2016 (1) TMI 1287 - AT - Income Tax

Revision u/s 263 - receipt of development fund - claim of exemption u/s 11 - Held that - The issue of receipt of development fund was duly examined by the Assessing Officer in the AYs 2007-08 and 2009-10 while completing the assessment u/s 143(3) of the Act. Moreover, the CIT(Exemption) has observed in a show cause notice that the development fund was not routed through income and expenditure account and was directly taken to the balance sheet. The observations of the CIT(Exemption) is not correct as the assessee has taken this amount as income in the income and expenditure account and thereafter it was credited to the balance sheet and having applied its income to the chargeable purpose, the assessee has claimed exemption u/s 11 of the Act. For invoking the provision of Section 263 of the Act, the assessment is required to be held as erroneous and prejudicial to the interest of the Revenue. If the assessment order is only erroneous and not prejudicial to the interest of the Revenue the provision of Section 263 of the Act cannot be invoked. Since the assessee has taken the development fund to the income and expenditure account after treating it to be income, the assessment order cannot be called to be prejudicial to the interest of the Revenue, though it may be erroneous for certain reasons. Assessment order is neither erroneous nor prejudicial to the interest of the Revenue, the provisions of Section 263 cannot be invoked. - Decided in favour of assessee.

Summary

Issues:
1. Assessment order passed u/s 263 of the Income Tax Act, 1961
2. Development funds received not shown as income
3. Utilization of development funds for construction
4. Doubt on total receiving and funds utilized
5. Compliance with natural justice in the order

Analysis:

Issue 1: Assessment Order under Section 263
The appeal was against the order of the Ld. CIT(Exemption) passed under Section 263 of the Income Tax Act, 1961. The appellant contended that the assessment order was not erroneous or prejudicial to the interest of Revenue.

Issue 2: Non-disclosure of Development Funds as Income
The Ld. CIT(Exemption) alleged that development funds received were not shown as income and should have been added back to the income of the assessee. The appellant argued that the funds were added as surplus while computing the funds utilized under Section 11 of the Act and were considered in the assessment.

Issue 3: Utilization of Development Funds
The Ld. CIT(Exemption) did not acknowledge that the development funds were used for constructing the College Building. The appellant highlighted that details of receiving and utilization for construction were examined by the Assessing Officer during the Assessment Proceedings.

Issue 4: Doubt on Total Receiving and Utilization
The Ld. CIT(Exemption) did not question the total receiving, which included development fees and funds utilized for educational purposes. The appellant argued that the assessment order was not erroneous or prejudicial to the interest of Revenue.

Issue 5: Compliance with Natural Justice
The appellant contended that the order was contrary to facts, law, and principles of natural justice as sufficient time and opportunity were not provided to present their case on the reasons relied upon.

The Tribunal found that the Assessing Officer had examined the receipt of development funds in previous assessment years. It was noted that the funds were treated as income in the income and expenditure account, then credited to the balance sheet, and claimed exemption under Section 11. The Tribunal held that for Section 263 to apply, the assessment must be both erroneous and prejudicial to Revenue. As the assessment order was not prejudicial to Revenue, the Tribunal set aside the CIT's order, allowing the appeal of the assessee.