1 IN HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS 18TH DAY OF AUGUST 2020 PRESENT HON BLE MR. JUSTICE ALOK ARADHE AND HON BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.382 OF 2012 BETWEEN: 1. DIRECTOR OF INCOME-TAX EXEMPTIONS, C.R. BUILDINGS QUEENS ROAD, BANGALORE. 2. 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 FOUNDATION GOKULAM COMPLEX 8TH 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 ITA NO.146/BANG/2012 FOR ASSESSMENT YEAR 2009-10, PRAYING TO: (I) FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. 2 (I) ALLOW APPEAL AND SET ASIDE ORDERS PASSED BY ITAT, BANGALORE IN ITA NO.146/BANG/2012 DATED 29/06/2012 AND CONFIRM ORDER OF APPELLATE COMMISSIONER CONFIRMING ORDER PASSED BY ADDITIONAL DIRECTOR OF INCOME TAX, EXEMPTIONS, RANGE- 17, BANGALORE. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED FOLLOWING: JUDGMENT This appeal under Section 260A of Income Tax Act, 1961 (hereinafter referred to as Act for short) has been preferred by revenue. subject matter of appeal pertains to Assessment year 2009-10. appeal was admitted by bench of this Court vide order dated 01.03.2013 on following substantial questions of law: (i) Whether Tribunal was correct in holding that order under Section 263 of Act is not sustainable in view of insertion of Section 13(8) of Act, when subject matter of revision under Section 263 was regarding eligibility of assessee to claim deduction under Section 80IB(10) of Act? 3 (ii) Whether Tribunal was correct in applying provisions of Section 13(8) of Act, thereby traversing beyond scope of appeal without appreciating facts and circumstances and recorded perverse finding? 2. Facts leading to filing of this appeal briefly stated are that assessee is Trust engaged in business of construction and real estate activities and is registered under Section 12AA of Act on 07.12.2007. assessee filed return of income for Assessment year 2009-10 and declared total turnover to tune of Rs.194.24 Crores and sum of Rs.57.39 Crores was claimed as profit. assessee declared income as NIL and claimed deduction in respect of amount of Rs.57.39 Crores as deduction under Section 80IB(10) of Act. aforesaid deduction was allowed by Assessing Officer vide order dated 18.03.2011. order of Assessing Officer was found to be erroneous and 4 prejudicial to interest of revenue. Therefore, show cause notice dated 18.10.2011 under Section 263 of Act was issued by Director of Income Tax (Exemption), Bangalore to assessee proposing to disallow deduction of Rs.57.39 Crores under Section 80IB(10) of Act. assessee vide communication dated 21.11.2011 made submissions. Director of Income Tax (Exemption) by order dated 19.12.2011 inter alia held that no enquiry was conducted by Assessing Officer with regard to claim of assessee for deduction under Section 80IB(10) of Act. It was further held that order passed by Assessing Officer is prejudicial to interest of revenue. Director of Income Tax (Exemption) quashed order passed by Assessing Officer and directed him to disallow deduction as claimed by assessee under Section 80IB(10) of Act and to carry out assessment 5 afresh in accordance with law after affording opportunity of hearing to assessee. 3. Being aggrieved, assessee filed appeal before Income Tax Appellate Tribunal (hereinafter referred to as Tribunal , for short). Tribunal vide order dated 29.06.2012 inter alia held that invocation of Section 263 of Act on ground of lack of enquiry with regard to claim of deduction made by assessee under Section 80IB(10) of Act cannot be upheld. It was further held that Assessing Officer should have examined claim for exemption under Section 80IB(10) of Act in light of fact whether assessee had applied income for charitable purposes. However, Tribunal held that Section 13(8) of Act was incorporated with effect from 01.04.2009 and by virtue of Section 13(8) of Act, income of assessee from developing housing project by virtue of Section 13(8) of Act would become part of total 6 income under Act. It was further held that in light of aforesaid retrospective amendment of law, application of income for charitable purposes becomes irrelevant. It was further held that income derived from business cannot be considered as income derived from property held for charitable purposes. Tribunal, therefore, set aside order passed under Section 263 of Act and allowed appeal preferred by assessee. Being aggrieved, revenue has filed this appeal. 4. Learned counsel for revenue submitted that Tribunal itself in paragraph 21 of order had recorded finding that invocation of Section 263 of Act in facts of case is justified. It was argued that Tribunal therefore, grossly erred in setting aside order under Section 263 of Act. It was further submitted that issue in appeal before Tribunal was whether Director of Income Tax (Exemption) was justified in invoking 7 provisions of Section 263 of Act in fact situation of case and therefore, Tribunal could not have dealt with merits of matter and should not have set aside order on merits passed under Section 263 of Act. It is also urged that Tribunal ought to have appreciated that Assessing Officer had failed to examine issue whether income was expended for charitable purposes. In support of aforesaid submissions, reliance has been placed on decision Supreme Court in COMMISSIONER OF INCOME-TAX, MUMBAI VS. AMITABH BACHAN , (2016) 69 TAXMANN.COM 170 (SC) and decision of this court in COMMISSIONER OF INCOME TAX AND ANR. VS. M/S INDIA HERITAGE TRUST , ITA NO.754/2007 DATED 04.08.2014. 5. On other hand, learned counsel for assessee submitted that since, assessee does not fall within scope and ambit of Section 11(1)(a) of 8 Act, income of assessee has to be computed in accordance with other provisions of Act. It is further submitted that total income of assessee has to be assessed as provided under Section 14 of Act. It is also pointed out that order of assessment was passed by Assessing Officer with due application of mind and therefore, Director of Income Tax (Exemption) grossly erred in invoking Section 263 of Act in fact situation of case. It is also argued that order of Assessing Officer can neither be said to be perverse nor is prejudicial to interest of revenue. Therefore, there was no justification to invoke Section 263 of Act in fact situation of case. It is also argued that inadequacy of enquiry cannot be ground for invoking Section 263 of Act. It is also urged that merely because order passed by Assessing Officer results in loss in revenue, it cannot be treated as prejudicial to interest of revenue. It is also 9 submitted that exemption under Section 80IB(10) of Act can be claimed by undertaking involved in developing and housing project, irrespective of it being charitable trust. It is also argued that Tribunal has rightly set aside order passed under Section 263 of Act. It is also urged that decision relied upon by revenue in case of AMITABH BACHAN supra does not support case of revenue as in aforesaid case, assessee had withdrawn claim and Assessing Officer had not examined original claim made by assessee and in aforesaid context it was held that Assessing Officer should have examined original claim. In support of aforesaid submissions, reliance has been placed on decisions of Supreme Court in COMMISSIONER OF INCOME-TAX (CENTRAL), DELHI VS. HARPRASAD & CO.P.LTD. , (1975) 99 ITR 118X (SC), MALABAR INDUSTRIAL CO. LTD. VS. COMMISSIONER OF 10 INCOME-TAX , (2000) 243 ITR 83W (SC) and COMMISSIONER OF INCOME-TAX VS. HERO AUTO LTD. , (2012) 343 ITR 342 (DEL). 6. We have considered submissions made by learned counsel on both sides and have perused record. Before proceeding further, it is apposite to take note of relevant extract of Section 263 of Act, which reads as under: 263. Revision of orders prejudicial to revenue (1) Commissioner may call for and examine record of any proceeding under this Act, and if he considers that any order passed therein by Assessing Officer is erroneous in so far as it is prejudicial to interests of revenue, he, may, after giving assessee opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as circumstances of case justify, including order enhancing or modifying assessment, or cancelling 11 assessment and directing fresh assessment. 7. Thus, from close scrutiny of Section 263 it is evident that twin conditions are required to be satisfied for exercise of revisional jurisdiction under Section 263 of Act firstly, order of Assessing Officer is erroneous and secondly, that it is prejudicial to interest of revenue on account of error in order of assessment. 8. aforesaid provision was considered by Supreme Court in MALABAR INDUSTRIAL CO. LTD.I supra and it was held that phrase prejudicial to interests of revenue has to be read in conjunction with erroneous order passed by Assessing Officer and every loss of revenue as consequence of order of Assessing Officer cannot be treated as prejudicial to interest of revenue. It was further held that where two views are possible and Income Tax Officer has taken one view with which 12 Commissioner does not agree, order passed by Assessing Officer cannot be treated as erroneous order prejudicial to interest of revenue. principles laid down in aforesaid decision were reiterated by Supreme Court in CIT VS. MAX INDIA LTD., 295 ITR 282 (SC) and recently in ULTRATECH CEMENT LTD. AND ORS. VS. STATE OF RAJASTHAN AND ORS. , CIVIL APPEAL NO.2773/2020 DECIDED ON 17.07.2020. 9. seminal question, which arises for consideration in this appeal is whether on anvil of aforesaid well settled principles of law, impugned order passed by Tribunal can be sustained. relevant extract of order passed by Assessing Officer reads as under: In response to scrutiny notices Authorized Representative Sri.S.Basker, CA appeared from time to time, case was discussed details and information called for. assessee s Authorized Representative has 13 filed information called for and after verification of same assessment is completed as mentioned below: INCOME Income as per Profit and Loss 57,39,68,569 Account Income as per Income and 78,20,892 Expenditure Account 58,17,89,461 Less: 15% set apart for application to charitable or religious purpose 87,268,419 Balance 85% to be applied 494,521,042 Less: Application of Income Expenses (excluding business activity and Depreciation) 8,51,352 Expenditure as per Income and Expenditure Account-Donation 38,94,805 48,97,84,885 Less: Capital Expenditure 3,07,77,395 45,90,07,490 Deduction under Chapter VIA u/s 573,968,569 80IB(10) Taxable Income NIL 10. Thus, from perusal of order passed by Assessing Officer, it is evident that Assessing Officer has not made any enquiry with regard to claim of assessee for deduction under Section 80IB(10) of Act. Director of Income Tax (Exemption) in order passed under Section 263 of Act has held that Assessing Officer has not 14 applied its mind on issue of allowance of deduction under Section 80IB(10) of Act and application of income under Section 11 of Act. Therefore, it has been held that order passed by Assessing Officer is erroneous and is prejudicial to interest of revenue. Tribunal by placing reliance on decision in case of HERO AUTO LIMITED SUPRA has held that lack of enquiry regarding eligibility of assessee for deduction under Section 80IB(10) of Act cannot be upheld. It is pertinent to mention here that in aforesaid decision, from perusal of paragraph 3, it is evident that there was not discussion in order of Commissioner of Income Tax (Appeals) as to how and in what manner enquiry was lacking and what was fault and default committed by Assessing Officer. distinction between lack of enquiry and inadequate enquiry was also noted. Therefore, Tribunal grossly erred in law in applying aforesaid decision to fact situation of case and ought to 15 have appreciated that instant case was case of lack of enquiry and not inadequate enquiry with regard to claim of assessee with regard to deduction under Section 80IB(10) of Act. 11. It is pertinent to mention here that in paragraph 21 itself Tribunal has recorded finding that Assessing Officer should have examined claim for deduction of assessee in light of Section 11 of Act. relevant extract of paragraph 21 reads as under: To this extent, AO ought to have made enquiries and failure to do so would render order of AO erroneous and prejudicial to interest of revenue. further conclusion of DIT based on aforesaid decision that assessee would not be entitled to deduction under Section 80IB(10) of Act and that AO should examine claim for exemption under Section 11 of Act in light of fact 16 whether assessee has applied income for charitable purpose is also correct. 12. Tribunal thereafter could not have proceeded to examine matter on merits after setting aside order under Section 263 of Act with reference to Section 13(8) of Act as merits of matter was not subject matter of appeal before Tribunal. In view of preceding analysis, substantial questions of law framed by bench of this court are answered in favour of revenue and against assessee. order passed by Income Tax Appellate Tribunal dated 29.06.2012 is quashed. order passed by Director of Income Tax (Exemption), Bangalore dated 19.12.2011 insofar it contains direction to Assessing Officer to disallow deduction under Section 80IB(10) of Act is also quashed. We have therefore not expressed any opinion with regard to claim of assessee for deduction under Section 80IB(10) of 17 Act and direct Assessing Officer to deal with aforesaid claim of assessee afresh in accordance with law. Accordingly, appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss Director of Income-tax Exemptions, Bangalore / Deputy Director of Income-tax (Exmp), Circle-17(2), Bangalore v. India Heritage Foundation