2018 (4) TMI 696 - AT - Income Tax

Revision u/s 263 - AO has not considered proviso to Section 2(15) while deciding the case - Held that - We found that the order passed by the AO while giving effect to the direction of CIT, the assessed income comes to the very same figure at which it was originally assessed by the AO vide order dated 27/12/2011. Thus, the assessed income as per the original assessment dated 27/12/2011 vis- -vis assessed income as per the order passed u/s.143(3) r.w.s. 263 dated 30/10/2015 comes to the very same figure of ₹ 528,65,24,460/-. Accordingly, we observe that no prejudice has been caused to the Revenue in terms of assessed income and tax thereon. Once it is held that no prejudice has been caused to the Revenue, invocation of powers u/s.263 was not justified, in so far as twin condition of Section 263 with regard to order of AO being erroneous as well as prejudicial to interest of revenue is not complied with. See case of Slum Rehabilitation Authority 2016 (1) TMI 798 - ITAT MUMBAI - Decided in favour of assessee

Summary

Issues Involved:
1. Invocation of Section 263 of the Income Tax Act.
2. Whether the order was erroneous and prejudicial to the interests of the Revenue.
3. Applicability of proviso to Section 2(15) of the Income Tax Act.
4. Merger of the assessment order with the appellate order.
5. Exemption under Section 11 of the Income Tax Act.
6. Dismissal of appeal as non-est by CIT(A).

Detailed Analysis:

1. Invocation of Section 263 of the Income Tax Act:
The primary issue raised by the assessee was the invocation of Section 263 by the CIT. The assessee argued that the CIT erred in applying Section 263, rendering the impugned order dated 28 March 2014 null and void. The CIT had invoked Section 263 on the grounds that the Assessing Officer (AO) did not consider the newly inserted proviso to Section 2(15) while framing the assessment order for the A.Y. 2009-10, making the order erroneous and prejudicial to the interests of the Revenue.

2. Whether the order was erroneous and prejudicial to the interests of the Revenue:
The CIT observed that the AO assessed the total income at ?528,65,24,460/- without considering the proviso to Section 2(15). The CIT concluded that the AO's failure to consider the proviso rendered the order erroneous and prejudicial to the interests of the Revenue. However, the Tribunal noted that the income assessed by the AO remained the same even after giving effect to the CIT's order, indicating no prejudice to the Revenue.

3. Applicability of proviso to Section 2(15) of the Income Tax Act:
The CIT emphasized that the proviso to Section 2(15), inserted by the Finance Act, 2008, with effect from April 1, 2009, changed the taxability of income for entities like MHADA. The proviso states that any activity in the nature of trade, commerce, or business, or any service related to such activities for a fee or consideration, would not be considered a charitable purpose if the aggregate receipts exceed ten lakh rupees. The CIT argued that the AO did not consider this proviso, making the assessment erroneous.

4. Merger of the assessment order with the appellate order:
The Tribunal referenced a similar case (Slum Rehabilitation Authority) where the entire exemption claim under Section 11 was denied by the AO and later allowed by the CIT(A). The Tribunal held that once the assessment order merges with the appellate order, the CIT cannot revise the order under Section 263. The Tribunal concluded that since the assessed income remained the same, no prejudice was caused to the Revenue, and the invocation of Section 263 was not justified.

5. Exemption under Section 11 of the Income Tax Act:
The assessee contended that the CIT(A) erred in not considering the exemption under Section 11. The Tribunal observed that the CIT(A) dismissed the appeal on the grounds that the assessment order was set aside by the CIT under Section 263. However, since the Tribunal found the invocation of Section 263 unjustified, it restored the matter to the CIT(A) to reconsider the exemption under Section 11.

6. Dismissal of appeal as non-est by CIT(A):
The CIT(A) dismissed the appeal as non-est, arguing that the assessment order was set aside by the CIT under Section 263. The Tribunal found this dismissal incorrect, as it had already allowed the appeal against the CIT's order under Section 263. The Tribunal directed the CIT(A) to decide the appeal afresh, considering the proviso to Section 2(15) and the exemption under Section 11.

Conclusion:
The Tribunal allowed the assessee's appeal, ruling that the CIT's invocation of Section 263 was not justified as no prejudice was caused to the Revenue. The Tribunal restored the matter to the CIT(A) for a fresh decision, considering the proviso to Section 2(15) and the exemption under Section 11. The appeal was allowed for statistical purposes.