2022 (12) TMI 1267 - AT - Income Tax

Revision u/s 263 - AO in the instant case rejected the claim of exemption u/s. 11 and 12 on the ground that assessee trust has advanced loan to trustees in violation of provisions of section 13(1)(c) - as per CIT AO has not taken into consideration the income from business and income from other sources to arrive at the income to be assessed, the order has become erroneous as well as prejudicial to the interest of the revenue - HELD THAT - As undisputed fact that the AO while completing the assessment did not consider the income form business and income from other sources to arrive at the income to be assessed. It is not the case of the assessee that the assessee trust has not earned the business income and income from other sources - Thus, the AO while completing the assessment u/s. 143(3) and denying the exemption u/s. 11 of the I.T.Act has failed to consider the above two items to arrive at the correct income to be assessed and taxed at Maximum Marginal Rate. Under these circumstances, the order passed by the AO in our opinion has become erroneous as well as prejudicial to the interest of the revenue and therefore, the ld.CIT(E), in our opinion was fully justified in invoking the provisions of section 263 of the I.T.Act. Accordingly, the order passed by the ld.CIT(E) is upheld and the grounds raised by the assessee are dismissed.

Summary

Issues:
1. Delay in filing appeal condonation due to pandemic.
2. Denial of exemption u/s 11 and 12 of the I.T. Act.
3. Order passed by AO considered erroneous and prejudicial to revenue.
4. Revision order under section 263 of the Act challenged by the assessee.

Issue 1: Delay in filing appeal condonation due to pandemic
The appeal was filed with a delay of '362' days, attributed to the pandemic situation. The assessee submitted a condonation application explaining the reasons for the delay. Referring to the decision of the Hon'ble Supreme Court in certain cases, the delay was condoned, and the appeal was admitted for adjudication.

Issue 2: Denial of exemption u/s 11 and 12 of the I.T. Act
During assessment proceedings, it was noted that the assessee trust had advanced loans to trustees, which were shown as other sundry debtors in the balance sheet. The AO concluded that the trust was ineligible for exemption u/s 11 and 12 of the Act due to utilizing funds by giving advances to interested parties u/s 13(3) of the I.T. Act. Consequently, the AO computed the income on commercial principles, rejecting the exemption claim u/s 11 and taxed the income at Maximum Marginal Rate.

Issue 3: Order passed by AO considered erroneous and prejudicial to revenue
The ld.CIT(E) found the AO's order erroneous and prejudicial to revenue. The AO failed to consider the revised computation of income submitted by the assessee during scrutiny proceedings, leading to an incorrect assessment. The ld.CIT(E) set aside the order with directions to re-do the assessment after proper verification of the issues.

Issue 4: Revision order under section 263 of the Act challenged by the assessee
The assessee appealed the revision order under section 263 of the Act. The grounds raised included challenging the sustainability of the revision order, pointing out non-existent bases, and lack of errors or prejudice in the order. The counsel for the assessee argued against the jurisdiction assumed by the PCIT under section 263 of the I.T. Act.

The Tribunal upheld the ld.CIT(E)'s order, finding the AO's assessment erroneous and prejudicial to revenue. The AO's failure to consider certain income components led to an incorrect assessment, justifying the invocation of section 263 of the I.T. Act. Consequently, the appeal filed by the assessee was dismissed.