2025 (1) TMI 453 - AT - Income Tax

Revision u/s 263 - exemption claimed u/s 11 - DR argued that while the ITAT considered the gross receipts as exempt in the hands of the assessee, it made no specific observations regarding Section 11, retaining it for academic purposes only - HELD THAT - A critical aspect of the decision was that the assessee s role was purely custodial, with ownership of the collected funds (lease premiums, etc.) remaining with the State Government. As the assessee merely acted as an agent, the income could not be taxed in its hands, thereby obviating the need for a detailed analysis under Section 11. The revenue s contention that the assessee s activities were commercial in nature was also examined. This issue was conclusively addressed in Ahmedabad Urban Development Authority 2022 (10) TMI 948 - SUPREME COURT wherein it was held that similar activities did not constitute commercial activity. Further, in the revisional order under Section 263 of the Act, the Ld. CIT(E)directed the Ld. AO to verify the exemption claimed under Section 11 of the Act. However, the nature of gross receipts had already been examined in the ITAT s ruling, which was duly followed by the Ld. AO. Despite issuing notices under Section 263, the Ld. CIT(E) was unable to identify any new income sources beyond what had already been disclosed by the assessee. Consequently, the Ld. AO adhered to the directions of the higher authority. We respectfully rely on the rulings in Malabar Industrial Co. Ltd. 2000 (2) TMI 10 - SUPREME COURT , NYK Line (India) Ltd. 2012 (2) TMI 283 - BOMBAY HIGH COURT , and M/s Paul Brothers 992 (10) TMI 5 - BOMBAY HIGH COURT as well as N.N. Agrawal 1991 (1) TMI 119 - ALLAHABAD HIGH COURT all of which underscore that Section 263 cannot be invoked merely on the basis of a change of opinion. In our considered view, the direction to verify Section 11 is inapplicable in this case. Accordingly, the revisional order passed by the CIT(E) under Section 263 is unjustified and is hereby quashed. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around several core issues:

Whether the Assessing Officer (AO) erred in concluding the assessment proceedings without adequate verification of the nature of the appellant's activities.
Whether the income from deposits, lease premiums, rent, and interest is taxable in the hands of the appellant.
Whether the AO failed to follow the precedent set by the ITAT in the appellant's own case for a previous assessment year.
Whether the appellant's activities qualify as commercial, thus disqualifying them from being considered charitable under Section 2(15) of the Income-tax Act.
Whether the interpretation of the Supreme Court's judgment in Ahmedabad Union Development Authority was correctly applied to the appellant's activities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Verification of Appellant's Activities

Relevant Legal Framework and Precedents: The assessment was conducted under Section 143(3) read with Section 144B of the Income-tax Act. The appellant argued that the AO had conducted adequate verification, referencing previous ITAT decisions.
Court's Interpretation and Reasoning: The court found that the AO conducted detailed verification through notices under Section 142(1) and that the appellant complied with these notices.
Key Evidence and Findings: The AO's assessment order was based on the ITAT's prior ruling, which was binding and followed the directives of higher judicial forums.
Application of Law to Facts: The AO's actions were consistent with the ITAT's precedent, and no new evidence suggested otherwise.
Treatment of Competing Arguments: The appellant's argument that the AO had adequately verified the activities was upheld, while the revenue's claim of inadequate verification was dismissed.
Conclusions: The court concluded that the AO's verification was sufficient and aligned with legal precedents.

Issue 2: Taxability of Income

Relevant Legal Framework and Precedents: The appellant cited ITAT's previous decision, which held that the income was not taxable as it was collected on behalf of the State Government.
Court's Interpretation and Reasoning: The court upheld the ITAT's decision that the appellant acted as a custodian for the State Government, and the income was not taxable in its hands.
Key Evidence and Findings: The ITAT's ruling in the appellant's favor was binding, and no adverse order had been passed against it.
Application of Law to Facts: The court found that the appellant's role was custodial, and the income was not taxable.
Treatment of Competing Arguments: The revenue's argument that the income was taxable was dismissed based on the ITAT's binding decision.
Conclusions: The court concluded that the income was not taxable in the appellant's hands.

Issue 3: Precedent in Previous ITAT Decision

Relevant Legal Framework and Precedents: The appellant argued that the AO failed to follow the ITAT's decision in the appellant's own case for a previous year.
Court's Interpretation and Reasoning: The court found that the AO had indeed followed the ITAT's decision, which was binding.
Key Evidence and Findings: The ITAT's ruling was clear and had not been overturned by any higher authority.
Application of Law to Facts: The AO's actions were consistent with the ITAT's precedent.
Treatment of Competing Arguments: The appellant's argument was upheld, and the revenue's claim of non-compliance was dismissed.
Conclusions: The court concluded that the AO followed the ITAT's precedent.

Issue 4: Nature of Appellant's Activities

Relevant Legal Framework and Precedents: The appellant argued that its activities were not commercial, referencing the Supreme Court's judgment in Ahmedabad Union Development Authority.
Court's Interpretation and Reasoning: The court found that the appellant's activities were not commercial, consistent with the Supreme Court's ruling.
Key Evidence and Findings: The Supreme Court's judgment supported the appellant's position.
Application of Law to Facts: The court applied the Supreme Court's reasoning to the appellant's activities.
Treatment of Competing Arguments: The revenue's argument that the activities were commercial was dismissed.
Conclusions: The court concluded that the appellant's activities were not commercial.

Issue 5: Interpretation of Supreme Court Judgment

Relevant Legal Framework and Precedents: The appellant cited the Supreme Court's judgment in Ahmedabad Union Development Authority.
Court's Interpretation and Reasoning: The court found that the judgment was applicable and supported the appellant's position.
Key Evidence and Findings: The Supreme Court's judgment was directly relevant to the appellant's case.
Application of Law to Facts: The court applied the Supreme Court's reasoning to the appellant's situation.
Treatment of Competing Arguments: The revenue's interpretation of the judgment was rejected.
Conclusions: The court concluded that the Supreme Court's judgment supported the appellant's position.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The ITAT's decision remains binding on the Ld. AO."
Core principles established: The appellant's role as a custodian for the State Government exempts it from taxation on the income in question.
Final determinations on each issue: The court quashed the revisional order under Section 263, upholding the appellant's appeal and confirming that the income was not taxable.

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