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TMI Blog2023 (12) TMI 1383X X X X Extracts X X X X X X X X Extracts X X X X ..... vant to notice that in the celebrated decision of Malabar Industrial Co. Ltd. [ 2000 (2) TMI 10 - SUPREME COURT ] in the context of revision proceedings u/s 263 it is held that Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income- tax Officer is unsustainable in law The claim of the assessee is that the income derived from Auditorium Hire charges, hoarding site service charges and rent are incidental to the attainment of the objectives of the assessee trust and the reason for excise of revisionary power under section 263 is that the said income is not incidental to the objectives. AR relied on the decision of Association of Surgeons of India [ 2016 (7) TMI 521 - ITAT CHENNAI ] wherein it was held that the income earned from letting out of Auditorium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re has treated 'Research Association' as separate class and only for limited purpose provisions of Sec. 11 of the Act are made applicable mutatis mutandis. 6. The Ld. CIT erred in holding that the income derived from Auditorium Hire Charges, Hoarding Sites Service charges, and Licence Fees/rent are not connected or incidental to attainment of objectives of the Appellant when no such conditions are present in Sec. 10(21) of the Act and hence, impugned Order is based on erroneous findings said Order deserves to be squashed. 7. Appellant crave leave to add to, amend, modify or delete any of the above grounds in the interest of justice. 2. The assessee is a Public Charitable Trust registered under section 12A of the Act. The assessee is also approved research organization under section 35(1)(ii) of the Act. The assessee filed the return of income on 25.09.2013 declaring income at Rs. Nil after claiming exemption under section 11 of the Act. The assessee's assessment was re-opened by issue of notice under section 148 of the Act dated 28.03.2018. The reason for re-opening was that the benefit under section 11 was denied to the assessee by invoking the proviso to section 2(15) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idental activities of the Trust and are fully utilized for attainment of the objective of the Trust which is research and development activities carried out with the view to make contributions in the textile and allied science. The assessee further submitted that the incidental receipts become a source to sustain and bridge the gap and recoup the expenses required to attain the objects of the Trust and therefore, the above receipts are covered for exemption under section 10(21) of the Act being on account of incidental activities for the attainment of its objectives and being utilized fully on such objects. 6. The First CIT (Exemption) after considering the submissions of the assessee held that - 4. The matter is considered. On careful consideration of the written submissions filed by the assessee trust, I am not convinced that the Auditorium Hire Charges as well as Hoarding Site and Service charges and licence fees/rent are incidental to the objectives of the trust. In this connection, it is seen that the objectives of the trust is to conduct research and development activities in the textile sector and Offering auditorium on hire as well as dealing in contracts for site, hoarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44A Issue demand notice Challan accordingly. 8. Accordingly the assessee withdrew the appeal filed before the Tribunal against the order passed under section 263 for reason that the AO while passing order under section 144 r.w.s. 263 has given relief to the assessee assessing the income at Rs. Nil. Accordingly, the Tribunal did not go into the merits of the issue and disposed of the appeal as withdrawn vide order dated 26.04.2022. 9. Subsequently the CIT (Exemption) [hereinafter second CIT(Exemptions) ] once again issued a show cause notice under section 263 of the Act by invoking the provisions of Explanation 2 to section 263 stating that the order passed by the AO under section 144 r.w.s. 263 dated 31.03.2022 is erroneous and prejudicial to the interest of the Revenue, since the AO did not carry out any enquiry or verification which should have been made and that the directions of the First CIT (Exemption) under section 263 of the Act have not been considered. 10. The assessee vide reply dated 17.03.2023 submitted that the impugned issue has already been considered by the AO as per the directions under section 263 of the Act to redo the assessment and has allowed the claim in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry proceedings once again on the same issue is only a change of opinion by the Revenue and not sustainable. On merits the ld. AR submitted that as per the provisions of section 10(21) any income of a research association which is approved under section 35(1)(ii) of the Act that is applied wholly and exclusively towards the objects of the trust is eligible for exemption under section 10(21) of the Act. It is also submitted that as per the 3rd proviso to section 10(21) any income from the business incidental to the attainment of its objectives and separate books of accounts are maintained are also eligible for exemption under section 10(21). In our attention was drawn to the financial statements of the assessee to substantiate that the income is applied towards the objects of the trust and that the assessee has maintained separate books of accounts for the impugned income (pages 1 to 20 of the paper book). Therefore, the ld. AR submitted that the assessee is entitled for exemption under section 10(21) and that the AO has taken one possible view and has allowed the exemption to the assessee. The ld. AR relied on the decision of the Chennai Bench of the Tribunal in the case of Associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead of deduction under section 11 and since the assessee has not made such a claim under section 10(21) the assessment was completing by not considering the exemption. For the year under consideration before the AO the assessee referred to the order for AY 2010-11 to make the alternate claim of exemption under section 10(21) and also filed the revised return in response to notice under section 148 accordingly. The AO while completing the assessment under section 143(3) r.w.s. 147 accepted this alternate plea of the assessee and allowed the exemption under section 10(21). The first CIT (Exemptions) initiated proceedings under section 263 for the reason that certain incomes which are not incidental to the attainment of the objects of the assessee have been included while allowing the exemption under section 10(21) and the order of the AO under section 143(3) r.w.s. 147 was set aside. The AO has sent two notices under section 142(1) dated 17.08.2021 and 15.01.2022 calling on the assessee to justify the claim of exemption towards income derived from Auditorium Hire charges, Hoarding site service charges and rent. The AO also issued a show cause notice under section 144, dated 29.03.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. Explanation 3 - ****** 15. Thus, from close scrutiny of the provisions of section 263, it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under section 263 of the Act i.e., firstly, the order of the Assessing Officer is erroneous; and secondly, it is prejudicial to the interests of the revenue on account of error in the order of assessment. The Bombay High Court in the case of Gabriel India Ltd. (1993) 203 ITR 108 has explained as to when an order can be termed as erroneous as follows:- From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an income tax officer acting in accordance with the law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, before amendment by the Act, provided that if the Principal Commissioner or Commissioner considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making an enquiry pass an order modifying the assessment made by the Assessing Officer or cancelling the assessment and directing fresh assessment. 53.2 The interpretation of expression erroneous in so far as it is prejudicial to the interests of the revenue has been a contentious one. In order to provide clarity on the issue, section 263 of the Income-tax Act has been amended to provide that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner. (a) the order is passed without making inquiries or verification which, should have been made; (b) the order is passed allowing any relief without inquiring into the claim; (c) the order has not been made in accordance with any order, direction or instruction issued by the Board under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) in the context of revision proceedings u/s 263 it is held that Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income- tax Officer is unsustainable in law 19. As per the provisions of section 10(21) any income of a research association approved for the purpose of clause (ii) or clause (iii) of sub-section (1) of section 35, is exempt provided it applies its income, or accumulates it for application, wholly and exclusively to the objects for which it is established. The third proviso to section 10(21) provides that nothing contained in this clause shall apply in relation to any income of the research association, being profits and gains of business, unless the business is incidental to the attainment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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