Under Section 263 of the Income Tax Act, a revisional authority must establish both error and prejudice, and cannot act without due compliance with principles of natural justice.

JUDGMENT :

MURAHARI SRI RAMAN, J.

1. Assailing Order dated 17.05.2022 passed in ITA No.134/CTK/2021 by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack, directed against the Order dated 31.03.2021 of Commissioner of Income Tax (Exemption), Hyderabad under Section 263 of the Income Tax Act, 1961 pertaining to Assessment Year 2016-17, the Appellant has raised the following questions:

“i) Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is justified in law in quashing the notice under Section 263 and revisionary order under of the Income Tax Act, 1961, passed by the CIT, (Exemptions) holding that revisionary order of CIT(E) under dated 31.03.2021 is not sustainable being bad in law and passed in violation of principle of natural justice where the CIT, (Exemptions) has categorically found that the order under Section 143 (3) passed by the AO is erroneous and prejudicial the interest of revenue?

ii) Whether on the facts and in the circumstances of the case and in law is the order of the Hon’ble ITAT not perverse in holding that the Assessing Officer has made sufficient enquiry during the course of assessment proceedings under Section 143 (3) when the assessee has failed to submit the details in respect of the claim of depreciation for Rs.4,77,03,665/-?

iii) Whether on the facts and in the circumstances of the case and in law is the order of the Hon’ble ITAT not perverse in holding that the Assessing Officer has made sufficient enquiry during the course of assessment proceedings under Section 143 (3) when the assessee has failed to submit the details in respect of claim of depreciation for Rs.4,77,03,665/- even during the reassessment proceedings completed under (3) read with Section 263 read with Section 144B on 26.03.2022 consequent to the order passed under of the Income Tax Act, 1961, prior to the date of passing of order by the Hon’ble ITAT?

iv) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in quashing the consequential proceedings and orders, allowing depreciation on the assets, the cost of which has been fully allowed as application of income under Section 11 in the past years?”

Fact of the case:

2. It is revealed from the record that the respondent-Dhaneswar Rath Institute of Engineering & Medical Sciences, Cuttack, a charitable trust being granted registration under Section 12AA, claimed exemption under Section 11 of the Income Tax Act, 1961 (for brevity, “IT Act”) which was selected for scrutiny. The Assessing Officer completed assessment under Section 143 (3) on 23.10.2018 on a total income determined at Rs.NIL.

2.1. Keeping in view the decision of the ITAT, Chennai ‘D’ Bench in the case of ACIT Vrs. Grama Vidiyal Trust , (2016) 71 taxmann.come 88 to the effect that where cost of asset was allowed under Section 11 as application of income in the earlier assessment years, depreciation is not entitled to be claimed, the instant respondent-assessee having gross block of fixed assets of Rs.96,78,84,619/- as on 01.04.2015 and such cost of asset having been allowed under , the CIT (Exemption), Hyderabad considered the assessment order erroneous insofar as prejudicial to the interests of revenue.

2.2. Said CIT (Exemption) issued show cause notice under Section 263 on 26.03.2021 on the basis that depreciation of Rs.4,77,03,665/- should not have been allowed as application of trust income for charitable purposes and, thereby, income accumulated worked out to Rs.5,65,70,741/- which exceeded 15% of the income derived f