ITO 19(2)(4), MUMBAI V. NAV SHANTI NAGAR CHS LTD, MUMBAI

ITA 736/MUM/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101122 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 03-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISHWAS JADHAV
• Assessee Lawyers: JALPESH VORA
• Keywords: Depreciation; Unabsorbed depreciation
• Section: 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ' SMC ' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT ITA NO. 736 /MUM/2015 (ASSESSMENT YEAR S : 2005 - 06 ) INCOME TAX OFFICER - 19(2)(4) VS. M/S. NAV SHANTI NAGAR CHS LTD. 2ND FLOOR, MATRU MANDIR TARDEO ROAD, MUMBAI 400007 98, NEPEAN SEA ROAD MUMBAI 400006 PAN - AAAAN5796K APPELLANT RESPONDENT APPELLANT BY: SHRI VISHWAS JADHAV RESPONDENT BY: SHRI JALPESH VORA DATE OF HEARING: 23 .09. 2015 DATE OF PRONOUNCEMENT: 23 .0 9 .2015 O R D E R PER D. MANMOHAN, V.P. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY CIT(A) - 30, MUMBAI AND IT PERTAINS TO A.Y. 2005 - 06. 2. FOLLOWING GROUNDS WERE URGED BEFORE THE TRIBUNAL: - (1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.13,00,000/ - ON ACCOUNT OF VOLUNTARY CONTRIBUTIONS TOWARD SPECIAL REPAIR FUND HOLDING THAT CHARGING OF TRANSFER FEES HAS NO ELEMENT OF TRADING OR COMMERCIALITY AND THE SAME WAS COVERED UNDER THE CONCEPT OF MUTUALITY? (2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING TO CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION AND BUSINESS LOSS STATING THAT THE ASSESSEE HAD SHOWN INCOME FROM BUSINESS & PROFESSION IN RETURN OF INCOME? 3. FACTS NECESSARY FOR DISPOSAL OF THE APPEAL ARE AS UNDER. ASSESSEE IS A COOPERATIVE HOUSING SOCIETY. FOR THE YEAR UNDER CONSIDERATION IT HAD NOT FILED ITS RETURN OF INCOME. SINCE A COOPERATIVE SOCIETY HAS TO MANDATORILY FIL E ITS RETURN OF INCOME, THE AO INITIATED ITA NO .736 /MUM/2015 M/S. NAV SHANTI NAGAR CHS LTD. 2 PROCEEDINGS UNDER SECTION 148 OF THE ACT AND ALSO ENQUIRED , THROUGH INSPECTOR , THE STATUS OF THE COOPERATIVE SOCIETY. THE AO GATHERED INFORMATION THAT THE ASSESSEE SOCIETY WAS CARRYING OUT RENOVATION WORK AND THOUGH HUGE EXPENDITURE WAS INCURRED, IT WAS NOT ACCOUNTED IN THE BOOKS OF ACCOUNT. IN RESPONSE TO THE NOTICE ISSUED THE SOCIETY HAS SUBMITTED A RETURN OF INCOME DECLARING NIL INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE S OCIETY HAS COLLECTED TRANSFER FUNDS AND VOLUNTARY CONTRIBUTIONS TO WARDS REPAIR FUND FROM MEMBERS WHICH, ACCORDING TO THE AO, ARE NOT COVERED UNDER THE PRINCIPLES OF MUTUALITY. IN THIS REGARD HE OBSERVED THAT A SUM OF ` 1,50,000/ - WAS COLLECTED IN THE FORM O F TRANSFER FEES FROM OUTGOING MEMBERS AND ANOTHER SUM OF ` 13,00,000/ - WAS RECEIVED FROM THE OUTGOING MEMBERS IN THE FORM OF VOLUNTARY CONTRIBUTION TOWARDS REPAIR WHICH IS NOTHING BUT TRANSFER PREMIUM COLLECTED FROM THE MEMBERS ON TRANSFER OF FLATS. THE CAS E OF THE ASSESSEE WAS THAT SUCH RECEIPTS ARE COVERED BY PRINCIPLES OF MUTUALITY. THE AO OBSERVED THAT AS PER THE BYLAWS OF THE COOPERATIVE SOCIETY , ASSESSEE COULD NOT HAVE CHARGED MORE THAN ` 25,000/ - TOWARDS PREMIUM ON TRANSFER OF FLATS. FURTHER , THE PREMI UM WAS PAYABLE BY OUTGOING MEMBERS ONLY. THE BYLAWS SPECIFICALLY LAID DOWN THAT NO ADDITIONAL AMOUNT SHALL BE RECOVERED FROM THE TRANSFEROR OR TRANSFEREE. HE ALSO OBSERVED THAT THE TRANSFER PREMIUM MAY BE TERMED AS CONTRIBUTION TOWAR DS BUILDING FUNDS, REPA IR FUNDS , ETC. BUT THE NOMENCLATURE OF THE RECEIPT CANNOT HIDE THE SUBSTANCE OF THE TRANSACTION SINCE THE SOCIETY COLLECTED MORE THAN ` 25,000/ - TOWARDS TRANSFER PREMIUM IN VIOLATION OF THE BYLAWS OF THE COOPERATIVE SOCIETY , WHICH IS COVERED UNDER PRINCIPLE S OF MUTUALITY AND THEREFORE BROUGHT TO TAX A SUM OF ` 13,00,000/ - . HE ALSO OBSERVED THAT THE ASSESSEE HAD GIVEN A NOTE B E LOW THE COMPUTATION OF INCOME THAT CURRENT YEAR DEPRECIATION OF ` 11,40,199/ - TO BE CARR IED FORWARD TO SUBSEQUENT YEAR WHEREAS BY VIRTUE OF THE PROVISION OF SECTION 32(1) OF THE ACT DEPRECIATION IS ADMISSIBLE ONLY WHERE THE ASSETS ARE OWNED AND USED ITA NO .736 /MUM/2015 M/S. NAV SHANTI NAGAR CHS LTD. 3 FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN THE PRESENT CASE CHARGES COLLECTED BY THE SOCIETY FROM ITS MEMBERS AND EXPENSES INCURRED ARE COVERE D UN DER PRINCIPLES OF MUTUALITY AND THE ASSESSEE SOCIETY IS NOT DOING ANY BUSINESS ACTIVITY. THEREFORE THE ASSESSEE IS NOT ENTITLED TO CARRY FORWARD AND SET OFF OF UNABSORBED DEPRECIATION. 4. AO ALSO NOTICED THAT THE ASSESSEE SOCIETY DEBITED VARIOUS EXPENDITU RES RELATING TO CLEANING CHARGES. ASSESSEE SOCIETY WAS ASKED TO SUBMIT COGENT DOCUMENTARY EVIDENCE TO SUBSTANTIATE THE CLAIM. ON PERUSAL OF THE RELEVANT DETAILS THE AO OBSERVED THAT THE EXPENDITURE SHOWN UNDER HEAD S CLEANING CHARGES, REPAIRS , MAINTENANCE, ETC. ARE NOT FULLY SUPPORTED BY GENUINE THIRD PARTY BILLS AS NUMBER OF VOUCHERS WERE SELF MADE. HE THEREFORE PROPOSED TO DISALLOW 10% OF THE EXPENDITURE WHICH WORKS OUT TO ` 13,659/ - AND TREATED IT AS INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THAT THE ASSESSEE CARRIED OUT RENOVATION WORK WHICH WAS REFLECTED IN THE INCOME & EXPENDITURE ACCOUNT. THE AMOUNT RECEIVED FOR RENOVATION WORK WAS TREATED AS INCOME , BASED ON A REPORT OF THE INSPECTOR, WHICH WAS NOT PUT TO THE ASSESSEE TH EREBY DENYING THE OPPORTUNITY TO REBUT THE CONTENTIONS OF THE REPORT. IT WAS FURTHER CONTENDED THAT THE AO ERRED IN CONSIDERING THE VOLUNTARY CONTRIBUTIONS MADE BY THE MEMBERS AS TRANSFER PREMIUM AND THUS RAISING A DEMAND BY BRINING TO TAX THESE CONTRIBUTI ONS ON THE GROUND THAT THE BYELAWS HAVE BEEN VIOLATED , OVERLOOKING THE FACT THAT THE AMOUNT RECEIVED WAS COVERED UNDER PRINCIPLES OF MUTUALITY. THE TRANSFER FEES AND VOLUNTARY CONTRIBUTIONS ARE TWO DIFFERENT COLLECTIONS AND HENCE REPAIR CHARGES CANNOT BE C ONSIDERED AS TRANSFER PREMIUM. 6. WITH REGARD TO THE EXPENDITURE DEBITED UNDER VARIOUS HEADS SUCH AS CLEANING CHARGES, LIF T REPAIR, MAINTENANCE, ETC. IT WAS CONTENDED THAT THE BILLS AND VOUCHERS FURNISHED BEFORE THE AO WERE COUNTERSIGNED BY THIRD PARTIES AND THERE FORE THERE WAS NO NEED TO ITA NO .736 /MUM/2015 M/S. NAV SHANTI NAGAR CHS LTD. 4 DISALLOW 10% ON ADHOC BASIS. IT WAS ALSO SUBMITTED THAT THE AO ERRED IN CONCLUDING THAT THE SOCIETY IS NOT ENTITLED TO CARRY FORWARD AND SET OFF THE UNABSORBED DEPRECIATION BY STATING THAT THE SOCIETY DID NOT CARRY ON ANY BUSINESS ACTIVITY , OVERLOOKING THE FACT THAT RUNNING A SOCIETY IS A BUSINESS AND HENCE THE ASSESSEE SOCIETY IS ENTITLED TO CARRY FORWARD AND SET OFF UNABSORBED DEPRECIATION. 7. THE LEARNED CIT(A) OBSERVED THAT THE VOLUNTARY CONTRIBUTIONS TOWARDS SPECIAL REPAIR FUNDS MADE BY THE OUTGOING MEMBERS HAD NO ELEMENT OF TRADING OR COMMERCIALITY AND HENCE IT IS COVERED BY PRINCIPLES OF MUTUALITY IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SIND CO - OPERATIVE HOUSING SOCIETY 317 ITR 47 AS WELL AS THE DECISION OF THE ITAT MUMBAI BENCHES IN THE CASE OF M/S. SOMERSET PLACE CO - OPERATIVE HOUSING SOCIETY (IT NO. 5986/MUM/2011 DATED 11.01.2013). HE ALSO OBSERVED THAT THE FACTS OF ASSESSEE S CASE ARE IN PARI MATERIA WITH THE FACTS IN THE ABOVE TWO DECISION S AND THEREFORE BY FOLLOWING THE AFORECITED DECISIONS THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN OTHER WORDS, THE LEARNED CIT(A) HELD THAT THE AMOUNT OF ` 13,00,000/ - RECEIVED BY THE SOCIETY FROM THE OUTGOING MEMBERS IS COVERED BY PRINCIPLES OF MUT UALITY AND IT IS NOT IN VIOLATION OF THE CONDITIONS SET OUT IN THE BYELAWS. AS REGARDS DISALLOWANCE OF 10% EXPENDITURE ON ADHOC BASIS THE LEARNED CIT(A) OBSERVED THAT THE AO WAS JUSTIFIED IN MAKING THE DISALLOWANCE SINCE THE BURDEN IS UPON THE ASSESSEE TO PROVE THAT THE EXPENDITURE WAS ACTUALLY INCURRED. IT MAY BE NOTICED THAT THE ASSESSEE HAS NOT PREFERRED ANY CROSS APPEAL IN THIS REGARD PRESUMABLY ON ACCOUNT SMALLNESS OF THE AMOUNT. 8. WITH REGARD TO THE DECISION RENDERED BY THE AO AS REGARDS NON ENTITLEMEN T TO CARRY FORWARD AND SET OFF UNABSORBED DEPRECIATION THE LEARNED CIT(A) OBSERVED AS UNDER: - 2.4.16 GROUND NO. 4 IS AGAINST THE ACTION OF THE LD. AO IN CONCLUDING THAT THE APPELLANT WAS NOT ENTITLED TO CARRY FORWARD AND SET OFF UNABSORBED DEPRECIATION B Y STATING THAT THE ITA NO .736 /MUM/2015 M/S. NAV SHANTI NAGAR CHS LTD. 5 APPELLANT DID NOT CARRY OUT ANY BUSINESS ACTIVITIES. ON PERUSAL OF THE COPIES OF RETURNS OF INCOME, IT IS SEEN THAT ALL ALONG THE APPELLANT SOCIETY HAS BEEN SHOWING INCOME UNDER THE HEAD BUSINESS AND PROFESSION AND, THEREFORE, IT WAS E NTITLED TO CARRY FORWARD AND SET OFF UNABSORBED DEPRECIATION AS PER THE PROVISIONS OF LAW. HOWEVER, AS THE LD. AO HAS NOT APPLIED HIS MIND TO THE FACTS OF THE CASE, HE IS DIRECTED TO DO SO NOW AND ALLOW APPROPRIATE RELIEF ON THE BASIS OF THE FINDINGS ABOVE . ACCORDINGLY, FOR STATISTICAL PURPOSES, THIS GROUND OF APPEAL IS PARTLY ALLOWED . 9. AGGRIEVED BY THE ORDER OF THE CIT(A) , REVENUE CHALLENGED THE DECISION ON ADDITION OF ` 13,00,000/ - AND ALSO THE INSTRUCTION WITH REGARD TO SET OFF OF UNABSORBED DEPRECIATION. 10. AS REGARD THE FIRST GROUND IT MAY BE NOTICED THAT THE LEARNED CIT(A) OBSERVED THAT THE ISSUE IS CLEARLY COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT AS WELL AS THE DECISION OF THE ITAT MUMBAI BENC HES (SUPRA). THE LEARNED CIT(A) FURTHER OBSERV ED THAT THE FACTS IN THE INSTANT CASE ARE IN PARI MATERIA WITH THE FACTS IN THE AFORECITED CASES. THOUGH IT WAS DEPARTMENTS APPEAL THE LEARNED D.R. DID NOT MAKE ANY EFFORT TO DISTINGUISH THE AFORESAID CASE LAW OR TO HIGHLIGHT THE FACTS OF THIS CASE TO SUBMIT THAT THE ISSUE HEREIN IS DISTINGUISHABLE ON FACTS. 11. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS CLEARLY COVERED BY THE AFORECITED DECISIONS. HE STATED THAT THE ASSESSEE HAS BEEN COLLECTING REPAIR FEES NOT ONLY FROM OUTGOING MEMBERS BUT ALSO FROM EXISTING MEMBERS ON THE STRENGTH OF DAMAGE CAUSED TO THE STRUCTURE OF THE BUILDING SO THAT IT CAN BE REPAIRED AND MAINTAINED IN GOOD CONDITION. IT WAS THEREFORE SUBMITTED THAT IT HAS NOTHING TO DO WITH THE TRANSFER FEE S BUT IT IS THE ACTUAL EXPENDITURE CONNECTED WITH MAINTENANCE OF THE BUILDING. 12. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. THIS IS AN APPEAL BY THE REVENUE AND IT IS FOR THE REVENUE TO PROVE THAT THE CASE LAW RELIED UPON BY THE CIT(A) IS NOT APPLICA BLE TO THE FACTS OF THE INSTANT CASE. THE LEARNED D.R. HAS NEITHER FILED ANY PAPER BOOK NOR ITA NO .736 /MUM/2015 M/S. NAV SHANTI NAGAR CHS LTD. 6 RELIED UPON ANY CASE LAW TO CONTRADICT THE FINDINGS OF THE LEARNED CIT(A). IN FACT, HE HAS NOT EVEN PLACED BEFORE THE BENCH A COPY OF THE ORDER OF THE ITAT MUMBAI B ENCH ON WHICH RELIANCE WAS PLACED BY THE LEARNED CIT(A). UNDER THESE CIRCUMSTANCES , I AM OF THE VIEW THAT THE ORDER PASSED BY THE LEARNED CIT(A) DOES NOT CALL FOR ANY INTERFERENCE AND THEREFORE GROUND NO. 1 OF THE REVENUE IS HEREBY DISMISSED. 13. AS REGARDS G ROUND NO. 2 , THE CASE OF THE REVENUE IS THAT ASSESSEE , BEING A MUTUAL BENEFIT SOCIETY , IS NOT ENGAGED IN ANY BUSINESS IN WHICH EVEN T IT CANNOT CLAIM DEPRECIATION. THE LEARNED COUNSEL FOR THE ASSESSEE ADMITTED THAT IT IS NOT CARRYING ON BUSINESS SINCE IT IS ONLY A MUTUAL BENEFIT SOCIETY. HE FURTHER SUBMITTED THAT IF THE FIRST ISSUE IS DECIDED IN FAVOUR OF THE SOCIETY HE IS AGREEABLE TO ACCEPT THE VIEW TAKEN BY THE AO. THE ASSESSEE SOCIETY , ON ONE HAND , CLAIMS THAT IT IS A MUTUAL BENEFIT SOCIETY IN WHICH EVENT IT CANNOT SAID TO BE ENGAGED IN ANY BUSINESS, THEREFORE IT IS NOT ENTITLED TO THE BENEFIT OF DEPRECIATION. IN THE INSTANT CASE THE AO HAS ACCEPTED THAT ASSESSEE SOCIETY HAS BEEN RECEIVING TRANSFER FUNDS, WHICH IS GOVERNED BY PRINCIPLES OF MUTUALITY AND TH E DISALLOWANCE WAS LIMITED TO REPAIR FUNDS ON THE GROUND THAT IT IS IN EXCESS OF THE AMOUNT PRESCRIBED IN THE BYELAWS WHEREAS THE LEARNED CIT(A) HELD THAT EVEN THAT AMOUNT IS GOVERNED BY PRINCIPLES OF MUTUALITY SINCE IT CANNOT BE TERMED AS TRANSFER FEES BU T AMOUNTS TO SHAR ING OF THE ACTUAL EXPENDITURE INCURRED FOR RENOVATION WORK AND HENCE IT CANNOT BE SAID TO BE IN VIOLATION OF THE CONDITIONS PRESCRIBED IN THE BYELAWS. IN EFFECT THE AO AS WELL AS THE CIT(A) ADMITTED THAT THE ASSESSEE SOCIETY IS GOVERNED BY PRINC IPLES OF MUTUALITY AND IT IS NOT CARRYING ON ANY BUSINESS. SUCH BEING THE CASE IT CANNOT BE SAID, FOR THE LIMITED PURPOSE OF THE CLAIM OF CARRY FORWARD DEPRECIATION, THAT IT WAS ENGAGED IN ANY BUSINESS. UNDER THESE CIRCUMSTANCES, I AM OF THE VIEW THAT THE LEARNED CIT(A) ITA NO .736 /MUM/2015 M/S. NAV SHANTI NAGAR CHS LTD. 7 WAS NOT JUSTIFIED IN SETTING ASIDE THE MATTER FOR FRESH CONSIDERATION. THEREFORE, GROUND NO. 2 OF THE REVENUE IS TREATED AS ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23R D SEPTEMBER , 2015. SD/ - (D. MANMOHAN) VICE PRESIDENT MUMBAI, DATED: 23RD SEPTEMBER , 2015 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 30 , MUMBAI 4. THE CIT 19 , MUMBAI CITY 5. THE DR, SMC BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI