Sai Krishna WLCCS, Hyd, Hyderabad V. ITO, Ward-7(2), Hyderabad, Hyderabad

ITA 234/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6033 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 29-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2016
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: K A SAI PRASAD
• Keywords: Question of law; Assessment record
• Section: 260A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 234/HYD/2016 ASSESSMENT YEAR: 2009-10 M/S. SAI KRISHNA WLCCS, HYDERABAD [PAN: AABAS2390F] VS THE INCOME TAX OFFICER, WARD-7(2), HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI K.A. SAI PRASAD, AR FOR REVENUE : SHRI A. SITARAMA RAO, DR DATE OF HEARING : 21-03-2017 DATE OF PRONOUNCEMENT : 31-03-2017 O R D E R THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS)-3, HYDERABAD D ATED 02-11-2015 ON THE ISSUE OF DEDUCTION U/S. 80P OF THE INCOME TAX ACT [ACT]. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF CIVIL CONTRACTS BY ITS ACTIVITIES OF COL LECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS. ASSESSEE IS REGISTERED AS A L ABOUR CONTRACT CO-OPERATIVE LTD., CONSISTING OF SKILLED AND UNSKILLED LABOUR AND EXECUTING CONTRACT WORKS IN VARIOUS GOVERNMENT DEPARTME NTS. FOR THE IMPUGNED ASSESSMENT YEAR, ASSESSEE ADMITTED INCOME OF RS. 12,16,350/- CLAIMED THE ENTIRE AMOUNT OF EXEMPTION U/S . 80P(2)(A)(VI). IN THE ASSESSMENT U/S. 143(3), ASSES SING OFFICER (AO) I.T.A. NO. 234/HYD/2016 M/S. SAI KRISHNA WLCCS :- 2 - : DISALLOWED THE DEDUCTION ON THE GROUND THAT ASSESSEE W AS A CIVIL CONTRACTOR FOR GHMC AND IS NOT A LABOUR CONTRACTOR. FU RTHER, HE ESTIMATED THE PROFIT AT 8% OF GROSS CONTRACT RECEIPTS AND DETERMINED THE TOTAL INCOME AT RS. 14,28,370/-. 3. BEFORE THE LD.CIT(A), ASSESSEE SUBMITTED THAT IT IS BE ING FILING RETURNS IN THE STATUS OF SOCIETY AND DEDUCTION U/S. 80 P HAS BEEN ALLOWED IN EARLIER YEARS ON SIMILAR FACTS. ASSESSEE ALSO SUBMITTED THAT ONLY LABOURERS ARE MEMBERS AND THE PROFITS ARE SHA RED BY THE MEMBERS AS DIVIDEND AND THE MATERIAL AND MACHINERY H IRE CHARGES ARE INCIDENTAL TO THE CONTRACT WORK, WHEREIN ASSESSEE S MEMBERS PUT IN THEIR EFFORTS IN EXECUTING THE CONTRACT. IT WAS FU RTHER SUBMITTED THAT EVEN THOUGH THE CONTRACTS INCLUDE BOTH LABOUR CONTRACTS AND CIVIL CONTRACTS, THE SOCIETY IS ELIGIBLE FOR DEDUCTION U/S. 80P AS IT WAS STATED THAT WHOLE OF AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTI VITIES ARE ELIGIBLE FOR DEDUCTION. 3.1. LD.CIT(A) IS NOT CONVINCED AND REJECTED THE CLAI M STATING AS UNDER: 7.2 THE INFORMATION ON RECORD IS CAREFULLY CONSIDE RED. AS PER THE PROVISIONS OF SEC. 80P, THE PROFITS AND GAINS ATTRI BUTABLE TO ACTIVITIES OF LABOUR SUPPLY ARE ONLY EXEMPT U/S 80P. IN ORDER TO VERIFY THE QUANTUM OF SURPLUS FROM THE LABOUR ACTIVITY AND THE DISTRIBUTION OF THE SAME TO THE MEMBERS OF THE SOCIETY, THE AR WAS ASKED TO PRODUCE THE BANK A/C AS TO HOW THE SURPLUS WAS DISTRIBUTED TO THE MEMBERS OF THE SOCIETY. HOWEVER SUCH DETAILS WE RE NOT PRODUCED. WITH THE HOPE THAT CERTAIN BASIC DETAILS LIKE REGISTRATI ON OF THE SOCIETY, MEMBERS OF THE SOCIETY ETC WOULD BE AVAILABLE IN ASSESSMENT RECORD, THE RECORDS WERE OBTAINED FROM THE ASSESSING OFFICER AND WERE P ERUSED. NO SUCH INFORMATION WAS AVAILABLE IN ASSESSMENT RECORD. HOW EVER INTERESTINGLY IN ORDER SHEET ENTRY DATED 24.11.2011 IN ASSESSMENT RE CORD WAS FOUND WHICH READ AS UNDER: I.T.A. NO. 234/HYD/2016 M/S. SAI KRISHNA WLCCS :- 3 - : 'THE ASSESSEE'S AR APPEARED FOR HEARING AND CASE DI SCUSSED. DURING THE SCRUTINY PROCEEDINGS THE AR HAS BEEN INFORMED O F VARIOUS UNVERIFIABLE NATURE OF VOUCHERS IN MATERIAL CHARGES AMOUNTING TO RS. 4,40,000 AND RS. 2,00,000 TOWARDS HIRE CHARGES. FOR THIS THE AR STATED THAT SINCE THE SOCIETY IS ME ANT FOR MEMBER AND THEIR RELATIVES AND KINSMAN, ALL THE PAYMENTS ARE M ADE TO THEM ONLY. HE FURTHER STATED THAT THE SOCIETY IS UNDER CONTINUOUS STATUTORY AUDIT. WHEN PRESSED FURTHER, THE AR STATED THAT HE HAS NO OBJEC TION FOR DISALLOWANCES (OUT OF AMBIT OF 80P) AND STATED THAT THEY WILL NOT CONT EST IN APPEALS.' IN ANY CASE FROM THE PERUSAL OF P&L A/C, THE QUANTU M OF EXPENSES DEBITED TO P&L A/C WITH REFERENCE TO MATERIAL RS.50,72,269 MACHINERY HIRE CHARGES, RS.8.8 LAKHS, MATERIAL CHARGES RS.5.25 LAK HS, VAT RS.6.14 LAKHS ETC. IT IS EVIDENT THAT THE ENTIRE PROFIT DOES NOT PERTINENT TO LABOUR SUPPLY ALONE. SUBSTANTIAL PART IS RELATABLE TO CONTRACT WO RKS EXECUTED BY APPELLANT TO GHMC. IN THE ABSENCE OF ANY MECHANISM TO DETERMINE THE PROFITS EXCLUSIVELY ATTRIBUTABLE TO LABOUR WORKS, P ROPORTIONATE AMOUNT OF PROFITS (RS.74,38,580 / RS. 1,73,76,419 X 12,16,349 ) WHICH WORKS OUT TO RS. 3,55,338 NEEDS TO BE CONSIDERED FOR THE PURPOSE OF EXEMPTION U/S. 80P. ACCORDINGLY THE ASSESSING OFFICER IS DIRECTED TO TAKE ACTION. 4. LD. COUNSEL SUBMITTED THAT ASSESSEES CONTENTIONS ARE SUPPORTED BY THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF CIT VS. M/S. URALUNGAL LABOUR CONTRACT IN ITA NO. 1722 OF 2009 DT. 29-10-2009. HE RELIED ON THE ABOVE ORDER TO SUBMIT THAT DEDUCTION WAS ELIGIBLE ON THE ENTIRE INCOME OF THE SOCI ETY. 5. LD.DR HOWEVER, SUBMITTED THAT ASSESSEE IS ENGAGED I N CIVIL CONTRACTS AND SO THE SOCIETY WAS DENIED DEDUCTION. IT WA S SUBMITTED THAT LD.CIT(A) ALLOWED PROPORTIONATE DEDUCTION U /S. 80P TO THE EXTENT OF LABOUR CONTRACT AND VIDE CORRIGENDUM D T. 04-01- 2016 DEDUCTION TO AN EXTENT OF RS. 5,20,700/- WAS DIR ECTED TO BE ALLOWED. IN REPLY, LD. COUNSEL SUBMITTED THAT ASSESSEE IS ELIGIBLE FOR DEDUCTION AND IN THE ALTERNATE, THE DEDUCTION SHOU LD BE ALLOWED ON THE INCOME DETERMINED BY THE AO BUT NOT ON THE INCOM E OFFERED BY ASSESSEE. I.T.A. NO. 234/HYD/2016 M/S. SAI KRISHNA WLCCS :- 4 - : 6. I HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE RECORD. ON SIMILAR FACTS AS THAT OF ASSESSEE, IN THE CASE OF CIT VS. M/S. URALUNGAL LABOUR CONTRACT IN ITA NO. 1722 OF 200 9 DT. 29- 10-2009 (SUPRA), IT WAS HELD BY HONBLE KERALA HIGH COURT AS UNDER: 4. SO FAR AS THE MERITS OF THE CASE IS CONSIDERED, EVEN THOUGH NO SPECIFIC QUESTION IS RAISED IN THE APPEALS FILED, S ENIOR STANDING COUNSEL FOR THE APPELLANT SUBMITTED THAT THIS IS AN OMISSION AN D DEPARTMENT WANTS TO AMEND THE APPEAL TO COVER SUCH A QUESTION ALSO. WE DO NOT THINK ANY WRITTEN AMENDMENT IS REQUIRED FOR THIS COURT TO PER MIT THE COUNSEL TO RAISE A QUESTION OF LAW, IF IT IS SUBSTANTIAL QUESTION OF LAW WARRANTING DECISION BY THIS COURT UNDER SECTION 260A OF THE INCOME TAX ACT. WE, THEREFORE, PERMITTED THE COUNSEL TO RAISE THIS QUESTION ORALLY AND ARGUE ON MERITS. HOWEVER, AFTER GOING THROUGH THE TRIBUNAL'S ORDER A ND AFTER CONSIDERING THE CONSTITUTION AND NATURE OF ACTIVITIES OF THE RE SPONDENT-SOCIETY, WE FEEL THE SOCIETY IS ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(VI) ON THE ENTIRE INCOME BECAUSE IN THE FIRST PLACE, ALL THE MEMBERS OF THE SOCIETY ARE WORKERS AND THEY ENGAGE THEMSELVES IN THE EXECUTION OF CIVIL WORKS UNDERTAKEN BY THEM. THERE IS NO CASE FOR THE DEPART MENT THAT SOCIETY CONSISTS OF ANY MEMBER OTHER THAN CONSTRUCTION WORK ER AND THERE IS ALSO NO CASE THAT ALL THE MEMBER- WORKERS ARE NOT ENGAGE D IN THE ACTIVITIES OF THE SOCIETY WHICH IS EXECUTION OF CIVIL CONSTRUCTIO N WORK. A WORKERS' SOCIETY UNDERTAKING CIVIL CONSTRUCTION WORK AND EXE CUTING THE WORK BY THEMSELVES RIGHTLY ANSWERS THE ACTIVITY REFERRED TO IN SECTION 80P(2)(VI) I.E. COLLECTIVE DISPOSAL OF LABOUR OF THE MEMBERS OF THE SOCIETY. IF MEMBERS OF THE SOCIETY ARE ENGAGED IN CONSTRUCTION ACTIVITIES, THEN THE SOCIETY ITSELF SHOULD BE HELD TO BE ENGAGED IN COLLECTIVE DISPOSAL OF LABOUR OF IT'S MEMBERS. THEREFORE, THE INCOME EARNED FROM CONSTRUC TION WORK QUALIFIES FOR DEDUCTION UNDER SECTION 80P(2)(VI) OF THE ACT. THE REMAINING ISSUE IS ONLY WITH REGARD TO THE TRADING DONE IN CONSTRUCTIO N MATERIALS LIKE SAND WHICH ARE STATED TO HAVE BEEN PURCHASED AND SOLD BY THE SOCIETY. HERE AGAIN, THE TRANSACTIONS ARE INCIDENTAL IN NATURE AN D THE MEMBERS THEMSELVES ARE ENGAGED IN HANDLING OF THE GOODS IN THE COURSE OF PURCHASE AND SALE OF THE SAME. CONSTRUCTION MATERIAL INVOLVE D IS ALSO SAND WHERE THE LABOUR INVOLVED IS SUBSTANTIAL AND THE INCOME E ARNED IS ALSO NOT FOUND TO BE ATTRIBUTABLE TO PROFIT IN TRADING AND NOT ATT RIBUTABLE TO LABOUR INPUTS. WE, THEREFORE, HOLD THAT THE TRIBUNAL RIGHTLY GRANT ED DEDUCTION ON THE ENTIRE INCOME OF THE SOCIETY UNDER SECTION 80P(2)(V I) OF THE ACT. CONSEQUENTLY THE APPEALS ARE DISMISSED. 6.1. SINCE IN THIS CASE ALSO EVEN THOUGH ASSESSEE IS NOT INVOLVED IN TRADING BUT IS ENGAGED IN CONTRACT WORKS, WHICH INC LUDED I.T.A. NO. 234/HYD/2016 M/S. SAI KRISHNA WLCCS :- 5 - : MATERIAL BEING SUPPLIED BY THE GOVERNMENT, I AM OF THE VIEW THAT ASSESSEE IS ELIGIBLE FOR CLAIM U/S. 80P(2)(A)(VI). NO OTHER CONTRARY JUDGMENT HAS BEEN BROUGHT TO MY NOTICE. RESPECTFULLY FOLLOWING THE PRINCIPLES LAID DOWN IN THE ABOVE JUDGMENT, I DIRE CT THE AO TO ALLOW THE DEDUCTION U/S. 80P(2)(A)(VI), AS BEING ALLOWED IN EARLIER YEARS ALSO. GROUNDS ARE ALLOWED. 7. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MARCH, 2017 SD/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER HYDERABAD, DATED 31 ST MARCH, 2017 TNMM COPY TO : 1. M/S. SAI KRISHNA WLCCS, HYDERABAD. C/O. CH. PARTHASARATHY & CO., 1-1-298/2/B/3, 1 ST FLOOR, SOWBHAGYA AVENUE, STREET NO. 1, ASHOK NAGAR, HYDERABAD. 2. THE INCOME TAX OFFICER, WARD-7(2), HYDERABAD. 3. COMMISSIONER OF INCOME TAX(APPEALS)-3, HYDERABAD . 4. THE PR. COMMISSIONER OF INCOME TAX-3, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.