2023 (5) TMI 104 - AT - Income Tax

Revision u/s 263 - As per CIT AO has not examined the finer details of utilization of accumulated funds and the same has rendered the assessment order erroneous and prejudicial to the interests of revenue - HELD THAT - Once we have found that AO has discharged the duty of investigator (on the utilization of Rs 6 crores), then before Ld. CIT(E) holds the view of AO as erroneous, it was imperative on the part of Ld CIT(E) to have made necessary enquiries or verification and should have arrived at a conclusion that there was breach/violation of clause (a) or clause (b) or clause (d) of sec. 11(3) of the Act. Admittedly, in the instant case, CIT(E) has not conducted any such enquiry or verification. In such a scenario, we have to hold that he has initiated revision jurisdiction on mere conjectures, suspicions and surmises, which is not permitted. As noticed earlier the AO has conducted necessary enquiries regarding utilization of the accumulated income of Rs.6 crores was for the purpose for which it was accumulated and has accepted the same which is a plausible view. CIT(E) could have invoked jurisdiction u/s 263 of the Act only after enquiring himself, which we have already noticed that he has omitted to do so. In such a scenario, his impugned action of finding the action of AO to accept the claim of expenditure of Rs.6 crores as erroneous and prejudicial to the interests of revenue is untenable. The impugned revision order passed by Ld PCIT is not sustainable in law and assessee succeeds on the legal issue raised before us. Accordingly, we quash the impugned revision order passed by Ld CIT(E). Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of invocation of jurisdiction by Ld CIT(E) under section 263 of the Income Tax Act, 1961.
2. Examination of the utilization of accumulated income by the assessee.
3. Determination of whether the assessment order was erroneous and prejudicial to the interests of revenue.

Issue-wise Detailed Analysis:

1. Validity of Invocation of Jurisdiction by Ld CIT(E) under Section 263 of the Income Tax Act, 1961:
The assessee contested the validity of the Ld CIT(E)'s jurisdiction under section 263 of the Act. The Ld CIT(E) invoked section 263, stating that the AO failed to verify the utilization of Rs. 6 crores from the accumulated income, rendering the assessment order erroneous and prejudicial to the interests of revenue. The assessee argued that the AO had made specific inquiries and was satisfied with the details provided, which included the accumulation and utilization of funds, board resolutions, and Form 10. The tribunal emphasized that for section 263 to be invoked, both conditions'error in the order and prejudice to revenue'must be satisfied. The AO had conducted inquiries, and the Ld CIT(E) did not conduct further verification to establish any error, making the invocation of section 263 invalid.

2. Examination of the Utilization of Accumulated Income by the Assessee:
The assessee, a non-profit organization registered under section 12AA, had accumulated income under section 11(2) in AY 2016-17 and claimed to have spent Rs. 6 crores in AY 2017-18. The AO accepted the utilization based on the details provided by the assessee. The Ld CIT(E) argued that the AO should have called for a detailed break-up and third-party verifications to ensure the utilization was as per the objects of the assessee. However, the tribunal noted that the AO had made specific inquiries and was satisfied with the responses, and the Ld CIT(E) did not point out any specific errors or conduct further inquiries to establish that the AO's view was erroneous.

3. Determination of Whether the Assessment Order was Erroneous and Prejudicial to the Interests of Revenue:
The tribunal referred to the principles laid down by the Hon'ble Supreme Court and High Courts, stating that an order cannot be termed erroneous unless it is not in accordance with law. The AO had made inquiries and accepted the assessee's claim, which was a plausible view. The Ld CIT(E) did not conduct further verification to establish any error in the AO's order. The tribunal highlighted that the Ld CIT(E) initiated revision jurisdiction based on conjectures and suspicions without conducting necessary inquiries, making the revision order unsustainable in law. The tribunal quashed the revision order passed by the Ld CIT(E), allowing the assessee's appeal.

Conclusion:
The tribunal concluded that the AO had conducted necessary inquiries regarding the utilization of accumulated income, and the Ld CIT(E) failed to establish any error through further verification. The invocation of section 263 was deemed invalid, and the revision order was quashed, allowing the appeal in favor of the assessee.