2022 (12) TMI 1273 - AT - Income Tax

Revision u/s 263 - As per CIT, AO has not examined corpus donations and AO has wrongly allowed exemption u/s 11 / 12 despite the fact that the assessee was not registered u/s 12AA and hence not eligible for exemption - HELD THAT - We find that during the course of assessment-proceeding, there were specific queries raised by Ld. AO with regard to the corpus donation and the assessee too made detailed replies / submissions. To this extent, there is no dispute or rebuttal by revenue. Clearly, therefore, it is discernible that the Ld. AO has considered those replies / submissions. Regarding non-registration of assessee u/s 12A, we are convinced with the legal provisions of section 12A(2) as well as CBDT Circular according to which the Ld. AO has rightly allowed the exemption u/s 11 / 12 to assessee. Regarding introduction of Explanation 2 to section 263, as claimed by Ld. PCIT in his order, we only need to state that it is by now well-settled in several decisions that the said Explanation does not give unfettered power to the PCIT to assume revisional-jurisdiction to revise every order of the AO to re-examine the issues already examined during assessment-proceeding. It is judicially interpreted in several decisions that the intention of legislature behind introduction of Explanation 2 could not have been to enable the PCIT to find fault with each and every assessment-order in unlimited terms, since such an interpretation would lead to unending litigation and there would not be any point of finality of assessment-proceeding done by Ld. AO. Hon ble ITAT, Rajkot in M/s Pramukh Realty, Junagadh 2022 (7) TMI 384 - ITAT RAJKOT has extensively dealt a case where the AO raised queries during assessment-proceeding and the assessee filed details / documents. After a thorough analysis, the Hon ble Bench has held that in such circumstances, revision u/s 263 cannot be done. Thus we are persuaded to hold that the facts of the present case do not warrant application of section 263. - Decided in favour of assessee.

Summary

Issues Involved:
1. Examination of corpus donations of Rs. 32,93,111/-.
2. Eligibility for exemption under Section 11/12 without registration under Section 12AA.

Issue-wise Detailed Analysis:

1. Examination of Corpus Donations:
The assessee, a trust engaged in charitable purposes, submitted a return of income declaring a total income of Rs. Nil, which was accepted by the Assessing Officer (AO) under Section 143(3). The Principal Commissioner of Income Tax (PCIT) later observed that the assessment order was erroneous and prejudicial to the interest of revenue, primarily due to the corpus donations received in cash during the demonetization period. The PCIT noted that the AO did not sufficiently verify the nature and source of these donations, which were largely received in cash and lacked complete donor details, making them pseudonymous/anonymous. The PCIT issued a show-cause notice to the assessee, questioning the lack of specific directions from donors that the contributions were for the corpus and the trust's non-registration under Section 12A or 12AA.

In response, the assessee provided detailed submissions and documents during the assessment proceedings, including a statement of corpus donations, confirmation letters from donors, and sample receipts. The AO had made specific queries regarding these donations, and the assessee had duly responded with the required information. The Tribunal found that the AO had indeed conducted inquiries and considered the submissions, thus the assessment order could not be deemed erroneous or prejudicial to the interest of revenue based on the corpus donations issue.

2. Eligibility for Exemption under Section 11/12:
The assessee was not registered under Section 12A at the time of the assessment for AY 2017-18 but had been granted registration under Section 12AA effective from AY 2019-20. The PCIT argued that the exemption under Sections 11 and 12 could not be allowed without such registration. However, the assessee contended that the scrutiny assessment for AY 2017-18 was pending when the registration was granted, invoking the proviso to Section 12A(2), which allows the benefits of Sections 11 and 12 for any preceding assessment year if the assessment proceedings were pending on the date of registration and the trust's objects and activities remained the same.

The Tribunal agreed with the assessee's interpretation, supported by the explanatory notes to the Finance (No.2) Act, 2014, and the CBDT Circular No.01/2015. The Tribunal concluded that the AO had rightly allowed the exemption under Sections 11 and 12, as the registration under Section 12AA was granted while the assessment proceedings for AY 2017-18 were still pending.

Conclusion:
The Tribunal found that the AO had conducted adequate inquiries regarding the corpus donations and had correctly applied the provisions of Section 12A(2) regarding the trust's registration status. The PCIT's reliance on Explanation 2 to Section 263 was deemed inappropriate, as it did not provide unfettered power to revise every assessment order. The Tribunal quashed the revision order passed by the PCIT and restored the original assessment order, allowing the assessee's appeal.

Judgment:
The appeal filed by the assessee was allowed, and the revision order passed by the PCIT was quashed, restoring the original assessment order by the AO. The Tribunal emphasized that the AO had made necessary inquiries and applied the law correctly, thus the assessment order was neither erroneous nor prejudicial to the interest of revenue.