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TMI Blog2025 (2) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... t of non corpus donation and disallowance of depreciation of Rs. 33,00,69,972/-. However, since after making the above additions and after allowing the accumulation u/s 11(1)(a) of the Act to the extent of 15% of gross receipts at Rs. 73,63,65,615/-, the net surplus was Nil for which the Assessing Officer determined the taxable income at Nil. 3. Thereafter, the Ld. CIT(Exemption) on examination of the record noted that information was received from the Assessing Officer NaFAC of M/s Aarti Enterprises. It was informed that during the scrutiny proceedings of Ms Aarti Virendra Shah (Prop. Aarti Enterprises), the ReAC AO found that Ms Aarti Shah had entered into a Tripartite Memorandum of Understanding with Grant Medical Foundation and Dr MS Hiremath, to manage the equipments supplied by Dr MS Hiremath installed at Ruby Hall Clinic. As verified from MoU, the machines supplied were owned by Dr MS Hiremath, but M/s Aarti Enterprises was paid an amount of Rs. 90,89,134/- by Grant Medical Foundation, out of which Rs. 53,45,118/- was paid by M/s Aarti Enterprises to Dr. M.S. Hiremath. The reasons for the assessee in making the payment to Dr M S Hiremath through M/s Aarti Enterprises casts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o of substantial money as Rent. The assessee ought to have furnished the cost of the machines and the year of purchase so that any observation could have been made on the reasonableness of the outgo. Any irrational outgo cannot be said to have been incurred for the purposes of the objects and that an interested party was involved so also there is an apparent routing of money is sufficient information to raise concerns as regards the purported application of funds. Therefore, having not made any enquiry at all on this aspect, the AO has passed an erroneous order which is prejudicial to the interest of revenue. 08. 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 section 119; o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot passed after a full enquiry and a proper investigation and that it is also prejudicial to the revenue." 9.2 The High Court of Delhi in the case of ITO v. D.G. Housing Projects Ltd 20 taxmann.com 587 (Delhi) has thoroughly examined the powers of revision u/s 263 of the Act. While examining the issue, the Hon'ble court made distinction among following situations: (1) Situation where no enquiry was conducted by the AO: The Hon'ble court held that in such situation, the order becomes erroneous because enquiry or verification has not been made by observing as under. *11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income. If the Assessing Officer fails to conduct the said investigation, he commits an error and the word "erroneous" includes failure to make the enquiry. In such cases, the order becomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictional High Court in the case of Late Mr. Lakhpatrai Agarwal) Through L/H Sunil L. Agarwal vs. Assistant Commissioner of Income Tax, Circle 7, Pune in WRIT PETITION NO. 9937 OF 2022 may be adhered to. 14. For the reason that the proceedings are being set aside and therefore, the same will be completed as remand proceedings, I find it advisable for the AO to consider the following judicial propositions while finalizing the assessment order pursuant to this 263 order: a) The AO shall adhere to the proposition laid by the Hon'ble Supreme Court in the case of Commissioner of Customs (Imports). Mumbai v. Dilip Kumar & Company & Ors. in Civil Appeal No. 3327 of 2007 whereby it is held that in case of any ambiguity in the interpretation of law the interpretation favouring revenue should be followed in matters related to 'exemptions" b) The AO should follow the precedents set by following case laws whereby it has been held that the proceedings initiated for the interest of revenue cannot be allowed for the benefits of the assessee. i) CIT v. Sun Engineering Works (P.) Ltd [1992] 198 ITR 297 (SC) ii) CIT v. Caixa Economica De Goa [1994] 210 ITR 719 (Bombay) c) However ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90,89,134/- to M/s. Aarti Enterprises. Further, Dr. M.S. Hiremath is not an employee of the assessee. 8. Referring to the Explanation (2) to section 263 of the Act, the Ld. Counsel for the assessee drew the attention of the Bench to the same, which reads as under: "263....... Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer [or the Transfer Pricing Officer, as the case may be,] 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 [Chief Commissioner or Chief Commissioner or 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 section 119; or (d) the order 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." 9. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich Rs. 53,45,118/- was paid by M/s. Aarti Enterprises to Dr. M.S. Hiremath. We find although the specific information was received by the Assessing Officer, however, the Assessing Officer has not made any enquiry about the information so received. Further, the tripartite MoU is only a notarized one and not a registered document. Since the Assessing Officer has not made any enquiry with respect to the above transaction especially the role of M/s. Aarti Enterprises in sharing money with the owner of machinery Dr. M.S. Hiremath, who is the specialist doctor with the assessee, therefore, the order passed by the Assessing Officer, in our opinion, has become erroneous and prejudicial to the interest of Revenue. The argument of the Ld. Counsel for the assessee that it will not make any difference since the assessee is enjoying the benefit of sections 12AA and 10(23C)(via) and therefore the same is not prejudicial to the interest of the Revenue cannot be accepted at this point especially when specific information was received by the Assessing Officer. Whether it will have any impact or not, is a subsequent matter only when the same is examined and there is due application of mind. The va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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