The High Court
Case Details
IN THE HIGH COURT OF ORISSA : CUTTACK. ITA No. 90 of 2022 (An Application under Section 260A of the Indian Income Tax Act, 1961) Commissioner of Income Tax (Exemption), Hyderabad Aayakar Bhawan Basheer Bagh, Hyderabad … Appellant M/s. Dhaneswar Rath Institute of Engineering & Medical Sciences VERSUS … Respondent Advocates appeared in the case: For the Appellant : For the Respondent : Mr. Radheyshyam Chimanka, Senior Standing Counsel (Income Tax) with Mr. Avinash Kedia, Standing Counsel (Income Tax) Mr. Chitrasen Parida, Advocate CORAM: THE CHIEF JUSTICE JUSTICE MURAHARI SRI RAMAN Date of Hearing: 14.02.2023 :: Date of Judgment: 14.02.2023 JUDGMENT MURAHARI SRI RAMAN, J.— 1. Assailing Order dated 17.05.2022 passed in ITA No.134/CTK/2021 by the Income Tax Appellate Tribunal, ITA No.90 of 2022 Page 1 of 33 Cuttack Bench, Cuttack, directed against the Order dated 31.03.2021 of Commissioner of Income Tax (Exemption), Hyderabad under Section 263 of the Income Tax Act, 1961 pertaining to Assessment Year 2016-17, the Appellant has raised the following questions: “i) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is justified in law in quashing the notice under Section 263 and revisionary order under Section 263 of the Income Tax Act, 1961, passed by that revisionary order of CIT(E) under Section 263 dated 31.03.2021 is not sustainable being bad in law and passed in violation of principle of natural justice where the CIT, (Exemptions) has categorically found that the order under Section 143(3) passed by the AO is erroneous and prejudicial the interest of revenue? the CIT, (Exemptions) holding ii) Whether on the facts and in the circumstances of the case and in law is the order of the Hon’ble ITAT not perverse in holding that the Assessing Officer has made sufficient enquiry during the course of assessment proceedings under Section 143(3) when the assessee has failed to submit the details in respect of the claim of depreciation for Rs.4,77,03,665/-? iii) Whether on the facts and in the circumstances of the case and in law is the order of the Hon’ble ITAT not perverse in holding that the Assessing Officer has made sufficient enquiry during the course of assessment proceedings under Section 143(3) when the assessee has failed to submit the details in respect of claim of depreciation for Rs.4,77,03,665/- even during the reassessment proceedings completed under Section 143(3) read with Section 263 read with Section 144B on 26.03.2022 consequent to the order passed under Section 263 of the Income Tax Act, 1961, prior to the date of passing of order by the Hon’ble ITAT? ITA No.90 of 2022 Page 2 of 33 iv) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in quashing the consequential proceedings and orders, allowing depreciation on the assets, the cost of which has been fully allowed as application of income under Section 11 in the past years?” Fact of the case: 2. It is revealed from the record that the respondent- Dhaneswar Rath Institute of Engineering & Medical Sciences, Cuttack, a charitable trust being granted registration under Section 12AA, claimed exemption under Section 11 of the Income Tax Act, 1961 (for brevity, “IT Act”) which was selected for scrutiny. The Assessing Officer completed assessment under Section 143(3) on 23.10.2018 on a total income determined at Rs.NIL. 2.1. Keeping in view the decision of the ITAT, Chennai ‘D’ Bench in the case of ACIT Vrs. Grama Vidiyal Trust, (2016) 71 taxmann.come 88 to the effect that where cost of asset was allowed under Section 11 as application of income in the earlier assessment years, depreciation is not entitled to be claimed, the instant respondent-assessee having gross block of fixed assets of Rs.96,78,84,619/- as on 01.04.2015 and such cost of asset having been allowed under Section 11, the CIT (Exemption), Hyderabad considered the assessment order erroneous insofar as prejudicial to the interests of revenue. 2.2. Said CIT (Exemption) issued show cause notice under Section 263 on 26.03.2021 on the basis that depreciation of ITA No.90 of 2022 Page 3 of 33 Rs.4,77,03,665/- should not have been allowed as application of trust income for charitable purposes and, thereby, income accumulated worked out to Rs.5,65,70,741/- which exceeded 15% of the income derived from property held under the trust. Time petition of the assessee being rejected, said Authority passed Order dated 31.03.2021 which is to the following effect: “Therefore, in view of the facts stated above, the said assessment order passed by the Assessing Officer under Section 143(3) of the IT Act, 1961 for the A.Y. 2016-17, so far as it pertains to the issues discussed above, is erroneous, prejudicial to the interest of the revenue, hence, is hereby set aside with a direction to the Assessing Officer to examine the issues mentioned supra, and to redo the assessment, after verification of the issues, in accordance with law.” 2.3. The respondent-assessee questioned the hot-haste decision of the CIT (Exemption) before the ITAT and distinguishing the case of Grama Vidiyal Trust (supra), submitted that in a case where the cost of asset was allowed under Section 11 of the IT Act in favour of the assessee-charitable trust as application of income in the year of purchase, the assessee could not claim or be allowed deprecation on the said assets. Nonetheless, in the instant case, the respondent- charitable trust having not claimed the amount as application of income at the time of purchase, there is no restriction of claiming depreciation on those assets which have not been included in the amount of application of receipts in the financial statement. ITA No.90 of 2022 Page 4 of 33 2.4. It was the case of the respondent-assessee before the ITAT that notice under Section 263 being issued on 26.03.2021 at the verge of time barring on 31.03.2021, inadequate opportunity was afforded to the respondent to present material. 2.5. While appreciating that the basic requirement to exercise power under Section 263 of the IT Act was not adhered to by the CIT (E), it is observed that during the course of scrutiny assessment, the assessee, in compliance of notice under Section 142(1), furnished details of depreciation claimed before the Assessing Officer. Therefore, the CIT (E) could not have been apprehensive of the fact that the Assessing Officer without conducting any enquiry allowed the claim of depreciation. After taking note of further fact that there has been consistent claim of depreciation as application income for earlier years which stood allowed, the learned ITAT allowed the appeal of the respondent- charitable trust and quashed not only the Order passed by the CIT (E) under Section 263, but also all consequential proceedings and orders related thereto. 2.6. Aggrieved, the department-CIT (E), therefore, has approached this Court under Section 260A of the IT Act. Argument(s) advanced by the Senior Standing Counsel: 3.
Legal Reasoning
Sri Radhashyam Chimanka, learned Senior Standing Counsel for Income Tax Department submitted that the assessee having complained inadequacy of time being ITA No.90 of 2022 Page 5 of 33 granted to it for presenting its matter before the CIT (E), the learned ITAT, instead of quashing the Order under Section 263 of the IT Act, should have remanded the case for fresh adjudication by the CIT (E). 3.1. The learned Senior Standing Counsel further went on to submit that participating in the proceeding undertaken under Section 142(1)/143(3) by the Assessing Officer pursuant to Order dated 31.03.2021 of the CIT (E), the assessee merely prayed for keeping the proceeding in abeyance till disposal of appeal before the ITAT against the
Decision
order in revision. Rather it should have placed material/evidence to support its contention that “it has never taken the acquisition of fixed assets during the previous year or in any earlier years as application of income under Section 11 of the Income Tax Act, 1961”. Arguments advanced by the learned Counsel for the respondent- assessee: 4. Sri Chitrasen Parida, learned advocate appearing for the respondent-assessee would submit that the charitable trust furnished related material before the Assessing Officer during the course of scrutiny assessment undertaken under Section 143(3) of the IT Act. Considering the fact that the respondent-assessee was registered under Section 12AA since 2000, the learned Assessing Officer verified books of account vis-à-vis claim for depreciation made in the return and accepted the total income as disclosed by the assessee. ITA No.90 of 2022 Page 6 of 33 The CIT (E), therefore, was incompetent to invoke power under Section 263 without causing any enquiry. The Order in revision being passed with undue haste without affording reasonable opportunity there has been flagrant violation of the principles of natural justice. 4.1. The learned ITAT having rendered its positive finding on the grounds urged by the assessee that not only there was inadequate time granted for placing material, but also there was inherent lack of jurisdiction in initiating proceeding under Section 263 by the CIT (E) coupled with illogical appreciation of basic fact in deviation of rule of consistency that the assessee had been claiming depreciation since several previous assessment years for which audited financial statements for the financial years 2012-13 to 2015- 16 were available on concerned record. Consideration of rival contentions: 5. It is first contended by Sri Chimanka, the learned Senior Standing Counsel that the Assessing Officer while completing assessment under Section 143(3) of the IT Act pertaining to Assessment Year 2016-17 failed to conduct enquiry as to the claim of depreciation to the tune of Rs.4,77,03,665/-, which fact upon being noticed, the CIT (E), in exercise of power under Section 263 initiated proceeding for revision considering the assessment order as erroneous in so far as it is prejudicial to the interests of ITA No.90 of 2022 Page 7 of 33 revenue. The learned Tribunal committed error of law in interfering with the revisional jurisdiction of the CIT (E). 5.1. In this regard the learned ITAT has found that when the CIT (E) viewed that the Assessing Officer did not conduct proper enquiry before allowing claim of relief by the assessee, it was incumbent upon it to call for the concerned record and examine the same. 5.2. It is well-settled that exercise of power of revision can only be permissible on fulfilment of twin condition laid in Section 263 of the IT Act. In Malabar Industrial Co. Ltd. Vrs. CIT, (2000) 243 ITR 83 (SC), the Supreme Court held that a bare reading of Section 263 makes it clear that the pre-requisite for exercise of jurisdiction by the Commissioner for suo motu revision is that the order of the Income Tax Officer is “erroneous in so far as it is prejudicial to the interests of the Revenue”. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent— if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue— recourse cannot be had to Section 263(1) of the Act. It is also held as follows: “The phrase ‘prejudicial to the interests of the Revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a ITA No.90 of 2022 Page 8 of 33 taken one view with which consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income the Tax Officer has Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial the Revenue. Rampyari Devi Saraogi Vrs. CTT[1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal Vrs. CIT[1973] 88 ITR 323 (SC).” interests of the to 5.3. There is difference between purported incomplete or inadequate verification or no verification whatsoever by the assessing officer. One has to keep in mind the distinction between ‘lack of inquiry’ and ‘inadequate inquiry’. If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 of the IT Act, merely because he has a different opinion in the matter. It is only in cases of ‘lack of inquiry’ that such a course of action would be open. Refer: CIT Vrs. Sunbeam Auto Ltd., (2011) 332 ITR 167 (Del). 5.4. From reading of sub-section (1) of Section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only, on examination of the records of any proceedings under the Act, he considers that any order passed therein by the Income Tax Officer is ‘erroneous in ITA No.90 of 2022 Page 9 of 33 so far as it is prejudicial to the interests of the Revenue’. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub- section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on the record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceeding by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well-accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must in other spheres of human activity. An order cannot be termed as erroneous unless it is not in accordance with law. If an Income Tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income Tax Officer, who passed the order unless the decision is held to be erroneous. ITA No.90 of 2022 Page 10 of 33 Cases may be visualised where the Income Tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income Tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income Tax Officer has exercised the quasi judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed. Refer: CIT Vrs. Gabriel India Ltd., (1993) 203 ITR 108 (Bom). 5.5. The Hon’ble Andhra Pradesh High Court in Spectra Shares & Strips Pvt. Ltd. Vrs. CIT, (2013) 354 ITR 35 (AP) culled out the following propositions: ITA No.90 of 2022 Page 11 of 33 (a) The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent— if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but it is prejudicial to the Revenue— recourse cannot be had to Section263(1) of the Act. (b) Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue: or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. (c) To invoke the suo motu revisional powers to reopen a concluded assessment under Section 263, the Commissioner must give reasons; that a bare reiteration by him that the order of the Income Tax ITA No.90 of 2022 Page 12 of 33 Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, will not suffice; that the reasons must be such as to show that the enhancement or modification of the assessment or cancellation of the assessment or directions issued for a fresh assessment were called for, and must irresistibly lead to the conclusion that the order of the Income Tax Officer was not only erroneous but was prejudicial to the interests of the Revenue. Thus, while the Income Tax Officer is not called upon to write an elaborate judgment giving detailed reasons in respect of each and every disallowance, deduction, etc., it is incumbent upon the Commissioner not to exercise his suo motu revisional powers unless supported by adequate reasons for doing so that if a query is raised during the course of the scrutiny by the Assessing Officer, which was answered to the satisfaction of the Assessing Officer, but neither the query nor the answer were reflected in the assessment order, this would not by itself lead to the conclusion that the order of the Assessing Officer called for interference and revision. (d) The Commissioner cannot initiate proceedings with a view to start fishing and roving inquiries in matters or orders which are already concluded; that the Department cannot be permitted to begin fresh litigation because of new views they entertain on ITA No.90 of 2022 Page 13 of 33 facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstance; that if this is permitted, litigation would have no end except when legal ingenuity is exhausted. (e) Whether there was application of mind before allowing the expenditure in question has to be seen; that if there was an inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under Section 263 merely because he has a different opinion in the matter; that it is only in cases of lack of inquiry that such a course of action would be open; that an assessment order made by the Income Tax Officer cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately; there must be some prima facie material on record to show that the tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation, a lesser tax than what was just, has been imposed. (f) The power of the Commissioner under Section 263(1) is not limited only to the material which was available before the Assessing Officer and, in order to protect the interests of the Revenue, the Commissioner is entitled to examine any other ITA No.90 of 2022 Page 14 of 33 records which are available at the time of examination by him and to take into consideration even those events which arose subsequent to the order of assessment. 5.6. In Malabar Industrial Co. Ltd. Vrs. CIT, (2000) 2 SCC 718 the Assessing Officer accepted the entry in the statement of the account filed by the assessee in the absence of any supporting material and without making any inquiry. On these facts the conclusion that the order of the Income Tax Officer was erroneous was considered to be irresistible. The Hon’ble Supreme Court, therefore, was of the opinion that the High Court had rightly held that the exercise of jurisdiction by the Commissioner under Section 263(1) was justified. 5.7. Nevertheless, in the present case, the Assessing Officer vide Order dated 23.10.2018 passed under Section 143(3) of the IT Act recorded the following fact: “*** Subsequently, the case was selected for scrutiny assessment through CASS under category of ‘complete scrutiny’ to verify whether amount spent on charitable purposes is correctly shown in return of income, *** *** In response to the said notice, the assesse furnished the details and documents as asked vide notice referred as above time to time electronically through e-compliance and the same were examined with reference to the books of filed account and other documents respectively through e-proceeding facilities of the Income Tax Department. *** During the course of assessment proceedings the assesse furnished and ITA No.90 of 2022 Page 15 of 33 produced the relevant documents as per questionnaire through e-proceeding. The Books of account including bank statements and the ledgers furnished for verification were examined wherever considered necessary. Considering the submissions made and after verification of the documents submitted by the assesse the total income of the assesse trust is hereby accepted.” 5.8. From the aforesaid, it cannot be said that the Assessing Officer had not conducted any enquiry as to the depreciation with reference to material produced. It is noteworthy to refer to following observation of the learned ITAT: “For the purpose of exercising jurisdiction under Section 263 of the Act, the conclusion that the order of the Assessing Officer is erroneous and prejudicial to the interest of the revenue has to be preceded by some minimal enquiry by CIT (E). If the CIT (E) is of the view that the Assessing Officer did not undertake any enquiry, it becomes incumbent on the CIT (E) to conduct such enquiry. If the CIT (E) does not conduct such basic exercise then the CIT (E) is not justified in setting aside the Order under Section 263 of the Act.” 5.9. The Hon’ble Supreme Court of India in CIT Vrs. Amitabh Bachchan, (2016) 384 ITR 200 (SC) stated that it may be that in a given case and in most cases it is so done a notice proposing the revisional exercise is given to the assessee indicating therein broadly or even specifically the grounds on which the exercise is felt necessary. But there is nothing in the Section 263 of the IT Act to raise the said notice to the status of a mandatory show cause notice affecting the initiation of the exercise in the absence thereof or to require the CIT to confine himself to the terms of the notice and ITA No.90 of 2022 Page 16 of 33 foreclosing consideration of any other issue or question of fact. This is not the purport of Section 263. Of course, there can be no dispute that while the CIT is free to exercise his jurisdiction on consideration of all relevant facts, a full opportunity to controvert the same and to explain the circumstances surrounding such facts, as may be considered relevant by the assessee, must be afforded to him by the CIT prior to the finalization of the decision. 5.10. In the instant case, the notice contemplating initiation of proceeding for revision was issued on 26.03.2021 and the order in revision was passed on 31.03.2021 by rejecting request of the assessee for grant of 15days’ time. 5.11. The Hon’ble Supreme Court in Zenit Mataplast (P) Ltd. Vrs. State of Maharashtra, (2009) 10 SCC 388 laid down that: