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Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Shri Waseem Ahmed & Shri Siddhartha Nautiyal
आदेश/ORDER PER : SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER:-
This is an appeal filed by the assessee against the order u/s. 263 of the Act dated 29-03-2017 passed by Ld. Pr. CIT, Ahmedabad-5.
Page No. 2 M/s. Intraprasth Co-op. Housing Society Ltd. Vs. Pr. CIT
In the appeal before us, the assessee has raised the following grounds of appeal:
01. The learned Pr. Commissioner of Income Tax Ahmedabad 5 erred in law and on facts in remanding the matter back to the Assessing Officer for making such further enquiry on the ground that Assessment Order passed u/s 143(3) of the Income Tax Act, 1961 is erroneous and prejudicial to the interest of revenue by invoking provisions of Section 263 of the Income Tax Act, 1961.
2. The learned Pr. Commissioner of Income Tax erred in law and on facts in not considering facts that the appellant is a Co-op. Housing Society which is not formed for carrying on any business. The amount deposited with the bank by the society is not extra fund available with the society but same is received from the members of the appellant society as deposits with specific directions that income of which is to be applied for common maintenance expenses to be incurred by the society. Considering the fact, that the Assessing Officer has passed original assessment order u/s 143(3) of the Income Tax Act, 1961 which is not erroneous or prejudicial to the interest of the revenue.
3. The learned Pr. Commissioner of Income Tax erred in law and on facts in not following decision of the Hon'ble ITAT Bench ‘A' Ahmedabad in the case of M/S Sakar Corporation for A.Y. 1997-98 which is a binding decision of Jurisdictional Tribunal.
Page No. 3 M/s. Intraprasth Co-op. Housing Society Ltd. Vs. Pr. CIT
4. The appellant reserve right is to add, to amend, to revise or to withdraw any ground of this appeal.”
The brief facts of the case are that the assessee is a co-operative housing society and its main source of income is from member’s contribution and interest income. During the year, the assessee made investment in fixed deposits in nationalized bank (SBI and Union Bank of India) and co-operative bank and interest received thereon was claimed as exempt on principle of mutuality as per section 80P of the Act. The assessee had earned interest income of Rs. 10,15,987/- as exempt. The ld. Principal CIT noted that as per Sports Club of Gujarat and Rajpath Club Vs. CIT (226 ITR 379) the Gujarat High Court has held that in the case of mutual association, the principle of mutuality is not applicable on interest income received on surplus fund invested in banks. The Pr. CIT noted that in the assessment, the ld. A.O. allowed exemption on interest income earned on deposit of surplus fund with nationalized banks without considering the jurisdictional high court decision. The Pr. CIT initiated proceeding u/s 263 of the Act.
During the 263 proceeding, the ld. A.R. of the assessee submitted that the facts of the assessee’s case are different and the above rulings do not apply to the assessee’s set of facts. The assessee earned interest income from bank deposit which is made out of advance maintenance deposit received from its members with a specific direction to use interest income earned thereon for maintenance expenses of the society. In other words, it is an overriding charge for the society for incurring maintenance expenses out of Page No. 4 M/s. Intraprasth Co-op. Housing Society Ltd. Vs. Pr. CIT the interest income. The ld. A.R. of the assessee placed reliance on the ITAT Ahmedabad decision in the case of M/s. Sakar Corporation Vs. DCIT (ITA No. 1831/Ahd/2003) and on Gujarat High Court decision in the case of CIT vs. Adarsh Co-operative Housing 213 ITR 677 (Gujarat) in support of his contention.
The ld. Pr. CIT however rejected the arguments of the assessee and held that the order passed by the ld. A.R. is erroneous and prejudicial to the interest of Revenue and gave a direction u/s. 263 of the Act to A.O. to frame the assessment afresh after allowing reasonable opportunity to the assessee. The ld. Pr. CIT observed as under while passing the 263 order.
“4.0 I have carefully gone through the assessee's contentions, and the decisions relied upon. In the Income Expenditure account, the assessee has shown receipts of Rs. 35,46,327/- (including interest) and has claimed excess of income over expenditure to the tune of Rs. 13,53,142/- as exempted and showed total income as NIL. The assessee made the deposits 'which were received from various members and such deposits were invested in the banks other than co- op societies. Further, by depositing out of the funds of society with outsiders (banks) for commercial reason the line of mutuality has been snapped. Therefore, it clearly comes out that the interest income earned from SBI and UBI totaling to Rs. 9,96,163/- did not fall within ambit of mutuality principle and would not be eligible for exemption. The interest income of Rs. 19,824/- from Co-Op bank is considered and found eligible. It is observed that there is lack of identity between Page No. 5 M/s. Intraprasth Co-op. Housing Society Ltd. Vs. Pr. CIT contributors and participators of the fund and thus, the interest income from State bank of India and Union Bank of India to the tune of Rs. 9,96,163/- is not eligible for exemption and liable to be taxed.
4.1 The assessee place reliance on the decision of Hon'ble ITAT Ahmedabad in the case of M/s Sakar Corporation Vs. DCIT, Circle 6(1), Ahmedabad, The assessee has failed to submit copy of judgment in the case and the said case was not located in taxman utility. Further, reliance was placed on the decision of Hon'ble Gujarat High Court in the case of CIT Vs. Aadarsh Co - Op. Housing Society Limited 213 ITR 677 (GUJ.) has decided that ------- the amounts received by it from its members were not liable to be taxed on the principles of mutuality. But, in the present case, the interest income was not earned from its members but from commercial banks, hence, the facts of the present case are different from those in the cited cases, hence not applicable. 5.0 From the above discussion, it is clear that the Assessing Officer has failed to conduct proper enquiry and verification on the issue cited above. As has been brought out above, in various judicial pronouncements it has been held that where enquiry or verification is warranted, but not done, it would certainly cause prejudice to revenue and the Commissioner shall be justified in remanding the matter back to the Assessing Officer for making such enquiry. Hence, the assessment made by Assessing Officer, the ITO Ward-5(2)(3), Ahmedabad u/s 143(3) dated 20.02.2015 is erroneous and prejudicial to the interest of revenue. Invoking the provisions of section 263 in the Page No. 6 M/s. Intraprasth Co-op. Housing Society Ltd. Vs. Pr. CIT
Income Tax Act, 1961, I hereby set aside the assessment proceedings with the direction to the Assessing Officer to frame the assessment afresh after proper examination, enquiry and verification of all the issues including those cited above and after allowing reasonable opportunity to the assessee.”
Before us, ld. counsel for the assessee submitted that the facts of the asssessee’s case are different from those on which reliance has been placed upon by ld. Pr. CIT while framing the 263 order. The assessee submitted that the facts of his case is squarely covered by the Ahmedabad ITAT decision in the case of M/s. Sakar Corporation vs. DCIT ITA No. 1831/Ahd/2003. However, we note that neither the ld. A.O. nor the ld. Pr. CIT has considered the decision by Supreme Court of India in the case of Bangalore Club v CIT [2013] 29 taxmann.com 29 (SC) wherein it has been has held that interest earned by assessee-club on fixed deposits from its member banks would not be exempt from tax on basis of doctrine of mutuality. When we brought this fact to the attention of the parties, the ld. counsel for the assessee submitted that facts of the Supreme Court decision in Bangalore Club supra is distinguishable on facts and assessee’s case is covered by the decision of M/s Sakar Corporation (supra). In our considered view, the ld. A.O. has while passing the original assessment order has not considered certain important factual aspects. We accordingly restore the matter to the file of A.O. to analyze the applicability of the decisions cited above in the assessee’s set of facts and pass a de-novo assessment after providing reasonable opportunity to the assessee.
Page No. 7 M/s. Intraprasth Co-op. Housing Society Ltd. Vs. Pr. CIT
In the result, the matter is being restored to the file of A.O. for fresh adjudication as per directions above.
Order pronounced in the open court on 08-04-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 08/04/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद