THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), vs. MS/.LOVE IN ACTION SOCIETY NALANCHIRA,

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM WEDNESDAY, THE 8TH DAY OF SEPTEMBER 2021 / 17TH BHADRA, 1943 ITA NO. 282 OF 2019 AGAINST THE ORDER IN ITA 459/2018 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/S: THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOCHI. BY ADV CHRISTOPHER ABRAHAM RESPONDENT/S: MS/.LOVE IN ACTION SOCIETY NALANCHIRA, TRIVANDRUM. BY ADVS. SRI.M.GOPIKRISHNAN NAMBIAR SRI.K.JOHN MATHAI SRI.JOSON MANAVALAN SRI.KURYAN THOMAS SRI.PAULOSE C. ABRAHAM OTHER PRESENT: ADV RAJA KANNAN FOR THE RESPONDENT THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 08.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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-2- J U D G M E N T S.V. Bhatti, J. Heard the learned Advocates Mr Christopher Abraham and Mr Raja Kannan for parties. 2. The Commissioner of Tax (Exemptions), Kochi/Revenue is the appellant. M/s. Love in Action Society/assessee is the respondent. The assessee, on 07.10.2013 filed income tax returns for the Assessment Year 2013-14. The assessee is a Charitable Society registered under Section 12AA of the Income Tax Act, 1961 (for short, 'the Act'). On 29.03.2016 the assessment for the subject year, under Section 143(3) was completed. The Commissioner of Income Tax (Exemptions) issued notice dated 02.03.2018 under Section 263 of the Act. The assessee, in spite of receipt of notice, did not file reply or attend

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-3- the hearing before CIT (Exemptions). The CIT (Exemptions) hence was compelled to proceed ex parte and made the order dated 19.03.2018, relevant portion reads thus: “Considering the claim of the assessee and the availability of fund for application, it indicated that the balance amount of fund of Rs.56,81,976/- was utilized from the corpus donation violating the proviso to section 11(1)(d) of the Income Tax Act, 1961. It is seen from the records that the Assessing Officer, while completing the scrutiny assessment, failed to consider this issue. In view of the above, I am of the opinion that the impugned order u/s143(3) dated 29.03.2016 is erroneous and prejudicial to the interests of revenue. I set aside the assessment order u/s 263 of the Income Tax Act for reconsideration of the issue by the Assessing Officer, as delineated above, after giving full opportunity of being heard to the assessee.” 2.1 The assessee aggrieved by order in Annexure-B dated 19.03.2018 filed I.T.A. No.459/Coch/2018 before the Income Tax Appellate Tribunal (ITAT), Cochin Bench. It is a matter of record that the assessee filed material before the Tribunal in

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-4- support of the assessee's argument that the order in Annexure- B does not satisfy the twin requirements of being erroneous and prejudicial to the interest of Revenue, in terms of Section 263 of the Act. Therefore, reassessment direction issued to the Assessing Officer is per se illegal. The issue noted by the CIT (Exemptions) arises under Section 11(1)d and the utilization of corpus donation for revenue expenditure allegedly incurred by the assessee. The Tribunal, in the order under appeal, examined the circumstances discernible from the material brought on record by the assessee before it and recorded a finding in conclusive terms that one cannot appreciate the actual loss of revenue from the omissions noted by the CIT (Exemptions). The consideration resulted in setting aside Annexure-B order. 3. For the view we are proposing to take, we avoid getting into detailed discussion on each one of the aspects

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-5- considered by the Tribunal. Suffice to notice that Section 263 confers

revisional

powers

the

Principal Commissioner/Commissioner, assessment orders which are erroneous, insofar as it is prejudicial to the interest of the Revenue. To begin with, Section 263 provides that at the commencement of proceedings the Commissioner may call and examine the record of any proceeding under the Act if he considers that any order passed by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. The next stage in Section 263 is affording opportunity while making or causing enquiry as he deems necessary which would result in the Commissioner passing an order. In the circumstances arising under Section 263, as pointed out by Mr Raja Kannan, it is always possible that two views are plausible on a definite set of circumstances and the Tribunal, being the Appellate Authority, has found the view of Commissioner as not

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-6- conforming to requirements of Section 263, and, within Tribunal’s jurisdiction, found that the order in Annexure-B is liable to be set aside. In other words, he suggests that the exercise, by dwelling into the merits of the conclusion of CIT (Exemptions), has been done by the Tribunal by having a conspectus of all relevant matters on the issue. Hence, the appeal is without merit. 4. We have some difficulty in appreciating the argument of the assessee. Explained, the assessee, when an opportunity was afforded by the Commissioner, did not avail the opportunity and/or participated in the enquiry being carried out by the Commissioner. The participation of the assessee is not an empty formality as could be appreciated from the language employed in Section 263 of the Act. Had the assessee placed reply, deliberated on the nuances involved in

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-7- the circumstances noted by the Commissioner, then, legitimately it could be argued that an adverse order was passed by the Commissioner dehors the objections of the assessee. But the assessee having become an onlooker or complacent of the ongoing procedure, now raises grounds on the findings recorded by the Commissioner before the Tribunal, on the material placed before the Tribunal. This Court is not observing that the Tribunal ought not to have received material sought to be relied on by the assessee. The material brought on record before the Tribunal and a case for reconsideration under Section 263 is made out, the Tribunal would be doing well by sending the matter back to the Commissioner for consideration and decision afresh, instead of adjudicating on the merits of the conclusions recorded by the CIT (Exemptions). 5. By referring to the materials brought on record by

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-8- the assessee and for allowing the appeal, the reasons recorded by the Commissioner are set aside. The exercise virtually amounts to upsetting the satisfaction recorded by the Commissioner on the material examined by the Tribunal. The material should be allowed to be considered by the Commissioner as the Commissioner is vested with the revisional power against the proceedings made under the Act for exercising his jurisdiction. Though an attempt has been made to independently justify the conclusions recorded by the Tribunal, the mistake we have noticed in the approach of the Tribunal ought not to be ignored by us while examining the legality of the order under appeal and pursue the same approach. In cases like the present, what constitutes the subject matter of appeal before the Tribunal is the correctness or legality of the opinion formed by the Commissioner from the material on record and the reply of the assessee. The

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-9- conclusion of the Commissioner is the subject matter of appeal, but the Tribunal recorded, in the case on hand, primary satisfaction under Section 263 of the Act. Such a course is impermissible. Hence, we are of the view that the orders of the CIT (Exemptions) and the Tribunal in Annexures-B and C are set aside and the matter is remitted to the Commissioner for consideration and decision afresh in accordance with law. (i) The assessee is given liberty to file a reply/produce record by enclosing a copy of the judgment within six weeks from today. (ii) The Commissioner enquires into the notice and passes an order within six weeks thereafter. The questions are answered in favour of the Revenue and against the assessee. The Income Tax Appeal is allowed as

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-10- indicated above. 6. After the judgment has been dictated, Mr Raja Kannan stated that the consideration by this Court shall not be understood as a view on merits is expressed. 6.1 We make it clear that this Court has not examined the merits of the case of the assessee or tenability of the findings recorded by the Tribunal on the merits of the matter. The remand of the issues to the Commissioner is an open remand and the Commissioner proceeds and decides after receiving the reply etc of the assessee, in accordance with law. Sd/- S.V.BHATTI JUDGE Sd/- VIJU ABRAHAM JUDGE jjj

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-11- APPENDIX OF ITA 282/2019 PETITIONER ANNEXURE ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER UNDER SECTION 143(3) DATED 29.03.2016. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOCHI UNDER SECTION 263 DATED 19.03.2018. ANNEXURE C CERTIFIED COPY OF THE ITAT'S ORDER IN ITA NO.459/COCH/2018 DATED 04.02.2019.