2025 (4) TMI 1031 - AT - Income Tax

Revision u/s 263 - denial of exemption u/sec. 11 on the ground that assessee is registered u/sec. 12A treating the amount being excess utilization over the receipts during the year as unexplained anonymous donation u/sec. 115BBC and treating the sum spent towards Charities Donations as not being towards attainment of the objectives of the assessee-society - HELD THAT - Explanation (1)(c) provided u/section 263 of the Act is based on the Doctrine of Merger and according to which there cannot be more than one operative order governing the same subject matter at a given point of time. In the instant case it is undisputed that the issues which are considered by the CIT(E) in the impugned order which are under challenge has been subject matter of appeal before the First Appellate Authority namely CIT(A) pending for adjudication. Therefore CIT(E) in terms of Explanation (1) to section 263 of the Act cannot assume a valid jurisdiction to revise an order when an appeal filed by the assessee on identical issues pending for adjudication before the CIT(A) and therefore on this account itself order passed by the CIT(E) u/sec. 263 of the Act cannot be sustained and liable to be quashed. This principle is supported by the decisions of various courts including in the case of CIT vs Farida Prime Tannery 2002 (8) TMI 44 - MADRAS HIGH COURT and also in the case of Renuka Philip 2018 (12) TMI 129 - MADRAS HIGH COURT A very similar issue has been considered by the Hon ble Madhya Pradesh High Court in the case of CIT vs Shalimar Housing Finance Ltd 2009 (4) TMI 406 - MADHYA PRADESH HIGH COURT It is relevant to consider the decision of Ranka Jewellers 2010 (3) TMI 544 - BOMBAY HIGH COURT where the Hon ble High Court under identical set of facts and in light of powers of CIT and PCIT u/s. 263 of the Act held that once the issue has been considered and decided in the appeal then there is no scope for the PCIT to invoke his jurisdiction u/s. 263 of the Act on said issue and set aside the assessment order. In this view of the matter and considering the facts of the case and also in the light of ratio of various case laws discussed hereinabove we are of the considered view that the assessment order passed by the AO u/sec. 143(3) is neither erroneous nor prejudicial to the interest of revenue on three issues questioned by the learned CIT(E). CIT(E) without appreciating the relevant facts has simply set-aside the assessment order passed by the AO by exercising powers conferred u/sec. 263. Thus we quash the order passed by the CIT(E) u/sec. 263. Appeal of the Assessee is allowed.

Summary

The core legal questions considered in the judgment are:

1. Whether the Assessing Officer's order denying exemption under section 11 of the Income Tax Act, 1961 (the Act) on the ground that the assessee did not possess a valid registration certificate under section 12A in its current name was erroneous and prejudicial to the interest of revenue.

2. Whether the excess application of income by the assessee trust, amounting to Rs. 26,68,95,381/-, was properly explained with respect to its source, and whether such excess utilization could be treated as unexplained anonymous donations taxable under section 115BBC.

3. Whether the expenditure claimed under the head "Charities and Donations" amounting to Rs. 15,58,16,895/- was genuine and attributable to the charitable objects of the trust, or whether it included non-charitable expenses that would disqualify the exemption claim.

4. Whether the Commissioner of Income Tax (Exemption) (CIT(E)) had jurisdiction under section 263 of the Act to revise the assessment order on issues that were already subject matter of appeal before the Commissioner of Income Tax (Appeals) (CIT(A)).

Issue-wise detailed analysis:

1. Validity of exemption claim under section 11 in light of registration certificate under section 12A:

Legal framework and precedents: Section 11 provides exemption to income applied for charitable purposes by a trust or institution registered under section 12A. The registration certificate under section 12A is essential for claiming exemption. However, the law recognizes changes in the name or constitution of the trust, provided such changes are intimated to the tax authorities and do not alter the charitable objects repugnant to sections 11 and 12.

Court's interpretation and reasoning: The Court observed that the assessee was originally registered under the name "Sri Grandhi China Sanyasi Raju Memorial Educational Institute" and subsequently changed its name to "GMR Varalakshmi Foundation." The change was duly intimated to the Income Tax Department, and approvals under section 80G were granted in the new name. The assessee also obtained incorporation under section 25 of the Companies Act and had communicated these changes to the tax authorities. The Department was aware of the change and had allowed exemption under section 11 for other years, including the year following the impugned assessment year.

The Court held that the absence of a fresh registration certificate under section 12A in the new name at the time of assessment did not disentitle the assessee from claiming exemption, as the change in name was duly communicated and recognized by the Department. The Court relied on the principle that a trust does not require prior permission for change of name unless such change affects the charitable objects adversely. The Court referred to authoritative precedents affirming that mere change in name does not affect exemption eligibility if objects remain unchanged and duly intimated.

Key evidence and findings: The Court considered the original registration certificate, subsequent approvals under section 80G, letters intimating change of name, certificate of incorporation, and assessment orders for subsequent years allowing exemption.

Application of law to facts: The Court applied the legal principle that exemption cannot be denied solely on the ground of non-issuance of a fresh registration certificate in the new name, especially when the Department had recognized the change and granted approvals accordingly.

Treatment of competing arguments: The CIT(E) argued that absence of registration certificate in the new name was fatal to exemption. The Court rejected this, emphasizing the continuity of recognition and the absence of any change in charitable objects.

Conclusion: The Court concluded that the CIT(E) erred in denying exemption under section 11 on the ground of registration certificate name mismatch.

2. Explanation of excess application of income and taxability under section 115BBC:

Legal framework and precedents: Section 115BBC taxes anonymous donations received by certain entities. Excess application of income beyond receipts requires explanation of source to avoid being treated as anonymous donations.

Court's interpretation and reasoning: The assessee explained excess application of income through a detailed cash flow statement showing inflows from bank loans, corpus funds, and increase in sundry creditors. The CIT(E) rejected the explanation primarily because there was no withdrawal from the corpus fund as per the balance sheet, which the Court found to be a misreading of accounting principles. The Court held that as long as the inflow and outflow of funds are reconciled and explained, the absence of corpus fund withdrawal entries in the balance sheet is not determinative. The Court emphasized that the CIT(E)'s rejection was based on ignorance of accounting norms.

Key evidence and findings: Cash flow statements, financial statements, and reconciliation documents filed by the assessee explaining the source of excess application of income.

Application of law to facts: The Court applied the principle that genuine explanation of sources of income application negates the presumption of anonymous donations.

Treatment of competing arguments: The CIT(E) argued that absence of corpus fund withdrawal invalidated the explanation. The Court rejected this, finding the assessee's explanation credible and supported by accounting evidence.

Conclusion: The Court held that the excess application of income was satisfactorily explained and not liable to be treated as anonymous donations under section 115BBC.

3. Validity of expenditure under "Charities and Donations" head:

Legal framework and precedents: Expenditure incurred for charitable purposes is allowable under sections 11 and 12. Administrative expenses incidental to carrying out charitable activities are generally permissible.

Court's interpretation and reasoning: The CIT(E) questioned certain expenditures such as mobile bills, purchase of sweets, and other small expenses as non-charitable. The Court noted that these expenses were minor and incidental administrative expenses necessary for achieving the trust's charitable objectives. The Court emphasized that the overall activities of the assessee, including running educational institutions and hospitals for the poor, constituted charitable activities. Therefore, minor incidental expenses do not negate the charitable nature of the expenditure.

Key evidence and findings: Details of activities undertaken by the trust, financial statements, and explanations for the questioned expenses.

Application of law to facts: The Court applied the principle that administrative expenses necessary for charitable activities do not disqualify exemption.

Treatment of competing arguments: The CIT(E) treated minor expenses as non-charitable. The Court disagreed, considering the overall context and nature of activities.

Conclusion: The Court rejected the CIT(E)'s contention and held that the expenditure under "Charities and Donations" was genuine and allowable.

4. Jurisdiction of CIT(E) under section 263 when issues are sub judice before CIT(A):

Legal framework and precedents: Section 263 empowers the Commissioner to revise an assessment order if it is erroneous and prejudicial to revenue. Explanation (1)(c) to section 263 clarifies that where the order has been subject matter of appeal, the Commissioner's powers extend only to matters not considered and decided in such appeal. The doctrine of merger applies, preventing concurrent jurisdiction over the same issues.

Court's interpretation and reasoning: The Court noted that the issues questioned by the CIT(E) in the revision proceedings were identical to those raised by the assessee in appeal before the CIT(A), which was pending adjudication. The Court held that the CIT(E) could not validly invoke section 263 jurisdiction on issues already sub judice before the CIT(A). The Court relied on authoritative decisions affirming that once an issue is considered and decided in appeal, it cannot be revisited under section 263. The Court also emphasized that the Commissioner's powers under section 263 are limited to matters not considered and decided in appeal.

Key evidence and findings: The pending appeal before CIT(A) on identical issues, statutory provisions of section 263, and judicial precedents.

Application of law to facts: The Court applied the doctrine of merger and statutory limitations on revisionary powers to hold that CIT(E) lacked jurisdiction to revise the assessment order on the same issues under appeal.

Treatment of competing arguments: The Revenue argued that the CIT(E) had jurisdiction as the CIT(A) had not decided the issues. The Court rejected this, holding that the existence of appeal bars revision on identical issues.

Conclusion: The Court quashed the revision order passed under section 263 on the ground of lack of jurisdiction due to pending appeal on identical issues.

Significant holdings:

"The change in the name of the trust or society, without any change in its objects repugnant to sections 11 and 12 of the Income Tax Act, 1961, does not disentitle the trust to claim exemption under section 11."

"The absence of a fresh registration certificate under section 12A in the new name at the time of assessment does not operate as a bar to exemption, if the change in name has been duly intimated and recognized by the tax authorities."

"Excess application of income explained by the assessee through cash flow statements and financial reconciliation cannot be treated as anonymous donations under section 115BBC."

"Minor administrative expenses incidental to carrying out charitable activities do not vitiate the claim of exemption under sections 11 and 12."

"The Commissioner's powers under section 263 of the Income Tax Act are limited to matters not considered and decided in appeal. Where an issue is pending adjudication before the CIT(A), the Commissioner cannot revise the assessment order on the same issue."

"The doctrine of merger applies to assessment and appellate proceedings, preventing concurrent jurisdiction of quasi-judicial authorities over the same issues."

"The assessment order passed by the Assessing Officer was neither erroneous nor prejudicial to the interest of revenue on the issues questioned by the CIT(E)."