Section 263 jurisdiction not invocable if order passed by AO not prejudicial to interest of revenue

Siddhagiri Gurukul Foundation Siddharameshwar Mandir Vs CIT (Exemption) (ITAT Mumbai)

The learned CIT passed an order u/s 263 of the act only for the reason that assessee has admitted in the submission that the AO has not considered the amount of donation in gross receipts in the body of assessment order and there is an error. The assessee mentioned so that it has not been included in the computation made in the assessment order, however, the assessee has categorically stated that it has already been included in the income of the assessee. This was also shown by showing the computation sheet. Thus, though there is some error in the computation of income in the body of the assessment order, however, there is no error in the computation sheet of total income. Even otherwise, in both the cases the total income of the assessee is computed at nil i.e. in the body of the assessment order as well as in the computation sheet.

For the purpose of invoking the jurisdiction u/s 263 of the income tax act, the assessment order passed by the learned assessing officer should be erroneous so far as prejudicial to the interest of revenue. In the present case we do not find that any prejudices is caused to the revenue. In view of this, we quash revisionary order passed by the learned CIT u/s 263 of the Income Tax Act on 16/3/2021 for assessment year 2016 – 17

FULL TEXT OF THE ORDER OF ITAT MUMBAI

01. This appeal is filed by Siiddhagiri Gurukul Foundation (the appellant/assessee) against the order passed by The Commissioner Of Income Tax (Exemption), Mumbai (The CIT) for assessment year 2016 – 17 passed u/s 263 of The Income Tax Act, 1961 (The Act) dated 16th of March 2021, holding that the order passed u/s 143 (3) of The Act dated 1/12/2018 by The Income Tax Officer Exemption
Ward (2/3), Mumbai (The Learned Assessing Officer/ AO) is erroneous and prejudicial to the interest of the revenue.

02. Assessee has raised following grounds of appeal

“1. On the facts and circumstances of the case and in law the Ld. CIT (Exemption), Mumbai (Hereinafter referred to as the CIT) in his order u/s 263, erred in setting aside the assessment order dated 01.12.2018 holding the same to be erroneous and prejudicial to the interest of the revenue on the following grounds:

a. AO has not considered donation of Rs.53,69,863/- in the gross receipts of the trust.

b. Depreciation of Rs.1,27,86,297 is not to be allowed as application of income in view of the provisions of Sec.11(6) of the Act.

Even though there is no change in the Total Income of the trust (Computed by AO at Rs. NIL and as per Return of Income filed as the trust fulfils the criteria of application of income of 85% of gross receipts even after taking into account above two aspects).

The appellant therefore prays that the order of the CIT be annulled. The appellant craves leave to add to, amend, alter, modify, delete or add a new ground of appeal before or at the time of hearing.”

03. Brief facts of the case shows that assessee is a public charitable trust registered u/s 12 A of The Income Tax Act. Assessee filed its return of income on 27/9/2016 along with the income and expenditure account, balance sheet, and audit report in form number 10 B declaring total income at Rs. Nil. Assessee has also claimed exemption u/s 11 of The Income Tax Act.

04. Case of the assessee was picked up for scrutiny and assessment u/s 143 (3) of the Act was passed on 01/12/2018. In the assessment order the learned assessing officer denied the deduction at the rate of 30% u/s 24 (a) of the act of ₹ 62,000 on the income from property held under trust wholly for charitable purposes.

05. The learned CIT examined the records and found that the order passed by the learned assessing officer is erroneous and prejudicial to the interest of the revenue and therefore issued a notice u/s 263 of The Income Tax Act on the issue that the learned assessing officer has not considered donation of ₹ 5,369,863/– in the gross receipt of the trust and further depreciation of Rs 1,27,86,297/– is not to be allowed as application of income in view of the provisions of Section 11 (6) of the act.

06. The assessee submitted its reply on 8/3/2021 stating that that though the learned assessing officer has not included the donation in the gross receipt in the body of the order, he has taken at ₹ 80,636,040/–,, in the computation of the assessment order the gross receipt is been taken at ₹ 86,005,904/– which included the figure of donation of ₹ 5,369,863/– and therefore there is no error on this account. The assessee further submitted the working of the taxable income and stated that if the gross receipt of even ₹ 86,005,904 is taken and after deduction of 15% thereof for amounting to Rs 12900886/– leaves the maximum required application of ₹ 73,105,018 whereas the assessee has already applied more than that and therefore the order is not erroneous and prejudicial to the interest of the revenue.

07. The learned CIT held that assessee has admitted in its submission that the learned assessing officer has not considered the amount of donation in gross receipts in the body of the order, on verification of this it was found that the assessment order has been passed in a perfunctory and routine manner without examining the claim of the assessee of application of income of ₹ 80,363,196/–.

08. Therefore, he held that the assessment order dated 1/12/2018 is erroneous insofar as it is prejudicial to the interest of the revenue, as learned assessing officer has failed to undertake the necessary verification/enquiry that needed to be done. Therefore, the assessment order was set-aside to the file of the learned assessing officer to redo the assessment in light of his observation. Such order was passed by the learned CIT on 16^th of March 2021. The assessee is aggrieved and has preferred this appeal.

09. The learned authorised representative submitted that there is no error in the assessment order passed by the learned assessing officer. He submitted that the sum of ₹ 5,369,863 has already been considered in the computation of the total income by the learned assessing officer in computation sheet; however, in the body of the assessment order it was not added. He therefore submitted that there may be a typographical error in the is body of the assessment order however in the computation sheet the income has been computed correctly by the learned assessing officer. He further stated that assessee has never claimed deduction of Rs 1,27,86,297/– being depreciation as an application of income. He specifically referred to page number 29/30 of the paper book which is a letter submitted during the course of assessment proceedings before the learned assessing officer wherein in a serial number 17 assessee has specifically stated that it has not claimed any application of income with respect to the depreciation on assets. The capital expenditure incurred by the trust during the year is claimed as application of income. Therefore, he submitted that the reason of jurisdiction assumed by the learned CIT is not proper. Even otherwise, the assessment order passed by the learned assessing officer is not erroneous and prejudicial to the interest of revenue.

010. The learned CIT DR vehemently supported the order of the learned CIT and submitted that the donation has not been considered by the learned assessing officer in the computation of total income and further has not examined the application of income and therefore the order passed by the learned AO is erroneous and prejudicial to the interest of revenue.

011. We have carefully considered the rival contention and perused the orders of the lower authorities. We find that the assessment order has been passed by the learned assessing officer u/s 143 (3) of the act on 1/12/2018 determining total income of the assessee at Rs Nil. . While computing the total income of the assessee in the body of the assessment order, learned assessing officer considered the income from other sources at ₹ 80,416,040/–, thus, did not include a sum of ₹ 5,369,864/–. However while preparing the computation sheet, the voluntary contribution of ₹ 5,369,864/– was also included in the gross total income thus determining the gross income at ₹ 86,005,904/–. Along with the assessment order computation sheet of total income was also given. The difference between these two is tabulated as Under:-

012. The learned CIT held that not including a sum of ₹ 5,369,864/– in the working of total income in the body of assessment order, though included in the computation sheet attached with the assessment order makes the order passed by the learned assessing officer erroneous and prejudicial to the interest of the revenue. We find that the learned assessing officer has though not mentioned sum of ₹ 5,369,864/– being the amount of voluntary contribution in the total income in the body of the assessment order, but it has already been taken in the computation sheet accompanying the assessment order. Therefore, the income is correctly computed in computation sheet. Therefore, we agree that in the assessment order, the learned assessing officer should have mentioned the correct figure; however, as the correct income has been computed in the computation sheet, which is also part of the assessment order, the order passed by the learned assessing officer is not prejudicial to the interest of the revenue. This is so because the total income of the assessee is also computed at Rs Nil at both the places. Further, Assessee has incurred expenditure towards the object of the trust of ₹ 82,816,931/– against which the learned assessing officer in body of assessment order has recorded it at ₹ 77,447,067/–, thus there is an exact difference of ₹ 5,369,864/– in the accumulation taken by the learned AO in the body of assessment order as well as in the computation sheet. Thus, there is merely an arithmetic inaccuracy in the computation in the assessment order. However, assessee has been assessed correctly. Thus, the learned CIT invoked the provisions of Section 263 of the income tax act merely to correct a typographical error made by the learned assessing officer which could have been rectified u/s 154 of the act.

013. Further, on the second issue of depreciation on assets, the assessee in the assessment proceedings has clearly stated that it has not claimed depreciation as an application of income. The learned CIT also did not mention the same in his order u/s 263 of the act.

014. The learned CIT passed an order u/s 263 of the act only for the reason that assessee has admitted in the submission that the AO has not considered the amount of donation in gross receipts in the body of assessment order and there is an error. The assessee mentioned so that it has not been included in the computation made in the assessment order, however, the assessee has categorically stated that it has already been included in the income of the assessee. This was also shown by showing the computation sheet. Thus, though there is some error in the computation of income in the body of the assessment order, however, there is no error in the computation sheet of total income. Even otherwise, in both the cases the total income of the assessee is computed at nil i.e. in the body of the assessment order as well as in the computation sheet.

015. For the purpose of invoking the jurisdiction u/s 263 of the income tax act, the assessment order passed by the learned assessing officer should be erroneous so far as prejudicial to the interest of revenue. In the present case we do not find that any prejudices is caused to the revenue. In view of this, we quash revisionary order passed by the learned CIT u/s 263 of the Income Tax Act on 16/3/2021 for assessment year 2016 – 17.

016. Accordingly, appeal of the assessee is allowed.

Order pronounced in the open court on 31.05.2022.