2022 (8) TMI 259 - AT - Income Tax

Revision u/s 263 - Exemption u/s 11 - as per CIT AO has not applied his. mind and has passed the order routinely in perfunctory manner and that no inquires have been conducted on important issue relating to quantum of exemption allowable u/s 11(1)(a) - HELD THAT - As firstly vide notice dated 07-09-2017, this query was raised by the AO and again by notice dated 23-11-2017, the AO enquired on this aspect. In response, the assessee had responded by letter dated 21-11-2017 and another letter dated 08-12-2017. The assessee had submitted that in all the previous years the Department has considered such grants received from the State Government as income of the society/trust which has been subject to all relevant provisions of section 11 - Therefore, this was not a case where this issue was not considered by the AO during the course of assessment proceedings. Further, the assessee has been receiving government grants in earlier years as well and the Revenue had accepted the same as income of the assessee eligible for accumulation u/s 11 of the Act. In the case of Dharmendra Kumar Bansal 2014 (2) TMI 1210 - ITAT JAIPUR it was held that before taking any action Commissioner himself shall apply his mind after examining record of any proceedings and his satisfaction is must. Therefore, where satisfaction was of ITO who proposed action u/s 263 but not of Commissioner, issuance of notice u/s 263 on basis of proposal made by ITO was void ab initio. In view of the well-settled proposition as applied to the instant set of facts, we are of the considered view that in the 263 order the Principal CIT has not applied his mind, by calling for the office records, and independently taking a view that the order passed by the AO in the instant set of facts is erroneous and prejudicial to interest of revenue. Principal CIT has acted only on the proposal sent by AO to initiate 263 proceedings. In our considered view, therefore, the order passed under section 263 of the Act is liable to be set. The assessee has appended copies of the order by Income Tax Appellate Tribunal in his own case for assessment year 2012-13 and also copy of the assessment order under section 143(3) of the Act for assessment year 2013- 14, wherein no addition on the assessee has been made by the Revenue in any of the earlier years. The assessee utilises the above grants for the purpose of carrying out the fencing of the railway line to the forest. Though strictly speaking, principle of res judicata does not apply to income tax proceedings, but it is also well-settled principle of law that if there is no change in the facts of the assessee from the previous years, principle of consistency demands that settled issue should not be re-agitated. The assessee has submitted that the assessee Trust is in receipt of government grant in the earlier years as well. However, it is for the first time that this issue has been raised by the Revenue with no change in facts from the earlier years. In the earlier years, the Revenue had accepted the same as income of the assessee as being eligible for accumulation under section 11. As decided n the case of CIT v. SBJ VON Compounders (P.) Ltd 2012 (9) TMI 1221 - GUJARAT HIGH COURT has held that claim of assessee in respect of valuation of stock which was accepted in preceding assessment year was to be accepted in current year also following doctrine of consistency. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction under section 263 of the Income Tax Act.
2. Validity of the assessment order framed under section 143(3) of the Act.
3. Examination of the government grant and its treatment under section 11(1)(a) and 11(2) of the Act.
4. Independent application of mind by Principal CIT in initiating proceedings under section 263.

Detailed Analysis:

1. Jurisdiction under section 263 of the Income Tax Act:
The assessee contended that the Commissioner of Income-tax (Exemption) erred in assuming jurisdiction under section 263 of the Act. The Principal CIT issued a notice under section 263 on the grounds that the assessee had received a government grant amounting to Rs. 8,00,70,630/- from the State government, which was not eligible for accumulation under section 11(1)(a) of the Act. The Principal CIT believed the assessment order was erroneous and prejudicial to the interests of the revenue. The Tribunal noted that the Principal CIT did not independently apply his mind but acted on the proposal from the Assessing Officer, which is not valid as per established legal principles.

2. Validity of the assessment order framed under section 143(3) of the Act:
The Principal CIT set aside the assessment order framed under section 143(3) of the Act, stating that the Assessing Officer did not apply his mind and passed the order routinely without conducting inquiries on the quantum of exemption allowable under section 11(1)(a). The Tribunal observed that the Assessing Officer had indeed raised the issue during the assessment proceedings and the assessee had responded. Hence, it was not a case where the Assessing Officer failed to apply his mind.

3. Examination of the government grant and its treatment under section 11(1)(a) and 11(2) of the Act:
The Principal CIT held that the government grant received by the assessee trust was neither income under section 11(1)/12(1) nor corpus fund under section 11(1)(d) of the Act, and thus not eligible for accumulation. The Tribunal noted that the assessee had shown the government grant as revenue income in previous and subsequent years, which was accepted by the Revenue. The Tribunal emphasized that the Assessing Officer had enquired about this issue during the assessment proceedings and the assessee had provided satisfactory responses. Therefore, the Principal CIT's assertion that the issue was not examined was incorrect.

4. Independent application of mind by Principal CIT in initiating proceedings under section 263:
The Tribunal highlighted that the Principal CIT did not independently apply his mind but relied on the proposal from the Assessing Officer to initiate proceedings under section 263. The Tribunal cited legal precedents stating that revision proceedings must be initiated by the Commissioner after independently examining the records and applying his mind. The absence of such independent application rendered the initiation of 263 proceedings invalid.

Conclusion:
The Tribunal concluded that the Principal CIT erred in facts and in law by holding that the assessment order was erroneous and prejudicial to the interests of the revenue. The appeal of the assessee was allowed, and the order under section 263 was set aside.

Order:
The appeal of the assessee is allowed. The order pronounced in the open court on 03-08-2022.

← Previous Next →