Institute of Chartered Accountants of India vs. DIT (E) (ITAT Delhi)

Non-examination of issue by AO does not per se make assmt order prejudicial to interests of revenue for s. 263 revision

The assessee, a statutory body established under the Chartered Accountants Act 1949 for regulating the profession of Chartered Accountants, obtained exemption u/s 10(23C)(iv) pursuant to a notification issued by the CBDT. The notification provided that the exemption would not apply to profits and gains of business unless the business was incidental to the attainment of the objectives of the assessee and separate books of accounts were maintained. The AO accepted the assessee’s claim for exemption and completed the assessment. The DIT (E) exercised revisional powers u/s 263 and took the view that the assessment order was erroneous & prejudicial to the interests of the revenue on the ground that (i) the activity of running coaching classes was not provided for in the CA Act and so the income from coaching class was “business” income and not eligible for s. 10(23C)(iv) exemption and (ii) expenditure incurred overseas for traveling, membership fee of foreign professional bodies etc meant that the application of income was outside India which was not permitted by s. 10(23C)(iv). It was noted that the AO had not applied his mind to the issues and so the assessment order was set aside with direction to make a fresh assessment. On appeal by the assessee, HELD quashing the s. 263 order:

(i) The argument of the revenue on the basis of Gee Vee Enterprises 99 ITR 375 (Del) that non-making of inquiry by the AO is sufficient to justify action u/s 263 is not acceptable in view of the later decision in Vikas Polymers (Del) where it was held that the fact that the AO has not applied his mind to the issue may mean that the order is erroneous but it does not necessarily mean that the order is also prejudicial to the interests of the revenue. The CIT should apply his mind to the information provided by the assessee in the course of the revisional proceedings and record a finding instead of simply remanding the matter to the AO for examination;

(ii) On merits, the objection of the DIT that the CA Act does not contemplate running of coaching classes is wrong. The major activity of the assessee revolves around chartered accountancy education and training and nominal fees are charged for this purpose. The discharge of a statutory function does not amount to a commercial or business activity. Further, the assessee is exempt not only u/s 10(23C)(iv) but also u/s 11 as an educational institute;

(ii) The objection that overseas expenses could not have been incurred without permission of the CBDT as required by s. 11(1)(c) is not sustainable because there is no such requirement u/s 10(23C)(iv). Further, the mere fact that expenditure has been incurred on foreign travel does not mean that the assessee has incurred expenses for purposes which are not for India. Instead, the assessee has to maintain status and standard of professional qualification of chartered accountancy and observe developments taking place in the world.