DHANESWAR RATH INSTITUTE OF ENGINEERING AND MEDICAL SCIENCES,CUTTACK vs. CIT(EXEMPTION), HYDERABAD

The appeal filed by the assessee is barred by limitation by 198 days. The appeal filed by the assessee is barred by limitation by 198 days. The appeal filed by the assessee is barred by limitation by 198 days. The assessee has filed condonation petition dated 14.12.2021, contending The assessee has filed condonation petition dated 14.12.2021, contending The assessee has filed condonation petition dated 14.12.2021, contending therein that the order of CIT(E), Hyderabad dated 31.3.2021 was received therein that the order of CIT(E), Hyderabad dated 31.3.2021 was received therein that the order of CIT(E), Hyderabad dated 31.3.2021 was received by the assessee on the same day through e the assessee on the same day through e-proceedings income tax portal. proceedings income tax portal. The appeal had to file on or before 30.5.2021. It is stated The appeal had to file on or before 30.5.2021. It is stated The appeal had to file on or before 30.5.2021. It is stated that due to COVID-19, the State Government had declared t 19, the State Government had declared the Institute to run 400 he Institute to run 400

Ld A.R. reiterating the submissions in the condonation petition submitted that the Hon’ble Supreme Court has also passed limitation to file appeal during the COVID -19 pandemic. Therefore, the delay in filing the appeal may be condoned. Ld CIT DR did not object to condone the delay.

After hearing the rival submissions, we are satisfied that the assessee was prevented by sufficient cause in not filing within the stipulation period. Therefore, we condone the delay of 198 days and admit the appeal for adjudication.

The sole grievance raised in the grounds of appeal is that the CIT(Exemptions), Hyderabad has passed the revision order u/s.263 of the Act, in a hurriedly manner without providing reasonable opportunity of hearing to the assessee.

Facts of the case are that the assessee is a charitable trust filed its return of income on 20.9.2016 showing income at Nil after claiming exemption u/s.11 of the Income tax Act. The return of income was selected for complete scrutiny. The Assessing Officer completed the assessment u/s.143(3) of the Act on 23.10.2018 on a total income at Rs.Nil.

Accordingly, the Pr. CIT (Exemption), issued show cause notice u/s.263(1) of the Act on 26.3.2021, to which, the assessee requested for adjournment of case for 15 days for compliance. However, in view of time barring case, the Pr CIT(E) passed the order u/s.263 of the Act directing the Assessing Officer to examine the above issues and redo the assessment after verification and in accordance with law.

Ld A.R. submitted that during the assessment proceedings, the Assessing Officer issued notice u/s.142(1) of the Act with detailed questionnaire and the compliance was made. He submitted that the CIT(E) revised the assessment order only on the issue of claim of depreciation, its allowably and details of amount set apart within the meaning of section 11(2) of the Act, to which, the assessee has furnished all the details and after satisfying the reply, the Assessing Officer completed the assessment u/s.143(3) of the Act. Hence, the order passed by the AO cannot be termed as erroneous and prejudicial to the interest of the revenue.

Further, ld A.R. submitted that in reply to show cause notice, the assessee requested 15 days time for compliance but the Ld CIT (E) without giving any opportunity passed the order, which is in clear violation of principles of natural justice. Ld A.R. of the assessee also submitted that in the previous assessment years, the assessee has never taken cost of fixed assets as application u/s.11 and the assessment orders were passed accepting the returned income by the assessee.

Ld A.R. of the assessee submitted that if the CIT(E) was under the impression that the AO has not made enquiry, then, the CIT(E) could have verified himself to record the finding that the assessment order is erroneous and prejudicial to the interest of the revenue as prescribed in section 263 of the Act in terms of claim of cost of fixed assets as application of income as

Ld A.R. vehemently pointed out that in the notice u/s.263(1) of the Act and in the impugned order u/s.263 of the Act, the CIT (E) incorrectly noted that the AO did not make any proper enquiry to ascertain the true facts and not his mind while passing the assessment order as during the scrutiny assessment proceedings, the Assessing Officer issued notice u/s.142(1) of the Act vide dated 6.9.2018 alongwith questionnaire wherein, in Q. No.10, it was specifically asked to the assessee “please furnish the details of depreciation claimed “ and said show cause notice was replied by the asssessee through e- proceedings response acknowledgement No.24091810416508. Ld A.R. further pointed out that when the AO during the scrutiny assessment proceedings has raised 15 questions to the assessee including Q.No.10, asking the assessee to furnish details of depreciation claimed and after taking on record receipt of the assessee and satisfied himself that the assessee has not claimed amount of purchase of assets as an application of income in the income and expenditure account,

Replying to above, ld CIT DR supported the order of the ld CIT(E) and further submitted that since the cost of asset has already been allowed u/s.11, the assessee cannot claim depreciation as application of trust income for charitable purposes. This aspect has not been examined by the AO while passing the assessment order u/s.143(3), therefore, the Ld CIT(E) was justified in directing the AO to redo the assessment order.

Ld CIT DR submitted that the assessee has not submitted the copy of reply before the Bench and it is not also clear what was submitted and furnished before the AO in response to the notice u/s.143(2)/142(1) of the Act, they could have filed the copy of the reply to be fair. Ld CIT DR submitted that this plea was not taken or agitated before the ld CIT(E) in response to the notice u/s.263 of the Act. Ld CIT DR submitted that this fact was not verified by the AO as to whether the assessee has not claimed amount of assets at the time of purchase as application of income u/s.11 of the Act, therefore, the AO allowed depreciation to the assessee as application of income without proper enquiry. Therefore, the ld CIT (E) is right in alleging the assessment order as erroneous and prejudicial to the interest of the revenue. Ld CIT DR also requested that the matter may be sent to the file of the ld CIT(E) for examination and verification of the issue of allowability of claim of depreciation of the assessee or the AO should be allowed to redo the assessment.

Placing rejoinder to above, ld A.R. submitted that the ld CIT(E) initiated revisionary proceedings by issuing notice u/s.263 of the Act on 26.3.2021 and the assessee by way of adjournment petition requested to grant 15 days time for compliance but instead of providing time, the ld CIT(E) dismissed the request of adjournment by observing that the time barring date and limit for passing the order is 31.3.2021. ld A.R. vehemently pointed out that if the department wants to initiate revisionary proceedings then, it should have been done early. It is not fair on the part of the department to initiate revisionary proceedings by issuing notice before 5-6 days time of time barring date and without providing due opportunity of hearing in violation of principles of natural justice. Ld A.R. also submitted that for invoking revisionary proceedings u/s.263 of the Act, the CIT (E) is required to call upon the assessment record and thereafter if he is satisfied that the assessment order is erroneous and prejudicial to the interest of the revenue, he may issue notice to the assessee and after allowing due opportunity of hearing to the assessee, the revisionary order u/s.263 of the Act can be passed.

In the present case, ld CIT (E) has gone against the basic and minimum required procedure as per section 263 of the Act. Therefore, the impugned order is not sustainable. He further pointed out that the only issue picked up and agitated by ld CIT (E) that the AO allowed depreciation claimed by the assessee as application of money without any verification

We have heard the rival submissions and perused the record of the case. The sole point taken by the ld CIT(E) for exercising his power u/s.263 of the Act is that the Assessing Officer without examining the issue of disallowance of depreciation while framing the assessment u/s.143(3) of the Act.

The first grievance of ld A.R. is that the ld CIT(A) has not given proper opportunity before passing the order u/s.263 of the Act. Section 263(1) of the Act reads as under:

On a plain reading of the above provision makes it very clear that the power of suo motu revision u/s 263(1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision u/s 263, namely (i) the order is erroneous (ii) by virtue of being erroneous, and prejudice has been caused to the interests of the Revenue.

For the purpose of exercising jurisdiction u/s 263 of the Act, the conclusion that the order of the AO is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry by CIT(E). If the CIT(E) is of the view that the AO did not undertake any enquiry, it becomes incumbent on the CIT(E) to conduct such enquiry. If the CIT(E) does not conduct such basic exercise then the CIT (E) is not justified in setting aside the order u/s. 263 of the Act.

In this case, in reply to show cause notice u/s.263(1) of the Act, the assessee had requested in email to give 15 days’ time for compliance, but on account of time barring, the CIT(E) has passed the order without giving

Section 263(1) sets out the procedure to be followed by the Commissioner, while exercising the power conferred by that section. It says that the Commissioner 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 an order enhancing or modifying the assessment or canceling the assessment of the ITO and directing a fresh assessment. Thus, the statute itself has made a provision for an effective opportunity of being heard to the assessee before the Commissioner passes an order under s. 263. In this case, the CIT (E) having passed an order without giving the assessee an opportunity of being heard, can be taken to have infringed the statutory provision and, therefore, the order passed by him suffers from procedural irregularity. In the face of s. 263 in which the principles of natural justice have been embedded as a statutory procedure to be followed by the Commissioner before passing an order in his revisional jurisdiction, the order of the Commissioner in the present case suffers from procedural violation or irregularity and not from violation of abstract principles of natural justice. If the principles of natural justice are not embedded in the statute and those principles are found to have been violated, then the order can be said to be one passed in violation of the principles of natural justice.

In the present case, in response to notice issued by the AO with regard to allowability of depreciation, the assessee has furnished all the details and after satisfying the reply to notice of the AO u/s. 142(1) of the Act, the Assessing Officer completed the assessment u/s.143(3) of the Act.

On merits, the sole issue in this appeal is that as to whether the claim of depreciation by the assessee as an application of income was allowable or not. The legal position is very clear from various orders and judgments of Hon’ble High Courts and Co-ordinate Benches of the Tribunal including order of ITAT Chennai in the case of Grama Vidiyal Trust(supra), wherein, it was clearly held that where the cost of asset was claimed and allowed u/s.11 of the Act to the assessee charitable society/trust as application of income in the year of purchase of asset, the assessee would not be entitled for depreciation on said asset as application of income. This preposition has been rendered in view of the fact that the assessee cannot claim depreciation as application of income twice, once at the time of purchase of assets and secondly during the subsequent period for claiming depreciation of asset as application of income. Now, the position is very much clear that the assessee trust/society has two options either the cost of asset, in the year of purchase, has to be claimed the amount u/s.11 of the Act as application of income or in case the assessee has not availed the first option, then the assessee can claim depreciation as application of income by exercising the second option only claiming depreciation during

In the present case from audited financial statement for assessment years 2011-12 to 2015-16 pertaining to assessment years 2012-13 to 2016- 17 including the assessment year under consideration i.e A.Y. 2016-17, it is clearly demonstrated that the assessee has not claimed cost of asset in the year of purchase or during any subsequent period but it has only claimed depreciation thereon as application of income, which is permissible in a case where the assessee has not claimed cost of asset as application of income u/s.11 of the Act in the year of purchase or acquisition of assets.

As we have noted above that during the scrutiny assessment proceedings, the AO issued notice u/s.142(1) of the Act, which was replied by the assessee by e-compliance, acknowledgement No. being XXXX1375 on 21.9.2018, wherein, details of depreciation claimed have been submitted by the assessee before the AO. This fact has not been controverted by ld CIT DR except by stating that the copy of details have not been submitted and there is no discussion in the assessment order. We are of the considered view that when the AO has issued notice alongwith details of questionnaire, which was replied by the assessee, as has been done in the present case by the assessee through e-compliance supported by relevant documentary evidence/financial statement, therefore, it cannot be alleged that the AO has not made any enquiry. In the present case, keeping in P a g e 14 | 21

We also observe that as per sub-section (2) of Section 263 of the Act, no order shall be made under sub-section (1) of section 263 after expiry of two years from the end of financial year in which the order is sought to be revised or passed and thus, it is ample clear that the legislature has provided more than two years time for initiation of revisionary proceedings and passing the order u/s.263 of the Act. In the present case, the AO passed the scrutiny assessment order on 23.10.2018 and thus as per sub-section (2) of Section 263 of the Act, the order should have been passed on or before 31.3.2021. In the present case after lapse of substantial time of more than two years and 3 months, the ld CIT (E) picked up the case for initiation of revisionary proceedings only before 6-7 days time from the last date of limitation i.e. on 26.3.2021 by issuing notice u/s.263 giving date of hearing on 30.3.2021. Before the date of hearing,

In the present case this is not a case of no enquiry and the AO has made enquiry of several issues including the claim of depreciation by the assessee. Even if, when the CIT (E) was not satisfied about the enquiry done by the AO during the scrutiny assessment proceedings, then instead of directing to the AO to conduct further enquiry and redo the assessment, the ld CIT (E) was required to conduct enquiry himself to arrive at a conclusion that the assessment order is erroneous and prejudicial to the interest of the revenue and without such exercise, the revisionary proceedings u/s.263 of the Act cannot be held as sustainable and valid in law in view of judgment of Hon’ble Delhi High Court in the case of CIT vs Jyoti Foundation, 357 ITR 388 (Del); (ii) ITO vs DG Housing Projects Ltd., 343 ITR 329 (Del) & (iii) Pr. CIT vs Delhi Airport Metro Express Pvt Ltd., 38 ITR 8(Del).

Ld CIT DR relied on the decision of ITAT Chennai in the case of M/s. Medall health Care pvt Ltd. Vs Pr.CIT 85 taxmann.com 211 (Chennai). On perusal of the said decision, we find in that case, the AO has not discussed anything in the assessment order regarding the issue pointed out by ld Pr. CIT but in the present case, the AO on the particular point i.e. claim of depreciation, asked the question and after being satisfied with the reply of the assessee, has allowed the same. In this context, the ld A.R. has placed reliance on the order of ITAT Mumbai Bench in the case of Reliance Payment Solutions ltd vs Pr. CIT (2022) 136 taxmann.com 277 (Mumbai), wherein, it was held thus:

In the result, appeal of the assesse is allowed.