The Mumbai Bench of Income Tax Appellate Tribunal(ITAT) ruled that the funds received from lease premiums and rent collected on behalf of the Government of Maharashtra are not taxable in the hands of the assessee. Maharashtra Industrial Development Corporation,appellant-assessee,is a statutory body engaged in industrial infrastructure development and registered as a charitable organization under section 12AA of the Act.

It had claimed exemption under section 10(20A) until assessment year 2002-03 and later under section 11 of the Act. In the impugned assessment year, the Assessing Officer(AO) examined the exemption claim, referring to a prior ITAT ruling (ITA No. 4474/Mum/2017), which treated income from deposits, leases, rent, and interest as exempt. The revenue had previously argued that the assessee’s activities were commercial, making it ineligible for exemption. However, the ITAT ruling negated this, and the assessee’s appeals in other years were accepted, remanding the matter for reconsideration. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here

During the assessment, the assessee submitted the ITAT order dated 07/09/2018 and responded to the notice under section 142(1). The assessee provided documents like the MIDC Act, registration under section 12AA, audited accounts, trustee details, and confirmed no donations were received. It was also mentioned that capital expenditure was claimed as an application of income for charitable purposes. After receiving a second notice on 09/04/2021, the assessee submitted a reply on 15/04/2021, which was accepted. The AO reviewed all the details and completed the assessment under section 143(3) with a returned income of Rs. NIL, finalizing the tax computation. The Commissioner of Income Tax(Exemption)[CIT(E)] noted that while the assessee’s gross receipts were not taxed, the AO had not verified the exemption under section 11. The CIT(E) found that the assessee’s activities were not charitable and were commercial in nature. He concluded that the provisions of section 2(15) needed to be examined by the AO.

Therefore, the CIT(E) used his powers under section 263 to treat the assessment order as erroneous and prejudicial to the revenue and set it aside for a fresh assessment. Understanding Common Mode of Tax Evasion with Practical Scenarios, Click Here The two member bench comprising Anikesh Banerjee(Judicial Member) and Prabhash Shankar(Accountant Member) reviewed the submissions and found that the invocation of Section 263 required the assessment order to be both erroneous and prejudicial to the Revenue. The AO had conducted a thorough verification, issuing notices under Section 142(1), to which the assessee complied. The assessment was in line with the ITAT’s decision in the assessee’s case (ITA No. 4474/Mum/2017). The main issue was whether lease premiums and charges received by the assessee on behalf of the Government of Maharashtra were taxable. The assessee argued it acted as an agent, with the funds remaining with the State Government, which the ITAT supported, ruling the income was not taxable in the assessee’s hands.

The Revenue challenged the ITAT’s ruling, but no adverse decision had been made, and the ITAT’s order remained binding. The Revenue counsel argued that the ITAT did not specifically address Section 11, but the tribunal stated that the assessee’s role was custodial, so the income was not taxable. The CIT(E) had directed the AO to verify the Section 11 exemption, but this had already been examined by the ITAT. The appellate tribunal cited case law, stating Section 263 cannot be invoked solely based on a change of opinion. Thus, it quashed the revisional order under Section 263 of the Act. In short,the appeal filed by the assessee was allowed.