2019 (1) TMI 1267 - AT - Income Tax

Revision u/s 263 - eligibility for exemption u/s 10(26BBB) - income is not to be included in total income - any income of a corporation established by a Central, State or Provincial Act for the welfare and economic upliftment of ex-servicemen being the citizens of India - treating the assessment order as erroneous in so far as it is prejudicial to the interests of the Revenue - Held that - During the course of arguments, the Learned Counsel for the Assessee was not able to satisfy as to how the assessee satisfied the requirements of Section 10(26BBB) of the I.T. Act and how the Judgments, relied upon by him are applicable to the facts and circumstances of the case. D.R. on the other hand has suggested that both the decisions relied upon by the Learned Counsel for the Assessee support the case of the Revenue. On this reason itself, the assessment order was correctly found to be erroneous in so far as it is prejudicial to the interests of the Revenue. On this reason itself, the appeal of assessee is liable to be dismissed. The assessment order was correctly found to be erroneous in so far as it is prejudicial to the interests of the Revenue. On this reason itself, the appeal of assessee is liable to be dismissed. We may also note briefly that CIT has noted that even the case of the assessee would not fit within the definition of the term Ex-servicemen appearing in Section 10(26BBB) on which, no arguments have been made during the course of hearing of the appeal. Since the assessee failed to satisfy the conditions of Section 10(26BBB) and A.O. did not examine this issue at all, therefore, CIT, Delhi was justified in setting aside the assessment order and to enhance the income of assessee by holding that assessee is not entitled for exemption under the provisions of Section 10(26BBB). No infirmity have been pointed out in the Order of the learned CIT. We, accordingly, do not find any error in the Order for interference. The appeal of assessee have no merit and the same is accordingly dismissed. - Decided against assessee.

Summary

Issues Involved:
1. Validity of proceedings under section 263 of the Income Tax Act.
2. Eligibility for exemption under section 10(26BBB) of the Income Tax Act.
3. Adequacy of the Assessing Officer's (AO) inquiry and application of mind.

Detailed Analysis:

1. Validity of Proceedings under Section 263:
The assessee contended that the proceedings under section 263 were invalid as both conditions - the order being erroneous and prejudicial to the interests of the revenue - must be satisfied simultaneously. The assessee argued that the AO had conducted due inquiry and applied his mind while allowing the exemption, thus the action under section 263 was not justified. However, the Commissioner of Income Tax (CIT) found that the AO had failed to properly examine whether the assessee met the substantive requirements of section 10(26BBB). The CIT noted that the AO took the assessee's representation at face value without adequate verification, making the assessment order erroneous and prejudicial to the interests of the revenue.

2. Eligibility for Exemption under Section 10(26BBB):
The CIT examined the eligibility criteria under section 10(26BBB), which exempts income of a corporation established by a Central, State, or Provincial Act for the welfare and economic upliftment of ex-servicemen. The CIT found that the assessee, incorporated under the Companies Act, did not meet this criterion as it was not established by any such Act. The CIT also noted that the term "ex-servicemen" as defined in the provision did not align with the assessee's operations, which included providing employment to individuals beyond the specified target group. The CIT concluded that the assessee did not qualify for the exemption under section 10(26BBB).

3. Adequacy of the AO's Inquiry and Application of Mind:
The CIT observed that the AO did not conduct a thorough inquiry into whether the assessee fulfilled the conditions of section 10(26BBB). The AO merely reproduced the assessee's submissions and partially disallowed the exemption without proper examination and verification. The CIT emphasized that the AO failed to apply his mind to the substantive provisions of the law, leading to an erroneous assessment order. The Tribunal upheld this view, noting that the AO did not make any substantive inquiry into the applicability of section 10(26BBB) and accepted the assessee's claim without proper scrutiny.

Conclusion:
The Tribunal found that the assessee did not meet the requirements for exemption under section 10(26BBB) as it was not established by a Central, State, or Provincial Act and did not exclusively serve the defined group of ex-servicemen. The AO's failure to conduct a proper inquiry and the erroneous application of the law justified the CIT's action under section 263. The appeal of the assessee was dismissed, and the assessment order was set aside, enhancing the income of the assessee by disallowing the claimed exemption.