The Karhali Cooperative & Labour Construction Society Ltd., Patiala V. ITO, Patiala

ITA 212/CHANDI/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1574 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-08-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 10-08-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 04-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: K P BAJAJ
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI H.L. KARWA, HONBLE VICE PRESIDENT ITA NO.485/CHD/2013 ASSESSMENT YEAR:2003-04 ITA NO.486/CHD/2013 ASSESSMENT YEAR:2004-05 ITA NO.211/CHD/2015 ASSESSMENT YEAR:2005-06 ITA NO.212/CHD/2015 ASSESSMENT YEAR:2006-07 ITA NO.487/CHD/2013 ASSESSMENT YEAR:2007-08 & ITA NO.488/CHD/2013 ASSESSMENT YEAR:2008-09 THE KARHALI COOPERATIVE & LABOUR, VS. ITO CONSTRUCTION SOCIETY LTD. WARD 1 #4989, ARORIAN STREET PATIALA NEAR CHOWK ARYA SMAJ PATIALA PAN NO. AAATT4541M (APPELLANT) (RESPONDENT) APPELLANT BY : SH. K.P. BAJAJ RESPONDENT BY : SMT. RAJINDER KAUR DATE OF HEARING : 10/08/2015 DATE OF PRONOUNCEMENT : 17/08/2015 ORDER PER H.L.KARWA, VP THESE SIX APPEALS BY THE ASSESSEE INVOLVING COMMON ISSUES WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON O RDER FOR THE SAKE OF CONVENIENCE. 2 1. FIRSTLY, I WILL TAKE UP ITA NO. 485/CHD/2013 FOR THE AY 2003-04. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE LABOUR SOCIETY. DURING THE YEAR UNDER CONSIDERATION IT FILED RETURN DECLARING NIL INCOME AS ON 12/09/2003, WHICH WAS PROCESSED UNDER SECTION 143(1)(A) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE CASE WAS RE-OPENED BY ISSUE O F NOTICE UNDER SECTION 148 DT. 12/08/2009. 2. THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80P(2)(A)(VI) IN ITS RETURN OF INCOME. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT A NUMBER OF VOUCHERS WERE NOT PROPERLY VOUCHED AND TH E APPELLANT ALSO FAILED TO PRODUCE THE WAGES BOOK / REGISTER/MUSTER-ROLL WHICH IS AN IMPORTANT RECORD TO ASCERTAIN THE TOTAL NUMBER OF DAYS OF WORK. IN THE ABSENCE OF SUCH ACCOUNT, THE AO REJECTED THE BOOKS OF ACCOUNT UNDER SECTION 145( 3) OF THE ACT, AND THE NET PROFIT WAS COMPUTED @ 10% OF TOTAL RECEIPTS. THE AO ESTIMATED THE INCOME RELYING ON SOME COMPARABLE CASES. FURTHER WHEN THE ASSESSEE WAS ASKED TO EXPLAIN THE EXEMPTION UNDER SECTION 80P CLAIMED BY HIM IT SUBMITTED THE AFFIDAVIT OF IT S MEMBERS AND ALSO PRODUCED FOUR OF ITS MEMBERS FOR EXAMINATION. THE AO RECORDE D THE STATEMENT OF THESE FOUR MEMBERS, ALL THESE PERSONS ADMITTED THAT THEY ARE THE MEMBERS OF THE SOCIETY AND COLLECTIVELY PERFORM THE LABOUR WORK. H OWEVER, THE AO HELD THAT THERE IS NO COLLECTIVE DISPOSALS OF LABOUR OF THE M EMBERS OF THE SOCIETY. FURTHER THE SOCIETY HAD SHOWN A SUM OF RS. 6,45,500/- UNDER THE HEAD LABOUR PAID BUT COULD NOT FURNISH THE DETAILS OF PAYMENT SO MADE. U NDER THESE CIRCUMSTANCES, RELYING ON THE JUDGMENT IN THE CASE OF NILAGIRI ENG INEERING CO-OPERATIVE SOCIETY LTD. VS. CIT AND OTHERS(1994) 208 ITR 326 (ORISSA) AND IN THE CASE OF ORIENT BOREWELL COOPERATIVE SOCIETY LTD. VS. ITO (1991) 39 ITD 557 (AHMEDABAD 3 TRIBUNAL), THE AO DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTION 80P CLAIMED BY THE ASSESSEE. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AN D SUBMITTED THAT THE CASE OF NILAGIRI ENGINEERING COOPERATIVE SOCIETY (S UPRA) IS NOT APPLICABLE TO THIS CASE AS THE APPELLANT HAD NOT ENGAGED OUTSIDE LABOU R AND WORK WAS ALSO NOT DONE BY GIVING IT TO SUB CONTRACTOR. IT WAS ALSO SU BMITTED THAT THE AO WAS NOT JUSTIFIED IN APPLYING PROFIT RATE AT 10% AS THE ASS ESSEE SOCIETY IS MAINTAINING COMPLETE BOOKS OF ACCOUNT WHICH WERE PRODUCED BEFOR E THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. EVEN THE AO IN HI S ORDER HAS ADMITTED THAT THE BOOKS WERE PRODUCED AND WERE TEST CHECKED. IT W AS ALSO SUBMITTED THAT AO HAD NOT BEEN ABLE TO POINT OUT ANY SPECIFIC MIST AKE OR DEFECT IN THE BOOKS OF ACCOUNT IN ORDER TO REJECT THEM. AS REGARDS THE WAGES BOOK/REGISTER/MUSTER ROLL, IT WAS SUBMITTED THAT ONLY THE CONTRACTOR WHO ENGAGES THE OUTSIDE LABOUR TO KNOW THE NAME OF WORK AND DAILY WORK DONE BY THE M MAINTAINS THESE TYPES OF BOOKS. HOWEVER, THE CIT(A) WAS OF THE VIEW THAT SUCH REGISTER IS REQUIRED TO BE MAINTAINED TO ASCERTAIN THE QUANTUM OF WORK DONE BY INDIVIDUAL MEMBERS AND ASCERTAIN WHETHER THERE WERE COLLECTIVE DISPOSAL OF LABOUR OR NOT. IN HIS OPINION THE BOOKS OF ACCOUNT WERE CORRECTLY REJECTED BY THE AO AND NET PROFIT WAS CORRECTLY ESTIMATED AS THE APPELLANT COULD NOT SUBS TANTIATE THE QUANTUM OF LABOUR CONTRIBUTED BY INDIVIDUAL MEMBER AND FAILED TO PRODUCE ALL THE MEMBERS FOR VERIFICATION OF FACT DESPITE THE AO ASK ING FOR PRODUCING THE MEMBERS. HE WAS OF THE VIEW THAT THE FURNISHING OF ONLY AFFIDAVIT IS NOT SUFFICIENT. THE ASSESSEE HAD TO PROVE BEYOND DOUBT THAT THERE W AS COLLECTIVE DISPOSAL OF LABOUR AND THAT EACH MEMBER HAS CONTRIBUTED TOWARDS THE LABOUR. AS THE APPELLANT FAILED TO PROVE THAT THERE WAS COLLECTIVE DISPOSAL OF LABOUR, CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE ON THIS GROUND ALSO. 4 4. NOW THE ASSESSEE HAS CAME IN APPEAL BEFORE THE T RIBUNAL, AGAINST THE ABOVE SAID ORDER OF THE CIT(A), RAISING THE FOLLOWI NG GROUNDS OF APPEAL. 1. THAT THE REOPENING OF THE ASSESSMENT IS BAD IN LAW AND AGAINST THE FACTS OF THE CASE AS THE NOTICE ISSUED U/S 148 IS INVALID FOR MO RE THAN ONE REASON. 2. THAT WITHOUT PREJUDICE TO ABOVE, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE REJECT ION OF THE BOOKS OF ACCOUNT MAINTAINED IN THE REGULAR COURSE OF BUSINESS WITHOU T POINTING OUT ANY DEFECT THEREIN. 3. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDIN G THE APPLICATION OF FLAT RATE OF 10% TO THE GROSS RECEIPTS AND WITHOUT PREJUDICE THE RATE A PPLIED IS HIGHLY EXCESSIVE. 4. THAT THE LD. CIT(A) IN NOT JUSTIFIED IN UPHOLDIN G THE DISALLOWANCE OF DEDUCTION U/S 80P(2)(VI). 5. DURING THE COURSE OF HEARING LD. COUNSEL ALSO FI LED AN ADDITIONAL GROUND. HOWEVER HE PREFERRED NOT TO PRESS THIS ADDITIONAL G ROUND AND ALSO GROUND NO. 1 RAISED IN THE GROUNDS OF APPEAL ANNEXED WITH FORM N O. 36. 6. IN VIEW OF THE ABOVE GROUND NO. 1 AND THE ADDITI ONAL GROUND IS DISMISSED AS NOT PRESSED. 7. DURING THE COURSE OF HEARING, LD. COUNSEL FOR TH E ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 8. LD. DR RELIED ON THE ORDER OF AO AS WELL AS CIT( A). 9. THE FIRST ISSUE TO BE DECIDED IS WHETHER THE AO WAS RIGHT IN ESTIMATING THE N.P. RATE OF 10% AFTER REJECTING THE BOOKS OF ACCOU NT. THE ONLY REASON GIVEN BY THE AO FOR REJECTION OF BOOKS OF ACCOUNT IS THAT TH E ASSESSEE FAILED TO PRODUCE WAGE BOOKS/REGISTER/MUSTER ROLL WHICH IS IMPORTANT IN SUCH KIND OF SETUP. THE ASSESSEE HAD GIVEN ITS EXPLANATION THAT THIS KIND O F REGISTER IS MAINTAINED BY THE CONTRACTORS WHO EMPLOY OUTSIDE LABOUR TO KNOW THE N AME OF WORKER AND DURATION OF WORK DONE BY HIM. HOWEVER, IN THE CASE OF LABOUR CO-OPERATIVE SOCIETIES WHERE MEMBERS THEMSELVES ARE THE LABOUR N O SUCH RECORDS ARE 5 REQUIRED TO BE MAINTAINED. THE EXPLANATION SO GIVEN BY THE ASSESSEE IS QUITE A REASONABLE EXPLANATION. HOWEVER THE AO WITHOUT BRIN GING ON RECORD ANYTHING ADVERSE TO SUCH EXPLANATION HAD JUST REJECTED THE B OOKS OF ACCOUNT. FURTHER EVEN THE FINDINGS OF THE AO THAT CERTAIN VOUCHERS W ERE UN-VOUCHED OR NOT PROPERLY VOUCHED, DOES NOT HAVE ANY LEGS TO STAND. HE HAS NOT BEEN ABLE TO POINT OUT ANY SPECIFIC INSTANCE OF SUCH DEFECTIVE V OUCHERS AND ALSO NOT BEEN ABLE TO PINPOINT ANY OTHER SUCH ERROR IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THE CIT(A) HAS JUST BLINDLY UPHELD TH E CASE OF THE AO. IN THE SAID CIRCUMSTANCES, THE ACTION OF THE AO IN REJECTING TH E BOOKS OF ACCOUNT IS HELD TO BE INVALID. 10. ONCE THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE H ELD NOT TO BE REJECTED, THE ISSUE OF ESTIMATION OF N.P. BECOMES ACADEMIC AN D NEEDS NO ADJUDICATION. 11. THE OTHER ISSUE IS ALLOWABILITY OF DEDUCTION UN DER SECTION 80P. ON THE PERUSAL OF THE ASSESSMENT ORDER, I SEE THAT THE AO KEEPS ON REPEATING THE ELIGIBILITY CONDITIONS AS PROVIDED IN SECTION 80P, HOWEVER NOWHERE HE HAS BEEN ABLE TO POINT OUT HOW THE ASSESSEE IS NOT COMPLYING WITH THESE CONDITIONS. IT IS AN ADMITTED FACT THAT AFFIDAVITS OF LABOURS WERE PRODU CED DURING THE COURSE OF ASSESSMENT, WHEREBY THEY HAVE AFFIRMED THAT THEY AR E PUTTING IN THE LABOUR FOR THE WORK DONE BY THE SOCIETY AND THEY ARE THE MEMBE RS OF THE SOCIETY. THE AO HAS NOWHERE BEEN ABLE TO DISPROVE THE SAID AFFIDAVI TS. IT IS ALSO EVIDENT FROM THE ASSESSMENT ORDER THAT FOUR MEMBERS OF THE ASSESSEE SOCIETY APPEARED BEFORE HIM AND THEIR STATEMENTS WERE RECORDED BY THE AO, I N WHICH THEY ALL HAVE AFFIRMED BEING MEMBERS AND PUTTING IN LABOUR. HERE ALSO NOT IN ANYWAY AO HAS BEEN ABLE TO DISPROVE THE SAID STATEMENTS. AGAIN, T HE CIT(A) HAS JUST AFFIRMED THE ORDER OF AO, WITHOUT GIVING ANY REASONABLE FIND ING. 6 12. THE ONLY INSTANCE WHERE THE AO HAS BEEN ABLE TO GIVE ANY REASON FOR SAID DISALLOWANCE APPEARS AT PAGE 15 OF HIS ORDER WHEREB Y HE HAS WRITTEN AS FOLLOWS: IN THE INSTANT CASE THE SOCIETY HAD SHOWN SUM OF RS. 6,45,520/- UNDER THE HEAD LABOUR PAID BUT COULD NOT FURNISH THE DETAILS OF PAYMENT MADE SO IN THIS REGARD, DURING THE COURSE OF HEARING MY ATT ENTION WAS DRAWN TO PAGE 28 OF THE PAPER BOOK, WHICH IS THE COPY OF TAX AUDIT R EPORT FOR AY 2003-04. AT PAGE 30, IN COLUMN 18 OF AUDIT REPORT, WHERE THE PARTICU LARS OF PAYMENT MADE TO PERSONS AND SPECIFIED UNDER SECTION 40A(2)(B), ARE REQUIRED TO BE STATED. AGAINST THIS, IT HAS BEEN MENTIONED AS ON ACCOUNT OF LABOUR GIVEN / PAID TO VARIOUS MEMBERS OF SOCIETY RS. 6,45,500/-. IN MY V IEW, THIS IS ENOUGH PROOF OF THE PAYMENT OF LABOUR EXPENSES TO BE MADE TO THE MEMBER S OF THE ASSESSEE SOCIETY. 13. DURING THE COURSE OF HEARING LD. COUNSEL OF THE ASSESSEE ALSO FILED A CHART SHOWING THAT THE ASSESSEE SOCIETY HAS BEEN CLAIMING THE DEDUCTION U/S 80P FOR THE LAST SO MANY YEARS. THOUGH THE ASSESSMENTS FOR AY 2000-01, 2001-02 & 2002- 03 WERE MADE ONLY U/S143(1), THE REVENUE HAS NEVER DISPUTED THE ISSUE OF SECTION 80P DEDUCTION. FURTHER IN SUCCEEDING ASSESS MENT YEARS, I.E.; 2009-10 & 2010-11 ALSO THE ASSESSEE HAS CLAIMED DEDUCTION UND ER SECTION 80P WHICH WAS ALLOWED. 14. THE SUPPORT TAKEN BY THE AO IN THE CASE OF NILA GIRI ENGINEERING CO- OPERATIVE SOCIETY LTD. VS. CIT AND OTHERS(1994) 208 ITR 326 (ORISSA) IS MISPLACED, AS THE FACTS OF THIS CASE ARE THAT THE ACTUAL WORK WAS BEING DONE BY PAID WORKERS AND MEMBERS DID NOT EXERT THEIR OWN LABOUR IN EXECUTION OF WORK BUT 7 ONLY CONFINED THEMSELVES TO THE SUPERVISION OF THE WORK SO DONE. THESE ARE NOT THE FACTS OF THE PRESENT CASE. IN ANOTHER CASE , I .E; ORIENT BOREWELL CO-OPERATIVE SOCIETY LTD. VS. ITO [1991] 39 ITD 557(AHMEDABAD) O N WHICH THE AO HAS PLACED RELIANCE, THE FACTS WERE THAT NONE OF THE MEMBERS O F THE SOCIETY PUT IN THEIR PHYSICAL LABOUR FOR EXECUTION OF ACTUAL WORK AND NO NE OF THE WORKER WHO ACTUALLY PUT IN THEIR LABOUR FOR EXECUTION OF WORK WERE THE MEMBER OF THE ASSESSEE SOCIETY. IN VIEW OF THESE FACTS DEDUCTION U/S 80P WAS DISALLOWED. 15. BOTH THE CASES, AS SUCH, RELIED ON BY THE AO AR E DISTINGUISHABLE ON FACTS AND CANNOT BE RELIED ON. 16. IN VIEW OF THE ABOVE I SET ASIDE THE IMPUGNED O RDER AND HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION U/S 80P(2)(A) (VI) OF THE ACT. 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO.486/CHD/2013 ASSESSMENT YEAR:2004-05 ITA NO.211/CHD/2015 ASSESSMENT YEAR:2005-06 ITA NO.212/CHD/2015 ASSESSMENT YEAR:2006-07 ITA NO.487/CHD/2013 ASSESSMENT YEAR:2007-08 & ITA NO.488/CHD/2013 ASSESSMENT YEAR:2008-09 18. THE FACTS OF THE ABOVE CASES AND THE ISSUES INV OLVED ARE SIMILAR TO THE FACTS AND ISSUES INVOLVED IN ITA NO. 485/CHD/2013 F OR AY 2003-04. THE RIVAL CONTENTIONS ARE ALSO SIMILAR. FOR THE DETAILED FIND INGS GIVEN IN ITA NO. 8 485/CHD/2013, I SET ASIDE THE IMPUGNED ORDERS AND HOLD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION UNDER SECTION 80P(2)(A)(V I). IN THE RESULT, APPEALS ARE PARTLY ALLOWED. 19. IN THE RESULT, ALL THE APPEALS ARE PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/08/2015 SD/- (H.L. KARWA) VICE PRESIDENT DATED: 17/08/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR