2025 (4) TMI 1552 - AT - Income Tax

Revision u/s 263 - exemption u/s 11 - charitable purposes u/s 2(15) or not? - HELD THAT - CIT s findings in the impugned revisional order passed u/s. 263 are highly whimsical and are not conclusive one way or the other. Each of the issue raised on merits are debatable and more than one view is possible in respect of each of the points raised by the CIT(E) to justify the revision of the order passed u/s. 143(3) of the Act. It is not open to the CIT(E) that further verification is needed on certain aspects when the records speak that thorough enquiry was done by the AO after issuing many notices and replies taken on record and it is not a case of no enquiry warranting such observation by the CIT(E). AO had verified and convinced that the activities carried out by the assessee is eligible exemption u/s.2(15) of the Act and also respectfully following the decision of the Hon ble Madras High court 2020 (11) TMI 267 - MADRAS HIGH COURT in allowing the appeal of the assessee against the cancellation of registration u/s.12AA of the Act passed an order u/s.143(3) of the Act. This action of the AO interfered by the Ld.CIT(E) exercising his jurisdiction U/s.263 which according to the ld. AR is wholly without jurisdiction and the issues that have been raked by the Ld.PCIT by treating the application of fund under three heads as not allowable. According to the CIT(E) the following payments Investment made in M/s. Metronation Chennai Television Pvt Ltd. Corpus donation made to M/s. Aditnar Educational Institution and Advance tax payment as application of income are to be disallowed as fund not utilised for the objects of the assessee trust and taxed at MMR. In the present facts of the case we do not agree with the assertion laid by the CIT(E) since the AO during the assessment proceedings has considered all the three impugned issues raised by the CIT(E) and concluded the assessment by taking a plausible view permitted under the Act. The assertion of the CIT(E) that the AO while scrutinizing the assessment has failed to verify the issue stated (supra) is contrary to the facts revealed from the records and found to be incorrect. From perusal of the SCN for draft assessment order and the assessment order it reveals that the AO has conducted enquiry on all the impugned three issues and the assessee had furnished all the relevant material during the assessment proceedings (provided in the paper book filed by the assessee) and which have been duly considered and verified by the AO before framing the assessment by accepting the payments made by the assessee as application of funds towards objectives of the trust as claimed by the assessee. Since the AO has considered the issues according to the merits and also followed the decision of the hon ble Madras high court in assessee s own case wherein their lordship has considered all the impugned issues before reinstating the registration granted u/s.12AA of the Act the assessment order of the AO cannot be treated as erroneous. Therefore we do not countenance the impugned action of ld.CIT(E) on the facts and circumstances of the case. Decided in favour of assessee.

2020 (11) TMI 267 - HC

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(i) Whether the Commissioner of Income Tax (Exemptions) had jurisdiction to pass an order under Section 263 of the Income Tax Act, 1961 revising the assessment order passed by the Assessing Officer (AO) for the assessment year 2018-19;

(ii) Whether the AO's order dated 24.09.2021 was erroneous and prejudicial to the interest of revenue in relation to three specific issues:

(a) The investment of Rs. 19,75,00,000/- made by the assessee trust in M/s. Metronation Chennai Television Pvt Ltd and its alleged violation of Section 13(1)(c) and (d) of the Act;

(b) Corpus donation of Rs. 19,35,00,000/- purportedly made to M/s. Aditnar Educational Institution and its treatment as application of income;

(iii) Whether the CIT(E)'s direction to the AO to disallow these amounts and treat them as income of the assessee trust was justified;

(iv) Whether the AO had conducted adequate enquiry and applied mind in the assessment proceedings on the above issues;

(v) Whether the decisions of the ITAT and Madras High Court in the assessee's own case for earlier assessment years and the Supreme Court rulings were correctly considered or ignored by the CIT(E) in exercising revisional jurisdiction;

(vi) The legal effect of the amendment in Section 11(d) regarding corpus donations and its applicability to the assessment year 2018-19;

(vii) The broader question of whether the impugned order under Section 263 was valid in law and sustainable on merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of the Commissioner of Income Tax (Exemptions) under Section 263

Legal Framework and Precedents: Section 263 empowers the Commissioner to revise an assessment order if it is found to be erroneous and prejudicial to the interest of the revenue. The Supreme Court in Malabar Industrial Company Ltd vs CIT (243 ITR 83) clarified that both conditions-error and prejudice-must be satisfied conjunctively. The Court further held that an order cannot be revised merely because another view is possible; the AO's order must be unsustainable in law or based on incorrect facts, violation of natural justice, lack of application of mind, or failure to investigate the issue.

Court's Interpretation and Reasoning: The Tribunal noted that the AO had issued detailed notices under Section 142(1), sought clarifications, and conducted a thorough enquiry on all three issues raised by the CIT(E). The AO had considered the assessee's replies and followed the binding decision of the Madras High Court in the assessee's own case, completing the assessment by accepting the returned income. The Tribunal held that the CIT(E)'s assumption that the AO had not verified these issues was contrary to the record.

Application of Law to Facts: The Tribunal applied the twin conditions test and found that the AO's order was not erroneous as it was based on a plausible view and proper enquiry. Consequently, no prejudice to revenue arose. The revisional jurisdiction under Section 263 was thus not validly invoked.

Competing Arguments: The CIT(E) argued that the AO's order was erroneous and prejudicial as the AO failed to properly examine the corpus donation, advance tax payment, and investment issues. The assessee countered by producing documentary evidence, affidavits, and prior judicial decisions supporting the AO's view.

Conclusion: The Tribunal concluded that the CIT(E) erred in assuming jurisdiction under Section 263 and quashed the revisional order.

Issue 2: Corpus Donation to M/s. Aditnar Educational Institution

Legal Framework and Precedents: Section 11(d) of the Income Tax Act, as amended and applicable from AY 2018-19, excludes corpus donations from the definition of application of income for exemption purposes. The Madras High Court's decision in the assessee's own case had upheld the trust's registration and charitable status, considering the corpus donation issue.

Court's Interpretation and Reasoning: The Tribunal observed that there was no concrete evidence on record to establish that the assessee had made any corpus donation to Aditnar Educational Institution during the year under consideration. The assessee had not filed any letter or document evidencing such corpus donation. The affidavits sworn by trustees of both trusts supported the negative fact that no corpus donation was made.

Key Evidence and Findings: The assessee's reply to the AO's notice under Section 142(1) did not mention any corpus donation. The Tribunal relied on authoritative precedents that negative facts cannot be proved by adducing positive evidence but here the absence of any positive evidence was significant.

Application of Law to Facts: Since no corpus donation was proved, the CIT(E)'s direction to treat such amount as income was not sustainable.

Treatment of Competing Arguments: The CIT(E) assumed corpus donation based on the narration in the notice, which the Tribunal rejected as insufficient proof.

Conclusion: The Tribunal held that corpus donation was not made and hence could not be disallowed or treated as income.

Issue 3: Advance Tax Payment Claimed as Application of Income

Legal Framework and Precedents: Payment of advance tax is generally considered an application of income. The question was whether excess advance tax payment could be disallowed as application of income and treated as prejudicial to revenue.

Court's Interpretation and Reasoning: The Tribunal accepted the assessee's explanation that excess advance tax was paid as a matter of abundant caution due to pending litigation regarding registration under Section 12A. The assessee's payment did not result in any loss to revenue but rather an advance receipt.

Application of Law to Facts: The Tribunal found no error in the AO's acceptance of advance tax payment as application of income. The CIT(E)'s contrary view was deemed unjustified.

Treatment of Competing Arguments: The CIT(E) argued that excess payment was not in accordance with the scheme of things and no inquiry was made by AO. The Tribunal found that the AO had made detailed inquiries and considered the facts.

Conclusion: The excess advance tax payment was properly accepted as application of income and did not prejudice revenue.

Issue 4: Investment in M/s. Metronation Chennai Television Pvt Ltd and Alleged Violation of Section 13(1)(c) & (d)

Legal Framework and Precedents: Section 13(1)(c) and (d) prohibit trusts from investing in entities where trustees have substantial interest, leading to disallowance and taxation of income from such investments. However, the Madras High Court and ITAT in the assessee's own case had held that the investment was in furtherance of the trust's business and property held under trust, and income was applied for educational purposes, thus exempt under Section 11.

Court's Interpretation and Reasoning: The Tribunal noted that the issue had been repeatedly examined in earlier assessment years (2009-10 to 2012-13) and decided in favour of the assessee by the ITAT, following the Madras High Court's ruling. The CIT(E)'s revisional order ignored these binding precedents and was therefore unsustainable.

Key Evidence and Findings: The assessee had furnished detailed replies explaining that the amount was spent on business expansion (purchase of equipment) and no direct or indirect benefit accrued to trustees. The AO had considered these explanations and accepted the claim.

Application of Law to Facts: The Tribunal found that the AO's order was a plausible legal view supported by binding judicial precedents and hence not erroneous.

Treatment of Competing Arguments: The CIT(E) contended that the investment violated Section 13(1)(c) and (d) and should be taxed at maximum marginal rate (MMR). The Tribunal rejected this, noting no specific question of law was raised against the ITAT's favorable order and the issue was academic.

Conclusion: The investment did not violate Section 13(1)(c) and (d), and the AO's acceptance was justified.

3. SIGNIFICANT HOLDINGS

"The jurisdiction u/s 263 can be exercised only when both the following conditions are satisfied: (i) the order of the Assessing Officer should be erroneous and (ii) it should be prejudicial to the interest of the revenue. These conditions are conjunctive."

"An order of assessment passed by the Assessing Officer should not be interfered with only because another view is possible as held in the case of Malabar Industrial Company Ltd Vs. CIT."

"The AO during the assessment proceedings has considered all the three impugned issues raised by the ld.CIT(E) and concluded the assessment by taking a plausible view permitted under the Act."

"The assertion of the Ld.CIT(E) that the AO while scrutinizing the assessment has failed to verify the issue stated is contrary to the facts revealed from the records and found to be incorrect."

"Since the AO has considered the issues according to the merits and also followed the decision of the Hon'ble Madras High Court in assessee's own case wherein their lordship has considered all the impugned issues before reinstating the registration granted u/s.12AA of the Act, the assessment order of the AO cannot be treated as erroneous."

"The impugned proceedings u/s. 263 is not valid in law."

"No corpus donation was made by the assessee in the year of account for which no evidence was brought on record against the appellant by the CIT in the impugned proceedings."

"Excess advance tax payment is not a ground which is erroneous and prejudicial to the interest of revenue."

"The amount paid to M/s. Metronation Chennai Television P. Ltd. is not violative of Section 13(1)(c)/13(1)(d) of the Act as held by the ITAT and Madras High Court in the assessee's own case."

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