Question And Answer
Subject: Proceedings u/s 263 of Income Tax Act
Querist: Prakash Kulkarni
Answered by:
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Date: August 3, 2022
Query asked by Prakash Kulkarni

Assessee is a charitable trust duly registered u/s 12A of the Act. Assessment for A.Y 2015-16 was completed u/s 143(3) of the Act in October, 2017 by assessing the income in the hands of the assessee as charitable trust which is registered u/s 12A of the Act.  Registration u/s 12A was cancelled in May, 2018 on the ground that the trust had indulged in illegal activities by accepting capitation fees and therefore the trust is sham or bogus, disregarding the fact that the trust is involved in educational activities and also accepted by the department in past since its inception i.e 1992. The said registration was cancelled retrospectively from A.Y 2008-09  onwards.

Notice u/s 263 was issued in the month of January, 2020, the assessee has given the reply that as on the date of passing the assessment order for A.Y 2015-16, in October 2017 the registration u/s 12A was valid and therefore, the order passed by the AO is not erroneous and prejudicial to the interest of revenue, however, the PCIT has not appreciated the submissions of the assessee and passed the order u/s 263 in the month of February, 2021 by holding that the assessment order passed for A.Y 2015-16, is found to be erroneous and prejudicial to the interest of revenue.

Is the action of the PCIT is legally correct ?

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The Order of the Ld. AO cannot be said to be not erroneous or prejudicial to the interest of the revenue as the Ld. AO did not have all the facts regarding the acceptance of the capitation fee. Therefore, the action of the PCIT in holding that the order is erroneous or prejudicial to the interest of the revenue is correct.

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