KAMAL NAGARI SAHAKARI PATSANSTHA LTD.,ALIBAG vs. ITO, WARD-3, PANVEL, PANVEL

5. The Ld. AO erred in not allowing the proportionate deduction of expenses u/s 57 while making an addition u/s 56 of the Act. 6. The notice issued u/s 148A is invalid and covered by the decision of Hon'ble Supreme Court in the case of Union of India Vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC), thereby making the re-assessment notice as well as assessment order void and liable to be quashed. 7. The Ld. CIT(A) NFAC erred in setting aside the assessment order which was not passed u/s 144 r.w.s. 147 and not adjudicating in regular manner. The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”

3. Briefly stated, the facts as culled out from the statement of facts filed along with Form 35 are that the assessee society is engaged in the business of providing credit facilities to its members. For AY 2013-14, it filed its return of income on 29.09.2013 declaring total income at Rs. Nil. The case of the assessee was selected for scrutiny under CASS and assessment u/s 143(3) of the Income Tax Act, 1961 (the “Act”) was completed on 29.02.2016. In the return of income, the assessee claimed deduction u/s 80P(2)(a)(i) at Rs.55,16,236/-. During the course of assessment, various documents including Profit and Loss Account, Balance Sheet, Interest income workings were furnished. While completing the assessment, the Ld. Assessing Officer (“AO”) added back the net income earned from MSEB as Commission for collecting electricity bills, after giving effect of proportionate expenses incurred to earn such an income. Rest of the income was allowed as deduction u/s 80P(2)(a)(i) and income was determined at Rs.4,91,080/-by scaling down the deduction u/s 80P(2)(a)(i) of the Act. Thereafter, the Ld. AO issued notice u/s 148 under old provisions of the Act i.e. before introduction of Section 148A. On pronouncement of Hon'ble Supreme Court's decision in the case of UOI Vs. Ashish Agarwal, new notice u/s 148A(b) was issued. Against such a notice, the objections were raised regarding applicability of new provisions u/s 148A r.w.s. 149(1)(b) and old provisions u/s 148 of the Act. Also, it was brought to the notice of the Ld. AO that, without prejudice to the stand about eligibility of deduction u/s 80P(2)(a)(i)/80P(2)(d) for full amount, after giving effect of proportionate expenses, the income stands at Rs.10,62,911/-, which is well below Rs.50,00,000/- limit as prescribed u/s 149(1)(b). A working was also provided in this regard. Additionally, it was objected and brought to the notice of the Ld. AO that the income alleged to have escaped the assessment is not in AYs 2013-14 & 2014-15 form of the asset as envisaged u/s 149(1)(b) of the Act. While disposing the objections raised, the Ld. AO did not properly consider and discuss about the proportionate deduction available and also did not properly rebut the objection about the fact that income alleged to have escaped assessment was not in the nature of Asset. Accordingly, the Ld. AO proceeded to pass the order u/s 148A(d) of the Act. While completing the original assessment u/s 143(3) of the Act, the Ld. AO accepted and allowed the deduction u/s 80P(2)(a)(i) as business income. During re-assessment proceedings, the Ld AO rejected the assessee’s contention that the assessee is eligible for deduction under section 80P(2)(a)(i)/ 80P(2)(d) in respect of interest income earned from cooperative banks, which is duly supported by catena of judicial precedents pronounced in favour of the assessee and proceeded to pass the impugned order under section 147 read with section 144B of the Act on 09.04.2023 disallowing the deduction claimed u/s 80P(2)(d) at Rs. 1,33,53,021/- .

4. Aggrieved, the assessee filed an appeal before the Ld. CIT(A)/NFAC. There was non-compliance of notices of hearing. By applying the amended provisions of section 251(1)(a) of the Act, the Ld. CIT(A)/NFAC set aside the assessment order and remanded the matter back to the file of the Ld. AO for making a fresh assessment observing as under: “5.2 The assessment order in this case was passed under section 144 of the Income Tax Act, i.e., the order was passed ex-party in absence of necessary compliance and submission from the appellant. From the perusal of the assessment order, it is clear that the appellant was granted various opportunities to present and submit documents in support of his claims and his submissions on questions and issues under consideration and examination in the assessment proceedings. The table below shows the various notices issued to the appellant and the status of compliance made, if any, by the appellant. As is clear from the table below, it seems reasonable to believe that the AO was left with no other option but to pass an assessment order ex-party u/s 144 based on the facts and documents available on record, due to the non-compliance on the part of the appellant. Date of fixing/notice by the AO Section and nature of notice/compliance made, if any/Remarks 17/04/2021 Notice U/s 148 25/07/2022 Notice U/s 148A(d), No Compliance 30/12/2022 Notice U/s 143(2), Compliance Partly 13/01/2023 Notice 142(1), Compliance Partly 30/03/2023 Show Cause Notice, Compliance Partly 5.3 During the appellate proceedings too, the appellant was granted opportunities for presenting his case and filing detailed submission in support of various grounds of appeal taken by him. The appellant was issued notices on07/10/2024, 06/11/2024, 21/11/2024. It may be noted that the appellant filed the present appeal before the than jurisdictional CIT(Appeal). Subsequently, with the introduction of the faceless appeal scheme in 2020 and its revision in 2021, the appeal was transferred to the NFAC and then allocated to a faceless appeal unit. Subsequently, notices were issued from the faceless appeal units as per the scheme. It may be noted that in the faceless appeal environment, all the AYs 2013-14 & 2014-15 notices are issued to the appellant at the email address provided by him, and also, all the submission are supposed to be filed online through the appeal module available to the appellant online in his e-filing portal. 5.4 Having noted thus, the matter has been considered carefully in totality of facts, context and circumstances. Though it is a fact that the appellant failed to make necessary and sufficient submission in defense of his case before the AO thereby leaving hardly any other option before the AO than to make an ex-party order, it is also a concomitant fact that in the ex-party order u/s 144 made by the AO, the issues under examination and dispute could not be examined, investigated and analyzed on merits and in detail. As such, the order passed by the AO is not based on proper examination of facts and documents and is not based on required investigation and on consideration of the various facts, submission and other points that could have been raised by the appellant. As such, on the face of it, although the appellant has failed to complied with the various notices issues by the AO, the fact remains that his (appellant's) side has not been heard and examined. 5.5 The section 251(1)(a) of the Income Tax Act, enumerating powers of the Commissioner (Appeals) and Joint Commissioner (Appeals), has been modified w.e.f. 1/10/2024 by the introduction of the Proviso, which states:

1.

6. In the result, the appeal is set aside.”