2016 (7) TMI 535 - AT - Income Tax

Revision u/s 263 - corpus donations received by the assessee-trust were not examined in view of the provisions of Act as the trust was not registered under the provisions of sec.12A - Held that - Provisions of sec.12 clearly lay down that any voluntary contributions made to a trust shall be treated as the income of the property held under trust which is exempt u/s 11(1) of the Act. Further the provisions of sec.11(1)(a) of the Act, income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the institution, shall be exempt from tax only if the trust is recognized u/s 12A of the Act. It is undisputed fact that the AO had not examined the issue from this angle. Furthermore, the AO, having rejected the contention of the assessee-trust that the amount of ₹ 25 lakhs was received from International Construction Ltd., as loan, had failed to bring to tax. Thus, there is a clear contradiction in the order of assessment and non-application of mind on the material aspect of the issues raised by the show cause notice u/s 263. Therefore, the ratio laid down in the case of Malabar Industrial Co.Ltd. Vs. CIT (2000 (2) TMI 10 - SUPREME Court ) is clearly applicable wherein it was held that non-application of mind on the issue, renders the assessment order erroneous and prejudicial to the interests of revenue. Furthermore, in the case of CIT vs. Infosys Technologies Ltd. (2012 (2) TMI 132 - KARNATAKA HIGH COURT ) has clearly laid down that by exercising power u/s 263, if the order is set aside, there was no prejudice caused to the assessee. Hence, order u/s 263 is maintainable. Respectfully following the decisions, we hold that the order of the CIT dated 30/07/2013 is valid in law and CIT is justified in exercising revision power u/s 263 of the Act. - Decided against assessee.

Summary

Issues:
Appeal against order u/s 263 of the Income-tax Act, 1961 for assessment year 2010-11.

Analysis:
1. The appellant challenged the order of the Commissioner of Income Tax, Davangere, passed u/s 263 of the Income-tax Act, 1961, for the assessment year 2010-11. The appellant contended that the order was contrary to the facts and circumstances of the case. The Commissioner directed the assessing officer to bring the entire donation amount received by the appellant trust to tax. The appellant argued that the donation was in the form of corpus donation, which is a capital receipt and not liable to tax. The appellant also claimed exemption under section 10(23c)(iiiac) of the Act. The Commissioner was alleged to lack jurisdiction as the assessing officer's order was in accordance with the law. The appellant further contended that all donations were properly accounted for, and section 68 of the Act should not be attracted. The Commissioner was criticized for directing the assessing officer to add the loan amount from M/s Subhas Projects Limited to the appellant's income.

2. The facts of the case revealed that the assessee was a trust established for providing education to the public. The return of income for the assessment year 2010-11 declared a loss, but the assessment completed by the Addl. CIT determined a total income. The CIT, Davangere, issued a show cause notice questioning the assessment, specifically focusing on the corpus donation not taxed due to lack of registration under section 12A. The appellant trust argued that the corpus donation should not be taxed as it was not part of the trust's income. However, the CIT found that the donations towards the corpus fund were taxable as the trust was not registered under section 12A. The CIT set aside the assessment for redetermination, emphasizing the need for proper registration under section 12A for tax exemptions.

3. The appellant appealed against the CIT's order, arguing that the CIT did not have sufficient grounds to exercise jurisdiction under section 263. The appellant claimed that the assessing officer had applied his mind to the relevant provisions of the Act, and therefore, revision under section 263 was unwarranted. However, the CIT and CIT(DR) supported the decision, stating that the assessing officer failed to consider crucial provisions, justifying the need for revision. The Tribunal analyzed the case and found that the assessing officer did not examine the corpus donations in light of the Act's provisions. The failure to tax certain donations and loans indicated a lack of application of mind by the assessing officer, rendering the assessment order erroneous and prejudicial to revenue interests. Citing legal precedents, the Tribunal upheld the CIT's order, affirming the validity of exercising revision power under section 263.

4. In conclusion, the Tribunal dismissed the appellant's appeal, upholding the CIT's order under section 263. The decision was based on the failure of the assessing officer to consider relevant provisions and apply the law correctly, leading to an erroneous assessment. The Tribunal emphasized the importance of proper examination and application of the law in tax assessments to prevent prejudice to revenue interests.