Kolhapur Sahakari Majur and Hamal Sanstha Ltd., Kolhapur V. Income-tax Officer,

ITA 2276/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0498 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 29-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Business income; Benefit of exemption

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NOS.2273 TO 2277/PN/2016 / ASSESSMENT YEARS : 2007-08 TO 2011-12 KOLHAPUR SAHAKARI MAJUR AND HAMAL SANSTHA LTD., 619/B, E-WARD, SHAHUPURI, IST LANE, KOLHAPUR 416 001 PAN :AAAAP0326R . / APPELLANT V/S ITO, WARD-2(1), KOLHAPUR . / RESPONDENT / APPELLANT BY : SHRI M.K. KULKARNI / RESPONDENT BY : SHRI P.L. KUREEL / ORDER PER R.K.PANDA, AM : THE ABOVE BATCH OF APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS OF THE CIT(A)-2, KOLHAPUR RE LATING TO ASSESSMENT YEARS 2007-08 TO 2011-12 RESPECTIVELY. SIN CE IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE IN ALL THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND ARE B EING DISPOSED OF BY THIS COMMON ORDER. 2. FIRST I TAKE UP ITA NO.2273/PN/2016 AS THE LEAD CAS E. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A CO OPERATIVE SOCIETY ENGAGED IN THE SUPPLY OF LABOURERS. IT FILED ITS RE TURN OF INCOME ON 24-10-2007 DECLARING NIL INCOME. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT THE / DATE OF HEARING :08.11.2016 / DATE OF PRONOUNCEMENT: 09.11.2016 2 ITA NOS.2273 TO 2277/PN/2016 ASSESSEE HAS SHOWN NET PROFIT OF RS.62,819/- FROM THE AC TIVITY OF THE SOCIETY. ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT SUBMITTED ALONG WITH RETURN OF INCOME THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS INCLUDED INTEREST INCOME OF RS.11,99,189/- WHILE ARRIVING AT THE NET PROFIT OF RS.62,819/- . FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS HE OBSERVED THAT THE SAID INTEREST INCOME IS FROM INTEREST ON FDS MADE WITH BANKS. HE OBSERVED THAT WHILE COMPUTING THE TAXABLE INCOME THE SAID INTEREST INCOME HAS NEITHER BEEN ADDED BACK NOR CONSIDERED SEPA RATELY AND CONSEQUENTLY THE ASSESSEE HAS CLAIMED DEDUCTION U/S.80P(2)(A)(VI) OF THE I.T. ACT IN RESPECT OF THE SAID INTEREST INCOME. THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSE E TO EXPLAIN THE ALLOWABILITY OF SUCH INTEREST INCOME U/S. 80P(2)(A )(VI) OF THE I.T. ACT. 3. FROM THE VARIOUS DETAILS FURNISHED BY THE ASSESSEE THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS RECEIVED T HE INTEREST ON FDS WHICH HAVE BEEN MADE AS EARLIER AS SINCE MARCH 2 001. HE OBSERVED THAT THE FDS WHICH HAVE BEEN MADE FOR SATISF YING URGENT BUSINESS NEED OF SECURING CONTRACT HAS REMAINED OUTSTA NDING EVEN AFTER NUMBER OF YEARS AFTER THE SO CALLED GENUINE BU SINESS EXIGENCIES HAS BEEN SATISFIED, I.E. THE CONTRACT HAS BEEN SE CURED AND IN SOME CASES EVEN COMPLETED. ACCORDING TO HIM, ONCE THE CONTRACT HAS BEEN SECURED, THERE IS NO APPARENT NECES SITY TO KEEP THE FDS ALIVE. ACCORDING TO HIM WHEN IT IS MADE WITH THE INTENTION OF INVESTMENT OF IDLE FUNDS LYING UNUTILIZED, IT CANNOT BE SAID TO BE FOR SATISFYING URGENT BUSINESS NEEDS. HE OBSERVED THAT SIMILAR ISSUE HAD ALSO COME UP DURING A.Y. 2005-06 WHEREIN IT WAS HELD 3 ITA NOS.2273 TO 2277/PN/2016 THAT ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.80P(2)(A) IN R ESPECT OF THE SAID INTEREST INCOME. FURTHER, IN THE A.Y. 2004-05 WHERE THE REGULAR ASSESSMENT WAS COMPLETED U/S.143(3) SUCH INTEREST WAS CONSIDERED AS INCOME FROM OTHER SOURCES AND THE ASSE SSEE HAS NOT FILED ANY APPEAL AGAINST SUCH ORDER. IN VIEW OF THE A BOVE, THE ASSESSING OFFICER BROUGHT TO TAX THE AMOUNT OF RS.11,99,189 /- AS INCOME FROM OTHER SOURCES AND HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION U/S.80P(2)(A)(VI) OF THE I.T. ACT. 4. SIMILARLY, THE ASSESSING OFFICER BROUGHT TO TAX THE INTER EST INCOME OF RS.16,15,083/- FOR A.Y. 2008-09, RS.19,80,722/- FOR A.Y. 2009-10, RS.26,30,351/- FOR A.Y. 2010-11 AND RS.31,07,231/- FOR A.Y. 2011-12. 5. IN APPEAL THE LD.CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE BY OBSERVING AS UNDER : 6. IN VIEW OF THE FACTS OF THE CASE, THE CONTENTION OF THE AO AND ARGUMENTS OF THE APPELLANT, THERE ARE TWO ISSUES WHICH NEEDS TO BE ADJUDICATED : 1) WHETHER THE INTEREST INCOME EARNED ON THE FIXED DEPO SITS IS ASSESSABLE UNDER THE INCOME FROM BUSINESS OR PROFESSION OR UNDER THE HEAD INCOME FROM OTHER SOURCES? AND 2) WHETHER THERE IS A NEXUS BETWEEN FIXED DEPOSITS KEPT IN THE BANK(S) AND THE BUSINESS NEEDS OF THE SOCIETY? IN CONNECTION WITH THE SAME I PROCEED AS UNDER : 7. THE WORDS IN SECTION 80P OF THE ACT THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF THE BUSINESS EMPHASIZE THAT THE INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT MUST CONSTITUTE TH E OPERATIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THIS PARTICULAR CASE, IT IS SEEN THAT THAT APPELLANT SOCIET Y EARNS INTEREST ON FDS KEPT FOR OBTAINING SOLVENCY CERTIFICATES & BANK GU ARANTEES AND ALSO FDS ARE KEPT OUT OF FUNDS NOT REQUIRED FOR BUSINESS PURPOSE. 8. THOUGH IT IS TRUE THAT THE SOCIETY IS REQUIRED TO K EEP DEPOSITS FOR OBTAINING SOLVENCY CERTIFICATES & BANK GUARANTEES, BUT NOTHING IS BROUGHT ON RECORD TO SHOW THAT THE SOLVENCY CERTIFICA TES & BANK GUARANTEES OBTAINED ARE QUA DEPOSITS. THEREFORE, THE F IXED DEPOSITS STAND NOT CORRELATED WITH THE OBTAINING OF SOLVENCY C ERTIFICATES & BANK GUARANTEES OBTAINED. I AGREE WITH THE VIEW TAKEN BY THE HON. ITAT 4 ITA NOS.2273 TO 2277/PN/2016 BENCH, PUNE THAT THE FIXED DEPOSITS HAVE NEXUS WITH TH E BUSINESS NEEDS OF THE SOCIETY. HOWEVER, WHEN IT COMES TO ALLOWA NCE OF THE DEDUCTION U/S 80P OF THE ACT, THE EXACT MATHEMATICA L RELATION BETWEEN THE FIXED DEPOSITS KEPT WITH THE BANK AND SOLVENCY CER TIFICATES & BANK GUARANTEES OBTAINED, IS TO BE ESTABLISHED WITH DOCUMENT ARY EVIDENCE. 9. EARNING INTEREST ON FD HAS NOTHING TO DO WITH THE COLLECTIVE DISPOSAL OF LABOUR WHICH IS THE CORE BUSINESS ACTIVITY O F THE SOCIETY. WHEN APPELLANT EMPHASIZES THAT INTEREST INCOME IS RELAT ED TO A BUSINESS ACTIVITIES, IT IS THE APPELLANT WHO HAS TO DISCHA RGE ITS ONUS OF PROVING THE RELATION BETWEEN FDS KEPT AND CORRESPONDI NG BENEFIT FROM THE BANK. HOWEVER THE APPELLANT HAS NOT DISCHARG ED THIS ONUS AND TRIED TO PROVE HIS CLAIM ON THE BASIS OF CASE-LAWS W HICH ARE MOSTLY APPLICABLE TO CO-OPERATIVE BANKS ONLY. 10. THE APPELLANT SOCIETY IN A VAGUE MANNER IS ARGUIN G THAT FIXED DEPOSITS ARE KEPT FOR OBTAINING SOLVENCY CERTIFICATES & BANK GUARANTEES. IT HAS NOT BROUGHT ON RECORD EITHER AT TH E TIME OF ASSESSMENT PROCEEDINGS OR NOW DURING APPELLATE PROCEEDIN GS, ANYTHING TO ESTABLISH THE FIXED DEPOSITS KEPT WITH THE BANK AND THE CORRESPONDING CERTIFICATES OBTAINED FROM THE BANK FOR IT BUSINESS PURPOSE. 11. CONSIDERING THE FACTUAL POSITION AND ABSENCE OF DO CUMENTARY EVIDENCE TO SUPPORT THE CLAIM OF DEDUCTION U/S 80P OF THE ACT, I AM UNABLE TO ACCEPT THE ARGUMENTS OF THE APPELLANT. IN THE RESULT, THE APPEAL STANDS DISMISSED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION M ADE BY THE A.O. OF INTEREST EARNED ON FIXED DEPOSITS AS NOT COVERED BY THE PROVISIONS OF S. 80P(2)(VI) OF THE ACT. THE MUTUAL SOCIETY IS IN TH E BUSINESS OF COLLECTIVE DISPOSAL OF THE LABOUR AND PROVISIONS OF S. 80P(VI) ARE APPLICABLE. THE ADDITION BE DELETED HOLDING THAT TH E INCOME WAS COVERED BY S. 80P(2)(VI) OF THE ACT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W IT IS NOT DISPUTED THAT THE ASSESSEE-SOCIETY WAS GOVERNED BY THE PRO VISIONS OF S. 80P(2)(VI) OF THE ACT. UNDER THE CIRCUMSTANCES ANY ADDITION MADE TO SUCH INCOME SUCH ADDITION WILL ONLY GO TO ENHANCE THE PROFITS DERIVED BY THE ASSESSEE-SOCIETY FROM THE ACTIVITIES COVER ED BY S. 80P(2)(VI) OF THE ACT AND EXEMPT. IT BE HELD ACCORD INGLY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W AND CONSIDERING THE RECORDS SUPPORTED BY AUDIT REPORTS THE WHOLE OF ITS INCOME WAS QUALIFIED FOR EXEMPTION UNDER SECTION 80P( 2)(VI) OF THE ACT. THE LD. CIT(A) WAS NOT JUSTIFIED IN DENYING THE BENEFIT OF EXEMPTION CONFIRMING THE ORDER OF THE A. O. THE ORD ER OF LD. CIT(A) BE SET-ASIDE AND QUASHED. 5 ITA NOS.2273 TO 2277/PN/2016 4. THE APPELLANT CRAVES TO LEAVE, ADD/AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 7. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE P APER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE ME. I FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.212 /PN/2009 AND 171/PN/2011 FOR A.Y. 2005-06. THE TRIBUNAL VIDE ORDER DATED 31-05-2013 HAS ELABORATELY DISCUSSED THE ISSUE AND RES TORED THE MATTER TO THE FILE OF THE ASSESSING OFFICER BY OBSERVING AS UNDER : 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THE PROPOSITION SOUGHT TO BE CANVASSED BY THE ASSESSEE IS THAT T HE INTEREST ON FDS KEPT WITH THE BANK IS LIABLE TO BE ASSESSED AS BU SINESS INCOME HAVING REGARD TO THE FACTS OF THE PRESENT CASE. THE ASSE SSEE IS A CO- OPERATIVE SOCIETY ENGAGED IN THE SUPPLY OF LABOUR, A ND IT IS CLAIMED THAT THE FDS ARE KEPT WITH THE BANK FOR SECURING BANK GUARANTEES, SOLVENCY CERTIFICATES, ETC. IN ORDER TO OBTAIN CONTRA CTS FROM GOVERNMENT BODIES. AS PER THE ASSESSEE, THE TENDER PROCESS TO SECURE CONTRACTS REQUIRE THE ASSESSEE TO FURNISH BANK GUARANTEES/ SOLVENCY CERTIFICATES AND IN ORDER TO OBTAIN THE SAME FROM THE BANKS, ASSESSEE PLACED CERTAIN FDS WHICH HAVE YIELDED INTEREST INCO ME OF RS.7,59,984/- DURING THE YEAR UNDER CONSIDERATION, WH ICH WAS SOUGHT TO BE OFFERED FOR INCOME AS BUSINESS INCOME. 8. IN THIS CONNECTION, THE LEARNED COUNSEL FOR THE ASSE SSEE HAS REFERRED TO THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. CHINNA NACHIMUTHU CONSTRUCTIONS (SUPRA). IN THE CASE BEFORE THE HONBLE HIGH COURT, ASSESSEE WAS A CONTRACTOR AND IN ORD ER TO SECURE CONTRACT WORK, HE WAS REQUIRED TO OFFER BANK GUARANT EE TO THE CONTRACTEE. THE ASSESSEE PLACED CERTAIN AMOUNT IN FIXE D-DEPOSIT WITH THE BANK 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 SOUGHT TO BE TREATED BY THE ASSESSEE AS BU SINESS INCOME. THE REVENUE RESISTED THE CLAIM OF THE ASSESSEE BUT HONBLE KARNATAKA HIGH COURT UPHELD THE STAND OF THE ASSESSEE AN D RULED THAT SUCH INCOME SHOULD BE TREATED AS BUSINESS INCOME ONLY. A SIMILAR QUESTION WAS RAISED BEFORE THE HONBLE PATNA HIGH COUR T IN THE CASE OF SHYAM BIHARI VS. CIT (SUPRA) WHEREIN ALSO IT WAS HELD THAT THE INTEREST EARNED ON SECURITY DEPOSITS TO THE EXTENT USED FOR THE PURPOSES OF SECURING CONTRACT WORK WOULD BE ASSESSABLE AS BUSINESS INCOM E. 9. IN THE FACE OF THE AFORESAID LEGAL POSITION LAID D OWN BY THE HONBLE KARNATAKA HIGH COURT AS WELL AS THE HONBLE PATNA HIG H COURT, THE PROPOSITION CANVASSED BY THE ASSESSEE IS WELL-FOUNDED AND I S LIABLE TO BE ACCEPTED. SO, HOWEVER, IN SO FAR AS FACTUAL MATRI X IN THIS CASE IS 6 ITA NOS.2273 TO 2277/PN/2016 CONCERNED, WE FIND THAT THE CIT(A) HAS NOT DEALT WIT H THE SAME PRIMARILY FOR THE REASON THAT ACCORDING TO HIM WHATE VER MAY BE THE REASON FOR MAKING FDS WITH BANK SINCE DEPOSIT OF MONEY IS AN INVESTMENT, THE CONSEQUENTIAL INTEREST INCOME WAS LI ABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES. IN OUR VIEW, THE PR OPOSITION CANVASSED BY THE CIT(A) CANNOT BE ACCEPTED IN ITS ABSOL UTENESS HAVING REGARD TO THE PARITY OF REASONING LAID DOWN BY THE H ONBLE KARNATAKA HIGH COURT AS WELL AS THE HONBLE PATNA HIGH COURT RE FERRED ABOVE. THE FACTS AND CIRCUMSTANCES ARE LIABLE TO BE CONSIDERE D SO AS TO ADJUDICATE WHETHER THE PRESENT ASSESSEES INTEREST INCOME FROM FDS WITH THE BANK IS TO BE ASSESSED AS BUSINESS INCOME OR AS INCO ME FROM OTHER SOURCES. FOR THE SAID PURPOSE, WE THEREFORE DEEM IT FIT AND PROPER TO SET-ASIDE THE ORDER OF THE CIT(A) AND DIREC T THE ASSESSING OFFICER TO ALLOW THE ASSESSEE AN OPPORTUNITY TO DEMONST RATE THAT THE FDS WITH THE BANK WERE USED FOR THE PURPOSE OF SECURING CONTRACT WORK AND IF IT IS SO FOUND THEN THE INTEREST INCOME WO ULD BE ASSESSABLE AS BUSINESS INCOME. IF THE ASSESSING OFFICER IS NO T SO SATISFIED THEN HE SHALL BE FREE TO PROCEED AS PER LAW. NEEDLESS TO MENTION HERE, THE ASSESSING OFFICER SHALL CARRY OUT THE AFORESAID EXERCISE AFTER ALLOWING THE ASSESSEE A REASONABLE OPPORTU NITY OF BEING HEARD AND HE SHALL PASS AN ORDER AFRESH TAKING INTO CON SIDERATION THE MATERIAL AND SUBMISSIONS PUTFORTH BY THE ASSESSEE. THUS, WE SET-ASIDE THE MATTER TO THE ASSESSING OFFICER FOR PASSING AN ORDER AFRESH IN THE AFORESAID MANNER AS PER LAW 10. RESULTANTLY, THE APPEAL OF THE ASSESSEE IN ITA NO. 2 12/PN/2009 IS TREATED AS ALLOWED FOR THE STATISTICAL PURPOSES. 8. SINCE THE ASSESSING OFFICER WHILE PASSING THE ORDER HAS BASICALLY RELIED ON THE ORDER OF HIS PREDECESSOR FOR A.Y. 20 05-06 AND SINCE THE LD.CIT(A) WHILE ADJUDICATING THE ISSUE HAS GIVE N AN OBSERVATION THAT THE ASSESSEE HAS NOT DISCHARGED THE ONUS CAST ON IT BY PROVING THAT THE INTEREST INCOME IS RELATED TO THE BUSINESS ACTIVITY AND THE RELATION BETWEEN FDS KEPT AND CORRESP ONDING BENEFIT FROM THE BANK, THEREFORE, CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE AND IN THE INTEREST OF JUSTICE OF JUSTICE , I DEEM IT PROPER TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO ADJUDICATE THE ISSUE AFRESH IN THE LIGHT OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2005-06. NEEDLESS TO SAY THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF B EING HEARD TO THE ASSESSEE AND DECIDE THE ISSUE AS PER LAW. I HOLD AND DIRECT ACCORDINGLY. 7 ITA NOS.2273 TO 2277/PN/2016 ITA NOS. 2274 TO 2277/PN/2016 (A.YRS. 2008-09 TO 201 1-12) : 9. SINCE IDENTICAL GROUNDS HAVE BEEN TAKEN BY THE ASSESS EE IN THE ABOVE APPEALS, THEREFORE, FOLLOWING THE REASONINGS GIVEN IN THE APPEAL FOR A.Y. 2007-08, THE APPEALS FOR THE ABOVE YEARS A RE ALSO RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH THE SAME DIRECTION. 10. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 09-11-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 09 TH NOVEMBER, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // $ % / TRUE COPY // // TRUE COPY // &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 2, KOLHAPUR 4. THE CIT-I, KOLHAPUR 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.