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Facts
The assessee, an educational trust, claimed exemption under section 10(23C)(iiiad) for AY 2017-18, and its assessment was completed with NIL income. The PCIT initiated revision proceedings under section 263, alleging that the AO failed to examine unsecured loans of Rs. 13.50 lakhs and that the assessee was not eligible for depreciation as an application of income.
Held
The Tribunal found that the AO had indeed conducted adequate inquiries regarding the unsecured loans. Regarding depreciation, the Tribunal held that even if the claim was erroneous, it did not render the assessment prejudicial to the revenue as the assessee's income was otherwise exempt. The Tribunal also noted that the PCIT raised fresh issues without proper show cause notice, violating natural justice. Consequently, the revision order u/s 263 was quashed.
Key Issues
Whether the PCIT's revision order u/s 263 was justified on grounds of alleged non-examination of unsecured loans and depreciation claim, and if new issues could be raised without show cause notice.
Sections Cited
263, 10(23C)(iiiad), 143(3), 68, 12AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “B”: NEW DELHI
Before: SHRI M. BALAGANESH
O R D E R PER M. BALAGANESH, AM:
The captioned appeal, preferred the assessee, is directed against the order of learned Commissioner of Income-tax (Exemptions), Lucknow, dated 30.03.2022,passed u/s 263 of the Income-tax Act, 1961, pertaining to the assessment year 2017-18.
The assessee has raised the following grounds of appeal before us:-
“1. On the facts and in the circumstances of the case as well as law on the subject, the CIT has erred in making an order u/s 263 referring it to the Assessing Officer in Arbitrary manner. 2. On the facts and in the circumstances of the case as well as law on the subject, the order of CIT (Exemptions) is erroneous, arbitrary and bad in law and on facts. The order is an abuse to competence to exercise the revision powers..
3. On the facts and in the circumstances of the case as well as law on the subject, the CIT (Exemptions) is not justified in referring the case for fresh assessment on a plea that unsecured loan was raised during the year had not been shown in the receipt side. The loans are borrowings and were properly shown in Balance Sheet of the assessee .It is erroneous on the part of the department expecting the wrong placing of receipts.
4. On the facts and circumstances of the case, the loans of Rs. 13,50,000 received from the sources, which have been enquired by the assessing officer during the course of assessment and only after convinced, made the assessment order. Therefore, the allegation of not showing unsecured loan in corpus or voluntarily donation is erroneous in itself. 5. Your appellant therefore prays that looking to the facts and circumstances of the case, the notice issued by the learned CIT ( Exemptions) may please be deleted. 6. Your appellant further reserves his right to add, alter or to amend any of the aforesaid ground.”
We have heard the rival submissions and perused the materials available on record. The assessee is a public charitable trust and had filed its return of income for the Asst Year 2017-18 declaring total income of Rs Nil on 24.1.2018 after claiming exemption u/s 10(23C)(iiiad) of the Act as gross revenue of the assessee was less than Rs 1 crore. The assessee had not furnished the audit report in Form 10B along with the return of income. The assessee is a educational trust running a school under the name and style of D S Public School at Meerut. The trust is not registered u/s 12AA of the Act.
The trust is affiliated with CBSE, New Delhi. The assessee filed the copy of audit report along with the audited balance sheet , income and expenditure account. During the year , assessee had disclosed total receipt of Rs 99.46 lacs and expenditure of Rs 92.83 lacs including depreciation of Rs 5.27 lacs.
The assessee has shown excess of income over expenditure of Rs 6.63 lacs in the return of income. Since income was claimed exempt u/s 10(23C)(iiiad) of the Act, it was contended that there was no need to file audit report in Form 10B. This was the only reason for the case of the assessee to be selected for scrutiny. The explanation given by the assessee was accepted by the ld. AO and assessment was completed u/s 143(3) of the Act on 7.12.2019 accepting the returned income. This assessment was sought to be revised by the ld. PCIT u/s 263 of the Act on the following grounds:- a) Unsecured loans received in the sum of Rs 13,50,000/- was not examined by the ld. AO in the assessment proceedings. b) Assessee is not eligible for depreciation on assets as an application of income.
The ld. AR before us drew our attention to pages 111 to 136 of the Paper Book containing various queries raised by the ld. AO in the assessment proceedings regarding the veracity of the unsecured loans within the meaning of section 68 of the Act and the details filed by the assessee thereon. The assessee had duly filed name & address of the lenders, source of source fror the lenders , agricultural land holdings of the lenders to prove their creditworthiness, affidavits of the lenders duly confirming the fact of advancing loans to the assessee trust, PAN of the lenders and bank statements of the lenders before the ld. AO , among other details. Infact the assessee had also furnished the very same reply before the ld. PCIT in response to show cause notice issued by him in the course of revision proceedings u/s 263 of the Act. Hence these facts clearly go to prove that the ld. AO had indeed made adequate enquiries during the course of assessment proceedings and hence the invocation of revision jurisdiction by the ld. PCIT u/s 263 of the Act is not warranted at all in the instant case as it is based on incorrect assumption of fact that no enquiries were carried out by the ld. AO. Hence the initiation of revision proceedings u/s 263 of the Act on this issue is hereby quashed.
However, with regard to the other issue of claiming depreciation on assets as an application of income, we find that though the ld. PCIT is right in stating that depreciation would not be eligible as an application of income after the amendment in 2015 in the Act, it would not have any implication in the assessment as income of the assessee would be exempt u/s 10(23C)(iiiad) of the Act. Hence the order of the ld. AO cannot be termed as prejudicial to the interest of the revenue though it may be erroneous to this extent. Unless the two conditions are satisfied cumulatively, the ld. PCIT would be justified in invoking revision jurisdiction u/s 263 of the Act. Hence initiation of revision jurisdiction u/s 263 of the Act on the issue of depreciation is also quashed.
We find that the ld. PCIT in Para 5.3. and 5.4. of his order had sought to rake up fresh issues with regard to non-verification of mess expenditure and salary , without even giving the basic pre-requisite show cause notice to the assessee, thereby violating the principles of natural justice. Hence the revision order passed u/s 263 of the Act on these two issues are hereby quashed.
We further find that though the ld. PCIT had made a casual observation that assessee’s gross receipts would exceed Rs 1 crore pursuant to inclusion of unsecured loan and thereby not eligible for exemption u/s 10(23C)(iiiad) of the Act, ultimately the ld PCIT had not directed the ld. AO to look into this aspect and this reason was not the ground on which the order of the ld. AO was treated as erroneous and prejudicial to the interest of the revenue by the ld. PCIT. Hence we refrain to offer our opinion on the said observation made by the ld. PCIT.
Accordingly, the grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in open court on 25.04.2024.