KALINGA INSTITUTE OF INDUSTRIAL TECHNOLOGY (KIIT),PATIA vs. CIT (EXEMP.) HYDERABAD, HYDERABAD

IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE BEFORE S/SHRI GEORGE MATHAN, JUDICIAL JUDICIAL MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER AND ARUN KHODPIA, ACCOUNTANT MEMBER ITA No.48/CTK/2022 Assessment Year : 2017-18 Kalinga Institute of Industrial Kalinga Institute of Industrial Vs. CIT (Exemptions), CIT (Exemptions), Technology (KIIT), Plot No.383, Technology (KIIT), Plot No.383, Hyderabad 384, 384, KIIT KIIT Campus Campus-1, Patia, Bhubaneswar. Bhubaneswar. PAN/GIR No. PAN/GIR No.AAATK 3103 C (Appellant (Appellant) .. ( Respondent Respondent) Assessee by : Shri S.K.Agarwalla, AR S.K.Agarwalla, AR Revenue by : Shri M.K.Gautam, CIT Shri M.K.Gautam, CIT DR Date of Hearing : 13 /9 9/2022 Date of Pronouncement : 13/9 9/2022 O R D E R Per Bench This is an appeal filed by the assessee ag This is an appeal filed by the assessee against the order of the ld ainst the order of the ld CIT(E), Hyderabad Hyderabad passed u/s.263 of the Act dated dated 14.3.2022 in Appeal No.ITBA/Rev/F/Rev5/2021 ITBA/Rev/F/Rev5/2021-22/1040690424(1) for the assessment year for the assessment year 2017-18.

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submission that the original assessment came to be completed u/s.143(3) of the Act on 29.12.2019 accepting the returned income. It was the further submission that a show cause notice u/s.263 of the Act came to be issued on the assessee on 12.1.2022, wherein, the ld CIT (Exemptions) was of the view that an amount of Rs.1,11,54,33,001/- collected as development fees from its students had been directly carried to the balance sheet under the nomenclature “Development fund” instead of routed through the income and expenditure account. Consequently, he was of the view that the same is liable to be treated as part of the revenue and this result is a taxable income in terms of section 11(1) to an extent of Rs.51,97,46,092/-. The assessee has filed its reply to the show cause notice on 22.1.2022, wherein, the assessee gave the calculation by including the development fund as revenue and after reducing the application of income on revenue field and in respect of capital expenditure representing application of income, the net result was a loss. Ld AR drew our attention to page 5 of the order of the ld CIT(E) passed u/s.263 of the Act, wherein, the calculation of the assessee had been extracted. It was the submission that the ld CIT(E) has not considered the explanation of the assessee nor has he done any verification of the same much less any verification but has proceeded to hold the assessment order as erroneous and prejudicial to the interest of the revenue and set aside the same with the direction to the AO to examine the issues and redo the assessment after verification of the issues in

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accordance with law. It was the submission that as no enquiry has been done by the ld CIT(E) in view of the decision of the Hon’ble Jurisdictional High Court in the case of Pr. CIT vs Orissa State Police Housing & Welfare Corporation Ltd., reported in (2022) 139 taxmann.com 207 (Orissa) as also the decision of the Co-ordinate Bench of this Tribunal in the case of Saroj Kumar Mishra in ITA No.31/CTK/2022 dated 24.8.2022, the order passed u/s.263 is liable to be quashed.

Written submissions (1)

“This is the assessee's appeal against the revision order dated 14.03.2022 passed by the CIT (Exemptions), Hyderabad. It was noticed from the balance sheet for the year ended 31.03.2017 that the assessee trust had collected development fees of Rs.l 11.54 crores which was not routed through profit & loss account. The Pr. CIT has categorically held in para-7 that the A.O. has not applied the provisions of law as regards the nature of Development fees in view of decision of Hon'ble Jaipur IT AT in the case of ACIT(E ) vs. Scholars Education Trust of India (88 taxmann.com 158) wherein it was held in para-5 as under: "5. We have considered the rival submissions as well as relevant material on record, there is not dispute so far as the assessee is granted registration u/s 12AA of the Act as well as notified u/s 10 (23C)(vi) of the Act. However the mere registration granted u/s 12A and notification u/s 10(23C) would not ipso facto exempt all the receipts from tax. For the purpose of availing the benefit u/s 11 of the Act. The conditions as stipulated under the said provision along with the condition as provided u/s 12 and 13 of the Act are to be satisfied. The dispute before us is on the limited point whether the receipt on account of development fund/development fee from the students of the assessee is in the category of capital receipts/ corpus fund to be used by the assessee for specific purpose or not. So far as a voluntary donation or contribution for specific purpose is received by the trust or institution the same would be classified as capital receipt for being part of the corpus fund for specific purpose for

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which such donation is given by the donor. However the question arises in the case of the assessee is whether the receipt on account of development fee collected from the students is a voluntary contribution/donation or it is a compulsory payment by the students for continuing the studying in the educational institutions of the assessee. We find that the said payment is received by the assessee along with the tuition fee, term fee and other charges in a single receipt of fees which the students are making periodical payments. It is imperative to ascertain whether such payment received from the students along with the tuition fee, term fee and other charges is a voluntary payment/ contribution/donation for specific purpose of development or it is a compulsory payment by the students. The term voluntary refers to an act of one's own free will and discretion and not a compulsion or an obligatory. In the case of the assessee the development fee is part of the total fee charged by the assessee from the students and it is apparent that the quantum of amount and specific purpose on account of which this fee is received from the students is determined and decided by the assesee and not by the students or their parents. Therefore, the development fee is not optional for the students but it is compulsory for the students without any discretion or fee will to decide whether to pay or not to pay the development fund fees. Hence, it is a charge by the assessee on the students without having any element of any discretion on the part of the students or parents either to the quantum of fee or the specific purpose as well as the option of making payment or not. Therefore, when this payment is not optional or voluntary on the part of the students but it is compulsory charge in the nature of fee for studying and continuing the study in the institutions of the assessee, then this payment in the name of development fee cannot be regarded as voluntary contribution or donation. The quantum, the time of payments are decided and determined by the assessee and the students are having no say or role in the quantum of fee or any discretion of paying or not paying the same. Thus in the facts and circumstances of the case when the development fee received by the assessee is not voluntary but it is a compulsory charge on the students then the same cannot be classified as capital in nature for specific purpose or part of the corpus fund of the assessee trust. The decision relied by the Id. AR are on the point that when a particular contribution or donation is given by the donor as per his free will and for specific purpose then the same cannot be treated as revenue receipt. Having regard to the peculiar facts and circumstances we are of the considered opinion that the fee in the name of development charge received by the assessee from the students is part of the current receipt and will part take acharacter of the other fee charged by the assessee on account of tuition fee, term fee etc. Hence, we set aside the order of the Id. CIT (A) qua this issue", ii.) The Hon'ble Supreme Court in the case of Malabar Industries Ltd. vs. CIT (243 ITR 83) has held in para-7 that 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 apphcation of mind.

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The findings of the Hon'ble Supreme Court in para-10 are reproduced as under: "10. In the instant case, the Commissioner noted that the ITO passed the order of nil assessment without application of mind. Indeed, the High Court recorded the finding that the ITO failed to apply his mind to the case in all perspective and the order passed by him was erroneous. It appears that the resolution passed by the board of the appellant-company was not placed before the Assessing Officer. Thus, there was no material to support the claim of the appellant that the said amount represented compensation for loss of agricultural income. He accepted the entry in the statement of the account filed by the appellant in the absence of any supporting material and without making any inquiry. On these facts, the conclusion that the order of the ITO was erroneous is irresistible. We are, therefore, of the opinion that the High Court has rightly held that the exercise of the jurisdiction by the Commissioner under section 263(1) was justified. The Hon'ble Supreme Court further held in para-8 that 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. The cases where there is incorrect application of law, the Pr. CIT is not required to carry out any sort of enquiry.

Written submission (2)

i.) Coming to the decision of Hon'ble Orissa High Court in the case of Orissa State Police Housing & Welfare Corporation Limited (139 taxmann.com 207), it has been rendered on different facts. In the cited case, the profit element in Work-in-Progress(WIP) was directed to be added especially when the profit from such WIP had already been included in the income of the assessee. It was noticed that the AO had in fact called for the details of the closing WIP which had been furnished by the Assessee and had examined it. If the CIT was of the view that the AO had not examined this issue at all, it could then lead to the conclusion that the order of assessment was erroneous. That was not, however, the case there. On the other hand, the CIT simply decided that even for verification of the correctness of the submission of the Assessee, the matter had to be remanded to the AO. Under these circumstances, the Hon'ble Jurisdictional High Court had taken a view that the order u/s.263 of the Act was not sustainable. The observations of the Hon'ble High Court in para-14 are reproduced as under:

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"14. Section 263 of the Act requires the CIT, after hearing the Assessee, to pass an order by making "such enquiry as he deems necessary". The purpose of such an enquiry would be to arrive at a subjective view that the order of the AO was erroneous in so far as it is prejudicial to the interest of Revenue. Even if such enquiry may not be mandatory, there has to be some basis on which the CIT can form such a view. In the present case, the basis for forming a view that the profit element in the WIP was not accounted for by the Assessee is absent in the order of the CIT". Thus the Hon'ble Orissa High Court has itself held in para-14 that even if such enquiry may not be mandatory but there should be some basis to form such a view. The cases where there is incorrect application of law, the Pr. CIT is not required to carry out any sort of enquiry as section 263(1) uses the words "as he deems necessary". A plain reading of section 263 of the Act reveals that the CIT can make inquiry on his own if he deems so necessary and can also direct the A.O. to conduct inquiries. This very question was answered by the Hon'ble Delhi High Court in the case of Gee Vee Enterprises (99)ITR 375), as under: "The question would naturally arise whether the firm was formed merely for the purpose of getting a tax advantage. Shri Sharma argued that there is nothing wrong if a legitimate advantage is sought by these means. But it was precisely for that reason that the Income-tax Officer had to be satisfied that the firm had existed in the previous year genuinely. It cannot be said that the Commissioner could not be reasonably of the opinion that the order of the Income-tax Officer was erroneous because previous inquiries were not made by the Income-tax Officer. Nor can it be said that it was necessary for the Commissioner himself to make such inquiry before cancelling the order of assessment. In view of the decisions of the Supreme Court in Rampyari Devi and Tara Devi Aggarwal, the challenge of the petitioners to the jurisdiction of the Commissioner exercised under section 263 fails and the writ petitions do not qualify for admission on the ground of the impugned orders being without jurisdiction". The above findings of Hon'ble Delhi High Court were noted in the case of D. G.Housing Project (343 ITR 329) and it was held in para-14 as under: "14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever. There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and (ii) where there is failure to make proper or full verification or enquiry". The Hon'ble Delhi High Court in the case of CIT vs. Sunbeam Auto Ltd. (332 ITR 167) while considering the aspect, when there is no proper or full verification, held as under:-

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"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. (203 ITR 108) (Bombay High Court) law on this aspect was discussed in the following manner (page 113): The decision of the Delhi High Court in the case of ITO vs. D. G. Housing Project Ltd. (343 ITR 329) is applicable where some enquiry has been made by the A.O. but not in a case, where no enquiry was made by him. It was held in para-16 as under:

"16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law. In some cases possibly though rarely, the CIT can also show and establish that the farts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further renquiries without a finding that the order is erroneous". iii.) In the present case, the A.O. has simply issued a questionnaire dated 03.10.2019 and submissions of the appellant trust were placed on record without applying the law or mind with due diligence. Hence it is a case of no inquiry and not inadequate inquiry. Reliance is placed on the judgement of Hon'ble Mumbai High Court in the case of Jeevan Investment & Finance Ltd. (88 taxmann.com 552). In this case, the A.O. had raised a query regarding method of valuation of stock. In response, it was submitted that shares were valued at cost but the method of valuation was not submitted. 0. allowed the loss in the shares without conducting further inquiries. It

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was by the Hon'ble Mumbai High Court in para-10 that it was a case of no enquiry. The observations of the Hon'ble High Court in para-10 are reproduced as under: "10. We have examined the rival submissions made before us. We find that during the course of assessment proceedings, the Assessing Officer had by a letter dated 12th January, 2000 for the subject Assessment Year sought various details along with documentary evidence, if any, to enable the Assessing Officer to complete the Assessment. One enquiry in the letter dated 12th January, 2000 mentioned at Serial No.8 thereof was the method of valuation in case of unquoted shares (i.e. listed shares) namely M/s. Mayo India Ltd. The Appellant responded to the above letter dated 12th January, 2000 by its letter dated 31st January, 2000. However, the letter dated 31st January, 2000 did not address the enquiry at Sr. No.8 in the letter dated 12th January, 2000 namely method of valuation of unlisted shares. The Appellant's response was only that the unquoted shares are valued at costs. This is begging the question. No method of valuation of the shares was submitted to the Assessing Officer during the proceedings, leading to the Assessment Order dated 24th February, 2000. It is, therefore, to be noted that the Assessing Officer after having asked a pertinent question of the method of valuing unlisted shares in his letter dated 12th January, 2000 did not pursue that line of enquiry. The required information was not furnished by the Appellant nor any explanation offered for not furnishing the same. It is also not a case where the Assessing Officer was satisfied with regard to his query by some other explanation offered by the Appellant. In fact, merely asking a question which goes to the root of the matter and not carrying it further is a case of non-enquiry, if the query is not otherwise satisfied while responding to another query. In the present facts, the question raised has not been responded to by some explanation which would render the enquiry commenced, futile. In fact, the CIT in his order dated 20th March, 2002 specifically exercised powers under Section 263 of the Act on the basis that the necessary information was not furnished by the Appellant in support of its claim nor the Assessing Officer enquired into the same. Thus, this is a case of non-enquiry and not inadequate enquiry. Therefore, the order of the Assessing Officer is certainly erroneous. There is no dispute that the order of the Assessing Officer is prejudicial to the Revenue". In the case of Renu Gupta vs. CIT (301 ITR 45), the submissions of the assessee were placed on record by the A.O. without causing any inquiry. The Hon'ble Rajasthan high Court held that the assessment order was passed by the A.O. in a routine manner without applying his mind. In the case of CIT vs. Deepak Kumar Garg (299 ITR 435), it was held by the Hon'ble Madhya Pradesh High Court in para-4 that issuing a questionnaire and placing submissions on record by the A.O. is a case of no enquiry. If the AR of the assessee still emphasizes that the A.O. had made an enquiry for the sake of an argument, then it is only a semblance of

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enquiry and that too in a very slipshod manner and the A.O. has agreed to the version of the assessee without proper enquiry.

In the case of Virbhadra Singh (HUF) vs. Pr. CIT (86 taxmann.com 113), the assessee had initially filed return of income showing agricultural income of Rs.15 lakhs. During the course of scrutiny proceedings, the assessee filed revised return of income wherein the claim of agricultural income was enhanced to Rs.2.81crores (which was 1872% higher). The A.O. did not apply his mind to this aspect. The Hon'ble Himachal Pradesh High Court held in para-119 & 120 held that any enquiry by the A.O. without application of mind is non-est. The view taken by the A.O. was not plausible in law. It was further held that the A.O. in the given facts, should have done complete and proper enquiry. The Hon'ble Delhi High Court in the case of Gee Vee Enterprises (99 ITR 375) held as under: "The reason is that it is not the Income-tax Officer but a superior officer like the Commissioner who is exercising a revisional jurisdiction suo motu there under. The superior officer could be trusted with a larger power. The only requirement for the exercise of this power is that the Commissioner should consider that the order passed by the Income-tax Officer is " erroneous in so far as it is prejudicial to the interests of the revenue ". What is the meaning of " erroneous " in this context ? It was argued for the assessees by Shri G. C. Sharma that the word " erroneous " means that the order must appear to be wrong on the face of it. In other words, he equated the " error " with " error of law apparent on the face of record " which is a well-known ground for the review of a quasi-judicial order by this court under article 226. We are unable to agree with this interpretation. The intention of the legislature was to give a wide power to the Commissioner. He may consider the order of the Income-tax Officer as erroneous not only because it contains some apparent error of reasoning or of law or of fact on the face of it but also because it is a stereo-typed order which simply accepts what the assessee has stated in his return and fails to make inquiries which are called for in the circumstances of the case. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word " erroneous " in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not

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been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct". iv.) The Id. AR of the appellant has failed to demonstrate as to what kind of inquiries were conducted by the A.O. on this issue. In the case of NUT vs. Commissioner of Income-tax (Central-II) (60 taxmann.com 313), the Hon'ble Delhi ITAT analyzed plethora of judgments on the issue and through order dated 27.03.2015, gave a ratio that the AO is required to conduct the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry. The relevant portion of the order of Hon'ble ITAT is reproduced below:— "28.1 Ld. Special counsel has rightly pointed out that the expression, 'inquiry, 'lack of inquiry' and 'inadequate inquiry', have not been defined and, therefore, when the action of the AO would be suggestive of lack of inquiry or inadequate inquiry, will depend upon the facts obtaining in a particular case. What emerges as a broad principle from the various decisions is that where the AO has reached a rational conclusion, based on his inquiries and material on record, the Commissioner should not start the matter afresh in a way as to question the manner of his conducting inquiries. It is not the province of the Commissioner to enter into the merits of evidence; it has only to see whether the requirements of essential inquires and of law have been duly and properly complied with by AO or not. 28.2 It is well settled that before the Commissioner can invoke his powers u/s 263, he has to arrive at a conclusion that the assessment order is erroneous in so far as it was prejudicial to the interests of the revenue. Then only the powers u/s 263 can be invoked. Therefore, if AO accepts or rejects any claim of the assessee without due application of mind and if such failure causes prejudice to revenue, the Commissioner would be well within his powers u/s 263 to intervene in the matter. An inquiry which is just farce or mere pretence of inquiry, cannot be said to be an inquiry at all, much less an inquiry needed to reach the level of satisfaction of the AO on the given issue. The level of satisfaction would obviously mean that he has conducted the inquiry in a manner whereby he places on record the material enough to reach the satisfaction, which a rational person, being informed of the nuances of tax laws would reach after due appreciation of such material. If this component is missing, it will always be a case of lack of inquiry and not inadequate inquiry." The Hon'ble Calcutta High Court held in case of CIT vs. Maithan International (56 taxmann.com 283) that enquiry made by the AO in respect of unsecured loan would be in the category of 'no enquiry' where he while accepting genuineness of loan taken by assessee from various creditors, did not take into consideration creditworthiness of lenders, mere

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examination of their bank statements or letter of confirmation was not enough and therefore, impugned revisional order passed by Commissioner setting aside assessment was upheld. In para-12, it was held by the Hon'ble Kolkata High Court that In the instant case, the Commissioner had reasons to hold that creditworthiness of the alleged lenders was not enquired into. Mere examination of the bank pass book, profit and loss account and balance sheet of the creditors is not enough. When the requisite enquiry was not made, the order is bound to be erroneous and prejudicial to the interest of the revenue. The Tribunal proceeded on the theory that it was not a case of no enquiry; that no doubt is true, but that is not enough. If the relevant enquiry was not made, it may in appropriate cases amount to no enquiry and may also be a case of non-application of mind. In para-16, it was held by the Hon'ble Kolkata High court that The power under section 263 can be exercised where the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue. When an order is erroneous, then the order is also deficient and in order to remedy the situation, power under section 263 has been given. Therefore, the view that the power could not have been exercised to allow the Assessing Officer to make up the deficiency is altogether an incorrect impression of the law. In para-19, the Hon'ble Kolkata High Court held that It is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial orders. Where the relevant enquiry was not undertaken, as in this case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas of enquiry are pursued the enquiry cannot be said to have been faithfully conducted. Reliance is placed on the decision of Hon'ble Delhi High Court in the case of CIT vs. Nagesh Knitwers P. Ltd & others (345 ITR 135) wherein it was held that when the A.O. has allowed claim of the assessee in a slipshod manner without conducting any inquiry, then in the case of no inquiry, the assessment order is not only erroneous but also prejudicial to the interest of revenue. The order of assessment has to be a speaking order and when the fact of others' view has not been mentioned and the claim pressed by the assessee has been allowed without making any inquiry, then the order must be held as erroneous and prejudicial to the interest of revenue.” 5. Ld CIT DR drew our attention to page 56 of PB, which was paper book filed by the assessee i.e. copy of the notice issued u/s.142(1) of the Act, wherein, in Item No.4, it has been directed as follows “please explain the details of development fees, from whom you received and what for you received and produce development fee collection receipts“. It was the P a g e 11 | 17

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submission that the total receipt under the development fund was nearly Rs.111 crores, the details of which were not filed. Ld CIT DR drew our attention to page 51 of PB filed by the assessee, wherein, under the head “compliance”, development fee has been mentioned, the response of which is submitted on 19.12.2019. It was the submission that the details have not been produced before the AO, there was no enquiry by the AO and consequently, the order passed u/s.263 by the ld CIT (E) is valid. Ld CIT DR also read out from his written submissions the various case laws in respect of the issues. It was the submission that clearly, there is wrong application of law by the AO insofar as the Co-ordinate Bench of this Tribunal, Jaipur Bench in the case of ACIT (E) vs Scholars Education Trust of India (2017) 88 taxmann.com 158 (Jaipur-Trib) has given a finding that the development fund or development fees, which is compulsory payable by the students was in the nature of fees for continuing the study and same could not be considered nor classified as capital receipts. It was the submission that the Hon’ble Supreme Court in the case of Malabar Industries Ltd., 243 ITR 83 (SC) has categorically held that incorrect application of the law will satisfy the requirement of the order being erroneous. In respect of the decision of the Hon’ble Jurisdictional High Court in the case of Orissa State Police Housing & Welfare Corporation Ltd., (supra), it was submitted that in para 14 of the said order, the provisions of section 263 requires the CIT, after hearing the assessee, to

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pass an order by making “such enquiry as he deems necessary”. It was the submission that whether enquiry is required or not, it is the discretion of the ld CIT who proposes invoking section 263 of the Act. It was the submission that the purpose of such enquiry would be to arrive at a subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of the revenue. Even if such enquiry may not be mandatory, there has to be some basis on which the CIT can form such a view. He further submitted that it is only in case of lack of enquiry that the ld CIT would direct the AO to do the enquiry. In respect of inadequate enquiry, then it would be the duty of the ld CIT to invoke his power u/.s.263 to do such enquiry as he deem necessary. Ld CIT DR relied on various decisions as has been extracted in his written submissions. It was his prayer that the order of the ld CIT (E) be upheld.

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shows that three files have been uploaded. It is after receiving the response from the assessee that the assessment has been completed u/s.143(3) of the Act. It is an admitted fact that the assessee cannot be expected to lead the AO in respect of the assessment proceedings. The liberty is with the AO to call for the details and it is the duty of the assessee to comply with the requirement as called for by the AO. Then the issue rests on the AO to examine the evidence produced and to draw appropriate conclusion. In this case, the assessee has complied by producing all the evidences as called for insofar as the compliance report which is a system generated report shows that the compliance is in full. Thus, this cannot be said that there is “lack of enquiry” by the AO much less “inadequate enquiry” and far less “no enquiry”. A perusal of the order passed u/s.263 of the Act shows that the ld. CIT(E) has taken the total revenue earned at Rs.855,46,22,497/-, this amount is inclusive of Rs.111 crores as development fees collected by the assessee from the students. When doing the computation, the ld. CIT(E) in page 2 of his order has granted 15% accumulation u/s.11(1) of the Act, he has not taken into consideration the capital expenditure which is an application of Rs.258 crores. If this capital expenditure, which is application of income of Rs.258 crores, is taken into consideration, the taxable income as computed by the ld. CIT(E) in page 2 of his order, would automatically go into a loss. It would absorb even the accumulation of 15%, which he has granted to the assessee. A perusal of

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the page 5 of the order of the ld. CIT(E) shows that the assessee has adopted the figure of total revenue earned at Rs.855,46,22,497/-, which is same as adopted by the ld. CIT(E) by treating the development fees of Rs.111 crores as revenue income, which after the assessee has reduced the application in respect of the revenue expenditure without considering the depreciation and the total expenditure treated as application of income to arrive at a loss of Rs.1,10,61,219/-. A perusal of the order of the ld. CIT(E) shows that after receiving this reply of the assessee no further verification much less an enquiry has been done by the ld. CIT(E) to even make an attempt to show that the calculation as shown by the assessee is erroneous in any manner whatsoever. This is a minimum expectation. After the receipt of the reply of the assessee, the order has been passed after more than two months and there is nothing shown to show that the calculation as done by the assessee is erroneous. It is also not being rejected by the ld. CIT(E) but has just proceeded to hold that the assessment order is erroneous and prejudicial to the interest of revenue and set aside the same. This is not permissible. A perusal of para 14 of the decision of the Hon’ble Jurisdictional High Court of Orissa in the case of Orissa State Police Housing & Welfare Corporation Ltd., reported in [2022] 139 taxmann.com 207 (Orissa), as read out by the ld. CIT-DR, categorically shows that after hearing the assessee, to pass an order by making “such enquiry as he deems necessary”. In the present case, clearly no enquiry has been done by the ld. CIT(E). The

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Hon’ble Jurisdictional High Court of Orissa in the said case further goes on to hold that “the purpose of such an enquiry would be to arrive at a subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of Revenue”. Here, the ld. CIT(E) has done nothing to arrive at the subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of revenue. In fact, this is a case where there is “no enquiry” by the ld. CIT(E).

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Order dictated and pronounced in the open court on 13/9/2022.

Sd/- sd/- (Arun Khodpia) (George Mathan) ACCOUNTANT MEMBER JUDICIAL MEMBER Cuttack; Dated 13/9/2022 B.K.Parida, SPS (OS) Copy of the Order forwarded to : 1. The Appellant : Kalinga Institute of Industrial Technology (KIIT), Plot No.383, 384, KIIT Campus-1, Patia, Bhubaneswar 2. The Respondent: CIT (Exemptions), Hyderabad 3. The CIT(E)-, Hyderabad 4. DR, ITAT, Cuttack 5. Guard file. //True Copy// By order

Sr.Pvt.secretary ITAT, Cuttack

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