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Income Tax Appellate Tribunal, ‘’SMC’’ BENCH, AHMEDABAD
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax,(Appeals)-4, Vadodara [Ld.CIT(A) in short], dated 30/09/2016 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 26/11/2015 relevant to Assessment Year (AY) 2013-14. 2. The only issue raised by the assessee is that Ld.CIT (A) erred in not granting deduction of interest income u/s. 80P(2)(a)(i) of the Act. Asstt. Year 2013-14 2
The facts of the case are that the assessee is a Co-operative Society and engaged in the activity of providing credit facility to its members. The assessee filed its return of income declaring loss of Rs. 1,00,548/- vide dated 16/07/2013. However, the assessee during the assessment proceedings filed the revised statement of income dated 29/07/2015 wherein it has made the disallowance of its claim for Rs. 7,65,383/- on account of Investment Risk debited in the profit and loss account. As a result of the disallowance made by the assessee, there was a positive income of Rs. 6,64,835/- (7,65,383 – 1,00,548 only). Thus, the assessee in respect of such income claim deduction u/s 80P(2)(a)(i) of the Act. The assessee also submitted that there was no deduction claimed in the original return of income since there was loss declared in the income tax of return.
1 The assessee also submitted that the claim made on account of Investment Risk Fund was also disallowed in the earlier assessment year as well as in the subsequent assessment year in the revised return of income.
2 As such it omitted to make the disallowance in the year under consideration on account of its claim under the head ‘’Investment Risk Fund’’.
3 The assessee also claimed that it had claimed deduction under section 80(P)(2)(a)(i) of the Act in the earlier years which was allowed by the Revenue.
4 The assessee also claimed that it was the duty of the AO to allow the legitimate claim of the assessee even though it was not claimed in the original return of income. Asstt. Year 2013-14 3
However, the AO rejected the argument of the assessee by observing that the claim not made in the return of income cannot be allowed as deduction during the assessment proceedings. The AO in support of his decision placed reliance on the provision of section 80(A)(5) of the Act. Accordingly, the amount disallowed by the AO was added to the total income of the assessee.
Aggrieved assessee preferred an appeal to Ld. CIT (A). However, the assessee before the Ld. CIT(A) did not appear although the case was fixed for hearing dated 29/09/2016. However, the Ld.CIT (A) decided the issue against the assessee by the materials available on record. The Ld. CIT (A) found that the deduction in respect of income earned from the credit facilities provided to members is available u/s 80(P)(2)(a)(i) of the Act. However, the impugned interest income represents the income earned from the surplus fund deposited with the nationalized bank. Therefore, the same cannot be subject to deduction u/s 80(P)(2)(a)(i) of the Act.
The Ld. CIT-A, in support of his view, placed his reliance on the judgment of Juri ictional High Court in the case of State Bank of India Vs. CIT [2016] reported in 72 taxmann.com 64. Thus the Ld. CIT-A confirmed the order of the AO.
Being aggrieved by the order of the Ld.CIT (A) assessee is in appeal before us.
The Ld. AR, before us, submitted that the AO denied the deduction after placing the reliance on the provision of section 80(A)(5) of the Act. But Asstt. Year 2013-14 4
these provisions are relevant to the Industries engaged in the business of Export/Manufacturing and other commercial activities. Therefore, the same cannot be applied concerning the deduction claimed by the assessee u/s 80(P)(2)(a)(i) of the Act. It is because the assessee is a co-operative society and does not carry out any commercial activity.
1 The Ld.AR also claim that it is entitled to deduction u/s 80 (P)(2)(a)(i) of the Act which cannot be denied merely on the ground that the assessee failed to claim the same in the income tax return.
2 The ld. AR also submitted that the ld. CIT-A rejected the claim of the assessee on a different reason but without issuing the show cause notice as mandated under section 251(2) of the Act.
On the other hand Ld. DR submitted that the claim not made in the income tax return could not be allowed as a deduction to the assessee. The Ld. DR, in support of his claim reliance on the judgment of Hon’ble SC in the case of Goetze India Vs. CIT reported in 284 ITR 0323. 10. The Ld. DR also submitted that the assessee has failed to appear before the Ld.CIT (A). As such there was no reply furnished by the assessee during the appellate proceedings.
The Ld. DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. The assessee in the instant case file the revised computation of income making the disallowance of Rs. 7,65,383/- which resulted in the Asstt. Year 2013-14 5
positive income of the assessee amounting to Rs. 6,64,835/-. Thus the assessee claimed the same as a deduction under section 80P(2)(a)(i) of the Act. However, the AO did not allow the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act, by observing that it was not claimed in the original return of income. Therefore, the assessee was not eligible for the deduction in the revised computation of income without claiming the deduction in the original return of income. The AO in doing so places his reliance on the provisions of section 80A(5) of the Act.
1 However, the Ld.CIT (A) rejected the claim of the assessee on the different reason by observing that the impugned interest income was arising from the money deposited with the bank. As such the income was not arising from the activities with the members of the society. The Ld. CIT(A) in support of his view placed reliance on the judgment of Hon’ble Gujarat High
4 It is an undisputed fact that the Ld.CIT (A) has no authority to enhance assessment without giving reasonable opportunity to the assessee as per the provisions of section 251(2) of the Act. At this juncture, we find to refer to Asstt. Year 2013-14 6
the provisions of section 251(2) of the Act, and the explanation which is reproduced as under: “251. (1) In disposing of an appeal, the 59[* * *] 60[Commissioner (Appeals)] shall have the following powers— (a) …….. 65[(aa)……. (b) …….. (c) ……. (2) The 66[* * *] 67[Commissioner (Appeals)] shall not enhance an assessment or a penalty or reduce the amount of refund unless the appellant has had a reasonable opportunity of showing cause against such enhancement or reduction. Explanation.—In disposing of an appeal, the 66[* * *] 67[Commissioner (Appeals)] may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, notwithstanding that such matter was not raised before the 66[* * *] 67[Commissioner (Appeals)] by the appellant”.
From the above explanation, it is clear that the Ld.CIT (A) may consider and decide any matter which was not raised before him but after giving reasonable opportunity to the assessee.
Now coming to the facts of the present case, we note that the matter before the Ld.CIT (A) was fixed for hearing only on 29th September 2016. But there was nobody appeared from the side of the assessee before the Ld.CIT (A). Therefore, the Ld.CIT (A) passed ex-parte order dated 30th September 2016 after considering the materials available on record.
1 It is an undisputed fact the Ld. CIT(A) confirmed the addition made by the AO on new reasoning which was not the subject matter of dispute before the AO at the time of assessment proceedings.
2 On perusal of the Ld.CIT (A) order, it is nowhere mention that the notice for enhancing the assessment was provided to the assessee by the Asstt. Year 2013-14 7
Ld.CIT (A). The Ld. DR has also not brought anything on record to show that the enhancement notice was issued. Therefore, we are of the view that the assessee was not afforded an opportunity of being heard as mandated under the provisions of section 251(2) of the Act. Thus the addition made by the ld. CIT-A without affording the opportunity of being heard to the assessee will not sustain. In this regard we find support and guidance from the judgment of the Hon’ble Madras High Court in the case of CIT Vs. Lotte India Corporation Limited reported in 290 ITR 248 wherein it was held that :
“as contemplated under section 251(2) of the Act, referred to above, the Commissioner of Income-tax (Appeals), as rightly held by the Tribunal, should not exercise the power conferred under section 251(2) without giving a reasonable opportunity to the assessee showing against such enhancement or reduction, and to that extent the Tribunal is right in coming to the conclusion that the Commissioner of Income-tax (Appeals) has committed an error in rendering the finding that it is not dear in the assessment order as to how the expenditure which had been capitalised in the books of account and claimed in the adjustment statement has been allowed by the Assessing Officer.”
In view the above we, hold that the order passed by the ld. CIT-A enhancing the assessment is not sustainable and we quash the same. Accordingly, the other grounds raised by the assessee do not require any separate adjudication. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 01/02/2019 at Ahmedabad.
- - (MAHAVIR PRASAD) ACCOUNTANT MEMBER Ahmedabad; Dated 01/02/2019 manish Asstt. Year 2013-14 8
आदेश क" ""त"ल"प "े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant
""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त(अपील) / The CIT(A)
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण / DR, ITAT, 6. गाड" फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.