Section 263 Revision Invalid as AO Had Already Examined Key Issues: ITAT Visakhapatnam

Lakshmi Ganapathi Seva Samithi Vs CIT (ITAT Visakhapatnam)

The Income Tax Appellate Tribunal (ITAT), Visakhapatnam, partly allowed eight appeals filed by two assessees against revisionary orders passed by the Commissioner of Income Tax (CIT) under Section 263 of the Income-tax Act, 1961 for Assessment Years 2007-08 to 2010-11. The Tribunal held that the Commissioner could not invoke Section 263 on issues that had already been examined by the Assessing Officer (AO) during the reassessment proceedings, except in relation to the computation of income from house property, where the AO had failed to examine the discrepancy.

The assessees, societies registered under the Societies Registration Act, had filed returns claiming exemption under Sections 11 to 13 of the Act. The assessments were reopened under Section 147 on the ground that the assessees had claimed exemption without registration under Section 12AA. The AO completed assessments under Section 143(3) read with Section 147 by rejecting the exemption under Section 11 and assessing the income in the status of an Association of Persons (AOP).

The Commissioner subsequently initiated revision proceedings under Section 263, alleging that the assessment orders were erroneous and prejudicial to the interests of the Revenue because the AO had failed to properly examine four issues: (i) exemption claimed on corpus donations without verifying whether the donations were accompanied by specific directions from the donors, (ii) applicability of the maximum marginal rate of tax to the AOP, (iii) the nature of an advance of ₹10 lakh made to Gopisetty Mallaiah & Co., the President of the society, and (iv) a discrepancy in the computation of income from house property. The Commissioner set aside the assessments and directed the AO to conduct fresh assessments after proper verification.

Before the Tribunal, the assessees contended that the AO had issued detailed questionnaires during the reassessment proceedings and had specifically examined each of the issues identified by the Commissioner. They argued that all relevant information, including details of corpus donations, the advance made to Gopisetty Mallaiah & Co., and the reasons why the maximum marginal rate was inapplicable, had been furnished and considered by the AO before the assessments were completed.

The Tribunal examined the assessment records and found that the AO had indeed issued questionnaires on multiple occasions seeking details regarding corpus donations and the advance to Gopisetty Mallaiah & Co., and that the assessees had furnished the required explanations and supporting information. It held that once the AO had called for details and considered the explanations, a presumption arose that the issues had been examined. The Commissioner could not invoke Section 263 merely because he believed that further or more detailed inquiry should have been conducted. The Tribunal observed that there is a distinction between lack of inquiry and inadequate inquiry, and that Section 263 can be invoked only where there is a lack of inquiry, not where the Commissioner merely disagrees with the extent or adequacy of the inquiry conducted by the AO.

The Tribunal further held that the Commissioner was incorrect in concluding that the maximum marginal rate should have been applied. It observed that societies registered under the Societies Registration Act are prohibited from distributing surplus among their members, and therefore the question of indeterminate shares and application of the maximum marginal rate did not arise in the manner suggested by the Commissioner. Similarly, with regard to the advance made to Gopisetty Mallaiah & Co., the Tribunal noted that the assessees had explained that the advance was made for the construction of an old age home on land belonging to the society, and this explanation had been accepted by the AO after examination.

However, the Tribunal found that the Commissioner was justified in exercising revisionary jurisdiction regarding the discrepancy of ₹52,717 in the computation of income from house property. The assessees themselves admitted that they had no explanation for the difference between the income declared in the return and the income assessed by the AO. Since the AO had failed to examine this issue, the assessment order was erroneous and prejudicial to the interests of the Revenue to that extent.

Referring to earlier decisions of the Visakhapatnam Bench, the Tribunal reiterated that revision under Section 263 requires the coexistence of two conditions: the assessment order must be both erroneous and prejudicial to the interests of the Revenue. It held that the Commissioner cannot initiate revision merely to conduct fishing or roving inquiries or because a different view is possible on matters already examined by the AO. Accordingly, the Tribunal modified the Commissioner’s order by sustaining the revision only with respect to the issue of income from house property and setting aside the revision on the issues of corpus donations, applicability of the maximum marginal rate, and the advance to Gopisetty Mallaiah & Co. The appeals were partly allowed.

FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM

These 8 appeals filed by two different assessees are directed against separate, but identical orders of the CIT, Vijayawada u/s 263 of the Income Tax Act, 1961 (hereinafter called as ‘the Act’) for the assessment years 2007-08 to 2010-11. Since, the facts are identical and issues are common, they are heard together and disposed off, by this common order for the sake of convenience.

2. The brief facts of the case are that the assessee is a Society registered under the Societies Registration Act on 27.5.1997 filed its return of income for the assessment years 2007-08 to 2010-11 admitting nil total income after claiming exemptions as per provisions of section 11 to 13 of the Act. The returns were processed u/s 143(1) of the Act. Subsequently, the assessments were re-opened u/s 147 of the Act, with a reason that the assessee has claimed exemption u/s 11 of the Act, without any registration u/s 12AA of the Act, accordingly, the income chargeable to tax has been escaped assessment for the assessment year 2007-08 to 2010-11. In response to notice u/s 148 of the Act, the assessee society has filed revised return of income for the assessment year 2007-08 to 2010-11 declaring nil total income after claiming exemption u/s 11 of the Act. The case has been selected for scrutiny and accordingly, notice u/s 143(2) of the Act and 142(1) of the Act along with questionnaire were issued to the assessee. In response to notices, the authorized representative of the assessee appeared from time to time and furnished relevant information. The A.O. after considering the information submitted by the assessee completed the assessment u/s 143(3) r.w.s. 147 of the Act and rejected exemption claimed by the assessee u/s 11 of the Act and assessed income as AOP.

3. The CIT, Vijayawada issued a show cause notice dated 23.1.2014 and asked to explain why the assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act, shall not be revised under the provisions of section 263 of the Act. The CIT, proposed to revise the assessment order, for the reason that on examination of assessment records, certain omissions and commissions were noticed which rendered the assessment order erroneous, in so far as it is prejudicial to the interest of the revenue within the scope of section 263 of the Act. The CIT, in the said show cause notice, observed that the A.O. accepted the exemption claim made by the assessee on certain donations as donations for specific purpose for the impugned assessment years 2007­08 to 2010-11 without there being any material to show that the donations received by the assessee are corpus donations. The CIT, further, observed that although the A.O. has rejected assessee’s exemption claim and had assessed its income under the head “income from house property and other sources”, the A.O. has not taxed the income at the maximum marginal rate for any of these assessment years when assessee’s status is an AOP in the absence of registration u/s 12A of the Act ad also the shares of its members are indeterminate. Similarly, the CIT further observed that on verification of statement of computation of total income filed along with return of income, it is noticed that the assessee has admitted income from house property of ` 2,30,551/- whereas the A.O. has assessed income from house property at ` 1,77,834/-. The CIT further observed that the assessee has advanced an amount of ` 10 lakhs to Gopi Setty Mallaya & Company, the President of the assessee AOP. The A.O. has failed to examine the nature of payment made to Gopi Setty Mallaya & Company. The A.O. without examining above issues, simply completed assessment by making certain adhoc disallowances which rendered the assessment order erroneous in so far as it is prejudicial to the interest of the revenue in terms of section 263 of the Act. With these observations, issued a show cause notice dated 23.1.2014 and asked to explain why the assessment order passed u/s 143(3) r.w.s. 147 of the Act for the assessment year 2007-08, 2008-09, 2009-10 & 2010-11 shall not be revised under the provisions of section 263 of the Act.

4. In response to show cause notice, the assessee submitted that the assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act is not erroneous, in so far as it is prejudicial to the interest of the revenue, as the A.O. has examined all the issues pointed out in the show cause notice at the time of completion of assessment. The assessee further submitted that it has furnished books of accounts and other relevant information at the time of assessment, in response to a show cause notice issued by the assessing officer on various occasions. The A.O. has issued show cause notice and asked details about the corpus donations, income from house property and advance given to Gopisetty Mallaiah & Co. for which the assessee has furnished necessary details to the satisfaction of the A.O. The A.O. after examining the details furnished by the assessee has accepted the explanation and assessed the income which cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue.

5. The assessee further submitted that in respect of maximum marginal rate of tax, the assessee is a registered society under the provisions of Societies Registration Act with the main objective of charitable and religious activities cannot share its surplus among its members, accordingly, applicability of maximum marginal rate for the surplus income does not arise. This fact that was brought to the notice of the A.O. and the A.O. after satisfied with the explanation furnished by the assessee, assessed the income in the capacity of AOP and applied the rate of tax applicable to AOP/individual, therefore, the assessment order passed by the A.O. is not erroneous in so far as it is prejudicial to the interest of the revenue. As regards the corpus donations, the assessee submitted that the society has collected corpus donations from members of public for the purpose of establishment of old age homes and construction of temple building and the donors have donated the amount with a specific direction to use the funds for the objects of the trust and accordingly it has rightly treated specific donations received from the public as corpus donations. The A.O. after examining the relevant details has accepted the explanation of the assessee and excluded the corpus donations from the gross income for the purpose of taxation. The assessee further submitted that all these facts were brought to the notice of the A.O. at the time of assessment, the A.O. being satisfied with the details furnished by the assessee completed the assessment, therefore, the assessment order passed by the A.O. cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue.

6. The CIT after considering the submissions of the assessee held that the assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act is erroneous in so far as it is prejudicial to the interest of the revenue, as the assessing officer has failed to examine the issues pointed out in the show cause notice with reference to necessary details before allowing exemption towards corpus donations and also taxing the income under normal rate of tax applicable to individual/AOP. The CIT, further, observed that the A.O. has failed to examine the allowability of exemption of corpus donations, as section 11(1)(d) r.w.s. 12 of the Act provides with any voluntary contribution received by the trust or institution, where such contribution is made with a specific direction that the same shall form part of the corpus of the trust or distribution, shall be exempt from tax, however, the A.O. without examining the above aspects simply accepted explanations offered by the assessee without going into the details such as testamentary instructions which is necessary to prove the donations is with a specific direction or not.

7. The CIT, further, observed that the A.O. wrongly taxed income of AOP society under normal rate of tax applicable to individual/AOP, even though the assessee AOP is not registered under the provisions of section 12A of the Act and also the shares of its members are indeterminate. As regards advance given to Gopisetty Mallaiah & Co., the A.O. failed to examine as to whether any part of income or property of the assessee was directly or indirectly used for the benefit of the President or on what ground the assessees fund was advanced to the President. Without examining the relevant details, simply accepted the explanations offered by the assessee which renders assessment order erroneous in so far as it is prejudicial to the interest of the revenue. Similarly, the CIT further held that in so far as income from house property is concerned, there is a difference of ` 52,717/- in respect of income from house property. The A.O. without examining the above details simply accepted income of ` 1,77,834/- as against the correct income of ` 2,30,551/- which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. With these observations, set aside the order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act, for the assessment years 2007-08 to 2010-11, with a direction to re-do the assessment de-novo in accordance with law and the established procedures after giving the assessee a reasonable opportunity of being heard. Aggrieved with the CIT order, the assessee is in appeal before us.

8. The Ld. A.R. for the assessee submitted that the assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act is not erroneous in so far as it is prejudicial to the interest of the revenue, as the A.O. has examined all the issues pointed out by the CIT, in the show cause notice. The A.R. further submitted that the CIT was not correct in directing the A.O. to conduct further enquiries with regard to the issues which were already examined by the A.O. by issuing detailed questionnaire at the time of assessment. It is further submitted that the A.O. has examined the issue of corpus donations, applicability of maximum marginal rate of tax in respect of surplus income, and advance given to Gopisetty Mallaiah & Co.. The A.O. after satisfied with the details furnished by the assessee completed the assessment; therefore, the assessment order passed by the A.O. cannot be termed as erroneous in so far as it is prejudicial to the interest of the revenue. The Ld. A.R. further submitted that the CIT cannot take up revision on the issues, which were already examined by the A.O. by holding that the issues were not examined by the A.O. according to the satisfaction of the CIT. Once the A.O. has called for specified details about the issues on which the CIT wants further verification, a general presumption is drawn that the A.O. has verified the details and after satisfied with the explanation furnished by the assessee accepted the explanation and accordingly, the CIT is not correct in stating that the A.O. has not conducted proper enquiry of the issue at the time of completion of assessment.

9. The A.R. further submitted that as regards corpus donations is concerned; the assessee has collected corpus donations from members of public for the purpose of establishment of old age home and construction of building for which necessary details are furnished to the A.O. In so far as applicability of maximum marginal rate of tax is concerned, the assessee being a society registered under the Societies Registration Act is prohibited from distribution of any dividend/surplus among its members and hence, the question of distribution of surplus to its members and determination of share of each member does not arise. Once the society is registered under the Societies Registration Act, the income of such society shall be assessed as AOP and the rate of tax applicable to such society is normal rate of tax applicable to AOP/individual. In so far as advance to Shri Gopisetty Mallaiah & Co., the A.R. submitted that the assessee has advanced a sum of ` 10 lakhs for the purpose of construction of old age home on the site purchased by the Samiti during the financial year ending 31.3.2010. This fact was brought to the notice of the A.O. and the A.O. has verified this information and chosen to accept the explanation offered by the assessee. Similarly, as regard the income from house property, the A.R. submitted that there is a difference of ` 52,717/- in respect of income assessed by the A.O. to the income declared by the assessee under the head “income from house property” for which the assessee has no explanations to offer.

10. On the other hand, the Ld. D.R. strongly supported the order passed by the CIT. The D.R. further submitted that the CIT rightly assumed jurisdiction to revise the assessment order, as the A.O. has failed to examine the issues of corpus donations, maximum marginal rate of tax and income from house property. The D.R. further submitted that in respect of income from house property, the A.R. conceded that he has no explanation to offer which evidenced that the A.O. has not examined the issue at the time of assessment; therefore, the CIT rightly assumed jurisdiction and his order should be upheld.

11. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The CIT assumed jurisdiction to revise the assessment order for the reason that the A.O. has not conducted proper enquiry before completion of assessment, thereby the assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act, is erroneous in so far as it is prejudicial to the revenue. The CIT revised the assessment order for the reason that the A.O. has completed the assessment without examining the various issues which caused prejudice to the interest of the revenue. The CIT, further, was of the opinion that the A.O. has completed the assessment without examining the issue with regard to allowability of exemption to corpus donations, applicability of maximum marginal rate of tax to AOP, determination of income from house property and advance given to Gopisetty Mallaiah & Co., President of the Society. The CIT, further, observed that the assessee claims to have received corpus donations, but on verification of the details furnished by the assessee, it reveals that the A.O. has not called for relevant details of declarations filed by the assessee for having paid the donations with a specific directions. The CIT, further, was of the opinion that the A.O. has applied rate of tax applicable to individual/AOP, even though the assessee is not registered u/s 12A of the Act and also the shares of the members are indeterminate. Similarly, the A.O. has failed to examine the issue of advance given to one of the members of the society without examining the applicability of whether any part of income or property of the assessee was directly or indirectly used for the benefit of interested persons, thereby any violation of the provisions of section 13 of the Act. The A.O. not only failed to examine the issue, but also failed to apply his mind on various issues, which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue.

12. It is the contention of the assessee that the A.O. has examined the issues pointed out by the CIT in the show cause notice. The Assessee further contended that all the issues pointed out by the CIT have been examined by the A.O., at the time of assessment by way of specific questionnaire on various dates. The assessee further contended that the A.O. had issued notices on 28.10.2011 and 8.10.2012 for which the assessee has furnished details vide its letter dated 8.11.2012 and 22.11.2012. The assessee has furnished all the details with regard to corpus donations and also explained why maximum marginal rate of tax cannot be applied to its income. Similarly, the assessee has explained the purpose for which advance of ` 10 lakhs given to the Gopisetty Mallaiah & Co., therefore, the CIT was not correct in coming to the conclusion that the A.O. has not conducted enquiry of the issues. We find force in the arguments of the assessee for the reason that the A.O. has examined all the issues pointed out by the CIT, in the show cause notice at the time of completion of assessment by way of specific questionnaire. We further observed that the A.O. has issued questionnaires on two occasions i.e. 28.10.2011 & 08.10.2012 wherein he had asked details about corpus donations and advance given to Gopisetty Mallaiah & Co. The assessee vide its reply dated 8.11.2012 and 22.11.2012 furnished all the details with regard to corpus donations and advance given to Gopisetty Mallaiah & Co. Therefore, the CIT was not correct in coming to the conclusion that the A.O. has not conducted proper enquiry of the issues before completion of the assessment.

13. The CIT, assumed jurisdiction to revise the assessment order on the ground that there is a lack of enquiry on the part of the A.O. in examining the issues referred to in the show cause notice. The CIT questioned the issues right from verification of corpus donations to examination of advance given to member of society. As regards corpus donations is concerned, the CIT was of the opinion that the A.O. allowed exemption to corpus donations without examining declarations issued by the donors whether those donations are given with a specific directions or not. We do not find any merits in the findings of the CIT, for the reason that as admitted by the CIT in his order vide Para 5.5, the A.O. vide letter dated 28.10.2011 at point no.10 has called for the details of donors, etc. Once the A.O. has called for the details about corpus donations, a general presumption is drawn that the A.O. has verified all the details and also satisfied with the explanations furnished by the assessee. The CIT cannot presume that the A.O. has not examined the issues unless he points out that the A.O. has not examined the issue. As regards the applicability of maximum marginal rate of tax is concerned, the CIT was of the opinion that the A.O. ought to have applied maximum marginal rate of tax to the income of the society. But, the fact is that once the society is registered under the Societies Registration Act, the applicability of maximum marginal rate does not arise, it is because the societies are registered under the Societies Registration Act are prohibited from distribution of any surplus to its members. Once the distribution of profit to its members is prohibited, the question of determination of share of each individual member does not arise. Hence, the CIT was not correct in coming to the conclusion that the rate of tax applicable to the assessee is maximum marginal rate of tax without understanding the provisions.

14. Similarly, as regards the advance given to Gopisetty Mallaiah & Co., the assessee vide its letter dated 24.3.2014 given details of advance given to Gopisetty Mallaiah & Co. and explained the purpose for which the advance is given. The assessee explained that it has given advance for the purpose of construction of old age home on the site belonging to the assessee. The A.O. after satisfied with the explanation of the assessee has accepted the explanation furnished by the assessee, which cannot be termed as erroneous. Even otherwise, assuming for a moment that the assessee has given advance to one of its members, the findings of the CIT is incorrect, as once the income of the society is assessed under the normal provisions of the Act denying benefit of exemption u/s 11 of the Act, the question of examination of diversion of funds directly or indirectly to the benefit of interested persons does not arise. In the present case on hand, on perusal of the facts available on record, we find that the A.O. has examined all the issues i.e. corpus donations, applicability of maximum marginal rate of tax and advance given to Gopisetty Mallaiah & Co., except the issue with regard to difference in income from house property of ` 52,717/-. In respect of difference in income from house property of ` 52,717/-, the assessee himself has admitted that he has no explanations to offer. Accordingly, the CIT has directed the A.O. to assess correct income from house property. Therefore, we are of the view that once the issues which were subject matter of revision u/s 263 of the Act, have been examined by the A.O., at the time of assessment, then the CIT has no jurisdiction to entertain fresh enquiry on the same issues, because he had a different opinion on the issues. In our considered view, the issues pointed out by the CIT except income from house property, have been thoroughly examined by the A.O. at the time of assessment, therefore, the CIT was not correct in coming to the conclusion that the A.O. has not examined the issues before completion of assessment.

15. The CIT, has power to revise the assessment order u/s 263 of the Act, but to invoke the provisions of section 263 of the Act, the twin conditions must be satisfied i.e. (1) the order of the CIT is erroneous (2) further it must be prejudicial to the interest of the revenue. Unless both the conditions are satisfied, CIT cannot assume jurisdiction u/s 263 of the Act. It is not necessary that every order which is erroneous may be prejudicial to the interest of the revenue or vice-versa. In some cases, the order passed by the A.O. may be erroneous but it may not be prejudicial to the interest of the revenue. Unless the order passed by the A.O. is erroneous and prejudicial to the interest of the revenue, the CIT cannot assume jurisdiction to revise the assessment order, this is because the twin conditions i.e. the order is erroneous and the same is prejudicial to the interest of the revenue are co-exist. In the present case on hand, on perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry and also examined the issues pointed out by the CIT in his show cause notice. The assessee explained each and every issue pointed out by the CIT with necessary evidences. The CIT cannot assume jurisdiction to revise the assessment order, once assessee explained that it had filed all the details before the A.O. on the issues on which CIT wants further verification. It is the general presumption of law that once the A.O. has considered all the details before completion of assessment and the CIT cannot presume that the enquiries conducted by the A.O. is insufficient and also the A.O. has not applied his mind, unless the CIT proves that the assessment order passed by the A.O. is erroneous.

16. Now it is pertinent to discuss the case law relied upon by the assessee. The assessee relied upon the decision of coordinate bench of Visakhapatnam Tribunal, in the case of Shri Sai Contractors Vs. CIT, in ITA No.109/Vizag/2012 dated 30.9.2015. The coordinate bench of this Tribunal, under similar circumstances held that once the A.O. examined the issues on which the CIT wants further verification, the CIT cannot assume jurisdiction on the same issues which was already examined by the A.O. at the time of assessment, by stating that the A.O. has conducted inadequate enquiry or there is a lack of enquiry. Relevant portion of the order is reproduced hereunder:

“10. To invoke the provisions of section 263 of the Act, the twin conditions must be satisfied i.e. the order of the assessing officer is erroneous and further it must be prejudicial to the interest of the revenue. Unless both conditions are satisfied, the CIT cannot assume jurisdiction to pass order u/s 263 of the Act. It is not necessary that every order which is prejudicial to the interest of revenue is also erroneous. Unless the A.O’s order is not erroneous, no action can be taken by the CIT u/s 263 of the Act, this is because the twin conditions i.e. (1) the order is erroneous and (2) the same is also prejudicial to the interest of the revenue are not co­exists. In the present case, the A.O. has conducted enquiry before allowing deduction towards wages and centering expenses and also examined the points on which the CIT wants further verification. The assessing officer after carefully examined the books of accounts and relevant vouchers furnished by the assessee passed the assessment order as indicated in his order, which is clearly evident from the assessment order. The contention of the CIT was that the A.O. has not conducted proper enquiry and also not applied his mind before allowing the deduction. But, we do not agree with the CIT for the reason that there is a distinction between lack of enquiry and inadequate enquiry. If there is an inadequate enquiry that would not by itself give occasion to the CIT to assume jurisdiction u/s 263 of the Act, merely because he has a different opinion in the matter. The CIT can do this only, when there is a lack of enquiry by the assessing officer. In the present case, the assessment order is detailed one and also, the A.O. has passed a remarks in the assessment order on two issues, on which the CIT assumed jurisdiction, i.e. disallowance of round some expenditure of Rs. 1,00,000/- under the head wages and centering charges and also partner’s capital accounts, where the addition was Rs. 66,825/-.The A.O. had called for explanation and the assessee has furnished its explanation. But, the CIT was of the opinion that the assessing officer could have do well to explore the possibility of rejecting the books of accounts and estimate the profit. According to CIT, the assessing officer has conducted enquiry but, in adequate, therefore he wanted further enquiry on the issue on which he assumed jurisdiction. This fact had not been disputed by the revenue. The Commissioner cannot initiate revision proceedings, with a view to conduct fishing and revolving enquiry in the matters which are already examined by the A.O. The Department cannot do fresh assessment in the guise of revision on the matters which are examined and concluded by the A.O. The A.O. being a Quasi Judicial authority, shall have the authority to exercise right judgement and discretion on the basis of information available before him. In the present case on hand, the Assessing Officer after considering vouchers, made an round some addition of Rs.1,00,000/-which is one of the possible view available for him, which the CIT shall not term it as lack of enquiry or non application of mind. Thus, it cannot be said that it is a case of lack of enquiry or non application of mind.”

17. The assessee relied upon the decision of Visakhapatnam ITAT, in the case of Sri Vasavi Compounding Vs. ITO in ITA No.197/Vizag/2012 dated 29.7.2016. The coordinate bench of this Tribunal, under similar facts held as under:

“11. The CIT has power of revising the assessment order u/s 263 of the Act, but, to invoke the provisions of section 263 of the Act, the twin conditions must be satisfied i.e. the order of the A.O. is erroneous and further it must be prejudicial to the interest of the revenue. Unless both the conditions are satisfied, the CIT cannot assume jurisdiction u/s 263 of the Act. It is not necessary that every order which is erroneous must be prejudicial to the interest of the revenue or vice versa. Unless, the assessment order is erroneous, no action can be taken by the CIT u/s 263 of the Act, this is because the twin conditions, i.e the order is erroneous and the same is prejudicial to the interest of the revenue are co-exist. In the present case on hand, on perusal of the facts available on record, we find that the A.O. has conducted detailed enquiry and also examined the issue of deduction claimed u/s 80IB of the Act and other issues pointed out by the A.O. The assessee explained that though filing of audit report in form no.10CCB is mandatory in nature, it is not necessary to file the same along with return of income in view of the changes in filing of income tax return from paper return to e-filing of income tax returns. In the new system of e-filing of income tax returns, filing of physical copy of any reports or statements is done away with. Similarly, as regards the eligibility of job work charges for claiming deduction u/s 80IB of the Act, which was examined by the A.O. and allowed deduction after satisfied with the activity of the assessee. Therefore, we are of the view that the assessment order passed by the A.O. u/s 143(3) of the Act dated 20.11.2009 it is not erroneous in so far as it is prejudicial to the interest of the revenue.”

18. Considering the facts and circumstances of this case and also respectfully following the ratios of the coordinate bench, we are of the view that the assessment order passed by the A.O. u/s 143(3) r.w.s. 147 of the Act, is not erroneous in so far as it is prejudicial to the interest of the revenue in so far as three issues pointed out by the CIT in his order with regard to corpus donations, applicability of maximum marginal rate and advance given to Gopisetty Mallaiah & Co. In so far as determination of income from house property, the CIT has rightly revised the assessment order, as the A.O. has failed to examine the issue to bring the correct amount of income to the tax. Therefore, we modified the CIT’s order u/s 263 of the Act and upheld the findings of the CIT, with regard to income from house property and set aside order of the CIT in respect of corpus donations, applicability of maximum marginal rate and advance given to Gopisetty Mallaiah & Co.

19. In the result, the appeals filed by the assessees in ITA Nos.212 to 215/Vizag/2014 & ITA Nos. 216 to 219/Vizag/2014 are partly allowed.

The above order was pronounced in the open court on 26^th Aug’16.