2021 (8) TMI 285 - AT - Income Tax

Rectification u/s 154 - exemption u/s 11 denied - HELD THAT - CIT(A) while passing the order has categorically held that there is no violation of Section 13(1) and exemption u/s 11 and 12 of the Act is allowed to the assessee which is also registered u/s 12AA - Therefore, when once this issue has already attained finality by passing of the order by the ITAT dismissing the appeal of the Revenue, therefore, in our view, no obvious mistake of law, if any, cannot be rectified u/s 154. Whereas the mistake of fact which is apparent from the record can only be rectified u/s 154 as has already been held in the case of Venkatachalam (M.K.) ITO vs Bombay Dying Mfg Co. Ltd. 1958 (4) TMI 4 - SUPREME COURT and in the present case, the Revenue has failed to pinpoint the mistake of fact which is apparent from the record which needs invocation of the provisions of Section 154 of the Act. Therefore, in our considered view, under the above circumstances, CIT(A) has wrongly invoked provisions of Section 154 of the Act by passing the impugned order, thus the same is not sustainable in the eyes of law. With regard to development receipts, the said issue with regard to developments receipts was not decided by the ld. CIT(A) in the order. CIT(A) has allowed set off of carry forward losses against the development receipts - The issue was not decided on merits as according to the assessee, there was no taxable surplus after set off of carry forward losses - as pointed out before us that in the subsequent assessment order, the same issue was decided in favour of the assessee and the order has been placed on record - The findings regarding development receipts being capital receipts - In this way, this issue has already been decided in favour of the assessee and therefore, there was no question of raising this issue again in impugned rectification order passed by the ld. CIT(A). The income tax authorities have power of rectification u/s 154 but can only be exercised if there is mistake apparent from the record. However, exemption u/s 11 of the Act has already been allowed to the assessee continuously and the ld. CIT(A) has himself allowed the same to the assessee in his earlier orders. Provisions of Section 154 cannot be invoked. At the same time, CIT(A) cannot invoke provisions of Section 154 of the Act merely to deny the benefit to the assessee which otherwise has already been held to be allowable by the Revenue authorities in different years. In view of the above facts and circumstances, we set aside the order passed by the CIT(A) and allow this appeal of the assessee.

Summary

Issues Involved:
1. Legitimacy of the order passed under Section 154 of the Income Tax Act, 1961.
2. Entitlement of the assessee for exemption under Section 11 of the Income Tax Act, 1961.
3. Taxability of development receipts as income of the assessee.

Issue-wise Detailed Analysis:

1. Legitimacy of the Order Passed Under Section 154 of the Income Tax Act, 1961:
The appeal challenges the order passed by the CIT(A) under Section 154 of the Act. The assessee contended that the CIT(A) erred in passing the order suo moto when the order was already confirmed by the ITAT. The ITAT had dismissed the Revenue's appeal and upheld the CIT(A)'s decision allowing exemption under Section 11. The Tribunal emphasized that rectification under Section 154 can only address mistakes apparent from the record. The Supreme Court's ruling in Venkatachalam (M.K.) ITO vs Bombay Dying & Mfg Co. Ltd. (1958) 34 ITR 143 (SC) was cited, which restricts rectification to factual mistakes evident from the record. The Tribunal concluded that the CIT(A) wrongly invoked Section 154 as no apparent factual mistake was identified.

2. Entitlement of the Assessee for Exemption Under Section 11 of the Income Tax Act, 1961:
The assessee, a registered charitable trust under Section 12AA, claimed exemption under Section 11, which was initially allowed by the CIT(A) and upheld by the ITAT for the assessment year 2013-14. The CIT(A) had found no violation of Section 13(1), thus allowing the exemption. The Tribunal noted that the CIT(A)'s order allowing exemption under Sections 11 and 12 had attained finality and could not be revisited under Section 154. The Tribunal reiterated that the CIT(A) had no grounds to deny the exemption, as the conditions for exemption under Section 11 were met, and no new facts warranted a different conclusion.

3. Taxability of Development Receipts as Income of the Assessee:
The assessee argued that development receipts were capital receipts, not revenue receipts, and thus not taxable. The CIT(A) had allowed the set-off of carry-forward losses against these receipts, resulting in no taxable surplus. The Tribunal acknowledged that in subsequent assessments, development receipts were treated as capital receipts, supporting the assessee's position. Therefore, the Tribunal held that the CIT(A) erred in revisiting this issue in the rectification order.

Conclusion:
The Tribunal concluded that the CIT(A) improperly invoked Section 154 to deny the exemption under Section 11, as no apparent factual mistake justified such action. The Tribunal set aside the CIT(A)'s order, reaffirming the assessee's entitlement to exemption under Section 11 and the classification of development receipts as capital receipts. The appeal was allowed in favor of the assessee.