Shri Naresh Kumar Choudharythrough legal heir Sunita Choudhary, Jaipur V. ACIT, Central Circle 3 , Jaipur

ITA 191/JPR/2023

AI Insights

The case involves KEC Employees Welfare Fund Society, which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi, concerning the assessment year 2010-11. The primary contention was the incorrect assessment of income from mutual funds amounting to Rs. 4,00,000 as income escaped assessment under the Income Tax Act, 1961. The assessee argued that the lower authorities misinterpreted its status as a mutual benefit association and incorrectly applied corporate tax rates instead of those applicable to an Association of Persons (AOP). Additionally, the assessee claimed that the exemption under section 12AA of the Income Tax Act was ignored, and that proper procedures for notice under Section 282 were not followed, leading to a violation of the principles of natural justice.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132324 (ITAT-JAIPUR)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 20-06-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 28-03-2023
• Other Referred Cases: CIT Vs. BN Bhattacharya (1997) 118 ITR 461 (SC)
• Laws Referred To: Income Tax Act, 1961, Rajasthan Societies Registration Act, 1958
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRATEEK KEDWAT; PRATEEK BARLA
• Keywords: Opportunity of being heard; Principle of natural justice; Source of fund; CHAPTER IV
• Section: 147; 12; 144; 11; 15; 142(1); 12A; 12AA; 250; 143(2); 13

Judgement Text

vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”SMC” JAIPUR Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la- @ITA No. 234/JPR/2023 fu/kZkj.k o"kZ@Assessment Years : 2010-11 KEC Employees Welfare Fund Society C/o KEC International Ltd. Plot No. 14-15, Jhotwara Industrial Area, Jhotwara, Jaipur. cuke Vs. Assistant Commissioner of Income Tax , Circle-1, Jaipur. LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACK 7573 R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksjls@Assessee by : Shri Prateek Kedwat & Shri Prateek Barla (Adv.) jktLo dh vksjls@Revenue by: Smt. Monisha Choudhary (Addl.CIT) lquokbZ dh rkjh[k@Date of Hearing :13/09/2023 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 26/09/2023 vkns'k@ORDER PER: DR. S. SEETHALAKSHMI, J.M. This appeal is filed by the assessee against the order of the National Faceless Appeal Centre, Delhi [herein after referred to as "NFAC/ld. CIT(A)"] dated 15.02.2023 for the assessment year 2010-11. 2. The assessee has raised the following grounds of appeal:- 2 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT "1. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities grossly erred in assessing the investment in mutual funds amounting to Rs. 4,00,000/- considered as income escaped assessment under the Income Tax Act, 1961 which is illegal and bad in law. 1.1 That the Id. lower authorities ignored the opening bank balance of Rs. 11,31,961.57 while the closing bank balance of Rs. 3,58,577.45 was there in the bank account of the assessee during the F.Y. 2009-10 (relevant A.Y. 2010-11). The net funds utilized from bank account during the relevant period was Rs. 7,73,384.12. This clearly proves the source of fund for the alleged income escaped assessment. The net utilization from bank balance was much more than the income considered as income escaped assessment amount. 1.2 That the Id. lower authorities have passed the order on the basis of assumption, presumption and surmises which are in gross violation of principles of natural justice. 2. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities have computed the assessed income by treating the status of the appellant assessee as a Company, and by ignoring the fact that the appellant assessee is a mutual benefit association [Association of Persons (AOP)] registered under Rajasthan Societies Registration Act, 1958 having valid Registration number and Registration certificate. 2.1 The Id. AO had erred in applying corporate rate of taxation while the appellant assessee is an AOP and the tax rate applicable to AOP should have been applied. 3. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities ignored the exemption u/s 12AA of the Income Tax Act, 1961 available to the appellant assessee. 4. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities have wrongly stated that the appellant assessee had not attended the assessment proceedings, while the service of the notice was improper and provisions of Section 282 of the Income Tax Act, 1961 were not followed. 5. The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.” 3. Brief facts of the case are that the assessee society is a Mutual Welfare Society of the staff members of KEC International Ltd., receiving contribution per 3 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT month from each member, the funds are invested in various securities and applying the income for the welfare of members, and on retirement of member, his balance amount were paid out along with interest till date, following the principle of mutuality. Further, the Society is registered u/s 12AA of the Income Tax Act. Hence, its income is not chargeable to tax in any manner. Bank balance of society as on 31.03.2009 was Rs. 11,31,961/-, the ld. AO got information in AIR/ITS of the investment of Rs. 4,00,000/- in the units of Mutual Funds, in response to notice u/s 148 of the Act was issued on 25.03.2017, no return was filed by the assessee. Notice u/s 142(1) of the Act was issued on 13.07.2017 & 17.08.2017 thereafter notices u/s 143(2) was issued on 17.08.2017 & 23.10.2017. Which remained unattended by the assessee. Further, a show cause letter was issued on 17.08.2017 & 23.10.2017 asking assessee as to why the case of the assessee should not be assessed u/s 147 r.w.s. 144 of the Act. The assessment was completed u/s 144 and a sum of Rs. 4,00,000/- was added to the income. 4. Aggrieved, from the said order of assessment the assessee has filed an appeal before the ld. CIT(A). The ld. CIT(A) after hearing the contention of the assessee dismissed the appeal of the assessee by giving following findings on the issue:- “2. Aggrieved with the assessment order issued by the AO, appellant has filed present appeal on 26.01.2018. In the course of appellate proceedings, it is seen that 4 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT the appellant was issued and served various notices u/s 250 of the Act from this office to present his contentions and any documents supporting them. In order to give proper opportunity to the appellant to present its case and to defend the grounds of appeal taken by the appellant, the case was posted for hearing on various dates, the details of which are as under: Date of Notice Date of compliance Status 26.12.2020 31.12.2020 No compliance 04.03.2021 15.03.2021 No compliance 07.12.2021 17.12.2021 No compliance 06.02.2023 14.02.2023 No compliance 3. The aforesaid notices remain un-complied with. The National Faceless Appeal Centre (NFAC) also in November, 2022 enabled communication window to facilitate filing of submissions by `the appellant but to no avail. As can be seen from the above details, the appellant has been provided reasonable number of opportunities but appellant has chosen not to avail any of these. No written submission has been made by the appellant in support of the grounds taken during the appeal. It appears that the appellant is not keen to pursue the appeal and no material/argument has been brought on record by the appellant against the order of the AO and in support of the grounds taken in appeal. 3.1 Reference is made to the decision of Hon'ble Supreme Court in the case of CIT Vs. BN Bhattacharya (1997) 118 ITR 461 (SC), in which the Hon'ble Apex Court while dealing with the issue of persuasion of appeal has stated that- “Preferring an appeal means more than formally filing it but effectively pursuing it.” 3.2 In view of these facts, I am of the opinion that no interference is called for in the AO’s order and therefore, the grounds of appeal are dismissed. 4. In the result, the appeal is dismissed.” 5. Feeling dissatisfied from the order of the ld. CIT(A), the assessee is before us, the ld. AR for the assessee has filed a detailed submissions which is reproduced hereinbelow:- 5 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT “MAY IT PLEASE YOUR HONOUR, Ground No. 1 1. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities grossly erred in assessing the investment in mutual funds amounting to Rs. 4,00,000/- considered as income escaped assessment under the Income Tax Act, 1961 which is illegal and bad in law. 1.1 That the Id. lower authorities ignored the opening bank balance of Rs. 11,31,961.57 while the closing bank balance of Rs. 3,58,577.45 was there in the bank account of the assessee during the F.Y. 2009-10 (relevant A.Y. 2010-11). The net funds utilized from bank account during the relevant period was Rs. 7,73,384.12. This clearly proves the source of fund for the alleged Income escaped assessment. The net utilization from bank balance was much more than the Income considered as income escaped assessment amount. 1.2 That the Id. lower authorities have passed the order on the basis of assumption, presumption and surmises which are in gross violation of principles of natural justice. i. That the Id. Lower Authorities grossly erred in assessing the investment in mutual funds amounting to Rs. 4,00,000/- considering as income escaped assessment under the Income Tax Act, 1961 (hereinafter referred to as "the Act"), grossly ignoring the facts and circumstances of the case. ii. That the Id. lower authorities ignored the fact that the opening bank balance of Rs. 11,31,961.57 and net funds utilized from bank account during the F.Y. 2009-10 (relevant A.Y. 2010-11) was Rs. 7,73,384.12 which was much more than the income considered as income escaped assessment amount of Rs. 4,00,000. (Copy of Bank Statement for the F.Y. 2009-10 relevant to A.Y. 2010-11 is enclosed in Paper Book from page no.s 10 to 15). iii. That the books of accounts of the appellant assessee were audited during the F.Y. 2009-10 (relevant A.Y. 2010-11). (Copy of Audited Financial Statements for the F.Y. 2009-10 relevant to A.Y. 2010-11 is enclosed in Paper Book from page no.s 16 to 21). iv. That the Id. Asstt. Commissioner of Income Tax (ACIT) Circle- 1, Jaipur had passed the Assessment Order u/s 147 r.w.s. 144 of the Act dated 17.11.2017 on the basis of assumption, presumption and surmises grossly violating the principles of natural justice. v. That further the Commissioner of Income Tax (CIT) Appeals, National Faceless Appeal Centre (NFAC) without considering the submissions made by the appellant assessee, and accepted and approved the Assessment Order of the ACIT Circle-1, Jaipur and passed its Assessment Order u/s 147 r.w.s. 144 of the Act dated 15.02.2023. 6 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT Ground No.s 2 and 3 2. That on the law and in the facts and in the circumsta nces of the case, the id. lower authorities have computed the assessed income by treating the status of the appellant assessee as a Company, and by ignoring the fact that the appellant assessee is a mutual benefit association [Association of Persons (AOP)] registered under Rajasthan Societies Registration Act, 1958 having valid Registration number and Registration certificate. 2.1 The Id. AO had erred in applying corporate rate of taxation while the appellant assessee is an AOP and the tax rate applicable to AOP should have been applied. 3. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities ignored the exemption u/s 12AA of the Income Tax Act, 1961 available to the appellant assessee. i. That the appellant assessee is a Mutual Benefit Association [an Association of Persons (AOP)] of the staff members of Kamani Engineering Company (KEC) International Ltd. whose main objectives are :- m}s’;% bl laLFkk dk m}s’; laLFkk ds lnL;ksa dks ;k buds vkfJrksa dks vkfFkZd ykHk igqapkuk gksxk ftuesa fuEu esa ls dksbZ Hkh dkj.k gks ldrk gSA 1- lnL; dk dEiuh dh lsok lsokfuo`r gksukA 2- lnL; dk vkdfLed ;k nq?kZVuk ds dkj.k fu/kZu gksukA 3- lnL; dk LFkkbZ 'kkjhfjd v{kerk esMhdy xzkmUM ij dEiuh lsokvksa ls lsokfuo`r gksukA The appellant assessee receives contribution per month from each member and then invest in various securities and then the income so earned is applied for the welfare of members, following the principle of mutuality. ii. That the Id. Lower Authorities have ignored the fact that the appellant assessee is a Society registered under the Rajasthan Societies Registration Act, 1958 having Registration Number 592/80-81 dated 02.02.1981. (Copy of Society Registration Certificate having Registration Number 592/80-81 dated 02.02.1981 is enclosed in Paper Book at page no. 22) and (Copy of Society Bye-laws (Vidhaan) is enclosed in Paper Book from page no.s 23 to 29) and (Copy of List of Office Bearers of the Society is enclosed in Paper Book at page no. 30). 7 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT iii. That the Id. Lower Authorities have erred and wrongfully treated/considered the status of the appellant assessee as a Company based on the PAN number of the appellant assessee, and therefore, applied the corporate taxation rate of Companies, ignoring the fact that the appellant assessee is a Society Association of Persons (AOP) and have failed to apply the taxation rate applicable to the AOP. iv. That the Id. Lower Authorities have ignored the fact that the appellant assessee is holding a valid Certificate u/s 12AA of the Act since 02.02.1982. (Copy of Certificate u/s 12AA of the Act dated 02.02.1982 is enclosed in Paper Book at Pg. No. 31). v. Section 12A of the Act [relevant to A.Y. 2010-2011] is reproduced for ready reference :- Section 12A - Conditions for applicability of sections 11 and 12 12A. [(1)] The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:- (a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the [***] Commissioner before the 1st day of July, 1973, or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, 10[whichever is later and such trust or institution is registered under section 12AA]: [Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 hall apply in relation to the income of such trust or institution,- (i) from the date of the creation of the trust or the establishment of the institution if the 12[***] Commissioner is, for reasons to be recorded in writing, satisfied that the person in receipt of the income was prevented from making the application before the expiry of the period 13 aforesaid for sufficient reasons; (ii) from the 1st day of the financial year in which the application is made, if the 14[***] Commissioner is not so satisfied:] 15 [Provided further that the provisions of this clause shall not apply in relation to any application made on or after the 1st day of June, 2007;] [(aa) the person in receipt of the income has made an application for registration of the trust or institution on or after the 1st day of June, 2007 in the prescribed form 16 and manner to the Commissioner and such trust or institution is registered under section 12AA;] (b) where the total income of the trust or institution as computed under this Act without giving effect to "[the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of 8 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the pres-cribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.] During the course of hearing, the ld. AR for the assessee prayed that the Id. CIT(A) and the AO has passed the ex-parte order and the assessee was not provided adequate opportunity of being heard. Thus, the assessee may be provided one more opportunity to advance his arguments/submissions before the ld. AO in the interest of equity and justice. (c) 19 [***] [(2) Where an application has been made on or after the 1st day of June, 2007, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution from the assessment year immediately following the financial year in which such application is made.] vi. Section 12AA of the Act [relevant to A.Y. 2010-2011] is reproduced for ready reference :- 12AA. Procedure for registration (1) The [***] Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) 20 [or clause (aa) of sub-section (1)] of section 12A, shall- (a) call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about the genuineness of activities of the trust or institution and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities, he- (i) shall pass an order in writing registering the trust or institution; (ii) shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. [(1A) All applications, pending before the Chief Commissioner on which no order has been passed under clause (b) of sub- section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Commissioner and the Commissioner may proceed with such applications under that sub- section from the stage at which they were on that day.] (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) 24 [or clause (aa) of sub-section (1)] of section 12A-] 9 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT [(3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) 25º[ or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)]] and subsequently the Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard.] vii. That the Id. Lower Authorities have ignored the fact that since the appellant assessee is a holder of a valid Certificate u/s 12AA of the Act, hence the income of the appellant assessee is exempt from tax (income not chargeable to tax in any member). Ground No. 4 4. That on the law and in the facts and in the circumstances of the case, the Id. lower authorities have wrongly stated that the appellant assessee had not attended the assessment proceedings, while the service of the notice was improper and provisions of Section 282 of the Income Tax Act, 1961 were not followed. i. Section 282 of the Act [relevant to A.Y. 2010-2011] is reproduced for ready reference :- 282: Service of notice generally 282. (1) The service of a notice or summon or requisition or order or any other communication under this Act (hereafter in this section referred to as "communication") may be made by delivering or transmitting a copy thereof, to the person therein named,- (a)by post or by such courier services as may be approved by the Board; or (b) in such manner as provided under the Code of Civil Procedure, 1908 (5 of 1908) for the purposes of service of summons; or (c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000 (21 of 2000); or (d) by any other means of transmission of documents as provided by rules made by the Board in this behalf. (2) The Board may make rules providing for the addresses (including the address for electronic mail or electronic mail message) to which the communication referred to in sub-section 10 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT (1) may be delivered or transmitted to the person therein named. Explanation.-For the purposes of this section, the expressions "electronic mail" and "electronic mail message" shall have the meanings as assigned to them in Explanation to section 66A of the Information Technology Act, 2000 (21 of 2000) 73.] ii. That the Id. Lower Authorities have wrongly and incorrectly stated that the appellant assessee had not attended the assessment proceedings without considering the facts and circumstances of the case and have failed to comply with the provisions of Section 282 of the Act. iii. That Section 282 of the Act clearly mentions that the service of a notice or summon(s) or requisition or order or any other communication under the Act is to be delivered or transmitted through :- (a) post or such courier services as may be approved by the Board; or (b) such manner as provided under the Code of Civil Procedure, 1908 for the purposes of service of summons; or (c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000; or (d) by any other means of transmission of documents as provided by rules made by the Board. iv. That no notice or summon(s) or requisition or order or any other communication under the Act was ever send to the appellant assessee by way of :- (a) post or such courier services as may be approved by the Board; or (b) such manner as provided under the Code of Civil Procedure, 1908 for the purposes of service of summons; or (c) in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000; or (d) by any other means of transmission of documents as provided by rules made by the Board. That the above acts of the Id. Lower Authorities clearly show their gross negligence and gross abuse of their powers and even ignorance on account of law.” 11 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT 6. Per contra, the ld. DR supported the orders of the lower authorities praying that the assessee was provided various opportunities by the lower authorities to argue the case but the assessee was lethargic and unserious to pursue his case and thus the order passed by the ld. CIT(A) should be sustained. 7. We have heard both the parties and perused the materials available on record. The Bench observed that the assessee was really lethargic and unserious in pursuing his case in spite of providing various opportunities by the ld. CIT(A) and ld. AO as mentioned in his order. The assessee did not appear or filed any reply to the notices which were issued by the ld. AO during the assessment proceedings, finally the assessee completed ex-parte assessment u/s 144 of the Act on 17.11.2017. Further, we observed that the assessee or his legal representative did not appear even appellate proceedings in spite of several notices it is evident in the ld. CIT(A) order. Before us, ld. AR for the assessee submitted evidence to support his claim. However, the Bench feels that the assessee because of any reasons could not advance his arguments/submissions to contest the case before the lower authorities and the ld. AR for the assessee also prayed to give one more opportunity to submit the evidences concerning the issue in question, with grounds so raised by the assessee, to decide it afresh by providing one more opportunity of hearing, however, the 12 ITA No. 234/JPR/2023 KEC Employees Welfare Fund Society vs. ACIT assessee will not seek any adjournment on frivolous ground and remain cooperative during the course of proceedings before the ld. AO. 8. Before parting, we may make it clear that our decision to restore the matter back to the file of the ld. AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the ld. AO independently in accordance with law. In the result, the appeal of the assessee is allowed for statistical purposed. Order pronounced in the open court on 26/09/2023. Sd/- Sd/- ¼jkBksM deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 26/09/2023 *Santosh vkns'k dh izfrfyfi vxzsf’kr@Copy of the order forwarded to: 1. The Appellant- KEC Employees Welfare Fund Society , Jaipur. 2. izR;FkhZ@ The Respondent- ACIT, Circle-1, Jaipur. 3. vk;dj vk;qDr@ The ld CIT 4. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 5. xkMZQkbZy@ Guard File ITA No. 234/JPR/2023) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar