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2022 (9) TMI 1525 - AT - Income TaxRevision u/s 263 - Inadequate or no enquiry - Assessment of trust - taxable income in terms of section 11(1) - as per CIT-E amount collected as development fees from its students had been directly carried to the balance sheet under the nomenclature Development fund instead of routed through the income and expenditure account - HELD THAT - In this case, the assessee has complied by producing all the evidences as called for insofar as the compliance report which is a system generated report shows that the compliance is in full. Thus, this cannot be said that there is lack of enquiry by the AO much less inadequate enquiry and far less no enquiry . In this case, the assessee has complied by producing all the evidences as called for insofar as the compliance report which is a system generated report shows that the compliance is in full. Thus, this cannot be said that there is lack of enquiry by the AO much less inadequate enquiry and far less no enquiry . A perusal of the order passed u/s.263 of the Act shows that the ld. CIT(E) has taken the total revenue earned and amount is inclusive as development fees collected by the assessee from the students. When doing the computation, the ld. CIT(E) has granted 15% accumulation u/s.11(1) of the Act, he has not taken into consideration the capital expenditure which is an application. If this capital expenditure, which is application of income of Rs. 258 crores, is taken into consideration, the taxable income as computed by the ld. CIT(E) would automatically go into a loss. A perusal of the order of the ld. CIT(E) shows that after receiving this reply of the assessee no further verification much less an enquiry has been done by the CIT(E) to even make an attempt to show that the calculation as shown by the assessee is erroneous in any manner whatsoever. This is a minimum expectation. After the receipt of the reply of the assessee, the order has been passed after more than two months and there is nothing shown to show that the calculation as done by the assessee is erroneous. It is also not being rejected by the ld. CIT(E) but has just proceeded to hold that the assessment order is erroneous and prejudicial to the interest of revenue and set aside the same. This is not permissible. In the present case, clearly no enquiry has been done by the ld. CIT(E). The Hon ble Jurisdictional High Court of Orissa 2022 (4) TMI 1395 - ORISSA HIGH COURT further goes on to hold that the purpose of such an enquiry would be to arrive at a subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of Revenue . Here, the ld. CIT(E) has done nothing to arrive at the subjective view that the order of the AO was erroneous insofar as it is prejudicial to the interest of revenue. In fact, this is a case where there is no enquiry by the ld. CIT(E). Also the fact that the ld. CIT(E) has also made a calculation which attempts to show escapement of income u/s.11 of the Act which is taxable, by excluding the application of income which is permissible u/s.11(1) of the Act, is nothing but a jugglery in arithmetic. This is not a case where there is incorrect application of law. This being so, we are of the view that the principle of law laid down in the case of Orissa State Police Housing Welfare Corporation Ltd. 2022 (4) TMI 1395 - ORISSA HIGH COURT is squarely applicable in the case of present assessee, insofar as there is no enquiry done by the ld. CIT(E) after receipt of the reply filed by the assessee. This view of ours also support by the decision of the coordinate bench of the Tribunal in the case of Saroj Kumar Mishra 2022 (8) TMI 1456 - ITAT CUTTACK - order passed by the ld. CIT(E) is unsustainable and consequently, the same stands quashed. Decided in favour of assessee.
Issues Involved:
1. Whether the development fees collected by the assessee should be treated as revenue income. 2. Whether the order passed by the Assessing Officer (AO) was erroneous and prejudicial to the interest of the revenue. 3. Whether the Commissioner of Income Tax (Exemptions) [CIT(E)] had the authority to invoke Section 263 of the Income Tax Act without conducting further enquiry. Detailed Analysis: Issue 1: Treatment of Development Fees as Revenue Income - The assessee, a trust running an educational institution, collected Rs. 1,11,54,33,001/- as development fees from students and carried it directly to the balance sheet under the "Development fund" instead of routing it through the income and expenditure account. - CIT(E) viewed that this amount should be treated as part of the revenue, resulting in taxable income under Section 11(1) to the extent of Rs. 51,97,46,092/-. - The assessee argued that if the development fund is included as revenue and after reducing the application of income on revenue and capital expenditure, the net result was a loss. - The Tribunal referred to the decision in ACIT(E) vs. Scholars Education Trust of India, where it was held that development fees collected compulsorily from students are not voluntary contributions or donations but are part of the current receipt and should be treated as revenue income. Issue 2: Erroneous and Prejudicial Order by AO - CIT(E) held that the AO did not apply the provisions of law regarding the nature of development fees and passed the order without proper verification, making it erroneous and prejudicial to the interest of the revenue. - The Tribunal noted that the AO issued a notice under Section 142(1) of the Act, querying the development fees, and the assessee responded fully by uploading the required documents. - The Tribunal found that the AO had conducted an enquiry and examined the evidence produced by the assessee, and thus, it cannot be said that there was a lack of enquiry, inadequate enquiry, or no enquiry by the AO. Issue 3: Authority of CIT(E) to Invoke Section 263 Without Further Enquiry - CIT(E) set aside the assessment order and directed the AO to re-examine the issues without conducting further verification of the assessee's explanation. - The Tribunal emphasized that Section 263 requires the CIT to make "such enquiry as he deems necessary" before arriving at a conclusion that the AO's order was erroneous and prejudicial to the interest of the revenue. - The Tribunal found that CIT(E) did not conduct any enquiry after receiving the assessee's reply and simply held the assessment order as erroneous and prejudicial without verifying the calculations provided by the assessee. - The Tribunal referred to the decision of the Hon'ble Jurisdictional High Court in the case of Orissa State Police Housing & Welfare Corporation Ltd., which held that the CIT must conduct an enquiry to form a subjective view that the AO's order was erroneous and prejudicial to the revenue. Conclusion: - The Tribunal concluded that CIT(E) did not conduct the necessary enquiry after receiving the assessee's reply and failed to demonstrate that the calculations provided by the assessee were erroneous. - The Tribunal quashed the order passed by CIT(E) under Section 263, holding it unsustainable. - The appeal of the assessee was allowed. Order Pronounced: - The order was dictated and pronounced in the open court on 13/9/2022.
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