2014 (12) TMI 383 - AT - Income Tax

Jurisdiction of CIT for invocation of section 263 nature of the income from Yoga, ayurvedic treatment etc. as business income or not Necessary enquiries conducted or not by AO - assessee submitted that submitted that the assessee is not liable to file audit report u/s. 44AB of the Act as it has filed the audit report in Form 10B as a charitable trust. - Held that - As held in Malabar Industries Co. Ltd., Vs. CIT 2000 (2) TMI 10 - SUPREME Court - the Commissioner can exercise revision jurisdictional u/s 263 if he is satisfied that the order of the assessing officer sought to be revised is erroneous and also prejudicial to the interests of the revenue in SIEMENS ENGINEERING & MANUFACTURING CO. OF INDIA LIMITED Versus UNION OF INDIA & ANR. 1976 (4) TMI 204 - SUPREME COURT OF INDIA it has been held that while making assessment on assessee, the ITO acts in a quasi-judicial capacity - an assessment order is amenable to appeal by the assessee and to revision by the Commissioner u/s 263 and 264 - If without discussing the nature of the transaction and materials on record, the AO had made certain addition to the income of the assessee, the same would have been considered erroneous by any appellate authority as being violative of the principles of natural justice which require that the authority must indicate the reasons for an adverse order. The AO does not show any application of mind on his part - He simply accepted the income declared by the assessee - This is a case where the AO mechanically accepted what the assessee wanted him to accept without any application of mind or enquiry - The evidence available on record is not enough to hold that the return of the assessee was objectively examined or considered by the AO - It is because of such non consideration of the issues on the part of the AO that the return filed by the assessee stood automatically accepted without any proper scrutiny - The assessment order placed is clearly erroneous as it was passed without proper examination or enquiry or verification or objective consideration of the claim made by the assessee - it was a fit case for the Commissioner to exercise his revisional jurisdiction u/s 263 which he rightly exercised by cancelling the assessment order and directing the AO to pass a fresh order considering the issues raised by the CIT- the assessee should have no grievance in the action of Commissioner in exercising the jurisdiction u/s. 263 of the IT Act. The assessment order dated 30/11/2011 is silent on the enquiry conducted by the Assessing officer with regard to yoga, ayurvedic treatment etc. - There is no discussion on this issue - The order of the AO is erroneous and prejudicial to the interests of the revenue on the reason that there is wrong assumption of facts the order of the CIT is modified as instead of making addition directly, and treating income from yoga as business income, the AO is directed to conduct necessary enquiry with regard to yoga, ayurvedic treatment etc. and thereupon decide the same thus, the matter needs fresh disposal Decided partly in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of income from Yoga, Ayurvedic treatment, etc., as business income.
3. Jurisdiction of the CIT in invoking the provisions of Section 263 of the Income Tax Act.
4. Examination of the Assessing Officer's order for errors and prejudices to the interest of revenue.

Detailed Analysis:

1. Condonation of Delay:
The assessee filed the appeal with a delay of 31 days, attributing the delay to the time taken in obtaining legal opinion from a consultant. The Tribunal found the reasons to be bona fide and condoned the delay, admitting the appeal for adjudication.

2. Disallowance of Income:
The assessee's grievance pertained to the disallowance of income from Yoga, Ayurvedic treatment, etc., as business income. The CIT observed that these activities did not qualify as charitable under Section 2(15) of the I.T. Act and thus did not warrant exemption under Section 11. The CIT noted that the income from these activities was not applied for charitable purposes in India and therefore should be treated as business income.

3. Jurisdiction of CIT under Section 263:
The Tribunal examined whether the CIT was justified in invoking Section 263, which allows revision of orders prejudicial to the interest of revenue. It referenced the Supreme Court's judgment in Malabar Industrial Co. Ltd. (243 ITR 83), which held that an order is erroneous if it involves an incorrect application of law or incorrect assumption of facts. The Tribunal agreed with the CIT's view that the Assessing Officer had not adequately scrutinized the nature of the assessee's activities and their eligibility for exemption under Section 2(15).

4. Examination of Assessing Officer's Order:
The Tribunal noted that the Assessing Officer's order lacked detailed examination and was a non-speaking order. The CIT's revision was justified as the Assessing Officer had not conducted necessary inquiries into the nature of the assessee's activities. The Tribunal emphasized that an order is erroneous if it is based on incorrect assumptions or if the Assessing Officer fails to make necessary inquiries. It directed the Assessing Officer to re-examine the issue of income from Yoga and Ayurvedic treatment and make a fresh decision without being influenced by the CIT's findings.

Conclusion:
The Tribunal upheld the CIT's order to the extent that it directed a re-examination of the assessee's income from Yoga and Ayurvedic treatment. The appeal was allowed for statistical purposes, and the Assessing Officer was instructed to conduct a thorough inquiry and make a fresh determination.

Pronouncement:
The judgment was pronounced on 24-09-2014.

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