No Sec. 263 Revision If AO Allowed Sec. 10(23C) Exemption Based on Correct Appreciation of Facts and Law | ITAT

Case Details: Dr. Babasaheb Ambedkar Open University vs. CIT - [2024] 168 taxmann.com 92 (Ahmedabad-Trib.)

Judiciary and Counsel Details

• Ms Suchitra Kamble, Judicial Member & Makarand V. Mahadeokar, Accountant Member
• Manish Bhatt, Adv. for the Appellant.
• Sudhendu Das, CIT-DR for the Respondent.

Facts of the Case

The assessee-university was a Government-funded educational Institution claiming exemption under section 10(23C)(iiiab). Subsequently, the CIT(E) invoked section 263, primarily contending that the assessee was not wholly or substantially financed by the government as the Government grant only constituted 13% of the total income, thereby questioning the assessee’s eligibility for the exemption under section 10(23C)(iiiab). Thus, CIT(E) concluded that the Assessing Officer (AO) failed to properly examine whether the assessee qualified as substantially financed by the government. The CIT(E) believed that the AO had overlooked critical facts, making the order erroneous and prejudicial to revenue interests.

Referring to Rule 2BBB which defines ”substantially financed” as institutions receiving 50% or more of their income from government grants which came into effect from assessment year 2015-16, CIT(E) contended that the assessee did not qualify for exemption under section 10(23C)(iiiab). Accordingly, CIT(E) set aside the AO’s assessment order and directed him to re-examine the case.

Aggrieved by the order, an appeal was filed to the Ahmedabad Tribunal.

ITAT Held

The Tribunal held that the assessee submitted that interest earned on Government grants should be considered part of government financing, as per Rule 230(8) of the General Financial Rules (GFR), which states that interest on Government grants must be returned to the Consolidated Fund of India unless otherwise stipulated. By including the interest income, the proportion of Government financing would rise to 54 per cent of the total receipts, exceeding the 50 per cent threshold required under rule 2BBB. The assessee contended that Rule 2BBB, introduced from assessment year 2015-16, cannot be applied retrospectively to assessment year 2014-15.

The legal framework prevailing at the time of assessment did not prescribe such a threshold. The assessee pointed out that in prior assessment years, the AO accepted the assessee’s claim for exemption under section 10(23C)(iiiab). The facts and circumstances had not changed, and the principle of consistency should apply. The AO accepted the assessee’s claim for exemption under section 10(23C)(iiiab) after examining the relevant facts and submissions. The assessee provided detailed calculations showing that when interest income on government grants is included, the government financing exceeds 50 per cent of the total income, thereby meeting the threshold for substantial financing. The AO did not apply Rule 2BBB retrospectively, as the rule was introduced only from assessment year 2015-16. There was no legal requirement during assessment year 2014-15 to adhere to the 50 per cent threshold outlined in Rule 2BBB.

Moreover, the assessee relied on judicial precedents, which support the inclusion of interest income in the calculation of Government financing. The Assessing Officer’s decision to allow the exemption based on the prevailing legal framework and facts of the case cannot be termed as erroneous. For an order to be prejudicial to the interests of revenue, it must result in a loss to the revenue.

In the instant case, the AO properly accepted the assessee’s exemption claim after considering the applicable laws and facts. The assessee’s income was primarily derived from government grants and regulated fees, and the Assessing Officer correctly determined that the university was substantially financed by the Government. The CIT(E) conclusion that the Assessing Officer’s order was prejudicial to revenue is based on the incorrect exclusion of interest income and an erroneous application of Rule 2BBB for the relevant assessment year. As such, the order passed by the AO did not cause any loss to the revenue.

Accordingly, the Commissioner (Exemption) order invoking section 263 was quashed and the appeal of the assessee was allowed.

List of Cases Referred to

• Visvesvaraya Technological University v. Asstt. CIT [2016] 68 taxmann.com 287/239 Taxman 395/384 ITR 37 (SC) (para 2.3).