2016 (10) TMI 711 - AT - Income Tax

Reopening of assessment - exemption claimed by the assessee u/s 11 denied - corpus donations and advance given to Gopisetty Mallaiah & Co. - revision u/s 263 - Held that - In the present case on hand, on perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry and also examined the issues pointed out by the CIT in his show cause notice. The assessee explained each and every issue pointed out by the CIT with necessary evidences. The CIT cannot assume jurisdiction to revise the assessment order, once assessee explained that it had filed all the details before the A.O. on the issues on which CIT wants further verification. It is the general presumption of law that once the A.O. has considered all the details before completion of assessment and the CIT cannot presume that the enquiries conducted by the A.O. is insufficient and also the A.O. has not applied his mind, unless the CIT proves that the assessment order passed by the A.O. is erroneous. The assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act, is not erroneous in so far as it is prejudicial to the interest of the revenue in so far as three issues pointed out by the CIT in his order with regard to corpus donations, applicability of maximum marginal rate and advance given to Gopisetty Mallaiah & Co. In so far as determination of income from house property, the CIT has rightly revised the assessment order, as the A.O. has failed to examine the issue to bring the correct amount of income to the tax. Therefore, we modified the CIT s order u/s 263 of the Act and upheld the findings of the CIT, with regard to income from house property and set aside order of the CIT in respect of corpus donations, applicability of maximum marginal rate and advance given to Gopisetty Mallaiah & Co.

Issues Involved:
1. Examination of corpus donations.
2. Applicability of maximum marginal rate of tax.
3. Advance given to Gopisetty Mallaiah & Co.
4. Determination of income from house property.

Issue-wise Detailed Analysis:

1. Examination of Corpus Donations:
The CIT issued a show cause notice questioning the exemption claimed by the assessee on corpus donations, asserting that the AO accepted these donations without verifying if they were indeed corpus donations with specific directions. The assessee contended that it had provided all necessary details about the corpus donations, which were collected for establishing old age homes and constructing a temple building. The AO had examined these details and accepted the explanation. The Tribunal found merit in the assessee’s argument, stating that the AO had indeed called for and examined the details regarding corpus donations, and the CIT’s presumption that the AO did not verify these details was incorrect.

2. Applicability of Maximum Marginal Rate of Tax:
The CIT argued that the AO should have taxed the income of the assessee at the maximum marginal rate, given that the assessee was not registered under section 12A and the shares of its members were indeterminate. The assessee countered that as a registered society under the Societies Registration Act, it was prohibited from distributing surplus among its members, making the application of the maximum marginal rate of tax inapplicable. The Tribunal agreed with the assessee, noting that the CIT had misunderstood the provisions, as societies registered under the Societies Registration Act are not subject to the maximum marginal rate due to the prohibition on profit distribution.

3. Advance Given to Gopisetty Mallaiah & Co.:
The CIT observed that the AO failed to examine the nature of an advance given to Gopisetty Mallaiah & Co., potentially benefiting the President of the society. The assessee explained that the advance was for constructing an old age home on the society’s land, a fact verified by the AO. The Tribunal found that the AO had indeed examined this issue and accepted the explanation, rendering the CIT’s conclusion that the AO did not conduct proper enquiry incorrect. Furthermore, since the society’s income was assessed under normal provisions, the question of diversion of funds to interested persons did not arise.

4. Determination of Income from House Property:
The CIT noted a discrepancy in the income from house property declared by the assessee (?2,30,551) and the amount assessed by the AO (?1,77,834). The assessee admitted it had no explanation for this difference. The Tribunal upheld the CIT’s decision to revise the assessment order regarding this issue, as the AO failed to bring the correct amount of income to tax.

Conclusion:
The Tribunal concluded that the AO had conducted a detailed enquiry on the issues of corpus donations, applicability of maximum marginal rate, and the advance given to Gopisetty Mallaiah & Co., and thus, the CIT had no jurisdiction to revise the assessment on these grounds. However, the Tribunal upheld the CIT’s revision regarding the discrepancy in the income from house property. The appeals were partly allowed, modifying the CIT’s order to address the error in the house property income assessment while setting aside the CIT’s findings on the other issues.

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