No Violation of Proviso to Provision of Section 2(15) of Income Tax Act: ITAT Set Aside Revision Order on Exemption u/s 11[Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has set aside the revision order on exemption under Section 11 of the Income Tax Act 1961 holding that no violation of proviso to provision of Section 2(15) of Income Tax Act.

The assessee Madras Motor Sports Club, a Society registered under the Tamil Nadu Society Act, was established in the year 1953. The assessee, was a registered Public Charitable Trust, under Section 12AA of the Income Tax Act. The primary object of the assessee was to promote the sports of Motor Car and Motor Cycle Racing.

The assessee filed its return of income for the assessment year 2018-19 on 29.09.2018 which was subsequently revised on 06.10.2018. The assessee admitted gross receipt and application of income was declared and net income was declared at ‘nil’ by claiming exemption under Section 11 of the Income Tax Act. Accordingly, the AO framed assessment under Section 143(3) read with Section 143(3A) & 143(3B) of the Income Tax Act and verified the claim of exemption.

Subsequently, the CIT(Exemption) on perusal of income and expenditure account and proposal sent by the Range Head under Section 263 of the Income Tax Act on 31.03.2022, a show cause notice dated 06.03.2023 was issued with a proposal to revise the assessment framed by AO allowing the claim of exemption under Section 11 of the Income Tax Act. In view of the amended provisions of section 2(15) of Income the Act, which had not been examined by the AO and hence, the said order is prejudicial to the interest of Revenue as per CIT(Exemption).

The CIT(Exemption) after considering the submissions of the assessee concluded that in view of the decision of the Supreme Court in the case of ACIT (Exemptions) vs. Ahmedabad Urban Development Authority, the order of AO was erroneous insofar it is prejudicial to the interest of Revenue in terms of section 263 of the Income Tax Act. Hence, he directed the AO to make in depth enquiry with reference to the application of the provisions of Section 2(15) of the Income Tax Act

R. Lakshmi Ratan, appeared on behalf of the assessee argued that the AO while framing assessment under Section 143(3) of the Income Tax Act had gone into the receipts and application of funds of the assessee received during the year and examined the accumulation allowed under Section 11A of the Income Tax Act and also examined each and every aspect of claim of exemption and R. Clement Ramesh Kumar appeared on revenue relied on the CIT(Exemption) order.

The two-member Bench of Mahavir Singh, (Vice President) and Manjunatha.G, (Accountant Member) noted that the CIT(Exemption) while passing revision order had not at all examined the aspect of violation of the proviso to provision of Section 2(15) of the Income Tax Act and moreover the AO while framing assessment under Section 143(3) of the Income Tax Act had examined the claim of exemption under Section 11 of the Income Tax Act, as was evident from the above computation reproduced from the assessment order.

The Bench allowed the appeal filed by the assessee and noted from the revision order apart from that the CIT(Exemption) had not at all deliberated how the assessee had violated the proviso to the provision of Section 2(15) of the Income Tax Act and how the AO had not examined the issue.

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