Catholic Education Society Vs Income Tax Department CIT (Exemption) (ITAT Mumbai)
No 263 on “Inadequate Enquiry” in Limited Scrutiny: ITAT Mumbai Quashes Revision Against Catholic Education Society
The Mumbai ITAT “C” Bench, comprising Shri Sandeep Gosain (JM) & Shri Girish Agrawal (AM), allowed the appeal of Catholic Education Society for AY 2020-21 and quashed the revisionary order passed u/s 263 by the CIT(E), holding that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.
The Assessee, a long-standing charitable trust registered u/s 12A and engaged in running schools and colleges, was selected for limited scrutiny to examine (i) high establishment & administrative expenditure, and (ii) salary and rent paid to specified persons u/s 13(3). During assessment, the AO issued multiple detailed notices u/s 142(1), specifically calling upon the Assessee to justify reasonableness of salary and rent paid to trustees and related persons. The Assessee furnished extensive documentary evidence, including employee-wise details, qualifications, experience, comparative salary data, valuation report for rent by a registered valuer, PAN & ITR details of trustees, and rent computation classroom-wise. After detailed examination, the AO recorded that the submissions were reasonable and completed the assessment accepting the returned income.
The CIT(E), invoking Explanation 2 to section 263, held that the AO had not made “necessary enquiries” regarding payments to specified persons and set aside the assessment with directions for fresh verification. The Tribunal found this approach legally unsustainable, holding that this was not a case of “no enquiry” but at best a case of alleged “inadequate enquiry”, which by itself does not justify revision u/s 263.
Relying on the settled law laid down in ITO v. DG Housing Projects Ltd. (Delhi HC) and followed in Narayan Tatu Rane v. ITO (ITAT Mumbai), the Tribunal held that the CIT must himself conduct enquiry and record a clear finding as to how the assessment order is erroneous and unsustainable in law, and cannot merely remand the matter to the AO for fresh enquiry. The Tribunal further noted that on identical issues, coordinate benches in the Assessee’s own cases for earlier years had already held that salary and rent paid to specified persons were not excessive and did not attract section 13, reinforcing the correctness of the AO’s view.
Accordingly, the ITAT held that the twin conditions of section 263 were not satisfied, quashed the revisionary order, and allowed the appeal of the Assessee.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal filed by the assessee is against the order of CIT(Exemptions), Mumbai vide Order No. ITBA/REV/F/REV5/2024-25/1075306167(1) dated 30.03.2025 passed against assessment order u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 05.09.2022 for AY 2020-21.
