M/s Nilgiri Engineering Co-op. Society Ltd, Balasore v. ACIT, Balasore

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK ( ) BEFORE . . HONBLE SHRI K.K.GUPTA ACCOUNTANT MEMBER. /AND . . . S HRI K.S.S.PRASAD RAO JUDICIAL MEMBER / I.T.A.NO. 25/CTK/2010 / ASSESSMENT YEAR 2006 - 07 M/S.NILGIRI ENGINEERINGCO - OP. SOCIETY LTD. RAJ NILAGIRI BALASORE PAN: AAAAN 0926 D - - - VERSUS - ASST.COMMISSIONER OF INCOME TAX B ALASORE CIRCLE BALASORE. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI P.R.MOHANTY/SASWAT ACHARYA ARS / FOR THE RESPONDENT: / SHRI S.K.DASH DR / ORDER . . . SHRI K.S.S.PRASAD RAO JUDICIAL MEMBER . THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) DT.9.10.2009 FOR THE ASSESSMENT YEAR 2006 - 07. 2. THE ASSESSEE HAS RAISED THE F OLLOWING ISSUES IN THE GROUNDS OF APPEAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ONCE THE A.O. ACCEPTING THAT THE INTEREST OF P.D BEING AN INTEGRAL PART OF BUSINESS INCOME AND SHOULD BE TREATED AT PAR SHOULD NOT HAVE DISALLOWED THE BENEFIT OF EXEMPTION U/S 80(P) (A) (VI) WHICH IS AVAILABLE FOR BUSINESS INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF CASE FURNISHING OF PERFORMANCE SECURITY OF THE ACCEPTED BID VALUE IN SHAPE OF F.D. BEING AN INTEGRAL PART OF BUSINESS ACTIVITIES CANNOT BE SEPARATED AND SEEN IN ISOLATION. EVEN THOUGH THIS HAS ALWAYS BEEN ACCEPTED IN THE PART RIGHT FROM INCEPTION OF THE BUSINESS OF THE SOCIETY THE A.OS ACTION OF DISALLOWING THE BENEFIT OF EXEMPTION U/S 80(P) (2) (A) (VI) IS ARBITRARY AND CHANGE OF OPINION A ND LIABLE TO BE QUASHED 3. THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LEARNED C.I.T(A) SHOULD NOT HAVE OUTRIGHTLY REJECTED THE CLAIM OF EXEMPTION U/S 80P OF THE SOCIETY WITHOUT GOING THROUGH THE MERITS OF THE CLAIM. 3. BOTH THE PARTIES WERE HEAR D REGARDING THE ISSUES RAISED IN THE GROUNDS OF APPEAL AND THEIR LEGAL IMPLICATION. I.T.A.NO. 25/CTK/2010 2 4. DURING THE COURSE OF HEARING THE LEARNED AR OF THE ASSESSEE VEHEMENTLY ARGUED CONTENDING THAT THE IMPUGNED ORDER PASSED BY THE DEPARTMENTAL AUTHORITIES IS UNSUSTAINAB LE FOR LEGAL SCRUTINY AS THE AMOUNT IN DISPUTE IS INTEREST ON FIXED DEPOSITS MADE TO EARN INCOME DURING THE COURSE OF BUSINESS BY THE ASSESSEE. THE FIXED DEPOSITS WERE MADE IN PURSUANCE TO THE TERMS AND CONDITIONS OF THE CONTRACTS UNDERTAKEN BY THE ASSESSE E. BUT BOTH THE LOWER AUTHORITIES HAVE DENIED THE BENEFIT OF EXEMPTION TO THE ASSESSEE. BOTH THE LOWER AUTHORITIES HAVE NOT DISPUTED THE FACT THAT THE ASSESSEE HAS EARNED THE INTEREST ON FIXED DEPOSITS MADE IN TERMS OF THE CONTRACTS THAT WERE EXECUTED BY THE ASSESSEE. SUCH CLAIMS OF THE ASSESSEE HAS BEEN ACCEPTED BY THE DEPARTMENTAL AUTHORITIES RIGHT FROM ITS INCEPTION ON THE GROUND THAT THE ASSESSEE IS A COOPERATIVE SOCIETY FORMED BY UNEMPLOYED ENGINEERS AS ITS MEMBERS AND THE SOCIETY IS REGISTERED UNDER THE SOCIETIES REGISTRATION ACT FOR EXECUTION OF CONTACT WORKS UNDER DIFFERENT AUTHORITIES. THE ASSESSEES INCOME INCLUDES INTEREST RECEIVED ON FIXED DEPOSITS OF 9 26 911. THESE DEPOSITS WERE MADE BY THE ASSESSEE AS SECURITY WHILE GETTING VARIOUS CONTRAC TS . AS THE ASSESSEE BEING A COOPERATIVE SOCIETY IT HAS CLAIMED DEDUCTION U/S.80P(2)(A)(VI) OF THE I.T.ACT FROM THE TOTAL INCOME. SECTION 80P(2)(A)(VI) GIVES BENEFIT FOR THE COLLECTIVE DISPOSAL OF THE LABOURERS OF THE SOCIETY WHEN THE WHOLE OF THE AMOUNT OF PROFITS AND LOSS OF BUSINESS ARE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY AS A WHOLE. THEREFORE REJECTION OF THE CLAIM MADE BY THE ASSESSEE TREATING THE DEPOSIT AS INCOME BY THE ASSESSEE BY THE LOWER AUTHORITIES IS NOT SUSTAINABLE FOR LEGAL SCRUTINY AND LIABLE TO BE SET ASIDE. ACCORDINGLY HE I.T.A.NO. 25/CTK/2010 3 PRAYED FOR SETTING ASIDE THE IMPUGNED ORDER OF THE DEPARTMENTAL AUTHORITIES. 5. IN SUPPORT OF HIS CONTENTION THE LEARNED AR OF THE ASSESSEE HAS RELIED ON THE DECISION OF DELHI HIGH COURT REPORTED IN 203 CTR 99 /286 ITR 479 (DEL) RENDERING IN THE CASE OF CIT V. KOSHIKA TELECOM LTD. WHEREIN IT WAS HELD BY HONBLE DELHI HIGH COURT THAT INTEREST ON DEPOSITS WITH THE BANK FOR SECURING BANK GUARANTEE IN FAVOUR OF DEPARTMENT OF TELECOMMUNICATIONS FOR OBTAINING LICENC E FOR OPERATING CELLULAR TELEPHONE SERVICES WAS INEXTRICABLY LINKED TO THE BUSINESS OF THE ASSESSEE AND HAS TO BE TREATED AS INCOME FROM BUSINESS AND NOT INCOME FROM OTHER SOURCES. 6. ON THE CONTRARY TO THIS THE LEARNED DR CONTENDED THAT WHEN THE ASSESSE E IS NOT ABLE TO SUBSTANTIATE ITS CLAIM BEFORE THE DEPARTMENTAL AUTHORITIES BY PRODUCING COGENT EVIDENCE THE DEPARTMENTAL AUTHORITIES ARE WITHIN THEIR POWERS TO REJECT THE SAME. IN THE PRESENT CASE IN HAND AS THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE ITS CLAIM THE DEPARTMENTAL AUTHORITIES HAVE RIGHTLY REFUSED THE SAME AND HENCE THE IMPUGNED ORDERS ARE NOT INFI RM IN ANY WAY REQUIRING ANY INTERFERENCE. ACCORDINGLY HE SOUGHT FOR UPHOLDING THE SAME BY DISMISSING THE APPEAL OF THE ASSESSEE. 7. ON CAREFUL ANA LYSIS OF THE ORDERS OF THE DEPARTMENTAL AUTHORITIES AND IN THE LIGHT OF THE UNDISPUTED FACTS RELATING TO THE ISSUES ON HAND IT IS FOUND THAT THE DEPARTMENT HAS NOT DISPUTED THAT THE ASSESSEE BEING A SOCIETY UNDER THE COOPERATIVE SOCIETIES REGISTRATION AC T AND I.T.A.NO. 25/CTK/2010 4 THE MEMBERS CARRIED ON CONTRACTS UNDER DIFFERENT DEPARTMENTAL AUTHORITIES BY MAKING BANK GUARANTEE DEPOSITS IN THE BANK FOR SUCCESSFUL COMPLETION OF THE CONTRACTS UNDERTAKEN BY THEM AND THE INTEREST WAS EARNED BY THEM ON SUCH DEPOSITS ONLY. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE HAS INVESTED THE SURPLUS FUNDS IN THE BANK AND THEN EARNED THE INTEREST. THEREFORE THE ASSESSEE - SOCIETY HAVING BEEN FORMED BY UNEMPLOYED ENGINEERS AND REGISTERED UNDER THE CO - OPERATIVE SOCIETIES ACT AND CARRY ING OUT EXECUTION OF CONTRACTS AWARDED BY DIFFERENT DEPARTMENTAL AUTHORITIES BY TAKING BANK GUARANTEE FROM THE ASSESSEE BY DEPOSIT OF AMOUNTS IN BANKS AND CLAIM EXEMPTION U/S.80P(2)(A)(VI) IS VERY MUCH SUSTAINABLE AND THE ORDERS PASSED BY THE DEPARTMENTA L AUTHORITIES OTHERWISE ARE HIGHLY UNJUSTIFIED AS THE DEPOSITS MADE BY THE SOCIETY ARE INEXTRICABLY LINKED WITH THE CONTRACT WORKS CARRIED OUT BY THE MEMBERS O F THE ASSESSEE - SOCIETY MORE SO IN THE LIGHT OF DELHI HIGH COURT JUDGMENT STATED SUPRA AND RELIED ON BY THE ASSESSEE. IN THIS VIEW OF THE MATTER THE IMPUGNED ORDER PASSED BY THE DEPARTMENTAL AUTHORITIES ARE NOT SUSTAINABLE FOR LEGAL SCRUTINY AND HENCE TH EY ARE SET ASIDE BY ALLOWING THE APPEAL OF THE ASSESSEE. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DT. 18 TH FEBRUARY 2011 S D/ - S D/ - ( . . ) (K.K.GUPTA) ACCOUNTANT MEMBER. ( . . . ) (K.S.S.PRASAD RAO) JUDICIAL MEMBER. ( ) DAT E: 18 TH FEBRUARY 2011 ( ) ( H.K.PADHEE ) SENIOR.PRIVATE SECRETARY. I.T.A.NO. 25/CTK/2010 5 - COPY OF THE ORDER FORWARDED TO: 1 . / THE APPELLANT : M/S.NILGIRI ENGINEERINGCO - OP. SOCIETY LTD. RAJ N ILAGIRI BALASORE 2 / THE RESPONDENT: ASST.COMMISSIONER OF INCOME TAX BALASORE CIRCLE BALASORE. 3 . / THE CIT 4 . ( )/ THE CIT(A) 5 . / DR CUTTACK BENCH 6 . GUARD FILE . / TRUE COPY / BY ORDER [ ] SENIOR PRIVATE SECRETARY