Case Note & Summary
The matter arose from an appeal by the Revenue under Section 260A of the Income Tax Act, 1961 before the Bombay High Court against the order of the Income Tax Appellate Tribunal (ITAT) dated 2 January 2023. The ITAT had allowed the assessee's appeal and set aside the revision order passed by the Commissioner of Income Tax (Exemptions), Mumbai under Section 263 for Assessment Year 2017-18. The respondent-assessee is a non-profit company incorporated under Section 25 of the Companies Act, 1956, registered under Section 12AA of the Income Tax Act, and engaged in charitable activities for women and children. For the relevant assessment year, the assessee e-filed its return of income on 4 October 2017 declaring total income at Nil and claiming exemptions under Section 11. The case was selected for scrutiny, and after issuance of notices under Sections 143(2) and 142(1), the Assessing Officer (AO) completed the assessment under Section 143(3) on 12 December 2019, determining nil income. Subsequently, the Commissioner of Income Tax (Exemptions) initiated revision proceedings under Section 263, issuing a show-cause notice on 12 January 2022. The Commissioner observed that from Schedule I of the return for AY 2017-18, the assessee had claimed utilization of Rs. 6 crores from the accumulation of Rs. 14.51 crores under Section 11(2) for AY 2016-17. He formed a prima facie view that the AO had failed to verify the utilization claim, making the assessment order erroneous and prejudicial to revenue. The assessee submitted a breakup of the utilization, showing Rs. 5,28,52,691 for urban/rural sanitation and Rs. 71,47,309 for strengthening civil society. However, the Commissioner passed an order on 24 March 2022 under Section 263, setting aside the assessment with directions to the AO to obtain complete details, supporting evidence, examine alignment with the memorandum of association, and conduct third-party verification. The assessee appealed to the ITAT, which by its order dated 2 January 2023 allowed the appeal. The ITAT held that the assessment order was not erroneous or prejudicial to revenue, relying on the decision of the Bombay High Court in Grasim Industries v. Commissioner of Income Tax. Aggrieved, the Revenue filed the present appeal before the High Court, raising three questions of law centered on whether the ITAT erred in setting aside the revision order given the AO’s alleged non-verification, and whether the precedents in Malabar Industrial Co. Ltd. and Sesa Starlite Ltd. supported the revision. The High Court reserved judgment on 24 April 2026 and pronounced on 4 May 2026; however, the full text of the decision and the court’s analysis are not provided in the available text.
Issue of Consideration
(1) Whether the ITAT was justified in allowing the appeal when the order revised did not make any inquiries and verification with regard to claim of utilization of accumulated income of Rs 6 crores under section 11(2) thereby rendering the assessment order erroneous and prejudicial to the interest of revenue? (2) Whether the ITAT was justified in setting aside the order passed under section 263 without considering that the Supreme Court in Malabar Industrial Co. Ltd. held that the Commissioner of Income Tax is within his jurisdiction to set aside the assessment order if it is passed without examination of the relevant details or without application of mind and both these criteria are fulfilled in the present case? (3) Whether the Tribunal was justified in setting aside the order revising under section 263 when Bombay High Court in Sesa Starlite Ltd held that non-consideration and consequently, non-application of mind to the material on record is enough to uphold the order u/s 263?
Law Points
- Section 263 revision
- erroneous and prejudicial to revenue
- Explanation 2 to Section 263
- failure to make inquiries
- non-application of mind
- accumulated income utilization under Section 11(2)
- Malabar Industrial Co. Ltd. v. CIT
- 243 ITR 83
- Sesa Starlite Ltd. v. CIT
- 430 ITR 121 (Bom)
Case Details
2026 LawText (BOM) (05) 40
Income Tax Appeal No. 126 of 2024
G.S. Kulkarni & Aarti Sathe, JJ.
Pritish Chatterjee, Dharmesh Shah, Dhaval Shah
Commissioner of Income Tax (Exemptions), Mumbai
Impact Foundation (India)
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Nature of Litigation
Appeal under Section 260A of the Income Tax Act, 1961 against the ITAT order setting aside the CIT(Exemptions)'s revision under Section 263.
Remedy Sought
Appellant-Revenue prayed to set aside the ITAT order and restore the CIT(Exemptions)'s revision order holding the assessment erroneous and prejudicial to revenue.
Filing Reason
Revenue contended that ITAT erred in holding assessment order not erroneous despite AO's failure to verify utilization of accumulated income of Rs. 6 crores from previous year's accumulation.
Previous Decisions
Assessment order under Section 143(3) dated 12.12.2019 (nil income); CIT(Exemptions) order under Section 263 dated 24.03.2022 setting aside assessment; ITAT order dated 02.01.2023 allowing assessee's appeal and quashing the revision.
Issues
Whether the ITAT was justified in allowing the appeal when the order revised did not make any inquiries and verification with regard to claim of utilization of accumulated income of Rs 6 crores under section 11(2) thereby rendering the assessment order erroneous and prejudicial to the interest of revenue?
Whether the ITAT was justified in setting aside the order passed under section 263 without considering that the Supreme Court in Malabar Industrial Co. Ltd. held that the Commissioner of Income Tax is within his jurisdiction to set aside the assessment order if it is passed without examination of the relevant details or without application of mind and both these criteria are fulfilled in the present case?
Whether the Tribunal was justified in setting aside the order revising under section 263 when Bombay High Court in Sesa Starlite Ltd held that non-consideration and consequently, non-application of mind to the material on record is enough to uphold the order u/s 263?
Submissions/Arguments
Appellant-Revenue argued that ITAT wrongly set aside the revision order because the assessment order was passed without the AO verifying the claim of utilization of Rs. 6 crores from accumulated income, thus making it erroneous and prejudicial to revenue; reliance placed on Malabar Industrial Co. Ltd. and Sesa Starlite Ltd. to contend that non-examination of relevant details justifies invocation of Section 263.
Judgment Excerpts
On verification of the assessment records of A. Y. 2017-18, it is observed from Schedule I of the return of income filed for the A.Y. 2017-18 that the assessee had claimed utilization (during FY 2016-17 relevant to A Y 2017-18) of Rs. 6,00,00,000/- from the accumulation u/s. 11(2) of IT Act of Rs 14,51,00,000/- for the A.Y. 2016-17.
The ITAT by the impugned order dated 2nd January 2023, allowed the Appeal filed by the Respondent-Assessee, on the ground that the order passed by the CIT (Exemptions), was incorrect inasmuch as the assessment order dated 12th December 2019 was not erroneous or prejudicial to the interest of the Revenue.
Procedural History
The assessee filed return for AY 2017-18 declaring nil income. Case selected for scrutiny; notices issued under Sections 143(2) and 142(1). Assessing Officer passed assessment order under Section 143(3) on 12.12.2019 at nil income. The CIT(Exemptions) initiated revision proceedings under Section 263, issuing show-cause notice on 12.01.2022 alleging failure to verify utilization of Rs. 6 crores from accumulated income of AY 2016-17. Assessee responded with breakup of utilization. The CIT(Exemptions) passed order on 24.03.2022 setting aside assessment with directions to re-examine. Assessee appealed to ITAT, which on 02.01.2023 allowed the appeal, holding the assessment order not erroneous/prejudicial. Revenue appealed to Bombay High Court under Section 260A. The High Court reserved judgment on 24.04.2026 and pronounced on 04.05.2026; however, the full text of the decision is not provided.
Acts & Sections
- Income Tax Act, 1961: 260A, 11, 11(2), 12AA, 80G, 142(1), 143(2), 143(3), 263
- Companies Act, 1956: 25
