BOMBAY MUDIBAZAR KARIANA MERCHANTS ASSOCIATION, NAVI MUMBAI V. ITO 10(30(4), MUMBAI

ITA 2672/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8258 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 17-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S C TIWARI
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , / BEFORE SHRI D. MANMOHAN, VICE PRESIDENT /AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER I.T.A. NO. 2672/MUM/2011 ASSESSMENT YEAR 2008-09 M/S. BOMBAY MUDIBAZAR KARIANA MERCHANTS ASSOCIATION, C 64, APMC I - PHASE II, SECTOR 19, VASHI TURBHE, NAVI MUMBAI 400 703 PAN: AACCB 8702 B VS. INCOME TAX OFFICER 10(3)(4), MUMBAI. ( '( / APPELLANT) ( )*'( / RESPONDENT) '( , ! / APPELLANT BY : SHRI S.C TIWARI )*'( - , ! /RESPONDENT BY : SHRI MOHIT JAIN - .$ / DATE OF HEARING : 20-09-2012 /0 - .$ / DATE OF PRONOUNCEMENT : 16-11-2012 %!1 / O R D E R PER RAJENDRA, A.M. THE APPELLANT HAS FILED THIS APPEAL AGAINST THE ORD ER DT. 24-01-2011 OF THE CIT(A)-22, MUMBAI ON THE FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW LEARNED C.I.T (APPEAL) HAS ERRED TO HOLD THAT INTEREST RECEIPT OF RS.7,43,306/- IS NOT EXEMPT IN THE HANDS OF THE APPELLANT ON THE PRINCIPLE OF MUTUALIT Y. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW LEARNED C.I.T.(APPEAL) HAS ERRED TO HOLD THAT THE LOSS WORK ED OUT BY THE ASSESSING OFFICER AMOUNTING TORS.1,079,536/- CANNOT BE SET-OFF AGAINS T INTEREST INCOME OF RS.743,306/-. 3. WITHOUT PREJUDICE TO GROUNDS OF APPEAL NO.1 AND 2, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW LEARNED C.I.T (APPEAL) HAS ERRED IN NOT APPRECIATING THAT PRINCIPLE OF MUTUALITY CANNOT BE THRUST UPON THE ASSESSEE. 2. ASSESSEE FILED ITS RETURN OF INCOME ON 27-09-2008 D ECLARING INCOME OF RS. NIL. INITIALLY, THE CASE WAS PROCESSED U/S. 143(1) OF TH E INCOME TAX ACT,1961 (ACT) LATER I.TA. NO. 2672/MUM/2011 M/S. BOMBAY MUDIBAZAR KARIANA MERCHANTS ASSN 2 ON IT WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS FINALISED BY THE ASSESSING OFFICER (AO) U/S. 143(3) OF THE ACT DETERMINING THE TOTAL I NCOME AT RS.7,43,310/-. 2.1. DURING THE ASSESSMENT PROCEEDINGS, AO FOUND THAT AS SESSEE HAD SHOWN RS. 13.8 LAKHS UNDER THE HEAD OTHER INCOME AND HAD DEBITED EXPENSES TO THE EXTENT OF RS.12. 3 LAKHS AND HAD THUS ARRIVED AT NET INCOME O F RS. 1.47 LAKHS. HE FURTHER FOUND THAT IN THE COMPUTATION FILED, THE ASSESSEE-COMPANY CLAIMED LOSS OF RS.3,36,226/-.ON VERIFICATION OF THE DETAILS FILED, HE NOTICED THAT INCOME SHOWN IN THE INCOME AND EXPENDITURE A/C INCLUDED AN AMOUNT OF RS.7,43,306/- AS INTEREST ON FDS AND RS.3,420/- AS INTEREST ON INCOME TAX REFUND. HE IS SUED A SHOW CAUSE NOTICE TO THE ASSESSEE AS TO WHY THE INTEREST INCOME SHOULD NOT B E ASSESSED UNDER THE HEAD INCOME FROM OTHER SOURCES. VIDE ITS LETTER DT. 01-11-2010 , ASSESSEE CLAIMED THAT THE INCOME WAS EXEMPT UNDER THE PRINCIPLE OF MUTUALITY AND IT WAS ENTITLED TO SET-OFF OF INTER HEAD LOSSES. AFTER CONSIDERING THE SUBMISSIONS OF THE A SSESSEE AO WORKED OUT THE INCOME FROM BUSINESS/PROFESSION AT RS.(-)10.79 LAKHS AND INCOME FROM OTHER SOURCES AT RS.7.43 LAKHS. HE HELD THAT INCOME EARNED BY THE A SSESSEE BY WAY OF INTEREST FROM FIXED DEPOSIT FORM BANK WAS NOT EXEMPT ON THE BASIS OF PRINCIPLE OF MUTUALITY. 2.2. AGGRIEVED BY THE ORDER OF THE AO, ASSESSEE PREFERRE D AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). AFTER CONSIDERING THE S UBMISSIONS AND THE CASES RELIED UPON BY THE AR AND THE ASSESSMENT ORDER, FAA HELD T HAT INTEREST INCOME WAS TAXABLE UNDER THE HEAD OTHER SOURCES, THAT IT WAS N OT EXEMPT AS IT WAS NOT ARISING OUT OF MUTUAL ACTIVITIES OF THE MEMBERS, THAT CASES REL IED UPON BY THE ASSESSEE WERE DISTINGUISHABLE ON FACTS, THAT IN THE CASE OF CETP THANE BELAPUR ASSOCIATION HONBLE BOMBAY HIGH COURT HAD DECIDED THE ISSUE IN FAVOUR OF THE DEPARTMENT (BOMBAY HIGH COURT ITA NO.2060 OF 2009), THAT RELYING UPON THE PROVISIONS OF SECTION 71 OF THE ACT EXEMPTED INCOME /LOSS FROM MUTUAL ACTIVITIE S COULD NOT BE ADJUSTED AGAINST INCOME FROM OTHER SOURCES,THAT RATIO OF THE CASE OF S.S. THIAGARAJAN (129 ITR 115), DELIVERED BY THE HONBLE MADRAS HIGH COURT, SQUARE LY APPLIED TO THE FACTS OF THE CASE. ACCORDINGLY, HE DISMISSED THE APPEAL FILED B Y THE ASSESSEE. HE FINALLY HELD THAT INTEREST INCOME EARNED BY THE ASSESSEE COULD NOT BE SET OFF AGAINST THE BUSINESS LOSS ON THE PRINCIPLES OF MUTUALITY. 3. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT INTEREST PAID HAD TO BE ADJUSTED AGAINST INTEREST RECEIVED, THAT EXEMPT INC OME SHOULD BE TAKEN OUT, THAT IF SUBSCRIPTION IS EXEMPT THEN PROVISIONS OF SECTION 1 4A WOULD BE APPLICABLE, THAT AO HAD NOT WORKED THE DISALLOWANCE CORRECTLY. HE RELI ED UPON THE CASE OF NAGAR LOKHANWAL COMPLEX (ITA NO.2646/2647/MUM/2010 AY 200 4-05 AND 2006-07). DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE OR DERS OF THE AO AND FAA AND SUBMITTED THAT EXEMPT LOSS WOULD NOT BE SET-OFF AGA INST THE CHARGEABLE INCOME THAT SEC.14A WAS NOT APPLICABLE TO EXEMPT LOSS. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS BEFORE US. WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE IS EXEMP T OR NOT IS TO BE DECIDED ON THE FACTS OF CASE UNDER CONSIDERATION. WE ARE AWARE T HAT IN THE CASE OF NAGAR LOKHANWAL COMPLEX (SUPRA) TRIBUNAL, AFTER CONSIDERING THE PEC ULIAR FACTS OF THE CASE, HAD HELD THAT PRINCIPLE OF MUTUALITY WERE FULLY APPLICABLE IN TH AT CASE AND THAT THE INTEREST EARNED ON THE FIXED DEPOSITS WITH THE BANK AND OTHE R INSTITUTIONS WAS FULLY COVERED WITHIN THE PARAMETERS OF MUTUALITY.. THAT THE PRI NCIPLE OF MUTUALITY COULD NOT BE DESTROYED SIMPLY BECAUSE THE FUNDS WERE NOT PARKED WITH MEMBERS BUT WITH THIRD I.TA. NO. 2672/MUM/2011 M/S. BOMBAY MUDIBAZAR KARIANA MERCHANTS ASSN 3 PARTIES WHO WERE NOT MEMBERS OF THE SOCIETY. WE FIND THAT DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF COMMON E FFLUENT TREATMENT PLANT (THANE BELAPUR) ASSOCIATION (5 TAXMANN.COM 110)WAS NOT BRO UGHT TO THE NOTICE OF THE ITAT WHEN THE MATTER OF NAGAR LOKHANWAL COMPLEX WAS HEAR D. SECONDLY, AO AND THE FAA HAVE HELD THAT CASE OF CETP (THANE BELAPUR) ASS N. WAS APPLICABLE IN THE CASE UNDER CONSIDERATION. WE HAVE NOT FOUND THAT THEY H AVE GIVEN ANY REASONING IN THEIR ORDERS FOR REACHING AT THE CONCLUSION THAT ASSESSEE WAS CARRYING OUT MUTUAL AS WELL AS NON-MUTUAL ACTIVITIES. IN OUR OPINION, IN THESE CI RCUMSTANCES, IN THE INTEREST OF JUSTICE MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE A O FOR PASSING A SPEAKING ORDER. HE SHOULD AFFORD AN OPPORTUNITY OF REASONABLE HEARING TO THE ASSESSEE. GROUND NO. 1 IS PARTLY ALLOWED IN FAVOUR OF THE ASS ESSEE. 5. NEXT GROUND OF APPEAL IS ABOUT SETTING OFF OF LOSS ES. DURING THE ASSESSMENT PROCEEDINGS AO HELD THAT THE LOSS WORKED OUT BY THE ASSESSING OFFICER AMOUNTING TO RS.10,79,536/- CANNOT BE SET-OFF AGAINST INTEREST I NCOME OF RS.7,43,306/-. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA, BUT HE UPHELD T HE ORDER OF THE AO. BEFORE US, AR SUBMITTED THAT THE ASSESSEE WAS ENTITLED TO SET OFF OF LOSSES, THAT AO AND FAA HAD WRONGLY DENIED THE BENEFIT OF SETTING OFF OF LOSSES . DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 5.1. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN THE CASE U NDER CONSIDERATION, ASSESSEE WANT SET-OFF OF PARTICULAR INCOME AGAINST LOSS. SE TTING-OFF OF LOSSES IS COVERED BY THE PROVISIONS OF CHAPTER-VI (SEC.70 TO 79). PRINCIPLE OF MUTUALITY AND SET-OFF OF LOSSES OPERATE IN TWO ENTIRELY DIFFERENT AND SEPARATE FIEL DS. IN OUR OPINION ISSUE OF ADJUSTMENT OF EXEMPT INCOME/LOSS AGAINST THE INCOME FROM OTHER SOURCES IS COVERED AGAINST THE ASSESSEE BY THE JUDGMENT DELIVERED BY T HE HONBLE MADRAS HIGH COURT IN THE CASE OF S.S. THIAGARAJAN (SUPRA). WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE SAID JUDGMENT: THE PROVISIONS OF SS.70 AND 71 RELATING TO SET OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER CONTEMPLATE LOSS FROM A SOURCE, THE INCOME FROM WHICH IS LIABLE TO TAX. IF INCOME FROM A SOURCE IS ALTOGETHER EXEMPT FROM TAX, LOSS F ROM THAT SOURCE CANNOT BE SET OFF AGAINST INCOME FROM A DIFFERENT SOURCE OR INCOME UNDER A DI FFERENT HEAD. SINCE THE INCOME IS NOT TAXABLE THE LOSS INCURRED IN SUCH ACTIVITY ALSO COU LD NOT BE SET OFF AGAINST INCOME FROM OTHER HEADS OF INCOME. RESPECTFULLY FOLLOWING THE ABOVE DECISION, GROUND N O.2 IS DECIDED AGAINST THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH NOVEMBER, 2012 SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& /ACCOUNTANT MEMBER /MUMBAI, 2% / DATE 16 TH NOVEMBER, 2012 I.TA. NO. 2672/MUM/2011 M/S. BOMBAY MUDIBAZAR KARIANA MERCHANTS ASSN 4 TNMM %!1 %!1 %!1 %!1 - -- - ).3 ).3 ).3 ).3 4!30. 4!30. 4!30. 4!30. / COPY OF THE ORDER FORWARDED TO : 1. APP ELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE *3. ). //TRUE COPY// %!1 %!1 %!1 %!1 / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI