ST.JOSEPH'S EDUCATIONAL TRUST,CHENNAI vs. PCIT CENTRAL CHENNAI - 1, CHENNAI

Please produce relevant receipts in connection with corpus donations claim of Rs. 15,25,59,500/- for the asst years 2018-19, Rs. 1,79,83,850/- for the asst. year 2019-20 and Rs.2,35,33,650/- for the asst. year 2020-21. Also, furnish the following details in connection with corpus donation received for the asst. years 2014-15 to 2020-21:

Please produce relevant material to show that an amount of Rs.6,80,65,000/- and Rs.6,78,55,600/- declared as unaccounted fees collected by St. Joseph's College of Engineering for the asst. years 2020-21 and 2018-19 has been offered in the respective asst. years. to 1620/Chny/2024 3. Please produce relevant receipts in connection with corpus donations claim of Rs. 15,25,59,500/- for the asst years 2018-19, Rs. 1,79,83,850/- for the asst. year 2019-20 and Rs.2,35,33,650/- for the asst. year 2020-21. Also, furnish the following details in connection with corpus donation received for the asst. years 2014-15 to 2020-21:

Return filed on 03-11-2018 u/8 153A of the Act.

The ld. Counsel for the assessee further took us through the search assessment passed u/s.153A r.w.s.144 of the Act dated 28.09.2021 and stated that the assessee has recomputed the total income treating the cash donations as anonymous donations and corpus donations collected in DD. The AO in his search to 1620/Chny/2024 assessment order u/s 153A r.w.s.144 in para 3 and 4 had noted the same as under:- ‘’3. Unaccounted capitation fee of Rs.6.78.55,600/- received in cash added to the aggregate of income: During the course of search in the case of the assessee trust on 07.11.2019, it was noticed from the seized material Ann/JCE/ANJ/ED/S-1 that the assessee had collected capitation fees by way of cash which was not accounted in the books of account. The trustee of the assessee trust, Shri. Babu Manoharan, has also accepted the unaccounted capitation fees in his sworn statement recorded on 09.11.2019, further to the sworn statements recorded from Shri.Xavier, In- charge of admissions in the educational institution under the trust and from Shri. Selvaraj. Office Manager in the St. Joseph's group of institutions. The assessee had declared this amount of Rs.6,78,55,600/- in its computation of total income statement submitted during the course of scrutiny assessment proceedings, since, return u/s. 153A could not be filed by the assessee due to technical glitch. Accordingly, as per the computation of income statement, the assessee added this amount to the aggregate receipts of Rs.104,79,15,009/- admitted in the return of income filed u/s.139 on 31.10.2018.

Unaccounted capitation fee of Rs. 15,25,59,500/- received as corpus donation in the form of D.D. added to aggregate of income: It is seen from the seized material Ann/JCE/ANJ/ED/S-1 that the assessee received unaccounted capitation fee of Rs.15,25,59,500/- by way of demand draft and treated the same as 'corpus fund'. The Managing Trustee of the assessee trust, Shri. Babu Manoharan in the course of his sworn statement on 13.07.2020 and 20.07.2020 receipt of Rs.15,25,59,500/-, This amount of Rs. 15,25,59,500/- was added by the assessee and offered in the computation of income total statement furnished in the course of scrutiny proceedings, since, return u/s.153A could not be filed by the assessee due to technical glitch. Accordingly, as per the computation of income statement, the assessee added this amount to the aggregate receipts of Rs. 104,79,15,009/- admitted in the return of income filed u/s. 139 on 31.10.2018’’.

The ld. Counsel also stated that in the garb of clause (a) of Explanation to section 263 of the Act, the PCIT only wants to re-verify or re-verification which has been done in search assessment u/s 153A. Before us ld. Counsel for the assessee further argued that for invoking the powers under Section 263 of the Act, the twin conditions specified therein shall have to be satisfied i.e the order passed by the Ld.

We have heard rival contentions and gone through the record, paper books and impugned order. We may refer recent judgment of the Hon’ble Delhi High Court dated 01.03.2024 passed in in the case of Pr. to 1620/Chny/2024 Commissioner of Income Tax -2, Delhi Vs M/s Clix Finance India Pvt. Ltd. which after considering section 263 of the Act and various settled judgments of the Hon’ble Supreme Court and Hon’ble High Courts held as under:

Vide order dated 06.11.2019, this Court framed the following question of law:- A. Whether, in the facts and circumstances of the case, the Hon'ble ITAT was justified in quashing the order under Section 263 of the Income Tax Act? 17. The brief controversy involved in the present appeal pertains to the invocation of revisional jurisdiction under Section 263 of the Act by the CIT to set aside the original assessment order dated 30.03.2005.

Before adverting to the merits of the case, it is apposite to refer to the power of the revisional authority of the CIT envisaged as per Section 263 of the Act. For the sake of clarity, the relevant extract of Section 263 of the Act is reproduced as under: ‘’263. Revision of orders prejudicial to revenue (1) The [Principal Chief Commissioner or Chief Commissioner or 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 [or the Transfer Pricing Officer, as the case may be,] is erroneous in so far as it is prejudicial to the interest 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,’ (i) an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment; or (ii) an order modifying the order under Section 92- CA; or (iii) an order cancelling the order under Section 92-CA and directing a fresh order under the said section.] *** [Explanation 2. ‘For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] 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 [Chief Commissioner or Chief Commissioner or Principal] Commissioner or Commissioner, to 1620/Chny/2024 (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.] *** 19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly clear that the said provision lays down a two-pronged test to exercise the revisional authority i.e., firstly, the assessment order must be erroneous and secondly, it must be prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263 of the Act delineates certain conditions and circumstances when the order passed by the AO can be said to be erroneous and prejudicial to the Revenue.

Admittedly, in the instant case, the questionnaire dated 02.11.2004, which has been annexed and brought on record in the present appeal, would manifest that the AO had asked for the allowability of the claims with respect to the issues in question. Consequently, the respondent-assessee duly furnished explanations thereof vide replies dated 09.12.2004, 20.12.2004 and 06.01.2005. Thus, it is not a case where no enquiry whatsoever has been conducted by the AO with respect to the claims under consideration. However, this leads us to an ancillary question? whether the mandate of law for invoking the powers under Section 263 of the Act includes the cases where either an adequate enquiry has not been made and the same has not been recorded in the order of assessment or the said authority is circumscribed to only consider the cases where no enquiry has been conducted at all.

Reliance can be placed on the decision of this Court in the case of CIT v. Sunbeam Auto Ltd. [2009 SCC OnLine Del 4237], wherein, it was held that if the AO has not provided detailed reasons with respect to each and every item of deduction etc. in the assessment order, that by itself would not reflect a to 1620/Chny/2024 non-application of mind by the AO. It was further held that merely inadequacy of enquiry would not confer the power of revision under Section 263 of the Act on the Commissioner. The relevant paragraph of the said decision reads as under:- We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure. However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and "inadequate inquiry". If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. (1993) 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113) ** 23. A similar view was taken by this Court in the case of CIT v. Anil Kumar Sharma [2010 SCC OnLine Del 838], wherein, it was held that once it is inferred from the record of assessment that AO has applied its mind, the proceedings under Section 263 of the Act would fall in the category of Commissioner having a different opinion. Paragraph 8 of the said decision reads as under:- 8. In view of the above discussion, it is apparent that the Tribunal arrived at a conclusive finding that, though the assessment order does not patently indicate that the issue in question had been considered by the Assessing Officer, the record showed that the Assessing Officer had applied his mind. Once such application of mind is discernible from the record, the proceedings under section 263 would fall into the area of the Commissioner having a different opinion. We are of the view that the findings of facts arrived at by to 1620/Chny/2024 the Tribunal do not warrant interference of this court. That being the position, the present case would not be one of "lack of inquiry" and, even if the inquiry was termed inadequate, following the decision in Sunbeam Auto Ltd. (2011) 332 ITR 167 (Delhi) (page 180) : "that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter." No substantial question of law arises for our consideration.

In Ashish Rajpal as well, this Court was of the view that the fact that a query was raised during the course of scrutiny which was satisfactorily answered by the assessee but did not get reflected in the assessment order, would not by itself lead to a conclusion that there was no enquiry with respect to transactions carried out by the assessee.

Further, the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd., enunciates the meaning and intent of the phrase ’prejudicial to the interests of the Revenue’, in the following words:- ’8.The phrase ‘prejudicial to the interests of the Revenue’ is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The High Court of Calcutta in ‘Dawjee Dadabhoy & Co.v.S.P. Jain[(1957) 31 ITR 872(Cal)], the High Court of Karnataka in CITv.T. Narayana Pai[(1975) 98 ITR 422(Kant)], the High Court of Bombay in CITv.Gabriel India Ltd.[(1993) 203 ITR 108(Bom)] and the High Court of Gujarat in CITv.Minalben S. Parikh[(1995) 215 ITR 81(Guj)] treated loss of tax as prejudicial to the interests of the Revenue.

Mr. Abraham relied on the judgment of the Division Bench of the High Court of Madras in Venkatakrishna Rice Co.v.CIT[(1987) 163 ITR 129(Mad)] interpreting ‘prejudicial to the interests of the Revenue’. The High Court held: “In this context, (it must) be regarded as involving a conception of acts or orders which are subversive of the administration of revenue. There must be some grievous error in the order passed by the Income Tax Officer, which might set a bad trend or pattern for similar assessments, which on a broad reckoning, the Commissioner might think to be prejudicial to the interests of Revenue Administration’’. In our view this interpretation is too narrow to merit acceptance. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue.

Considering the aforesaid judicial pronouncements, it can be safely concluded that inadequacy of enquiry by the AO with respect to certain claims would not in itself be a reason to invoke the powers enshrined in Section 263 of the Act. The Revenue in the instant case has not been able to make out a sufficient case that the CIT has exercised the power in accordance with law. Rather, in our considered opinion, the facts of the case do not indicate that the twin conditions contained in Section 263 of the Act are fulfilled in its letter and spirit.

Notably, the ITAT, while making a categorical finding that the CIT had failed to point out any definite or specific error in the assessment order, has satisfactorily explained both the claims in question in Paragraph 8.2 of its order, which reads as under:- to 1620/Chny/2024 “8.2 In the Impugned Order, the Ld. Commissioner of Income Tax- IV, Delhi held that the AO had not examined the aforesaid two issues properly and, therefore, set aside the issues for further inquiries to be conducted by the AO. As regards the first issue is concerned, we note that out of total provision of Rs. 1114.68 lacs, a sum of Rs. 7,60,76,105/- was suo moto added back in the computation of income and a further sum of Rs. 73,46,160- was disallowed by the AO in the original assessment order dated 30.3.2005. Therefore, out of Rs. 1114.68 lacs, Rs. 834.22 lacs already stood disallowed in the original assessment order. The balance amount represented actual write off which was palpably clear from page 2 of the impugned order itself. No deduction on account of any such provision was, therefore, allowed to the assessee. Hence, there is no error or prejudice to the interest of revenue. As regards second issue it was noted that interest rate swap was an actual loss and only the net loss of Rs. 114.05 lacs after setting of gain of interest rate swap was claimed as deduction. However, we find that both these issues were duly examined by the AO vide Questionnaire dated 2.11.2004 (Page 1-2 of the Paper Book) to which replies dated 9.12.2004, 20.12.2004 and 6.1.2005 (Page No. 3-39 of Paper Book-1) were furnished and, therefore, the finding of the Ld. CIT that the issues were not examined properly was not correct. Even the Ld. CIT has not pointed out the definite and specific error in the original assessment order and observed that the inquiry made by the AO was inadequate or improper without first pointing out the error in the original assessment order passed by the AO, particularly because both the aforesaid issues were duly examined at the stage of the original assessment proceedings, hence, the impugned order is beyond jurisdiction, bad in law and void-ab-initio’’.

It is discernible from the aforenoted findings of the ITAT that both the claims were duly examined during the original assessment proceedings itself and neither there was any error nor the same was prejudicial to the interests of the Revenue. Thus, the findings of fact arrived at by the ITAT do not warrant any interference of this Court.

So far as the reliance placed by the CIT on Umashankar Rice Mill is concerned, the same is misplaced, particularly in light of the insertion of Explanation 2 to Section 263 of the Act, brought in place by the Finance Act, 2015. The said amendment markedly specifies various conditions to exercise the authority vested in the Commissioner under Section 263 of the Act, leaving no ambiguity in the interpretation of the said provision.

In view of the aforesaid, the appeal preferred by the Revenue is dismissed alongwith the pending application(s), if any’’. to 1620/Chny/2024 11. The Hon'ble Supreme Court in the case of CIT vs. M.Chandra Sekhar [151 ITR 433 (SC)] has held that the presumption that A.O. has considered the details filed by the assessee was "founded" on the principle that an officer entrusted with a judicial or quasi- judicial duty must be presumed to have discharged his duties in a proper and bonafide manner. This view is confirmed by the full bench decision of the Delhi high court in CIT Vs. Kelvinator of India Ltd (256 ITR 1) (Delhi FB), was upheld by the Supreme court in Commissioner of Income Tax Vs. Kelvinator Of India Ltd ( 320 ITR 561)(SC).

The Hon’ble High Court of Bombay in the case of Marico Ltd., vs. ACIT in writ petition No.1917 of 2019 dated 21.08.2019, wherein the Hon’ble High Court has clearly pointed out once a query has been raised by the AO during the assessment proceedings and the assessee has responded to that query, it would necessarily follow that the AO has accepted the assessee’s submission, so as to not deal with that issue in the assessment order.

The Hon’ble High Court of Bombay considering another decision of the same High Court in the case of GKN Sinter Metals Ltd., vs. ACIT reported in 371 ITR 225 has categorically pointed out that an assessment order passed u/s.143(3) of the Act does not reflect any consideration of the issue, it must follow that no opinion was formed by the AO in the regular assessment proceedings. This submission was negatived by the Hon’ble Bombay High Court and the relevant paras 10 & 11 reads as under:- to 1620/Chny/2024 ‘’Another aspect argued by ld.counsel that in term of clause (a) to Explanation 2 to section 263 of the Act, reassessment order is deemed to be erroneous insofar as prejudicial to the interest of revenue. The ld.counsel for the assessee drew our attention to the decision of Hon’ble High Court of Delhi in the case of PCIT vs. Clix Finance India Pvt. Ltd., order dated 01.03.2024 and drew our attention to paras 19 & 20 explaining the provisions and particularly Explanation 2(a) as under:- 19. A bare reading of sub-Section (1) of Section 263 of the Act makes it abundantly clear that the said provision lays down a two- pronged test to exercise the revisional authority i.e., firstly, the 17:06:54 assessment order must be erroneous and secondly, it must be prejudicial to the interests of the Revenue. Further, Explanation 2 to Section 263 of the Act delineates certain conditions and circumstances when the order passed by the AO can be said to be erroneous and prejudicial to the Revenue.

Clause (a) of Explanation 2 to Section 263 of the Act further stipulates that if an order is passed without making an enquiry or verification which should have been made, the same would bestow a revisional power upon the Commissioner. However, the said Clause or any other condition laid down in Explanation 2 does not warrant recording of the said enquiry or verification in its entirety in the assessment order’’.

Even the Hon’ble High Court of Bombay in the case of PCIT vs. Shivshahi Punarvasan Prakalp Ltd., in of 2018, order dated 05.08.2022 has considered the issue of no enquiry case or inadequate enquiry even after the insertion of Explanation 2 in para 32 as under:- “32. In this appeal, we are concerned with the assessment year 2006- 07. Prior to the insertion of Explanation 2, it was the prerogative of the Assessing Officer to determine what enquiry he wants to make while completing the assessment. We have already observed that an enquiry was made by the Assessing Officer and the assessment order passed. Therefore, the CIT could not invoke jurisdiction under Section 263 as the view taken by the Assessing Officer was a possible/plausible view. It was only if the Assessing Officer had not made any enquiry then it could be said that the order passed was erroneous. This is not a case of lack of enquiry though it may be a case of inadequate enquiry. Inadequacy of enquiry as elucidated above does not give jurisdiction to the CIT to invoke provisions of Section 263 prior to the insertion of to 1620/Chny/2024 Explanation 2. In our view, the Explanation 2 does not help the revenue in as much as the same is prospective and applicable with effect from 1st June, 2015.”

Hence in the light of above judgment and cases cited at bar, we are of the considered view that the impugned order is liable to be set aside for the following reasons:- I. When these factual situation that the cash donations as anonymous donations and corpus donations have been considered by the AO during search assessment proceedings u/s153A, where is error in search assessment order dated 28.09.2021 so as to make the same prejudicial to the interest of revenue, the ld.CIT-DR could not controvert the above fact situation except supporting the revision order passed by the PCIT. II. Taking guidance from the various judgments referred supra, in this case twin conditions of Section 263 are not satisfied, as there is no lack of inquiry by the AO, and the AO has taken a plausible view and there is no prejudice to the interest of the revenue since the assessee has paid taxes on the income chargeable to tax in accordance with the provisions of section 11 of the Act and section 115BBC of the Act; III. The ld. PCIT should have made preliminary enquiry about the applicability of the judgment of the Hon’ble Madras High Court prior to issue of notice u/s 263 of the Act. We find that the judgment of the Hon’ble jurisdictional High Court was not in existence when AO passes the order u/s 153A r.w.s. 144 of the Act. We also find that the Hon’ble Supreme Court vide order dated to 1620/Chny/2024 04.12.2023 in the case of M/s MAC PUBLIC CHARITABLE TRUST [SLP (C) Nos.21782-21783/2022] has already passed the following order: UPON hearing the counsel the court made the following ORDER “Issue notice to the respondent (s). Having regard to the order dated 24.11.2023 passed in SLP(C) Nos.22564- 22567/2022 arising from the same batch of cases disposed of by the Madras High Court on 31.10.2022 and following the same, there shall be interim stay of further proceedings of the impugned judgment and order in these matters also.” IV. Therefore, by the order of the Hon’ble Supreme Court that judgment of the Hon’ble jurisdictional High Court in the case of M/s MAC PUBLIC CHARITABLE TRUST was already stayed by the Supreme Court prior to issue of notice dated 04.03.2024 u/s 263 of the Act itself; V. The Hon'ble Apex Court in the case of Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association, Madras, (1992) 3 SCC 1 has explained the meaning of ‘quashing of an order’ and ‘stay of operation of an order’. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay order is that the order which has been stayed would not be operative from the date of passing of stay order. VI. Therefore, invoking jurisdiction by the ld.PCIT u/s 263 vide notice dated 04.03.2024 is void ab-initio for the reason that the Hon’ble jurisdictional High to 1620/Chny/2024 Court judgment in the case of M/s MAC PUBLIC CHARITABLE TRUST was not operative by virtue of the Hon’ble Supreme Court order referred supra. VI. The ld.PCIT has grossly failed to note that the registration u/s 12AA of the Act remains in force and no action or proceedings have been initiated for cancellation of the Trust and also for violation under the Tamilnadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992 till date; VII. The Hon’ble Supreme Court of India in the case of Manish Maheshwari vs Asstt. Commissioner Of Income Tax & Anr (2007) 289 ITR 341 has observed as under: “The provisions contained in Chapter XIVB are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened.” VIII. In this case we observe that assessee had an occasion to face search & seizure under a rigorous provision of Section 132 Chapter XIVB and the assessing officer took a particular view on same material, same figures and taxed the assessee. In view of the above discussion, facts discussed, perusal of records, we are of the view that the very issue was raised in the search assessment u/s.153A of the Act, Further, it is noted that the complete details were examined by the AO in the search assessment proceedings and framed assessment u/s.153A r.w.s. 144 of the Act. During search assessment, AO explicitly records details like seized material Ann/JCE/ANJ/ED/S-1, sworn to 1620/Chny/2024 statements of the Shri Xavier, Shri Selvaraj and Babu Manoharan. Even such queries were answered by the assessee in reply to questionnaire issued along with notice u/s.142(1) of the Act dated 14.09.2021 while completing reassessment. Hence, it is a full verification case and AO has verified complete facts and after verification took one of view and completed the search assessment. IX. The revenue cannot invoke clause (d) of Explanation 2 of section 263 of the Act and say that search assessment order u/s 153A dated 28.09.2021 is erroneous in the light of the Hon’ble Jurisdictional High Court delivered in the case of MAC Public Charitable Trust dated 31.10.2022 for the reason that when search assessment order u/s 153A was passed the judgment of the Hon’ble Jurisdictional High Court in the case of MAC Public Charitable Trust was not at all in existence. X. Hence, we find no reason to hold that the search assessment order dated 28.09.2021 u/s 153A r.w. section 144 of the Act is erroneous insofar as prejudicial to the interest of revenue on this very jurisdictional issue. Hence, we quash the revision order passed by PCIT dated 31.03.2024 and allow this appeal of assessee.

In the result, all the three appeals filed by the assessee are allowed.