Pune ITAT Quashes Section 263 Revision; Detailed AO Enquiry Bars Revision on Mere Change of Opinion

Birmole Medical Foundation Trust Vs CIT (ITAT Pune)

Pune ITAT Quashes Section 263 Revision; Detailed AO Enquiry Bars Revision on Mere Change of Opinion

The Pune ITAT quashed the revision order passed under section 263, holding that where the Assessing Officer had conducted specific and detailed enquiries on the issue under scrutiny and taken a plausible view, the Commissioner could not invoke revisionary jurisdiction merely because he felt further enquiry was warranted.

The assessee, Birmole Medical Foundation Trust, had advanced ₹1.03 crore to its trustee, Dr. Bhagwan Birmole, towards the proposed purchase of flats intended for expansion of medical facilities. The CIT (Exemption) invoked section 263 on the ground that the Assessing Officer had failed to examine the applicability of sections 13(1), 13(2) and 13(3) relating to transactions with specified persons and that the assessment order was therefore erroneous and prejudicial to the interests of the Revenue.

The Tribunal, however, found that during the original assessment proceedings the Assessing Officer had issued specific notices under section 142(1) calling for details regarding the payment to the trustee, ownership of the flats, approvals, valuation, and the purpose of the transaction. The assessee had furnished detailed replies, supporting documents, agreements, valuation details and explanations regarding the proposed acquisition.

The Tribunal noted that the transaction was fully disclosed in the books of both parties, was carried out through banking channels, and was subsequently cancelled due to the Covid-19 situation, following which the amounts were refunded. It was also brought on record that compensation/interest was paid by the trustee to the trust in later years. The Tribunal held that the Assessing Officer had consciously examined the issue and formed a view after considering all relevant material.

Relying on the Bombay High Court decision in Chandan Magraj Parmar, the Tribunal reiterated that an assessment order cannot be treated as erroneous merely because the Commissioner believes a deeper enquiry should have been made. Once necessary enquiries have been conducted and a possible view has been adopted, revision under section 263 is not permissible.

Accordingly, the Tribunal held that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue, quashed the section 263 proceedings and restored the original assessment order.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal filed by the assessee is directed against the order dated 30.03.2025 passed by Ld. CIT, Exemption, Pune for the assessment year 2020-21.

2. The appellant has raised the following grounds of appeal :-

“1] The learned CIT (E) erred in setting aside the asst. order passed u/s 143(3) r.w.s. 144B on the ground that the same was erroneous and prejudicial to the interest of the revenue.

2] The learned CIT (E) erred in holding that the learned A.O. had failed to examine the issue regarding the applicability of the provisions of section 13(2)(g) in respect of the amount advanced by the assessee trust to Dr. Bhagwan Birmole and accordingly, the asst. order passed by the learned A.O. was erroneous and prejudicial to the interest of the revenue.

3] The learned CIT (E) erred in not appreciating that the asst. order passed by the learned A.O. was neither erroneous nor prejudicial to the interest of the revenue and therefore, the revision order passed u/s 263 was invalid in law and the same may be declared null and void.

4] The learned CIT (E) failed to appreciate that the issue regarding the advance given by the assessee trust to Dr. Bhagwan Birmole was duly verified by the learned A.O. in the course of asst. proceedings and accordingly, the asst. order passed was neither erroneous nor prejudicial to the interest of the revenue and hence, the revision order passed u/s. 263 is not justified and the same may be declared null and void.

5] The learned CIT (E) erred in not appreciating that the view taken by the learned A.O. was a possible one and therefore, there was no reason to set aside the asst, order on the ground that it was erroneous and prejudicial to the interest of the revenue.

6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”

3. Facts of the case, in brief, are that the assessee is a trust engaged in the activity of providing medical relief to general public. The assessee trust filed return of income on 15.01.2021 by declaring an income of Rs. Nil. The return was processed u/s 143(1) of the IT Act. Subsequently, the case was selected for scrutiny and notices u/s 143(2), 142(1) and show cause notices respectively were issued to the assessee. After considering the reply and submissions of the assessee, the Assessing Officer vide order dated 21.09.2022 completed the assessment proceedings u/s 143(3) r.w.s. 144B of the IT Act by determining income of Rs.1,14,000/- as against the income of Rs. Nil returned by the assessee. The above assessed income includes addition of Rs.1,14,000/- being disallowance of 30% u/s 40(a)(ia) of the IT Act since the assessee failed to deduct TDS on the rent payment of Rs.3,80,000/- paid to Jaywant Birmole Trustee.

4. On further perusal of the records and the assessment order dated 21.09.2022 passed u/s 143(3) r.w.s. 144B of the IT Act, it was noticed by Ld. CIT, Exemption, Pune that the assessee has advanced a sum of Rs.1,03,94,000/- to Shri Bhagwan Jaywant Birmole a related person as referred to in section 13(3) of the IT Act, against purchase of 6 flats for total consideration of Rs.1,80,00,000/-. However, Ld. CIT, Exemption, Pune also found that an amount of Rs.68,94,000/- was outstanding with Shri Jaywant Birmole as on 31.03.2021. According to Ld. CIT, Exemption, Pune, the Assessing Officer failed to examine the above issue and violation of various provisions in the assessee’s case and therefore, also failed to consider addition of Rs.1,03,94,000/- u/s 13(1) of the IT Act while computing the income of the assessee trust. Accordingly, the assessment order passed u/s 143(3) r.w.s. 144B of the IT Act dated 21.09.2022 was considered erroneous in so far as it was prejudicial to the interest of the Revenue, therefore, show cause notice u/s 263 of the IT Act was issued to the assessee and after considering the submissions & reply of the assessee, Ld. CIT, Exemption, Pune vide order dated 30.03.2025 passed u/s 263 of the IT Act set-aside the impugned assessment order dated 21.09.2022 passed u/s 143(3) r.w.s. 144B of the IT Act & directed the Assessing Officer to pass assessment order afresh as per facts & law after providing reasonable opportunity of hearing to the assessee.

5. Being aggrieved with the above order passed u/s 263 of the IT Act, the assessee is now in appeal before this Tribunal.

6. We have heard Ld. counsels from both the sides and perused the material available on record including the paper book as well as copy of case laws furnished by the assessee as well as by Ld. DR. In this regard, we find that the assessee is a trust duly registered u/s 12A of the IT Act and vide order dated 21.09.2022 the assessment order u/s 143(3) r.w.s. 144B of the IT Act was passed by determining income of the assessee trust at Rs.1,14,000/- as against income of Rs.Nil returned by the assessee. During the course of assessment proceedings, various notices were issued by the Assessing Officer & the same were replied by the assessee trust, which is evident from the preamble of the assessment order wherein such dates are mentioned as 29.06.2021, 16.11.2021, 18.02.2022 and 01.03.2022. In this regard, copy of notice issued u/s 142(1) of the IT Act dated 18.02.2022 is produced before us wherein specific queries were raised by the Assessing Officer with regard to the payment of Rs.1,03,94,000/- to Dr. Bhagwan J. Birmole (Trustee) being initial payment towards proposed purchase of property. For ready reference, the copy of Annexure attached to the above notice is reproduced herein below :-

“ANNEXURE

Kindly refer to your letter dated 15/02/2022.

1. It is reported by you that during the financial year 2019-20 that the Trust had paid Rs. 1,03,94,000/- to Dr. B. J. Birmole (Trustee) for a partial or initial payment for proposed purchase of property. It is also seen form the enclosed unregistered agreement i.e. Confession and receipt for sale of residential plot (ground floor)’ dated 25/01/2020 that the object of the proposed property had a plan to start dialysis centre and medical investigation and day care unit and if possible to take over and run the existing setup of Birmole Hospital or royalty or outright purchase.

In connection with the above, you are requested to furnish copy of prior permission which you have obtained from the Municipal Board/ Corporation in regard to setting up of start dialysis centre and medical investigation and day care unit in that residential plot.

2. Further, on verification of “DEED OF PUBLIC CHARITABLE TRUST” it is seen in Col. No.6 of page No.4 which is quoted below:-

“The Trustee shall invest the Trust Fund and any accretion thereto in any of the Government Securities or any other manner with the permission of the Charity Commissioner, Maharashtra State, Mumbai or the Assistant Charity commissioner having jurisdiction by his general or special order, as provisions of section 35(1) of the Bombay Public Trust Act 1951 and may from time to time at their discretion vary or convert the said investment into other or other of the same or like nature.”

In connection with the above, you are also requested to furnish copy of prior permission issued by the concerned authority i.e. The Charity Commissioner, Maharashtra State, Mumbai or the Assistant Charity commissioner, Maharashtra State, Mumbai in regard to investment of Trust Fund to the proposed purchase of property.

3. Please furnish copy of Market Valuation report issued by the Joint Sub-Registrar, Panvel, of that Property as per Stamp Duty Act.

Yours faithfully,
Additional/Joint/Deputy/Assistant Commissioner of Income Tax/
Income-tax Officer,
National Faceless Assessment Centre,
Delhi.”

7. From the perusal of above Annexure, it becomes crystal clear that the Assessing Officer prior to passing assessment order for assessment year 2020-21 has conducted full and proper enquiry from the assessee trust with regard to payment of Rs.1,03,94,000/-to Dr. Bhagwan J. Birmole. We further find that the assessee also replied to all the notices issued by the Assessing Officer including the above notice dated 18.02.2022 which is evident from the copy of acknowledgement of online submissions dated 20.02.2025 furnished before Ld. CIT, Exemption, Pune. In this regard, we also find that copy of various reply furnished before the Assessing Officer which were dated 30.11.2021, 15.02.2022, 25.02.2022, 05.03.2022 and 15.09.2022 also furnished before Ld. CIT, Exemption, Pune wherein complete details of impugned transaction was explained before the Assessing Officer. In this regard, the copy of reply furnished by the assessee trust before Ld. CIT, Exemption, Pune is relevant wherein all the above details were referred. Copy of the same reply is reproduced herein below :-

“20/02/2025

From,
Birmole Medical Foundation Trust,
Birmole Hospital, CUF Road,
CUF Nagar, Panvel.

To,
Income Tax Department,
CIT Exemption, Pune.

Respected Sir,

Sub: Compliance to your office notice dated 14/02/2025 in the case of Birmole Medical Foundation Trust of Panvel, relevant A.Y. 2020-21.

Ref: ITBA/REV/F/REV1/2024-25/1073278086(1). PAN: AABTB4070G

In compliance of the notice of hearing dated 14/02/2025 returnable on or before 24/02/2025, it is submitted as under for kind consideration:

Observations in the SCN about the Assessment Record:

In para 2 & 3, you have made observations about the payment made Rs. 3,80,000/- to Shri. Jaywant Birmole and payment made of Rs.1,03,94,000/- to Dr. Bhagwan Birmole. In para 3 you have made observation that there is no discussion about the repayment and claim of repayment not verified by the AO and also the issue of interest payment on the advanced amount to Dr. Bhagwan Birmole. In view of the same in your opinion the provisions of 13(2)(a) and 13(3) are attracted and also in para 4.1 you have stated that AO has not verified about the reasonableness of consideration for the then proposed purchase of flat and also AO has not verified the ownership of the property by Dr. Bhagwan Birmole. In para 4.2, it is also stated when the transaction was proposed for purchase how there is a repayment and AO has also not verified the cancellation of proposed transaction.

Therefore, in para 5, it is stated that in your opinion AO has failed to examine the issue of violation u/s 13(1) and thus there is an error resulting into under assessment by Rs. 1,03,94,000/-. In this regard, you have asked the trust to SCN for initiation of proceedings u/s 263 and to pass the order. In this regard, it is submitted as under:

1) Compliance in the assessment proceedings indicating inquiry  conducted by AO:

A) In connection with the point 8 of the annexure to the notice dated 16/11/2021 u/s 142(1) i.e., more particularly in respect of transaction with specified persons u/s 13(3), the assessee furnished the required details, information and documents as per point 8 of the reply dated 30/11/2021 and also furnished supporting documents as per Sr. No. 4, 8 and 9 of the e-ack. dated 30/11/2021 bearing ack. no. 931499851301121.

B) The above reply dated 30/11/2021 was repeated in the reply dated 15/02/2022. The SCN dated 12/09/2022 was replied on dated 15/09/2022. The SCN was issued by the AO after satisfaction about nature of payment to Dr. Bhagwan Birmole.

C) On 25/02/2022 as per e-ack. no. 255290421250222. The assessee made compliance to the notice dated 18/02/2022 and also explained the provisions of compliance towards Municipal Corporation and Charity Commissioner and also brought on record registration rate prevalent during the year.

D) Kindly note the objection to the proposed proceeding u/s 263. Secondly, having furnished various information and explanations with supporting documents which were in response to notices u/s 142(1) and annexures thereto, there is neither a failure on the part of Assessing Officer as well as on the part of assessee to conduct the inquiry and to comply respectively. As such in the absence of any error the assessment completed by the AO is not tentamounting to be prejudicial to the revenue. The issues in the SCN for proposed 263 are already covered by the Assessing Officer by way of conducting the inquiry. As such no revision is possible as the Assessing Officer has formed the opinion after perusing the requisite documents.

E) The explanation furnished by way of submission before Assessing Officer in the assessment proceedings are reproduced by way of scanned copies. Those notices dated 16/11/2021, 08/02/2022, 18/02/2022, 01/03/2022 and 12/09/2022 and submissions made with annexures are furnished herewith.

2) Further Say in the Matter with respect to the Observations and Comments in the SCN:

a) Please refer to the copy of the document dated 25/01/2020 titled in Marathi as ‘Flat Vikanyababatachi Kabuli Tatha Pavati’, which has been furnished in the assessment proceedings as a compliance dated 30/11/2021 to the notice dated 16/11/2021 u/s 142(1). In the said document on page 2 the reason and background due to which, one of the trustees Dr. Bhagwan Birmole decided and planned to handover his setup owing to his personal ailments. In the subsequent para since the trust was assured certain funds he decided to transfer in his lifetime 3 flats in the same building in which there was his personal setup as a Pediatric Hospital. The documents in respect of ownership of the 3 flats were also furnished as a proof. Similarly, the registration rates were furnished in support of consideration levied for 3 flats. That is how the trust made payment to the trustee Dr. Bhagwan Birmole.

b) The payment started in F.Y. 2019-20 relevant to A.Y. 2020-21 and the substantial payment out of Rs. 1,03,94,000/- i.e. Rs. 74,94,000/-were made upto January 2020. The Covid-19 and intermittent lockdown started on and around 19/03/2020. The rigor of the Covid-19 increased substantially and it was at peak 2 times during F.Y. 2020-21 and 2021-22 relevant to A.Y. 2021-22 and 2022-23. Since, Dr. Bhagwan Birmole is personally a diabetic patient having undergone bi-pass surgery, he found the transaction to be in risk of not getting over completely due to lack of flow of funds in the hands of trust and being diabetic probable personal life risk due to Covid. As such, he decided to call of the transaction and repaid the trust in 2 years and thus major funds were repaid upto 31/03/2022. The scrutiny proceedings commenced on 16/11/2021 i.e. during the Covid and the assessment proceedings were over by way of completion of assessment on 21/09/2022 and by which date or just prior to that, the major funds were refunded.

c) The AO in the assessment proceedings asked for the documents in respect of the advanced given to Dr. Bhagwan Birmole and therefore those were submitted. Even, the AO asked for the reason for making payment by the trust for proposed purchase of property and formality compliance in that regard to be made if any. The same were explained. It is after perusing the explanation furnished by way of response on various dates by the assessee trust that the AO issued the SCN and restricted the addition to the disallowance u/s 40(a)(ia). Thus, while finalizing the assessment, the AO conducted the inquiry and after satisfying himself with the documents submitted by the trust in the assessment proceedings that he finalized the assessment.

d) In this regard the copies of the written submissions with annexures in response to the notices u/s 142(1) and final SCN are e-furnished herewith which are pointer to the fact that the AO conducted the inquiry.

e) In view of the above, there is no error on the part of AO and lack of inquiry on the part of AO and there is application of mind and formation of opinion by the AO and therefore there is no error which can be tentamounting to the loss of revenue or prejudicial to the revenue.

f) As regards, the amount of Rs. 35,00,000/- repaid during the subsequent year and also further payment of Rs. 58,00,000/- in F.Y. 2021-22, the same was not brought on record because it was not called for by the AO and the AO confined his inquiry for the transaction upto 31/03/2020 being payment of Rs. 1,03,94,000/-made to one of the trustees. This repayment received from Dr. Bhagwan Birmole to the trust is a one kind of safeguarding the money during Covid period and in the interest of trust. Although, the flats always continued to be ownership of Dr. Bhagwan Birmole who initially accepted the advance. Moreover, the repayment commenced and transaction was called off due to Covid and there was no guarantee on funds generation in time to make payment as stipulated and also there was no guarantee for Dr. Bhagwan Birmole who had already undergone bi-pass surgery and was at risk during Covid period. This repayment is one type of securing back the funds in the interest of trust and therefore especially on the background of prevailing Covid during relevant period and also the AO having satisfied with the documents produced, there is no failure to examine and the assessment do not result into loss of revenue.

g) As regards, interest the trustee Dr. Bhagwan Birmole is already arranging to make payment of Rs. 12,00,000/- as a compensation for the trust funds as it is Covid which largely resulted in cancellation of transaction as trust was not able to raise further funds and therefore the interest payment is being made and due TDS will be made for A.Y. 2025-26. This is undertaking or assurances will result into additional income to the trust in A.Y. 2025-26 but same can’t have impact on earlier year as in F.Y. 2019-20 just payment was made, and till 31/03/2020 there was no question of cancellation.

3) Request

In Response to the SCN, the compliance has been made as called for on or before 24/02/2025. It is requested to consider the e-submission. Next hearing may be fixed or additional time upto 27/02/2025 may please be granted for balance compliance in support. This request is made as Dr. Birmole is professionally preoccupied.

Thanking You,

Yours’ Faithfully,
For Birmole Medical Foundation Trust
(Dr.Bhagwan J. Birmole)
Trustee

Encl:

1. Notice dated 16/11/2021 & reply thereto dated 30/11/2021 (Page no. 1 to 79)

2. Notice dated 08/02/2022 & reply thereto dated 15/02/2022 (Page no. 80 to 85)

3. Notice dated 18/02/2022 & reply thereto dated25/02/2022 (Page no. 86 to 92)

4. Notice dated 01/03/2022 & reply thereto dated 05/03/2022 (Page no. 93 to 97)

5. Notice dated 12/09/2022 & reply thereto dated15/09/2022 (Page no. 98 to 102)”

8. A perusal of above reply makes it clear that the Assessing Officer has conducted proper detailed and full enquiry regarding the impugned transactions and the assessee trust also answered all the queries which are now doubted by Ld. CIT, Exemption, Pune. In this regard, we find that the ownership of the flats in question was proved before the Assessing Officer. Apart from it, the transaction of Rs.1,03,94,000/- was also disclosed in the audited books of accounts of Bhagwan J. Birmole (Trustee) and in subsequent years interest of Rs.12,00,000/- was also paid to the assessee trust by Bhagwan J. Birmole (Trustee). Accordingly, it was the claim of the assessee trust that full and proper enquiry was conducted by the Assessing Officer with regard to the impugned transaction of Rs.1,03,94,000/- and the assessee trust successfully demonstrated before the Assessing Officer that it was a genuine transaction through banking channels and duly disclosed in the audited books of accounts of both the parties, however, could not be completed due to Covid-19 breakout and the amount was subsequently refunded by Bhagwan J. Birmole (Trustee) through banking channels in subsequent years. Therefore, it was contended before us that there is no violation of section 13 of the IT Act and the assessment order dated 21.09.2022 is neither erroneous nor prejudicial to the interest of the revenue.

9. In support of its contentions, Ld. AR relied on coordinate bench decision passed in the case of Akashdeep Cloth Centre vs. PCIT [2025] 180 com323 (Pune – Trib.) order dated 04.11.2025 for assessment year 2019-20. Further, reliance was placed on the judgement of Hon’ble Bombay High Court in the case of CIT vs. Chandan Magraj Parmar [2022] 135 taxmann.com 55 (Bombay) and the judgement of Hon’ble Supreme Court in the case of CIT vs. Kwality Steel Suppliers Complex [2017] 84 taxmann.com 234 (SC).

10. With regard to above case laws, we find that Hon’ble High Court of Bombay in the case of Chandan Magraj Parmar (supra) has held that “since Assessing Officer had passed assessment order after making necessary enquiries, same could not be branded as erroneous so as to invoke revision jurisdiction by Commissioner u/s 263”.

11. On the other hand, Ld. DR relied on the judgement passed by Hon’ble High Court of Bombay in the case of CIT vs. Ballarpur Industries Ltd. [2017] 85 com10 (Bombay) wherein Hon’ble Court held that “in the absence of examination of the claim made by the assessee while passing an assessment order and allowing the claim made, would render the order of the Assessing Officer erroneous and coupled with the fact that in this case it is admitting prejudicial to the interest of the revenue, exercise of the revisional jurisdiction u/s 263 of the IT Act by the Commissioner of Income Tax proper and valid.”

12. However, we find that this case is not applicable to the facts of the instant case in hand, since the Assessing Officer is found to have conducted full and proper enquiry regarding the impugned transaction.

13. Respectfully following the judgement of Hon’ble High Court of Bombay passed in the case of Chandan Magraj Parmar (supra), we are of the considered opinion that the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the revenue since the Assessing Officer had passed the assessment order after making necessary enquiries which were answered by the assessee trust with full details, therefore, the assessee trust has not violated section 13 of the IT Act and accordingly, we deem it appropriate to quash the proceedings initiated u/s 263 of the IT Act and consequently set-aside the impugned order passed u/s 263 of the IT Act by Ld. CIT, Exemption, Pune. Thus, the grounds of appeal raised by the assessee are allowed.

14. In the result, the appeal filed by the assessee is allowed.

Order pronounced on this 19^thday of June, 2026.