2023 (6) TMI 1401 - HC - Income Tax

Validity of Revision order u/s 263 - exemption u/s 11 - AO failed to bring on record her finding on the issue of accumulation claimed u/s 11 (1) (a) on the Government grant - Tribunal justification in holding that the CIT has erred in holding that the order passed by the AO is erroneous and prejudicial to the interest of the Revenue - HELD THAT - Tribunal came to the conclusion that the order passed by the Principal CIT u/s 263 of the Act reveals that he has not applied his mind by calling for the office records and independently taking a view that the assessment order passed by the AO is erroneous and prejudicial to the interest of the Revenue, but the Principal CIT has acted only on the proposal sent by the AO to initiate proceedings u/s 263 - Tribunal, considering such facts emerging from the record, was of the opinion that the order passed u/s 263 of the Act is liable to be set aside. Thus on the basis of the principle of consistency and in absence of any change of facts to the effect that the assessee Trust was in receipt of the government grant in the earlier years which has been accepted by the Revenue to be considered for being eligible for exemption u/s 11 of the Act. In view of such finding of fact arrived at by the Tribunal, it cannot be said that the assessment order passed u/s 143 (3) was erroneous or prejudicial to the interest of the Revenue. We are, therefore, of the opinion that no question of law much less any substantial question of law would arise from the impugned order of the Tribunal. The appeal is, accordingly, dismissed.

Summary

Issues:
1. Interpretation of provisions of Section 263 of the Income Tax Act, 1961.
2. Validity of the order passed by the Principal CIT under Section 263 of the Act.
3. Application of the principle of consistency in tax proceedings.

Analysis:

*Issue 1: Interpretation of provisions of Section 263 of the Income Tax Act, 1961*

The Tax Appeal involved a dispute regarding the order passed by the Principal CIT under Section 263 of the Income Tax Act, 1961. The Tribunal examined whether the Principal CIT had applied his mind independently or merely acted on the proposal from the Assessing Officer to initiate proceedings under Section 263. The Tribunal cited precedents emphasizing that the Commissioner must personally apply his mind before taking any action under Section 263. It concluded that the Principal CIT had not independently assessed the situation, leading to the decision that the order under Section 263 was invalid.

*Issue 2: Validity of the order passed by the Principal CIT under Section 263 of the Act*

The Tribunal analyzed the facts of the case, noting that the Assessing Officer had raised the issue of grant receipts from the Government during the assessment proceedings under Section 143 (3) of the Act. The Tribunal found that the Assessing Officer did consider this issue, and the grant had been accepted as income eligible for accumulation under Section 11 of the Act in earlier years. Additionally, the Tribunal highlighted that the Principal CIT had not verified the office records independently before passing the order under Section 263. Based on the principle of consistency and the absence of any change in facts, the Tribunal held that the assessment order was not erroneous or prejudicial to the Revenue's interest.

*Issue 3: Application of the principle of consistency in tax proceedings*

The Tribunal emphasized the principle of consistency in tax proceedings, stating that if there is no change in the facts of the assessee from previous years, settled issues should not be re-agitated. It referenced a case where the Gujarat High Court held that claims accepted in preceding assessment years should be accepted in the current year following the doctrine of consistency. Based on this principle and the fact that the Revenue had accepted the grant as eligible for exemption under Section 11 in earlier years, the Tribunal concluded that the assessment order was not erroneous or prejudicial to the Revenue's interest. Consequently, the appeal was dismissed.

In conclusion, the Tribunal's detailed analysis of the issues surrounding the interpretation of Section 263, the validity of the Principal CIT's order, and the application of the principle of consistency in tax proceedings led to the dismissal of the appeal filed by the Revenue.