2018 (12) TMI 122 - AT - Income Tax

Charitable activity - assessee fails to qualify as an organization for charitable purpose - rectification of mistake u/s 154 - Held that - It is clear from the order u/s 143(3) of the Act that the learned AO did not refer to the entire activities of the assessee in respect of its units but there is a specific reference to CIRT, Pune and its activities. Ultimately, the surplus attributable to CIRT, Pune to the tune of ₹ 63,15,340/- was brought to tax. As observed in T.S. Balram vs Volkart Bros. (1971 (8) TMI 3 - SUPREME COURT) and CIT vs. Sheshasayee Paper and Boards Ltd. (2006 (1) TMI 75 - MADRAS HIGH COURT) the debatable issue does not fall under the purview of Section 154 of the Act and also the long drawn process of reasoning on points on which there could be two opinions, by resorting to Section 154 of the Act is impermissible. With this view of the matter, we are of the considered opinion that the order of the learned CIT(A) in quashing the order u/s 154 of the Act does not suffer any illegality or irregularity and it does not warrant any interference by this Tribunal. We, therefore, uphold the order of the learned CIT(A) in quashing the order u/s 154. The assessee does not stand to gain by withdrawal of the appeal and getting it dismissed as withdrawn, simply because the result in the appeal preferred against the order u/s 154/143(3) does not wipe out the liability of the assessee under the order u/s 143(3) of the Act. Further when the technical consideration is pitted against the delivery of substantial justice, it is a settled principle of law that the former must give way to the latter. Above all, by affording an opportunity to the assessee, the highest that would happen is that a cause could be decided on merits. Since the learned CIT(A) had not considered the case of the assessee on merits, we are of the considered opinion that it is a fit case to set aside the impugned order and remand the matter back to the file of the learned CIT(A) for disposing it off on merits.

Summary

Issues Involved:
1. Applicability of the amended proviso to Section 2(15) of the Income-tax Act, 1961.
2. Validity of the rectification order under Section 154 of the Act.
3. Dismissal of the appeal as withdrawn by the CIT(A).

Issue-wise Detailed Analysis:

1. Applicability of the amended proviso to Section 2(15) of the Income-tax Act, 1961:
The primary issue was whether the assessee, a society registered for coordinating nationalized state road transport corporations, qualified as an organization for charitable purposes under the amended proviso to Section 2(15) of the Act. The Assessing Officer (AO) concluded that the assessee did not qualify as a charitable organization or a mutual association, invoking the proviso to Section 2(15) and adding a surplus of ?63,15,344/- to the total income. The assessee argued that their activities had been consistently considered charitable by appellate authorities in previous years and that the nature of their activities had not changed. The assessee relied on the Supreme Court's decision in the case of India Trade Promotion Organization vs. DIG (Exemption) and other relevant cases, arguing that incidental activities for a fee without profit motive do not negate the charitable nature of the organization.

2. Validity of the rectification order under Section 154 of the Act:
The AO issued a notice under Section 154 to rectify the mistake of taxing only the surplus of the Central Institute of Road Transport (CIRT) unit instead of the entire surplus. The assessee contended that the issue was debatable and not a clear mistake apparent from the record, citing the Supreme Court's decision in T.S. Balram, ITO vs. Volkart Bros., which stated that a mistake apparent from the record must be obvious and patent, not requiring extensive reasoning. The CIT(A) agreed with the assessee, quashing the rectification order under Section 154, stating that the issue was debatable and not a clear mistake. The Tribunal upheld the CIT(A)'s order, confirming that the rectification under Section 154 was impermissible for debatable issues.

3. Dismissal of the appeal as withdrawn by the CIT(A):
The assessee's appeal against the original assessment order was dismissed as withdrawn by the CIT(A) based on a letter submitted by the Authorized Representative (AR) under a mistaken impression. The assessee argued that the withdrawal was without proper instructions and that the AR's letter was due to miscommunication. The Tribunal found that the withdrawal was based on a mistaken belief that only one appeal could be filed for one assessment year, which was incorrect. The Tribunal emphasized that technical considerations should give way to substantial justice and remanded the matter back to the CIT(A) for a decision on merits, allowing the assessee's appeal for statistical purposes.

Conclusion:
The Tribunal dismissed the revenue's appeal and upheld the CIT(A)'s order quashing the rectification under Section 154, while allowing the assessee's appeal for statistical purposes, remanding the case back to the CIT(A) for a decision on merits. The judgment emphasized the importance of resolving issues on merits and ensuring that technicalities do not impede substantial justice.