2019 (2) TMI 1986 - AT - Income Tax

Revision u/s 263 by CIT - foreign contributions received during the year under consideration - application for charitable purpose out of corpus donation which is in violation of section 11(1)(d) - HELD THAT - The setting aside of assessment order by ld. CIT(E) with the direction to ld. A.O to reconsider the corpus donation of ₹ 56,81,976 by treating them in violation of sec 11 (1 ) (d), will not result to fulfillment of dual statutory condition of AO's order being erroneous and ''prejudicial to the interest of the revenue . For an order to be prejudicial to the interest of revenue, some loss must have occurred to the revenue. Whereas in the present case, if at all, corpus donation is considered as violating the provisions of section 11(1)(d), even then, the said donation remains to be voluntary contribution and in accordance with the provisions of section 12(1) read with section 11(1)(a), are utilized for charitable purpose as the same is evident from the deficit of ₹ 50,08,844 (i.e excess of expenditure over income) Adjustment of ₹ 56,81,976 with the deficit of ₹ 50,08,844 will result to surplus of ₹ 6,73,132 which is within the 15% stipulated amount allowed for accumulation. Interestingly this computation was made by the ld. A.O in her Pre-Assessment Order dated 14.03.2015 (page no 17 of paper book). Therefore, setting aside the order of A.O and denying the status of corpus donation has not resulted any loss to the revenue. Hence pertinent condition of section 263, of the order being ''prejudicial to the interest of the revenue has not been fulfilled and therefore makes the order of ld.CIT(E) bad in law. Provisions of section 11(1)(d) in no way have been violated by the assessee. There has been excess of expenditure over income for the year under consideration and the same has been carried forward to the general fund in the balance sheet accumulated over the years whereas Corpus donations are separately appearing in balance sheet. Therefore, the observations of the ld. CIT that the deficit for the year has been met out of the corpus donation, is not correct as is evident from the final accounts. The assessee is also entitled to carry forward the deficit for the year and set off the same in the next year(s), in the view of dictum laid down by the Hon ble Apex Court in as held in the case of CIT (E) Vs. Subros Educational Society 2018 (4) TMI 1622 - SC ORDER Therefore, when carry forward of deficit is allowed, it implies that the said excess utilization has been spent out from sources other than the voluntary contributions received during the year and should be out of Corpus only - the CIT order passed u/s 263 of the I.T.Act is without jurisdiction and we quash the same.- Decided in favour of assessee.

Summary

Issues Involved
1. Invocation of Section 263 of the I.T. Act by the CIT.
2. Alleged violation of Section 11(1)(d) of the I.T. Act by utilizing corpus donations for charitable purposes.
3. Determination of whether the conditions for invoking revisionary jurisdiction under Section 263 were met.

Detailed Analysis

1. Invocation of Section 263 of the I.T. Act by the CIT
The CIT invoked Section 263 of the I.T. Act, asserting that the assessment order dated 29.03.2016 was erroneous and prejudicial to the interests of the Revenue. The CIT's concern was that the assessee had utilized corpus donations received as foreign contributions for charitable purposes, which he believed violated Section 11(1)(d) of the I.T. Act.

2. Alleged Violation of Section 11(1)(d) of the I.T. Act
The CIT noted that the assessee received ?2,38,15,619 as foreign contributions, out of which ?1,82,93,750 was corpus donations under Section 11(1)(d). The CIT contended that the remaining voluntary contribution was ?55,21,860, while the assessee utilized ?1,12,03,845 for charitable purposes. Thus, the CIT inferred that ?56,81,961 (?1,12,03,845 - ?55,21,860) was used from corpus donations, violating Section 11(1)(d).

3. Determination of Conditions for Invoking Revisionary Jurisdiction under Section 263
The Tribunal examined whether the CIT correctly assumed jurisdiction under Section 263. The relevant provision states that the CIT can invoke Section 263 if the assessment order is erroneous and prejudicial to the interests of the Revenue. The Tribunal emphasized that for an order to be prejudicial to the Revenue, there must be a loss to the Revenue.

The Tribunal found that even if ?56,81,976 of corpus donations were considered to violate Section 11(1)(d), the donations were still voluntary contributions utilized for charitable purposes, resulting in a deficit of ?50,08,844. This adjustment would lead to a surplus of ?6,73,132, which is within the 15% allowed for accumulation. Therefore, no loss occurred to the Revenue, and the conditions for invoking Section 263 were not met.

The Tribunal referred to the Supreme Court's ruling in Malabar Industrial Co Ltd Vs CIT, which held that both conditions—erroneous order and prejudicial to the Revenue—must be satisfied for Section 263 to apply. The Tribunal also cited the case of CIT Vs Max India Ltd, reinforcing that not every loss of revenue due to an AO's order is prejudicial to the Revenue unless the AO's view is unsustainable in law.

The Tribunal noted that corpus donations, as per Section 11(1)(d), are exempt from total income if they are voluntary contributions with a specific direction to form part of the corpus. The Tribunal clarified that voluntary contributions, including corpus donations, are not income but deemed so by legal fiction under Section 2(24)(iia). The Tribunal concluded that the assessee's utilization of corpus donations did not violate Section 11(1)(d) and cited several case laws supporting this view.

The Tribunal also recognized that the assessee could carry forward the deficit for the year and set it off in subsequent years, as upheld by the Supreme Court in CIT (E) Vs. Subros Educational Society. Consequently, the Tribunal quashed the CIT's order under Section 263, declaring it without jurisdiction.

Conclusion
The Tribunal allowed the appeal filed by the assessee, ruling that the CIT's invocation of Section 263 was without jurisdiction and quashed the order. The Tribunal emphasized that the conditions for invoking Section 263 were not met, as there was no loss to the Revenue and the utilization of corpus donations did not violate Section 11(1)(d).