Ita/382/2012 Of The Director Of Income Tax v. India Heritage Foundation

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 18 DAY OF AUGUST 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.382 OF 2012 BETWEEN: 1.THE DIRECTOR OF INCOME-TAX EXEMPTIONS, C.R. BUILDINGS| QUEENS ROAD, BANGALORE. 2 |THE DEPUTY DIRECTOR OF INCOME TAX (EXMP), CIRCLE-17(2), C.R. BUILDING| QUEENS ROAD, BANGALORE. ... APPELLANTS (By Sri. K.V. ARAVIND, ADV.,) AND: INDIA HERITAGE FOUNDATIONGOKULAM COMPLEX.8 MILE, KANAKAPURA ROAD|DODDAKALLASANDRA|BANGALORE-560062. .. RESPONDENT (By Ms. VANI H, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT F ORDER DATED 29.06.2012 PASSED IN [TANO.146/BANG/2012 FOR THE ASSESSMENT YEAR 2009-10,|PRAYING TO: (1) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN.» (I) ALLOW THE APPEAL AND SET ASIDE THE ORDERS)PASSED BY THE ITAT, BANGALORE IN ITA NO.146/BANG/2012|DATED 29/06/2012 AND CONFIRM THE ORDER OF THE APPELLATECOMMISSIONER CONFIRMING THE ORDER PASSED BY THE|ADDITIONAL DIRECTOR OF INCOME TAX, EXEMPTIONS, RANGE-17, BANGALORE. THISLIACOMINGONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: DAY, JUDGMENT This appeal under Section 260A of the Income Tax) Act, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2009-10.The appeal was admitted by a bench of this Court videorder dated 01.03.2013 on the following substantialquestions of law: (I)Whether the Tribunal was correct In|holding that the order under Section 263of the Act Is not sustainable in view of|insertion of Section 13(8) of the Act,|when the subject matter of revision|UnderSection263 Wasregaraing|eligibility of the assessee to claim|deduction under Section 80IB(10) of the|Act?holding that the order under Section 263of the Act Is not sustainable in view of|insertion of Section 13(8) of the Act,|when the subject matter of revision|UnderSection263 Wasregaraing|eligibility of the assessee to claim|deduction under Section 80IB(10) of the|Act? (iI)Whether the Tribunal was correct In|applying the provisions of Section 13(8)of the Act, thereby traversing beyond|theSCOPE oftheappealwithoutappreciating the facts and circumstancesand recorded a perverse finding?applying the provisions of Section 13(8)of the Act, thereby traversing beyond|theSCOPE oftheappealwithoutappreciating the facts and circumstancesand recorded a perverse finding? 2 |Facts leading to filing of this appeal brieflystated are that assessee is a Trust engaged in the|Dusiness of construction and real estate activities andis registered under Section 12AA of the Act on!07.12.7007. The assessee filed the return of income.for the Assessment year 2009-10 and declared total.turnover to the tune of Rs.194.2724 Crores and a suof Rs.5/7.39 Crores was claimed as profit. The.assessee declared tne income as ‘NIL’ and claimed|deduction in respect of an amount of Rs.57.39 Crores.as deduction under Section 80IB(10) of the Act. The.aforesaid deduction was allowed by the Assessing|Officer vide order dated 18.03.2011. The order of.the Assessing Officer was found to be erroneous and. 2 |Facts leading to filing of this appeal brieflystated are that assessee is a Trust engaged in the|Dusiness of construction and real estate activities andis registered under Section 12AA of the Act on!07.12.7007. The assessee filed the return of income.for the Assessment year 2009-10 and declared total.turnover to the tune of Rs.194.2724 Crores and a suof Rs.5/7.39 Crores was claimed as profit. The.assessee declared tne income as ‘NIL’ and claimed|deduction in respect of an amount of Rs.57.39 Crores.as deduction under Section 80IB(10) of the Act. The.aforesaid deduction was allowed by the Assessing|Officer vide order dated 18.03.2011. The order of.the Assessing Officer was found to be erroneous and. prejudicial to the interest of the revenue. Therefore, ashow cause notice dated 18.10.7011 under Section|263 of the Act was issued by the Director of Income.Tax(Exemption), Bangalore CO theaSS@C@SSFproposing to disallow deduction of Rs.57.39 Crores|under Section 80IB(10) of the Act. The assessee vide|Communication dated 21.11.2011 made submissions.|The Director of Income Tax (Exemption) by an order.dated 19.12.2011.inter allaneid that no enquiry wasconducted by the Assessing Officer with regard to the|claim of the assessee for deduction under Section.SOIB(10) of the Act. It was further neld that the order.passed by the Assessing Officer is prejudicial to theinterest of the revenue. Tne Director of Income Tax!(Exemption) quashed the order passed by _ thAssessing Officer and directed him to disallow the)deduction as claimed by the assessee under Section.80IB(10) of the Act and to carry out the assessment afresh in accordance with law after affording an/opportunity of hearing to the assessee.| 3.Being aggrieved, the assessee filed an appealbefore the Income Tax Appellate Tribunal (hereinafter|referred to as ‘the Tribunal’, for short). The Tribunal|vide order dated 29.06.2012.inter allaheld thatinvocation of Section 263 of the Act on the ground of lack of enquiry with regard to claim of deduction|made by the assessee under Section 80IB(10) of the)Act cannot be upheld. It was further held that.Assessing Officer should have examined the claim for.exemption under Section 80IB(10) of the Act in the.light of the fact whether the assessee had applied theincome|for.charitableDUFDOSES.However,theTribunal held that Section 13(8) of the Act was.incorporated with effect from 01.04.2009 and by|virtue of Section 13(8) of the Act, the income of the.assessee from developing housing project by virtue of Section 13(8) of the Act would become part of total. income under the Act. It was further held that in the|light of aforesaid retrospective amendment of the|law, the application of income for charitable purposes|becomes irrelevant. It was further held that income|derived from business cannot be considered as-income derived from the property held for charitable|purposes. The Tribunal, therefore, set aside the|order passed under Section 263 of the Act and.allowed the appeal preferred by the assessee. Being.aggrieved, the revenue has filed this appeal. 4Learned counsel for tne revenue submittedthat the Tribunal itself in paragraph 21 of the order|had recorded the finding that invocation of Section|263 of the Act in the facts of the case is justified. It.was argued that the Tribunal therefore, grossly erredin setting aside the order under Section 263 of the|Act. It was further submitted that the issue In the.appeal before the Tribunal was whether the Director.of Income Tax (Exemption) was justified in invoking| 4Learned counsel for tne revenue submittedthat the Tribunal itself in paragraph 21 of the order|had recorded the finding that invocation of Section|263 of the Act in the facts of the case is justified. It.was argued that the Tribunal therefore, grossly erredin setting aside the order under Section 263 of the|Act. It was further submitted that the issue In the.appeal before the Tribunal was whether the Director.of Income Tax (Exemption) was justified in invoking| the provisions of Section 263 of the Act in the fact.situation of the case and therefore, the Tribunal couldnot have dealt with the merits of the matter and/should not have set aside the order on merits passed.under Section 263 of the Act. It is also urged that|the Tribunal ought to have appreciated that the.Assessing Officer had failed to examine the issue|whnetner the income was expended for charitablepurposes. In Support of aforesaid SUDMISSIONS,|reliance has been placed on a decision Supreme|CourtIn|"COMMISSIONEROFINCOME-TAX,MUMBAI VS. AMITABH BACHAN’, (2016) 69TAXMANN.COM 170 (SC)and decision of this courtIn"THE COMMISSIONER OF INCOME TAX ANDANR. VS. M/S INDIA HERITAGE TRUST’, ITANO.754/2007 DATED 04.08.2014. 5.|On the other hand, learned counsel for theassessee submitted that since, the assessee does not|fall within scope and ambit of Section 11(1)(a) of the. Act, the income of the assessee has to be computed.in accordance with other provisions of the Act. It is|further submitted that total Income of the assessee|has to be assessed as provided under Section 14 of the Act. It is also pointed out that the order ofassessment was passed by the Assessing Officer with due application of mind and therefore, the Director ofIncome Tax (Exemption) grossly erred in invoking.Section 263 of tne Act in tne fact situation of the.case. It is also argued that the order of the AssessingOfficer can neither be said to be perverse nor is.prejudicial to the interest of the revenue. Therefore,|there was no justification to invoke Section 263 of the|Act in the fact situation of the case. It is also argued.that inadequacy of enquiry cannot be a ground for.invoking Section 263 of the Act. It is also urged that|merely because an order passed by the Assessing|Officer results in loss in revenue, it cannot be treatedas prejudicial to the interest of the revenue. It is also| submitted that exemption under Section 80IB(10) of.the Act can be claimed by an undertaking involved in.developing and housing project, irrespective of it.being a charitable trust. It is also argued that the|Tribunal has rightly set aside the order passed under.Section 263 of the Act. It is also urged that decision|relied upon by the revenue in the case ofAMITABHBACHAN|Supra does not support the case of therevenue as in the aforesaid case, the assessee had|withdrawn the claim and the Assessing Officer Nad|not examined the original claim made by _ thassessee and In the aforesaid context it was held that|the Assessing Officer should have examined the|Original claim. In Support of aforesaid submissions,|reliance has been placed on decisions of Supreme|CourtIn|ECOMMISSTONER|OF|INCOME-TAX|(CENTRAL),DELHIYS, HARPRASAD& CO.P.LTD.’, (1975) 99 ITR 118X (SC), ‘MALABARINDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME-TAX’, (2000) 243 ITR 83W (SC)and‘COMMISSIONER OF INCOME-TAX VS. HEROAUTO LTD.’, (2012) 343 ITR 342 (DEL). 6.|We have considered the submissions madeby learned counsel on both the sides and Nhaveperused the record. Before proceeding further, it isapposite to take note of the relevant extract of.Section 263 of the Act, which reads as under: 263. Revision of orders prejudicial torFevenuvl INCOME-TAX’, (2000) 243 ITR 83W (SC)and‘COMMISSIONER OF INCOME-TAX VS. HEROAUTO LTD.’, (2012) 343 ITR 342 (DEL). 6.|We have considered the submissions madeby learned counsel on both the sides and Nhaveperused the record. Before proceeding further, it isapposite to take note of the relevant extract of.Section 263 of the Act, which reads as under: 263. Revision of orders prejudicial torFevenuvl (1) The Commissioner may call for andexamine the record of any proceeding underthis Act, and if he considers that any orderpassed therein by the Assessing Officer iserroneous in so far as it is prejudicial to theinterests of the revenue, he, may, after givingthe assessee an opportunity of being heardand after making or causing to be made suchinquiry as he deems necessary, pass suchorder thereon as the circumstances of thecase Justify, including an order enhancing ormodifying the assessment, or cancelling the assessment.and|directing adfresh|assessment. J |Thus, from close scrutiny of Section 263 it isevident that twin conditions are required to be satisfiedfor exercise of revisional jurisdiction under Section 263of the Act firstly, the order of the Assessing Officer iserroneous and secondly, that it is prejudicial to theinterest of the revenue on account of error in the order|of assessment. 8.|The aforesaid provision was considered bythe Supreme Court in|MALABAR INDUSTRIAL CO.LTD,I supraand it was held that the phrase.‘prejudicial|to the Interests of the revenue’has to be read in|conjunction with an erroneous order passed by the.Assessing Officer and every loss of revenue as a|consequence of tne order of the Assessing Officer cannot.be treated as prejudicial to the interest of revenue. Itwas further held that where two views are possible and.the Income Tax Officer has taken one view with which| the Commissioner does not agree, the order passed bythe Assessing Officer cannot be treated as erroneousorder prejudicial to the interest of the revenue. Theprinciples laid down in the aforesaid decision werereiterated by the Supreme Court in‘CIT VS. MAX.INDIA LTD.,”" 295 ITR 282 (SC)and recently in‘ULTRATECH CEMENT LTD. AND ORS. VS. STATE OFRAJASTHANANDORS.’,CIVILAPPEALNO.2773/2020 DECIDED ON 17.07.2020. 9 |The seminal question, which arises’ forconsideration in this appeal is whether on the anvil ofaforesaid well settled principles of law, the impugnedorder passed by the Tribunal can be sustained. Therelevant extract of order passed by the Assessing Officerreads as under: GIn response to the scrutiny notices theAuthorized Representative Sri.S.Basker, CAappeared from time to time, case wasdiscussed details and Information called for.The assessee’s Authorized Representative has filed the |Information called for and afteverification of the same the assessment [s_completed as mentioned below: INCOME.Income as per Profit and Loss’5/,539,65,56Account[ncome|aS|per[ncome|and.48,20,892Expenditure Account58,17,89,461Less: 15% set apart for applicationto cnaritable or religious purpose &/,268,419Balance 85% to be applied494,521,042Less: Application of IncomeEXDenses(excludingDUSINeSSactivity and Depreciation)8,51,352Expenditure as per Income andExpenditure Account-Donation58,94,80548,97,84,885Less: Capital Expenditure3,07,/77,3945,90,07,490Deduction under Cnapter VIA U/s|5/3,968,569SOIB(10)Taxable [ncome3$7 10. Thus, from perusal of the order passed bythe Assessing Officer, it is evident that the AssessingOfficer has not made any enquiry with regard to theclaim of the assessee for deduction under SectionSOIB(10) of the Act. The Director of Income Tax(Exemption) in the order passed under Section 263 ofthe Act has held that the Assessing Officer has not &/,268,419Balance 85% to be applied494,521,042Less: Application of IncomeEXDenses(excludingDUSINeSSactivity and Depreciation)8,51,352Expenditure as per Income andExpenditure Account-Donation58,94,80548,97,84,885Less: Capital Expenditure3,07,/77,3945,90,07,490Deduction under Cnapter VIA U/s|5/3,968,569SOIB(10)Taxable [ncome3$7 10. Thus, from perusal of the order passed bythe Assessing Officer, it is evident that the AssessingOfficer has not made any enquiry with regard to theclaim of the assessee for deduction under SectionSOIB(10) of the Act. The Director of Income Tax(Exemption) in the order passed under Section 263 ofthe Act has held that the Assessing Officer has not applied its mind on the issue of allowance of deductionunder Section 80IB(10) of the Act and application ofincome under Section 11 of the Act. Therefore, it hasbeen held that the order passed by the Assessing Officeris erroneous and is prejudicial to the interest of therevenue. The Tribunal by placing reliance on thedecision in the case of|HERO AUTO LIMITED SUPRAhas held that lack of enquiry regarding eligibility ofassessee for deduction under Section 80IB(10) of theAct cannot be upheld. It is pertinent to mention herethat in the aforesaid decision, from perusal of paragraph3, it is evident that there was not discussion in the orderof Commissioner of Income Tax (Appeals) as to how andin what manner the enquiry was lacking and what wasthe fault and default committed by the AssessingOfficer. The distinction between lack of enquiry andinadequate enquiry was also noted. Therefore, theTridDunal grossly erred in law in applying the aforesaiddecision to the fact situation of the case and ought to have appreciated that the instant case was a case oflack of enquiry and not inadequate enquiry with regardto claim of the assessee with regard to deduction underSection 80IB(10) of the Act. 11. It is pertinent to mention here that inparagraph 21 itself the Tribunal has recorded the findingthat the Assessing Officer should have examined theclaim for deduction of the assessee in the light ofSection 11 of the Act. The relevant extract of paragraph271 reads as under: ‘To this extent, the AO ought to have|made enquiries and failure to do so wouldrender the order of the AO erroneous andprejudicial to the interest of the revenue. Thefurther conclusion of the DIT based on theaforesaid decision that the assessee would notbe|entitledCO deduction|underSectionS8OIB(10)of the Act and that the AO shouldexamine the claim for exemption underSection 11 of the Act in the light of the fact. whether the assessee has applied income forCharitable purpose Is also correct.” 172. The Tribunal thereafter could not haveproceeded to examine the matter on merits after settingaside the order under Section 263 of the Act withreference to Section 13(8) of the Act as the merits ofthe matter was not the subject matter of the appealbefore the Tribunal. In view of preceding analysis, the substantial|questions of law framed by a bench of this court areanswered in favour of the revenue and against the.assessee. The order passed by the Income Tax AppellateTribunal dated 29.06.2012 is quashed. The order passedby the Director of Income Tax (Exemption), Bangaloredated 19.12.2011 insofar it contains a direction to theAssessing Officer to disallow the deduction underSection 80IB(10) of the Act is also quashed. We Navetherefore not expressed any opinion with regard to claimof the assessee for deduction under Section 80IB(10) of 903��89�167�7('389�903��,,3,,(6C��;;(83'�9:�7314�A(90�903�1;:'3,1(7�841(<�:;�903�1,,3,,33�1;'3,0�(6�188:'71683�A(90�41A��� �88:'7(6C4&!�903�122314�(,�7(,2:,37�:;�� ,,� ����������������������