PYC Hindu Gymkhana Vs CIT (Exemption) (ITAT Pune)
Sports Club Scores Again- Receipts Within 20% Safe Harbour- CIT(E) Can’t Rewrite AO’s View Gymkhana’s 263 Revision Set Aside- Tribunal Rebukes CIT(E)’s Overreach
Assessee, a long-established public charitable trust running a sports & cultural club at Pune, filed its return declaring Nil income for AY 2021-22. AO accepted the returned income after detailed scrutiny.
Subsequently, CIT(E) issued notice u/s 263 alleging that:
- Income of ₹ 81.34 lakh from rent, hall hire, cafeteria & event receipts constituted business income, not eligible for exemption u/s 11; &
- Interest income of ₹ 1.15 crore on deposits was wrongly treated as mutual-concern income despite the Secunderabad Club (SC) ruling.
He thus held the assessment as “erroneous & prejudicial to the Revenue”, & set it aside with detailed directions to redo the assessment.
Assessee argued that:
- All issues had been specifically examined by the AO during assessment through notices u/s 142(1) & show-cause dated 20.12.2022;
- The alleged receipts (₹ 81.34 lakh) were only 13.8% of total receipts of ₹ 5.89 cr, thus well below the 20% threshold under proviso (ii) to Sec 2(15);
- The same issue was already decided in its favour by ITAT Pune in earlier years (ITA 179 & 187/PUN/2015 – AY 2010-11);
- As regards interest income, it fairly accepted that mutuality did not apply post-Secunderabad Club (SC 2023), but claimed it was still eligible for exemption u/s 11 as the Assessee held valid registration u/s 12AB.
After detailed examination, Tribunal analysed the four compartments of Sec 263 & the law laid down in Malabar Industrial Co. Ltd v CIT (243 ITR 83 SC) – that both conditions, erroneous + prejudicial, must coexist.
