2018 (10) TMI 1501 - AT - Income Tax

Revision u/s 263 - denial of claim of exemption U/s 11 - payments of rent in violation of Section 13(1)(c) - income of the medical shop from the hospital premises - issues for denial of exemption were was also considered by the ld. CIT(E) as in violation of Section 13(1)(c) for refusing the registration U/s 12AA of the Act - Held that - Both the issues which were subject matter of denial of registration U/s 12AA of the Act has been considered by the Tribunal while passing the order dated 28/09/2018 in the appeal against the order of denial of registration U/s 12AA of the Act. He has further submitted that even otherwise Smt. Kamla Ranwa finally donated the entire stock of medicines to the assessee s society and the ld. CIT(E) has not disputed this fact that on 30/11/2011, the medicines stock of medical shop in question was donated to the assessee society. Therefore, invoking the provisions of Section 263 of the Act by the ld. CIT(E) based on the order passed U/s 12AA(1)(b) of the Act and consequential impugned revision order are not valid and liable to be quashed. Thus, in view of the order of the Tribunal dated 28/09/2018 in the appeal filed by the assessee against the order passed U/s 12AA(1)(b) of the Act, the impugned order passed by the ld. CIT(E) U/s 263 of the Act would not survive. Even otherwise once the registration U/s 12AA of the Act was directed to be granted then the Assessing Officer has to consider the issue of exemption U/s 11 and 12 of the Act while passing the giving effect order and therefore, the impugned order passed by the ld. CIT(E) becomes infructuous. - decided in favour of assessee.

Summary

Issues Involved:

1. Legality of the revision order under Section 263.
2. Genuineness of the rent payment to B.L. Ranwa HUF.
3. Income from the medical shop run by Smt. Kamla Ranwa.

Issue-wise Detailed Analysis:

1. Legality of the Revision Order under Section 263:

The assessee challenged the revision order dated 28/03/2018 by CIT(E) under Section 263, arguing it was illegal and bad in law. The CIT(E) issued the revision order on the grounds that the Assessing Officer's (AO) order was erroneous and prejudicial to the interest of the revenue concerning two issues: income from the medical shop and the rent payment. The Tribunal found that the CIT(E) did not provide adequate opportunity for the assessee to respond to the show cause notice, making the revision order procedurally flawed.

2. Genuineness of the Rent Payment to B.L. Ranwa HUF:

The CIT(E) questioned the genuineness of the rent payment of ?5,50,000 to B.L. Ranwa HUF, contending it was not genuine and should be added back to the assessee's income. The Tribunal noted that the AO had already assessed this rental income in the hands of Dr. B.L. Ranwa for previous assessment years, and the CIT(E) did not conduct an independent inquiry to establish the payment's lack of genuineness. The Tribunal also highlighted that the CIT(E) failed to ascertain the fair market rent of the hospital building, and the AO had not doubted the reasonableness of the rent in previous assessments. Therefore, the Tribunal concluded that the CIT(E)'s assumption was based on conjectures without proper factual basis.

3. Income from the Medical Shop Run by Smt. Kamla Ranwa:

The CIT(E) held that the AO did not make any inquiry or verification regarding the income from the medical shop allegedly run by Smt. Kamla Ranwa. However, the Tribunal found that no such shop was run by her during the year under consideration, as the shop was closed in 2011, and the medicine stock was donated to the assessee society. The Tribunal emphasized that this issue was previously raised by the CIT(E) while rejecting the assessee's application for registration under Section 12AA, which was later overturned by the Tribunal. Therefore, the Tribunal concluded that the issue of income from the medical shop was non-existent for the year under consideration.

Conclusion:

The Tribunal set aside the impugned order passed by the CIT(E) under Section 263, stating that the revision order was not valid. The Tribunal also noted that once the registration under Section 12AA was directed to be granted, the AO had to consider the issue of exemption under Sections 11 and 12 while passing the giving effect order, rendering the CIT(E)'s order infructuous. Consequently, the appeal of the assessee was allowed.