Synthetic & Art Silk Mills Research Association Vs CIT (ITAT Mumbai)
ITAT Mumbai held that revision under section 263 of the Income Tax Act unjustified as AO while allowing the exemption in the order passed under section 144 r.w.s.263 has taken a possible view upon verifying the details available on record.
Facts- The assessee is a Public Charitable Trust registered u/s. 12A of the The assessee is also approved research organization u/s. 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 u/s. 11 of the Act. The assessee’s assessment was re-opened by issue of notice u/s. 148 of the Act dated 28.03.2018.
Notably, AO vide order dated 14.11.2018 passed u/s. 143(3) r.w.s. 147 of the Act accepted the alternate submission of the assessee held that the assessee’s income is exempt u/s. 10(21) of the Act and accordingly completed the assessment assessing the income at Rs. Nil.
However, CIT (Exemption) was of the view that auditorium hire charges; hoarding site and service charges and licence fee/ rent is not eligible for exemption u/s. 10(21) of the Act. Hence, to this extent the First CIT (Exemption) considered the order of the AO passed u/s. 143(3) r.w.s 147 of the Act to be erroneous and prejudicial to the interest of the Revenue.
Conclusion- Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT has 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.
Held that whether the impugned income is incidental to the objects of the assessee trust is a debatable issue and that the AO while allowing the exemption in the order passed under section 144 r.w.s.263 has taken a possible view upon verifying the details available on record. Thus, the conclusion of the second CIT (Exemptions) that the order passed by the AO is erroneous is not tenable and liable to be quashed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is against the order of the Commissioner of Income Tax, (Exemption), Mumbai dated 23.03.2023 passed under section 263 of the Income tax Act, 1961 (for short the ‘Act’) for the AY 2013-14. The assessee raised the following grounds:
1. On the facts and circumstances of the case and in law, the power exercised by Ld. Commissioner of Income Tax (in short referred to as the Ld. CIT) under Sec. 143(3) r.w.s. 263 of the Act, in law, is patently illegal as the Re- assessment Order subjected to revision is not erroneous or nor it is prejudicial to interest of the Revenue and hence, impugned Order 23/03/2023 needs to be quashed.
2. On the facts and under the circumstances of the case, Ld. CIT has erred in invoking the proceedings since the assessment order dated 04.04.2022 was passed accepting the return and exemption claim of the appellant based on their earlier revision proceedings completed by the Ld. CIT vide order dated 05.03.2021.
3. On facts and circumstances of the Case, CIT conveniently misinterpreted provisions of Sec. 10(21) of the Act when language of said provision is plain and unambiguous and any income of the “Research Association” is exempt from Income Tax.
4. The Ld. CIT failed to understand that the Legislature has given exemption to “Any income” as per said expression used at beginning of Sec. 10(21) and failed to understand that the exemption to Income from Tax is not restricted to particular class or category of Income nor based on source of income.
5. The Ld. CIT misinterpreted provisions of Sec. 10(21) of the Act that the Legislature 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 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) in assessee’s case for AY 2009-10 and 2015-16. Accordingly the AO re-opened the assessment stating that the assessee by claiming exemption under section 11 has understated the income for AY 2013-14 and that the income has escaped assessment within the meaning of section 147 of the Act. In response the assessee filed letters dated 25.07.2018 and 30.07.2018 to submit that the Proviso to section 2(15) of the Act is not applicable to the assessee since the activities of the Trust are not in the nature of Trade, commerce or business and that the assessee is engaged in imparting education through various ways such as research and conducting educational courses.
3. The assessee while filing objections to the reasons recorded dated 08.2018 made an alternate plea before the AO that the assessee being engaged in carrying out research activities and being notified under section 35(1)(ii) is entitled to the benefit under section 10(21) of the Act. The assessee vide letter dated 31.10.2018 also filed the revised computation claiming deduction under section 10(21) of the Act before the AO. The AO vide order dated 14.11.2018 passed under section 143(3) r.w.s. 147 of the Act accepted the alternate submission of the assessee held that the assessee’s income is exempt under section 10(21) of the Act and accordingly completed the assessment assessing the income at Rs. Nil.
4. The CIT(Exemption) (herein after “First CIT(Exemption)”), Mumbai on perusal of the assessment recorded noticed that the assessee’s income includes the following amounts which have been considered for the purpose of claiming exemption under section 10(21) of the Act:
