Relief for IMA Kerala: ITAT Holds Revision u/s 263 Unjustified as AO Took Plausible View on Utilisation of Accumulated Surplus [Read Order]

The Cochin Bench of Income Tax Appellate Tribunal ( ITAT ) granted relief to Indian Medical Association (IMA), Kerala holding that revision under section 263 of Income Tax Act,1961 was unjustified as the Assessing Officer (AO) had taken a plausible view on the utilisation of accumulated surplus.

Indian Medical Association Kerala State Branch, appellate-assessee,was a trust registered under section 12A of the Act. It filed a nil income return for AY 2018-19 on 27.10.2018, claiming exemption under section 11. The Income Tax Officer completed the assessment on 06.04.2021, determining income of Rs. 1,81,81,500/-.

The Principal Commissioner of Income Tax (Exemptions) (PR.CIT) later found that most of the accumulated surplus from earlier years was not utilised in the current year. He held that this surplus should have been taxed under section 11(3) and considered the assessment order erroneous and prejudicial.

A show cause notice was issued under section 263 on 31.01.2019 to revise the assessment. The assessee replied that the officer had asked questions and examined the issue during assessment and had taken a reasonable view not to add income.

Despite this, the Principal Commissioner set aside the assessment order, saying the officer had not properly examined the issue. The matter was sent back for fresh examination after giving the assessee a chance to be heard.

The assessee appealed against this order before the Tribunal.

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The two member bench comprising Prakash Chand Yadav (Judicial Member) and Inturi Rama Rao( Accountant Member) heard the rival submissions and perused the material on record.  Parliament had conferred the power of revision on the Commissioner of Income Tax under section 263 of the Act if the assessment order was erroneous and prejudicial to the interests of revenue. Both conditions needed to be satisfied cumulatively.

Read More:Revisional Power cannot be Invoked When AO Adopted A Plausible View that resulted in Loss of Revenue But the Same is Not Unsustainable in Law: ITAT

The tribunal referred to the Supreme Court decisions in Malabar Industrial Co. Ltd. vs. CIT and CIT vs. Max India Ltd., which held that the error must be clear and not debatable or a plausible view.

The tribunal examined whether the AO had considered the issue that the Commissioner sought to revise. During assessment proceedings, the officer asked for clarifications on the utilisation of accumulated surplus and discrepancies in the return.

The assessee submitted detailed explanations, which the officer reviewed before deciding not to make any additions. This showed that the officer had taken a plausible view after detailed examination. Nothing indicated that the officer’s view was not plausible.

Therefore, the tribunal held that the assessment order was not erroneous or prejudicial to revenue, and the Commissioner should not have exercised revision powers under section 263.

Therefore the appeal was allowed.

To Read the full text of the Order CLICK HERE

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