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Income Tax Appellate Tribunal, BENCH “C”,MUMBAI
Before: SHRI B.R. BASKARAN & SHRI PAWAN SINGH
Appellant by : Shri Nishant Thakkar with Ms. Jasmine (AR) Revenue by Shri B.B. Rajendra Prasad (CIT-DR) : Date of hearing : 02.11.2016 Date of Pronouncement : 09.11.2016 O R D E R
PER PAWAN SINGH, JM:
The present appeal u/s 253 of the Income Tax Act(‘Act’) is directed by the assessee against the order of Director of Income-tax (Exemption) [‘DIT(E)] dated 09.05.2014 u/s 263. The assessee has raised the following grounds of appeal: Invocation of s. 263 of the Act The learned DIT(E) erred on facts and in law in applying s. 263 of the Act to the facts of the case for A.Y. 2010-11, by passing the impugned order dated 9th May 2014. The impugned order be held null and void. Order not erroneous The learned DIT(E) failed in appreciating that the applicability of Proviso to s.2(15)with reference to which he invokes s.263 of the Act was verified by the AO in the course of assessment, thus making the order not erroneous. The impugned order be held null and void.
Order not prejudicial The learned DIT(E) erred on facts and in law in not appreciating that the order sought to be revised is not prejudicial to the interests of the Revenue. The impugned order therefore to be held null and void. Inconsistent stand of Learned DIT(E) The learned DIT(E) takes inconsistent stand in so far as he cancels the appellant’s registration under s. 12AA(3) of the Act by order dated 27th March, 2014, and directs by the impugned order dated 9th May, 2014 to apply Proviso to s.2(15) of the Act.
The brief facts of the case are that the assessee is a statutory authority created by Government of Maharashtra by enacting Slum Rehabilitation Act. The assessee enjoyed complete exemption from Income-tax u/s 10(20) and 10(20A) as local authority since its incorporation. The assessee is also having registration u/s 12AA of the Act to seek exemption u/s 11 on the ground that the authority/assessee is carrying out legal obligation within the definition of charitable purpose. The assessee filed return of income for AY 2010-11 declaring total income of Rs. Nil. The assessment was completed on 04.03.2013 u/s 143(3) of the Act assessing the total income of Rs. 171,29,90,270/-. Aggrieved by the order of Assessing Officer (AO) the assessee challenged the action of AO in appeal before the CIT(A). However, the DIT(E) by invoking section 263 set-aside the assessment order dated 04.03.2013 on the ground that it is erroneous and prejudicial to the interest of Revenue and directed the AO to pass fresh assessment order considering the proviso to section 2(15) of the Income-tax Act. While passing the impugned order dated 09.05.2014, the ld. DIT(E) hold that due to insertion of proviso to section 2(15) the object /activity need not to be business itself but may be in the nature of business, trade or commerce which is sufficient for disqualification. Further, it was concluded that rendering any services in relation to trade, commerce or business from whom consideration is in lieu of services received is sufficient for disqualification. The assessee is providing various infrastructure facilities and deriving income from its principle activities such as rental income and income from sale of land, and properties, and TDR to its customer and charging interest @ 16% to 18% and thus, the activities are clearly hit by proviso to section 2(15). Aggrieved by the order of ld. DIT(E) the assessee has preferred this present appeal before us on the grounds mentioned here-in-above. 3. We have heard the ld. Authorised Representative (AR) for assessee and ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR of the assessee argued that the grounds of appeal
raised in the present appeal is squarely covered in favour of assessee by decision of this Tribunal in assessee’s own case for AY 2009-10. It is argued the ld. DIT(E) revised the order of assessment for AY 2009-10 and the assessee filed appeal before this Tribunal and the appeal was allowed vide ITA No. 2435/Mum/14. On the other hand, ld. DR for the Revenue argued that the case of the year under consideration is entirely different from the fact of AY 2009-10. Ld. The DR for the Revenue argued that the order of AO was erroneous and prejudicial to the interest of Revenue. In the rejoinder argument, the ld. AR of the assessee argued that for invoking the power u/s 263, there should be a subjective satisfaction that the order is erroneous as well as prejudicial to the interest of Revenue. The ld AR for assessee further argued that the order of assessment is not prejudicial to the interest of Revenue as the AO has already assessed the total income of Rs. 171,29,90,270/-. Our attention is also invited at para-12.2 of the order of ld DIT(E) , which is identical to the para13.2 of order of DIT(E) for AY 2009-10 dated 28.03.2014. The ld AR for assessee argued that the order passed by the AO is not prejudicial to the interest of revenue.
4. We have considered the rival contentions of the parties and further perused the order of authorities below. The coordinate bench of this Tribunal while considering the appeal of assessee for AY 2009-10 passed the following order ; “9. We have heard the rival contentions perused the relevant finding given in the impugned order and the material placed on record. It is an undisputed fact that the entire exemption of claim u/s 11 was denied by the AO in the assessment order passed u/s 143(3) which is the subject matter of revision u/s 263 here in this appeal. As a result of such an order, the entire surplus amount revealed from income and expenditure account of Rs. 83.98 crores was assessed. The entire assessment order and the assessed income was subject matter of appeal before the CIT(A), wherein the entire exemption u/s 11 stood allowed. In the order giving effect to the appellate order, the income has been finally assessed at "nil". In the second appeal also the subject matter and the issue of exemption u/s 11 again got merged. Now, in the revisionary jurisdiction u/s 263, the Ld. DIT is trying to set aside the original assessment order u/s 143(3) dated 22.12.2011 on the ground that, AO has failed to consider the amended provisions of section 2(15), that is, the Proviso inserted by Finance Act, 2008 w.e.f. assessment year 2009-10 has not been considered and examined. If the proviso would be applied then there might be a situation where assessee's activity may not be held to be for "charitable purposes" and exemption u/s 11 may not be available. In other words exemption u/s 11 is being sought to be denied on the ground of newly inserted Proviso to section 2(15). Even if such an exercise is done, then the result would be same, that is, again the entire assessment would be completed on the same income of Rs. 83,98,10,894/-. There would be no deviation of the income at all what was assessed originally u/s 143(3) and the income which is now being sought to be assessed as per the order of the Ld. DIT. In such a situation, two aspects needs to be seen, firstly, whether the assessment order which has been completely merged with the Slum Rehabilitation Authority order of the Tribunal can be set aside by the Ld. DIT u/s 263; and secondly, whether the impugned order can be considered to be erroneous in so far as it is prejudicial to the interest of the revenue, because even after giving effect to the impugned order, there is no revenue effect.
10. On both counts, we are inclined to agree with the contention of the Ld. Senior Counsel. Because, firstly, when the entire basis of the assessment and the whole of the surplus amount has been challenged before the CIT(A), then the entire assessment order including taxing of the entire exempt income u/s 11 is the subject matter of appeal and there is complete merger with the order of the CIT(A) within the terms and ambit of section 263 read with clause (c) Explanation 1. Thus, if the subject matter of revision u/s 263 is again the denial of exemption u/s 11, though on different footing, then same is beyond the scope of section 263. On these facts, it can be very well held that the issue of exemption u/s 11 which was the subject matter of appeal before CIT(A) and then before the Tribunal, the Ld. DIT do not have the power to consider and decide "such matter" within the scope of section 263. On the second aspect also, which is purely academic, it is seen that, so far as tax effect is concerned, there is no difference at all between the income which was assessed in the original assessment order and the income which is now being sought to be assessed in wake of order u/s 263. Under both the assessments the surplus amount of Rs. 83.98 crores will get taxed. Hence, no prejudice is caused to the revenue so far as tax effect is concerned, except for the fact that section 11 is being sought to be examined from a different perspective. Accordingly, we hold that, firstly, the subject matter of revision u/s 263 has been merged with the order of the Tribunal, therefore, Ld. DIT is precluded to revise or set aside such order as it is beyond the second of section 263; and secondly, such an order cannot be held to be 'prejudicial to the interest of the revenue', because the income which has been sought to be assessed in Slum Rehabilitation Authority ITA No. 2435/Mum/2014 pursuance of order u/s 263, is the same which was originally assessed by the AO. Thus on both the counts, the impugned order passed u/s 263 is cancelled and the grounds raised by the assessee are thus allowed. Other arguments of ld. Sr. Counsel are not being adjudicated upon.
The perusal of the order or coordinate bench for earlier year shows that Tribunal have examined the issue of exemption u/s 11 which may be the subject matter of appeal before CIT(A) or before the Tribunal. And concluded the Ld. DIT do not have the power to consider ‘such matter’ by exercising power under section 263. The Tribunal also examined the second aspect, which is purely academic. The income which was assessed in the original assessment order and the income which is now being sought to be assessed by virtue of order u/s 263. Under both the assessments the surplus amount would be taxed. Hence, no prejudice is caused to the revenue so far as tax effect is concerned, except for the fact that section 11 is being sought to be examined from a different perspective. Thus the ground of appeal
raised in the present appeal is squarely covered in favour of assessee. By following the order of Tribunal we hold that the order revised by ld DIT(E) is not prejudicial to the interest of revenue and the same is set-aside by accepting the appeal of the assessee.
6. In the result, appeal of the assessee is allowed. Order pronounced in the open court on this 9th November, 2016. Sd/- Sd/- (B.R. BASKARAN) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 09/11/2016 S.K.PS Copy of the Order forwarded to :