Case Law Details
DIT Exemptions Vs India Heritage Foundation Gokulam Complex (Karnataka High Court)
It is evident that the Assessing Officer has not made any enquiry with regard to the claim of the assessee for deduction under Section 80IB(10) of the Act. The Director of Income Tax (Exemption) in the order passed under Section 263 of the Act has held that the Assessing Officer has not applied its mind on the issue of allowance of deduction under Section 80IB(10) of the Act and application of income under Section 11 of the Act. Therefore, it has been held that the order passed by the Assessing Officer is erroneous and is prejudicial to the interest of the revenue. The Tribunal by placing reliance on the decision in the case of HERO AUTO LIMITED SUPRA has held that lack of enquiry regarding eligibility of assessee for deduction under Section 80IB(10) of the Act cannot be upheld. It is pertinent to mention here that in the aforesaid decision, from perusal of paragraph 3, it is evident that there was not discussion in the order of Commissioner of Income Tax (Appeals) as to how and in what manner the enquiry was lacking and what was the fault and default committed by the Assessing Officer. The distinction between lack of enquiry and inadequate enquiry was also noted. Therefore, the Tribunal grossly erred in law in applying the aforesaid decision to the fact situation of the case and ought to have appreciated that the instant case was a case of lack of enquiry and not inadequate enquiry with regard to claim of the assessee with regard to deduction under Section 80IB(10) of the Act.
It is pertinent to mention here that the Tribunal has recorded the finding that the Assessing Officer should have examined the claim for deduction of the assessee in the light of Section 11 of the Act. The relevant extract of paragraph 21 reads as under:
‘To this extent, the AO ought to have made enquiries and failure to do so would render the order of the AO erroneous and prejudicial to the interest of the revenue. The further conclusion of the DIT based on the aforesaid decision that the assessee would not be entitled to deduction under Section 80IB(10) of the Act and that the AO should examine the claim for exemption under Section 11 of the Act in the light of the fact whether the assessee has applied income for charitable purpose is also correct.”
The Tribunal thereafter could not have proceeded to examine the matter on merits after setting aside the order under Section 263 of the Act with reference to Section 13(8) of the Act as the merits of the matter was not the subject matter of the appeal before the Tribunal.
In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the revenue and against the assessee. The order passed by the Income Tax Appellate Tribunal dated 29.06.2012 is quashed. The order passed by the Director of Income Tax (Exemption), Bangalore dated 19.12.2011 insofar it contains a direction to the Assessing Officer to disallow the deduction under Section 80IB(10) of the Act is also quashed. We have therefore not expressed any opinion with regard to claim of the assessee for deduction under Section 80IB(10) of the Act and direct the Assessing Officer to deal with the aforesaid claim of the assessee afresh in accordance with law.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 01.03.2013 on the following substantial questions of law:
(i) Whether the Tribunal was correct in holding that the order under Section 263 of the Act is not sustainable in view of insertion of Section 13(8) of the Act, when the subject matter of revision under Section 263 was regarding eligibility of the assessee to claim deduction under Section 80IB(10) of the Act?
(ii) Whether the Tribunal was correct in applying the provisions of Section 13(8) of the Act, thereby traversing beyond the scope of the appeal without appreciating the facts and circumstances and recorded a perverse finding?
2. Facts leading to filing of this appeal briefly stated are that assessee is a Trust engaged in the business of construction and real estate activities and is registered under Section 12AA of the Act on 07.12.2007. The assessee filed the return of income for the Assessment year 2009-10 and declared total turnover to the tune of Rs.194.24 Crores and a sum of Rs.57.39 Crores was claimed as profit. The assessee declared the income as ‘NIL’ and claimed deduction in respect of an amount of Rs.57.39 Crores as deduction under Section 80IB(10) of the Act. The aforesaid deduction was allowed by the Assessing Officer vide order dated 18.03.2011. The order of the Assessing Officer was found to be erroneous and prejudicial to the interest of the revenue. Therefore, a show cause notice dated 18.10.2011 under Section 263 of the Act was issued by the Director of Income Tax (Exemption), Bangalore to the assessee proposing to disallow deduction of Rs.57.39 Crores under Section 80IB(10) of the Act. The assessee vide communication dated 21.11.2011 made submissions. The Director of Income Tax (Exemption) by an order dated 19.12.2011 inter alia held that no enquiry was conducted by the Assessing Officer with regard to the claim of the assessee for deduction under Section 80IB(10) of the Act. It was further held that the order passed by the Assessing Officer is prejudicial to the interest of the revenue. The Director of Income Tax (Exemption) quashed the order passed by the Assessing Officer and directed him to disallow the deduction as claimed by the assessee under Section
80IB(10) of the Act and to carry out the assessment afresh in accordance with law after affording an opportunity of hearing to the assessee.
3. Being aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’, for short). The Tribunal vide order dated 29.06.2012 inter alia held that invocation of Section 263 of the Act on the ground of lack of enquiry with regard to claim of deduction made by the assessee under Section 80IB(10) of the Act cannot be upheld. It was further held that Assessing Officer should have examined the claim for exemption under Section 80IB(10) of the Act in the light of the fact whether the assessee had applied the income for charitable purposes. However, the Tribunal held that Section 13(8) of the Act was incorporated with effect from 01.04.2009 and by virtue of Section 13(8) of the Act, the income of the assessee from developing housing project by virtue of Section 13(8) of the Act would become part of total income under the Act. It was further held that in the
light of aforesaid retrospective amendment of the law, the application of income for charitable purposes becomes irrelevant. It was further held that income derived from business cannot be considered as income derived from the property held for charitable purposes. The Tribunal, therefore, set aside the order passed under Section 263 of the Act and allowed the appeal preferred by the assessee. Being aggrieved, the revenue has filed this appeal.
4. Learned counsel for the revenue submitted that the Tribunal itself in paragraph 21 of the order had recorded the finding that invocation of Section 263 of the Act in the facts of the case is justified. It was argued that the Tribunal therefore, grossly erred in setting aside the order under Section 263 of the Act. It was further submitted that the issue in the appeal before the Tribunal was whether the Director of Income Tax (Exemption) was justified in invoking the provisions of Section 263 of the Act in the fact situation of the case and therefore, the Tribunal could not have dealt with the merits of the matter and should not have set aside the order on merits passed under Section 263 of the Act. It is also urged that the Tribunal ought to have appreciated that the Assessing Officer had failed to examine the issue whether the income was expended for charitable purposes. In support of aforesaid submissions, reliance has been placed on a decision Supreme Court in ‘COMMISSIONER OF INCOME-TAX, MUMBAI VS. AMITABH BACHAN’, (2016) 69
TAXMANN.COM 170 (SC) and decision of this court in ‘THE COMMISSIONER OF INCOME TAX AND ANR. VS. M/S INDIA HERITAGE TRUST’, ITA NO.754/2007 DATED 04.08.2014.
5. On the other hand, learned counsel for the assessee submitted that since, the assessee does not fall within scope and ambit of Section 11(1)(a) of the Act, the income of the assessee has to be computed in accordance with other provisions of the Act. It is further submitted that total income of the assessee has to be assessed as provided under Section 14 of the Act. It is also pointed out that the order of assessment was passed by the Assessing Officer with due application of mind and therefore, the Director of Income Tax (Exemption) grossly erred in invoking Section 263 of the Act in the fact situation of the case. It is also argued that the order of the Assessing Officer can neither be said to be perverse nor is prejudicial to the interest of the revenue. Therefore, there was no justification to invoke Section 263 of the Act in the fact situation of the case. It is also argued that inadequacy of enquiry cannot be a ground for invoking Section 263 of the Act. It is also urged that merely because an order passed by the Assessing Officer results in loss in revenue, it cannot be treated as prejudicial to the interest of the revenue. It is also submitted that exemption under Section 80IB(10) of the Act can be claimed by an undertaking involved in developing and housing project, irrespective of it being a charitable trust. It is also argued that the Tribunal has rightly set aside the order passed under Section 263 of the Act. It is also urged that decision relied upon by the revenue in the case of AMITABH BACHAN supra does not support the case of the revenue as in the aforesaid case, the assessee had withdrawn the claim and the Assessing Officer had not examined the original claim made by the assessee and in the aforesaid context it was held that the Assessing Officer should have examined the original claim. In support of aforesaid submissions, reliance has been placed on decisions of Supreme Court in ‘COMMISSIONER OF INCOME-TAX (CENTRAL), DELHI VS. HARPRASAD & CO.P.LTD.’, (1975) 99 ITR 118X (SC), ‘MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX’, (2000) 243 ITR 83W (SC) and ‘COMMISSIONER OF INCOME-TAX VS. HERO AUTO LTD.’, (2012) 343 ITR 342 (DEL).
6. We have considered the submissions made by learned counsel on both the sides and have perused the record. Before proceeding further, it is apposite to take note of the relevant extract of Section 263 of the Act, which reads as under:
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 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 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 a fresh assessment.
7. Thus, from close scrutiny 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 firstly, the order of the Assessing Officer is erroneous and secondly, that it is prejudicial to the interest of the revenue on account of error in the order of assessment.
8. The aforesaid provision was considered by the Supreme Court in MALABAR INDUSTRIAL CO. LTD.I supra and it was held that the phrase ‘prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer and every loss of revenue as a consequence of the order of the Assessing Officer cannot be treated as prejudicial to the interest of revenue. It was further held that where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, the order passed by the Assessing Officer cannot be treated as erroneous order prejudicial to the interest of the revenue. The principles laid down in the aforesaid decision were reiterated by the Supreme Court in ‘CIT VS. MAX INDIA LTD.,’ 295 ITR 282 (SC) and recently in ‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS.’, CIVIL APPEAL NO.2773/2020 DECIDED ON 17.07.2020.
9. The seminal question, which arises for consideration in this appeal is whether on the anvil of aforesaid well settled principles of law, the impugned order passed by the Tribunal can be sustained. The relevant extract of order passed by the Assessing Officer reads as under:
“In response to the scrutiny notices the Authorized Representative Sri.S.Basker, CA appeared from time to time, case was discussed details and information called for. The assessee’s Authorized Representative has filed the information called for and after verification of the same the assessment is completed as mentioned below:
10. Thus, from perusal of the order passed by the Assessing Officer, it is evident that the Assessing Officer has not made any enquiry with regard to the claim of the assessee for deduction under Section 80IB(10) of the Act. The Director of Income Tax (Exemption) in the order passed under Section 263 of the Act has held that the Assessing Officer has not applied its mind on the issue of allowance of deduction under Section 80IB(10) of the Act and application of income under Section 11 of the Act. Therefore, it has been held that the order passed by the Assessing Officer is erroneous and is prejudicial to the interest of the revenue. The Tribunal by placing reliance on the decision in the case of HERO AUTO LIMITED SUPRA has held that lack of enquiry regarding eligibility of assessee for deduction under Section 80IB(10) of the Act cannot be upheld. It is pertinent to mention here that in the aforesaid decision, from perusal of paragraph 3, it is evident that there was not discussion in the order of Commissioner of Income Tax (Appeals) as to how and in what manner the enquiry was lacking and what was the fault and default committed by the Assessing Officer. The distinction between lack of enquiry and inadequate enquiry was also noted. Therefore, the Tribunal grossly erred in law in applying the aforesaid decision to the fact situation of the case and ought to have appreciated that the instant case was a case of lack of enquiry and not inadequate enquiry with regard to claim of the assessee with regard to deduction under Section 80IB(10) of the Act.
11. It is pertinent to mention here that in paragraph 21 itself the Tribunal has recorded the finding that the Assessing Officer should have examined the claim for deduction of the assessee in the light of Section 11 of the Act. The relevant extract of paragraph 21 reads as under:
‘To this extent, the AO ought to have made enquiries and failure to do so would render the order of the AO erroneous and prejudicial to the interest of the revenue. The further conclusion of the DIT based on the aforesaid decision that the assessee would not be entitled to deduction under Section 80IB(10) of the Act and that the AO should examine the claim for exemption under Section 11 of the Act in the light of the fact whether the assessee has applied income for charitable purpose is also correct.”
12. The Tribunal thereafter could not have proceeded to examine the matter on merits after setting aside the order under Section 263 of the Act with reference to Section 13(8) of the Act as the merits of the matter was not the subject matter of the appeal before the Tribunal.
In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered in favour of the revenue and against the assessee. The order passed by the Income Tax Appellate Tribunal dated 29.06.2012 is quashed. The order passed by the Director of Income Tax (Exemption), Bangalore dated 19.12.2011 insofar it contains a direction to the Assessing Officer to disallow the deduction under Section 80IB(10) of the Act is also quashed. We have therefore not expressed any opinion with regard to claim of the assessee for deduction under Section 80IB(10) of the Act and direct the Assessing Officer to deal with the aforesaid claim of the assessee afresh in accordance with law.
Accordingly, the appeal is disposed of.
