2022 (7) TMI 397 - AT - Income Tax

Revision u/s 263 - Exemption u/s 11 - AO non-treating of corpus donation as voluntary contribution - corpus donation received by the assessee trust - HELD THAT - CIT has given a clear-cut finding that the learned assessing officer based on his own finding in the assessment order should have denied the exemption u/s 11 (1) (d) of the act with respect to the corpus donation and should have included the loan amount as voluntary contribution for the reason that these are received from entities controlled by same authority. We find that after giving the conclusive decision by the learned assessing officer that the corpus donation as well as the loan is voluntary contribution, allowing the exemption u/s 11 (1) (d) of the act with respect to the corpus donation and not including the loan amount as income derived from the property, makes the order passed by the learned assessing officer erroneous and prejudicial to the interest of the revenue. AR has submitted that even if, the corpus donation is taken as voluntary contribution, thereafter also the computation of the trust results into a deficit and hence it cannot be said that any prejudice is caused to the revenue. We do not find any force in this argument because the movement the corpus donation is taken as a voluntary contribution, the quantum of deficit will definitely come down. Therefore, for subsequent years such deficit would be available of lesser amount for set of. Therefore, non-treating of corpus donation as voluntary contribution is definitely prejudicial to the interest of revenue. AR has also stated that the CIT has failed to show that how the order of the AO is erroneous. This argument does not merit the consideration for the simple reason that, the learned assessing officer in the assessment order has categorically held that the donation received towards the corpus is not eligible for exemption u/s 11 (1)(d) of the act therefore naturally he should not have granted this exemption to the assessee - CIT has merely directed the AO to take his findings to the logical conclusion in the computation of income. Therefore, giving a finding in the assessment order and not including the same in the computation of total income makes the order passed by the AO is erroneous. Though in grounds, the assessee has challenged that the assessment order in respect of which action u/s 263 of the act has been taken is itself invalid and consequential order passed u/s 263 is bad in law, no arguments were advanced before us, hence, it is rejected. Therefore, we do not find any infirmity in the order of the learned CIT in exercising his jurisdiction u/s 263 of the act. Thus, we uphold the order passed by the learned CIT. Before parting, we also make it clear that provisions of Section 11 (1) (d) excludes the income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. Nomenclature of disclosing voluntary contribution in the returns and forms prescribed under foreign contribution regulation act would not be determinative of the nature of the donation, though, they would be persuasive. Therefore at the time of passing assessment order u/s 143 (3) read with Section 263 of the act, It would also be necessary for the learned assessing officer to verify what kind of specific direction the donor has given stating the object of utilizing corpus donation. With respect to the loan, there is a specific claim by the learned authorised representative that there is no utilization of loan received by the assessee against the application of income claimed in the computation of income. The AO also needs to verify the same before reaching any conclusion with respect to the above two receipts. The assessee may be granted an opportunity of hearing as the order of the learned CIT was passed wherein assessee did not avail such opportunity. The AO may decide about inclusion of both these receipts and its taxability in accordance with the law.

Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263.
2. Misinterpretation of the Assessing Officer's (AO) order by the CIT.
3. Violation of principles of natural justice.
4. Validity of the assessment order and the subsequent order under Section 263.
5. Treatment of corpus donations and loans as voluntary contributions.
6. Computation of income and deficit under Section 11 of the Income Tax Act.
7. Examination of related party transactions and unified control.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263:
The Assessee challenged the jurisdiction of the CIT under Section 263, arguing that the order was without jurisdiction, unwarranted, and bad in law. The Tribunal upheld the CIT's jurisdiction, stating that the AO's order was erroneous and prejudicial to the interest of the Revenue. The CIT had the authority to revise the AO's order as it failed to properly include corpus donations and loans as voluntary contributions in the computation of income.

2. Misinterpretation of the Assessing Officer's (AO) order by the CIT:
The Assessee claimed that the CIT misinterpreted the AO's order by treating the AO's reasons as conclusions and substituting his opinion. The Tribunal found that the AO had indeed concluded that the corpus donations and loans were voluntary contributions but failed to incorporate this in the income computation. Therefore, the CIT's interpretation was justified.

3. Violation of principles of natural justice:
The Assessee argued that the CIT's order violated principles of natural justice. The Tribunal noted that the Assessee did not comply with the notice under Section 263 and did not provide any submissions. Thus, the CIT's order did not violate natural justice principles as the Assessee was given an opportunity to present their case.

4. Validity of the assessment order and the subsequent order under Section 263:
The Assessee contended that the assessment order itself was invalid, making the Section 263 order invalid as well. The Tribunal rejected this argument, stating that no substantial arguments were advanced to support this claim, and thus, the assessment order and the subsequent revision under Section 263 were valid.

5. Treatment of corpus donations and loans as voluntary contributions:
The AO had found that the corpus donations and loans received by the Assessee were from related parties under unified control and should be treated as voluntary contributions. The CIT directed the AO to re-compute the income by including these amounts as voluntary contributions. The Tribunal upheld this direction, noting that the AO's failure to include these amounts made the original order erroneous and prejudicial to the Revenue.

6. Computation of income and deficit under Section 11 of the Income Tax Act:
The Assessee argued that even if corpus donations were treated as voluntary contributions, the income would still be nil due to the deficit. The Tribunal disagreed, stating that treating corpus donations as voluntary contributions would reduce the deficit, affecting future income adjustments. Hence, the original computation was prejudicial to the Revenue.

7. Examination of related party transactions and unified control:
The AO noted that the donations and loans were from entities under the same management and control, which indicated that these were not genuine corpus donations but voluntary contributions. The Tribunal agreed with this assessment and upheld the CIT's direction to re-examine these transactions.

Conclusion:
The Tribunal upheld the CIT's order under Section 263, directing the AO to re-compute the Assessee's income by including corpus donations and loans as voluntary contributions. The Tribunal emphasized the need for the AO to verify specific directions from donors and the utilization of loans before making the final assessment. The appeals for both assessment years 2016-17 and 2017-18 were partly allowed with these directions.

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