Unreported Decisions – March 2022

By Ajay R. Singh, Advocate and CA Rohit Shah

1. Section 263- Revision by the PCIT- Concluded that no inquiry has been made by the Assessing Officer with reference to the applicability of section 56(2)(vii)(b) – Held – Pr. CIT proceeded to disturb the assessment on totally irrelevant consideration and without showing any error in the assessment order per se :

The return for AY: 2015-16 was selected under CASS and assessed u/s 143(3) of the Act whereby the total income of the assessee was assessed at ` 11,56,959/- as against return income of ` 9,58,920/. After the completion of assessment, the Revisional Commissioner/Pr. CIT called for the assessment records and opined that the impugned assessment order so passed is erroneous in so far as prejudicial to the interest of the Revenue that no inquiry has been made by the Assessing Officer with reference to the applicability of section 56(2)(vii)(b) of the Act and accordingly set aside the assessment order with a direction to pass fresh assessment order in terms of directions issued in the revisional order.

Assessee preferred appeal before Hon’ble ITAT challenging the revisional order u/s. 263 of the Act. Before Hon’ble ITAT, assessee submitted that the relevant facts pertaining to issues raised in revisional order were fully disclosed in the course of the assessment proceedings and requisite inquiries were made as required in the context and hence the allegation of the Pr. CIT that the assessee order is erroneous. The assessee demonstrated with the help of entries in Paper Book, that the assessee in the instant case has purchased residential property for consideration of ` 1,41,00,000/- for which stamp duty and registration charges to the tune of ` 10,10,100/- was paid during the financial year 2014-15 relevant to assessment year 2015-16 in question. However, the payment of ` 80,00,000/- was made way back in financial year 2011-12 & 2012-13 source of which was sale of residential flat in FY 2011-12. A loan of ` 61,00,000/- was also availed from State Bank of India for this purpose. It was further pointed out that the Assessing Officer in the ‘limited scrutiny’ in the instant case was inter alia concerned about purchases of property and inquiries towards source of payment of purchases have been naturally carried out. The Ld. counsel for the assessee further pointed out that the substantial payments have been made in the financial year 2011-12 in pursuance of letter of intent dated 27.09.2012 and allotment letter dated 28.09.2012 and thus it would not be correct to compare the purchase consideration with the corresponding market value applicable to assessment year 2015-16 in question when the payments have been made in financial year 2011-12 and therefore section 56(2)(vii)(b) is not applicable in the instant case.

Ld. CIT-DR for the Revenue pointed out that the inquiries made by the AO does not show any reference to the provisions of section 56(2)(vii)(b) of the Act and thus no inquiry in this regard has been made by the AO.

The Hon’ble ITAT held that stamp duty value adopted by Pr. CIT with reference to FY 2014-15 (AY 2015-16) for the purposes of applicability of section 56(2)(vii)(b) is wholly incorrect, having regard to the fact that the allotment of the property was made in financial year 2011-12. Thus, the Pr. CIT has proceeded to disturb the assessment on totally irrelevant consideration and without showing any error in the assessment order per se. The assumption of jurisdiction u/s 263 by the Pr. CIT is thus found to be without authority of law and hence bad in law

Parasmal Champalal Bamboli v. Pr. Commissioner of Income Tax-27 [ITA No. 580/Mum/2021 AY 2015-16 dated : 27/1/2022]

2. S. 11: Providing sports facilities to general public – Applicability of proviso to section 2(15)

Assessee-trust claimed exemption under section 11. Main object of the assessee trust was promotion of swimming and other allied sports on no profit basis. AO noticed that assessee had earned income by way of guest fee and learn to swim fee. Accordingly, AO held that assessee’s activity was in the nature of business, trade or commerce and, therefore, AO disallowed exemption in view of proviso to section 2(15).

Held: Providing sports facilities to general public without restriction to any caste, creed, religion or profession squarely fall within the definition of "charitable purpose" as defined under section 2(15). Assessee was running its activities in accordance with its main object and continued to provide services to its members by collecting nominal fee. Further, assessee has deficits from its core activity of promoting swimming for all the years. The assessee s collection from its members was less than the amount spent for its objects. But, for income from investments, assessee was always incurring deficit for all the years. Further, if the object or purpose of an institution is charitable, the fact that institution collects certain charges does not alter the character of the institution. it is not necessary that it should provide something for nothing or for less than it costs or for less than the ordinary price. Accordingly, assessee was not hit by proviso to section 2(15) and, therefore, assessee was entitled for exemption under section 11.

Conclusion: Where main object or purpose of assessee s charitable trust was promotion of sports and swimming, merely because trust collected certain charges from coaching campus, same could not alter its character of being charitable.

ITO v. Pransukhlal Mafatlal Hindu Swimming Bath & Boat Club Trust [ITA No.684/Mum/2019 ; AY 2013-14 ; dated 23/3/2021]