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2023 (12) TMI 1383 - AT - Income TaxRevision u/s 263 - eligibility of exemption u/s 10(21) - HELD THAT - We notice that entitlement of the assessee for exemption u/s 10(21) has been the core issue in entire proceedings for the year under consideration. In the original return the assessee had claimed deduction u/s 11 and it was only during the reassessment proceedings u/s 147 of the Act, the alternate claim of exemption u/s 10(21) is made by the assessee. From the perusal of records all the details pertaining to the alternate claim of the assessee have been submitted and are part of the records. Therefore there is merit in the claim of the ld AR that the order under section 144 r.w.s. 263, though the assessee did not make any fresh submissions, all the details pertaining to eligibility of the assessee for exemption u/s 10(21) have been examined by the AO and he has taken a possible view that the impugned incomes are correctly included for the purpose of exemption. It is relevant to notice that in the celebrated decision of Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT in the context of revision proceedings u/s 263 it is held that Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income- tax Officer is unsustainable in law The claim of the assessee is that the income derived from Auditorium Hire charges, hoarding site service charges and rent are incidental to the attainment of the objectives of the assessee trust and the reason for excise of revisionary power under section 263 is that the said income is not incidental to the objectives. AR relied on the decision of Association of Surgeons of India 2016 (7) TMI 521 - ITAT CHENNAI wherein it was held that the income earned from letting out of Auditorium was eligible for exemption under section 11 when the income was applied to the objects of the Trust. Therefore there is merit in the contention that whether the impugned income is incidental to the objects of the assessee trust is a debatable issue and that the AO while allowing the exemption in the order passed under section 144 r.w.s. 263 has taken a possible view upon verifying the details available on record. Thus, we hold that the conclusion of the second CIT (Exemptions) that the order passed by the AO is erroneous is not tenable and liable to be quashed. Appeal of assessee is allowed.
Issues Involved:
1. Legality of the power exercised by the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act, 1961. 2. Interpretation and applicability of Section 10(21) of the Income Tax Act concerning exemption eligibility. 3. Whether the income from Auditorium Hire Charges, Hoarding Sites & Service charges, and Licence Fees/Rent is incidental to the objectives of the Trust. 4. Justification for invoking Explanation 2 to Section 263 by the CIT. 5. The validity of the assessment order under Section 144 r.w.s. 263 of the Act. Issue-wise Detailed Analysis: 1. Legality of Power Exercised by CIT under Section 263: The primary contention was that the CIT's exercise of power under Section 263 to revise the assessment was illegal, as the original assessment was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal highlighted that for the CIT to invoke Section 263, it must be demonstrated that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal referred to the precedent set by the Bombay High Court in Gabriel India Ltd., which clarified that an order cannot be deemed erroneous unless it is not in accordance with the law. 2. Interpretation and Applicability of Section 10(21): The assessee argued that as a research association approved under Section 35(1)(ii), any income applied towards its objectives should be exempt under Section 10(21). The Tribunal examined whether the income in question was applied wholly and exclusively towards the objectives of the Trust. The Tribunal noted that the AO had accepted the assessee's alternate plea for exemption under Section 10(21) during the original assessment proceedings, indicating that the AO had taken a possible view that was permissible under the law. 3. Income Incidental to Objectives of the Trust: The CIT contended that the income from Auditorium Hire Charges, Hoarding Sites & Service charges, and Licence Fees/Rent was not incidental to the Trust's objectives. However, the Tribunal found merit in the assessee's argument that these incomes were incidental to the attainment of its objectives and were utilized for research and development activities. The Tribunal referenced the decision in the case of Association of Surgeons of India, which supported the view that income applied to the objects of a Trust could be eligible for exemption. 4. Justification for Invoking Explanation 2 to Section 263: The CIT invoked Explanation 2 to Section 263, arguing that the AO had not made necessary inquiries or verifications. The Tribunal emphasized that the revisionary powers under Section 263 should not be exercised merely to direct fuller inquiry unless the view taken by the AO was unsustainable in law. The Tribunal concluded that the AO had conducted an inquiry and taken a possible view, thereby rendering the invocation of Explanation 2 unjustified. 5. Validity of Assessment Order under Section 144 r.w.s. 263: The Tribunal scrutinized the assessment order passed under Section 144 r.w.s. 263, noting that the AO had considered the return of income and data available on record. The Tribunal found that the AO had applied his mind while allowing the exemption under Section 10(21), and the CIT's subsequent revisionary proceedings were based on a mere change of opinion, which is not permissible. The Tribunal held that the assessment order was not erroneous and prejudicial to the interests of the Revenue. Conclusion: The Tribunal allowed the appeal of the assessee, quashing the order of the second CIT (Exemptions) under Section 263. The Tribunal held that the AO's assessment order was neither erroneous nor prejudicial to the interests of the Revenue, and the CIT's invocation of revisionary jurisdiction was not justified.
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