Revision us 263-Student Development-Capitation Fees not reflected in Income Expenditure Account shown directly in the Balance Sheet held as erroneous and prejudicial to the interest of Revenue-Allahabad High Court
ABCAUS Case Law Citation:
ABCAUS 1259 (2017) (05) HC
Grounds of Appeal:
- Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in quashing the order u/s 263 of the I.T. Act and confirming the order u/s 143(3) of the Income Tax Officer, 3(2), Lucknow.
- Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in authenticating that the Development Fund in which receipts were in the form of Development Fees from the students, and was not the Capitation fees, as the same has not been properly enquired by the then Assessing Officer.
- Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT was justified in authenticating the Development Fund as Income as per Income & Expenditure Accounts, as the same has not been reflected in Income & Expenditure Account instead shown directly in the Balance Sheet.
Assessment Year : 2010-11
Date/Month of Pronouncement: May, 2017
Important Case Laws Cited/relied upon:
Malabar Industrial Company Ltd. Vs. CIT [2000 (243) ITR 83 (SC)]
CIT Vs. Shri Anand Kumar Jain (Allahabad)
CIT Vs. Max India Ltd.
Brief Facts of the Case:
The Assessee was a charitable trust running a University. The CIT(Exemption) had passed revisionary order u/s 263 of the Income Tax Act, 1961 (‘the Act’) revising the assessment order on the ground that the development fund received from the students of University had not been routed through income and expenditure account and was directly credited in the balance sheet. CIT(Exemption) simply stated that the development fund shown in the computation was a capitation fees and should have been disallowed and added back to the income of the assessee.
The ITAT noted that that the issue of receipt of development fund was duly examined by the Assessing Officer in the AYs 2007-08 and 2009-10 while completing the assessment u/s 143(3) of the Act. Moreover, it was noted that the the CIT(Exemption) had incorrectly observed in a show cause notice that the development fund was not routed through income and expenditure account and was directly taken to the balance sheet as the assessee had taken this amount as income in the income and expenditure account and thereafter it was credited to the balance sheet and having applied its income to the chargeable purpose, the assessee has claimed exemption u/s 11 of the Act.
Accordingly, the ITAT held that assessment order could not be called to be prejudicial to the interest of the Revenue, though it may be erroneous for certain reasons.
Aggrieved with the order of ITAT, the Department was before the Hon’ble High Court in the present appeal.
Contentions of the appellant Revenue:
It was contended that the Tribunal on the one hand had observed that order passed by Assessing Officer was erroneous on certain aspects, but then has proceeded to observe that it was not prejudicial to the interest of revenue.
Observations made by the High Court:
It was observed by the Hon’ble High Court that the Tribunal had misdirected itself and without appreciating scope of Section 263, had illegally set aside order of CIT.
It was observed that to invoke the jurisdiction, Commissioner has to be satisfied on existence of twin conditions i.e.
(i) Order of Assessing Officer sought to be revised is erroneous, and
(ii) It is prejudicial to the interest of Revenue.
If any one of them is absent, Section 263 of Act, 1961 would not be attracted. It was also held in the case of Malabar that power of revision cannot be invoked in respect to each and every mistake or error committed by Assessing Officer. It was only when an order is erroneous and prejudicial to the interest of Revenue, then Section 263 of the Act will be attracted. An incorrect assumption of fact or an incorrect application of law will satisfy the requirement of order being ‘erroneous’. Supreme Court further said that orders passed without applying principles of natural justice or without application of mind, would also come within the category of “erroneous orders”.
The Hon’ble High Court further observed that the regarding the phrase “prejudicial to the interest of Revenue“, the Supreme Court said that it is not an expression of art and not defined in Act, 1961. When considered with its ordinary meaning, it is of wide import and not confined to mere loss of tax. Court was of the view that scheme of Act was to levy and collect tax in accordance to the provisions of Act and this task is entrusted to Revenue. If, due to erroneous order of Income Tax Officer, Revenue is loosing tax, lawfully payable by a person, it will certainly be prejudicial to the interest of Revenue. However, every loss of revenue, as a consequence of an order of Assessing Officer, cannot be treated as prejudicial to the interest of Revenue. For example, when Income Tax Officer adopted one of the course permissible in law and it resulted in loss of revenue, or where two views are possible and Income Tax Officer has taken one view with which Commissioner does not agree, it cannot be treated erroneous order, prejudicial to the interest of Revenue, unless view taken by Income Tax Officer is unsustainable in law.
The Hon’ble High Court observed that it had recently held as under:
“Hence, it is well settled that every loss of revenue in consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue. For example, when an Assessing Officer adopts one of the courses permissible in law or where two views are possible of which the Assessing Officer has taken one view, the Commissioner cannot exercise jurisdiction under Section 263 merely because he does not agree with the view of the Assessing Officer unless the view which is taken by the Assessing Officer is unsustainable in law. On the other hand, where an order has been passed by the Assessing Officer without application of mind or where the Assessing Officer has made an incorrect assessment of facts or an incorrect application of law, that would satisfy the requirement of the order being erroneous. As regards the words ‘prejudicial to the interests of the revenue’, the Supreme Court has held that if due to an erroneous order of the Assessing Officer the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue.”
Applying the above Law to the facts of the case, the Hon’ble High Court answered the questions in favour of appellant.
Order of the Tribunal was set aside and order passed by CIT u/s 263 was confirmed.