officer has carried out necessary enquiries with regard to the

60 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

impugned incriminating documents and was satisfied with the explanations given by the assessee. He submitted that, even though the Ld Pr. CIT was not satisfied with the scope of enquiry conducted by the AO, yet the Ld CIT himself has not conducted any enquiry to prove that the entries made in the document could be linked to the assessee, particularly in view of the fact that the official of M/s RNS infrastructure did not implicate the assessee in the statement taken with regard to the impugned document. He further submitted that the Ld CIT did not show as to how the entries made in the document could be considered as income in the hands of the assessee, even if it is taken for a moment that the entries made in the document did relate to the assessee. Accordingly the Ld A.R submitted that the Ld CIT has not brought on record any corroborative material to show that the said document relates to the assessee and further there is any income element therein causing prejudicial to the interests of the revenue. Accordingly he submitted that the Ld CIT could not have taken support from the Explanation 2 inserted by Finance Act, 2015 prospectively. He submitted that the Ld Pr. CIT has thrust upon the assessing officer his views through this revision orders and hence the same are not sustainable. 12. We have heard rival contentions and perused the record. Before going into the merits of the issue, we would like to discuss about the legal position with regard to the power of Learned CIT to invoke revision proceedings under section 263 of the Act. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court, in the case of Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are extracted below: 'Section 263 of the Income-tax Act, 1961 empowers the Commissioner to call for and examine the record of any proceedings under the 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 interests of the Revenue, to pass an order upon hearing the assessee and after an enquiry as is necessary, enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The key words that are used by section 263 are that the order must be considered by the Commissioner to be "erroneous in so far as it is prejudicial to the interests of the Revenue". This provision has been interpreted by the Supreme Court in several judgments to which it is now necessary to turn. In Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83, the Supreme Court held that the provision "cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer" and "it is only when an order is erroneous that the section will be attracted". The Supreme Court held that an incorrect assumption of fact or an incorrect application of law, will satisfy the requirement of the order being erroneous. An order passed in violation of the principles of natural

61 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

justice or without application of mind, would be an order falling in that category. The expression "prejudicial to the interests of the Revenue", the Supreme Court held, it is of wide import and is not confined to a loss of tax. What is prejudicial to the interest of the Revenue is explained in the judgment of the Supreme Court (headnote) : "The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law." The principle which has been laid down in Malabar Industrial Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282.' 13. In the instant case, the assessing officer has reopened the assessment only to assess the income, if any, that has escaped the assessment for the years under consideration. The assessments have been reopened only on the basis of the impugned incriminating document found at the premises of M/s RNS infrastructure. We also notice that the search team has recorded a statement from VP - Finance of M/s RNS Infrastructure Ltd u/s 132(4) of the Act on 16.12.2012 and he was confronted with the impugned incriminating document. In the reply given by the VP - Finance, he has stated that the entries were made by him on the basis of information given to him over phone from its Kudal Maharashtra branch. With regard to the entry made as "Rane-CM" also, he simply stated that the information was received from the branch. Thus, we notice that in none of the answers given, the VP - finance has implicated the assessee. In spite of these facts, the investigation wing has passed on these documents and information to the assessing officer and accordingly he has also reopened the assessments of the two years under consideration. 14. The assessing officer has also furnished to the assessee the reasons for reopening of the assessments and the assessee has also objected to the reopening. The assessing officer has specifically addressed those objections and has also rejected the same. In the notice issued u/s 142(1) of the Act, the assessing officer has asked the assessee to clarify about the impugned incriminating document and also to give explanations as to why the amounts mentioned therein should not be added back to the total income of the

62 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

assessee. In response thereto, the assessee has filed a reply, wherein he has denied any connection with the incriminating document. The assessing officer was satisfied with the said explanations and accordingly did not make any addition to the total income in both the years. 15. However, the Ld Pr. CIT has taken the view that the assessing officer has completed the assessments without making proper enquiries with regard to the incriminating documents. According to Ld Pr. CIT, the AO should have made further enquiries in this matter. Accordingly he has passed the impugned revision order. 16. We have noticed earlier that the Ld Pr. CIT can revised the order only if it is shown that the assessment order is erroneous in so far as prejudicial to the interests of the revenue. The question as to when an order can be termed as "erroneous" was explained by Hon'ble Bombay High Court in the case of Gabriel India Ltd. (supra) as under:— "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 the 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 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 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 termed 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 the 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." The Hon'ble High Court has considered the definitions given to the words "erroneous", "erroneous assessment" and "erroneous judgment" in Black's Law Dictionary and accordingly held that an order cannot be termed as

63 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

erroneous unless it is not in accordance with law. An order can be termed as "erroneous" only if it is not in accordance with the law. 17. The Hon'ble Delhi High Court has also followed the above said view in the case of Sunbeam Auto Ltd. (supra). The Hon'ble Delhi High Court has also extracted following observations made by the Tribunal:— "38. Still further, the Hon'ble Supreme Court in Malabar Industrial Co. (2000) 243 ITR 83 has held that when two views are possible and the Assessing Officer has taken one of the possible view, then the order cannot be held to be prejudicial to the interest of the Revenue. Since the Commissioner of Income tax could not come to a definite finding that the expenditure in question was a capital expenditure in the proceedings under section 263, in our opinion, the order of the assessing officer could not be held to be erroneous." 18. In the case of CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi), the Hon'ble Delhi High Court has elucidated and explained the scope of the provisions of sec. 263 of the Act and the same has been extracted by the Delhi High court in the case of CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 as under:— "Thus, in cases of wrong opinion or finding on merits, the Commissioner of Income tax 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 is not sustainable in law and the said finding must be recorded. The Commissioner of Income tax 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 Commissioner of Income tax 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 Commissioner of Income tax and he is able to establish and show the error or mistake made by the Assessing officer, making the order unstainable in law. In some cases possibly though rarely, the Commissioner of Income tax 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

64 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Commissioner of Income tax has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question…." Similar view has been expressed by Hon'ble Madras High Court in the case of Amalgamations Ltd. (supra). 19. The law interpreted by the High Courts makes it clear that the Ld Pr. CIT, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the assessing officer is erroneous, the Ld Pr. CIT should have shown that the view taken by the AO is unsustainable in law. In the instant case, the Ld Pr. CIT has failed to do so and has simply expressed the view that the assessing officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Ld Pr. CIT is not in accordance with the mandate of the provisions of sec. 263 of the Act. The Ld Pr. CIT has taken support of the newly inserted Explanation 2(a) to sec. 263 of the Act. Even though there is a doubt as to whether the said explanation, which was inserted by Finance Act 2015 w.e.f. 1.4.2015, would be applicable to the year under consideration, yet we are of the view that the said Explanation cannot be said to have over ridden the law interpreted by Hon'ble Delhi High Court, referred above. If that be the case, then the Ld Pr. CIT can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the AO to conduct the enquiries in the manner preferred by Ld Pr. CIT, thus prejudicing the independent application of mind of the AO. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to sec. 263 of the Act, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. The Hon'ble Supreme Court has held in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 that there must be a point of finality in all legal proceedings and the stale issues should not be reactivated beyond a particular stage and the 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. 20. Further clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. In our considered view, this provision shall apply, if the order has been passed without making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by Ld Pr. CIT cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the AO vis-à-vis its reasonableness in the facts and circumstances of the

65 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

case. Hence, in our considered view, what is relevant for clause (a) of Explanation 2 to sec. 263 is whether the AO has passed the order after carrying our enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Ld Pr. CIT to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. In our view, it is the responsibility of the Ld Pr. CIT to show that the enquiries or verification conducted by the AO was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, in our view, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. 21. In the instant case, as noticed earlier, the AO has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and M/s RNS Infrastructure Ltd, from whose hands it was seized, also did not implicate the assessee. Thus, the assessee has been expected to prove a negative fact, which is humanely not possible. No other corroborative material was available with the department to show that the explanations given by the assessee were wrong or incorrect. Under these set of facts, the AO appears to have been satisfied with the explanations given by the assessee and did not make any addition. We have noticed that the Hon'ble Supreme Court has held in the case of Central Bureau of Investigation (supra) that the entries in the books of account by themselves are not sufficient to charge any person with liability. Hence, in our view, it cannot be held that the assessing officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was not considered to be strong by the AO to implicate the assessee. Thus, we are of the view that the assessing officer has taken a plausible view in the facts and circumstances of the case. Even though the Ld Pr. CIT has drawn certain adverse inferences from the document, yet it can seen that they are debatable in nature. Further, as noticed earlier, the Ld Pr. CIT has not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law. Thus, we are of the view that the Ld Pr. CIT has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the AO. Hence we are of the view that the Ld Pr. CIT was not justified was not correct in law in holding that the impugned assessment orders were erroneous. 22. We have also seen that, in order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the

66 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

time of hearing, it was pointed out to Ld D.R that there are references to various names such as Mumbai Naveen, Ravi Mumbai, Vijaya Mum, Sanjeev Shetty etc. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to Ld D.R as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The Ld D.R replied that these aspects require examination at the end of the assessing officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, we notice that the Ld Pr. CIT has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even if it is considered for a moment that the assessee could be linked with it, without showing that the entries noted down in the impugned document results in income in the hands of the assessee, in our considered view, it cannot be said that the assessment orders passed by the AO could be taken as prejudicial to the interests of the revenue. Accordingly we are of the view that the revision orders passed by Ld Pr. CIT falls on this ground also. 23. In view of the foregoing discussions, we are of the view that the Ld Pr. CIT has failed to show that the impugned assessment orders passed by the assessing officer were not only erroneous but also prejudicial to the interests of the revenue. It is a well established proposition that both the above said conditions are required to be satisfied before invoking the revisional powers given u/s 263 of the Act. In the instant case, we are of the view that the Ld Pr. CIT has failed to show that both the conditions exist in the instant case. Accordingly we find merit in the contentions of the assessee that the revision orders passed by Ld Pr. CIT for the years under consideration are beyond the scope of sec. 263 and hence not valid. Accordingly we set aside the revision orders passed by Ld CIT for the two years under consideration. 24. In the result, both the appeals filed by the assessee are allowed.” 2.16. We find that in the aforesaid case, while coming

to a particular conclusion, the Bench considered the

following cases:-

67 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

i. CIT v. Gabriel India Ltd. [1993] 203 ITR 108/71 Taxman 585 (Bom.) (para 4), ii. CIT v. Sunbeam Auto Ltd. [2011] 332 ITR 167/[2010] 189 Taxman 436 (Delhi) (para 4), iii. CIT v. Vikas Polymers [2012] 341 ITR 537/[2010] 194 Taxman 57 (Delhi) (para 4), iv. CIT v. Arvind Jeweller [2003] 259 ITR 502/[2002] 124 Taxman 615 (Guj.) (para 4), v. CIT v. Development Credit Bank Ltd. [2010] 323 ITR 206/[2011] 196 Taxman 329 (Bom.) (para7), vi. Malabar Industrial Co. v. CIT [2000] 243 ITR 83/109 Taxman 66 (SC) (para 8), vii. CIT v. Max India Ltd. [2007] 295 ITR 282/[2008] 166 Taxman 188 (SC) (para 8), viii. Central Bureau of Investigation v. V.C. Shukla [1998] 3 SCC 410 (para 9), ix. CIT v. Amalgamations Ltd. [1999] 238 ITR 963 (Mad.) (para 10), x. CIT v. V.P. Agarwal [1993] 68 Taxman 236 (All.) (para 10), xi. Grasim Industries Ltd. v. CIT [2010] 321 ITR 92/188 Taxman 327 (Bom.) (para 12), xii. CIT v. Nagesh Knitwears (P.) Ltd. [2012] 345 ITR 135/210 Taxman 145/22 taxmann.com 309 (Delhi) (para 18), xiii. CIT v. Goetze (India) Ltd. [2014] 361 ITR 505/225 Taxman 133/44 taxmann.com 138 (Delhi) (para 18) and xiv. Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (para 19). 2.17. On consideration of the aforesaid cases, the Co-

ordinate Bench held as under:-

■ The assessments have been reopened only on the basis of the impugned incriminating document found at the premises of a concern named RNS. The search team has recorded a statement from VP - Finance and he was confronted with the

68 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

impugned incriminating document. In the reply given by the VP he has stated that the entries were made by him on the basis of information given to him over phone from the Maharashtra branch. With regard to the entry made as 'Rane- CM' also, he simply stated that the information was received from the branch. Thus, in none of the answers given, the VP has implicated the assessee. In spite of these facts, the investigation wing has passed on these documents and information to the Assessing Officer and, accordingly, he has also reopened the assessments of the two years under consideration. [Para 13] ■ Commissioner, before holding an order to be erroneous, should have conducted necessary enquiries or verification in order to show that the finding given by the Assessing Officer is erroneous. The Commissioner should have shown that the view taken by the Assessing Officer is unsustainable in law. In the instant case, the Commissioner has failed to do so and has simply expressed the view that the Assessing Officer should have conducted enquiry in a particular manner as desired by him. Such a course of action of the Commissioner is not in accordance with the mandate of the provisions of section 263. The Commissioner has taken support of the newly inserted Explanation 2(a) to section 263. Even though there is a doubt as to whether the said Explanation, which was inserted by Finance Act 2015 with effect from 1-4-2015, would be applicable to the year under consideration, yet it is observed that the said Explanation cannot be said to have over ridden the law interpreted by Delhi High Court. If that be the case, then the Commissioner can find fault with each and every assessment order, without conducting any enquiry or verification in order to establish that the assessment order is not sustainable in law and order for revision. He can also force the Assessing Officer to conduct the enquiries in the manner preferred by the Commissioner, thus prejudicing the independent application of mind of the Assessing Officer. Definitely, that could not be the intention of the legislature in inserting Explanation 2 to section 263, since it would lead to unending litigations and there would not be any point of finality in the legal proceedings. [Para 19] ■ Further, clause (a) of Explanation states that an order shall be deemed to be erroneous, if it has been passed without making enquiries or verification, which should have been made. This provision shall apply, if the order has been passed without

69 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

making enquiries or verification which a reasonable and prudent officer shall have carried out in such cases, which means that the opinion formed by the Commissioner cannot be taken as final one, without scrutinising the nature of enquiry or verification carried out by the Assessing Officer vis- à-vis its reasonableness in the facts and circumstances of the case. Hence, what is relevant for clause (a) of Explanation 2 to section 263 is whether the Assessing Officer has passed the order after carrying out enquiries or verification, which a reasonable and prudent officer would have carried out or not. It does not authorise or give unfettered powers to the Commissioner to revise each and every order, if in his opinion, the same has been passed without making enquiries or verification which should have been made. It is the responsibility of the Commissioner to show that the enquiries or verification conducted by the Assessing Officer was not in accordance with the enquries or verification that would have been carried out by a prudent officer. Hence, the question as to whether the amendment brought in by way of Explanation 2(a) shall have retrospective or prospective application shall not be relevant. [Para 20] ■ In the instant case, the Assessing Officer has accepted the explanations of the assessee, since there is no fool proof evidence to link the assessee with the document and RNS also did not implicate the assessee. Thus, the assessee has been expected to prove a negative fact, which is humanely not possible. No other corroborative material was available with the department to show that the explanations given by the assessee were wrong or incorrect. Under these sets of facts, the Assessing Officer appears to have been satisfied with the explanations given by the assessee and did not make any addition. [Para 21] ■ It cannot be held that the Assessing Officer did not carry out enquiry or verification which should have been done, since the facts and circumstances of the case and the incriminating document was not considered to be strong by the Assessing Officer to implicate the assessee. Thus, the Assessing Officer has taken a plausible view in the facts and circumstances of the case. Even though the Commissioner had drawn certain adverse inferences from the documents, yet it can be seen that they were debatable in nature. Further, Commissioner had not brought any material on record by making enquiries or verifications to substantiate his inferences. He has also not shown that the view taken by him is not sustainable in law.

70 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Thus, it is observed that the Commissioner has passed the impugned revision orders only to carry out fishing and roving enquiries with the objective of substituting his views with that of the Assessing Officer. Hence the Commissioner was not justified in law in holding that the impugned assessment orders were erroneous. [Para 21] ■ In order to invoke the provisions of revisional proceedings, it is required to be shown that the assessment order was not only erroneous, but also prejudicial to the interests of the revenue. At the time of hearing, it was pointed out to department that there are references to various names. Further the entries are dated from March 99 to February, 2012. Under these set of facts, a specific question was asked to department as to how these entries can translate into income in the hands of the assessee, since the same lists out payments made to various persons on various dates. Unless it is established that these payments can be taken as income in the hands of the assessee, they cannot be assessed in his hands. In that case, it cannot be said that these entries would cause any prejudice to the interests of the revenue, if they are not assessable in the hands of the assessee. The department replied that these aspects require examination at the end of the Assessing Officer. The said stand taken by the department clearly shows that they are also not sure as to whether these entries could be considered as income in the hands of the assessee. Further, the Commissioner has not brought on record any material to show that these amounts were paid to the assessee or on his behalf. Even if it is considered for a moment that the assessee could be linked with it, without showing that the entries noted down in the impugned document results in income in the hands of the assessee, it cannot be said that the assessment orders passed by the Assessing Officer could be taken as prejudicial to the interests of the revenue. Accordingly the revision orders passed by Commissioner falls on this ground also. [Para 22] ■ In view of the foregoing discussions, Commissioner has failed to show that the impugned assessment orders passed by the Assessing Officer were not only erroneous but also prejudicial to the interests of the revenue. It is a well established proposition that both the above said conditions are required to be satisfied before invoking the revisional powers given under section 263. In the instant case, Commissioner has failed to show that both the conditions exist in the instant

71 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

case. Accordingly, there is merit in the contentions of the assessee that the revision orders passed by Commissioner for the years under consideration are beyond the scope of section 263 and hence not valid. Accordingly the revision orders passed by Commissioner for the two years under consideration are set aside. [Para 23]

2.18. We have considered the rival submissions and

perused the material available on record. Before adverting

further, we are reproducing hereunder the various queries

raised by the authorities and replies, thereto, filed by the

assessee.

"2. In your case, the assessment was completed u/s. 143(3) on 11.1 1.2014 accepting the total income at Nil.

72 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

13 and consequently the assessee shall not be eligible for any exemption u/s. 11 or 12 of the Act. In view of the same it is imperative to ascertain whether there is any violation of the relevant provision.

"2. In your case, Return of income for A.Y. 2012-13, was filed on 21/09/ 2012, declaring total income at Rs.NIL. Subsequently, the case was selected for scrutiny and an assessment order u/ s. 143(3) dated 11/11/2014, was passed assessing total income at Rs. NIL/-. Subsequently, as the order passed by the A.O. was found to be erroneous as well as prejudicial to the interests of Revenue the proceedings u/ s. 263 of the I.T. Act was initiated vide Show Cause Notice dt. 12/ 08/ 2016.

73 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

(a) any activity in the nature of trade, commerce or business; or (b) any activity of rendering any service in relation to any trade, commerce or business.

"With reference to the above and further to our letter dated 811, March 2017 and as instructed by our above client, we submit as under: That during the last hearing on 8th March 2017 your good self have asked that why proviso to section 2(15) should not be applied to above charitable trust considering the activity of the trust as not charitable. In this respect we submit that;

The trust is formed long back with the various public charitable objects amongst others one of the objects of the trust is as under;

74 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

To erect, establish institution and/or maintain, grant aid with the object of promotion and protection of wild life and natural environment and assist research of any kind on improving quality of all animals, birds and insects. The copies of the trust deed where all the other objects stated have already been submitted in earlier hearing thus the brief activities carries out under the above objects are as under;

JK Trust and its activity:

Cattle breed improvement through establishment of integrated livestock development (ILD) centers.

Government is providing grant to JK trust for delivering artificial inseminatzon service to animal at the door step of farmers through establishment of integrated livestock development (ILD) centers.

The main objective of this program is to upgrade the local indigenous low milk yielding cattle by crossbreeding them with the use of frozen semen of high pedigree exotic bull through technique of artificial insemination (A.I.). the resulting crossbred cattle will be better milk yielders and the availability of surplus milk will help in improving the socio-economic status of the farmers. The Artificial Insemination (Al) program of the Trust at the ground level is implemented by a trained local "programme operator" known as Gopal. Gopal is a local educated unemployed youth. He is trained for 4 month in the technique of Artificial insemination (Al) and other allied service. After satisfactory completion of training, he is given charge of one ILDC. He is called as Gopal. This is how the employment generation is done through skills enhancement in remote area.

Thus the J.K.Trust create the rural development structure which is framed on welfare of farmers and to empower the under privilege section of the society to secure better future as per rural development scheme of the various government, the strategy was to leverage appropriate technology, provide effective extension and create innovative employment opportunities for women's, poor farmers, tribal inhabitants and youth of the country. The mission of J.K. Trust Gram Vikas Yojna is to significantly improve the quality of life in India's rural area through a Cattle Breed

75 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Improvement Programme (C13IP) that achieves the following goals;

Alleviating Poverty: Increase milk production enables participating farmers to effectively supplement their income by sale of surplus milk.

Creating Employment: To provide direct employment opportunities to educated, unemployed, rural youth and indirect employment opportunities to farmer households.

Reducing infant Mortality and Malnutrition: Surplus milk generated by high milk yielding cows and buffaloes helps to reduce infant mortality, especially caused by malnutrition in the age group of less than 12 months and malnutrition among children.

The trust is supported for its activities for rural welfare by various ministries of central government, state government as Well as cooperative of various projects.

It is submitted that, the trust is engaged purely on charitable activities and there is no commercial activity or service related to commercial activity were carried out.

It is submitted whether the activity of upgrading of the local indigenous low milk yielding cattle by cross breeding them with the use of frozen semen of high pedigree exotic bulls through the technique of artificial insemination is activity of charitable object or note is answered by the recent Gujrat High court decision in the case of DIT (Exemption) V/ S Sabarrnati Aashram Gaushala Trust 362 ITR Page -539 where the object of the trust were similar to the object of the present J.K.Trust. The High court after considering the facts of the case held as under:-

76 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

No.11 of 2008, are that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for cess, fee or any other consideration. It is riot aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as "charitable purpose".

Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating surplus" is wholly incidental to the principal activities of the trust ; which is otherwise for general public utility, and, therefore, of charitable nature.

The assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. The Assessing Officer applied the proviso to section 2(15) holding that the trust could not be considered as one created for charitable purposes. He analysed the accounts of the assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. Therefore, for the assessment year 2009-10, he denied the benefit of sections 11 and 12 to the assessee. The Tribunal noted that the objects were admittedly charitable in nature'. The surplus generated was wholly secondary. Therefore, it held that the proviso to section 2(15) of the Act would not apply and the assessee was entitled to the exemption. On appeal to the High Court: Held, dismissing the appeal, that the main objectives of the trust were to breed cattle and endeavour to improve the quality of the rows and oxen in view of the need for good oxen as India is prominently an agricultural country. All these were objects of general public utility and would squarely fall under section 2(15) of the Act. Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the object of the trust, certain incidental surpluses were generated, that would not render

77 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

the activity in the nature of trade, commerce or business. The assessee was entitled to exemption under section 11.

1.1 In its detailed order in Para 5 to 8 the court held as under

The term "charitable trust" is defined in section 2(15) of the Act which includes the relief to the poor, education, medical relief, preservation of environment ; including watersheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest and advancement of any other object of general public utility. The proviso to section 2(15) and further proviso whereof inserted by the Finance Act, 2010, with retrospective effect from April 1, 2009, read thus:

1.2 "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity : Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year."

1.3 The legal controversy in the present tax appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term "charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circum- stances, the important elements of application of the proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any 'trade, commerce or business, for a cess

78 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

or fee or any other consideration. Such statutory amendment was explained by the Finance Minister's speech in Parliament. The relevant portion of which reads as under:

1.4 "I once again assure the House that genuine charitable organizations will not in any way be affected. The Central Board of Direct Taxes will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as 'advancement of any other object of general public utility".

1.5 In consonance with such assurance given by the Finance Minister on the floor of the House, the Central Board of Direct Taxes issued a Circular No. 11 of 2008, dated December 19, 2008 ([20091 308 ITR (St.) 5), explaining the amendment as under (page 6) :-

1.6 The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility,' i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

1.7 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and con-tribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus

79 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions front and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if such organizations have dealings with non-members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15).

1.8 In the final analysis, however, whether the assessee has for its object 'the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalisation is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business."

1.9 What thus emerges from the statutory provisions, as explained in the speech of the Finance Minister and the Central Board of Direct Taxes Circular, is that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as "charitable purpose.”

80 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

We are wholly in agreement with the view of the Tribunal. The objects of the trust clearly establish that the same was for general public utility and were for charitable purposes. The main objectives of the trust are to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominently an agricultural country; to produce and sale the cow milk ; to hold arid cultivate agricultural lands ; to keep grazing lands for cattle keeping and breeding ,' to rehabilitate and assist Rabaris arnd' Bharwads ; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc. ; to establish other allied institutions like leather work and to recognise and help them in order to make the cow keeping economically viable; to publish study materials, books, periodicals, monthlies, etc., in order to publicise the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects.

2.1 All these were the objects of the general public utility and would be squarely fill under section 2(15) of the Act Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because whit/c carrying out the activities for the purpose of achieving the objects of the trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the Central Board of Direct Taxes in its Circular No. 11 of 2008, dated December 19, 2008, the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of “public utility”.

In the view of the above it is submitted that the trust's activities are charitable and trust is not engaged in any trade or commerce. Therefore in view of the above decision the proviso to the section 2(15) is not applicable, hence the Income of the Trust is not liable for the Tax. It is therefore once again submitted that, the original order for assessment year 2012-13 was properly passed therefore the order passed by the A.O is neither erroneous nor it is prejudicial to the interest of the revenue. It is therefore requested to kindly drop the proceeding initiated u/ s 263."

81 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

3.1 Further, the assessee trust vide letter dated 29.03.2017 also made further submissions, the relevant portion of which is reproduced herebelow

"With reference to the above case fixed for hearing on 29/ 03/ 2017 and as instructed by our above client we submit as under:- We have earlier filed various replies to the notice u/ s 263 vide our letter dated 08/ 03/ 2017 and 15/ 03/ 2017. In the letter dated 15/ 03/ 2017 we have stated the objects of the trust and the activities carried out by the trust which are purely of charitable nature. We again reiterate the submission made on 15/ 03/ 2017 that the objects of the trust in the brief are-

"The main objective of this program, is to upgrade the local indigenous low milk yielding cattle by crossbreeding them with the use of frozen semen of high pedigree exotic bull through technique of artificial insemination (A.I.).. The resulting crossbred cattle will be better milk yielders and the availability of surplus milk will help in improving the socio-econornic status of the farmers. The Artificial Insemination (Al) program of the Trust at the ground level is implemented by a trained local 'programme operator" known as Gopal.

Gopal is a local educated unemployed youth. He is trained for 4 month in the technique of Artificial insemination (Al). and other allied service. After satisfactory completion of training , he is given charge of one ILDC. He is called as Copal. This is how the employment generation is done through skills enhancement in remote area".

Whether the above activities are in the nature of charitable activities or not were also arises in the case of DIT(Exemption) v/ s SABARMATI AASHRAM GAUSHALA TRUST 362 ITR 539 where-the objects of the trusts were similar to the objects of J.K. Trust Bombey. The High Court after considering all the facts, held that the activities of the trust are charitable activities where the provision of sec. 2(15) cannot be applied. The zist of the decision of High Court is reproduced as under.'-

82 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". The statutory provisions, as explained in the speech of the Finance Minister and Circular No. 11 of 2008, are that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commerce, or business or renders any service in relation to trade, commerce, or business for cess, fee or any other consideration. It is not aimed at excluding genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce, or business which are masked as "charitable purpose". Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the trust to dispose of its produce at any censideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business particularly if generating surplus" is wholly incidental to the principal activities of the trust ; which is otherwise for general public utility, and, therefore, of charitable nature.

The assessee-trust was engaged in the activity of breeding milk cattle to improve the quality of cows and oxen and other related activities. The Assessing Officer applied the proviso to section 2(15) holding that the trust could not be considered as one created for charitable purposes. He analysed the accounts of the assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. Therefore, for the assessment year 2009-10, he denied the benefit of sections 11 and 12 to the assessee. The Tribunal noted that the objects were admittedly charitable in nature'. The surplus generated was wholly secondary. Therefore, it held that the proviso to section 2(15) of the Act would not apply and the assessee was entitled to the exemption. On appeal to the High Court:

Held, dismissing the appeal, that the main objectives of the trust were to breed cattle and endeavour to improve the quality of the rows and oxen in view of the need for good oxen as India is prominently an agricultural country. All these were objects of general public utility and would squarely fall under section 2(15) of

83 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

the Act. Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the object of the trust, certain incidental surpluses were generated, that would not render the activity in the nature of trade, commerce or business. The assessee was entitled to exemption under section 11.

1.1 In its detailed order in Para 5 to 8 the court held as under

The term "charitable trust" is defined in section 2(15) of the Act which includes the relief to the poor, education, medical relief preservation of environment ; including watersheds, forests and wildlife and preservation of monuments or places or objects of artistic or historic interest and advancement of any other object of general public utility. The proviso to section 2(15) and further proviso whereof inserted by the Finance Act, 2010, with retrospective effect from April 1, 2009, read thus:

1.2 "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity : Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year.,

1.3 The legal controversy in the present tax appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term "charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue of the proviso, would be excluded from the definition of "charitable trust". However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circum-

84 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

stances, the important elements of application of the proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any 'trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Minister's speech in Parliament. The relevant portion of which reads as under:

1.4 "I once again assure the House that genuine charitable organizations will not in any way be affected. The Central Board of Direct Taxes will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to arty trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as 'advancement of any other object of general public utility''.

1.5 In consonance with such assurance given by the Finance Minister on the floor of the House, the Central Board of Direct Taxes issued a Circular No. 11 of 2008, dated December 19, 2008 ([2009] 308 ITR (St.) 5), explaining the amendment as under (page 6) :- 1.6 The newly inserted proviso to section 2(15) will apply only to entities whose purpose is advancement of any other object of general public utility,' i.e., the fourth limb of the definition of 'charitable purpose' contained in section 2(15). Hence, such entities will not be eligible Or exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.

1.7 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under 'any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together and con- tribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming

85 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2(15) owing to the principle of mutuality. However, if .such. organizations have dealings with non- members, their claim to be charitable organizations would now be governed by the additional conditions stipulated in the proviso to section 2(15). 1.8 In the final analysis, however; whether the assessee has for its object 'the advancement of airy other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of 'general public utility will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalisation is possible. Assessees, who claim that their object is 'charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business."

1.9 What thus emerges from the statutory provisions, as explained in the speech of the Finance Minister and the Central Board of Direct Taxes Circular, is that the activity of a trust would be excluded from the term "charitable purpose" if it is engaged in any activity in the nature of trade, commnere or, business or renders any service in relation to trade, commerce or business for a cess, fee arid/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as 'haritable purpose.”

We are wholly in agreement with the view of the Tribunal. The objects of the trust clearly establish that the same was for general

86 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

public utility and were for charitable purposes. The main objectives of the trust are to breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominently an agricultural country ; to produce and sale the cow milk; to hold and cultivate agricultural lands; to keep grazing lands for cattle keeping and breeding; to rehabilitate and assist Rabaris and Rharwads ; to make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations, etc. ; to establish other allied institutions like leather work and to recognise and help them in order to make the cow keeping economically viable,' to publish study materials, books, periodicals, monthlies, etc., in order to publicise the objects of the trust as also to open schools and hostels for imparting education in cow keeping and agriculture having regard to the trust objects.

2.1 All these were the objects of the general public utility and would he squarely fall under section 2(15) of the Act_ Profit making was neither the aim nor object of the trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the Central Board of Direct Taxes in its Circular No. 11 of 2008, dated December 19, 2008, the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of "public utility".

In para 2 of your show cause notice your good self have stated that the trust is doing regular activities which are in the nature of business by way of sale of milk and income from live stock development centers has shown at Rs. 76,36,20,810.

In this respect it is submitted that our above client has given complete details of income and expenditure account from where your good self can see that there is no amount received by way of sale of milk, The trust have neither purchased nor sold the milk. Therefore our above client categorically denies that the trust has not carried out any activities in the nature of sale of milk. The amount which is shown from live stock development centers of Rs. 76,36,20,810 is in respect of grant received from various state Govt. for carrying out the charitable activities in respect of cross

87 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

breeding and upgrading the local indigenous low milk yielding cattle by use of frozen semen of high pedigree exotic bulls through technique of Artificial Insemination (A.I.). The resulting crossbreed cattle will be better milk yielder and help in improving the socio- economic status of the farmers.

In respect of item no. 4 to 7 of your show cause notice our reply dated 15/ 03/ 2017 as well as the submission made here in above may please be considered according to which the provisions of the sec. 2(15) is not applicable.' All the above activities were held by the high court in the nature of charitable activity and all these matters were discussed at the time of original assessment proceedings. Therefore the order passed by the A.O. is neither erroneous nor prejudicial to the interest of the revenue. In view of the above it is submitted that the provision of sec. 2(15) is not applicable in the above case. Therefore the proceeding initiated u/ s 263 may please be dropped."

2.19. On consideration of above replies, the Ld. CIT(E)

observed /concluded as under:-

I have also examined the records as well as the order passed by the From the records it is observed that the assessee had claimed an amount of Rs.17,78,321/- as expenses on account of payment to one of the trustees and a person covered u/s. 13(3) of the I.T. Act. The nature of the payment and reasonableness thereon is not evident for record and accordingly it appears that the issue of reasonability of the payment and correlation with the objective of the trust has not been examined by the A.O. The provisions of

88 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

section 13 provides that if any income of the trust is utilized for the benefit of a person or any payment in the nature of salary, allowances etc. is in excess of the reasonable amount payable for such services to persons covered u/s. 13(3) it shall be held to be in violation of the provisions of section 13 and consequently the assessee shall not be eligible for any exemption u/s. 11 or 12 of the Act. It appears that this aspect has not been examined by the AO that whether the salary/ remuneration paid was adequate or not.

5.1 It is also observed during the course of proceedings that the trust is doing regular activities which are in the nature of business by way of Income from Livestock Development Centres which is shown at Rs.76,36,20,810/-. However, the said activities do not appear to be charitable in nature, but commercial in nature. It is further observed that the activities of the trust are in the nature of advancement of any other object of general public utility only and hence proviso to Section 2(15) of the Act, was applicable in the assessee's case and therefore, the trust was not eligible for exemption u/s.11 of the I.T. Act. However, the A.O. had not applied the proviso to Section 2(15) and allowed the exemption u/s. 11 of the Act to the assessee trust, which led to under assessment of income.

The AO should have noted that there were receipts of Rs.76.36 crores from the activities of Live stock Development Centre and the trust was indulging in activities which were in the nature of "General Public Utility" as per the provisions of section 2(15). The assessee was taking reimbursement from the government agencies for doing the impregnation of cows and buffaloes. This activity is clearly not covered in general charitable purposes.

Accordingly, the proviso to section 2(15) was clearly applicable and the AO failed to invoke the proviso and treated the activity as commercial in nature.

5.2 Therefore, in view of the aforesaid discussions, I am of the opinion that the order passed by the AO is erroneous in so far as it is prejudicial to the interests of the revenue and requires revision as the AO has allowed the claim of section 11, without making proper enquiries about the claim and failed to invoke the proviso to section 2(15) which is mandatory as per law.

89 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

Income Tax with the powers of revising any order of the Assessing Officer (AO), where the order is erroneous and resulted in prejudice to the interest of the Revenue. While the power is not meant to be substitute for the power of the AO to make assessment, the same can certainly be exercised when the order of the AO is erroneous and prejudicial to the interest of the Revenue. Whether or not the order is erroneous and prejudicial to the interest of the Revenue has to be decided from case to case. The relevant provisions of section 263 read as under:

"263(1) The Commissioner may call for the examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and making or causing to 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.....

It may not be out of place to mention here the recent amendments in the Act, where a Explanation has been inserted which reads as under:

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 interests of the revenue, if, in the opinion of the Principal Commissioner of Commissioner—

a) the order is passed without making inquiries or verification which should have been made;

90 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

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.

conclusion drawn in the impugned order, material available

on record, assertions made by the ld. respective counsel, if

kept in juxtaposition and analyzed, the facts, in brief, are

that the assessee trust was constituted in 1945 and was

approved by the Ld. Charity Commissioner in 1966. We

find that notice under section 263 dated 12/08/2016 was

issued to the assessee on 07/09/2016 (page 1 & 32 of the

paper book), which was replied on 07/09/2016 by the

assessee (pages 3 to 16 of the paper book). Another notice

dated 20/02/20017 for hearing (page 17 of the paper book)

91 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

was issued. The assessee filed reply on 15/03/2017 (paper

book pages 18 to 22). Another notice dated 24/03/2017

(received on 29/03/2017) was issued (pages 23 & 24 of the

paper book), to which also the assessee filed reply on

29/03/2017 (pages 25 to 29 of the paper book).

2.21. Before adverting further, it is our bounded duty

to examine the assessment order whether it was properly

framed and also whether before framing the assessment

whether any enquiry was made by the ld. Assessing Officer.

We find that notice under section 142(1) dated 13/10/2014

was issued to the assessee (pages 30 to 31 of the paper

book), which was replied, annexed with various details vide

letter dated 10/11/2014 (pages 32 to 96 of the paper book).

A copy of the amended trust deed dated 30/10/1996 was

filed before the Ld. Assessing Officer (page 97 to 115 of the

paper book.). One of the objection raised by the ld.

Commissioner (E) is with respect to justification of

remuneration paid to Shri B.K. Kedia, under section

13(2)(c), the same was replied (pages 116 to 119 of the

paper book). Another query was raised by the Ld. Assessing

Officer with respect to charitable activities done by the

92 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

assessee that was also replied vide, communication

available at pages 120 & 121 of the paper book. The copies

of the earlier assessment orders for Assessment Years

2009-10, 2010-11 and 2011-12 are annexed at pages 122

to 131 of the paper book. The copies of the notices and

reply to the Ld. Assessing Officer for Assessment Year

2011-12 are available at pages 132 to 140 of the paper

book and further copy of notices and reply to the Assessing

Officer for Assessment Year 2010-11 are available at pages

141 to 145 of the paper book. All these events clearly

establishes that before the assessment was framed, the Ld.

Assessing Officer raised various queries and the same were

explained and replied by the assessee, therefore, it cannot

be said that the assessee order was passed without

verification or examination of facts, consequently, on the

plea of the Ld. CIT-DR and also of the Ld. CIT(E), is

factually incorrect and it can be concluded that the

assessment order was framed after due application of mind

and on examination of facts.

2.22. So far as, another query raised by the ld. CIT-DR

and also observed by Ld. CIT(E) is with respect to

93 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

unreasonableness of the amount paid to Shri B.K. Kedia, is

concerned, the ld. counsel for the assessee, our attention

was invited to various queries raised by the Ld. Assessing

Officer during assessment proceedings as well as before the

Ld. CIT(E). The Ld. CIT(E) observed as under:-

“The nature of the payment and reasonableness thereon is not evident for record and accordingly it appears that the issue of reasonability of the payment and correlation with the objective of the trust has not been examined by the A.O.” In para-2 of the impugned order, the Ld. CIT(E) vide

letter dated 12/08/2016, the assessee explained that the

amount of Rs.17,78,321/- was paid to Shri B.K. Kedia, it

was explained that Shri Kedia is an experienced person and

the letter addressed to the Ld. DIT(Exemption), (pages 116

and 117 of the paper book), wherein, it has been explained

that Shri Kedia was earlier employee of Raymonds Ltd. upto

2000 and was associated with last more than 40 years and

was earning salary approximately Rs.4 lakhs per month

and he joined ordinary trustee on 02/09/2003 and looking

after his management skill and to look after the projects

taken from State Government, Man Power Utilization,

effective internal control measures, cost cutting measures,

expansion of public charitable activities etc, Shri Kedia

94 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

agreed to work as whole time consultant and thus was

given the overall responsibility of the trust to look after the

work of the assessee trust. The assessee trust utilized his

vast experience and considering his ability, efficiency, he

agreed to work on a consultancy fee of Rs.1,70,000/- per

month (total Rs.17,78,321/- including service tax) for the

period from 01/04/2011 to 15/01/2012, which was much

less what he was getting in the earlier employment, thus,

we are convinced that the payment made to him cannot be

said to be unreasonable. No evidence was brought on

record by the Revenue evidencing the claim of the assessee.

The total consultancy fee paid during the year under

reference was Rs.16,12,258/- plus service tax of

Rs.1,66,063/- on which TDS was also deducted. He was

appointed as full time consultant for 16/06/2008 and

thereafter he gave tremendous result to the assessee. In

this reply, the facts has been duly elaborated by the

assessee and neither the factum of payment nor providing

services by him has been disputed by the Revenue,

therefore, we find merit in the argument of the ld. counsel

for the assessee and the explanation adduced before us as

95 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

these facts are borne out from the correspondence between

the Department and the assessee itself (available on

record). It is further noted that even the Department

issued a letter dated 02/06/2008, directly to Mr. Kedia

(page-118 of the paper book), which was replied by him

(page 119 of the paper book).

2.23. It is further noted that the Ld. DIT(E) (page120 of

the paper book) wherein, the assessee trust was asked with

respect to purpose and activities along with objects, and

application of proviso to section 2(15) of the Act, the

assessee submitted as under:-

“In this respect, it is submitted that the purpose and activities of the trust is in line with the objects of the trust. The trust receives the grants from various state governments to fulfill their charitable objects amongst other. Some of which are:- “To improve productivity of the local cattle and buffalo through artificial insemination, balance feeding, veterinary services and management, increase productivity of the animals through breed up gradation, promotion of fodder cultivation to meet the need of animal nutrition, help the farmer in reducing milk yield and/or death of the animals by providing Veterinary First Aid Services in time, to increase the percentage coverage of breedable population under Artificial insemination programme, etc. It is further submitted that for providing all the above services, the trust is not charging any

96 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

cess or fees or any consideration from the beneficiaries. Thus, the trust is fulfilling all the objects of charitable purpose as led down in the Sec.2(15) and the proviso is not applicable. The proviso read as under………………….” From the above, it is clear that from beginning itself,

the assessee has been claiming that the assessee trust is

not charging any cess, fee, consideration from the

beneficiaries. The beneficiaries are the farmers/public at

large and no evidence has been produced that any amount

was charged from the cattle owners, farmers or the public.

This claim of the assessee is further fortified from the

agreement between the parties that the assessee trust is

getting grants from the government and there is no

evidence on record that anything was charged by the

assessee from such cattle breeders, farmers or the public at

large. The case of the assessee is further fortified by the

decision from Hon'ble Gujarat High Court, on identical

facts in the case of DIT(E) vs Sabarmati Ashram Gaushala

Trust (2014) 44 taxmann.com 141 (Guj.), wherein, Circular

No.11/2008 dated 19/12/2008 and proviso to section 2(15)

has also been discussed. The relevant portion from the

order is reproduced hereunder:-

97 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

“Revenue is in appeal against the judgment of the Income Tax Appellate Tribunal, Ahmedabad ("Tribunal" for short) dated 7th June 2013, raising following questions for our consideration :— "(A) Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to provide exemption u/s. 11 of the I.T Act to the assessee ? (B) Whether the Appellate Tribunal has substantially erred in holding that the proviso to Section 2(15) of the I.T Act was not applicable to the facts and circumstances of the case?" 2. The controversy centers around activities of the respondent- assessee-Sabarmati Ashram Gaushala Trust. The said Trust is engaged in the activity of breeding milk cattle; to improve the quality of cows and oxen and other related activities. The question raised by the Assessing Officer was with respect to granting exemption to the Trust under section 11 of the Income Tax Act, 1961 ["Act" for short]. The Assessing Officer pressed in service newly added proviso to Section 2 (15) of the Act introduced w.e.f 1st April 2009 by the Finance Act of 2010 to hold that the Trust cannot be considered as one created for charitable purposes. The Assessing Officer analyzed the accounts of the respondent- assessee and came to the conclusion that considerable income was generated from the activity of milk production and sale. He, therefore, passed an order dated 21st December 2011 framing assessment for A.Y 2009-2010 denying benefit of Sections 11 & 12 to the assessee. 3. Assessee carried the mater in appeal. CIT [A] rejected the appeal and confirmed the order of the Assessing Officer. The assessee, therefore, approached the Tribunal in second appeal. Tribunal, by the impugned judgment, reversed the decision of the revenue authorities holding that the assessee is a charitable trust and proviso to section 2 (15) of the Act will not apply. The Tribunal relied on the Finance Minister's speech in the Parliament explaining proviso to Section 2 (15) as also the CBDT Circular No. 11/2008 of 19th December 2008. The Tribunal took note of the objects of the Trust and came to the conclusion that the Trust was carrying on its activities on non-commercial basis with no motive to earn profit. The aims and objects of the Trust were charitable in nature. While implementing such objects, if there was any profit, incidentally generated, the same would not be hit by proviso to section 2 (15) of the Act. In the conclusion, the Tribunal clarified

98 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

that the decision was delivered in peculiar facts of the case and would not apply to a case where the trust is doing business or trade under the grab of charitable activities. The Revenue is therefore before us in the present Tax Appeal, raising aforementioned questions of law. 4. Having heard learned counsel for the parties and having perused the documents on record, we notice that Section 11 of the Act pertains to ' income from property held for charitable or religious purposes' and provides, inter alia, that the income derived from property held under trust wholly for charitable or religious purposes shall not be included in the total income of the Trust. 5. Term "Charitable Trust" is defined in Section 2 (15) of the Act which includes the relief to the poor, eduction, medical relief, preservation of environment; including watersheds, forests and wildlife and preservation of monuments or places or objections of artistic or historic interest and advancement of any other object of general public utility. Proviso to Section 2 (15) and further proviso whereof inserted by Finance Act 2010 w.e.f 1st April 2009 read, thus — "Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention of the income from such activity. Provided further that the first proviso shall not apply if the aggregate value of the receipts from the activities referred to therein is twenty five lakh rupees or less in the previous year." 6. The legal controversy in the present Tax Appeal centers around the first proviso. In the plain terms, the proviso provides for exclusion from the main object of the definition of the term "Charitable purposes" and applies only to cases of advancement of any other object of general public utility. If the conditions provided under the proviso are satisfied, any entity, even if involved in advancement of any other object of general public utility by virtue to proviso, would be excluded from the definition of "charitable trust". However, for the application of the proviso, what is necessary is that the entity should be involved in carrying on activities in the nature of trade, commerce or business, or any

99 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

activity of rendering services in relation to any trade, commerce or business, for a cess or fee or any other consideration. In such a situation, the nature, use or application, or retention of income from such activities would not be relevant. Under the circumstances, the important elements of application of proviso are that the entity should be involved in carrying on the activities of any trade, commerce or business or any activities of rendering service in relation to any trade, commerce or business, for a cess or fee or any other consideration. Such statutory amendment was explained by the Finance Minister's speech in the Parliament. Relevant portion of which reads as under :— 'I once again assure the House that genuine charitable organizations will not in any way be affected. The CBDT will, following the usual practice, issue an explanatory circular containing guidelines for determining whether any entity is carrying on any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business. Whether the purpose is a charitable purpose will depend on the totality of the facts of the case. Ordinarily, Chambers of Commerce and similar organizations rendering services to their members would not be affected by the amendment and their activities would continue to be regarded as "advancement of any other object of general public utility".' 7. In consonance with such assurance given by the Finance Minister on the floor of the House, CBDT issued a Circular No. 11 of 2008 dated 19th December 2008 explaining the amendment as under :— "3. The newly inserted proviso to section 2 (15) will apply only to entities whose purpose is ' advancement of any other object of general public utility' ie., the fourth limb of the definition of ' charitable purpose' contained in section 2 (15). Hence, such entities will not be eligible for exemption under section 11 or under section 10 (23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on any activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. 3.1 There are industry and trade associations who claim exemption from tax under section 11 on the ground that their objects are for charitable purpose as these are covered under ' any other object of general public utility'. Under the principle of mutuality, if trading takes place between persons who are associated together

100 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

and contribute to a common fund for the financing of some venture or object and in this respect have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax. In such cases, there must be complete identity between the contributors and the participants. Therefore, where industry or trade associations claim both to be charitable institutions as well as mutual organizations and their activities are restricted to contributions from and participation of only their members, these would not fall under the purview of the proviso to section 2 (15) owing to the principle of mutuality. However, if such organizations have dealings with non- members, their claim to be chargeable organizations would now be governed by the additional conditions stipulated in the proviso to section 2 (15). 3.2 In the final analysis, however, whether the assessee has for its object ' the advancement of any other object of general public utility' is a question of fact. If such assessee is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business, it would not be entitled to claim that its object is charitable purpose. In such a case, the object of ' general public utility' will be only a mask or a device to hide the true purpose which is trade, commerce or business or the rendering of any service in relation to trade, commerce or business. Each case would, therefore, be decided on its own facts and no generalization is possible. Assessees, who claim that their object is ' charitable purpose' within the meaning of section 2(15), would be well advised to eschew any activity which is in the nature of trade, commerce or business or the rendering of any service in relation to any trade, commerce or business." 8. What thus emerges from the statutory provisions, as explained in the speech of Finance Minister and the CBDT Circular, is that the activity of a trust would be excluded from the term ' charitable purpose' if it is engaged in any activity in the nature of trade, commerce or business or renders any service in relation to trade, commerce or business for a cess, fee and/or any other consideration. It is not aimed at excluding the genuine charitable trusts of general public utility but is aimed at excluding activities in the nature of trade, commerce or business which are masked as ' charitable purpose'. 9. Many activities of genuine charitable purposes which are not in the nature of trade, commerce or business may still generate

101 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

marketable products. After setting off of the cost, for production of such marketable products from the sale consideration, the activity may leave a surplus. The law does not expect the Trust to dispose of its produce at any consideration less than the market value. If there is any surplus generated at the end of the year, that by itself would not be the sole consideration for judging whether any activity is trade, commerce or business - particularly if generating ' surplus' is wholly incidental to the principal activities of the trust; which is otherwise for general public utility, and therefore, of charitable nature. The Tribunal took into account the objects of the Trust, which are as under :— "1. To breed the cattle and endeavour to improve the quality of the cows and oxen in view of the need of good oxen as India is prominent agricultural country and the cow milk as food is both conducive to and requisite for good health and longevity of human life. In order to improve the quality of the cattle, it is very essential to use a high quality bulls. Hence to produce and to get produced the best pedigreed bulls and to castrate the scrub bulls and propagate the work to prepare bullocks by castrating the bulls which do not become good bulls. 2. To produce and to sell the cow milk and its various preparations so as to popularize the use of cow milk and do all other works for the same. 3. To hold and cultivate or get cultivated agricultural lands, to keep grazing lands etc necessary or desirable for cattle keeping and breeding or to rehabilitate and assist Rabaris and Bharwads. 4. To hold and cultivate other land also in order to experiment in the improvement in agriculture and obtain finance support in all the activities of the institution. 5. To make necessary arrangements for getting informatics and scientific knowledge and to do scientific research with regard to keeping and breeding of the cattle, agriculture, use of milk and its various preparations etc and to establish scientific laboratories, libraries, reading rooms relating to the keeping of the cattle, improvement of agriculture etc and recognize or assist such institutions. 6. To establish other allied institutions like leather work etc and to recognize and help them in order to make the cow keeping economically viable successfully.

102 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

103 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

was neither the aim nor object of the Trust. It was not the principal activity. Merely because while carrying out the activities for the purpose of achieving the objects of the Trust, certain incidental surpluses were generated, would not render the activity in the nature of trade, commerce or business. As clarified by the CBDT in its Circular No. 11/2008 dated 19th December 2008 the proviso aims to attract those activities which are truly in the nature of trade, commerce or business but are carried out under the guise of activities in the nature of ' public utility'. 13. Delhi High Court in case of Institute of Chartered Accountants of India v. DGIT [2012] 347 ITR 99/[2011] 202 Taxman 1/13 taxmann.com 175 considered these very provisions in the context of activities of the Institute of Chartered Accountants holding that the fundamental or dominant function of the Institute was to exercise overall control and regulate the activities of the members/enrolled chartered accountants and merely because the Institute was holding coaching classes which also generate income, the Court held that proviso to Section 2 (15) of the Act would not be applicable. It thus held and observed as under :— "Section 2 (15) defines the term "charitable purpose". Therefore, while construing the term "business" for the said section, the object and purpose of the section has to be kept in mind. We do not think that a very broad and extended definition of the term "business" is intended for the purpose of interpreting and applying the first proviso to section 2 (15) of the Act to include any transaction for a fee or money. An activity would be considered "business" if it is undertaken with a profit motive, but in some cases this may not be determinative. Normally, the profit motive test should be satisfied but in a given case activity may be regarded as business even when profit motive cannot be established/proved. In such cases, there should be evidence and material to show that the activity has continued on sound and recognized business principles, and pursued with reasonable continuity. There should be facts and other circumstances which justify and show that the activity undertaken is in fact in the nature of business. The test as prescribed in State of Gujarat v. Raipur Manufacturing Co. [1967] 19 STC 1 (SC) and CST v. Sai Publication Fund [2002] 258 ITR 70 (SC); [2002] 126 STC 288 (SC) can be applied. The six indicia stipulated in Lord Fisher [1981] STC 238 are also relevant. Each case, therefore, has to be examined on its own facts.

104 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

In view of the aforesaid enunciation, the real issue and question is that whether the petitioner-Institute pursues the activity of business, trade or commerce. To our mind, the respondent while dealing with the said question has not applied their mind to the legal principles enunciated above and have taken a rather narrow and myopic view by holding that the petitioner-Institute is holding coaching classes and that this amounts to business." 14. In the result, we do not find that the Tribunal has committed any error and the Tax Appeal is therefore dismissed. 2.24. We find that the above decision is on identical

facts, thus, the ratio laid down therein, clearly fortifies the

case of the assessee. It is also noted that the during

hearing, ld. CIT-DR raised a query that the assessee is not

doing charitable activities rather engaged in trade,

commerce or business. This objection of the Ld. CIT-DR

and also the observation of the Ld. CIT(E) has also been

replied in the aforesaid order, wherein, it was

observed/held that many activities of genuine charitable

purposes which are not in the nature of trade, commerce or

business may still generate marketable products. After

setting off of the cost, for production of such marketable

products from the sale consideration, the activity may leave

a surplus. The law does not expect the trust to dispose of

its produce at any consideration less than the market

value. If there is any surplus generated at the end of the

105 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

year, that by itself would not be the sole consideration for

judging whether any activity is trade, commerce or

business particularly if generating 'surplus' is wholly

incidental to the principal activities of the trust; which is

otherwise for general public utility, and therefore, of

charitable nature. The Tribunal took into account the

objects of the trust noted that the objects were admittedly

charitable in nature. The surplus generated was wholly

secondary. It was, therefore, that the Tribunal held that the

proviso to section 2(15) would not apply. [Paras 9 & 10]. It

was further observed that the objects of the trust clearly

establish that the same was for general public utility and

were for charitable purposes. The main objectives of the

trust are to breed the cattle and endeavour to improve the

quality of the cows and oxen in view of the need of good

oxen as India is prominent agricultural country; to produce

and sale the cow milk; to hold and cultivate agricultural

lands; to keep grazing lands for cattle keeping and

breeding; to rehabilitate and assist Rabaris and Bharwads;

to make necessary arrangements for getting informatics

and scientific knowledge and to do scientific research with

106 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

regard to keeping and breeding of the cattle, agriculture,

use of milk and its various preparations, etc.; to establish

other allied institutions like leather work and to recognize

and help them in order to make the cow keeping

economically viable; to publish study materials, books,

periodicals, monthlies etc., in order to publicize the objects

of the trust as also to open schools and hostels for

imparting education in cow keeping and agriculture having

regard to the trust objects. [Paras 11]. The Hon'ble High

Court also found that all these were the objects of the

general public utility and would squarely fall under section

2 (15). Profit making was neither the aim nor object of the

Trust. It was not the principal activity. Merely because

while carrying out the activities for the purpose of achieving

the objects of the Trust, certain incidental surpluses were

generated, would not render the activity in the nature of

trade, commerce or business. As clarified by the CBDT in

its Circular No. 11/2008 dated 19-12-2008 the proviso

aims to attract those activities which are truly in the nature

of trade, commerce or business but are carried out under

the guise of activities in the nature of 'public utility'. [Para

107 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

12]. While coming to the aforesaid conclusion, the Hon'ble

High Court affirmed the decision of the Tribunal in

Sabarmati Ashram Gaushala Trust vs DIT(E) (2013) 35

taxmann.com 552(Ahd. Trib.) and also considered the

decision in Institute of Chartered Accountants of India vs

DIT(E) (2012) 347 ITR 99(Del.). If the conclusion drawn in

the present appeal is applied to the facts of the case, we

find that the objects of the trust are of general public utility

and beneficial to the public at large as the centers are

located at village level in various blocks (Tallukas) in the

state of Rajasthan and in each center, gopals are deputed

who are responsible for the objects of the assessee trust

and such gopals organizes meetings with the villagers.

When calf is borne out of the activities carried out by the

trust then ‘calf borne certificate’ is issued, which contains

the complete details of calving. We have also perused the

objects of the trust (available in the paper book) which are

of clearly in the nature of charitable purposes, therefore,

the objections observed in the impugned order are fully

satisfied. So far as the contention of the Ld. CIT-DR and

observed by the Ld. CIT(E) also that a detailed assessment

108 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

order has not been framed is concerned, we find that firstly,

the Ld. Assessing Officer was having the benefit of earlier

assessment orders, wherein, identical claim of the assessee

was allowed and secondly, the assessment was framed after

issuance of notices, queries so raised, and on consideration

of various replies filed by the assessee as discussed in

earlier paras of this order and available on record. Thus,

considering the totality of facts, the decisions from Hon'ble

Apex Court, Hon'ble Gujarat High Court, other High Courts

and Hon'ble jurisdictional High Court, we are of the clear

opinion that the revisional jurisdiction invoked by the Ld.

CIT(E) is not justified.

Finally, the appeal of the assessee is allowed.

This order was pronounced in the open court on

25/07/2018.

Sd/- Sd/- (N.K. Pradhan) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 25/07/2018 f{x~{tÜ? P.S //.�न.स. आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai.

109 ITA No.3769/Mum/2017 M/s J.K. Trust Bombay

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai