The Karnataka Ownership Apartment Promoters Association, Bangalore V. Income-tax Officer, Bangalore

ITA 1180/BANG/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5603 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 28-10-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P H NARAGUNDKAR
• Assessee Lawyers: NITYA
• Keywords: Validity of assessment
• Section: 143(3)

Judgement Text

PAGE 1 OF 8 ITA NO.1180/BANG/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, J.M. AND SHRI A MOHAN ALANKAMONY, A.M ITA NO.1180/BANG/2010 (ASSESSMENT YEAR 2006-07) THE KARNATAKA OWNERSHIP APARTMENT PROMOTERS ASSOCIATION, 4/3, BARTON CENTRE, 84, M G ROAD, BANGALORE-1. - APPELLANT VS THE INCOME TAX OFFICER, WARD-1(1), BANGALORE. - RESPONDENT APPELLANT BY : SMT. NITYA, ADVOCATE RESPONDENT BY : SHRI P H NARAGUNDKAR, ADDL. CI T ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF LEARNED CIT(A)-I, BANGALORE DA TED 4/10/2010. THE ASST. YEAR CONCERNED IS 2006-07. 2. THE EFFECTIVE GROUNDS RAISED READS AS FOLLOWS:- I) THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSMENT IS INVALID AS THE NOTICE U/S 143(2) HAS NOT BEEN ISSUED IN ACCORDANCE WITH LAW AND IS BARRED BY LIMITATION AND THE ASSESSMENT U/S 143(3) CAN BE MADE WITHOUT THE ISSUE OF SUCH NOTICE. PAGE 2 OF 8 ITA NO.1180/BANG/2010 2 II) THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT THE ENTIRE INCOME OF THE ASSOCIATION IS EXEMPT ON THE GROUNDS OF MUTUALITY. III) THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT ASSUMING WITHOUT ADMITTING THAT THE RECEIPTS FROM NON-MEMBERS ARE LIABLE, WHAT IS LIABLE IS NOT GROSS RECEIPTS BUT THE NET AFTER REDUCTION OF THE PROPORTIONATE EXPENDITURE RELATING TO THE EARNING OF SUCH RECEIPTS. IV) IT SHOULD HAVE BEEN APPRECIATED THAT THE FULL DETAILS OF THE EXPENDITURE WERE IN FACT AVAILABLE BEFORE THE AUTHORITIES BELOW INCLUDING THE CIT(A) IN RELATION TO THE TWO REALITY SHOW. VOUCHERS AND ACCOUNTS ARE AVAILABLE. THE STATEMENT MADE CONTRARY BY THE CIT(A) IS NOT FACTUALLY CORRECT. V) ASSUMING WITHOUT ADMITTING THAT ANY PART OF THE RECEIPT FROM THE NON-MEMBERS IS LIABLE TO TAX, WHAT IS LIABLE IS ONLY THE CORRECT AMOUNT OF RECEIPTS FROM NON-MEMBERS BEING RS.36,96,291/- AND NOT RS.40,76,291/- AS ADOPTED BELOW. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE CLAIMS TO BE A MUTUAL BODY FOR PROMOT ING THE INTEREST OF ITS MEMBERS. THE MEMBERS ARE BUILDE RS OF APARTMENT AND COMMERCIAL COMPLEXES. IT WAS SUBMITT ED THAT THE ASSESSEE HAD CONDUCTED EXHIBITIONS FROM TIME TO TIM E WHERE THERE ARE STALLS IN WHICH MEMBERS COULD FURNISH NECESSARY INFORMATION, DETAILS AND PARTICULARS ABOUT THEIR ACTIVITIES. WI TH THIS END IN VIEW, IT RELEASES ADVERTISEMENTS IN NEWSPAPERS AND ALSO C ONDUCTS EXHIBITIONS TO SHOWCASE THEIR PRODUCTS. IT WAS SUB MITTED THAT THIS OCCASION IS UTILIZED BY THE BANKERS TO INSTALL THEIR OWN STALLS AND PAGE 3 OF 8 ITA NO.1180/BANG/2010 3 PARTICIPATE IN THE EXHIBITION CONDUCTED BY THE ASSES SEE. FOR THIS PURPOSE, THE BANKERS PAY CERTAIN AMOUNT FOR UTILIZIN G THE STALLS IN THE EXHIBITION. 3.1 FOR THE CONCERNED ASST. YEAR, RETURN OF INCOME WAS FILED ON 11.01.2007 DECLARING AN INCOME OF RS.3,41, 708/- AFTER CLAIMING AN INCOME OF RS.47,32,707/- AS EXEMPT ON T HE PRINCIPLES OF MUTUALITY. FOR THE FINANCIAL YEAR RELEVANT TO THE CO NCERNED ASST. YEAR, THE ASSESSEE HAD CONDUCTED TWO EXHIBITIONS AND HAD COLLECTED CONTRIBUTIONS FROM MEMBERS AS WELL AS FROM NON-MEMB ERS AMOUNTING TO RS.1,15,46,885/- AND RS.40,76,291/- RE SPECTIVELY (TOTAL RS.1,56,23,176/-). 3.2 THE ASSESSMENT WAS CONCLUDED U/S 143(3) OF THE ACT WHEREIN THE AO HELD THAT THE RECEIPT OF RS.40,76,29 1/- FROM THE NON-MEMBERS IS LIABLE TO BE TAXED AND THE PRINCIPLE OF MUTUALITY DOES NOT APPLY TO THIS RECEIPT. THE AO ALSO REJECTE D THE ALTERNATIVE SUBMISSION OF THE ASSESSEE FOR ALLOWANC E OF PROPORTIONATE EXPENDITURE FROM THE GROSS RECEIPT OF RS.40,76,291/- COLLECTED FROM THE NON MEMBERS. 4. AGGRIEVED BY THE SCRUTINY ASSESSMENT COMPLETED, T HE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE FI RST APPELLATE AUTHORITY. 5. IT WAS CONTENDED BEFORE THE FIRST APPELLATE AUT HORITY THAT THE ASSESSMENT COMPLETED U/S 143(3) IS BAD IN LAW SINCE NOTICE PAGE 4 OF 8 ITA NO.1180/BANG/2010 4 U/S 143(2) WAS SERVED BEYOND THE TIME FRAME STIPULAT ED UNDER THE ACT. THE ASSESSEE CONTENDED THAT THE ENTIRE RECEIP TS ARE EXEMPTED ON THE GROUND OF MUTUALITY FOR THERE IS TOT AL IDENTITY BETWEEN THE CONTRIBUTORS OF FUND AND THE PARTICIPAN TS/BENEFICIARY OF SUCH FUND. IT WAS SUBMITTED THAT THE NON MEMBER S ARE MORE LIKE GUESTS IN A CLUB WHO PAY FOR ENJOYING THE FACILITIES OF THE CLUB AND ARE NO DIFFERENT. IN SUPPORT OF THIS CONTENTION, I T RELIED ON THE DECISION OF THE HONBLE SUPREME COURT REPORTED IN 2 43 ITR 89. IT WAS ARGUED IN THE ALTERNATIVE THAT IF THE RECEIPTS FROM THE NON MEMBERS ARE TO BE TAXED, PROPORTIONATE EXPENDITURE FOR EARNING THESE GROSS RECEIPTS SHOULD BE DEDUCTED ON A REASON ABLE BASIS. 5.1 THE FIRST APPELLATE AUTHORITY REJECTED THE ABOV E CONTENTIONS RAISED BY THE ASSESSEE AND DISMISSED THE APPEAL. THE CIT(A) CATEGORICALLY HELD THAT THE NOTICE U/S 143(2) OF THE ACT WAS ISSUED WITHIN THE STIPULATED STATUTORY TIME AND HENC E, SCRUTINY ASSESSMENT COMPLETED U/S 143(3) IS VALID. THE CIT( A) REJECTED THE CONTENTION OF THE ASSESSEE THAT THE ENTIRE RECEIPTS INCLUDED THE AMOUNTS RECEIVED FROM THE NON MEMBERS SHOULD NOT BE BROUGHT TO TAX. THE ALTERNATIVE CONTENTION OF THE ASSESSEE TO ALLOW PROPORTIONATE EXPENDITURE ON THE GROSS RECEIPTS REC EIVED FROM THE NON MEMBERS WAS ALSO REJECTED BY OBSERVING THUS:- 5. IN GROUND NO.4, THE A.R. HAS PLEADED FOR ALLOWANCE OF PROPORTIONATE EXPENDITURE FROM THE GROSS RECEIPTS OF RS.40,76,291/- COLLECTED FROM THE NON-MEMBERS. IT IS PLEADED THAT THE PAGE 5 OF 8 ITA NO.1180/BANG/2010 5 EXPENDITURE OF RS.89,42,379/- HAD BEEN INCURRED IN CONDUCT OF THE REALITY SHOWS FROM THE TOTAL RECEIPT OF RS.1,56,23,176/- AND THEREFORE, THE PROPORTIONATE EXPENDITURE CAN BE CALCULATED AT RS.23,33,183/- AND THE BALANCE OF RS.17,43,107/- ONLY SHOULD HAVE BEEN BROUGHT TO TAX NET. THE ARGUMENT SEEMS SOUND BUT ALLOWABILITY OR NON- ALLOWABILITY CANNOT BE DECIDED ARITHMETICALLY UNLESS THE CORRESPONDING ACCOUNTS ARE PUCCA. IT WOULD HAVE BEEN IDEAL TO SET ASIDE THE ISSUE TO AO TO EXAMINE THIS CLAIM OF THE APPELLANT BUT FOR THE ADMITTED FACT THAT FOR THE CONDUCT OF TWO REALITY SHOWS NO DETAILED BILLS/VOUCHERS AND ACCOUNTS/EXPENDITURE HAS BEEN KEPT AND THEREFORE, IT CANNOT BE CONCLUDED WITH CERTAINTY THAT NONE OF THESE SHOWS HAVE RESULTED ONLY IN PROFITS OR IN ONE SHOW THERE WAS LOSS AND IN OTHER IT WAS PROFIT ONLY. THEREFORE, THE COURSE ADOPTED BY THE AO IS SECONDED AND APPROVED. THE GROUND OF APPEAL IS DISMISSED BY DEFAULT OF THE APPELLANT. 6. THE ASSESSEE BEING AGGRIEVED BY THE ORDER OF THE FIRST APPELLATE AUTHORITY IS IN APPEAL BEFORE US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SMT. NITYA REITERATED THE SUBMISSION THAT WAS MADE BEFORE THE INCOME TAX AUTHORITIES. 8. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDINGS/CONCLUSION OF THE FIRST APPELLATE AUTHORIT Y. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE FIRST EFFECTIVE GROUND T HAT IS MENTIONED ABOVE IS REGARDING THE VALIDITY OF ASSESSMENT ON THE GROUND THAT PAGE 6 OF 8 ITA NO.1180/BANG/2010 6 NOTICE U/S 143(2) HAS BEEN ISSUED BEYOND THE TIME ST IPULATED UNDER THE ACT. 9.1 THIS GROUND, WE FIND, IS WITHOUT ANY MERITS. N OTICE U/S 143(2) WAS ISSUED ON 27.10.2007 AND SERVED ON THE A SSESSEE ON 29.10.2007, WHICH WAS WELL WITHIN THE PERIOD OF 12 MONTHS FROM THE END OF THE MONTH OF FILING THE RETURN I.E. 11.1.200 7. THEREFORE, THIS GROUND OF THE ASSESSEE FAILS AND THE SAME IS DISMIS SED. 10. THE SECOND EFFECTIVE GROUND MENTIONED ABOVE IS REGARDING THE CLAIM OF THE ASSESSEE THAT THE ENTIRE INCOME OF THE ASSOCIATION IS TO BE EXEMPT ON THE GROUND OF MUTUAL ITY (ALSO THE RECEIPT FROM THE NON MEMBERS). 10.1 THE ASSESSEE RELIES ON THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF CHELMSFORD CLUB V CIT 243 ITR 89. IN THE INSTANT CASE, THE AMOUNTS ARE RECEIVED FROM THE NON MEMBERS FOR PROMOTING/ADVERTISING THEIR OWN BUSINES S AND THE RECEIPT IS NO WAY CONNECTED OR GOVERNED BY THE PRINCI PLES OF MUTUALITY. THE JUDGEMENT OF HONBLE SUPREME COURT R ELIED ON BY THE ASSESSEE IS DISTINGUISHABLE AND DOES NOT HAVE A PPLICATION TO THE FACTS OF THIS CASE. THE HONBLE SUPREME COURT WAS CONSIDERING A CASE, WHERE SOME OF THE GUESTS OF THE MEMBERS OF TH E CLUB WERE UTILIZING THE FACILITIES OF THE CLUB IN THE NAME OF THE MEMBERS OF THE CLUB AND PAYMENTS WERE MADE BY THE MEMBERS FOR SU CH UTILIZATION. IT WAS HELD THAT SUCH PAYMENTS ARE ALS O ENJOYING THE BENEFITS OF MUTUALITY. ON THE OTHER HAND, IN THE IN STANT CASE, PAGE 7 OF 8 ITA NO.1180/BANG/2010 7 ADMITTEDLY, THE PARTICIPANTS ARE NOT MEMBERS AND THE Y CANNOT BE ALSO THE GUESTS OF THE MEMBERS. AS STATED EARLIER, THE PAYMENTS MADE BY THE NON MEMBERS ARE FOR PROMOTING THEIR OWN BUSINESS INTEREST AND THEREFORE, WE ARE OF THE VIEW THAT THE AO IS JUSTIFIED IN SEGREGATING THE RECEIPT FROM NON MEMBERS AMOUNTI NG TO RS.40,76,291/- AND BRINGING IT TO TAX. 11. THE OTHER EFFECTIVE GROUND RAISED HEREIN ABOVE IS REGARDING BRINGING TO TAX THE GROSS RECEIPT FROM NO N MEMBERS WITHOUT ALLOWING PROPORTIONATE EXPENDITURE. 11.1 THE GROSS RECEIPT FROM THE NON MEMBERS IS TO THE TUNE OF RS.40,76,291/-. IT WAS SUBMITTED THAT THE EXPEN DITURE OF RS.89,42,379/- HAS BEEN INCURRED IN CONDUCTING TWO EXHIBITIONS AND THE TOTAL RECEIPT IS TO THE TUNE OF RS.1,56,23,176/ -; THEREFORE, IT WAS PLEADED THAT PROPORTIONATE EXPENDITURE CAN BE C ALCULATED AT RS.23,33,183/- AND THE BALANCE OF RS.17,43,107/- (R S.40,76,291 RS.23,33,18) ONLY SHOULD HAVE BEEN BROUGHT TO TAX. THIS ARGUMENT OF THE ASSESSEE SEEMS REASONABLE. ADMITTEDLY, THE A SSESSEE FOR CONDUCTING TWO EXHIBITIONS RECEIVED IN TOTAL RS.1,5 6,23,176/- AND INCURRED AN EXPENDITURE OF RS.89,42,379/-. THE DEP ARTMENT HAS NOT DISPUTED THE INCURRING OF EXPENDITURE TO THE TU NE OF RS.89,42,379/-. THE CLAIM OF THE ASSESSEE WAS DENI ED FOR THE REASON THAT THE EXPENDITURE COULD NOT BE CORRELATED TO THE RECEIPT FROM THE NON MEMBERS. WHEN TWO REALITY SHOWS WERE C ONDUCTED BY THE ASSESSEE, ONLY COMMON EXPENDITURE COULD HAVE BEE N INCURRED PAGE 8 OF 8 ITA NO.1180/BANG/2010 8 AND NO SPECIFIC EXPENDITURE COULD BE RELATED TO THE RECEIPT FROM MEMBERS AS WELL AS FROM NON MEMBERS. SINCE COMMON EXPENDITURES HAVE BEEN INCURRED, IT IS ONLY REASONABLE AND JUSTIF IED THAT PROPORTIONATE EXPENDITURE IS TO BE CALCULATED AND G IVEN DEDUCTION WITH REFERENCE TO THE INCOME THAT IS BROUGHT TO TAX . THEREFORE, WE HOLD THAT PROPORTIONATE EXPENDITURE FOR EARNING RS. 40,76,291/- RECEIVED FROM NON MEMBERS IS TO BE DEDUCTED AND THE NET AMOUNT ALONE SHOULD BE BROUGHT TO TAX. HENCE, GROUND NO.( III) MENTIONED ABOVE IS ALLOWED. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER PRONOUNCED ON FRIDAY, THE 6 TH DAY OF MAY, 2011 AT BANGALORE. SD/- SD/- (A MOHAN ALANKAMONY) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE C IT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/27/4. BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.