Revisionary Powers U/S 263 Can't Be Exercised For Directing Fuller Inquiry Once Plausible View Taken By AO After Inquiry: Mumbai ITAT

While setting aside the revision order passed on the ground that the AO did not conduct any enquiry or verification which should have been made with regards to income from auditorium hire charges, hoarding site & service charges and rent vis-a-vis Trust's objectives and consequential eligibility under Section 10(21), the Bench opined that it is important to show that the view taken by the AO is wholly unsustainable in law before embarking upon exercise of revisionary powers and that the revisionary powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry.

“If such course of action in the light of the Explanation 2 is permitted, then the by excise of revisionary powers the Revisional Commissioner can find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law”, added the ITAT.

Thus, the ITAT cautioned that such exercise would inevitably mean that every order of the lower authority would become susceptible to section 263 and that, will cause serious hardship to the tax payer concerned and this is not intended by the legislation by the insertion of the Explanation 2.

The ITAT Coram comprising of Kavitha Rajagopal (Judicial Member) and Padmavathy S. (Accountant Member) observed that “entitlement of the assessee for exemption under section 10(21) has been the core issue in entire proceedings for the year under consideration. In the original return the assessee had claimed deduction under section 11 and it was only during the reassessment proceedings under section 147 of the Act, the alternate claim of exemption under section 10(21) is made by the assessee. From the perusal of records all the details pertaining to the alternate claim of the assessee have been submitted and are part of the records. Therefore, there is merit in the claim of the AR that the order under section 144 r.w.s.263, though the assessee did not make any fresh submissions, all the details pertaining to eligibility of the assessee for exemption under section 10(21) have been examined by the AO and he has taken a possible view that the impugned incomes are correctly included for the purpose of exemption”. (Para 18)

As per the brief facts, the assessee, a Public Charitable Trust and approved research organization under Section 35(1)(ii), declared Nil income for AY 2013-14 after claiming exemption under Section 11. The AO re-opened the assessment based on the re-assessment done in assessee's own case for AY 2010-11 wherein the exemption under section 11 was denied. The AO though accepted assessee's alternate plea that it being engaged in carrying out research activities and being notified under section 35(1)(ii) is entitled to the benefit under section 10(21) and completed assessment holding that the assessee's income is exempt under section 10(21).

Later, the CIT(E) invoked revisionary jurisdiction on the ground that the assessee's income from auditorium hire charges, hoarding site and service charges and licence fee/rent is not eligible for exemption under section 10(21). The therefore set aside the re-assessment order and directed the AO to re-conduct the assessment. Hence, the assessee approached the ITAT.

The Coram observed that the assessee made the alternate claim of deduction under Section 10(21) by referring to the assessment order for AY 2010-11, wherein it was held that the assessee being a certified research organisation under section 35(1)(ii) ought to have claimed exemption under section 10(21) instead of deduction under section 11.

The Coram also note that the AO, in compliance of the first revision order called on the assessee to justify the claim of exemption towards income derived from auditorium hire charges, hoarding site & service charges and rent and issued notices under Section 142(1) and 144 requiring the assessee to furnish the relevant details, and completed the assessment stating that the assessee has not submitted any details.

The ITAT observed that the revisionary powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry.

The ITAT found that all the requisite details pertaining to assessee's alternate claim were submitted by the assessee and are part of the records, and therefore, concurred with assessee's argument that the AO, while passing the order in compliance of first revision order, examined all the details pertaining to its eligibility under Section 10(21) and took a possible view that the impugned incomes are correctly included for the purpose of exemption, even though the assessee did not make any fresh submissions.

Thus, the ITAT concluded that the AO while allowing the exemption under Section 10(21) in the order passed under Section 144 r/w/s 263 has taken a possible view upon verifying the details available on record, and the revision order holding such order to be erroneous is not tenable.

Hence, the ITAT quashed the revision order and allowed assessee's appeal.

Counsel for Appellant: Girish Dave and Tanzil R. Padvekar

Counsel for Respondent: Kishor Dhule

Case Title: The Synthetic & Art Silk Mills Research Association verses Commissioner of Income Tax (Exemption)

Case Number: ITA No. 1833/Mum/2023

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