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Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
The captioned appeal at the instance of Assessee is directed against the order dated 30th March, 2024 framed by learned CIT (Exemption), Pune u/s.263 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
In the instant appeal, assessee has raised following grounds of appeal :
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“1. The Learned Commissioner of Income Tax (Exemption) Pune, is wrong in passing the order u/s.263 for A.Y. 2018-19 for revising the order u/s.143(3) for A.Y. 2018-19 on the ground that payment of taxes is not allowable expenditure u/s 11.
The learned income tax officer is wrong in passing the assessment order u/s.143(3) for A.Y. 2018-19 in which the refund amount of tax received of Rs.8,38,415/- for A.Y. 2012-13 and Rs.4,87,901/- for A.Y. 2014-15 is wrongly treated as income and making the addition of Rs. 13,26,316/- there by making the addition of short fall of accumulation of income due to addition of Rs.11,27,368/- and against the same appellant trust filed appeal with CIT(appeals) and matter is pending.
The Learned CIT(E) is erred in inferring that the Learned assessing officer has not verified or has failed to verify the payment of income tax of Rs.1,55,38,112/- (for A.Y.2011-12 Regular assessment tax Rs.39,28,922/- for A.Y.2017-18, Advance Tax Rs.77,31,000/- plus for A.Y. 2014-15 for tax on regular assessment of Rs. 38,78,190/-) during assessment u/s.143(3) for A.Y.2018-19.
The Learned CIT(E) is failed to appreciate that it is settled law that payment of income tax is allowable expenditure u/s.11 and there is no ambiguity in interpretation of provisions of law.
The Learned CIT(E) is wrong in mentioning case laws on ambiguity of provisions irrespective of the facts that payment of Income Tax of Rs.1,55,38,112/- is application of income u/s.11.
The Learned CIT(E) Pune has committed a mistake of mentioning that the payment of Income Tax should be disallowed because the assesse trust increased liability of last year for claiming the deduction of Income Tax u/s.11 in A.Y.s 2018-19.
Appellant craves leave to add, alter and/or to amend all or any of the grounds of appeal.”
Brief facts emanating from the record are that the assessee is a religious and charitable Trust and is a famous Jyotirling Shiv Temple. The assessee trust filed the return of income
ITA No.1051/PUN/2024 Shri Trimbakeshwar Devsthan Trust declaring total income of Rs.2,23,71,234/-. Subsequently, the case selected for complete scrutiny. Statutory notices u/s.143(2)/142(1) were issued and duly served upon the assessee calling to furnish the details to which necessary compliance made by the assessee. On perusal of details, ld. Assessing Officer noticed that assessee has shown income of Rs.13,36,71,863/- whereas an amount of Rs.13,28,25,973/- only has been offered under the head ‘Income from Other Sources’, leaving difference of Rs.8,45,880/-. The assessee was called upon to explain the difference by issuing notice u/s.142(1) of the Act. The assessee in response submitted that it has received income tax refund of Rs.4,36,670/- for A.Y. 2012-13 and Rs.4,09,210/- for A.Y.2014-15 and it is shown in Schedule- Other income in the financial statements. The Assessing Officer was not satisfied with the explanation of the assessee. The AO held that since the assessee has shown the income tax paid under the head ‘Establishment expenses’ it should have offered the income tax refund as ‘Income from Other Sources’. Thus, the AO added the income tax refund for A.Y. 2012-13 & A.Y. 2014-15 received by the assessee to the Revenue receipts for the A.Y. 2018-19. Eventually, ld. AO vide order dated 13.04.2021 completed the assessment u/s.143(3) r.w.s.143(3A) & 143(3B) of the Act.
Ld. CIT(E) exercising his revisionary powers vested u/s.263 of the Act held that the assessment order passed by the AO is
ITA No.1051/PUN/2024 Shri Trimbakeshwar Devsthan Trust erroneous and prejudicial to the interest of the Revenue. The ld.CIT(E) noticed that assessee trust has shown Rs.4,78,51,627/- as application of fund under the head “Establishment Expenses” in its Income & Expenditure Account. On verification of schedule of Establishment expenses, he noticed that assessee has debited Income tax payment for the A.Y. 2010-11 at Rs.39,28,922/-, for A.Y. 2017-18 at Rs.77,31,000/- and for A.Y. 2014-15 at Rs.38,78,190/-. It was opined by the ld.CIT(E) that said payment has to be disallowed as the assessee trust has deliberately increased the liabilities of previous years and the payment is not used for the purpose of objective of the Trust.
Ld.CIT(E) issued notice to the assessee u/s.263 on 08.03.2024. In response, the assessee filed its submissions contending that incorrect assessment years are mentioned and the trust could not use its 80% of gross income and therefore, the due taxes were paid. The income-tax payment is made to preserve the corpus. Therefore, the income tax payment made out of the current year’s income has to be considered as application for charitable purposes. The assessee also relied on certain decisions. However, the explanation putforth by the assessee trust was not acceptable. Ld.CIT(E) relying on the decision of Hon’ble Supreme Court in the case of Commissioner of Customs(Imports), Mumbai Vs. Dilip Kumar & Company & Ors dated 30.07.2018 and other decisions came to hold that there is
ITA No.1051/PUN/2024 Shri Trimbakeshwar Devsthan Trust wrong application of the provisions of the statute and hence the assessment order is clearly erroneous as it has caused loss to the Revenue.
Aggrieved assessee is in appeal before us challenging the impugned order passed u/s.263 of the Act.
The Ld. Counsel for the assessee referring to the reply filed by the assessee to the show cause notice before the ld.CIT(E) submitted that the case of the assessee is squarely covered by the ratio laid down by the Hon’ble Madras High Court case of CIT Vs. Janaki Animal Ayya Nadar Trust (1985) 153 ITR 159 wherein it has been held that income-tax paid by the assessee out of the current years’ income is to be treated as ‘Application of Income’.
On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld.CIT(E).
We have heard the rival submissions and perused the material on record. The grievance of the assessee is that the ld.CIT(E) erred in assuming jurisdiction u/s.263 of the Act and holding that the assessment order dated 13.04.2021 is erroneous and prejudicial to the interests of the Revenue for the precise reason that ld. AO has not examined the issue that the assessee has claimed income-tax payment as “Application of Income”. We find that the provision of Section 263 of the Act
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has direct bearing on the issue raised before us, therefore, it is pertinent to take note of this section which reads as under:
"263(1) The 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 is erroneous in so far as it is prejudicial to the interests 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 an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,-
(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include-
(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A;
(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120;
(b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
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(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third
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stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263.
Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC) has laid down following ratio with regard to provisions of section 263 of the Act:
“There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. 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
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the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - RampyariDevi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). [Emphasis Supplied]”
Now adverting to the instant case, we observe that the solitary issue that arises for our consideration is whether the income-tax payment out of the current year’s income made is to be treated as ‘Application of Income’ under charitable activities. We find that the AO has examined this issue during the course of assessment proceedings and on observing that the refund of excess income-tax paid has been offered to income has made the addition. It is trite law that the revisionary power can be exercised only when the assessment order passed by the AO is both erroneous as well as prejudicial to the interest of the Revenue. If one of the two conditions is not satisfied, the power to revise is ousted. Further, the Hon’ble jurisdictional High Court in CIT Vs. Hindustan Lever Ltd. (2012) 343 ITR 161 (Bom.) considered this issue, after taking note of the judgment in the case of Malabar Industrial Company Ltd. 243 ITR 83. Their Lordships in Hindustan Lever Ltd. ( supra) held as under :-
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“As regards the order being prejudicial to the interests of the Revenue, the judgment in Malabar Industrial Company adverts to the decisions of the Karnataka and Gujarat High Courts and of the view of the Division Bench in Gabriel India, according to which, a loss of tax has been regarded as prejudicial to the interests of the Revenue. The Supreme Court has held that if due to an erroneous order of the Income Tax Officer, the Revenue is losing tax lawfully payable by a person, it would certainly be prejudicial to the interests of the Revenue. 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 instance, where the Assessing Officer adopted one of several courses permissible in law or where two views are possible and the Assessing Officer has adopted one view with which the Commissioner does not agree, it has been held that it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken is unsustainable in law.” 13. In this case, the Hon’ble Bombay High Court has held that if due to erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it would be certainly prejudicial to the interest of the Revenue. This was further explained with the help of an example that where the AO adopted one of several courses permissible in law or where two views are possible and the AO has adopted one with which the CIT does not agree, the order cannot be treated as erroneous as well as prejudicial to the interest of the Revenue unless a view taken is unsustainable in law.
We find that the view taken by ld. AO in adjudicating the issue referred in the impugned order finds support from the judgment of Hon’ble Madras High Court in the case of CIT Vs. Janaki Animal Ayya Nadar Trust (1985) 153 ITR 159 had an occasion to decide the issue referred in the impugned order, on almost identical facts and has held as under :
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“11. The income determined for the assessment year was Rs. 69,152. During that year a sum of Rs. 1,21,540 has been paid as income-tax. As the income was not sufficient to pay the tax, it should have come from the corpus or by borrowings form the bank, etc. We are not here concerned with the powers of the trustee as regards the corpus. There is no prohibition in law for a trustee spending the entire current year's income for payment of tax. Payment of tax is necessary to preserve the property of the trust when a demand is lawfully made. Even though the trust may not accept the demand and challenges the same on appeal, that is not relevant for considering the question whether payment has to be made to preserve the trust property. The expenditure incurred by way of payment of tax out of the current year's income has to be considered as application for charitable purposes. This is because payment is made to preserve the corpus, the existence of which is absolutely necessary for the trust. Therefore, as the entire income during the assessment year has been applied for payment of tax, it should be treated as having been applied for charitable purposes and the assessee's claim should be taken to be well- founded, as has been held by the Tribunal.
We also hold that in any event there was no income in the relevant year for being spent on charities. In CIT v. Gangadhar Banerjee , it was held that for the purpose of ascertaining the net commercial profits, the tax assessed shall have to be deducted and the relevant observations of the Supreme Court are as follows (p. 183) :
"Another incidental question is whether for the purpose of ascertaining the net commercial profits the tax estimated or the tax actually assessed shall be deducted. In a case where an Income-tax Officer takes action under section 23A of the Act before the tax for the relevant period is assessed, only the estimated tax can be deducted; but, there is no reason why, when the tax had already been assessed before he takes action under this section, the estimated tax and not the real tax shall be deducted therefrom. In this view, in the present case, to ascertain the commercial profits, what should be deducted is not the tax shown in the balance-sheet but the actual tax assessed on the income of the company".
In CIT v. Nizam's Supplemental Religious Endowment Trust [1981] 127 ITR 378, the Andhra Pradesh High Court, while dealing with the scope of s. 11(4) of the Act, had expressed the view that only such of the income which is left after deducting the expenditure or such of the
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money which is left with th trust after meeting all the expenditure, that the surplus income can be arrived at in the case of a business undertaking held under trust, that the income that has to be competed with regard to the trust is on based on the accounts of the trust, and that the monies that could be applied to charities could be only such monies as are arrived by deduction the actual expenditure as borne out by the accounts of the trust. In that case, wealth-tax and income- tax had been paid during the relevant years, though the payments are for preceding assessment years. It was held that they constitute expenditure of the year in which they are paid, that such payments will constitute expenditure incurred for carrying out the purposes of the trust, and that such payment cannot be excluded from exemption and are to be excluded from the income of the trust. We are in entire agreement with the said view. In this case, the amount of income-tax paid should, be taken into account in the determination of the commercial profits and the available surplus in the hands of the trust for application for trust purposes and these said payment should be taken to the an outgoing of the year in which it was paid and, as such, constitute the actual expenditure which has to be deducted before the surplus income is arrived at for the purpose of s. 11(4). In Calavala Cunnan Chetty Charities [1982] 135 ITR 485, this court also has taken the view that taking into account the purpose for which the conditions of s. 11(1)(a) are imposed, it would be clear that the income to be considered will be that which is available in the hands of the assessee subject to any adjustment for any expenses extraneous to the trust, that it is only the balance that would require an examination for finding out whether the assessee has complied with the rule of accumulation, that the income from the properties held under trust will have to be arrived at in the normal commercial manner without reference to the provisions which are attracted by. 14, and 25 per cent. thereof will have to be ascertained, and that if the assessee has accumulated more than 25 per cent., the consequences contemplated in s. 11 will have to follow. In that case, the court expressed the view that having regard to the language in. s. 11(1) the computation of the total income under s. 14 cannot be imported into s. 11(1), to find out what the income derived from the property held under trust is, for the purpose of the exemption under Chapter III.
Circular No. 5 dated 19th June, 1968, of the Central Board of Direct Taxes also throws light on this question. The relevant portion of the Circular is extracted below :
"2. Section 11(1) provides that subject to the provisions of sections 60 to 63, 'the following income shall not be included
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in the total income of the previous year.......' The reference in sub- section (1)(a) is invariably to 'income' and not to 'total income'. The expression 'total income' has been specifically defined in section 2(45) of the Act as 'the total amount of income computed in the manner laid down in this Act.' It would, accordingly be incorrect to assign to the word 'income', used in section 11(1)(a), the same meaning as has been specifically assigned to the expression 'total income. Vide section 2(45).
In the case of a business undertaking held under trust, its 'income' will be the income as shown in the accounts of the undertaking. Under section 11(4), any income of the business undertaking determined by the Income-tax Officer, in accordance with the provisions of the Act, which is in excess of the income as shown in the accounts, is to be deemed to have been applied to purposes other than charitable or religious, and hence it will be charged to tax under sub-section (3). As only the income disclosed by the account will be eligible for exemption under section 11(1), the permitted accumulation of 25% will also be calculated with reference to this income."
In the view we have taken that the income of the trust has to be determined for purposes of the section only after giving deduction for the income-tax paid, there may not be any surplus of allocation.
We have to, therefore, agree with the view taken by the Tribunal in this case and answer the question in the affirmative and against the Revenue. The Revenue will pay the cost of the assessee. Counsel's fee Rs. 500.”
(Emphasis supplied by us)
Examining the facts of the instant case in the light of the above judgment, we find the assessee paid income-tax for the A.Yrs. 201-11, 2017-18 and 2014-15 out of the current years income and debited the same under the head “Establishment Expenses’ and therefore the ratio laid down by the Hon’ble Madras High Court CIT Vs. Janaki Animal Ayya Nadar Trust
ITA No.1051/PUN/2024 Shri Trimbakeshwar Devsthan Trust (supra) is applicable on the facts of the instant case. We find that the expenditure incurred by way of payment of tax out of the current year's income has been considered by ld. AO as ‘Application of Income’ for charitable purposes which is one of the permissible view. Further, it is not a case of no enquiry but it is a case where the AO has conducted adequate enquiry with regard to the issue referred by the ld.CIT(E) in the show cause notice u/s.263 of the Act. Ld. AO has taken one of the views permissible in the law. This action of the AO is in consonance with the ratio laid down by the judicial precedents referred above and therefore assessment order is neither erroneous nor prejudicial to the interest of revenue. We therefore have no hesitation to hold that the Ld.CIT(E) erred in invoking revisionary powers u/s.263 of the Act. Accordingly, the impugned order u/s.263 of the Act is quashed and the assessment order dated 13.04.2021 is restored.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on this 18th day of December, 2024.
Sd/- Sd/- (VINAY BHAMORE) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 18th December, 2024. Satish
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आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr. CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 4. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER,
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.