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2015 (2) TMI 1023 - AT - Income TaxRevision u/s 263 by DIT(E) - Benefit of mutuality given to the assessee - assessee charged only interest income instead of taxing the whole excess of income over expenditure and this mistake resulted in under assessment of income of ₹ 1,06,10,312/- as held by CIT(A)- Assessee Society is registered under section 12A - Held that - AO has made the detailed enquiries on the issue of principle of mutuality and passed the order dated 13.12.2011 u/s. 143(3) of the I.T. Act. Therefore, the assessment order dated 13.12.2011 passed u/s. 143(3) is not erroneous at all and the Ld. DIT(E) has passed the impugned order dated 28.3.2014 contrary to the law and facts on record, which is not sustainable in the eyes of law. The Audit Officer raised the objection on 2.5.2012 on the benefit of mutuality to the assessee and charging only interest income instead of taxing the whole income and in response to the audit objection, the AO vide his reply dated 18.12.2012 to the Sr. Audit Officer regarding the principle of mutuality and supported the assessment order dated 13.12.2011 by stating that all received of money from members should go for the maintenance of super-structure, the surplus arising after meeting the administrative expenses has naturally be transferred to the account of the Institution Members, because it belongs to the Members. He further replied that it is the Institution Members who had contributed towards the cost of the assessee or any service or some time deficit will also be to the account of the members. This is a settled principle behind the mutuality concept and lastly Dy. DIT(E) Circle-1, New Delhi vide his reply dated 10.1.2014 to the Director of Income Tax (E), Delhi. The reply to the DIT(E) establish that the revenue authority itself supported the order of the AO dated 13.1.22011 passed u/s. 143(3) of the I.T. Act. In our considered opinion, when two views are possible and the AO has taken one of the possible view, then the provisions of section 263 of the I.T. Act will not apply. Therefore, in the present case the same facts and circumstances are applicable. We are of the view that ld. DIT(E) has passed the impugned order by taking his own view which is contrary to the various decision rendered by the Hon ble Supreme Court of India in the case of Malabar Industrial Co. Ltd. vs. CIT (2000 (2) TMI 10 - SUPREME Court) and CIT vs. Max India Ltd.(2007 (11) TMI 12 - Supreme Court of India). - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the order passed under Section 263 of the Income Tax Act. 2. Whether the assessment order dated 13.12.2011 under Section 143(3) was erroneous and prejudicial to the interest of the Revenue. 3. Applicability of the principle of mutuality to the assessee. 4. Doctrine of merger concerning the appellate order of the Commissioner of Income Tax (Appeals). 5. Basis of the revisional order on audit objections. Issue-wise Detailed Analysis: 1. Jurisdiction of the Order Passed Under Section 263: The appellant contended that the order passed under Section 263 of the Act is without jurisdiction. The Tribunal examined whether the Director of Income Tax (Exemptions) [DIT(E)] was correct in invoking Section 263. The Tribunal concluded that the DIT(E) did not have jurisdiction to pass the revisional order as the assessment order was not erroneous or prejudicial to the interest of the Revenue. 2. Erroneous and Prejudicial Nature of the Assessment Order: The Tribunal analyzed whether the assessment order dated 13.12.2011 was erroneous and prejudicial to the interest of the Revenue. The original assessment was conducted under Section 143(3), where the Assessing Officer (AO) had examined the principle of mutuality and taxed the interest income. The Tribunal found that the AO had made detailed inquiries and considered the principle of mutuality, thus the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. 3. Applicability of the Principle of Mutuality: The Tribunal scrutinized the principle of mutuality, which was central to the dispute. The AO had accepted the principle of mutuality for the assessee, except for the interest income. The CIT(A) had also upheld this principle in the appellate proceedings. The Tribunal noted that the DIT(E) did not provide sufficient grounds to refute the principle of mutuality applied by the AO and CIT(A). Therefore, the Tribunal upheld the principle of mutuality as applicable to the assessee. 4. Doctrine of Merger: The Tribunal addressed the doctrine of merger, which implies that once an appellate authority (CIT(A)) has adjudicated on an issue, the original order merges with the appellate order. The Tribunal noted that the CIT(A) had already adjudicated on the principle of mutuality and interest income in favor of the assessee. Therefore, the revisional jurisdiction under Section 263 could not be invoked by the DIT(E) as the assessment order had merged with the appellate order. 5. Basis of the Revisional Order on Audit Objections: The Tribunal examined whether the revisional order was based on audit objections. It was found that the DIT(E) had issued the show cause notice under Section 263 based on audit objections without independent application of mind. The Tribunal held that reliance solely on audit objections without proper examination is not permissible under the law. Consequently, the revisional order was deemed unsustainable. Conclusion: The Tribunal concluded that the DIT(E) had incorrectly invoked Section 263, as the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The principle of mutuality was rightly applied by the AO and upheld by the CIT(A). The revisional order was based on audit objections without independent application of mind, violating legal principles. Therefore, the Tribunal canceled the order dated 28.3.2014 passed by the DIT(E) under Section 263, allowing the appeal filed by the assessee. Order Pronounced: The appeal filed by the assessee was allowed, and the order pronounced in the Open Court on 12/2/2015.
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