M/s. Kolhapur Sah. Majur & Hamal Sanstha Ltd., Kolhapur V. ITO, Wd.-2(1), Kolhapur

ITA 212/PUN/2009

• Counselvise Citation: 21224514 RSA 2009
• Duration Of Justice: 4 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-11-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Business income; Opportunity of being heard
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 212/PN/2009 (ASSESSMENT YEAR: 2005-06) M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. 619/B, E WARD, 1 ST LANE SHAHUPURI, KOLHAPUR. PAN : AAAAP0326R . APPELLANT VS. INCOME TAX OFFICER WARD 2 (1), KOLHAPUR . RESPONDENT ITA NO. 171/PN/2011 (ASSESSMENT YEAR: 2005-06) INCOME TAX OFFICER WARD 2 (1), KOLHAPUR . APPELLANT VS. M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. 619/B, E WARD, 1 ST LANE SHAHUPURI, KOLHAPUR. PAN : AAAAP0326R . RESPONDENT APPELLANT BY : MR. M. K. KULKARNI RESPONDENT BY : MS. ANN KAPTHUAMA DATE OF HEARING : 04-04-2013 DATE OF PRONOUNCEMENT : 31-05-2013 ORDER PER G. S. PANNU, AM BOTH THE CAPTIONED APPEALS RELATE TO THE SAME ASSE SSEE, PERTAINING TO THE ASSESSMENT YEAR 2005-06 THEREFORE, THEY HAVE BE EN CLUBBED AND HEARD TOGETHER AND ARE BEING DISPOSED-OFF BY WAY OF A CON SOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. ITA NO. 212/PN/2009 ITA NO. 171/PN/2011 M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. A.Y. 2005-06 2. ITA NO.212/PN/2009 IS AN APPEAL BY THE ASSESSEE WHICH IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOLHAPUR DATED 30.07.2008 WHICH, IN TURN, HAS ARISEN FROM AN ASSESSMENT ORDER DATED 03.12.2007 PASSED BY THE ASSESSING OFFICER, UNDER S ECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), FOR THE ASSESSMENT YEAR 2005-06. 3. IN THIS APPEAL, PRIMARY DISPUTE RELATES TO THE N ATURE OF INTEREST INCOME EARNED FROM BANK FDS AMOUNTING TO RS.7,59,984/-. IN THE RETURN OF INCOME, ASSESSEE HAD DECLARED SUCH INTEREST INCOME AS INCOM E DERIVED FROM ITS BUSINESS ACTIVITIES AND THEREFORE THE SAME WAS ALSO CLAIMED TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(VI) OF THE ACT. T HE ASSESSING OFFICER HELD THAT THE INTEREST RECEIVED ON FDS WITH THE BANK WAS LIABLE TO BE ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME, AS CONTENDED BY THE ASSESSEE. ON AN APPEAL BY THE ASSE SSEE, CIT(A) ALSO AFFIRMED THE ACTION OF THE ASSESSING OFFICER IN TRE ATING THE INTEREST INCOME AS INCOME FROM OTHER SOURCES AND CONSEQUENTIAL DENIA L OF DEDUCTION UNDER SECTION 80P(2)(A)(VI) OF THE ACT. 4. AT THIS POINT, WE MAY OBSERVE THAT ON AN EARL IER OCCASION THE APPEAL OF THE ASSESSEE WAS DISPOSED-OFF BY THE TRIBUNAL VI DE ORDER DATED 29.05.2009 WHICH HAS SUBSEQUENTLY BEING RECALLED VIDE ORDER OF THE TRIBUNAL IN M.A. NO.33/PN/2010 DATED 21.09.2011 FOR ADJUDICATIO N AFRESH. AS A RESULT, THE CAPTIONED PROCEEDINGS HAVE BEEN LISTED BY THE REGIS TRY. 5. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS ASSAILED THE ORDER OF THE CIT(A) BY POINTING OUT TH AT INTEREST EARNED ON FDS MADE WITH THE BANK FOR THE PURPOSE OF PROVIDING BAN K GUARANTEE, SOLVENCY CERTIFICATE, SECURITY FOR OVERDRAFT ETC. IS LIABLE TO BE ASSESSED AS BUSINESS INCOME, ESPECIALLY WHERE SUCH BANK GUARANTEE/SOLVE NCY CERTIFICATE, ETC. ARE REQUIRED TO BE PROVIDED TO THE GOVERNMENT AUTHORITI ES FOR COMPLYING WITH THE ITA NO. 212/PN/2009 ITA NO. 171/PN/2011 M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. A.Y. 2005-06 TENDERING PROCESS. LEARNED COUNSEL SUBMITTED THAT I N THE PRESENT CASE, THE ASSESSEE HAS MADE THE IMPUGNED FDS TO OBTAIN SOLVEN CY CERTIFICATES/BANK GUARANTEES FROM THE BANK IN ORDER TO SECURE CONTRAC TS FROM VARIOUS GOVERNMENT BODIES. IN SUPPORT OF THE ABOVE PROPOSIT ION, RELIANCE HAS BEEN PLACED ON THE JUDGEMENTS OF (I) HONBLE PATNA HIGH COURT IN THE CASE OF SHYAM BIHARI VS. CIT (2012) 345 ITR 283 (PATNA); AN D, (II) HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS (2008) 297 ITR 70 (KAR.). THUS, IT WAS POINTED OUT THAT IN TEREST INCOME WOULD BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(VI) OF THE ACT. 6. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPR ESENTATIVE APPEARING FOR THE REVENUE HAS REFERRED TO PARA 6 OF THE ORDER OF THE CIT(A) TO POINT OUT THAT AN FD KEPT IN BANK IS AKIN TO AN INVESTMENT MA DE AND THEREFORE INCOME FROM SUCH DEPOSIT IS IN THE NATURE OF THE INVESTME NT INCOME AS NOT BUSINESS INCOME. THE LEARNED DEPARTMENTAL REPRESENTATIVE AL SO SUBMITTED THAT IN THIS CASE ASSESSEE FAILED TO ESTABLISH ANY LINK BETWEEN THE FDS AND THE SECURING OF CONTRACTS AND THEREFORE CIT(A) WAS JUSTIFIED IN DENYING DEDUCTION UNDER SECTION 80P(2)(A)(VI) OF THE ACT. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE PROPOSITION SOUGHT TO BE CANVASSED BY THE ASSESSEE IS THAT THE INTEREST ON FDS KEPT WITH THE BANK IS LIABLE TO BE ASSESSED AS BUSINESS INCO ME HAVING REGARD TO THE FACTS OF THE PRESENT CASE. THE ASSESSEE IS A CO-OPE RATIVE SOCIETY ENGAGED IN THE SUPPLY OF LABOUR, AND IT IS CLAIMED THAT THE FD S ARE KEPT WITH THE BANK FOR SECURING BANK GUARANTEES, SOLVENCY CERTIFICATES, ET C. IN ORDER TO OBTAIN CONTRACTS FROM GOVERNMENT BODIES. AS PER THE ASSESS EE, THE TENDER PROCESS TO SECURE CONTRACTS REQUIRE THE ASSESSEE TO FURNISH BANK GUARANTEES/SOLVENCY CERTIFICATES AND IN ORDER TO OBTAIN THE SAME FROM T HE BANKS, ASSESSEE PLACED CERTAIN FDS WHICH HAVE YIELDED INTEREST INCOME OF R S.7,59,984/- DURING THE ITA NO. 212/PN/2009 ITA NO. 171/PN/2011 M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. A.Y. 2005-06 YEAR UNDER CONSIDERATION, WHICH WAS SOUGHT TO BE OF FERED FOR INCOME AS BUSINESS INCOME. 8. IN THIS CONNECTION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS REFERRED TO THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS (SUPRA). IN THE CAS E BEFORE THE HONBLE HIGH COURT, ASSESSEE WAS A CONTRACTOR AND IN ORDER TO SECURE CONTRACT WORK, HE WAS REQUIRED TO OFFER BANK GUARANTEE TO THE CONT RACTEE. THE ASSESSEE PLACED CERTAIN AMOUNT IN FIXED-DEPOSIT WITH THE BAN K IN ORDER TO OBTAIN REQUISITE BANK GUARANTEE AND FURNISHED THE SAME TO THE CONTRACTEE. ON SUCH FACTS, THE INTEREST INCOME EARNED ON THE FDS WAS SO UGHT TO BE TREATED BY THE ASSESSEE AS BUSINESS INCOME. THE REVENUE RESISTED THE CLAIM OF THE ASSESSEE BUT HONBLE KARNATAKA HIGH COURT UPHELD TH E STAND OF THE ASSESSEE AND RULED THAT SUCH INCOME SHOULD BE TREATED AS BUS INESS INCOME ONLY. A SIMILAR QUESTION WAS RAISED BEFORE THE HONBLE PATN A HIGH COURT IN THE CASE OF SHYAM BIHARI VS. CIT (SUPRA) WHEREIN ALSO IT WAS HE LD THAT THE INTEREST EARNED ON SECURITY DEPOSITS TO THE EXTENT USED FOR THE PUR POSES OF SECURING CONTRACT WORK WOULD BE ASSESSABLE AS BUSINESS INCOME. 9. IN THE FACE OF THE AFORESAID LEGAL POSITION LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT AS WELL AS THE HONBLE PATNA H IGH COURT, THE PROPOSITION CANVASSED BY THE ASSESSEE IS WELL-FOUNDED AND IS LI ABLE TO BE ACCEPTED. SO, HOWEVER, IN SO FAR AS FACTUAL MATRIX IN THIS CASE I S CONCERNED, WE FIND THAT THE CIT(A) HAS NOT DEALT WITH THE SAME PRIMARILY FOR TH E REASON THAT ACCORDING TO HIM WHATEVER MAY BE THE REASON FOR MAKING FDS WITH BANK SINCE DEPOSIT OF MONEY IS AN INVESTMENT, THE CONSEQUENTIAL INTERE ST INCOME WAS LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES. IN OUR VIEW, THE PROPOSITION CANVASSED BY THE CIT(A) CANNOT BE ACCEPTED IN ITS A BSOLUTENESS HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE HONBLE KARNATAKA HIGH COURT AS WELL AS THE HONBLE PATNA HIGH COURT REFER RED ABOVE. THE FACTS AND ITA NO. 212/PN/2009 ITA NO. 171/PN/2011 M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. A.Y. 2005-06 CIRCUMSTANCES ARE LIABLE TO BE CONSIDERED SO AS TO ADJUDICATE WHETHER THE PRESENT ASSESSEES INTEREST INCOME FROM FDS WITH TH E BANK IS TO BE ASSESSED AS BUSINESS INCOME OR AS INCOME FROM OTHER SOURCES. FOR THE SAID PURPOSE, WE THEREFORE DEEM IT FIT AND PROPER TO SET-ASIDE TH E ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE ASSESSEE AN OPPORTUNITY TO DEMONSTRATE THAT THE FDS WITH THE BANK WERE USED FO R THE PURPOSE OF SECURING CONTRACT WORK AND IF IT IS SO FOUND THEN THE INTERE ST INCOME WOULD BE ASSESSABLE AS BUSINESS INCOME. IF THE ASSESSING OFF ICER IS NOT SO SATISFIED THEN HE SHALL BE FREE TO PROCEED AS PER LAW. NEEDLE SS TO MENTION HERE, THE ASSESSING OFFICER SHALL CARRY OUT THE AFORESAID EXE RCISE AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD AN D HE SHALL PASS AN ORDER AFRESH TAKING INTO CONSIDERATION THE MATERIAL AND S UBMISSIONS PUTFORTH BY THE ASSESSEE. THUS, WE SET-ASIDE THE MATTER TO THE ASSE SSING OFFICER FOR PASSING AN ORDER AFRESH IN THE AFORESAID MANNER AS PER LAW. 10. RESULTANTLY, THE APPEAL OF THE ASSESSEE IN ITA NO. 212/PN/2009 IS TREATED AS ALLOWED FOR THE STATISTICAL PURPOSES. 11. ITA NO.171/PN/2011 IS AN APPEAL BY THE REVENUE WHICH IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), KOLHAPUR DATED 27.10.2010 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 20.01.2009 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 271( 1)(C) OF THE ACT, FOR THE ASSESSMENT YEAR 2005-06. 12. IN THIS APPEAL, THE GRIEVANCE OF THE REVENUE IS THAT THE CIT(A) ERRED IN CANCELLING THE PENALTY LEVIED BY THE ASSESSING OFFI CER UNDER SECTION 271(1)(C) OF THE ACT AMOUNTING TO RS.2,29,156/-. 13. IN BRIEF, THE FACTS ARE THAT IN THE ASSESSMENT FINALIZED FOR THE CAPTIONED ASSESSMENT YEAR THE INCOME OF THE ASSESSEE EARNED B Y WAY OF INTEREST IN FDS ITA NO. 212/PN/2009 ITA NO. 171/PN/2011 M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. A.Y. 2005-06 AMOUNTING TO RS.7,59,984/- WAS HELD TO BE ASSESSABL E AS INCOME FROM OTHER SOURCES AND WAS FOUND INELIGIBLE FOR CLAIM OF DEDU CTION UNDER SECTION 80P OF THE ACT. SUCH INTEREST INCOME TO THE EXTENT OF RS7, 59,984/- WAS HELD TO BE EXIGIBLE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C ) OF THE ACT ON THE GROUND THAT ASSESSEE FURNISHED INACCURATE PARTICULARS OF I NCOME TO THE SAID EXTENT. ACCORDINGLY, VIDE ORDER DATED 20.01.2009 PENALTY EQ UIVALENT TO 100% OF TAX SOUGHT TO BE EVADED ON SUCH INCOME AMOUNTING TO RS. 2,29,156/- WAS IMPOSED. THE CIT(A) HAS DELETED THE PENALTY FOLLOWI NG THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSM ENT YEAR IN QUESTION DATED 29.05.2009 VIDE ITA NO.212/PN/2009 WHEREIN AD DITION OF RS.7,59,984/- WAS DELETED. 14. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PA RTIES THAT THE ORDER OF THE TRIBUNAL DATED 29.05.2009 (SUPRA) HAS SINCE BEE N RECALLED VIDE ORDER OF THE TRIBUNAL IN M.A. NO.33/PN2010 DATED 21.09.2011 (SUPRA) AND FURTHER THE SAID APPEAL HAS BEEN NOW DISPOSED-OFF BY OUR COMMON ORDER OF EVEN DATE IN THE EARLIER PARAGRAPHS WHEREIN THE ISSUE OF THE ASS ESSABILITY OF INTEREST INCOME OF RS.7,59,984/- AND THE CONSEQUENTIAL CLAIM OF ASS ESSEE FOR DEDUCTION UNDER SECTION 80P OF THE ACT ON SUCH INCOME HAS BEEN REMA NDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR CONSIDERATION AFRESH AS P ER DIRECTIONS GIVEN THEREIN. 15. IN VIEW OF THE AFORESAID FACTUAL MATRIX, THE PENALTY IMPOSED BY THE ASSESSING OFFICER VIDE HIS ORDER DATED 20.01.2009 I S UNSUSTAINABLE AND WE HOLD SO. IT MAY BE MENTIONED THAT SINCE THE MATTER RELATING TO THE ASSESSABILITY OF RS.7,59,984/- REPRESENTING INTEREST INCOME HAS B EEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER, THE ASSESSING OFFICE R WOULD BE AT LIBERTY TO INITIATE PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT IF WARRANTED AS PER LAW AFTER HE PASSES AN ORDER IN PURSUANCE OF OUR DIRECT IONS OF EVEN DATE CONTAINED IN ITA NO.212/PN/2010 DEALING WITH THE MERITS OF TH E ADDITION. ITA NO. 212/PN/2009 ITA NO. 171/PN/2011 M/S KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD. A.Y. 2005-06 16. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED, AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2013. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 31 ST MAY, 2013 SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A), KOLHAPUR; 4) THE CIT, KOLHAPUR; 5) THE DR, A BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// PRIVATE SECRETARY I.T.A.T., PUNE.