ITAT Cannot Uphold Section 263 Revision on Grounds Not Taken by Commissioner: Kerala HC [Read Judgment]

Kerala: The Kerala High Court has ruled that when an Income Tax Appellate Tribunal examines an appeal against a Commissioner’s revision order under Section 263 of the Income Tax Act, it cannot go beyond the grounds cited by the Commissioner and sustain the revision on different grounds, holding that the Tribunal’s scope is limited to examining whether the Commissioner’s stated grounds are valid.

A division bench comprising Justice A. Muhamed Mustaque and Justice Harisankar V. Menon examined whether the Tribunal can introduce new reasons to uphold a Section 263 revision order after finding that the Commissioner’s original grounds were invalid.

The court heard Income Tax Appeal No. 81 of 2025 filed by Save A Family Plan (India), a charitable trust registered under Section 12A of the Income Tax Act, challenging the Income Tax Appellate Tribunal, Cochin Bench’s order dated 19.05.2025.

The appellant trust received various donations from India and foreign countries during financial year 2013–14 (assessment year 2014–15) and made further donations to 72 other institutions also registered under Section 12A. The assessing authority examined the books and records and accepted the return of income vide assessment order dated 30.12.2016.

However, the Commissioner of Income Tax (Exemptions), Kochi, initiated suo motu revision proceedings under Section 263, leading to an order dated 29.03.2019 setting aside the assessment and remitting the matter back to the Assessing Officer. The Commissioner held that only donations made to institutions having similar categorization under the Foreign Contribution (Regulation) Act, 2010 as the appellant were entitled to exemption under Section 11 of the Income Tax Act.

The trust appealed to the Tribunal, which found that donations made by the appellant were not hit by Income Tax Act provisions and amounted to application of income for charitable purposes. However, the Tribunal went further, holding that donations should be consistent with the trust’s objects, and since the assessment order was silent on this aspect, the Commissioner was justified in exercising revisional power under Section 263.

The trust raised two questions of law: whether the Tribunal was right in holding the Commissioner justified in invoking Section 263 jurisdiction, and whether there was evidence justifying the Tribunal’s finding that the Assessing Officer made no inquiry, warranting Section 263 invocation.

Justice Harisankar V. Menon, writing for the bench, first addressed the Commissioner’s original ground. The court noted: “The order of the revisional authority under Section 263 of the Act was issued for the reason that the benefits under Section 11(1)(a) of the Act could be extended only when the institutions to which donations were made had a similar categorization as that of the appellant under the FCRA Act.”

The bench held: “The Tribunal, while passing the impugned order, found – quite rightly – that insofar as the donations were made to another charitable trust out of the current year’s income, that amounts to the application of income for charitable purposes. It is to be noticed that the benefits under Section 11 of the Act are not in relation to the provisions of the FCRA Act. Therefore, the Commissioner was not justified in exercising the suo motu revisional power under Section 263 of the Act, as rightly found by the Tribunal.”

On the crucial jurisdictional issue, Justice Menon observed: “At this juncture, it is to be noticed that the appeal before the Tribunal was instituted against the order issued by the Commissioner under Section 263 of the Act. The sustainability or otherwise of the exercise of powers under Section 263 of the Act, as borne out of the said order alone, was the subject matter of consideration by the Tribunal. As regards the afore issue, the Tribunal has found in favour of the appellant–assessee.”

The court held: “When that be so, there was no requirement for the Tribunal to have proceeded beyond the scope of consideration and held that the revision order requires to be sustained for the reason noticed in the latter portion of paragraph No. 11 of the impugned order.”

Critically, the bench found: “It is the finding of the Tribunal that the appellant was not able to demonstrate that the donations were made to trusts having the same objects as that of the appellant. Here, we may immediately note that this was not an issue highlighted by the Commissioner while exercising the revisional power under Section 263 of the Act. When that be so, the Tribunal was not expected to go beyond the scope of consideration in the appeal and issue further findings so as to sustain the revision order.”

The court relied on the Division Bench judgment in Commissioner of Income Tax vs. Chandrika Educational Trust [(1994) 207 ITR 108], where a similar issue arose. The bench quoted the relevant principle: “In entertaining an appeal from the Commissioner’s order what the Tribunal does is to examine whether the said order is sustainable in law and whether it is within the powers conferred by section 263. Therefore, when the Commissioner has chosen to set aside the order of the Income-tax Officer only on a particular ground, the Tribunal is not entitled to go beyond and sustain the order of the Commissioner on grounds different from that relied on by the Commissioner himself.”

Justice Menon affirmed: “We are in agreement with the principles laid down as above. The dictum laid down by this Court would apply to the facts and circumstances of the case at hand also, insofar as only one reason was highlighted by the Commissioner for exercising the power under Section 263 of the Act and the Tribunal having found the said reason as not a valid one, the Tribunal should have stopped there rather than making further observations as regards the sustainability or otherwise of the extension of the benefits under Section 11 of the Act through the assessment order.”

The appeal was allowed with both questions answered in favour of the assessee and against the Revenue.

Sri Joseph Markos, Senior Counsel, assisted by Sri Abraham Joseph Markos and others, appeared for the appellant. Sri Jose Joseph, Standing Counsel, Income Tax Department, represented the respondent.

Case Title: Save A Family Plan (India) vs. The Deputy Commissioner of Income Tax (Exemptions)

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