SHRI NAVKAR PAARIVAR,INDORE vs. CIT EXEMPTION, BHOPAL

आदेश / O R D E R

Per B.M. Biyani, A.M.:

Feeling aggrieved by revision-order dated 24.03.2022 passed by learned Pr. Commissioner of Income-Tax, Indore [“Ld. PCIT”] u/s 263 of Income-tax Act, 1961 [“the Act”], which in turn arises out of assessment-order dated 23.12.2019 passed by learned ITO-Exemption, Indore [“Ld. AO”] u/s 143(3) for Assessment-Year [“AY”] 2017-18, the assessee has filed this appeal.

Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 3. Briefly stated the facts are such that the assessee is a trust engaged in charitable purposes. It submitted return of income declaring a total income of Rs. Nil, which was subjected to scrutiny and statutory notices u/s 143(2) / 142(1) were issued. Finally, the Ld. AO completed the assessment u/s 143(3) accepting the returned income. Subsequently, the Ld. PCIT examined the record of assessment-proceeding and observed that the assessment-order passed by Ld. AO is erroneous in so far it is prejudicial to the interest of revenue. The reasons of framing such a view, as mentioned by Ld. PCIT in the show-cause notice dated 28.02.2022 are as under:

“The assessee has received donations to the tune of Rs. 32,93,111/- during the FY 2016-17 relevant to A.Y 2017-18. These donations, in excess of Rs 10,000/-. are received in cash from various donors during the demonetization period. The assessee has claimed these to be corpus donations and hence non-taxable. The Assessing Officer has passed the assessment order overlooking and without examining the following points emanating tram the records- a.The donations are received coinciding with demonetization period. b.The donations are received in cash except Rs.1,70,111/- which have been claimed to be received through cheque. c.In some of the receipts, issued by assessee-trust to donors, the names and addresses of the so called donors are incomplete /unclear. Lack of complete particulars makes such persons pseudonymous/anonymous donors. d.A chart containing so called list of donors, placed on record, do not contain full particulars of the donors. e.There are no specific directions from the donors that the contributions shall form part of the corpus of the trust. f.The recipient trust or institution is not registered under section 12A or 12AA, as applicable up to 31st March, 2021, or section 12AB as applicable thereafter. g.As per the said section 12A of the Act, one of the conditions for claiming benefit of exemption under sections 11 and 12 was registration of the trust as per subsection (aa) of section 12A; that on a conjoint reading of the provisions, it is clear that the income of any trust, including voluntary contributions received with a specific direction, was not includible in the total income of the trust, only if such trust was registered u/s 12A /12AA and the registration was a condition precedent for claiming exemption u/s 11, including for voluntary contributions. Reliance is placed on the recent decision of hon'ble Chennai Tribunal in Veeravel Trust vs. ITO [2021] 129

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 taxmann.com 358. Thus the condition precedent for claiming exemption u/s 11 was registration of the trust u/s 12AA and hence, in the absence of such registration, exemption claimed towards corpus donations could not be allowed. Reliance can be placed on the decision of the hon'ble Supreme Court in the case of U.P. Forest Corpn, vs. Dy. CIT [2008] 297 ITR 1. Evidences on record show that the Assessment order dated 23/12/2019 was passed shortly after receiving assessee's submissions. Obviously no enquiries carried out to ascertain the veracity of the so called cash donations and no findings recorded even on the evidences available on record. On examination of records it is capacity of donors with regard to donation received are missing. There is no questionnaire, no statement recorded, no third party verifications done. Thus, an assessment order passed without enquiries and without application of mind is erroneous and prejudicial to revenue. Keeping in view of the above, the assessment order dated 23/12/2019 passed by the-Assessing Officer is considered to be erroneous in so far as it is prejudicial to the interest of revenue, and therefore, I, propose to invoke powers vested uls 263 of the Income Tax Act, 1961 in respect of the order referred to above. You are hereby given an opportunity of being heard as per section 263 (1) of the Income Tax Act to present yourself in person or through an authorized representative and submit your reply and explain your case on 11.0~2J72 at 11:30 A.M. You can also submit your reply through On line submission.” 4. By the aforesaid show-cause notice, the assessee was asked to explain as to why the assessment-order may not be revised. In response thereto, the assessee made a reply to Ld. PCIT which is re-produced in Para No. 6 of the revision-order.

“Explanation 2 – “For the purpose 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 interest of 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;

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 (b) The order is passed allowing any relief without inquiring into the claim; (c) …. (d) …”

(i) Paper Book Page 36 to 39 – Vide Point No. 15 of the notice dated

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 14.11.2019 u/s 142(1), the AO asked the assessee to submit complete details of corpus donations in a particular format.

(ii) Paper Book Page 50 to 51 – Vide Point No. 14 of the letter dated 06.12.2019, the assessee replied that the corpus donations were received for building construction.

(iii) Paper Book Page 52 to 60 – Vide Point No. 7 of the letter, the assessee filed a complete statement of the corpus donations received in the format given by AO. The statement contains the details of corpus donation of Rs. 32,93,111/- in a columnar format comprising S.No., Name of the donor, Address, PAN, Amount of donation, Cheque No./date, to the extent available with assessee.

(iv) Paper Book Page 61 to 80 – Confirmation-letters of certain donors containing the details of donations as also a certification to the effect that the donations have been given for corpus towards Bhawan Nirman Fund.

(v) Paper Book Page 81 to 95 – Copies of sample receipts issued to the donors which contain complete details including a specific mention that the donations had been received for building.

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 the AY 2017-18 involved in present appeal was pending on 20/09/2019 before the Ld. AO. With this factual backdrop, Ld. AR referred to the section 12A(2) which reads as under:

“12A(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment-year immediately following the financial year in which such application is made.

Provided that where registration has been granted to the trust or institution under section 12AA, then, the provisions of sections 11 and 12 shall apply in respect of any income derived from property held under trust of any assessment year preceding the aforesaid assessment year, for which assessment proceedings are pending before the Assessing Officer as on the date of such registration and the object and activities of the trust or institution remain the same for such preceding assessment year:” Analyzing the above Proviso, Ld. AR submitted that once the registration has been granted u/s 12AA, the exemption u/s 11 and 12 shall apply in respect of any preceding assessment-year for which the assessment-proceeding is pending before the AO on the date of registration. Ld. AR submitted that in the present case, the scrutiny-assessment of AY 2017-18 with which we are concerned in present appeal, was pending on the date of registration. Hence the benefit of the aforesaid Proviso was available to the assessee. In support, the Ld. AR gainfully referred the Explanatory notes to the provisions of Finance (No.2) Act, 2014 as given in CBDT Circular No.01/2015 dated 21.01.2015, which reads as follows:

"Para 8.2

Non-application of registration for the period prior to the year of registration caused genuine hardship to charitable organizations. Due to absence of registration, tax liability is fastened even though they may otherwise be eligible for exemption and fulfill other substantive conditions. However, the power of condonation of delay in seeking registration was not available.

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 8.3 In order to provide 8.3 In order to provide relief to such trusts and remove hardship in genuine cases, section 12A of the Income-tax Act has been amended to provide that in a case where a trust or institution has been granted registration under section 12AA of the Income-tax Act, the benefit of sections 11 and 12 of the said Act shall be available in respect of any income derived from property held under trust in any assessment proceeding for an earlier assessment year which is pending before the Assessing Officer as on the date of such registration, if the objects and activities of such trust or institution in the relevant earlier assessment year are the same as those on the basis of which such registration has been granted."

Ld. AR argued that by virtue of the above legal provisions, the Ld. AO has rightly allowed the exemption u/s 11 / 12 to assessee.

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 exemption u/s 11 / 12 to assessee. Regarding introduction of Explanation 2 to section 263, as claimed by Ld. PCIT in his order, we only need to state that it is by now well-settled in several decisions that the said Explanation does not give unfettered power to the PCIT to assume revisional-jurisdiction to revise every order of the Assessing Officer to re-examine the issues already examined during assessment-proceeding. It is judicially interpreted in several decisions that the intention of legislature behind introduction of Explanation 2 could not have been to enable the PCIT to find fault with each and every assessment-order in unlimited terms, since such an interpretation would lead to unending litigation and there would not be any point of finality of assessment-proceeding done by Ld. AO.

“5. The learned AR before us filed a paper book running from pages 1 to 157 and contended that all the necessary details about the advances received from the parties, sales shown in the financial statement and details of the service tax returns were filed during the assessment proceedings. The learned AR further contended that the assessment was framed by the AO after considering the necessary details and verification and application of mind. The learned AR in support of his contention drew our attention on pages 151 to 153 of the paper book where the copy of the notice under section 142(1) of the Act was placed. Likewise, the learned AR also drew our attention on pages 154 to 157 of the paper book where the reply of the assessee in response to the notice issued under section 142(1) of the Act was placed. Thus, the learned AR contended that there cannot be said that the assessment order is erroneous and causing prejudice to the interest of Revenue in the given facts and circumstances on account non-verification. 6. On the contrary, the learned DR before us contended that reconciliation of the amount shown in the service tax return and financial statement was not available before the AO during the assessment proceedings. Accordingly the learned DR vehemently supported the order of the learned PCIT.

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 7. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the present case relates whether the assessment order has been passed by AO without making inquiries or verification with respect to the difference in the figures as discussed above and hence the assessment is erroneous insofar prejudicial to the interest of the Revenue. Thus, requiring revision by Pr. CIT u/s 263 of the Act. 7.1 An inquiry made by the Assessing Officer, considered inadequate by the Commissioner of Income Tax, cannot make the order of the Assessing Officer erroneous. In our view, the order can be erroneous if the Assessing Officer fails to apply the law rightly on the facts of the case. As far as adequacy of inquiry is considered, there is no law which provides the extent of inquiries to be made by the Assessing Officer. It is Assessing Officer’s prerogative to make inquiry to the extent he feels proper. The Commissioner of Income Tax by invoking revisionary powers under section 263 of the Act cannot impose his own understanding of the extent of inquiry. There were a number of judgments by various Hon’ble High Courts in this regard. 7.2 Delhi High Court in the case of CIT Vs. Sunbeam Auto 332 ITR 167 (Del.), made a distinction between lack of inquiry and inadequate inquiry. The Hon’ble court held that where the AO has made inquiry prior to the completion of assessment, the same cannot be set aside u/s 263 of the Act on the ground of inadequate inquiry. The relevant observation of Hon’ble Delhi High Court reads as under: “12. ….. 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 different opinion in the matter. It is only in cases of “lack of inquiry”, that such a course of action would be open. ——— 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 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 the records, may be of the opinion that

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 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 re-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 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 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. 15. Thus, even the Commissioner conceded the position that the Assessing Officer made the inquiries, elicited replies and thereafter passed the assessment order. The grievance of the Commissioner was that the Assessing Officer should have made further inquires rather than accepting the explanation. Therefore, it cannot be said that it is a case of ‘lack of inquiry’.” 7.3 The Hon’ble Bombay High Court in case of Gabriel India Ltd. [1993] 203 ITR 108 (Bom), discussed the law on this aspect in length in the following manner: “The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the 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 proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of 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. 7.4 The Mumbai ITAT in the case of Sh. Narayan Tatu Rane Vs. ITO, I.T.A. No. 2690/2691/Mum/2016, dt. 06.05.2016 examined the scope of enquiry under Explanation 2(a) to section 263 in the following words:- “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 case. Hence, in our considered view, what is relevant for clause (a)

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 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.” 7.5 The Hon’ble Supreme Court in recent case of Principal Commissioner of Income-tax 2 v. Shree Gayatri Associates*[2019] 106 taxmann.com 31 (SC), held that where Pr. CIT passed a revised order after making addition to assessee's income under section 69A in respect of on-money receipts, however, said order was set aside by Tribunal holding that AO had made detailed enquiries in respect of such on-money receipts and said view was also confirmed by High Court, SLP filed against decision of High Court was liable to be dismissed. The facts of this case were that pursuant to search proceedings, assessee filed its return declaring certain unaccounted income. The Assessing Officer completed assessment by making addition of said amount to assessee's income. The Principal Commissioner passed a revised order under section 263 on ground that Assessing Officer had failed to carry out proper inquiries with respect to assessee's on money receipt. In appeal, the Tribunal took a view that Assessing Officer had carried out detailed inquiries which included assessee's on-money transactions and Tribunal, thus, set aside the revised order passed by Commissioner. The Hon’ble High Court upheld Tribunal's order. The Hon’ble Supreme Court while dismissing the SLP filed by the Department held as under:- “We have heard learned counsel for the Revenue and perused the documents on record. In particular, the Tribunal has in the impugned judgment referred to the detailed correspondence between Assessing Officer and the assessee during the course of assessment proceedings to come to a conclusion that the Assessing Officer had carried out detailed inquiries which includes assessee's on-money transactions. It was on account of these findings that the Tribunal was prompted to reverse the order of revision. No question of law arises. Tax Appeal is dismissed”. 7.6 The Supreme Court in the another recent case of Principal Commissioner of Income-tax-2, Meerut v. Canara Bank Securities Ltd [2020] 114 taxmann.com 545 (SC), dismissed the Revenue’s SLP holding that 263 proceedings are invalid when AO had made enquiries and taken a plausible view in law, with the following observations: “Having heard learned counsel for the parties and having perused the documents on record, we see no reason to interfere with the view of the Tribunal. The question whether the income should be taxed as business income or as arising from the other source was a debatable issue. The Assessing Officer has taken a plausible view. More

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 importantly, if the Commissioner was of the opinion that on the available facts from record it could be conclusively held that income arose from other sources, he could and ought to have so held in the order of revision. There was simply no necessity to remand the proceedings to the Assessing Officer when no further inquiries were called for or directed” 7.7 From an analysis of the above judicial precedents, the principle which emerges is that 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 Assessing Officer adopts one of the course permissible in law and it has resulted in loss of revenue; or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income- tax does not agree, it cannot be treated as an erroneous order causing prejudice to the interests of the Revenue unless the view taken by the Assessing Officer is unsustainable in law, or the AO has completely omitted to make any enquiry altogether or the order demonstrates non-application of mind. 7.8 Now in the facts before us, in the case of the assessee the AO during the course of assessment proceedings, made enquiries on this issue and after consideration of written submissions filed by the assessee and documents / evidence placed on record, framed the assessment under section 143(3) of the Act without making the addition of the amount as note above. This fact can be verified from the notice under section 142(1) of the Act by the AO and submission in reply of the assessee against such notice. XXX 7.9 From the above it is revealed that it is not the case that the AO has not made any enquiry. Indeed the Pr. CIT initiated proceedings under section 263 of the Act on the ground that the AO has not made enquiries or verification which should have been made in respect of cash deposited during the demonization period. It is not the case of the Pr. CIT that the Ld. AO did not apply his mind to the issue on hand or he had omitted to make enquiries altogether. In the instant set of facts, the AO had made enquiries and after consideration of materials placed on record accepted the genuineness of the claim of the assessee. 7.10 At this juncture, it is also important to note that the learned PCIT in his order passed under section 263 of the Act has made reference to the explanation 2 of section 263 of the Act. It was attempted by the learned PCIT to hold that there were certain necessary enquiries which should have been made by the AO during the assessment proceedings but not conducted by him. Therefore, on this reasoning the order of the AO is also erroneous insofar prejudicial to the interest of revenue. In this regard, we make our observation that the learned PCIT has also not specified the nature and the manner in which the enquiries which should have been conducted by the AO in the assessment proceedings. Thus, in the absence of any specific finding of the

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18 learned PCIT with respect to the enquiries which should have been made, we are not convinced by his order passed under section 263 of the Act.” 16. In view of above discussion and for the reasons stated therein, we are persuaded to hold that the facts of the present case do not warrant application of section 263. Therefore, the revision-order passed by Ld. PCIT is not a valid order. We, thus, quash the revision-order and restore the original assessment-order passed by Ld. AO. The assessee succeeds in this appeal.

Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 26/12/2022. Order pronounced in the open court on ….../……/2022.

Sd/- Sd/-

(SUCHITRA KAMBLE) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER Indore �दनांक /Dated : 26.12.2022 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY

Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore

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Shri Navkar Pariwar ITA No.102/Ind/2022 Assessment year 2017-18

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