2015 (11) TMI 797 - AT - Income Tax

Rectification of mistake - whether violation of the provisions of section 13 are to be examined by the Assessing Officer while considering the exemption under section 11? Held that - The powers of rectification under section 154 are restricted and as rightly pointed out by the Commissioner of Income-tax (Appeals), issues which require detailed examination and analysis cannot be undertaken under section 154 of the Act. We are of the opinion that action of the Assessing Officer in restoring the order of the Assessing Officer under section 143(3) which was also the subject-matter of appeal before the Commissioner of Income-tax (Appeals) cannot be done. Moreover, as seen from the original assessment order under section 143(3), one violation which the Assessing Officer alleges is with reference to usage of cars. However, the Assessing Officer has not quantified the extent of amount spent on behalf of the personal usage of the trustees in the order. As seen from the statement also the context in which the statements were given do indicate that the trustee has stated that the cars were utilised for the objects of the society, more particularly for transporting the dignitaries of Medical Council of India and others to the premises of the assessee-society, i.e., various colleges. In view of the clear statement of the managing trustee, we do not see any personal usage of the cars of the society. The fact that the Assessing Officer did not quantify any amount of personal use also indicate that the Assessing Officer has raised this issue without any evidence, so as to deny the exemption to the assessee. Purchase of properties in the name of family members of the managing trustee - Held that -If the Revenue has any grievance on the issue, they should have preferred an appeal on the orders of the Commissioner of Income-tax (Appeals), but the Assessing Officer has no powers to restore the original assessment order under section 143(3) in the guise of modification under section 154, having allowed the exemption consequent to the orders of the Income-tax Appellate Tribunal. In view of this, we do not find any merit in the Revenue s appeals - Decided against assessee.

Issues Involved:
1. Cancellation of registration under section 12AA(3).
2. Entitlement to exemption under section 11.
3. Alleged violations of section 13.
4. Powers of rectification under section 154.

Issue-wise Detailed Analysis:

1. Cancellation of Registration under Section 12AA(3):
The assessee, a society promoting education, had its registration under section 12A canceled by the Commissioner of Income-tax (Central), Hyderabad, due to alleged violations of section 13. However, the Income-tax Appellate Tribunal (ITAT) in I.T.A. No. 71/Hyd/2009 ruled that the registration under section 12A cannot be canceled for violations of section 13(1)(c) and 13(3), thus setting aside the cancellation order.

2. Entitlement to Exemption under Section 11:
Following the ITAT's ruling, the Assessing Officer (AO) initially granted the exemption under section 11, determining the total income at nil. However, the AO later issued a notice under section 154, proposing that the order was erroneously passed and sought to modify it. The AO's subsequent order under section 154 rejected the exemption, citing violations of section 13.

3. Alleged Violations of Section 13:
The AO alleged two main violations: personal use of the society's vehicles by the Chairman and his family, and property purchases in the names of the Chairman's wife and son. The Commissioner of Income-tax (Appeals) noted that the AO did not quantify the amount related to these violations and that the denial of exemption was primarily due to the cancellation of registration. The Commissioner of Income-tax (Appeals) found no evidence of personal use of vehicles and confirmed that the properties, though in family members' names, were recorded in the society's books and the capital gains from their sale were declared by the society.

4. Powers of Rectification under Section 154:
The Commissioner of Income-tax (Appeals) and the ITAT held that the AO exceeded his powers under section 154. Rectification under section 154 is limited to "mistakes apparent from record" and cannot involve complex issues requiring detailed examination. The ITAT concluded that the AO could not restore the original assessment order under section 143(3) through section 154, especially after granting exemption based on the ITAT's order.

Conclusion:
The ITAT upheld the Commissioner of Income-tax (Appeals)'s decision, rejecting the Revenue's appeals. The ITAT confirmed that the AO's actions under section 154 were beyond the scope of permissible rectification and that the alleged violations of section 13 were not substantiated. Consequently, the appeals were dismissed, and the society's entitlement to exemption under section 11 was affirmed.

Order Pronounced:
The order was pronounced in the open court on June 19, 2015.

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