2013 (6) TMI 530 - AT - Income Tax

Jurisdiction power u/s 263 by CIT(A) - non compliance of section 11 (4A) as Appellant had not maintained separate account books - TDS certificate issued by ONGC showed that its payment was a payment to assessee as a contractor and was not a grant - not entitlement to exemption u/s 10(23C)(iii)(ab) aspect not examined by the AO - Held that - From the assessment order it no where emerges that the assessment was carried out in hurry. AO has given findings on all the relevant aspects with further findings about application of mind. There is no error in respect of non-consideration of sec. 10(23C)(iiiab) as the AO has only applied section 11 & 12 and held the assessee s case covered thereunder. This course of action is accepted by assessee. Thus no error in the order of AO. Merely because the donors have deducted some TDS will not convert the real nature of the receipt i.e. being donation, grant or advertisement into one of being sobcontractor. Thus no error in the order of AO and no justification for DIT(A) assuming jurisdiction u/s 263. Similarly, in respect of ONGC the funds were provided for setting up of math s lab and TDS was deducted by the donor as a matter of abundant caution, which cannot be held against assessee so as to hold as subcontractor. As regards other receipts from Mrs. Ramneeka Lobo which represented expenses in order to meet its expenses towards electricity, water, housekeeping, security etc. for the dance classes & receipts from Tata Consultancy Services Ltd. represented maintenance charges for conducting computer classes for students for which the appellant was charging above mentioned maintenance cost assessee has demonstrated that there was no infirmity therein. Merely because the assessment order is short cannot led to an assumption that proper inquiries were not carried out. Thus order passed by DIT(E) u/s 263 quashed. In favour of assessee.

Summary

Issues Involved:
1. Legality of invoking Section 263 of the Income-tax Act, 1961.
2. Classification of receipts as contractual/business receipts and applicability of Section 11(4A).
3. Eligibility for exemption under Section 10(23C)(iii)(ab).
4. Alleged hurried and casual manner of assessment.

Detailed Analysis:

1. Legality of Invoking Section 263 of the Income-tax Act, 1961:
The appellant contested the legality of the order passed under Section 263, arguing that the Assessing Officer (AO) had duly applied his mind while passing the assessment order dated 04/09/2009. The AO examined the account books, bills, and vouchers regarding expenditure and amounts received under different heads. The appellant contended that the AO's order was neither erroneous nor prejudicial to the interests of revenue, citing the Supreme Court judgment in Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83, which requires the satisfaction of twin conditions: the order must be erroneous and prejudicial to the interest of revenue. The appellant also referenced several other case laws to support their argument.

2. Classification of Receipts as Contractual/Business Receipts and Applicability of Section 11(4A):
The Director of Income-tax (Exemptions) [DIT(E)] held that various receipts recovered by the assessee were contractual/business receipts, making Section 11(4A) applicable. The appellant argued that the AO had already applied his mind regarding TDS claimed on alleged contractual payments and that the ONGC's payment was a financial grant for setting up a Math's Lab, not a contractual payment. The appellant maintained proper books of accounts, and even if the receipts were considered business receipts, they were incidental to the attainment of the society's objectives.

3. Eligibility for Exemption Under Section 10(23C)(iii)(ab):
The DIT(E) claimed that the appellant's institution was not wholly or substantially financed by the Government, as it received only Rs. 50 Lacs from the Ministry of Personnel, Govt. of India, which was less than 10% of the total fee collected. The appellant countered this by highlighting that the total asset side as on 31/03/2007 was Rs. 26,08,24,028/-, substantially financed by government funds aggregating to Rs. 21,08,00,000/-. The DIT(E) himself noted that even if exemption under Section 11 was denied, the claim of exemption under Section 10(23C)(iii)(ab) would lie.

4. Alleged Hurried and Casual Manner of Assessment:
The DIT(E) alleged that the assessment was framed in a hurried and casual manner without proper enquiries. The appellant argued that the AO had made all relevant inquiries, and the short length of the assessment order did not imply a lack of application of mind. The AO had verified the books of accounts, gross receipts, expenditure, and compliance with Sections 11 and 12, and found no violation under Section 13. The appellant's books were audited without any qualifying notes, and the AO had given clear findings on all relevant aspects.

Conclusion:
The tribunal concluded that the AO had duly applied his mind and made all necessary inquiries. The short length of the assessment order and the number of hearings did not imply a lack of application of mind. The tribunal found no error in the AO's order and held that the DIT(E) had no justification for assuming jurisdiction under Section 263. The tribunal quashed the order passed by the DIT(E) under Section 263 of the Income-tax Act, 1961, and allowed the assessee's appeal.