2022 (1) TMI 780 - AT - Income Tax

Revision u/s 263 by CIT - disallowance of exemption claimed in respect of accumulation of income under section 11(2) - Whether for not investing in the equity shares in the investments prescribed under section 11(5) of the Act, whether assessee s claim of exemption under section 11(2) of the Act can be denied in the impugned assessment year? - HELD THAT - A plain reading of clause (iia) of proviso to section 13(1)(d) would make it clear that an outer limit of one year from the end of the financial year in which the income is received has been provided for making investment in the mode and manner prescribed under section 11(5) of the Act. In the facts of the present case, admittedly, the equity shares of Asian Paints Ltd were received by the assessee in the financial year 2014-15. Therefore, as per clause (iia) of proviso to section 13(1)(d) of the Act, the provisions of section 13(1)(d) of the Act would come into play after the expiry of one year from the end of the financial year 2014-15. In other words, the prohibitory conditions of section 13(1)(d) of the Act would be applicable from 01-04-2016, falling in financial year 2016-17 relevant to assessment year 2017-18. Thus, insofar as the impugned assessment year is concerned, there is no breach or violation of the conditions of section 11(5) r.w.s. 13(1)(d) of the Act. That being the case, the assessing officer could not have invoked the provisions of section 13(1)(d) r.w.s. 11(5) of the Act to deny assessee s claim of exemption under section 11(2) of the Act in the impugned assessment year. Therefore, for this particular reason, the assessment order cannot be considered to be erroneous - one of the vital conditions of section 263 remains unfulfilled. That being the case, the revisionary authority cannot clothe him with the power to revise the assessment order under section 263 of the Act. Therefore, as a natural corollary, the order passed under section 263 of the Act has to be set aside and the assessment order is to be restored. - Decided in favour of assessee.

Issues:
Assessment under section 263 for alleged non-compliance with provisions of section 11(5) r.w.s. 13(1)(d) of the Income Tax Act, 1961 for the assessment year 2016-17.

Detailed Analysis:

1. Background and Assessment Order:
The appeal was filed by the assessee against the order passed by the Commissioner of Income Tax (Exemptions), Mumbai under section 263 of the Income Tax Act, 1961 for the assessment year 2016-17. The dispute arose due to the disallowance of exemption claimed by the assessee in respect of the accumulation of income under section 11(2) of the Act.

2. Commissioner's Findings and Notice under Section 263:
The Commissioner observed that the assessee had received fully paid up equity shares as a gift but had not invested them in the prescribed modes under section 11(5) of the Act. Due to this non-compliance, he considered the assessment order erroneous and prejudicial to the revenue's interest. The Commissioner issued a notice under section 263, directing the assessee to show cause for revising the assessment order.

3. Assessee's Submission and CBDT Circular:
The assessee contended that there was an outer limit of one year for investing in the prescribed manner under section 11(5) of the Act. Referring to a CBDT circular, the assessee argued that any violation should be examined in the subsequent assessment year, not the current one.

4. Departmental Representative's Stand:
The departmental representative supported the Commissioner's observations, emphasizing that the assessee's exemption claim could not be allowed due to non-compliance with section 11(5) r.w.s. 13(1)(d) of the Act.

5. Tribunal's Decision and Legal Analysis:
The Tribunal considered the relevant provisions under sections 11 and 13 of the Act. It noted that the assessee had not invested the gifted shares in the prescribed modes. However, it interpreted the Proviso to section 13(1)(d) to provide an outer limit of one year for such investments. As the shares were received in the financial year 2014-15, the prohibitory conditions would apply from 01-04-2016, not the impugned assessment year. Therefore, the assessment order was not erroneous, and the Commissioner's revisionary authority was deemed unfounded.

6. Conclusion and Tribunal's Decision:
The Tribunal allowed the appeal, setting aside the order passed under section 263 and restoring the original assessment order for the assessment year 2016-17. The decision was based on the interpretation of the relevant provisions and the timing of the investment requirements under the Act.

← Previous Next →