2016 (4) TMI 76 - AT - Income Tax

Revision u/s 263 - denial of benefit U/s 11 and 12 and not allowing depreciation - Held that - The scrutiny assessment has been completed by the Assessing Officer on 31/12/2012. The ld Assessing Officer issued detailed questionnaire on 17/10/2012, the assessee furnished requisite details/information/books of account etc. before him. The ld Assessing Officer held that the registration w.e.f. 23/08/2011 U/s 12AA have been granted by the ld CIT, Alwar. The society was working as per its byelaws and carried out charitable activity. All the income of the society was applied for fulfillment of the object of the society. The educational institutions are existing solely for educational purposes and not for the purpose of profit. The aggregate annual receipts of the society during the year under consideration was ₹ 93,70,725/-, which is below ₹ 1 crore. All the annual receipts of the samiti is exempted U/s 10(23C)(iiiad) of the Act. The ld Assessing Officer accepted the assessee s returned income by order dated 31/12/2012. The ld Assessing Officer issued query letter on 17/10/2012 on both the issues in item No. 3,4 and 8, which was replied by the assessee vide letter dated 19/11/2012 at item No. 3 and 8. Thus, the Assessing Officer made detailed enquiry on both the issues and no adverse inference had been drawn by him. Further both the issues i.e. aggregate annual receipts and depreciation are also covered in favour of the assessee as various ITATs as well as Hon ble High Courts have held that other receipts, which are not directly related with the receipts of the institution/trust, are not part of aggregate annual receipts. On depreciation also, various ITATs and Hon ble High Courts have held that the income of the Trust is to be calculated as per Act. The depreciation is allowable even the assessee had applied its receipts against the assets which seems to be double deduction to the Assessing Officer but various courts has decided that the depreciation on assets is allowable. Now the law has been amended on this issue but which is operative prospectively. The case laws relied by the assessee are squarely applicable. We find that the Assessing Officer has formed one of the view but the ld CIT(Exemption) has formed another view on same facts and circumstances, therefore, change of opinion is not permissible under the law. Accordingly, we set aside the order of the ld CIT(Exemption) passed U/s 263 of the Act. - Decided in favour of assessee

Issues Involved:
1. Limitation of the order passed under Section 263 of the Income Tax Act.
2. Legality of invoking provisions of Section 263.
3. Jurisdiction under Section 263 due to alleged improper enquiries.
4. Denial of exemption under Section 10(23C)(iiiad) due to receipts exceeding Rs. 1 crore.
5. Denial of benefits under Sections 11 and 12 following registration under Section 12A.
6. Non-allowance of depreciation as an application of income under Section 11(1)(a).

Issue-wise Detailed Analysis:

1. Limitation of the Order Passed Under Section 263:
The assessee contended that the order passed by the CIT (Exemptions) under Section 263 was barred by limitation and should be quashed. However, this issue was not separately addressed in the tribunal's detailed analysis, suggesting that the primary focus was on the substantive grounds of appeal.

2. Legality of Invoking Provisions of Section 263:
The assessee argued that the CIT (Exemptions) erred in invoking Section 263, claiming that the order was neither erroneous nor prejudicial to the interest of the revenue. The tribunal noted that for Section 263 to be invoked, twin conditions must be satisfied: the order must be erroneous and prejudicial to the revenue. The tribunal cited the case of Malabar Industrial Co. Ltd. Vs. CIT, emphasizing that not every loss of revenue qualifies as prejudicial if the Assessing Officer (AO) adopted one of the permissible views.

3. Jurisdiction Under Section 263 Due to Alleged Improper Enquiries:
The CIT (Exemptions) claimed the AO did not make proper enquiries regarding the assessee's gross receipts and depreciation claims. The tribunal found that the AO had indeed made detailed enquiries, issued a questionnaire, and received comprehensive responses from the assessee. The tribunal highlighted that the AO's assessment was based on a permissible view, and a mere difference in opinion does not justify invoking Section 263.

4. Denial of Exemption Under Section 10(23C)(iiiad) Due to Receipts Exceeding Rs. 1 Crore:
The CIT (Exemptions) included scholarship receipts in the gross receipts, pushing the total above Rs. 1 crore, thus denying the exemption under Section 10(23C)(iiiad). The assessee argued that scholarship receipts were not part of the gross receipts as they were merely pass-through amounts received from the government for disbursement to students. The tribunal agreed with the assessee, noting that the AO had correctly excluded scholarship receipts from the gross receipts, as these were not income of the society but obligations to be disbursed.

5. Denial of Benefits Under Sections 11 and 12 Following Registration Under Section 12A:
The CIT (Exemptions) denied benefits under Sections 11 and 12, arguing that the registration under Section 12AA was obtained after the assessment year in question. The tribunal noted that the newly inserted proviso to Section 12A(2) should be given retrospective effect to remove unintended hardship. Thus, the AO's decision to allow benefits under Sections 11 and 12 was upheld as it aligned with legislative intent.

6. Non-Allowance of Depreciation as an Application of Income Under Section 11(1)(a):
The CIT (Exemptions) disallowed the depreciation claimed by the assessee, considering it a double deduction since capital expenditure was already allowed as an application of income. The tribunal disagreed, referencing multiple case laws that support the allowance of depreciation even when capital expenditure has been treated as an application of income. The tribunal emphasized that the AO's view was in line with judicial precedents.

Conclusion:
The tribunal concluded that the AO had made proper enquiries and adopted a permissible view, thus the order was not erroneous or prejudicial to the interest of the revenue. Consequently, the tribunal set aside the order passed by the CIT (Exemptions) under Section 263, allowing the assessee's appeal.

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