India Habitat Centre, New Delhi V. Director of Income Tax (Exeptions), New Delhi

ITA 3017/DEL/2014

• Counselvise Citation: 301720114 RSA 2014
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S GILL
• Assessee Lawyers: SURESH ANANTHRAMAN
• Keywords: Depreciation; Opportunity of being heard; Audit objection
• Section: 143(3); 12A; 263

Judgement Text

ITA NO. 3017/ DEL/ 2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER I.T.A. N O.3017/DEL/2014 A.Y. : 2009 - 10 INDIA HABITAT CENTRE, LODI ROAD, NEW DELHI - 110003 (PAN : AAATI0499M) VS. DIRECTOR OF INCOME TAX (EXEMPTIONS), PRATYAKASH KAR BHAVAN, E - 2, BLOCK, 26 TH FLOOR, DR. SHYAMA PRASAD MUKHERJEEMARG, CIVIC CENTRE, JAWAHARLAL NEHRU MARG, NEW DELHI 110 002 (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. SURESH ANANTHRAMAN, CA DEPARTMENT BY : SH. R.S. GILL, CIT(DR) DATE OF HEARING : 27 - 01 - 201 5 DATE OF ORDER : 12 - 02 - 201 5 ORDER PER H.S. SIDHU : J M TH IS APPEAL BY THE ASSESSE IS DIRECTED AGAINST THE ORDER OF THE LD. DIRECTOR OF INCOME TAX (EXEMPTIONS) , NEW DELHI DATED 28 .3.201 4 PASSED U/S. 263 OF THE I.T. ACT P ERTAINING TO ASSESSMENT YEAR 2009 - 10 ON THE FOLLOWING GROUNDS: - 1. THE ORDER PASSED U/S 263 OF THE ACT IS WITHOUT JURISDICTION. 2. THE REVISIONAL ORDER HOLDING THAT THE ORDER DATED 13.12.2011 PASSED U/S 143(3) OF THE ACT IS ITA NO. 3017/ DEL/ 2014 2 ERRONEOUS IN AS MUCH AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE, IS PERVERSE AND OPPOSED TO EVIDENCES ON RECORD. 3. THE ASSESSING OFFICER IN THE REGU LAR ASSESSMENT HAVING THOROUGHLY EXAMINED THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY TO THE APPELLANT, THE REVISIONAL ORDER HOLDING THE SAME TO BE ERRONEOUS AND NOT BASED ON APPLICATION OF MIND BY THE ASSESSING OFFICER IS ENTIRELY WRONG. 4. THE COMMI SSIONER OF INCOME - TAX (APPEALS) IN THE APPELLATE PROCEEDINGS IN RESPECT TO THE ASSESSMENT ORDER U/S 143(3) OF THE ACT, HAVING HELD THAT THE PRINCIPLE OF MUTUALITY IS APPLICABLE TO THE APPELLANT, THE REVISIONAL ORDER PASSED U/S 263 OF THE ACT IS WITHOUT JUR ISDICTION AND IS OUTSIDE THE MANDATES OF THE PROVISIONS OF SECTION 263 OF THE ACT. 5. THE FINDINGS OF DIRECTOR OF INCOME TAX (EXEMPTIONS) THAT THE APPELLANT 'DOES NOT PASS THE TEST OF MUTUALITY DUE TO THIS SPECIFIC ARRANGEMENT OF OWNERSHIP AND DISSOLUTION CLUB' WILL ONLY AMOUNT TO SUBSTITUTION OF VIEWS/OPINION OF COMMISSIONER. 6. IT IS CONTENDED THAT THE SUM OF RS.1,06,10,312/ - IS SQUARELY EXEMPT ON ACCOUNT OF PRINCIPLE OF MUTUALITY. YOUR APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR WITHDRAW ANY OF T HE GROUNDS OF APPEAL AT THE TIME OF HEARING. ITA NO. 3017/ DEL/ 2014 3 2. THE FACTS RELATING TO ISSUE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME AS NIL ON 30.9.2009. THE CASE OF THE ASSESEE WAS SELECTED FOR SCRUTINY, NOTICE U/S. 143(2)/142(1) WERE ISSUED. IN RESPONSE TO THE SAME AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED AND FILED THE DETAILS OF RECORD AS REQUIRED BY THE AO FROM TIME TO TIME. IN THE ORIGINAL ASSESSMENT DATED 13.12.2011 PASSED U/S. 143(3) OF THE I.T. ACT, THE AO HAS STATED THAT THE ASSESSEE SOCIETY IS REGISTERED UNDER SECTION 12A OF THE INCOME TAX ACT, 1961 DATED 13.1.2009 AND SHE HAS ALSO PRODUCED THE AIMS AND OBJECTS OF THE ASSESSEE - SOCIETY IN HER ASSESSMENT ORDER DATED 13.12.2011. AFTER CONSIDERING ALL EVIDENCES PRODUCED BY THE ASSESSEE AS REQUIRED BY HER, SHE COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. ACT ON 13.12.2011 BY MAKING THE AD DITION OF RS. 44,40,871/ - I.E. INCOME FROM OTHER SOURCES ON ACCOUNT OF BANK INTEREST BY HOLDING THAT THIS AMOUNT NOT BEING COVERED UNDER THE PRINCIPLE OF MUTUALITY , SUBJECT TO THE TAX UNDER THE NORMAL PROVISIONS OF THE I.T. ACT. THE ITAT HAS PASSED THE SAID ORDER BY FOLLOWING THE ORDER OF THE HON BLE JURISDICTIONAL HIGH COURT PASSED IN THE CASE OF CIT VS. DELHI GYMKHANA CLUB REPORTED IN 339 ITR 525 (DEL). HON BLE DELHI HIGH COURT HAS HELD THAT INTEREST INCOME WILL GET PROTECTION OF MUTUALITY. 3. AGGR IEVED BY THE ORDER DATED 13.12.2011 PASSED BY THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY WHO VIDE IMPUGNED ORDER DATED 14.5.2012 DELETED THE ADDITION OF RS. 44,40,871/ - BY FOLLOWING THE DECISION OF ITAT, DELHI BENCH, DATED 17.2.2012 IN ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2008 - 09 BY HOLDING THAT THE INTEREST INCOME WILL ALSO BE GOVERNED BY PRINCIPLE OF MUTUALITY AND THE SAME WILL BE CHARGEABLE TO TAX. ITA NO. 3017/ DEL/ 2014 4 4. LD. DIRECTOR OF INCOME TAX (EXEMPTION), NEW DELHI VIDE HIS ORDER DATED 28.3.2014 PASSED U/S. 263 OF THE I.T. ACT EXAMINED THE RECORDS OF THE ASSTT. YEAR 2009 - 10 AND NOTICED THAT IN THE BALANCE SHEET, FIXED ASSETS HAD BEEN CLASSIFIED UNDER TWO HEAD ONE UNDER THE HEAD OF IHC BUILDING COMPLEX AND O THER ASSETS (SCHEDULE - 3) AT RS. 1,08,86,77,573/ - AND ANOTHER UNDER THE HEAD OF FIXED ASSETS (SCHEDULE - 4) AT RS. 28,04,914/ - . THE FORMER ASSETS DO NOT BELONG TO THE CENTRE INSTEAD THESE BELONG TO VARIOUS CORPORATE MEMBERS IN PROPORTION. THESE ASSETS ARE S HOWN IN THE BALANCE SHEET OF THEIR OWNER ASSESSES AND DEPRECIATION ARE CHARGED BY INDIVIDUAL OWNER IN THEIR BOOKS OF ACCOUNTS. EVEN SURPLUS ARISING IN THE INCOME & EXPENDITURE ACCOUNT OF THE CENTRE ARE TAKEN TO THE IHC BUILDING COMPLEX AND OTHER ASSETS HE AD. LD. DIT(E) OBSERVED THAT LESS THAN ONE PERCENT OF FIXED ASSETS ARE POSSESSED BY THE CENTRE. AND, IF ANY MUTUALITY IS CLAIMED BY THE ASSESSEE IN RESPECT OF INCOME OF THE TRUST, IT CAN BE CLAIMED BY THE ASSESSEE IN RESPECT OF INCOME OF THE TRUST AND IT CAN BE CLAIMED ONLY IN THAT RATIO. 4 .1 SHE FURTHER NOTICED THAT AS PER LAND ALLOTMENT LETTER OF MINISTRY OF URBAN DEVELOPMENT, IN THE EVENT OF DISSOLUTION THE LAND ALLOTTED AND THE ASSETS CREATED THEREON WILL BE TRANSFERRED TO AN INSTITUTION HAVING THE SIMILAR AIMS AND OBJECTS WITH THE PRIOR APPROVAL OF THE GOVERNMENT AND FAILING THAT TO GOVT. ON PAYMENT N COMPENSATION DETERMINED BY LESSOR IN ITS ABSOLUTE DISCRETION. SHE STATED THAT THE ASSESSEE DOES NOT HAVE THE CONTROL OF THE ASSETS OF SOCIETY IN THE CASE OF ITS DISSOLUTION. SUCH SOCIETY CANNOT BE TREATED AS MUTUAL SO CIETY. 4 .2 LASTLY SHE HELD THAT AO GAVE THE BENEFIT OF MUTUALITY TO THE ASSESSEE AND CHARGED ONLY INTEREST INCOME INSTEAD OF TAXING THE WHOLE EXCESS OF INCOME OVER EXPENDITURE AND THIS MISTAKE RESULTED IN UNDER ASSESSMENT OF INCOME OF RS. 1,06,10,312/ - . ITA NO. 3017/ DEL/ 2014 5 4 .3 LD. DIT(E) ISSUED NOTICE U/S. 263 OF THE I.T. ACT TO THE ASSESSEE ON 21.2.2014 REQUIRING TO SHOW CAUSE AS TO WHY THE ASSESSMENT ORDER SHOULD NOT BE SET ASIDE TO BE MADE AFRESH. IN RESPONSE TO THE SAME, AUTHORISED REPRESENTATIVE OF THE ASSESSEE A PPEARED ON 10.3.2014 AND FILED REPLY. LD. DIT(E) A FTER GOING THROUGH THE FACTS OF THE CASE AND SUBMISSIONS OF THE ASSESSES AND FOUND THAT AS PER LETTER OF MINISTRY OF URBAN DEVELOPMENT, THE ASSESSEE DOES NOT HAVE CONTROL OVER THE ASSETS OF THE SOCIETY. THE ONLY DEFENCE THE ASSESSEE HAS IN HIS SUPPORT IS THAT THE OWNERSHIP OF ASSETS AND DISSOLUTION CLAUSE IS AS PER THE SCHEME OF THE GOVERNMENT VIDE WHICH THE CENTRE WAS CREATED AND WAS ALLOTTED LAND. LD. DIT(E) OBSERVED THAT THIS DEFENCE DOES NOT HELP T HE ASSESSEE AS THE ASSESSEE DOES NOT PASS THE TEST OF MUTUALITY DUE TO THIS TYPICAL ARRANGEMENT OF OWNERSHIP AND DISSOLUTION CLAUSE. HE FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS NOT ADDRESSED THIS ISSUE WHILE PASSING THE ASSESSMENT ORDER. NON - APPLICA TION OF MIND TO THE FACTS OF THE CASE MAKES THE ORDER ERRONEOUS AND IS PREJUDICIAL AS INCOME OF RS 1,06,10,312/ - HAS BEEN HELD TO BE EXEMPT ON ACCOUNT OF PRINCIPLE OF MUTUALITY WITHOUT PROPER EXAMINATION OF FACTS AND POSITION OF LAW. FINALLY SHE HELD THAT THE ORDER PASSED BY THE AO HELD TO BE IS ERRONEOUS IN AS MUCH AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE AND SET ASIDE THE ASSESSMENT ORDER WITH THE DIRECTIONS TO THE AO TO EXAMINE THE ISSUE AFTER CONSIDERING THE MEMORANDUM OF ASSOCIATION AND DISS OLUTION CLAUSE AND FURTHER DIRECTED THAT THE AO SHALL FRAME THE ASSESSMENT ORDER AFTER CALLING AND EXPLAINING NECESSARY DETAILS/ EVIDENCES AND AFTER GIVING THE ASSESSEE DUE OPPORTUNITY OF BEING HEARD VIDE IMPUGNED ORDER DATED 28.3.2014 PASSED UNDER SECTION 263 OF THE I.T. ACT. ITA NO. 3017/ DEL/ 2014 6 5 . AGAINST THE ABOVE ORDER OF THE LD. DIT(E) DATED 28.3.2014 PASSED U/S. 263 OF THE I.T. ACT, THE ASSESSEE APPEALED BEFORE THE TRIBUNAL. 6 . LD. COUNSEL OF THE ASSESSEE FIRSTLY ARGUED THAT ASSESSMENT ORDER IS NOT ERRONEOUS. HE DRAW OUR ATTENTION TOWARDS THE PAPER BOOK - 1 PAGES 1 TO 26 AND STATED THAT THE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE ASSTT. YEAR 2009 - 10 DISCLOSING ALL THE MA TERIAL ALONGWITH THE RELEVANT INFORMATION AS WELL AS THE STATEMENT OF ACCOUNT OF ASSESSABLE INCOME IN THE ASSTT. YEAR IN DISPUTE WHICH IS AT PAGES 25 TO 26 OF THE PAPER BOOK - 1. HE STATED THAT ASSESEE HAS STATED THAT IN ITS STATEMENT THAT MEMBERSHIP APPL ICATION, PROCESS FEE MONEY ON SALE OF APPLICATION FORM AND ANNUAL SUBSCRIPTION FROM MEMBERS ARE NOT INCOME ON THE PRINCIPLE OF MUTUALITY AND THE MISC. RECEIPTS FROM HLRC ARE ALSO GOVERNMENT BY THE PRINCIPLE OF MUTUALITY . THEREFORE, THE SURPLUS ARISING IN SUCH CIRCUMSTANCES, IS NOT THE INCOME AND IS NOT INCLUDIBLE IN THE TOTAL INCOME UNDER THE PRINCIPLE OF MUTUALITY . IN SUPPORT OF HIS CONTENTION, THE ASSESSEE HAS ALSO MENTIONED SOME DECISIONS OF HON BLE SUPREME COURT IN THE CASE OF CHELMSFORD CLUB V S. CIT (243 ITR 89) [SC] AND CIT VS. BANKIPUR CLUB LTD. 226 ITR 97 (SC). HE ALSO DRAW OUR ATTENTION TOWARD THE PAPER BOOK - 1 PAGES 80 - 85 I.E. THE ORDER SHEET OF THE ASSESSMENT PROCEEDINGS AND DRAW OUR ATTENTION SPECIALLY THE PAGES 83 - 85 AND STATED THAT T HE AO HAS ASKED THE ASSESSEE S COUNSEL ABOUT THE APPLICABILITY OF PRINCIPLE OF MUTUALITY AND THE ASSESSEE S COUNSEL REQUESTED FOR MORE TIME TO ANSWER THE QUERY RAISED BY THE AO VIDE ORDER SHEET ENTRY DATED 20.10.2011 AND THE AO ADJOURNED THE MATTER FOR 1 .11.2011 AND ON FURTHER VARIOUS DATES AND LASTLY AFTER CONSIDERING THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE, THE AO HAS DISCUSSED THE CLAIM OF MUTUALITY IN THE ASSESSMENT PROCEEDINGS VIDE IT ORDER ITA NO. 3017/ DEL/ 2014 7 SHEET ENTRY DATED 8.12.2011 WHICH IS AT PAGES 8 5 OF THE PAPER BOOK - 1 AND FINALLY PASSED THE ORDER U/S. 143(3) ON 13.12.2011 ACCEPTING THE CLAIM OF PRINCIPLE OF MUTUALITY . HE ARGUED THAT THE AO HAS EXAMINED THE ISSUE OF PRINCIPLE OF MUTUALITY , AFTER CALLING THE DETAILS AND WRITTEN SUBMISSIONS FRO M THE ASSESSEE WHICH IS AT PAGES 86 - 87 AND 98 TO 100 OF THE PAPER BOOK - 1. THEREFORE, THE AO HAS CONSIDERED THE APPLICABILITY OF PRINCIPLE OF MUTUALITY IN THE ORDER UNDER SECTION 143(3) OF THE I.T. ACT AND CAN BE SEEN FROM THE PAGES 39 PARA 7 TO PAGES 43 OF THE PAPER BOOK. LD. COUNSEL OF THE ASSESSEE STATED THAT THE AO HAS THUS MADE THE DETAILED ENQUIRIES AND STATED THAT THE ASSESSMENT IS NOT ERRONEOUS AT ALL. IN SUPPORT OF HIS ARGUMENTS HE CITED THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GEEVEE ENTERPRISES VS. ADDL. CIT 99 ITR 375 (DEL) WHEREIN THE HON BLE DELHI HIGH COURT HAS ALSO TAKEN NOTE OF TWO WELL KNOWN JUDGMENTS OF SUPREME COURT IN: - RAM PIARI DEVI SAROGI VS. CIT 67 ITR 84 (SC) - TARA DEVI AGARWAL VS. CIT 88 ITR 323 (SC) 6 .1 SECONDLY, THE LD. COUNSEL OF THE ASSESSEE ARGUED THAT THE ASSESSMENT ORDER DATED 13.12.2011 PASSED U/S. 143(3) OF THE I.T. ACT AND T HE AO HAS TAXED INTEREST EARNED FROM BANK ON THE GROUND THAT THE PRINCIPLE OF MUTUALITY WILL NOT APPLY TO SUCH INCOME. THIS MATTER WAS CARRIED IN THE APPEAL TO THE CIT(A) WHO VIDE ORDER DATED 14.5.2012 ALLOWED THE APPEAL OF ASSESSEE BY RESPECTFULLY FOLLOWING THE ORDER OF HON BLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. DELHI GYMKHANA CLUB [2011] 339 IT R 525 (DEL) IN WHICH THE HON BLE HIGH COURT HAS HELD THAT INTEREST INCOME WILL ALSO GET THE PROTECTION OF MUTUALITY. H E DRAW OUR ATTENTION TOWARDS THE ORDER OF LD. CIT(A), NEW DELHI DATED 14.5.2012 PASSED IN THE ASSESSEE S OWN CASE FOR THE ASSTT. YEAR 2 009 - 10 WHICH IS PLACED AT PAGES 44 - 53 OF THE PAPER ITA NO. 3017/ DEL/ 2014 8 BOOK FILED BY THE ASSESSEE. HE STATED THAT LD. CIT(A) ORDER IS DATED 14.5.2012 AND SHOW CAUSE NOTICE ISSUED BY THE LD. DIT(E) U/S. 263 OF THE I.T. ACT IS DATED 21.2.2014 WHICH AFTERWARD IS NOT PERMISSI BLE UNDER THE LAW, BECAUSE THE DOCTRINE OF MERGER WILL APPLY AND THE IMPUGNED ORDER DATED 28.3.2014 PASSED BY THE LD. DIT(E), NEW DELHI U/S. 263 OF THE I.T. ACT IS DESERVED TO BE CANCELLED. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE DECISIONS IN TH E CIT VS. NIRMA CHEMICAL WORKS (P) LTD., 300 ITR 67 (GUJ) ; SMT. SUJATA GROVER VS. DY. CIT, 74 TTJ 347 (DEL) AND MARICO INDUSTRIES LTD. VS. ACIT, 115 TTJ 497 (BORN) . 6 .2 THIRDLY, LD. COUNSEL OF THE ASSESSEE HAS ARGUED THAT LD. DIT(E) HAS ISSUED A SHOW CAUSE NOTICE DATED 21.2.2014 U/S. 263 WHICH IS AT PAGES 54 - 56 OF THE PAPER BOOK - 1, ON THE BASIS OF THE AUDIT OBJECTION AND WITHOUT APPLICATION OF MIND WHICH IS NOT PERMISSIBLE UNDER THE LAW. HE STATED THAT LD. DIT(E) HAS WRONGLY INVOKED THE PROVISIONS OF SECTION 263 OF THE I.T. ACT. HE STATED THAT ON THIS GROUND THE IMPUGNED ORDER IS DESERVE TO BE CANCELLED. IN SUPPORT OF HIS CONTENTION, HE RELIED UPON THE RELIANCE UPON THE DECISION IN THE CASE OF SIRPUR PAPER MILLS LTD. VS. CWT, 77 ITR 6 (SC); JEEWAN L AL (1929) LTD. VS. ADDL. CIT 108ITR 407 (CAL) AND CIT VS. SOHANA WOOLLEN MILLS, 207 CTR 178 (P&H) . 6 .3 LASTLY, HE ARGUED THAT WHEN THERE ARE TWO VIEW POSSIBLE AND AO HAS TAKEN ONE OF THE POSSIBLE VIEWS, THEN THE PROVISIONS OF SECTION 263 OF THE ACT WILL N OT APPLY. HE ALSO DRAW OUR ATTENTION TOWARDS THE VARIOUS COMMUNICATIONS BETWEEN THE AO AND THE AUDIT PARTY AND THE LD. DIT(E) WITH REGARD TO APPLICABILITY OF PRINCIPLE OF MUTUALITY . THESE ARE PLACED AT PAGES 101 TO 111 OF THE ASSESSEE S PAPER BOOK - 1. ITA NO. 3017/ DEL/ 2014 9 6 .4 THE AUDIT OFFICER RAISED THE OBJECTION ON 2.5.2012 ON THE BENEFIT OF MUTUALITY TO THE ASSESSEE AND CHARGING ONLY INTEREST INCOME INSTEAD OF TAXING THE WHOLE INCOME AND IN RESPONSE TO THE AUDIT OBJECTION , T HE AO VIDE HIS REPLY DATED 18.12.2012 TO THE SR. AUDIT OFFICER REGARDING THE PRINCIPLE OF MUTUALITY AND SUPPORTED THE ASSESSMENT ORDER DATED 13.12.2011 BY STATING THAT ALL RECEIVED OF MONEY FROM MEMBERS SHOULD GO FOR THE MAINTENANCE OF SUPER - STRUCTURE, THE SURPLUS ARISING AFTER MEETING THE ADMINIS TRATIVE EXPENSES HAS NATURALLY BE TRANSFERRED TO THE ACCOUNT OF THE INSTITUTION MEMBERS, BECAUSE IT BELONGS TO THE MEMBERS. HE FURTHER REPLIED THAT IT IS THE INSTITUTION MEMBERS WHO HAD CONTRIBUTED TOWARDS THE COST OF THE ASSESSEE OR ANY SERVICE OR SOM E TIME DEFICIT WILL ALSO BE TO THE ACCOUNT OF THE MEMBERS. THIS IS A SETTLED PRINCIPLE BEHIND THE MUTUALITY CONCEPT AND LASTLY DY. DIT(E) CIRCLE - 1, NEW DELHI VIDE HIS REPLY DATED 10.1.2014 TO THE DIRECTOR OF INCOME TAX (E), DELHI. HE HAS ALSO STATED TH AT THE RECEIPT AUDIT HAS NOT ACCEPTED THE REPLY SENT BY THIS OFFICE REGARDING DROPPING OF THE AUDIT OBJECTIONS, FURTHER ACTION IS REQUIRED TO BE TAKEN, ALTHOUGH WE DO NOT AGREE WITH THE OBJECTION RAISED BY THE REVENUE AUDIT PARTY, IN VIEW OF LEGAL A S WELL AS FACTUAL POSITION OF THE CASE. SINCE THE AUDIT OBJECTION PERTAINS TO ASSTT. YEAR 2009 - 10 AND THE SAME WAS COMPLETED IN THE F.Y. ENDING 31.3.2012, THE MOST APPROPRIATED ACTION IN OUR OPINION IS TO REOPEN THE CASE UNDER SECTION 263. SINCE THE OR DER PASSED BY THE AO DATED 13.12.2011 IS PREJUDICIAL TO THE INTEREST OF INTEREST AND IT APPEARED TO BE FIT CASE TO BE TAKEN ACTION UNDER SECTION 263 OF THE I.T. ACT FOR WHICH LIMITATION EXPIRES ON 31.3.2014. 6 .5 ON THE SAID OBSERVATION S , LD. COUNSEL OF THE ASSESSEE STATED THAT THERE ARE TWO VIEWS POSSIBLE IN THE DEPARTMENT ITSELF ON THE ISSUE IN DISPUTE AND AO HAS TAKEN ONE OF THE POSSIBLE VIEW, THEN THE ITA NO. 3017/ DEL/ 2014 10 PROVISION OF SECTION 263 OF THE I.T. ACT WILL NOT APPLY. IN SUPPORT OF HIS CONTENTION, HE CITED THE JUDGMENTS IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT, 243 ITR 83 (SC ) AND CIT VS. MAX INDIA LTD. 295 ITR 28 (SC) . 6 .6 LASTLY, HE STATED THAT KEEPING IN VIEW OF THE WRITTEN SUBMISSIONS AS WELL AS THE DOCUMENTARY EVIDENCE FILED BY HIM, THE IMPUGN ED ORDER MAY BE CANCELLED AND THE APPEAL FILED BY THE ASSESEE MAY BE ALLOWED. 7 . SHRI RS GILL, CIT(DR) APPEARED FOR THE DEPARTMENT AND RELIED UPON THE ORDER PASSED BY THE LD. DIT(E) DATED 28.3.2014 PASSED UNDER SECTION 263 OF THE I.T. ACT. 8 . WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDER PASSED BY THE REVENUE AUTHORITY ALONGWITH THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE S COUNSEL AS WELL AS THE PROVISIONS OF LAW REFERRED BY THE REVENUE AUTHORITY AND THE LD. COUNSEL OF THE ASSESSEE. LD. COUNSEL FOR THE ASSESSEE HAS ARGUED THREE ISSUES TO NULLIFY THE IMPUGNED ORDER. HE STATED THAT THE ORDER PASSED BY THE AO IS NOT ERRONEOUS AT ALL, BECAUSE THE AO HAS CONSIDERED THE APPLICABILITY OF PRINCIPLE OF MUTUALITY IN HIS ORDER DATED 13.12.2011 PASSED UNDER SECTION 143(3) OF THE I.T. ACT. WE HAVE ALSO PERUSED THE PAGES 39 TO 43 OF THE PAPER BOOK - 1 ESPECIALLY THE PARA 7 OF THE ASSESSMENT ORDER AS WELL AS THE DETAILED SUBMISSIONS FILED BY THE AO DURING THE ASSESSMENT PROCEEDINGS WITH REGARD TO APPLICABILITY OF PRINCIPLE OF MUTUALITY WHICH IS PLACED AT PAGES 86 - 97 AND 98 - 100 OF THE PAPER BOOK. LD. COUNSEL OF THE ASSESSEE ALSO SUBMITTED BEFORE US THE NOTING OF THE AO WRITTEN IN THE ASSESSME NT PROCEEDINGS WHICH IS PLACED AT PAGES 81 TO 85 OF THE PAPER BOOK MORE PARTICULARLY AT PAGES 83 TO 85 AS WELL AS THE RETURN FILED BY THE ASSESSEE ALONGWITH ITA NO. 3017/ DEL/ 2014 11 THE STATEMENT OF ACCOUNT WHICH THE ASSESSEE HAS ENCLOSED AT PAGES 1 TO 26 OF THE PAPER BOOK AND M ORE PARTICULARLY PAGES 25 TO 26 OF THE PAPER BOOK. AFTER THOROUGHLY EXAMINED THE AFORESAID DOCUMENTARY EVIDENCE PRODUCED BY THE ASSESSEE IN THE SHAPE OF PAPER BOOK BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE ARGUMENTS ADVANCED BY THE LD. COUNSEL OF THE ASSESSEE IS VERY MUCH PLAUSIBLE AND CONVINCING, BECAUSE THE CLAIM OF THE ASSESSEE REGARDING THE APPLICABILITY OF PRINCIPLE OF MUTUALITY IN ITS RETURN OF INCOME HAS BEEN FILED BY THE ASSESSEE ALONGWITH THE RETURN OF STATEMENT OF ACCOUNT, MEANING TH EREBY THE ASSESSEE HAS CLAIMED THE APPLICABILITY OF PRINCIPLE OF MUTUALITY IN ITS RETURN OF INCOME. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS HAS ALSO DIRECTED THE ASSESSEE TO EXPLAIN THE APPLICABILITY OF PRINCIPLE OF MUTUALITY WHICH WE CAN SEE AT THE ASSESSMENT PROCEEDINGS NOTING AT PAGE 81 TO 85 OF THE PAPER BOOK MEANING THEREBY THE ISSUE OF PRINCIPLE OF MUTUALITY HAS BEEN DISCUSSED IN DETAIL BY THE AO WITH THE ASSESSEE AND THE ASSESSEE HAS ALSO FILED ITS DETAILS BEFORE THE AO IN THE A SSESSMENT PROCEEDINGS WITH REGARD TO THE APPLICABILITY OF PRINCIPLE OF MUTUALITY WHICH WE CAN SAY THAT AT PAGES 86 TO 97 AND 98 TO 100 OF THE PAPER BOOK FILED BY THE ASSESSEE. AFTER PERUSING THE ASSESSMENT ORDER DATED 13.12.2011 PASSED U/S. 143(3) OF THE I.T. ACT. WE HAVE SEEN THAT AO HAS CONSIDERED THE APPLICABILITY OF PRINCIPLE OF MUTUALITY IN THE ASSESSMENT ORDER AS CAN BE SEEN FROM THE PAGES 39 TO 43 OF THE PAPER BOOK ESPECIALLY THE PARA 7 OF THE ASSESSMENT ORDER. 8 .1 KEEPING IN VIEW OF THE AF ORESAID DISCUSSION ALONGWITH THE DOCUMENTARY EVIDENCE FILED BY THE ASSESSEE AS DISCUSSED ABOVE IN THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE AND THE ASSESSMENT ORDER ALONGWITH THE IMPUGNED ORDER, WE ARE OF THE VIEW THAT THE AO HAS MADE THE DETAILED ENQUIRIES ON THE ISSUE OF ITA NO. 3017/ DEL/ 2014 12 PRINCIPLE OF MUTUALITY AND PASSED THE ORDER DATED 13.12.2011 U/S. 143(3) OF THE I.T. ACT. THEREFORE, THE ASSESSMENT ORDER DATED 13.12.2011 PASSED U/S. 143(3) IS NOT ERRONEOUS AT ALL AND THE LD. DIT(E) HAS PASSED THE IMPUGNED OR DER DATED 28.3.2014 CONTRARY TO THE LAW AND FACTS ON RECORD, WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW. OUR VIEW IS SUPPORTED BY THE GEEVEE ENTERPRISES VS. ADDL. CIT 99 ITR 375 (DEL);RAM PIARI DEVI SAROGI VS. CIT 67 ITR 84 (SC) AND TARA DEVI AGARWAL VS . CIT 88 ITR 323 (SC). 8 .2 SECONDLY, AS THE ARGUMENT BY THE LD. COUNSEL OF THE ASSESSEE THAT THE AO HAS PASSED THE ORDER DATED 13.12.2011 U/S. 143(3) OF THE I.T. ACT AND HAS TAXED THE INTEREST INCOME EARNED FROM THE BANK ON THE GROUND THAT THE P RINCIPLE OF MUTUALITY WILL NOT APPLY TO SUCH INCOME . A GAINST THIS ASSESSMENT ORDER THE ASSESSEE HAS FILED THE APPEAL BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 14.5.2012 DELETED THE ADDITION OF RS. 44,40,871/ - AND CANCELLED THE ASSESSMENT ORDE R BY RESPECTFULLY FOLLOWING THE ORDER OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DELHI GYMKHANA CLUB 339 ITR 525 (DEL) AND HAS HELD THAT INTEREST INCOME WILL ALSO GET THE PROTECTION OF MUTUALITY. AS ARGUED BY THE LD. COUNSEL OF THE ASSESSEE IN THE AFORESAID PARA REGARDING THE DOCTRINE OF MERGER, WE FULLY AGREE WITH THE ARGUMENTS ADVANCED BY HIM, BECAUSE THE ASSESSMENT ORDER HAS BEEN CANCELLED BY THE LD. CIT(A) VIDE HIS ORDER DATED 14.5.2012 BY RESPECTFULLY FOLLOW THE ORDER OF THE HON BLE HIGH COURT IN THE CASE OF CIT VS. GYMKHANA (SUPRA) AND THE LD. DIT(E) HAS ISSUED THE SHOW CAUSE NOTICE U/S. 263 OF THE I.T. DATED 21.2.2014 WHICH IS AFTERWARD. T HE DOCTRINE OF MERGER WILL APPLY AND THE IMPUGNED ORDER DATED 21.2.2014 IS NOT SUSTAIN ABLE IN THE EYES OF LAW. OUR VIEW IS SUPPORTED BY THE CIT VS. NIRMA CHEMICAL WORKS (P) LTD., 300 ITR 67 (GUJ); SMT. SUJATA GROVER VS. DY. CIT, 74 TTJ 347 (DEL) AND MARICO INDUSTRIES LTD. VS. ACIT, 115 TTJ 497 (BORN) . ITA NO. 3017/ DEL/ 2014 13 8 .3 THE THIRD ARGUMENT ADVANCED BY TH E LD. COUNSEL OF THE ASSESSEE IS ABOUT THE ABOUT THE AUDIT OBJECTION AND HE STATED THAT THE LD. DIT(E) HAS ISSUED THE SHOW CAUSE NOTICE TO THE ASSESSEE U/S. 263 OF THE I.T. ACT ON THE BASIS OF AUDIT OBJECTION AND WITHOUT APPLICATION OF MIND WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW. WE HAVE HEARD THE LD. COUNSEL OF THE ASSESSEE AND PERUSED THE DOCUMENTARY EVIDENCE PRODUCED BEFORE HIM ON THE ISSUE OF AUDIT OBJECTION ESPECIALLY THE PAGES 100 - 111 OF THE PAPER BOOK WHICH ARE THE VARIOUS COMMUNICATIONS WH ICH HAVE BEEN TAKEN BY THE AO AND THE AUDIT PARTY AND THE LD. DIT(E) WITH REGARD TO THE APPLICABILITY OF THE PRINCIPLE OF MUTUALITY . WE FIND THAT THE AUDIT OFFICER RAISED THE OBJECTION ON 2.5.2012 ON THE BENEFIT OF MUTUALITY TO THE ASSESSEE AND CHAR GING ONLY INTEREST INCOME INSTEAD OF TAXING THE WHOLE INCOME AND IN RESPONSE TO THE AUDIT OBJECTION , T HE AO VIDE HIS REPLY DATED 18.12.2012 TO THE SR. AUDIT OFFICER REGARDING THE PRINCIPLE OF MUTUALITY AND SUPPORTED THE ASSESSMENT ORDER DATED 13.12.2011 BY STATING THAT ALL RECEIVED OF MONEY FROM MEMBERS SHOULD GO FOR THE MAINTENANCE OF SUPER - STRUCTURE, THE SURPLUS ARISING AFTER MEETING THE ADMINISTRATIVE EXPENSES HAS NATURALLY BE TRANSFERRED TO THE ACCOUNT OF THE INSTITUTION MEMBERS, BECAUSE IT BELONGS TO THE MEMBERS. HE FURTHER REPLIED THAT IT IS THE INSTITUTION MEMBERS WHO HAD CONTRIBUTED TOWARDS THE COST OF THE ASSESSEE OR ANY SERVICE OR SOME TIME DEFICIT WILL ALSO BE TO THE ACCOUNT OF THE MEMBERS. THIS IS A SETTLED PRINCIPLE BEHIND THE MUTUALITY CONCEPT AND LASTLY DY. DIT(E) CIRCLE - 1, NEW DELHI VIDE HIS REPLY DATED 10.1.2014 TO THE DIRECTOR OF INCOME TAX (E), DELHI. THE REPLY TO THE DIT(E) ESTABLISH THAT THE REVENUE AUTHORITY ITSELF SUPPORTED THE ORDER OF THE AO DATED 13.1.22011 PASSED U/S. 143(3) OF THE I.T. ACT. IN OUR CONSIDERED OPINION, WHEN TWO VIEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE OF THE POSSIBLE VIEW, THEN THE PROVISIONS OF SECTION 263 OF THE I.T. ACT WILL NOT APPLY. THEREFORE, IN THE PRESENT CAS E THE ITA NO. 3017/ DEL/ 2014 14 SAME FACTS AND CIRCUMSTANCES ARE APPLICABLE. WE ARE OF THE VIEW THAT LD. DIT(E) HAS PASSED THE IMPUGNED ORDER BY TAKING HIS OWN VIEW WHICH IS CONTRARY TO THE VARIOUS DECISION RENDERED BY THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT 243 ITR 83 (SC) AND CIT VS. MAX INDIA LTD. 295 ITR 28 (SC). 9 . KEEPING IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTANCES AS EXPLAINED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT LD. DIT(E) PASSED THE IMPUGNED ORDER DATED 28.3.2014 CONTRARY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, AS DISCUSSED ABOVE WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW, HENCE, WE CANCEL THE ORDER DATED 28.3.2014 PASSED BY THE LD. DIT(E) U/S. 263 OF THE I.T. ACT BY ACCEPTING THE APPEAL FILED BY THE ASSESSEE. 10 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRO NOUNCED IN THE O PEN C OURT ON 12 / 2 /20 1 5 . SD/ - SD/ - [ J.S. REDDY ] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 12 / 2 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES