2025 (1) TMI 559 - AT - Income Tax

Denial of benefit of exemption u/s 11 - disregarding payments made to specified persons, which are claimed to be in violation of Section 13(1)(c) - CIT(A) allowed deduction - 'Principle of Consistency' v/s 'Res judicata' As in assessee s own case for the earlier assessment years AYs 2014-15, 2015-16, and 2016-17 the exemption u/s11 was allowed by the Revenue - whether the Revenue can take a different stand in the assessee s own case for the current year as compared to the stance adopted in the earlier years or subsequent years? - HELD THAT - While the principle of res judicata does not apply to tax proceedings, the 'Principle of Consistency' must be observed. The principal mandates that where the facts and circumstances remain unchanged, there should be no variation in the treatment from the earlier years. Revenue cannot deviate from its decisions taken in prior years without demonstrating a change in the factual matrix. Certainty and finality are essential in litigation, including tax matters. An earlier decision on the same issue cannot be revisited unless it is found to be arbitrary or perverse. If such a decision was made after due inquiry, with all material facts considered, and no fresh facts are available in subsequent assessments, the Revenue cannot disturb a settled issue in subsequent proceedings. See Radhasoami Satsang v. CIT 1991 (11) TMI 2 - SUPREME COURT In each of these assessment years, the assessee made payments to specified persons as defined under Section 13(1)(c) of the Act, on a similar basis, which were accepted by the Revenue without any adverse remarks. Revenue should not take a divergent position from the one adopted in the earlier assessment year. It is also noteworthy that the learned Departmental Representative (DR), during the hearing, did not point out any material differences between the facts of the present case and those of the earlier assessment years. No infirmity in the order of the learned CIT(A) - Decided against revenue.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the Commissioner of Income Tax (Appeals) [CIT(A)] was correct in law in holding that the assessee was not affected by the provisions of Section 13 of the Income Tax Act, despite the Assessing Officer (AO) presenting evidence of unreasonable payments to specified persons.
Whether the CIT(A) erred in allowing the exemption under Section 11 of the Act, given the alleged violation of Section 13, which could potentially disqualify the assessee from such exemptions.
Whether the Revenue can take a different stance in the current assessment year compared to previous years, where the same transactions were accepted without invoking Section 13(1)(c).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Section 13

Relevant legal framework and precedents: Section 13 of the Income Tax Act provides that exemption under Section 11 will not be available if the income of a charitable trust is used for the benefit of specified persons. The AO alleged that the payments made to certain entities were unreasonable and excessive, thereby violating this provision.
Court's interpretation and reasoning: The Tribunal noted that the CIT(A) found the payments to be reasonable and not excessive. The CIT(A) emphasized that the benefit under Section 11 should not be entirely withdrawn due to a violation of Section 13(1)(c), but only to the extent of excessive payments.
Key evidence and findings: The CIT(A) observed that the AO had not substantiated claims of excessive payments with comparable cases or evidence. The CIT(A) also noted that the AO's application of Section 44AD as a benchmark for profit margins was inappropriate.
Application of law to facts: The Tribunal agreed with the CIT(A) that the AO failed to prove that the payments were excessive or unreasonable. The Tribunal supported the CIT(A)'s decision to allow the exemption under Section 11.
Treatment of competing arguments: The Tribunal considered the Revenue's argument that the assessee's activities were commercial in nature and involved payments to entities in which trustees had interests. However, it found that the AO did not provide sufficient evidence to support these claims.
Conclusions: The Tribunal upheld the CIT(A)'s decision, finding no violation of Section 13 that would justify denying the exemption under Section 11.

Issue 2: Consistency in Tax Treatment

Relevant legal framework and precedents: The principle of consistency in tax treatment requires that similar facts and circumstances should lead to similar tax outcomes across different assessment years unless there is a change in the factual matrix.
Court's interpretation and reasoning: The Tribunal emphasized that the Revenue had accepted similar transactions in previous assessment years without invoking Section 13(1)(c). It cited precedents from the Supreme Court, which stress the importance of consistency in tax matters.
Key evidence and findings: The Tribunal noted that the Revenue had not demonstrated any change in facts or circumstances that would justify a different treatment in the current assessment year.
Application of law to facts: The Tribunal applied the principle of consistency, finding that the Revenue's attempt to take a different stance in the current year was unjustified given the lack of new evidence.
Treatment of competing arguments: The Tribunal considered the Revenue's argument for a different treatment but found it unsupported by any new factual developments.
Conclusions: The Tribunal concluded that the Revenue's appeal lacked merit due to the principle of consistency, and the CIT(A)'s decision was upheld.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The principle of res judicata does not apply to income-tax proceedings. However, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other, it would not be appropriate to allow the position to be changed in a subsequent year."
Core principles established: The judgment reinforces the principle of consistency in tax treatment and the requirement for the Revenue to substantiate claims of excessive payments with evidence.
Final determinations on each issue: The Tribunal dismissed the Revenue's appeals, upholding the CIT(A)'s decision to allow the exemption under Section 11. It found no violation of Section 13 that would justify denying the exemption and emphasized the importance of consistency in tax treatment.

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