Thailammal Charitable Trust Vs ITO (Exemption) (ITAT Chennai)
Summary: The assessee, a charitable trust, challenged the order passed by the Commissioner of Income Tax (Exemptions) under section 263 of the Income-tax Act, 1961 for AY 2022-23. The Assessing Officer had completed assessment under section 143(3) accepting the returned nil income. During the assessment proceedings, the assessee’s case had been selected for scrutiny to examine the repayment of a large amount of borrowed funds claimed as application of income. The assessee had repaid loans amounting to Rs.1,26,61,141/- and claimed the repayment as application of income.
The CIT(E) subsequently considered the assessment order erroneous and prejudicial to the interests of the Revenue. According to the CIT(E), the Assessing Officer had not properly examined whether expenditure incurred out of borrowed funds had already been claimed as application of income in earlier years and whether the borrowed funds had been utilised for the objects of the trust. The CIT(E) relied upon the provisions of Explanation 4 to section 11 and treated the assessment as erroneous and prejudicial to the interests of the Revenue.
The CIT(E) further relied upon the principle that mere issuance of a questionnaire or calling for details does not necessarily amount to proper enquiry, referring to M/s. Daniel Merchants Pvt. Ltd. vs. ITO and the decision in CIT v. Toyota Motor Corporation concerning a cryptic assessment order. The CIT(E) also referred to Malabar Industrial Co. Ltd. vs. CIT for the twin requirements that an order must be erroneous and prejudicial to the interests of the Revenue before section 263 jurisdiction can be exercised. The assessment was accordingly set aside with a direction to the Assessing Officer to make a fresh assessment after necessary enquiries and verification.
