2017 (2) TMI 602 - AT - Income Tax

Revision u/s 263 - exemption u/s 11 wrongly allowed - Corpus Donation received - Registration of the trust u/s 12A - whether Corpus Fund which cannot be used by the trust and only income derived from this corpus fund thereon can be used for the benefit of the members? - Held that - The donations were pass-through donations with specific purposes for which the said voluntary donations can be utilized and the tax-payer has no choice but to spend these donations for specific purposes for which they were granted to the tax-payer trusts. We are of the considered view that the assessment order of the A.O. dated 12-12-2013 passed u/s 143(3) of the Act in the instant appeal is erroneous so far as it is prejudicial to the interest of Revenue which cannot be sustained in law as it is against the provisions of law as discussed above . Thus, we do not find any merit in contention of learned counsel for the assessee and hold that the assessment order dated 12-12-2013 passed by the A.O. u/s 143(3) of the Act is erroneous so far as is prejudicial to the interest of Revenue, hence, we have no hesitation in up-holding the said order dated 16-02-2016 passed by the learned CIT(E) u/s 263 of the Act as the assessment order dated 12-12-2013 passed by the AO u/s 143(3) of the Act is erroneous as far as being prejudicial to the interest of Revenue, and accordingly we uphold the order dated 16.02.2016 passed by the ld. CIT(E) u/s 263 of the Act. - Decided against assessee

Issues Involved:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961.
2. Applicability of section 263 to the facts of the case.
3. Erroneous and prejudicial nature of the assessment order.
4. Treatment of corpus donations.
5. Jurisdiction of the Commissioner of Income Tax (Exemptions) to pass the order.
6. Consideration of facts and submissions by the Commissioner of Income Tax (Exemptions).

Issue-wise Detailed Analysis:

1. Validity of the order passed under section 263 of the Income Tax Act, 1961:

The brief facts of the case are that the assessment for the assessment year 2011-12 was completed by the Assessing Officer (AO) under section 143(3) of the Act on 12th December 2013, wherein the income assessed of the assessee-trust was at 'Nil'. The Commissioner of Income Tax (Exemptions) (CIT(E)) received a proposal from the Addl. DIT (Exemptions) regarding revision of orders prejudicial to revenue under section 263 of the Act. Based on this proposal, a show-cause notice was issued to the assessee by CIT(E) on 1st January 2016. The CIT(E) held that the assessment order passed by the AO was erroneous and prejudicial to the interests of the Revenue and set aside the assessment order for fresh assessment.

2. Applicability of section 263 to the facts of the case:

The assessee contended that the CIT(E) erred in passing an order under section 263 of the Act, as the provisions of section 263 are not applicable to the facts of the case. The assessee argued that the AO had applied his mind and passed the order after considering the full facts available on records. The CIT(E) has no jurisdiction to pass an order on account of change of opinion. The CIT(E) observed that the AO should have disallowed the claim of the assessee-trust for exemption of ?1.90 crores while completing the assessment, which the AO had not done even after observing that the trust was not enjoying registration under section 12A of the Act.

3. Erroneous and prejudicial nature of the assessment order:

The CIT(E) held that the AO's order was erroneous as it allowed the corpus donation of ?1.90 crores under section 11(1)(d) of the Act, despite the trust not being registered under section 12A of the Act. The CIT(E) relied on the Supreme Court judgment in U.P. Forest Corporation v. Dy. CIT (2008) 297 ITR 1 (SC), which held that registration under section 12A is a condition precedent for availing the benefit of sections 11 and 12 of the Act. The AO's order was silent about the eligibility of exemption to the assessee under section 11 of the Act, making it erroneous and prejudicial to the interest of the Revenue.

4. Treatment of corpus donations:

The assessee argued that the amount of ?1.90 crores was received towards the Corpus Fund and could not be used by the trust, and only the income derived from it could be used for the benefit of the members. The CIT(E) observed that the AO had not formed any opinion on the issue of eligibility of exemption under section 11 of the Act and allowed the claim of exemption even when the trust was not registered under section 12A of the Act. The CIT(E) held that the corpus donation was voluntary and taxable under section 2(24)(iia) of the Act, as the trust did not hold registration under section 12A.

5. Jurisdiction of the Commissioner of Income Tax (Exemptions) to pass the order:

The assessee contended that the CIT(E) had no jurisdiction to pass an order under section 263 of the Act on account of change of opinion. The CIT(E) rejected this contention and held that the AO's order was erroneous and prejudicial to the interests of the Revenue, as the AO had not made the required inquiries to see whether the corpus donation was entitled for exemption under section 11(1)(d) read with section 2(24)(iia) and section 12A of the Act.

6. Consideration of facts and submissions by the Commissioner of Income Tax (Exemptions):

The CIT(E) considered the submissions made by the assessee and observed that the AO had not analyzed the provisions of section 11(1)(d) read with section 2(24)(iia) and section 12A of the Act. The CIT(E) held that the AO's order was against the provisions of law and set aside the assessment order for fresh assessment. The CIT(E) dropped the second issue raised in the show-cause notice regarding the interest income of ?1,46,32,985/-, wherein the AO allowed the expenditure having no nexus to earn the interest income.

Conclusion:

The tribunal upheld the order of the CIT(E) under section 263 of the Act, holding that the assessment order passed by the AO was erroneous and prejudicial to the interests of the Revenue. The tribunal dismissed the appeal of the assessee and ordered a fresh assessment.

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