Sukhmani Society for Citizen Services, Gurdaspur V. The Commissioner of Income-ta-II, Amritsar.

ITA 158/ASR/2014

• Counselvise Citation: 15820914 RSA 2014
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-07-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Source of fund; Capital receipt; Revenue expenditure; Capital expenditure
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER I.T.A NOS. 156, 157 & 158/(ASR)/2014 ASSESSMENT YEARS: 2007-08, 2008-09 & 2009-10 PAN: AADES1851R M/S. SUKHMANI SOCIETY FOR CITIZEN SERVICES, GURDASPUR. VS. INCOME TAX OFFICER, GURDASPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SANJEEV SUD (C. A.) RESPONDENT BY: SH. RAHUL DHAWAN (D. R.) DATE OF HEARING: 11.09.2017 DATE OF PRONOUNCEMENT: 04.10.201 7 ORDER PER T. S. KAPOOR (AM): THESE ARE THREE APPEALS FILED BY ASSESSEE AGAINST T HE SEPARATE ORDERS OF LD. CIT(A), AMRITSAR ALL DATED 18.12.2013 FOR ASST. YEARS: 2007- 08, 2008-09 & 2009-10. 2. COMMON ISSUES ARE INVOLVED IN THESE APPEALS AND THESE WERE HEARD TOGETHER AND THEREFORE FOR THE SAKE OF CONVEN IENCE, A COMMON AND CONSOLIDATED ORDER IS BEING PASSED. FOR THE SAKE OF CONVENIENCE, THE GROUNDS OF APPEAL IN ITA NO. 156/ASR/2014 ARE REPRO DUCED BELOW: 1. THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX II AMRITSAR (LCIT) IS BAD IN LAW AND WRONG ON FACTS. 2. THE LEARNED COMMISSIONER OF INCOME TAX II AMRITS AR (LCIT) HAS ERRED IN ENHANCING THE INCOME BY DISALLOWING FACILITATION CH ARGES. 3. THE LEARNED COMMISSIONER OF INCOME TAX II AMRITS AR (LCIT) HAS ERRED IN TREATING THE RENOVATION EXPENSES AS CAPITAL EXPENDI TURE ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 2 3. THE BRIEF FACTS AS NOTED IN THE ASSESSMENT ORDER ARE THAT THE ASSESSEE IS REGISTERED UNDER THE SOCIETIES REGISTR ATION ACT. 1860 THE MAIN OBJECT OF ASSESSEE AS CONTAINED IN THE MEMORAN DUM OF ASSOCIATION ARE PROVIDING SERVICES FOR ATTESTATION OF AFFIDAVIT S, ARMS LICENSES, PROVIDING COPIES OF RECORDS, PASS PORT SERVICES, ET C. THE CASE OF THE ASSESSEE WAS REOPENED U/S 148 OF THE ACT AND NECESS ARY NOTICES WERE ISSUED TO THE ASSESSEE, HOWEVER THE ASSESSEE DID NO T CO-OPERATE WITH THE ASSESSMENT PROCEEDINGS AND THEREFORE ASSESSING OFFI CER PASSED ORDER U/S 147/144 OF THE ACT AND MADE ADDITIONS ON ACCOUN T OF UNEXPLAINED EXPENSES UNDER THE HEADS PRINTING AND STATIONERY AND ADVERTISEMENT FACILITATION CHARGES AND RENOVATION EXPENSES ET C. 4. AGGRIEVED WITH THE ORDERS THE ASSESSEE FILED APP EALS BEFORE LD. CIT(A) AND FILED VARIOUS SUBMISSIONS. THE LD. CIT(A ) ALLOWED RELIEF TO THE ASSESSEE ON ACCOUNT OF ADHOC DISALLOWANCE OUT OF UN EXPLAINED EXPENSES UNDER THE HEADS PRINTING AND STATIONERY ETC HOWEV ER, IN RESPECT OF UNEXPLAINED EXPENSES UNDER THE HEADS FACILITATION CHARGES HE UPHELD THE ADDITION OF DISALLOWANCE OF FACILITATION CHARGE S WHEREAS IN RESPECT OF RENOVATION EXPENSES, HE PARTLY ALLOWED THE EXPENSES TREATING SOME PART OF EXPENSES AS REVENUE AND SOME PART OF IT AS CAPIT AL EXPENDITURE. 5. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, THE LD. AR SUBMITTED THAT THE ASS ESSEE IS A DISTRICT LEVEL BODY THAT WORKS UNDER THE OVERALL UMBRELLA FR AMEWORK OF PUNJAB STATE E-GOVERNANCE SOCIETY (PSEGS) AND ALL THE SERV ICE CENTERS IN THE ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 3 DISTRICT ARE ESTABLISHED, MANAGED AND RUN BY THE SO CIETY. HE SUBMITTED THAT THESE CENTERS ARE THE ONE STOP SHOP FOR ALL GO VERNMENT SERVICES IN AN INTEGRATED MANNER AND THE PRIMARY OBJECTIVE OF T HE SUKHMANI SOCIETY FOR CITIZEN SERVICES WAS TO ESTABLISH, MANAGE, OPER ATE, MAINTAIN AND CONTROL THE SERVICE CENTERS, NAMELY, SUVIDHA CENTER S IN THE DISTRICT FOR PROVIDING INTEGRATED CITIZEN SERVICES PERTAINING TO ALL DEPARTMENTS UNDER ONE ROOF TO THE PUBLIC IN AN EFFICIENT, TRANSPARENT AND CONVENIENT AND FRIENDLY MANNER USING IT TO BE PROVIDED BY PUNJAB S TATE E-GOVERNANCE SOCIETY. IT WAS SUBMITTED THAT PUNJAB STATE E-GOVER NANCE SOCIETY WAS TO BE PAID AMOUNT EQUAL TO 15% OF GROSS RECEIPTS COLLE CTED BY SOCIETY AS REMUNERATION AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO A COPY OF MEMORANDUM OF ASSOCIATION OF PUNJAB STATE E-GOVERNA NCE SOCIETY PLACED AT P.B. PAGE 4 TO 6 AND WHEREIN THE SOURCES OF INCOME OF PUNJAB STATE E-GOVERNANCE SOCIETY WERE MENTIONED TO BE REC EIPTS FROM SUVIDHA CENTERS. THE LD. AR SUBMITTED THAT VIDE ORDER DATED 17 TH MAY, 2005 CHIEF SECRETARY TO GOVT. OF PUNJAB HAS DIRECTED ALL DEPUTY COMMISSIONERS TO SET ASIDE 15% OF FACILITATION CHAR GES COLLECTED BY SUVIDHA CENTERS TO BE TRANSFERRED TO PUNJAB STATE E -GOVERNANCE SOCIETY. THE LD. AR SUBMITTED THAT THE LD. CIT(A) HAS TREATE D THE FACILITATION CHARGES AS AN APPORTIONMENT OF INCOME AND NOT AS CH ARGE ON THE INCOME WHEREAS THE FACT REMAINS THAT THE FEE CHARGED BY PU NJAB STATE E- GOVERNANCE SOCIETY WAS IN THE NATURE OF A CHARGE AN D PUNJAB STATE E- GOVERNANCE SOCIETY HAD DECLARED THE AMOUNT OF RECEI PTS FROM VARIOUS SUVIDHA CENTERS IN ITS PROFIT AND LOSS ACCOUNT AND HAD OFFERED TAX ON ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 4 THESE RECEIPTS AND THEREFORE THE FINDING OF THE LD. CIT(A) THAT THE AMOUNT IS AN APPORTIONMENT IS AGAINST THE FACTS AND CIRCUM STANCES OF THE CASE. TO A QUESTION FROM BENCH AS TO WHERE ARE THE COPIES OF PROFIT AND LOSS ACCOUNT OF THE SOCIETY WHEREIN RECEIPT OF 15% SHARE WAS REFLECTED IN THE PROFIT AND LOSS ACCOUNT, THE LD. AR SUBMITTED THAT THESE FACTS ARE VERIFIABLE FROM THE ORDER OF LD. CIT(A) ITSELF WHER EIN THOUGH HE HAS ADMITTED THAT THE SAME WERE CREDITED IN THE PROFIT AND LOSS ACCOUNT BY PUNJAB STATE E-GOVERNANCE SOCIETY BUT HE HAS HELD T HAT THE SOCIETY HAD HARDLY CARRIED OUT ANY ACTIVITIES AND HAD HUGE PROF ITS DUE TO 15% RECEIPTS FROM SOCIETY AND THEREFORE HE HELD THE SAM E TO BE MERELY APPLICATION OF INCOME AND THEREFORE HE DISMISSED TH E APPEAL OF THE ASSESSEE ON THIS ACCOUNT. AS REGARDS THE RENOVATION EXPENSES THE LD. AR SUBM ITTED THAT ASSESSEE HAD BEEN PROVIDED SPACE IN THE GOVT. OFFIC ES AND WHEREIN IT HAD INCURRED EXPENDITURE FOR CREATING TEMPORARY INFRAST RUCTURE FOR CARRYING OUT THE ACTIVITIES OF THE SOCIETY AND WHICH THE LD. CIT(A) HAD HELD TO BE OF CAPITAL NATURE INSTEAD OF REVENUE NATURE. IT WAS SU BMITTED THAT SINCE THE ASSESSEE DID NOT ON OWN ANY LAND OR BUILDING, THE E XPENDITURE INCURRED ON SUCH RENOVATION IS A REVENUE EXPENDITURE AND REL IANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING JUDGMENTS (I) CIT VS. B HAGAT INDUSTRIES CORP. LLTD. 126 ITR 645 PUNJAB & HARYANA HIGH COURT (II) CIT VS. GLAXO SMITHLINE CONSUMER HEALTH CARE 283 ITR 290. ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 5 7. THE LD. DR ON THE OTHER HAND INVITED OUR ATTENTI ON TO THE COPY OF MEMORANDUM OF ASSOCIATION OF PUNJAB STATE E-GOVERNA NCE SOCIETY AND OUR SPECIFIC ATTENTION WAS INVITED TO CLAUSE 10(B)( III) WHEREIN IT WAS MENTIONED THAT THE USER CHARGES WILL BE APPORTIONED BETWEEN THE PUNJAB E-GOVERNANCE SOCIETY, AND SUKHMANI SOCIETY AND THER EFORE HE ARGUED THAT THE LD. CIT(A) HAS RIGHTLY DISALLOWED THE SAME . AS REGARDS THE EXPENSES DISALLOWED ON ACCOUNT OF CA PITAL EXPENDITURE, THE LD. DR SUBMITTED THAT IT IS AN UND ISPUTED FACT THAT THIS EXPENDITURE WAS INCURRED AT THE TIME OF SETTING UP OF THE SOCIETY AND IT WAS INITIAL EXPENDITURE WHICH NECESSARILY IS A CAPI TAL EXPENDITURE AND THEREFORE WAS RIGHTLY DISALLOWED BY THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THOUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT FACILITATION CHARGES PAID TO PUNJAB STATE E-GOVERNANCE SOCIETY IS ON ACCOUNT OF PROVISION OF IT SERVICES AND SUPPORT SYSTEMS TO SERVICE CENTERS THROUGH DISTRICT LEVEL SUKHMANI SOCIETIES. THE PREAMBLE AS MENTIONED IN THE MEMORAN DUM OF ASSOCIATION OF PUNJAB STATE E-GOVERNANCE SOCIETY READS OUT AS U NDER. THE PRIMARY OBJECTIVE OF THE PUNJAB STATE E-GOVERN ANCE SOCIETY (PSEGS) IS TO ADMINISTER THE IMPLEMENTATION OF E-GOVERNANCE PR OJECTS FOR THE OVERALL BENEFIT OF THE CITIZENS AND PUBLIC BY SETTING UP TH E NECESSARY ADMINISTRATIVE, FINANCIAL, LEGAL AND TECHNICAL FRAM EWORK, IMPLEMENTATION MECHANISM AND RESOURCES IN THE STATE OF PUNJAB. IT WILL FACILITATE ESTABLISHMENT OF SERVICE CENTRES THROUGH THE DISTRI CT LEVEL SUKHMANI SOCIETIES/ DISTRICT E-GOVERNANCE SOCIETIES OR THROU GH OTHER INNOVATIVE SOLUTIONS AS WAY OF PROVIDING PUBLIC FACILITATION A ND CITIZEN SERVICES WHERE CITIZENS CAN GET VARIOUS DESIRED INFORMATION AND SE RVICES. ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 6 WE FURTHER FIND THAT IT HAS BEEN MENTIONED IN CLAUS E 10(C) OF SUCH MEMORANDUM OF ASSOCIATION THAT THE RECURRING EXPEND ITURE OF THE SOCIETY WOULD BE MET OUT OF THE SHARE OF SERVICE CHARGES CO LLECTED THROUGH THE COMMON SERVICE CENTERS/ SUKHMANI CENTERS. THE PUNJA B STATE E- GOVERNANCE SOCIETY HAS ALSO CREDITED THE AMOUNTS RE CEIVED FROM THE VARIOUS SOCIETIES INCLUDING FROM ASSESSEES SOCIETY IN ITS PROFIT AND LOSS ACCOUNT AND WHICH FACT HAS BEEN ACCEPTED BY LD. CIT (A) IN HIS ORDER ITSELF. THE LD. CIT(A) DID NOT ACCEPT THE CONTENTIO N OF ASSESSEE AS IN HIS OPINION PUNJAB STATE E-GOVERNANCE SOCIETY WAS EARNI NG HUGE NET PROFIT AND WAS HARDLY INCURRING ANY EXPENDITURE AND THEREF ORE HE HELD THAT THE AMOUNT PAID BY ASSESSEE WAS APPORTIONMENT OF INCOME . THE RELEVANT FINDINGS OF THE LD. CIT(A) AS CONTAINED IN PARA 15 ARE REPRODUCED BELOW: FURTHER, I HAVE GONE THROUGH THESE INCOME AND EXPE NDITURE ACCOUNT OF PUNJAB STATE E-GOVERNANCE SOCIETY, AND I FIND THAT THEY ARE SHOWING MORE THAN 90% PROFIT ON THEIR TOTAL REC EIPT WHICH THERE ARE SHOWING AS INCOME. THE ABOVE SOCIETY HAS SHOWN RS.1.88 CRORES NET PROFIT ON RECEIPTS OF RS.2.06 CRORES IN FINANCIAL YEAR 2006- 07, NET PROFIT OF RS.2.87 CRORES ON TOTAL RECEIPT O F RS.3.09 CRORES FOR FINANCIAL YEAR 2007-08 AND NET PROFIT OF RS.1.35 CR ORE ON TOTAL RECEIPT OF RS.1.47 CRORES FOR FINANCIAL YEAR 2008-0 9. THUS IT CAN BE SEEN THAT ABOVE SOCIETY IS HARDLY HAVING ANY EXPEND ITURE AND MONEY RECEIVED BY IT IS DISPROPORTIONATE TO THE WOR K CARRIED BY IT. IN FINANCIAL YEAR 2008-09, ABOVE SOCIETY HAS RECEIVED RS.1.47 CRORE AS FACILITATION CHARGES AND HAS INCURRED APPROXIMATELY RS.12 LAKHS AS TOTAL EXPENDITURE MAINLY ON SALARIES, TRAVELLING EX PENDITURE AND PRINTING AND STATIONERY AND HAS NET PROFIT AND RS.1 .35 CRORES. THE ANALYSIS OF ALL THESE ACCOUNTS FURTHER SHOWS HARDLY ANY EXPENSES ON I.T. PROCUREMENTS SOFTWARES HARDWARES COMPUTER S TATIONERY. THUS IT CAN BE SEEN THAT THAT ABOVE SOCIETY IS HARD LY CARRYING OUT ANY ACTIVITY THROUGH WHICH IT CAN PROVIDE I.T. SUPP ORT TO THESE SOCIETIES ON SUCH A LARGE SCALE AND FOR SUCH HIGHER FEES. IT IS CLEAR FROM ABOVE DISCUSSION THAT THESE ARE MERELY APPLICA TION OF INCOME AND NOT ANY DIRECT EXPENSES RELATED TO I.T. SERVICE S. IN VIEW OF ABOVE, FACILITATION CHARGES PAID BY THE ASSESSEE TO THE PUNJAB STATE E-GOVERNANCE SOCIETY IS TO BE TREATED AS APPLICATIO N OF INCOME AND ACCORDINGLY INCOME IS ENHANCED. ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 7 THE ABOVE FINDINGS OF LD. CIT(A) DO NOT DENY THAT PUNJAB STATE E- GOVERNANCE SOCIETY HAD NOT CREDITED THE AMOUNT RECE IVED FROM SOCIETY IN THE PROFIT AND LOSS ACCOUNT. HE HAS SIMPLY HELD THA T SINCE THE SOCIETY HAD HARDLY INCURRED ANY EXPENDITURE AND THEREFORE THE R ECEIPTS WERE APPORTIONMENT OF INCOME OF THE ASSESSEE. IN OUR OPI NION, THIS FINDING OF LD. CIT(A) IS NOT CORRECT IN VIEW OF THE FACT THAT THE INCOME DECLARED BY PUNJAB STATE E-GOVERNANCE SOCIETY IS ONLY ON ACCOUN T OF EXPENDITURE INCURRED BY VARIOUS SOCIETIES INCLUDING THE ASSESSE ES SOCIETY. HAD THIS BEING AN APPORTIONMENT OF INCOME PUNJAB STATE E-GOV ERNANCE SOCIETY WOULD HAVE CREDITED THE AMOUNT TO SEPARATE CORPUS F UND INSTEAD OF DECLARING THE SAME IN THE PROFIT AND LOSS ACCOUNT A ND WHICH IN THIER HANDS WOULD HAVE BEEN A CAPITAL RECEIPT WHICH IS NO T SUBJECT TO TAX. IT IS NOT JUSTIFIED ON THE PART OF AUTHORITIES BELOW TO T REAT RECEIPT RECEIVED BY A PERSON AS ITS INCOME AND AT SAME TIME DO NOT ALLOW THE SAME AS EXPENDITURE IN THE HANDS OF PAYERS. THEREFORE WE RE VERSE THE FINDINGS OF LD. CIT(A) AND HOLD THAT THE FACILITATION CHARGES P AID BY THE ASSESSEE ARE ALLOWABLE EXPENSES AND THEREFORE THE FIRST GRIEVANC E OF ASSESSEE IS ALLOWED IN ITS FAVOUR. AS REGARDS THE RENOVATION EXPENSES, WE FIND THAT T HE ASSESSEE OPERATED FROM THE PREMISES ALLOTTED BY GOVT. AND TO MAKE THE WORKING PLACE WORKABLE THE ASSESSEE INCURRED EXPENSES ON FA LSE CEILING ETC. THE LD. CIT(A) HIMSELF IN HIS ORDER HAS HELD THAT SOMET IMES OLD ROOMS HAVE BEEN PROVIDED IN THESE OFFICES AND THE SOCIETY HAS RENOVATED THESE ROOMS BY CREATING FALSE CEILING, OTHER STRUCTURE TO MAKE SUCH ROOMS USABLE AS ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 8 SUVIDHA CENTERS. HE HAS HELD THAT CREATIONS OF THIS NEW INFRASTRUCTURE FOR THE FIRST TIME BY THE SOCIETY ARE TO BE TREATED AS CAPITAL EXPENDITURE. IN ASSESSMENT YEAR 2007-08, THE LD. CIT(A) WITH THE HELP OF ASSESSING OFFICER HAS EXAMINED THE NATURE OF EXPENSES BOOKED UNDER THE HEAD RENOVATION OF BUILDING AND HAS OBSERVED THAT A PART OF THE EXPENDITURE BOOKED UNDER THIS HEAD RELATED TO PAYMENTS MADE TO PWD (B&R) AND HAS ALSO OBSERVED THAT SOME OF THE ITEMS BOOKED UND ER THE HEAD RELATED TO FURNITURE AND FIXTURES AND THEREFORE HE HAS BIFU RCATED THE ABOVE EXPENDITURE UNDER RELEVANT HEADS AND HAS ALLOWED PA RT RELIEF TO THE ASSESSEE. THE LD. AR WAS NOT ABLE TO CONTROVERT ANY FINDINGS OF LD. CIT(A) AND HAS RELIED ON CASE LAWS WHICH ALSO ARE DISTINGU ISHABLE ON FACTS. IN THE SUCCEEDING YEARS ALSO THE LD. CIT(A) AFTER E XAMINATION FROM BOOKS OF ACCOUNTS HAS ALLOWED PART RELIEF TO THE AS SESSEE AND LD. AR WAS NOT ABLE TO CONTROVERT ANY FINDINGS OF LD. CIT(A). IN VIEW OF THE ABOVE WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF LD. CIT(A) ON THIS ACCOUNT. THEREFORE SECOND GRIEVANCE OF ASSESSEE IS REJECTED. 9. IN NUTSHELL, THE APPEALS FILED BY ASSESSEE ARE P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.10.2017 SD/- SD/- (N. K. CHOUDHRY) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 04.10.2017. /GP/SR. PS . ITA NOS.156,157&158/(ASR)/2014 ASST. YEAR S: 2007-08, 2008-09 &2009-10 9 COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER