Mineral Foundation of Goa, Panaji V. Commissioner of Income Tax (Exemption), Bengaluru

ITA 98/PAN/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 4255 (ITAT-PANAJI)
• Duration Of Justice: 4 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: WT(D)
• Assessment Year: 2013-2014
• Appeal Filed On: 06-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRA BHAT JHA
• Keywords: Revision of order; Depreciation; Charitable institution; Opportunity of being heard; Audit objection; Principle of natural justice; Assessment record
• Section: 263; 139; 143(3); 12A; 10B; 250; 143(2); 13

Judgement Text

ITAT-Panaji Page 1 of 16 आयकर अपीलीय न्यायाधिकरण, पणजी न्यायपीठ, पणजी में। IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI (Through Virtual Court) BEFORE SHRI RAVISH SOOD, JUDICIAL MEMBER AND SHRI JAMLAPPA D BATTULL, ACCOUNTANT MEMBER आयकर अपील स ं . / ITA No. : 98/PAN/2018 कर धििाारण वर्ा / Assessment Year : 2013-2014 Mineral Foundation of Goa PB No 113, Vaglo, Behind Clube National, Panaji Goa – 403 001. PAN : AAAJM 0218 Q . . . . . . . अपीलार्थी / Appellant बिाम / V/s Commissioner of Income-Tax - Exemption, Bengaluru (Karnataka) . . . . . . . प्रत्यर्थी / Respondent }kjk / Appearances Assessee by : Shri Nitesh Joshi Revenue by : Shri Prabhat Jha स ु नवाई की तारीख / Date of conclusive Hearing : 22/02/2022 घोषणा की तारीख / Date of Pronouncement : 20/04/2022 आदेश / ORDER PER JAMLAPPA D BATTULL, AM; The present appeal of the assessee assailed against the revisionary order of Commissioner of Income Tax - Exemption, Bengaluru [for short “CIT”] passed u/s 263 of the Income Tax Act, [for short “the Act”] vide order dt. 11/01/2018 for the assessment year [for short “AY”] 2013-2014, which in turn emanated out of the order of assessment dt. 26/02/2015 passed by the Assessing Officer [for short “AO”] u/s 143(3) of the Act. ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 2 of 16 2. The whole grievance of the appellant revolves round the validity of assumption of revisionary jurisdiction u/s 263 first and then around compliance of clause 2(i) of explanation 1 to section 11(1) at the relevant time. 3. In advancing the matter for adjudication, and before laying down the facts of the case, it necessitates to reproduce grounds assailed by the appellant assessee as; “1. Validity of Oder under section 263 : 1.1 The learned Commission of Income Tax (Exemption) Bangalore (l’d. CIT’) erred in passing an order under section 263 of the Income Tax Act, 1961 (‘Act’) 1.2 The ld. CIT failed to appreciate that the condition precedent to passing an order under section were not satisfied and hence the order under section 263 of the Act is illegal, bad in law and ought to be quashed. 1.3 The ld. CIT erred in holding that the assessment order dated February 26, 2016 passed by the Assistant Commissioner of Income Tax (Exemption), Circle—1, Mangalore (‘ld. AO’) is erroneous and prejudicial to the interest of revenue. 1.4 The Appellant submits that considering the facts and circumstances of its case, and the law prevailing on the subject, the assessment framed by the ld. AO was after due consideration of the facts and hence, the setting aside of the same by the ld. CIT under section 263 of the Act is erroneous, in excess of jurisdiction and bad in law. ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 3 of 16 1.5 The Appellant submits that the impugned order passed under section 263 of the Act by the ld. CIT be stuck down. 2. Without prejudice, exemption under section 11(1) : 2.1 The ld. CIT erred in not appreciating the fact that there was no prescribed form for exercising the option in writing for AY 2013- 14 as per Explanation 2 to section 11(1) of the Act. 2.2 The ld. CIT erred in not considering the fact that the Appellant had exercised the option under Explanation 2 to section 11(1) of the Act in writing by making necessary disclosures in the Computation of Income, Form 10B, Return of Income and letter filed before the ld. AO during the course of assessment proceedings. 2.3 The ld. CIT erred in not appreciating the fact that the requirement of exercising option under Explanation 2 to section 11(1) of the Act is a procedural requirement. All the aforesaid grounds of appeals are without prejudice to one another. The appellant craves leave to add, alter, amend or modify or delete any or all aforesaid grounds of appeal.” (Emphasis supplied) 5. Now its turn to state the facts of the case pithily as; 4.1 The assessee is a society formed by the mining industry and registered under the provisions of Society Registration Act, 1860 as non- profit making organisation and registered as charitable organisation u/s ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 4 of 16 12A of the Act. The assessee society for the AY 2013-14 filed its return of income manually [for short “ROI/ITR”] u/s 139 of the Act on 28/09/2013 declaring total income of ₹NIL/- after claiming exemption u/s 11 of the Act. The return of income was subjected to scrutiny through CASS u/s 143(2) and after giving effect to section 11 of the Act, income of the society was finally assessed at ₹36,30,331/- by an order u/s 143(3) of the Act. 4.2 Subsequently, Ld. CIT(Exemption) after perusal of case records, noted that the assessee society while computing the taxable income has reduced an amount ₹8,44,94,143/- from the total income on account of non-receipt and arrived at the deduction u/s 11 of the Act, which in his opinion was erroneously accepted by the Ld. AO while framing the assessment u/s 143(2) of the Act. Consequently invoking the provisions of section 263(1) of the Act, Ld. CIT(Exemption) held the order of assessment as erroneous and prejudicial to the interest of revenue for the reason of allowing such reduction from the income in the absence of exercise of option for deemed application in writing in Form No 10 and resultantly set-aside the same with a direction to pass fresh assessment order considering the facts of the case and after giving sufficient opportunity of being heard to the assessee. 4.3 Acting on such direction the Ld. AO carried out the fresh assessment and determined the taxable income at ₹7,47,17,940/- by an order dt. 10/12/2018 which is subject matter before FAA. The appellant assessee ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 5 of 16 opposed the revisionary action of Ld. CIT(Exemption) before this Tribunal for justice on the grounds assailed at foregoing para 3. 5. After hearing to the rival contentions of both the parties to the appeal; perused material placed on records and duly considered the facts of the case in the light of settled legal position and the case laws relied upon by the appellant society assessee as well the respondent revenue. 6. It is evidently discernible form the records are that; 6.1 The assessee is a registered Society under the Societies Registration Act, 1860 and holding a certificate registration u/s 12A of the Act as charitable institution / organisation eligible for exemption u/s 11 of the Act. In terms thereof, the appellant manually filed “NIL” return of income u/s 139 on 28/09/2015 and by service of statutory notice dt. 04/09/2014 u/s 143(2) of the Act, the said return was selected for limited scrutiny under computer assisted scrutiny scheme [for short “CASS”]. In response thereto , the learned authorised representative [for short “AR”] furnished the necessary details sought in support the retuned income. Ld. AO considering the submission, following the decision of Hon’ble Kerala High Court in the case of “Lissie Medical Institution Vs CIT” reported at 348 ITR 344 and support from the clarification issued by the Central Board of Direct Taxes [for short “CBDT”] disallowed an amount of ₹7,32,420/- out of the claim of depreciation, holding that it as double deduction of capital expenditure leading to violation of provisions of section 11(1), and by a an order u/s 143(3) recomputed the ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 6 of 16 taxable income of the society and arrived at the assessed income of ₹36,30,331/-. 6.2 The aforesaid original assessment was challenged by the appellant society before the first appellate authority [for short “FAA”], and the learned Commissioner of Appeals [for short “CIT(A)”] by an order dt. 30/01/2018 passed u/s 250 of the Act, gave a partial relief allowing the deduction towards depreciation following the decision of Jurisdictional Hon’ble High Court of Karnataka in the case of “DIT(E) Vs Al-Ameen Charitable Fund Trust” reported at 383 ITR 517 (Kar) treating the amended to section 11(6) as prospective and applicable w.e.f. 01/04/2015, and confirmed the action of Ld. AO in restricting the claim of exemption u/s 11(1)(a) to ₹31,67,421/-. 6.3 Aggrieved by the order of FAA, the appellant society filed a separate appeal thereagainst before the Tribunal, challenging the action of Ld. AO in restricting the claim of exemption u/s 11(1)(a) to ₹31,67,421/-, which is on this date of hearing is pending for adjudication before the Tribunal. 6.4 Within a period of two years from the end of assessment year in which the assessment was framed, the assessment records on the audit objection were perused and identifying the allowance of deemed application of income u/s 11(1)(2) of the Act, without exercising option in writing was figured out and by service of show cause notice [for short “SCN”] dt. 17/11/2017 Ld. CIT(Exemption) invoked the revisionary ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 7 of 16 jurisdiction u/s 263(1) of the Act, holding the assessment as erroneous and prejudicial to the interest of revenue insofar as the claim is concerned. In reply of SCN the, appellant filed written submissions, and insofar as the merits of the case is concern, it is contending that, the society indeed exercised its option in writing before the due date of furnishing the return of income by way of disclosure in the (i) Computation of Income (ii) Form No 10B filed with the return of income and (iii) in the Return of income filed at the appropriate part thereof. The appellant further contended before the Ld. CIT(Exemption) that, clause 2(i) of explanation 1 to section 11(1) of the Act is procedural requirement and since there was no prescribed format in force, the exercise was duly communicate to the income tax department by way of disclosure in aforestated in places, and the Ld. AO culminated the original assessment after due application of mind considering the facts & submission. Further adverting the plethora of judicial precedents, the appellant challenged the assumption of revisionary jurisdiction. However the submission of the appellant did not please the mind of Ld. CIT(Exemption), consequently the deemed application of income u/s 11(1), Explanation 1 Clause 2(i) in the absence of exercise of option by a letter in writing, allowed by the Ld. AO held as erroneous and prejudicial to the interest of the revenue, and by an order u/s 263, directed the Ld. AO to pass fresh assessment order considering the facts after providing sufficient opportunity to the assessee of being hearing. ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 8 of 16 7. During the course of the hearing before bench, the learned counsel for the assessee [for short “AR”] at the outset contended that, the revisionary action triggered solely on the basis Revenue Audit objection and the Ld. CIT(Exemption) carried out the revision at the dictate of audit authority and thereupon ceteris paribus reiterated the contentions as put forth before Ld. CIT(Exemption). Adverting the paper book, it is submitted that, in response to queries raised during the course of original assessment proceedings, the due submissions were made before Ld. AO, which were duly considered, verified and after application of mind, the proceedings were completed, hence the assumption of revisionary jurisdiction is bad in law. Insofar as the merits of the case is concern, the Ld. AR taken us through pre-amended and post amended provisions of law and the relevant judicial precedents and contended that, the due exercise of opting for deemed application was indeed communicated through disclosure by all possible modes in the absence of specific format or by separate written letter. And at eventide Ld. AO prayed for liberal construction of exemption provision so for as the compliance of procedural requirement is alleged by the revisionary authority. Au contraire, the learned representative of revenue [for short “DR”], adverting to the explanation 1(2) to section 11(1) supported the order of Ld. CIT(Exemption) and submitted that, there was a clear failure on the part of assessee society in exercising the available option for deemed application of income by a separate written application to be filed on or before the due date of filing return of income. The Ld. DR arguendo contended that, the revisionary action directing to ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 9 of 16 decide the issues on merits would in no case cause prejudicial to the interest of the assessee, furthest prayed for dismissal of appeal. 8. Albeit, there are precisely two grounds raised before us, first collective ground assailed the validity of revisionary jurisdiction, and the second ground relates to merits. It is abundantly clear that, if the legal ground is adjudicated in favour of the assessee, the ground number 2 and all its counterpart would become academic, hence we would address the legal grievance first and for doing so, it is necessary to reproduce the relevant portion of the applicable provision of law to reach to adjudication; 8.1 “263. Revision of orders prejudicial to revenue – (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.” [Explanation 1] . . . . . . . [Explanation 2] —For the purposes of this section, it is hereby declared 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,— ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 10 of 16 (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.] (2) . . . . . . . (3) . . . . . . . ” (Emphasis supplied) 8.2 It is trite law that, the section 263 of the Act, empowers the revisionary authority to revise any order passed under the provisions of Act, and so long as the order sought to be revised is valid & legal in the eyes of law, it shall be well within the realm of the revisionary authority to revise it, subject to fulfilment of twofold condition laid therein. In sum and substance challenges the revisionary jurisdiction on non- satisfaction of twin condition laid in section 263 of the Act, and in relation hereto a plain reading of this provision makes it clear that, the precondition to exercise revisionary jurisdiction by the PCIT/CIT Suo moto under it is that, the order of AO must be erroneous insofar as it is prejudicial to the interests of the revenue is concern. Consequently, the provision mandates the satisfaction of existence of twofold conditions before invocation and these explicitly are; (i) the order of the assessing officer sought to be revised is erroneous; and (ii) it is prejudicial to the ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 11 of 16 interests of the revenue. If any one of two is absent or unsatisfied, that is where the order of the assessing officer is erroneous but is not prejudicial to the revenue or where order is not erroneous but is prejudicial to the revenue, then the recourse to Section 263(1) of the Act fails. Albeit the foresaid twin satisfaction drawn from the assessment records may trigger the revisionary jurisdiction, yet such shall not automatically empower the revisionary tax authorities to conclude the revision proceedings without obeying additional dual riders such as; (i) making or causing to be made such enquiry as necessary and (ii) according an opportunity of being heard to the assessee following the principle of natural justice. In the light of provision of law, it is of paramount importance to note that, an incorrect assumption of facts or an incorrect application of law or passing an order without application of mind or without applying the principle of natural justice, shall discretely be sufficient to hold the order being erroneous. Albeit the term prejudicial to the interests of the revenue is not at all defined in the Act, but is needs to be understood in its ordinary meaning and it is of wide import and is not confined to mere loss to ex-chequer. 9. In the light of aforestated discussion of law and considering the judicial precedents, upon careful consideration of factual matrix as enumerated in the proceeding paragraphs, it is evident that, 9.1 in response to notices issued u/s 143(2), the appellant made written submission inter-alia copy of income tax return accompanying statement of computation of total income, audited financial statements, ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 12 of 16 copy of audit report issued in form No 10B r.w.r. 17B of the Act etc. And after considering the same, the claim of exemption u/s 11 was worked out by the Ld. AO. Insofar as the exercise of option is concern, the disclosure with their respect was first made in the computation of total income (placed at page 1 of P/B), followed by return of income at “clause 6(iii) of Part-B-TI” (placed at page 6 of P/B) and further in Form No 10B (audit report) “Clause 2 of Annexure to audit report 2” (placed at page 33 of P/B). Nota bene, these all evidential documents were submitted during the course of original assessment proceedings and invariably part of assessment records. This establishes that, during the course of assessment proceedings, explicit queries were raised, and unreserved submission were matured before the Ld. AO, consequent to which inquiries into the claims u/s 11 were conducted in the light of documentary evidence and thereupon in the light of supportive material, drawing even-handed conclusions, the assessment was carried out, leaving no air in the assessment. 9.2 Per contra, the revisionary action and order u/s 263 of the Act, both entirely marshal out of a Revenue Audit Objection communicated and there was complete material absentia supporting the assumption of revisionary jurisdiction vis-à-vis conclusion reached by Ld. CIT(Exemption). It is trite law that, while exercising revisional jurisdiction, it must be bear in mind that, the principles of natural justice do not permit the decision of a revisionary authority to be influenced by any other authority or agency, which indeed unfortunately the case ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 13 of 16 squarely is, therefore, we are of the view that, this revisionary proceedings initiated on the thin ice of revenue audit objection report and concluded in absence of deprecative material, is untenable in law. 9.3 In this count we shall necessarily refer the ratio drawn by Hon'ble Guwahati High Court while adjudicating on similar issue in “B & A Plantation & Industries Ltd Vs CIT” reported at 290 ITR 395, where Hon’ble Lordship have emphasised the ratio decidendi laid by Hon’ble Apex Court in “Sirpur Paper Mill Ltd. Vs CWT” reported in 77 ITR 6, that while exercising power, the Commissioner must have an unbiased mind and decide the dispute according to the procedure which is consistent with the principles of natural justice and cannot permit his mind to be influenced by the dictation of another authority. The relevant observations from page 7 of the order read as under; “In exercise of the power the Commissioner must bring to bear and unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority." (Emphasis supplied) 9.4 In no case, mere audit information renders the order of assessment erroneous, and the very absence of material before the revisionary authority itself sufficient to hold the action as unsustainable in law and our view is invigorated by the Hon’ble Kolkata High Court in “Jeewanlal limited Vs ACIT” reported in 108 ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 14 of 16 ITR 407 (Cal). Further the Hon’ble High of Court of Bombay in “CIT Vs Gabriel India Ltd” reported in 203 ITR 108 has also taken similar view that, unless the revisionary authority forms a conclusion on the basis of concrete evidential material, it cannot reach to the conclusion rendering the order of assessment erroneous and prejudicial to the interests of the Revenue. In the light of aforestated reasoning, since the Ld. CIT(Exemption) solely acted upon the audit objection in absentia of contrary material, we neither find any infirmity with the order of assessment nor any merits in the revisionary order, ergo we quash the revisionary order, thus the legal ground of the appellant is answered in favour of assessee and against the revenue. 9.5 Insofar as procedural compliance is concerned, it is an admitted fact that, the law prescribing FORM and mandate come into force w.e.f. 01 st April, 2016 and applicable from AY 2016-2017 which abundantly be fortified by reproduction of text of relevant rule 17 as; “Rule 17 Exercise of option etc under section 11. (1) The option to be exercised in accordance with the provisions of the Explanation to sub-section (1) of section 11 in respect of income of any previous year relevant to the assessment year beginning on or after the 1st day of April, 2016 shall be in Form No. 9A and shall be furnished before the expiry of the time allowed under sub-section (1) of section 139 for furnishing the return of income of the relevant assessment year. (2) . . . . . . . (3) The option in Form No. 9A referred to in sub-rule (1) and the statement in Form No.10 referred to in sub-rule (2) shall be furnished ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 15 of 16 electronically either under digital signature or electronic verification code. (4) . . . . . . .” (Emphasis supplied) 9.6 In the light of aforesaid provision, we are of the strong view that, in the absence of any prescribed form for procedural compliance for the year under consideration, a written communication through disclosure either through income tax return filed within due date or audit report in form no 10B filed within the due date shall discretely be sufficient to hold the compliance of law. Since the society in appeal has duly communicated the fact of its deemed application of income on account of non-receipt thereof in terms of clause 2(i) of explanation 1 to section 11(1) of the Act, we mindfully hold it has due compliance of prevailing & applicable law of the year under consideration, resultantly the ground number 2 in toto is also answered in favour of assessee and against the revenue, consequently we quash the revionary order as bad in law. 10. Resultantly, the appeal of the assessee is allowed, in terms of aforestated observation. Order pronounced in open on this Wednesday 20 th day of April, 2022. -S/d- -S/d- RAVISH SOOD JAMLAPPA D BATTULL JUDICIAL MEMBER ACCOUNTANT MEMBER पणजी / PANAJI ; दिना ां क / Dated : 20 th April, 2022 ITA No. 98/PAN/2020 Mineral Foundation Goa, AY : 2013-2014 ITAT-Panaji Page 16 of 16 आदेश की प्रधिधलधप अग्रेधर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT- Bengaluru (Karnataka) / Panaji (Goa) 4. The CIT(Exemption), Bengaluru (Karnataka) 5. दवभागीय प्रदतदनदि, आयकर अपीलीय न्यायादिकरण, पणजी बेंच, पणजी / DR, ITAT, Panaji Bench, Panaji. 6. गार्डफ़ाइल / Guard File. आिेशान ु सार / BY ORDER, दनजीसदचव / Private Secretary आयकर अपीलीय न्यायादिकरण, पणजी / ITAT, Panaji.