2022 (11) TMI 770 - AT - Income Tax

Revision u/s 263 by CIT - advance gross receipt and the interest receipt - Assessee contravening section 10(23C) (iiiad) r.w.s. 2(15) of the Act was not eligible for statutory deduction - revisional authority has come to conclusion that the assessee was not investigated by the ld. AO during the assessment proceeding, so, the assessment order is erroneous and prejudicial to the interest of the revenue - HELD THAT - During the year of appeal, the assessee received the fees from students. The assessee during accounting treatment divide fees in two ways 1) The annual receipts which is related to financial year and taken directly in the revenue income. The receipts from students which are not related or utilized for this financial year under appeal as booked as advance under current liability in the balance sheet. These advance fees are taken as annual receipt in the revenue income in next financial year in which year it is related. 2) This is a circular process in each and every year. The ld. Counsel had pointed out that next year the issue was accepted, and the turnover was assessed by the ld. AO without making any addition in the assessment u/s 143(3). In assessee's case while interpreting the treatment of advance fees as current liability or revenue receipt. The AO has taken one view in allowing the current liability on the submissions of the assessee of various judicial pronouncements rendered in the context, whereas the CIT is not in agreement with the view of the ld. AO. The decision of the AO to allow / accept the advance fees as current liability cannot be stated as unsustainable in law as he has taken a possible view based on application of mind. CIT(E) has not brought any material on record to show that the view taken is contrary to law - we are of the considered view that the CIT is not justified in setting aside the order of the ld. AO. Accordingly, the directions of the PCIT are quashed. Appeal of assessee allowed.

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of the original assessment and exemption under Section 10(23C)(iiiad).
3. Consideration of advance fees as part of annual receipts.
4. Directions for fresh assessment by the Assessing Officer.
5. Proper consideration of replies submitted to the Commissioner of Income Tax (Exemptions).

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263 of the Income Tax Act:
The appellant challenged the jurisdiction assumed by the Commissioner of Income Tax (Exemptions) (CIT(E)) under Section 263 of the Income Tax Act. The CIT(E) held the original assessment as erroneous and prejudicial to the interest of revenue, setting aside the order passed by the Assessing Officer (AO) after due application of mind. The Tribunal noted that the AO had completed the assessment after considering the facts and circumstances, including the exemption under Section 10(23C)(iiiad) of the Act.

2. Validity of the Original Assessment and Exemption under Section 10(23C)(iiiad):
The appellant argued that the original assessment was framed after due application of mind by the AO, who allowed the exemption under Section 10(23C)(iiiad) based on the turnover being below Rs. 1 crore. The CIT(E) failed to appreciate that the assessment was completed after considering various replies during the assessment proceedings. The Tribunal observed that the AO had accepted the advance fees as a current liability instead of gross receipts, and thus, the assumption of jurisdiction by the CIT(E) was not justified.

3. Consideration of Advance Fees as Part of Annual Receipts:
The primary issue in question was the advance fee amount of Rs. 40,36,700/-. The CIT(E) added this amount to the gross receipts, resulting in total receipts exceeding Rs. 1 crore, thereby denying the exemption under Section 10(23C)(iiiad). The Tribunal noted that the advance fees were received for the next academic session and were booked as a current liability in the financial statements. The AO had accepted this treatment during the original assessment, and the advance fees were included in the turnover for the next financial year.

4. Directions for Fresh Assessment by the Assessing Officer:
The CIT(E) directed the AO to frame the assessment afresh, considering the advance fees as part of the annual receipts. The Tribunal highlighted that the AO had already considered and accepted the advance fees as a current liability during the original assessment. The Tribunal found that the CIT(E) did not bring any material on record to show that the view taken by the AO was contrary to law.

5. Proper Consideration of Replies Submitted to the Commissioner of Income Tax (Exemptions):
The appellant contended that the replies submitted to the CIT(E) were not properly considered, and the findings were arbitrary. The Tribunal noted that the AO had applied his mind during the original assessment, and the issue of advance fees was duly addressed. The Tribunal placed reliance on judicial precedents, including the Hon'ble Supreme Court's judgment in Malabar Industrial Co. Ltd v CIT, which explained that an order cannot be treated as prejudicial to the interests of the Revenue if the AO adopted one of the permissible courses in law.

Conclusion:
The Tribunal concluded that the CIT(E) was not justified in setting aside the order of the AO. The directions of the CIT(E) were quashed, and the appeals were allowed. The Tribunal emphasized that the AO's decision to treat the advance fees as a current liability was a plausible view, and the CIT(E) failed to show that this view was unsustainable in law. The Tribunal's order was pronounced in the open court on 11.11.2022.

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