Facts of the Case

The assessee, a registered charitable trust, filed its return of income declaring nil income after claiming exemption under Sections 11 and 12 of the Income-tax Act, 1961. The assessment was completed under Section 143(3) accepting the returned income.

Subsequently, the Commissioner of Income-tax (Exemption) invoked revisional jurisdiction under Section 263, holding that the assessment order was erroneous and prejudicial to the interests of the Revenue, particularly in relation to examination of donations and application of income. The Commissioner set aside the assessment and directed the Assessing Officer to frame a fresh assessment.

Issues Involved

  1. Whether the Commissioner validly exercised revisionary powers under Section 263.
  2. Whether the assessment order was both erroneous and prejudicial to the interests of Revenue.
  3. Whether adequate opportunity of hearing was granted before passing the revision order.

Petitioner’s Arguments (Assessee)

  • The assessment was completed after due inquiry by the Assessing Officer.
  • The Commissioner initiated revision proceedings without proper examination of records.
  • Adequate opportunity of hearing was not granted before passing the order.
  • The order did not establish how the assessment was erroneous and prejudicial to Revenue.

 Respondent’s Arguments (Revenue)

  • The assessment order suffered from lack of proper inquiry regarding donations and application of income.
  • The Commissioner had jurisdiction to revise such orders to protect Revenue interests.
  • Direction for fresh assessment was justified.

 Court Order / Findings (ITAT Allahabad)

  • For invoking Section 263, the Commissioner must demonstrate that the assessment order is both erroneous and prejudicial to the interests of the Revenue.
  • Adequate opportunity of hearing is a mandatory procedural requirement.
  • In the present case, the revision order was passed without properly addressing the assessee’s submissions.

Important Clarification

  • Section 263 powers are supervisory and not meant for routine review.
  • Both conditions — erroneous order and prejudice to Revenue — must coexist.
  • Adequate opportunity of hearing is mandatory.
  • Orders passed in violation of natural justice are unsustainable.
  • Charitable trusts are entitled to the same procedural protections as other taxpayers.

Link to download the order –

https://itat.gov.in/public/files/upload/1628073668-ita%20no.%20190%20off%202018%20Mahaveer%20Charitable%20Trust.pdf

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