ITO, Patiala V. M/s The New Janta Co-operative L&R Construction Society Ltd., Patiala

ITA 996/CHANDI/2010

• Counselvise Citation: 99621514 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 30-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES BCHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 996/CHD/2010 ASSESSMENT YEAR 2007-08 ITO, WARD-2, V M/S THE N EW JANTA PATIALA. COOPERATIVE L&R CO NSTRUCTION SOCIETY LTD., PATIALA. PAN : AAATT-1662P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI AJAY SHARMA RESPONDENT BY : NONE DATE OF HEARING : 30.08.2011 DATE OF PRONOUNCEMENT : 30.08.2011 ORDER PER SUSHMA CHOWLA, JM THE REVENUE HAS FILED THIS APPEAL AGAINST THE ORDER OF CIT(A), DATED 14.05.2010 RELATING TO ASSESSMENT YEAR 2007-08 AGAI NST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE REVENUE HAS RAISED SEVERAL GROUNDS OF APPEAL IN CONNECTION WITH TWO ISSUES IN THE PRESENT APPEAL. THE GROUND NO.1 RAISED BY THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING ADDITION OF RS.17,64,384/- WHICH WAS PURSUANT TO THE ORDER OF AO IN APPLYING NET PROFIT RATE OF 10% AFTER REJECTING THE BOOK RESULTS U/S 145(2) OF THE ACT. THE REVENU E HAS FURTHER RAISED ISSUE AGAINST THE ALLOWANCE OF DEDUCTION U/S 80P(2)(A)(VI ) OF THE INCOME-TAX ACT,1961 ON THE LABOUR CHARGES PAID BY THE ASSESSEE SOCIETY TO PERSONS OTHER THAN ITS MEMBERS. THE REVENUE HAS RAISED GROUND NOS . 2 TO 7 IN THIS RESPECT. 2 3. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHA LF OF THE ASSESSEE THOUGH THE NOTICE WAS SENT TO THE ADDRESS OF THE AS SESSEE AS MENTIONED IN COLUMN 10 OF FORM NO.36. WE PROCEED TO DISPOSE OF THE PRESENT APPEAL AFTER HEARING LD. DR FOR THE REVENUE. 4. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT P ROCEEDINGS U/S 147/148 WERE INITIATED IN THE CASE OF THE ASSESSEE. THE ASS ESSEE HAD FURNISHED RETURN OF INCOME DECLARING NIL INCOME IN RESPONSE TO THE AFORESAID NOTICE. THE AO HAS NOTED THAT THE ASSESSEE HAD PRODUCED BOOKS O F ACCOUNT WHICH WERE TEST CHECKED. THE AO NOTED THAT THERE WAS A FALL IN NET PROFIT RATE DURING THE YEAR. THE ASSESSEE HAD SHOWN RECEIPTS OF RS.1.76 C RORES ON WHICH NET PROFIT OF RS.20,441/- WAS SHOWN DECLARING GP RATE OF 0.11% AS AGAINST RECEIPTS OF RS.45.10 LACS SHOWN IN THE PRECEDING YEAR ON WHICH NET PROFIT OF RS.14639/- WAS SHOWN DECLARING GP RATE OF 0.32%. ON THE ABOVES AID INCOME, THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80P(2)(A)(VI) OF THE I.T.ACT. THE AO FURTHER NOTED THE ASSESSEE TO HAVE DEBITED A SUM OF RS.32,88,703/- ON ACCOUNT OF LABOUR CHARGES PAID FOR THE EXECUTION OF CIVIL CONTRACT TO PERSONS OTHER THAN SOCIETY MEMBERS. THE AO, ON VERIFICATIO N OF THE EXPENSES OBSERVED THAT THERE WERE NUMBER OF EXPENSES WHICH W ERE EITHER NOT PROPERLY VOUCHED OR UNVOUCHED AND AS SUCH THE BOOK-VERSION O F THE ASSESSEE COULD NOT BE RELIED UPON. REJECTING THE EXPLANATION OF T HE ASSESSEE THAT THE EXPENSES OF LABOUR CHARGES WERE ON ACCOUNT OF PAYME NTS MADE TO THE PERSONS ACQUIRED FROM DIFFERENT AGENCIES, AO OBSERVED THAT THE SOCIETY MEMBERS HAD NOT UTILIZED ACTUAL LABOUR OF ITS MEMBERS BUT HAD E NGAGED THE LABOUR OF PERSONS OTHER THAN SOCIETY MEMBERS AND HENCE, WAS N OT ENTITLED TO THE DEDUCTION CLAIMED U/S 80P(2)(A)(IV) OF THE ACT. FUR THER, AS PER THE AO, THE ASSESSEE HAD CLAIMED EXCESS EXPENSES UNDER DIFFEREN T HEADS AND THUS, THE BOOKS OF ACCOUNT WERE REJECTED U/S 145(2) OF THE AC T AND THE INCOME OF THE 3 ASSESSEE WAS DETERMINED BY APPLYING NET PROFIT RATE OF 10% ON TOTAL RECEIPTS. THE TOTAL INCOME OF THE ASSESSEE WAS, THUS DETERMIN ED AT RS.17,64,384/-. 5. THE CIT(A) VIDE PARA 3.2 HELD AS UNDER : I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE W RITTEN SUBMISSIONS FILED BY THE ASSESSEE. IT IS FOUND THAT IN THE ASSESSMENT ORDER THE AO HAS MENTIONED THAT CERTAIN EXPENSES HAVE BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH A RE EITHER NOT PROPERLY VOUCHED OR NOT VOUCHED AT ALL. HE HAS NOT POINTED OUT EVEN A SINGLE ITEM OF EXPENDITURE WHICH IS EITHER U NVOUCHED OR IMPROPERLY VOUCHED. THE BOOKS OF ACCOUNT OF THE AS SESSEE ARE AUDITED AND CANNOT BE REJECTED JUST ON THE ASKING. THE AO IS BOUND TO PLACE MATERIAL ON THE BASIS OF WHICH THE B OOKS MAINTAINED IN THE REGULAR COURSE OF BUSINESS ARE HE LD TO BE UNBELIEVABLE. I AGREE WITH THE LD. COUNSEL THAT AC ADEMY REMARKS ARE NOT ENOUGH FOR REJECTING THE BOOKS OF ACCOUNT. THE ACTION OF THE AO IN REJECTING THE BOOKS IS, THEREFORE REVERSE D. THE ASSESSEE SUCCEEDS ON THIS GROUND. 6. THE ASSESSEE BEFORE US HAS ADMITTEDLY MAINTAINED BOOKS OF ACCOUNT WHICH WERE PRODUCED BEFORE THE AO. THE BOOK RESULT S SHOWN BY THE ASSESSEE ARE BACKED BY THE AUDIT REPORT OF THE AUDI TOR. FURTHER, THE AO HAS NOT PIN-POINTED ANY PARTICULAR ITEM OF EXPENDITURE WHICH IS NOT SUPPORTED BY VOUCHERS EXCEPT FOR MAKING GENERAL REMARKS AND ALSO REFERRING TO THE EXPENDITURE ON PAYMENTS MADE TO PERSONS OTHER THAN SOCIETY MEMBERS UNDER THE HEAD LABOUR EXPENSES. IN THE ENTIRETY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WHERE THE AO HAS FAILED TO PIN-POINT A NY DEFICIENCY IN THE BOOKS OF ACCOUNT EXCEPT FOR MAKING GENERAL OBSERVATIONS, WE FIND NO MERIT IN THE ORDER OF THE AO. UPHOLDING THE ORDER OF CIT(A), WE DISMISS GROUND NO.1 RAISED BY THE REVENUE. 4 7. THE SECOND ISSUE RAISED BEFORE THE CIT(A) WAS IN CONNECTION WITH THE DEDUCTION CLAIMED U/S 80P(2)(A)(VI) OF THE ACT. TH E CIT(A) VIDE HIS OBSERVATIONS IN PARA 11 OBSERVED AS UNDER : I HAVE GONE THROUGH THE CONTENTS OF THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE LD. COUNSEL. THE A O HAS BUILT UP HIS CASE ON THE APPREHENSION THAT WHEN IT IS A CASE OF DISPOSAL OF COLLECTIVE LABOUR, THE EXECUTION OF WORK SHOULD BE BY THE MEMBERS ONLY WITHOUT ENGAGING ANY OUTWARD AGENCY. THIS INTE RPRETATION, AS PER MY VIEW, IS NOT CORRECT. WHILE ENGAGING IN COL LECTIVE DISPOSAL OF THE LABOUR THE MEMBERS ARE NOT SUPPOSED TO BE DO ING EACH AND EVERY ACTIVITY THEMSELVES. IN THE PRESENT CASE THE DISPOSAL OF COLLECTIVE LABOUR IS IN CONNECTION WITH CONSTRUCTIO N ACTIVITY BUILDINGS AND ROADS. IN ACCOMPLISHMENT OF THE SAME WHILE THE MEMBERS CONTRIBUTE THEIR BUT OF EFFORT, LABOUR PAID TO OPERATORS OF MACHINERY TAKEN ON HIRE CANNOT BE RULED OUT. SIMIL ARLY, THE SERVICES OF OTHER PERSONS CONNECTED WITH THE ACTIVI TY OF CONSTRUCTION IS ALSO INDISPENSABLE. IN THE CASE OF NILGIRI ENGINEERING COOP. SOCIETY LTD. (SUPRA), AS RELIED U PON BY THE AO, THE HON'BLE HIGH COURT HAS CATEGORICALLY MENTIONED THAT THE MEMBERS CAN TAKE THE SERVICES OF OTHER AND JUST SUP ERVISE THEM. THE RELIANCE OF THE LD. COUNSEL FOR THE ASSESSEE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V. RAJAST HAN RAJAYA BUNKER SAHAKARI SAMITY LTD.(SUPRA) IS WELL PLACE TL PLEAD THAT WHILE ALLOWING EXEMPTION U/S 80P THE AO HAS TO GO T HROUGH THE BY-LAWS OF THE SOCIETY TO DETERMINE AS TO WHETHER T HE EMPLOYMENT OF OUTSIDE LABOUR IS WITH THE PURVIEW OF THE SAME O R NOT. THE ASSESSEE IN THIS CASE IS A COOPERATIVE SOCIETY WHIC H WAS REGISTERED ON 09.07.1980 AND IS BEING RUN AS SUCH SINCE THEN. IT IS ENGAGED IN PROMOTING THE ECONOMIC INTERESTS OF MANUAL LABOU RERS, SKILLED WORKERS OR OTHERWISE AND FIND SUITABLE AND PROFITAB LE EMPLOYMENT FOR THEM BY OBTAINING CONTRACTS FOR EXECUTION OF PU BLIC OR PRIVATE WORK BY OFFER OF TENDERS OR OTHERWISE AND DO ALL OT HER ANCILLARY ACTIVITIES GIVEN IN THE OBJECTS. IT HAS BEEN FILING THE RETURNS OF INCOME SINCE LONG. THE CASE OF THE ASSESSEE BEING F ULLY PROVIDED IN THE OBJECTS, THERE WAS NO REASON TO REFUSE EXEMP TION. IT MAY BE FURTHER HELD THAT SINCE THE PROVISION ENVISAGES THE COLLECTIVE DISPOSAL OF LABOUR OF THE MEMBERS OF THE SOCIETY AS LONG AS THE 5 MEMBERS HAVE PARTICIPATED IN THE ACTIVITIES CARRIED ON BY THE SOCIETY AND CONTRIBUTED THEIR LABOUR COLLECTIVELY, THE EMPLOYMENT OF OTHER SKILLED LABOURERS WOULD NOT DISENTITLE IT FROM CLAIMING THE EXEMPTION. THE GROUND IS, THEREFORE, ALLOWED. 8. LD. AR FOR THE REVENUE HAS FAILED TO CONTROVERT THE FINDINGS OF THE CIT(A). IN VIEW OF THE RATIO LAID DOWN BY THE HON' BLE ORISSA HIGH COURT IN M/S NILGIRI ENGINEERING CO-OPERATIVE SOCIETIES LTD. V CIT, 208 ITR 326 (ORI), AND HON'BLE SUPREME COURT IN CIT V RAJASTHA N RAJAYA BUNKER SAHAKARI SAMITY LTD., 320 CTR 11, WE ARE IN AGREEM ENT WITH THE ORDER OF CIT(A). THE OBSERVATIONS OF THE HON'BLE HIGH COUR T HAVE BEEN REPRODUCED BY THE CIT(A) AND THE SAME ARE BEING REFERRED TO, B UT NOT BEING REPRODUCED FOR THE SAKE OF BREVITY. WE UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NOS. 2 TO 7 RAISED BY THE REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUG.,2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH