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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R Per Joginder Singh (Judicial Member) This bunch of seven appeals is by the assessee as well as Revenue against the order all dated 20/12/2013 of the Ld.First Appellate Authority, Mumbai.
First, we shall take up appeal of the assessee, ( ). First ground pertains to confirming the addition treating the donation, received by the assessee, amounting to Rs.76,65,304/- as professional income, has been challenged by the assessee, by claiming that this issue is covered by the decision of the Tribunal in the case of a sister
3 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 concern i.e. M/s Engineering Mazdoor Sabha vs ACIT (ITA No.1373/Mum/2013), order dated 25/02/2015 and also another decision of the Indore Bench of the Tribunal in the case of ACIT vs. Coordination Committee of SPM Unions Hosangabad (ITA No.239 to 246/Ind/2012) order dated 25/10/2012. This factual matrix was not controverted by ld.DR.
2.1. We have considered the rival submissions and perused the material available on record. Before coming to any conclusion, we are reproducing hereunder the relevant portion of the order dated 25/02/2015 in the case of M/s Engineering Mazdoor Sabha vs ACIT (case of a sister concern) for ready reference and analysis:-
“These seven appeals by the assessee out of which six appeals are arising from the assessment framed u/s 153A for the A.Y. 2005-06 to 2010-11 and one appeal for the A.Y. 2003-04 is arising from the reopening of assessment based on search & seizure operation u/s 132. The facts as well as the issues raised in all these appeals are identical. Therefore, for the sake of convenience all these appeals are heard together and are being disposed off by this Composite order. For the A.Y. 2003-04, the assessee has raised following grounds:- “
1 The Ld. CIT(Appeals) erred in confirming the addition made by the learned ACIT in by treating donations received by the ass of Rs. 1,10,07,306/- as professional expenses.
2. The Ld. CIT(Appeals) erred in confirming the charging of interest u/s 234B(3) of the Act.
4 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014
3. The Ld. CIT(Appeals) erred in confirming the order passed the learned Assessing Officer u/s 143(3) r.w.s 147 without disposing off the objections of the assessee for reopening of the assessment & Reopening u/s 148 after four years particularly when assessee has not concealed any thing.” 2. The assessee is a trade union registered with Government of Maharashtra. The assessee union was formed by the workers and also recognized by the employers of the workers for the object of negotiations, rights and welfare of the member workers of the union through negotiations as well as for settlement of disputes, compensation and other payments due to the workers. The assessee is receiving the contribution as monthly subscription as well as a certain percentage from the settlement arrived between the employer and workers in respect of claims and disputes. Apart from the contribution/donation received from the workers, the assessee is also receiving the contribution from the employers on settlement of the claim/disputes between the employers and workers. The assessee’s role is to negotiate the claims and rights of the workers on their behalf with the management/employers and, therefore, when the dispute is finally resolved through the negotiation an agreement of settlement is signed by the employer, worker as well as by the assessee. As per the terms of agreement, a certain percentage of the payment settled between the parties is given as a contribution to the assessee both by the workers as well as by the employers. There was a search & seizure action u/s 132 of the Act carried out in the case of Chandbibi Group on 20.08.2009. Since the assessee is connected with the said group, the case of the assessee was centralized and assessment for A.Y. 2003-04 was reopened by issuing a notice u/s 148. The assessee being a registered trade union as per Indian Trade Union Act, 1926, claimed exemption of tax u/s 10(24) of the Income Tax Act in respect of the income from house property and income from other sources. The assessment u/s 143(3) r.w.s 147 of Income Tax Act, was completed determining the total income at Rs. 1,14,46,210/- as against the Nil income returned by the assessee. The Assessing Officer made the addition with respect to the donations/contribution received by the assessee from workers as well as from the employers and assessed the same as professional income of the assessee.
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3. The assessee challenged the action of Assessing Officer before the CIT(A) including the validity of reopening u/s 147 of the Act. The CIT(A) though confirmed the action of Assessing Officer in assessing the contribution /donation received by the assessee from employers as income from professional services, however, the Assessing Officer was directed to allow the expenditure pertaining to earning the said income apart from deleting the addition on account of subscription received from the members. Thus the CIT(A) has granted the relief to the extent of subscription received by the assessee form the Members and further allowing the expenditure incurred for earning the income being contribution by the employers on account of settlement of disputes 4. Before us, the Ld. Authorized Representative of the assessee has submitted that the assessee is a trade union registered with the Government of Maharashtra. The assessee union was formed with the object to secure an effective and complete organization of persons employed in the Engineering Industry in Greater Bombay and also in State of Maharashtra, Gujarat and Goa. In order to foster the spirit of solidarity, service, brotherhood and cooperation among workers and to raise status and improve the conditions of life and service of workers as well as to secure and maintain the fair and adequate scales of wages, reasonable hours and other rights and welfare of the workers as well as redressal of grievances, the assessee assists the workers and employers in fulfillment of the respective obligations and right as well as to resolve the disputes between the parties. During the year under consideration the assessee received a donation of Rs. 1,10,07,306/- out of which Rs. 71,07,533/- was received from the employer United motors and balance was received from the workers. The scope of the assessee’s object includes to seek redressal of grievances of the members and to secure as far as possible settlement of disputes between employer and the workers by negotiation and by mutual consultation. He has further submitted that the members of the assessee’s union are entitled to many benefits including the rendering of services as well as negotiation with the management on behalf of the workers, therefore, the members are required to pay the contribution on which the concept of mutuality is applicable. He has referred the settlement agreement which provides the contribution by the workers as well as by the employers on settlement of disputes arrived
6 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 between the parties. He has also referred section 27(2) of the Trade Union Act and submitted that all contribution are voluntary, therefore, the contribution received by the assessee cannot be treated as income when the object of the assessee is to work for the welfare of members. The Ld. Authorized Representative has submitted that no incriminating material was found during the search & seizure action and, therefore, the addition made by the Assessing Officer is without any merit on record. The Assessing Officer has treated the contribution/donation received by the assessee as income from profession which is contrary to the objects and activity of the assessee as the services to its members. There is no difference between the monthly subscription by the workers and one time settlement as per the settlement agreement. Thus he has submitted that the donation received by the assessee is only to achieve the object of the assessee’s union and not for any profit motive activity. In support of his contention, he has relied upon the order of Indore Benches of this Tribunal in the case of Asstt. Commissioner of Income Tax Vs. Coordination Committee of SPM Unions Hoshangabad In to 246/Ind/2012, and submitted that an identical issue has been considered by the Tribunal in the said case and it was held that the 15% incentive bonus payable to workers was contributed by them to the association/union to meet all sort of the expenditure in respect of the disputes between the workers and the employers, therefore, there was clear concept of mutuality. The Ld. Authorized Representative has submitted that in the case of the assessee the constitution provides that on dissolution excess fund to be paid to the member workers. He has further submitted that the amounts are paid to the workers every year under the head worker’s bonus/compensation. Therefore, the excess fund is paid to the workers which means that the contribution made by the workers is again going to the workers after meeting the necessary expenditures. 4.1 On query from the Bench on the point of the amount received from employers as contribution under the tripartite agreement should not be treated differently than the contribution received from workers who are members of the assessee union. The Ld. Authorized Representative has submitted that the contribution is received in the process of settlement of disputes between the employer and workers,
7 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 therefore, the role of the assessee cannot be said to be a business activity. Even, otherwise, it is a donation and capital receipt which cannot be treated as income of the assessee. There was no intention to do the business and the assessee’s role is retricted to the settlement between the management and workers. The assessee’s activity is confined only in respect of the disputes between the workers who are the members of the assessee and the management and not to the general public so that to give the colour of profession, business or occupation. There is no profit motive in the assessee’s activity and the contribution received from the employer is incidental to the services provided to the members of the assessee. In support of his contention he has relied upon the following decisions:- (i) CIT Vs. Standing Conference of Public Enterprises (Scope) 319 ITR 179 (ii) CIT Vs. Bus Operators Association 344 ITR 268 (Ker) (iii) Additional CIT Vs. Surat Art Silk Manufacturers Association 121 ITR 1 (SC) (iv) Commissioner of Sales Tax Vs. Sai Publication Fund 258 ITR 70 (SC) (v) CIT Vs. Agricultural Produce and Market Committee, Hinganghat & Ors. 258 ITR 70 (SC).
On the other hand, the Ld. DR has heavily relied upon the orders of authorities below and submitted that the income on account of contribution from the employer’s company does not fall under the category of income under the head “income from house property or income from other sources” which is exempt as per the provisions of section 10(24) of the Act. Therefore, the said income received by the assessee is taxable as income for rendering the services to these companies. He has further submitted that the payments on settlement of disputes is not voluntary but the assessee is extracting or forcing these companies to make the payments, therefore, these are not voluntary donation and was rightly treated as income of the assessee assessable to tax. The payment is contractual payment as per the settlement agreement and not voluntary donation, therefore, it is in the nature of consideration received for rendering the professional services to the corporate entities which has been claimed as voluntary contribution. He has relied
8 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 upon the order of Assessing Officer and CIT(A). The Ld. DR has further submitted that principle of mutuality is not applicable in the case of the assessee. He has further submitted that the decisions relied upon by the assessee are not applicable in the facts of the present case. The assessee has not produced any record In support of the expenditure claimed.
We have considered the rival submissions as well as relevant material on record. There is no dispute that during the search & seizure operation, the department has not recorded even a statement or seized any document from the place of the assessee. Thus it is clear that neither any incriminating record nor any information was gathered by the department as a result of search & seizure action in the case of the assessee. Once there is no document either seized or found and even no statement was recorded during the search proceedings then the addition made by the Assessing Officer is based on existing record and material. The department has not disputed that that the assessee is eligible for exemption u/s 10(24) of the Act as a registered Trade Union. The dispute is only with respect to the contribution from the employers/corporate entities on account of settlement of the disputes between the workers and employers through assesses’s union. It is one of the objects of the assessee as per the constitution of the assessee union to seek redressal of grievances of the members and to secure the settlement of disputes between the employer and the employees by negotiation and by mutual consultation. Therefore, the negotiation on behalf of the workers and to arrive at a settlement in the interest and welfare of the workers as well as for the employers to avoid any stand off between the employers and workers, the assessee play a vital role. The contribution received by the assessee is only in respect of and on account of its activity of achieving the object as per the constitution. It is not a case of receiving any amount or income by doing an activity which is not for achieving the objects of the assessee. The amount received by the assessee from the employers has a direct nexus with the negotiation and settlement arrived between the parties. The role of the assessee of negotiating on behalf of the workers for settlement of disputes between the worker and the employers is limited only in respect of the disputes between the member workers and employers. Therefore, the activity of the assessee cannot be generalized in the nature of professional service or occupational service open to general public but it is, otherwise, permitted under the by laws and constitution of 9 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 the assessee as well as Trade Union Act. Though the contribution from employer is received as per the tripartite agreement, however, it is only incidental to the activity of services of the assessee in resolving the disputes between the member workers and the employers with the intention of advancement of welfare of members. The negotiation and settlement of disputes between the workers and employers is a composite activity and the contribution received from the employer cannot be taken as a separate activity of the assessee but it is a part and parcel of activity of achieving the object as per the constitution/by laws of the assessee. Therefore, when the pre- dominant object of the activity of the assessee is to arrive at a settlement of disputes between the workers and the management in the interest and welfare of the workers and not to earn any income or profit then the contribution received from the employers on account of the settlement between the workers and the employers cannot be said to be the business/professional or occupational income of the assessee. Therefore, the said amount of contribution received from the employers at the most would be the income of the assessee as income from other sources and cannot be regarded as business income and accordingly exempt u/s 10(24) of the Income Tax Act. Apart from the contribution received by the assessee from workers, the fund received by the assessee from employers is otherwise for the purpose of achieving the objects being a welfare body of the workers and excess fund if any after meeting out the expenses incurred on account of activity performed by the assessee, are refunded to the members as bonus then the said consideration received on account of settlement cannot be treated as business income earned by the assessee. An identical issue was considered by the Indore Benches of this Tribunal in the case of Asstt. Commissioner of Income Tax Vs. Coordination Committee of SPM Unions Hoshangabad (supra), in para 20 and 21 as under:- “20. From the record we find that 15% of incentive bonus payable to workers was contributed by them to the association. This amount was deposited with the association to meet all sorts of expenditure including lawyers’ fee, TA/DA, typing, stenographic charges, court fee and all other incidental expenses. The balance out of such contribution was to be refunded to the deserving employees. From record we find that substantial amount received from the employees was refunded to them in the years 1999 and 2000 after meeting the expenditure. Thus, the amount received from the workers for meeting such expenditure was not in the nature of income in the hands of the assessee 10 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 being a coordination committee but was merely in the nature of deposit which was meant for meeting expenditure for defending/prosecuting various cases of employees. From record we find that the assessee was not merely representing its workers but in fact a party to all the litigation either as a petitioner or respondent. The management of SPM, Hon’ble High Court and Supreme Court accepted the status of the assessee as an association consisting of workers and, therefore, allowed it to contest in its own name instead of putting up the names of individual workers. There was a clear concept of mutuality. No- one can make profit out of himself. When a member agrees to contribute funds for a common purpose, the amount of funds not so required for common purpose and refunded to such individual, cannot be treated as income in their hands liable to tax. Thus, the general principle applicable to the mutual concern is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of income tax.
21. As discussed hereinabove, the amount received by the assessee was not in the nature of income and the assessee was not doing any business activity and as such the application of provisions of section 40a(ia) was not justified. For application of section 40a(ia) firstly there must be some business/professional income against which an expenditure has been claimed. In the instant case before us, since there is no business or professional income in the hands of the association, the AO was not justified in invoking the provisions of section 40a(ia) of the Act.” 7. We find that in the case of the assessee the amount received is as per the settlement agreement which was signed by all the parties, therefore, there is no material or any fact brought on record by the Assessing Officer to indicate that the amount received by the assessee from workers as well as from the employers are not voluntary but under coercion or force. If the Assessing Officer doubted the voluntary contribution made by the workers and employers then he could have conducted a proper enquiry. In the absence of any contrary fact or evidence found during the search or gathered during the assessment proceedings, the allegation of the authorities below are merely based on assumptions and not on any substance or material. On the contrary the assessee has produced the confirmation letters from the employers who paid the contribution as well as from the workers in whose cases the matters/disputes were settled through the assessee and the contribution was made as per the 11 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 settlement agreement between the parties. Therefore, the assessee has produced the relevant evidence in support of its claim that this is a voluntary contribution. Once the CIT(A) has accepted the contribution of the workers as exempt from tax u/s 10(24). Similarly the contribution made on account of the same service/activity of the assessee by the counter party being employer in pursuant to the settlement/resolution of disputes, is also exempt u/s 10(24) of the Income Tax Act. As per section 27(2) of the Trade Union Act 1926, even the rule of trade unions do not provide for distribution of funds of the trade unions on dissolution, the registrar shall divide the funds amongst the members in such manner as may be prescribed, therefore, in any case the funds available with the assessee shall be distributed among the members either as per the rules of union or as per the provisions of section 27(2) of the Trade Union Act 1926. In view of the above discussion, we are of the view that the contribution received by the assessee in pursuant to its activity which are in accordance with the objects of the assessee union cannot be treated as income from business or profession and accordingly the same is exempt u/s 10(24) of the Income Tax Act as well as on the principle of mutuality being distributed among the members of the assessee union.
Ground no. 2 is regarding levy of interest u/s 234B(3) of the Income Tax Act.
9. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The Ld. Authorized Representative of the assessee has submitted that the assessee filed return of income and claimed refund of Rs. 53,288/-. He has further submitted that the assessee filed a rectification petition u/s 154 before the Assessing Officer in respect of levy of interest u/s 234B(3), however, the Assessing Officer has not acted upon as per the rectification petition filed by the assessee. The Ld. Authorized Representative has placed reliance on the decision of this Tribunal in the case of Datamatics Ltd. Vs. ACIT 111TTJ 55 (Mum.)and submitted that when the assessee has filed the return and claimed refund then the levy of interest u/s 234B is not justified.
10. On the other hand, the Ld. DR has relied upon the orders of authorities below.
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11. Having considered the rival submissions as well as relevant material on record, we note that this issue was raised by the assessee before the CIT(A) which was disposed off in para 15 a under:- “ The additional ground of appeal
pertains to the charging of interest u/s. 234B of the Act. Since the levy of interest u/s 234B is mandatory, the general ground raised in this regard is not entertained. However, if there is any grievance with respect to the charging of interest u/s 234B, the appellant is required to approach the A.O. by filing an application u/s. 154 of the Act.”
12. The assessee has already filed a petition u/s 154 before the Assessing Officer in this respect. Accordingly, we direct the Assessing Officer to decide this issue as per law after considering the decision of this Tribunal in the case of Datamatics Ltd. Vs. ACIT (supra).
13. Ground no. 3 is regarding validity of reopening.
14. We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. The assessment was reopened based on the search & seizure operation u/s 132 carried out at the place of the assessee. As we have discussed while dealing with the ground no. 1 that neither any record of material was seized during the search proceedings nor any statement was recorded, therefore, it is manifest that no fresh information or tangible material came to the knowledge of the Assessing Officer to indicate that the income assessable to the tax has escaped assessment. Accordingly, we are of the considered view that the Assessing Officer has reopened the assessment without having any material or information on the basis of which, the Assessing Officer could have formed an opinion that the income assessable to tax has escaped assessment and accordingly the reopening is invalid as the Assessing Officer has exceeded his jurisdiction.
15. The assessee has also raised additional ground which reads as under:- “The Ld. CIT (Appeals) erred in not considering/applying the mutuality concept for contribution by workers Rs. 38,99,773/- & contribution by employers Rs. 71,07,533/- as 13 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 both funds are spent by assessee for the benefit of workers & employer only in spite of the fact that mutuality principal as accepted by the Hon’ble CIT(A) for monthly subscription /contribution by employees.
16. This ground is not a fresh ground but the part of ground no. 1, accordingly in view of our finding in ground no. 1 of the assessee’s appeal, the additional ground filed by the assessee stands disposed off.
17. For A.Y. 2005-06 to 2009-10, the assessee has raised common grounds. The grounds raised
for A.Y. 2005-06 are as under:- “1 The Ld. CIT(Appeals) erred in confirming the addition made by the learned ACIT by treating Contributions/donations received by the assessee of Rs. 20,80,960/-as professional expenses.
2. The Ld. CIT(Appeals)erred in not following mutuality concept for contribution/donations received by the assessee of Rs. 20,80,960/-.
3. The Ld. CIT(Appeals) has erred in disallowing compensation aid/expenses paid by the appellant of Rs. 82,57,250/-. 4. the Ld. CIT(A) erred in confirming the of the interest u/s 234B(3) of the Act.”
18. Ground no. 1 and 2 is regarding treatment of contribution /donation received by the assessee as income from business/profession.
19. The merits of this ground has already been discussed by us in ground no. 1 of the assessee’s appeal for A.Y. 2003-04, therefore, in view of our finding in ground no. 1 for A.Y. 2003-04, we hold that the contribution received by the assessee on account of the resolution/settlement of disputes between the workers and employers through settlement agreement is not taxable. There is another aspect involved in these appeals regarding validity of addition made in the assessment u/s 153A. This issue has been raised by the assessee in the additional ground, which reads as under:-
14 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 “That the Hon’ble CIT(A) erred in not considering/applying the provision that completed assessment will hold good if no material is seized during search for additions made by A.O. on account of donations and disallowance of compensation/workers aid paid to workers in all five years from A.Y. 2005-06 to A.Y. 2010-11.
20. It is a settled proposition of law that a notice u/s 153A is a necessary consequence of search u/s 132 and thereby the Assessing Officer shall assess or re-assess any assessment order falling within the period of six years from the date of initiation of search u/s 132 or requisition u/s 132A. So far as the assessments pending on the date of search, the same shall be abated and, therefore, the proceedings u/s 153A would be in the nature of assessment. For the assessment years for which the assessment was already completed on the date of initiation of search u/s 132, the proceedings would be in the nature of re- assessment. The addition for the assessment years, where the assessment was completed on the date of search can be made only when some incriminating material is found during the course of search & seizure. In the case in hand, there is no dispute that neither any information/material was found or seized nor any statement was recorded. Therefore, it is a case where the additions were made by the Assessing Officer without having found or seized any incriminating material during the search or any admission on the part of the assessee. When no undisclosed income was found during the search then no addition can be made in the proceedings u/s 153A for the A.Ys in which the assessment was already completed and not pending. Only in the case where the assessment is abated for the reason of search u/s 132, the Assessing Officer can conduct the enquiry in the assessment proceedings and on the basis of such enquiry the addition/disallowance can be made. Hence so far as the assessment where the assessment was not pending on the date of search, the additions are made de hors of the provisions of law. Even in the case where the assessment is abated but the Assessing Officer has not brought on record any incriminating material/facts either during the search or during the course of assessment proceedings which could lead to the conclusion that the donation/contribution received by the assessee on account of settlement of disputes between the workers and the employers through the settlement agreement is not voluntary contribution connected with the activity of the assessee to 15 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 achieve the objects then the treatment of such receipt as income from business/profession is not sustainable. We have already discussed the merits of the case while deciding the ground no. 1 in A.Y. 2003-04, accordingly; the provisions of section 153A do not permit the Assessing Officer to make the addition/disallowance in the absence of any material, evidence or undisclosed income found during the search or even during the enquiry of assessment proceedings.
21. Ground no. 3 is regarding disallowance of expenses.
We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. In view of our finding in ground no. 1 and 2 this ground of the assessee’s appeal becomes infructuous.
23. Ground no. 4 is regarding levy of interest u/s 234B.
We have heard the Ld. AR as well as Ld. DR and considered the relevant material on record. An identical issue has been discussed by us while dealing with the ground no. 2 of assessee’s appeal for A.Y. 2003-04 and in view of our finding this issue is set aside to the record of Assessing Officer for deciding the same as per law after considering the decision of this Tribunal in the case of Datamatics Ltd. Vs. ACIT (Supra).
It is to be noted that since identical issues involved for A.Y. 2005-06 to 2010-11, hence, all the appeals are disposed off in terms of finding for A.Y. 2005-06 26. In the result, appeals of the assessee are allowed in part.”
2.2. We are also reproducing hereunder the order dated 25/10/2012 of the Indore Bench of the Tribunal in the case of ACIT vs Coordination Committee of SPM Unions Hoshangabad (ITA No.239 to 246/Ind/2012) for ready reference and analysis:-
16 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 “2. The facts, in brief, are that the employees of M/s Security Paper Mill, Hoshangabad, had formed a coordination committee of the Security Paper Mill Unions of Hoshangabad with Shri N.K. Saxena as General Secretary. There was a dispute among the management and the Employee’s Unions regarding the Group Incentive Scheme. The Coordination Committee was formed for supervising and coordinating the legal proceedings on various appellant forms. Shri N.K. Saxena was orally nominated as the General Secretary/Chairman of the Coordination Committee of SPM since 1979 and was looking after the work of collection and contribution from various employees and the expenditure thereof under various heads like legal exp. etc. since 1988. A total sum of Rs. 4,27,09,595/- was collected during 17.2.99 to 8.5.2002 and was deposited in an account bearing no. 01190050149 held in State Bank of India, Hoshangabad. On these deposits interest income was also earned. The sum of Rs. 4.27 Cr. Was acquired on account of the written consent of the employees of SPM after deduction of a sum of 15% out of the incentive bonus payable. The AO found that the assessee has not furnished its income tax returns within the time period specified under section 139 for the A.Ys. 200-01 to 2003-04 though it was having income chargeable to tax. On the basis of information on record, after recording reasons, notice u/s 148 of the Act was issued for filing of income tax returns. In response to the said notice, the assessee filed returns of income for the A.Ys. 2000-01 to 2003-04 declaring income at nil in the status of AOP. With the various additions made by the AO, the assessed income was determined at Rs. 2,18,68,268/- for the A.Y. 2000-01; Rs. 29,46,507/- for the A.Y. 2001-02; Rs. 27,21,619/- for the A.Y. 2002-03; Rs. 27,05,577/- for the A.Y. 2003-04; Rs. 12,03,600/- for the A.Y. 2004-05; Rs. 38,99,895/- for the A.Y. 2005- 06; Rs. 23,93,183/- for the A.Y. 2006-07 and Rs. 2,82,54,285/- for the A.Y. 2007-08. The assessee’s claim for exemption u/s 10(24) of the Act was declined by the AO.
3. By the impugned order, the CIT(A) confirmed the AO’s action after having the following observations :- “ I am in complete agreement with the findings of the A.O. that registration under the Trade Union Act is mandatory in so far as the Trade Unions are concerned. It is incomprehensible to interpret that the association of the registered trade unions are not liable to be registered. The inadvertent omission of the word “Registered” before Association of registered Trade Unions in section 10(24)(b) of 17 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 the Act cannot be interpreted in such a manner to deprive the Government Exchequer of its legitimate claim of IT on the income of the appellant. For the reasons extensively enumerated above, I am of the considered view that the appellant is not entitled to the benefits of section 10(24) of the Act. The AO’s conclusions in this regard are confirmed and appellant’s grounds of appeal
relating to the exemption claimed u/s 10(24) of the Act, are dismissed.”
4. The contention of the assessee that its income was not assessable under the head ‘business/profession’ was not accepted by the AO and the action of the AO was confirmed by the CIT(A) after having the following observations:- “3.3 The aforementioned submissions have been carefully considered with reference to the facts obtaining from the record. As rightly concluded by the AO, all these assertions could not absolve the income of the appellant to be charged to IT. Provisions of section 28(iii) of the Act are attracted in the case of the appellant. Income derived by a trade professional or similar association from specific services performed for its members is chargeable to tax under the head ‘income from business or profession’. This is an exception to the general principle that a surplus arising to mutual association could not be regarded as income chargeable to tax. Every trade, professional or similar association which renders specific services to its own members for remuneration related to those services, in my considered view, falls within the purview of this sub-section. For this proposition, the AO correctly placed reliance on the decision in Indian Tea Planter’s Association Ltd. V. CIT (1971) 82 ITR 322 (Cal) wherein it was held that : A trade association, rendering specific services to its own members for remuneration will come within section 10(6) of the Indian IT Act, 1922 (now section 28(iii) of the IT Act, 1961). From this, it is evident that income from a trade4 association would be chargeable if the amounts paid by its members are for specific services rendered by the association. The statute, therefore, does not require that before income of such association would be chargeable, it should have been earned because of some trade activity by the association. The ratio laid down by the Calcutta High in the aforementioned decision was followed by the P&H High Court in CIT vs. Hill Goods Truck Owners Union (1980) 124 ITR 224 (P&H). The concept behind section 28(iii) is to cut at the mutuality principle being relied on in support of a claim for exemption, when the 18 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 appellant was actually deriving income for making profits as a result of rendering specific services for its members in a commercial way. This clause creates a statutory fiction (CIT vs. South Indian Film Chamber of Commerce (1981) 129 ITR 22-26 (Mad.). This clause applies to income derived by a trade, professional or similar association from specific services performed for its members. A trade association is an “association of tradesmen, businessmen or manufacturers for the protection and advancement of their common interest (Webster’s New International Dictionary, 2nd Edition, Page 264, referred to in CIT vs. Royal Western India Turf Club (1953) 24 ITR 551-556 (SC); Bellary District Mine Owner’s Assocaition Ltd. Vs. CIT (1964) 53 ITR 632 (Mys.); Indian Tea Planteers’ Association v. CIT (1971) 82 ITR 322 (Cal). Every trade, professional or similar association which renders specific services to its own members for remuneration related to those services would come within the purview of section 28(iii) (Indian Tea Planter’s Association v. CIT (1971) 82 ITR 322 (Cal.). In order to bring an income within this clause, two essential facts have to be established viz. That the association rendered specific services to its members and that remuneration was paid by the members for these services; and there must also be a connection between the remuneration and the services rendered (Chagla C.J. in Ismailia Grain Merchants Association Ltd. V. CIT (1957) 31 ITR 433 – 437 (Bom); South Indian Planting and Commercial Representation Fund v. CIT (1957) 32 ITR 513-518 (Mad.) the statute does not require that before income of such association would be chargeable to tax, it should have been earned because of some trade activities by association(CIT vs. Hill Goods Truck Owners Union (1980) 124 ITR 224 (Punj.). This clause is in the nature of a charging provision. It is applicable on its own terms. Income of a trade association not falling within section 28(iii) is not necessarily exempt (CIT vs. Shree Jari Merchants Association (1977) 106 ITR 542 (Guj.) 3.4 The word “specific” only means definite, distinctly formulated or stated with precision. T he words “performing specific services” in this clause means “conferring particular benefits”, that is, conferring on the members some tangible benefit which would not be available to them unless they paid the specific fees charged for such benefits (CIT vs. Calcutta Stock Exchange Association Ltd. (1959) 36 ITR 222 (SC); Indian Tea Planters Association vs. CIT (1971) 82 ITR 322 (Cal.) 3.5 The AO mentioned that in the case of the assessee, 19 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 employees of various SPM Unions gave their 15% incentive bonus to the coordination committee and in lieu of that the Coordination Committee made payment towards various expenses through its General Secretary, Shri N.K. Saxena. Thus, as rightly concluded bythe AO, both the conditions laid down in Ismaillia Grain Merchants Association Ltd. V. CIT (1957) 31 ITR 433 (Bom) viz. The association rendered specific services to its members and remuneration was paid by the members for these services, in my considered view, were fulfilled. It is settled position that it is not necessary that business/profession must be carried on by the assessee himself. It could be carried through agent or servant. In its case, professional work of fighting litigated issues before the appellate Forums was got completed through the advocates. 3.6 Shri P.S. Nair was an eminent legal professional, representing the impugned disputes before the MP High Court and Supreme Court. According to Report M. Jackson and John I, Powell, the occupations which are regarded as professions have four characteristics viz. (i) the nature of the work which is skilled and specialised and a subsequential part is mental rather than manual (ii) commitment to moral principles which go beyond the general duty of honesty and a wider duty to community which may transcend the duty to a particular client or patient (iii) Professional association which regulates admission and seeks to uphold the standards of the profession through professional codes on matters of conduct and ethics and (iv) high status in the community (Indian Medical Association v. V.P. Santha AIR (1996) (SC) 550-558 (1338). Viewed in this perspective, the aforementioned judicial pronouncements relied upon by the learned counsel for the appellant, enumerated in Paras No. 3.3 above squarely supports the conclusions arrived at by the AO against the appellant. Having given thoughtful consideration to all the relevant facts obtaining from the record, I am in complete agreement with the conclusions of the AO that all the receipts received by the Coordination Committee from employees of the SPM were professional receipts and after deduction of expenses, net receipts were chargeable to tax as income under the head ‘income from business or profession’. Since the High Court in WP No. 5696/98 directed payment of 50% of the incentive to the workers, after discussion with employees, all the employees gave in writing to the management to recover 15% of the incentive, that is being paid to them, to be given to the Coordination Committee, for meeting expenses and 20 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 in the presence of this written authority letter, the AO was of the view that there is no provision for balance, if any, to be refunded to employees. On the basis of individual applications made by all the employees, management of SPM deducted 15% of incentive and paid to the Coordination Committee of SPM Union. The claim of the appellant that the impugned sums were deposits to be refunded to the employees after meeting all the incidental expenses, in the absence of formal or third party evidence, was not accepted by the AO. 3.7 For the reasons extensively enumerated in subsequent paras, the contention of the appellant that its income was not assessable either under the head ‘business’ or under the head ‘profession’, is only academic and the grounds relating to this issue, raised by the appellant in all the appeals, under consideration, are accordingly dismissed.”
5. The AO also made addition on the plea that the assessee was maintaining books of accounts on mercantile basis. Accordingly, interest income was added under the head ‘income from other sources’ on the basis of its accrual not-with-standing the fact that the amount was not actually received by the assessee. The action of the AO was confirmed by the CIT(A) after having the following observations:- “The rival submissions have been carefully considered with reference to the facts obtaining from the record. In his depositions recorded on 30.10.2003 and 09.05.2007, Shri N.K. Saxena, General Secretary of the appellant Coordination Committee affirmed in specific terms that whenever he issued cheques for payment, he recorded the same as expenditure incurred and cheques received from SPM management, deposited in bank account, were accounted for and entered as income in the cash book. Since the entries for the income and expenditure, on the basis of issuance and receipt of cheques, without clearance of the same, were made in the so called cash book, it is evident that the appellant regularly followed mercantile system of accounting. Viewed in this perspective, the aforementioned assertion of the appellant that it was following cash system and not mercantile method in my considered view was rightly rejected by the AO and hence the AO’s action in this regard is upheld.
5. The next issue raised, common for all the assessment years, under consideration, was with regard to taxation of interest income received from bank. The appellant had received interest on deposits in its account held in State Bank of India, Hoshangabad, during the previous years, relevant 21 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 to the assessment years, under consideration. This was not offered for tax, as according to the learned counsel for the appellant the same was claimed as exempt u/s 10(24) of the Act. For the reasons extensively enumerated above, it was already held in unambiguous terms that the claim of the appellant for exemption u/s 10(24) was not maintainable and that the income of the appellant was not entitled for exemption under the said section. Therefore, I am in complete agreement with the conclusions of the AO that the impugned interest income was clearly taxable in each of the assessment years, under consideration. The addition made by the AO bringing to tax the interest income in each of the assessment years, under consideration, is upheld and the grounds raised
against the said addition for all the assessment years, under consideration, are accordingly dismissed. ”
6. The AO also made addition in respect of interest income from M/s Kachnar Builders. By the impugned order, the CIT(A) partly confirmed the addition by observing as under :- “In this view of the matter, I am of the considered view that taxation of interest on the said loan in each of the assessment years, under consideration, should not have been more than that credited by the debtor viz. Kachhnar Builders. For these reasons, the addition made by the AO in each of the assessment years, under consideration, is reasonably restricted to the sums of interest credited by the debtors. The AO is directed to work out and allow relief to the appellant, on this basis, for each of the assessment years, under consideration.”
7. The addition made by the AO on account of estimated undisclosed income presumed to have been earned from investment made outside the books of accounts was deleted by the learned CIT(A) after observing as under :- 7.5 In the given facts and circumstances of the case, the Assessing Officer was not entitled to make pure guess and make the impugned assessment, without reference to any evidence or material at all. If the Assessing Officer presumed that the appellant had in fact suppressed the impugned income, from being disclosed to the department, then, it was incumbent upon the Assessing Officer, to have conducted the needed investigation to bring corroborative evidence on record, to substantiate such allegations. Record evidences the fact that this 22 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 needed exercise was not carried out. In Dhakeswari Cotton Mills Ltd. v. CIT (1954) 26 ITR 775 (SC), it was held that: The AO is not entitled to make a pure guess and make estimated adhoc additions/disallowances to the income returned, without reference to any evidence or any material at all. The rule of Law on this subject has been fairly and rightly stated by the Lahore HC in Seth Gurmukh Singh v. CIT (1944) 12 ITR 393 (Lah.). It was observed by the SC in Dy. Commissioner of Agricultural Income-tax and Sales Tax v. Travancore Rubber and Tea Co. (1967), 20 STC 520 that "In all cases of taxation the burden of proving necessary ingredients laid down by law to justify taxation is upon the authorities." Since this was not proved against the appellant 'on the strength of evidence, the AO's action in this regard is opposed to the legal standards enumerated above. The Hon'ble SC has reaffirmed its earlier stand in CIT v. K.Y. Pilliah & Sons (1967) 64 ITR 411 (SC) wherein it was decided that any lump sum add backs to the income shown, if found justified, must be done in proper exercise of discretion objectively and judiciously on the basis of relevant material evidence. In the case of the appellant, under consideration, no evidence whatsoever was brought on record by the AO, to justify the impugned addition. Hence, for the reasons aforementioned, the impugned addition made by the AO. on mere suspicions, unsubstantiated on the strength of corroborative evidence, brought by the AO on record against. the appellant, cannot be sustained. The same is, therefore, deleted. The appellant accordingly gets relief of Rs.15,00,000/- for each of the assessment years 2000-01 to 2003-04.”
8. For the A.Y. 2000-01 the AO also estimated and made addition presuming the same to be undisclosed income earned from professional receipts. According to the AO, as a result of the litigation, the employees won the case and got about Rs.30 crores from the management of SPM as incentive bonus; that the amount received by the employees during the period from 17.02.1999 to 08.05.2002 represented only 50% of the incentive bonus decreed in favour of the employees and balance 50% was to be paid later on after the final disposal of the case. An amount of Rs.4,27,09,595/- @ 15% of the amount received by the employees) was deducted from the payments made to individual employees and handed over to the Co-ordination Committee as per the consent of the employees on the direct ion of the MP High Court. This amount was treated as professional receipt 23 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 received as consideration for the services rendered by the Coordination Committee to the employees for fighting their cases. The excess of income over the expenditure, for the AY 2000-01, was worked out by the AO from Page Nos.20 to 25/Para No.6.4 of the assessment order appealed against and such excess income over expenditure was brought by the Assessing Officer to tax in the assessment year 2000-01. According to the Assessing Officer, in subsequent assessment years i.e. from AY 2001-02 to 2003-04, the excess income over expenditure comes in negative. Since the appellant had not filed returns of income u/s 139 of the Act, the Assessing Officer held that the appellant was not entitled for the benefit of losses.
9. By the impugned order, the CIT(A) deleted the addition after having following observations : “8.2 The rival submissions have been carefully considered with reference to the facts obtaining from the record. There is no dispute with regard to the fact that the MP High Court in WP No.5696/98 directed for payment of 50% of the incentive to the workers and after discussion with employees, all the employees had given in writing to the management to recover 15% of the incentive that was being paid to them to be deposited with the Co-ordination Committee for meeting the expenditure and balance, if any, to be refunded to employees: On the basis of individual applications made by all the employees, management of SPM deducted 15% of incentive and deposited the same with Co-ordination Committee of SPM Union. This amount, in my considered view, was not income of the Co-ordination Committee but the same was a mere deposit. It is undisputed fact that the impugned deposit was meant for meeting expenditure for defending/prosecuting various cases of employees. Record evidences the fact that several thousands of cases were filed, prosecuted and defended by the Co-ordination Committee on behalf of the employees. The fact, that amount recovered from employees was a deposit, and it was made clear, to the General Secretary of the Coordination Committee in January 1999 that the workers had deposited 15% of the amount and to treat this merely as a deposit with a view to meet all sorts of expenditure including lawyer's fees, TA/DA, typing, stenography, court fees and all other incidental expenses and balance, if any, be refunded to the deserving employees. Facts obtaining from the record evidences the fact that substantial amount was already refunded to employees in the years 1999 and 2000 after meeting the expenditure. Had the impugned 24 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 deposits made by the workers were in the nature of income, as erroneously presumed by the AO, then, in my considered view, there would have been absolutely no question or justification for refunding any amount to the workers. 8.3. Facts obtaining from the record, also demonstrate that nearly 2500 employees were working in the Security Paper Mill and incentives were to be paid to the employees. During the pendency of the disputes, on the basis of settlement in June I 973 and award dated 02.09.1998 several thousand cases were filed before various courts such as under Payment of Wages Act, under 33(c)(1) and 33 (c)(2) of ID Act before various Authorities. Coordination committee used the services of several lawyers and mediators for bringing about the settlement and to lend the disputes. During the pendency of Writ Petition No 5696/98, the MP High Court directed payment of 50% of the incentive. Management flied repeated SLI~s before the Supreme Court. These SLPs were dismissed. The Supreme Court in SLP No. 12189/99 by order dated 08.10.1999 directed that the workmen will have to give an undertaking to refund the amount if the petition of the management of SPM is allowed. On the strength of documentary evidence available on record, the appellant established the fact that various amounts were paid by the management from 1999 as per the direction of the MP High Court and Supreme Court and after hearing the arguments at length, the Supreme Court dismissed the SLP on 08.12.2006. From the sequence of facts enumerated above, the impugned deduction of 15% of the incentive and depositing the same with the Co-ordination Committee of SPM Union, could by no stretch of imagination, be construed and presumed as income of the appellant. In my considered view, that was only a deposit meant for meeting expenditure for defending/prosecuting various disputes of the employees.
10. The disallowance was made by the AO out of expenses claimed : Disallowance of Rs. 9,83,000 for the AY 2000-01; Rs. 10,000/- for the AY 2005-06; Rs. 20,000/- for the A.Y. 2006-07 and Rs. 10,000/- for the A.Y. 2007-08. According to the AO, the expenses claimed to have been incurred under the heads ‘miscellaneous expenses’ and ‘other expenses’ was not supported by any details/evidence and since the sums received from the employees were held as professional receipts, received as consideration for the services rendered by the Coordination Committee to the employees for fighting their cases, the said expenditure according to the AO, was not allowable. Hence, the same was disallowed and added to the 25 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 income of the assessee.
11. By the impugned order, the CIT(A) gave part relief after having the following observations :- “For the reasons extensively enumerated in the immediately preceding paragraph, I have already held that the impugned deposit received from the employees constituted remuneration for the professional services rendered by the appellant, through its team of legal professionals and the same, after meeting the incidental expenditure, was refundable to the employees. In this view of the matter, although the impugned receipt was held as deposit and not income of the appellant, the expenditure incidental for highting the cases of the appellant, which was to be met from these deposits, was not disallowable, particularly when the impugned deposits made by the employees with the appellant federation was only for fighting their cases and for meeting the expenditure incidental thereto. Since in the preceding paras 8.8, it has been concluded that the amounts received by the Coordination Committee was a deposit which cannot be treated as professional receipt, there remains no professional income and as such remains no ground for disallowance of expenses since any disallowance require income in the profit and loss account. Thus, the disallowance of Rs. 9,83,000/- made by the AO in the AY 2000-01; Rs.10,000/- in AY 2005-06, Rs. 20,000/- for AY 2006-07 and Rs. 10,000/- for AY 2007-08 are deleted. The appellant accordingly gets relief of Rs. 10,23,000/- for these assessment years.”
12. In the A.Ys. 2005-06, 2006-07 and 2007-08 the AO had made disallowance u/s 40(a)(ia) of the Act. The AO disallowed Rs. 26,85,000/- for the A.Y. 2005- 06; Rs. 11,55,000/- for the AY 2006-07; and Rs. 2,69,90,000/- for the AY 2007-08. According to the AO huge amount was paid by the appellant to Shri P.S. Nair and the members of his family in the assessment years 2005-06 to 2007-08. Shri N.K. Saxena, the General Secretary of the appellant Coordination Committee, when confronted by the AO, was not able to explain why these payments were made to the family members of Shri P./S. Nair. The AO was of the view that, if the amount paid to Shri P.S. Nair represents his professional fee, then the appellant was liable to deduct tax at source u/s 194F of the Act and substantial payments made to various lawyers were without deduction of tax at 26 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 source. When confronted by the AO to explain reasons for non-deduction of tax at source, it was submitted that provisions of section 490(a)ia) of the Act were not applicable in the present case because there was no business income of the appellant; the receipts were in respect of deposits made by the members and these deposits were not income; since there was no business income, there could be no question of allowing or disallowing any expenditure.
13. By the impugned order, the learned CIT(A) deleted the addition after having the following observations :- “10.5 As such, I am of the considered view that provisions of section 40(a)(ia) of the Act are not applicable to the impugned payments made by the appellant to the legal professional named in the assessment orders, under consideration. The disallowance, if any, required to be made should have been restricted to the extent of the sum shown in the balance sheet as “payable” at the end of the year i.e. on the balance sheet dates. However, this was not the case in the case of the appellant, under consideration, since the impugned sums were undisputedly paid by the appellant and nothing was shown as payable as on the balance sheet date. For holding as above, I place reliance on the decision in K. Srinivas Naidu v. ACIT (2010) 131 TTJ (Hyd.) (UO) 17. In Jaipur Vidyut Nigam Ltd. V. Dy. CIT (2009) 123 TTJ (Jaipur) 888 also it was held that section 40(a)(ia) applies only when the amount is payable and not where the expenditure was paid. Word ‘payable’ is not defined but the word ‘paid’ is defined in section 43(2) to mean actually paid or incurred. Hence, by implication the word ‘payable’ does not include ‘paid’. In any case, since the appellant had made actual payment to the legal professionals and the same having been subjected to tax in the case of the recipients, since the genuineness of the impugned transactions were proved beyond all shadows of doubt and the same having not been proved by the AO as bogus transactions, respecting the intention of the law framers in enacting section 40(a)ia) on the Statute Book, the impugned additions made by the AO for the assessment years 2005-06 to 2007-08 in my considered view, are unsustainable. My findings in this regard are fortified from the decision of the 27 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 Supreme Court in Hindustan Coca Cola Beverages (P) Ltd. (supra) wherein it has been held in unambiguous terms that the payee/recipient of income having already paid the taxes due on the payments received by it from the appellant/payer, tax could not be recovered once again from the appellant/payer. To reiterate at the risk of repetition, the recipients were explained to have paid the tax due on the aforementioned payments received from the appellant and since the tax had already been paid by the recipient, in my considered view, the same sum, which stood suffered tax, in the hands of the recipient, could not once again be brought to tax in the hands of the payer viz. the appellant. This issue stands clarified by the Circular No. 275/201/95-IT(B) dated 29.01.1997 issued by the CBDT. It is undisputed that the circulars issued by the CBDT are binding on all the tax administrators coming within the jurisdiction of CBDT. 10.6 The impugned section seeks to deduct the income of the payee in the hands of the payer. By virtue of the said disallowance provided u/s 40(a)(ia) of the Act, the entirety of the expenses incurred by way of payment to the aforementioned parties, was disallowed on which the appellant failed to deduct TDS but even the income which was received by the aforementioned third party, was treated as the income of the appellant. An outgoing from the appellant’s books, which was offered for tax as receipt in the hands of the recipient, before close of the relevant previous year, could by no stretch of imagination, be construed as the income assessable in the hands of the appellant. Section 2(24) of the Act defined the term “income”. It included only profits or gains of business or profession and the disallowance provided u/s 40(a)(ia) of the Act is indisputably an expenditure in the hands of the appellant and in the absence of deeming such expenditure as income of the appellant falling under section 2(24) of the Act, no tax liability could be fastened on the appellant.”
14. Against the above order of the CIT(A), the revenue is in appeal before us and the assessee is in cross objection.
15. Rival contentions have been considered and record perused. We have also gone through the orders of the lower authorities and find from record that the assessee is an association of registered trade union wherein deduction of 15% of incentive 28 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 bonus payable to workers of security paper mill was deposited with the assessee. The assessee was coordinating the deposit of the workers and was also incurring expenses of litigation in connection with cases of the management of SPM management Vs. Employees of SPM. The assessee was also distributing the claim of workers in accordance with the directions of M.P. High Court. Thus, we find that the assessee was not doing any business or profession and was merely coordinating the receipts and payments on behalf of the registered trade unions and their members. Following observations of CIT(A) fully support our view :- “8.2 The rival submissions have been carefully considered with reference to the facts obtaining from the record. There is no dispute with regard to the fact that the MP High Court in WP No.5696/98 directed for payment of 50% of the incentive to the workers and after discussion with employees, all the employees had given in writing to the management to recover 15% of the incentive that was being paid to them to be deposited with the Co-ordination Committee for meeting the expenditure and balance, if any, to be refunded to employees: On the basis of individual applications made by all the employees, management of SPM deducted 15% of incentive and deposited the same with Co-ordination Committee of SPM Union. This amount, in my considered view, was not income of the Co-ordination Committee but the same was a mere deposit. It is undisputed fact that the impugned deposit was meant for meeting expenditure for defending/prosecuting various cases of employees. Record evidences the fact that several thousands of cases were filed, prosecuted and defended by the Coordination Committee on behalf of the employees. The fact, that amount recovered from employees was a deposit, and it was made clear, to the General Secretary of the Coordination Committee in January 1999 that the workers had deposited 15% of the amount and to treat this merely as a deposit with a view to meet all sorts of expenditure including lawyer's fees, TA/DA, typing, stenography, court fees and all other incidental expenses and balance, if any, be refunded to the deserving employees. Facts obtaining from the record evidences the fact that substantial amount was already 29 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 refunded to employees in the years 1999 and 2000 after meeting the expenditure. Had the impugned deposits made by the workers were in the nature of income, as erroneously presumed by the AO, then, in my considered view, there would have been absolutely no question or justification for refunding any amount to the workers. 8.3. Facts obtaining from the record, also demonstrate that nearly 2500 employees were working in the Security Paper Mill and incentives were to be paid to the employees. During the pendency of the disputes, on the basis of settlement in June I 973 and award dated 02.09.1998 several thousand cases were filed before various courts such as under Payment of Wages Act, under 33(c)(1) and 33 (c)(2) of ID Act before various Authorities. Coordination committee used the services of several lawyers and mediators for bringing about the settlement and to lend the disputes. During the pendency of Writ Petition No 5696/98, the MP High Court directed payment of 50% of the incentive. Management flied repeated SLIs before the Supreme Court. These SLPs were dismissed. The Supreme Court in SLP No. 12189/99 by order dated 08.10.1999 directed that the workmen will have to give an undertaking to refund the amount if the petition of the management of SPM is allowed. On the strength of documentary evidence available on record, the appellant established the fact that various amounts were paid by the management from 1999 as per the direction of the MP High Court and Supreme Court and after hearing the arguments at length, the Supreme Court dismissed the SLP on 08.12.2006. From the sequence of facts enumerated above, the impugned deduction of 15% of the incentive and depositing the same with the Co- ordination Committee of SPM Union, could by no stretch of imagination, be construed and presumed as income of the appellant. In my considered view, that was only a deposit meant for meeting expenditure for defending/prosecuting various disputes of the employees.” Under the provisions of section 10(24)(b) income of an association of registered union as referred to in sub-clause (a) of section 10(24) which is in the nature of “income from house 30 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 property” or “income from other sources” is exempt from income tax. In the instant case, the assessee falls under clause (b) which has been clearly explained by the CBDT in its Circular No. 762 dated 18.2.1988 which provides as under :- “Income tax exemption to associations of registered trade unions, 18.1 Under the existing provisions of clause (24) of section 10, any income of a registered union within the meaning of the trade Union Act, 1926 (16 of 1926) under the heads “income from house property” and “Income from other sources” is exempt from income tax if such trade union is formed primarily for the purpose of regulating the relations between workmen and employer or between workmen and workmen. 18.2 The Finance (No.2) Act, 1996, in line with the above, provide similar exemption to an association of trade unions of the nature specified under the existing provisions of clause (24) of section 10”
16. After perusing the various documents filed before the AO, we find that since 4.12.1979 SPM management, Union of India, Ministry of Labour, Ministry of Law, have all treated SPM Coordination Committee as an association of registered trade union. Furthermore, the Court orders also indicate the assessee as coordination committee of SPM Union. We also find that when the Union of India through their management challenged the award of the Tribunal dated 2.9.1998 in the High Court inW.P. No. 5698/1998, only coordination committee was made a party.
In view of the above facts, we are inclined to agree with the learned counsel for the assessee, Shri Sumit Nema, that the assessee as a coordination committee was an association of trade union, therefore, eligible for claim of exemption u/s 10(24) in respect of its income falling under the heads of “income from other sources”. We direct accordingly.
Once it is held that the assessee is eligible for exemption u/s 10(24), the income earned by the assessee in the form of interest from bank deposits as well as other interest from Kachnar Builders will also qualify for exemption u/s 10(24) insofar as 31 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 interest income is liable to tax under the head “income from other sources”.
19. As we have already held that the interest income earned by the assessee is also liable for exemption u/s 10(24) of the Act, we are not going in deep with regard to interest income earned by the assessee from Kachnar Builders which has been partly brought to tax by the CIT(A) to certain extent.
20. From the record we find that 15% of incentive bonus payable to workers was contributed by them to the association. This amount was deposited with the association to meet all sorts of expenditure including lawyers’ fee, TA/DA, typing, stenographic charges, court fee and all other incidental expenses. The balance out of such contribution was to be refunded to the deserving employees. From record we find that substantial amount received from the employees was refunded to them in the years 1999 and 2000 after meeting the expenditure. Thus, the amount received from the workers for meeting such expenditure was not in the nature of income in the hands of the assessee being a coordination committee but was merely in the nature of deposit which was meant for meeting expenditure for defending/prosecuting various cases of employees. From record we find that the assessee was not merely representing its workers but in fact a party to all the litigation either as a petitioner or respondent. The management of SPM, Hon’ble High Court and Supreme Court accepted the status of the assessee as an association consisting of workers and, therefore, allowed it to contest in its own name instead of putting up the names of individual workers. There was a clear concept of mutuality. No- one can make profit out of himself. When a member agrees to contribute funds for a common purpose, the amount of funds not so required for common purpose and refunded to such individual, cannot be treated as income in their hands liable to tax. Thus, the general principle applicable to the mutual concern is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of income tax.
21. As discussed hereinabove, the amount received by the assessee was not in the nature of income and the assessee was not doing any business activity and as such the application of provisions of section 40a(ia) was not justified. For application of section 40a(ia) firstly there must be some business/professional 32 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 income against which an expenditure has been claimed. In the instant case before us, since there is no business or professional income in the hands of the association, the AO was not justified in invoking the provisions of section 40a(ia) of the Act. 2.3. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order as well as aforementioned orders of the Mumbai and Indore Benches of the Tribunal, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, the issue before us is with respect to addition of Rs.76,65,304/-, received by the assessee as donation and treated by the Assessing Officer as professional income. The assessee entered into agreements with various companies on behalf of workers for settling industrial disputes or arbitrating between employers & employees. As per the agreement, the union will look after the rights and benefit of the workers for settling any dispute with the management, thereby, avoiding undue hardship both the employers and employees. The assessee union is registered under the Trade Unions Act, 1926. The assessee received contribution/donation of Rs.76,65,304/- during the relevant period to Assessment Year 2003-04 from various companies for industrial dispute settlement. The agreement and the confirmations from the concerned companies were filed before the Assessing Officer with the claimed proof that the receipts are voluntary contribution made by them. The stand of the assessee is that such 33 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 contribution/donation cannot be treated as professional income and thus is exempt u/s 10(24) of the Act. To understand the issue in a better way, the following points emerges:- a) As contributions/donations are received by way of deductions from amount payable to workers which Union spent for workers concept of mutuality is applicable. b) Contribution/Donations are voluntary & not by force c) It is not in the nature of income but capital receipt or worse taxable under the head of Income from Other Sources. d) Contribution/Donations are received as per agreements entered on behalf of workers. e) Such agreements are supervised approved by Commissioner of Labour under Trade Union Act f) Union is registered under Indian Trade Union act, Functions under constitution registered with Registrar of Trade Union Act & approved by Government. g) Such contribution is authorized by clause no.9 of constitution h) Any surplus is to be distributed to workers at the time of dissolution as per section 27(2) of the trade union act 1926. i) After each settlement all workers file declaration with Union for accepting settlement j) From above submission it is clear that Union is not in to a business or profession but performing its duties as per constitutions. Considering the aforementioned cases, decided by the Coordinate Benches of Mumbai and Indore and more specifically the Mumbai Bench of the Tribunal in the case of 34 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 the sister concern of the assessee, the settlement of the disputes between the workers and their employers was negotiated by the assessee to avoid any stand of between the employers and the workers by playing a vital role. The contribution received by the assessee is only in respect of and on account of its activities in achieving the objects, as per Constitution. The amount received by the assessee from the employers/employees has a direct nexus with the negotiation and settlement arrived at between the parties. Thus, the activity of the assessee cannot be generalized in the nature of professional services simplicitor. The contribution from the employer is received as per agreement and incidental to the activities of the services rendered by the assessee in resolving the disputes between the member workers and the employers with the intention of welfare of the members/workers. Thus, following the aforesaid decisions, it is noted that there is no material brought on record by the Assessing Officer evidencing that the amount received by the assessee from the employers as well as from the workers are not voluntary. In the absence of any contrary material and it has been accepted that the contribution of workers are exempt under section 10(24). Similar is the situation in respect of amounts received from counterparty, being employer, in pursuant to settlement / resolution of disputes, as exempt under section 10(24) of the Act. Following the aforesaid order, we are of the view that the amounts so received by the assessee cannot be treated as 35 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 business or profession, consequently should have been treated as exempt under section 10(24) of the Act as well as on the principle of mutuality being distributed among the members. Thus, this ground of the assessee is allowed.
So far as, ground no.2 is concerned, in the light of the foregoing discussion, as contained above, this ground has remained for academic interest only, and has been discussed / deliberated upon bias while concluding ground No.1 (supra).
So far as grounds no. 3 & 4 with respect to charging of interest u/s 234B(3) of the Act and confirming the order u/s 143(3) r.w.s. 147 for reopening of assessment is concerned, these were not pressed by the ld. counsel for the assessee, therefore, both these grounds are dismissed as not pressed.
5. So far as additional ground raised
by the assessee is concerned, since we have decided ground No.1 & 2 in favour of the assessee, therefore, no adjudication is required for the additional ground, raised by the assessee as it is tax free income of the assessee. Thus, this appeal of the assessee is partly allowed.
6. Now, we shall take up the appeal of the assessee for Assessment year 2005-06 (ITA No.353/Mum/2014). So far as 36 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 ground nos.1 & 2 are concerned, both these grounds are covered by the decision as contained in preceding para of this order while disposing of , therefore, decided in favour of the assessee.
6.1 Ground no.3 is with respect to confirming the addition of Rs.41,11,280/- on account of workers aid. This addition was made by the ld. Assessing Officer on the plea that the assessee could not produce vouchers, evidencing payments and merely filed affidavit of nine persons only. Before us, the ld. counsel for the assessee, Mr. Agarwal, contended that compensation/aid was paid by the assessee to the workers and claimed such expenses under the head compensation/aid paid to the workers in cash. It is noted that during survey u/s 133A of the Act, the General Secretary of the assessee Sabha was asked to produce the vouchers for the claimed expenses. It was explained by him that expenses were incurred by giving aid to the workers and the same were paid in cash. So far as, non-production of vouchers is concerned, it was explained that the same were destroyed to white ants as the walls of the building were more than hundred years old and were absorbing waters. Before us, the assessee filed affidavit of following persons:- i. N. R. Agarwal & Company, Auditors, ii. Shri D. K. Netrawal, General Secretary of Union iii. Shri Krishna M. Mane, Secretary of the Union 37 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 iv. Shri Babu P. Tummala, Accountant of the Union, v. Shri Guru Prasad B. Verma, Secretary of the Union & vi. Three affidavits of the workers as a sample copy vii. Detailed charts with names of each worker viii. Resolution of the Managing committee.
Our attention was invited to pages 90 to 95 of the paper book containing the list of workers and the amounts paid to them and also page-96 of the paper book containing the extract of meeting of general council held on 13/08/2005. It was explained that such expenses are authorized by the constitution of the union and the aid was paid to the workers when the units were own strike and such workers were unable to meet there house hold expenditure due to absence of salary/wages. On the other hand, the ld. DR contended that in the absence of vouchers, such expenses cannot be allowed. The ld. counsel for the assessee in reply, explained that, identically no addition was made on this account for Assessment year 2003-04, whereas, identically aid was given to such workers.
MUMBAI MAZDOOR SABHA WORKERS AID PAID TO THE WORKMEN FOR THE A.Y.-2005- 06 Mulla & Mulla Craigie Blunt & Caroe 1 Shirley James 20,000.00 2 Dalpat Patel 20,000.00 3 Aloo M. Bhathena 20,000.00 4 S. Subramanium 20,000.00 5 Krishna K. Shivalkar 20,000.00 100,000.00 38 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 Cable Corporation of India Ltd. 1 Mahendr R. Toprani 20,000.00 2 Harish H. Udeshi 20,000.00 3 Dhansukhlal N. Modi 20,000.00 4 Gajanan S.Bhatkalkar 20,000.00 5 Subhash N. Vadke 20,000.00 6 Gautam S. Shirke 20,000.00 7 Sanjeev L. Upadhyay 20,000.00 8 Dashrath G. Bhirwandekar 20,000.00 9 Chandrakant A.Bhogle 20,000.00 1,80,000.00 Mercury Paints & Varnishes Ltd. 1 Shivaji J. Takawaje 20,000.00 2 Govind B. Tulaskar 20,000.00 3 Ganpat B. Chindarkar 20,000.00 4 Harischandra Y.D 20,000.00 5 Yusuf Gulab Shaikh 20,000.00 6 Suresh L. Tondwalkar 20,000.00 7 Kisan R. Kshirsagar 20,000.00 8 K. Kampa Swami 20,000.00 9 N.S. Tulaskar 20,000.00 10 S.P. Chaliah 20,000.00 11 S.T. Attarde 20,000.00 12 C.N.Devadiga 20,000.00 13 Indravijay Talasikar 20,000.00 14 Mohd. Mustafa 20,000.00 15 N.S. Murudkar 20,000.00 16 D.M. Narsule 20,000.00 17 Shankar Aba 20,000.00 18 Shashikant Shinde 20,000.00 19 Rajaram G. Tambe 20,000.00 20 T.Y. Keni 20,000.00 21 Namita N. Satardekar 20,000.00 22 J.R. Kosambia 20,000.00 23 A.B. Kararia 20,000.00 24 Pundlik K. Kadam 20,000.00 25 Arvind S. Pednekar 20,000.00 26 Dilip Karekar 20,000.00 27 Anant S. Keer 20,000.00 28 Gangaram T.Sakpal 20,000.00 29 Mahadev G. Shinde 20,000.00 30 Anilkumar N.S. 20,000.00 31 Nilkant V. Shridhankar 20,000.00 32 Raghunath Gunaji G. 20,000.00 39 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 33 Peter Pascai 20,000.00 34 Urban J. D’Costa 20,000.00 35 Madhukar A. Jadhav 20,000.00 36 Vijay N. Kangutkar 20,000.00 37 Ramchandra B. Dhage 20,000.00 38 Ramesh R. Mhatre 20,000.00 39 Laxman D. Shinde 20,000.00 40 Suresh K. Engawale 20,000.00 41 Prakash Sawant 20,000.00 42 V.R. Khot 20,000.00 43 Natha D. Kadam 20,000.00 44 Vanvasi S. Yadav 20,000.00 45 Anand B. Yadav 20,000.00 46 Ashok A More 3,280.00 963,280.000 Hindustan Ciba Geigy Ltd. V.G.S. Pissurlekar 10,000.00 10,000.00 Babubhai Jagjivandas 1 Vinod Smpat 20,000.00 2 Sanjay K. Dutia 20,000.00 3 Abdul Karim A. Siragi 20,000.00 4 Mahadeo D. Pawar 20,000.00 5 Mayur M. Mahajan 20,000.00 6 Yogesh K. Khira 20,000.00 7 Rajsingh K. Mawa 20,000.00 8 Pravin J. Kakkad 20,000.00 9 Amrul Y. Bora 20,000.00 10 Kishor Shah 20,000.00 11 Kiran L. Ruparel 20,000.00 12 Rajesh Khatri 20,000.00 13 Shankar U. Tirlotkar 20,000.00 14 Rajaram Naryan Kadam 20,000.00 15 Jaikishan Gurdasani 20,000.00 16 Madan Trivedi 20,000.00 17 M. D. Pawar 20,000.00 18 Himanshu H. Joshi 20,000.00 19 J.K. Rane 20,000.00 20 Satish B. Shah 20,000.00 21 Somaram N. Dave 20,000.00 22 Vinod S. Supawal 20,000.00 23 Dakshesh Shah 20,000.00 24 Suresh A. Sawant 20,000.00 25 Madansingh Rajpurohit 20,000.00 26 Vasant Shah 20,000.00 520,000.00 40 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 BCL Forgings Ltd. 1 C.S. Jadhav 18,000.00 2 A.B. Ushir 18,000.00 3 T.S. Balan 18,000.00 4 Yeshwant M. Kulkarni 18,000.00 5 S.C. Sonawane 18,000.00 6 K.P. Kele 18,000.00 7 S.I.Kale 18,000.00 8 M.D. Avhad 18,000.00 9 Vasant D.Shelar 18,000.00 10 N.H. Borate 18,000.00 11 B.Y. Agiwale 18,000.00 12 D.B. Singh 18,000.00 13 Dilip D. Pagare 18,000.00 14 P.S. V. Pillai 18,000.00 15 Chandrakant R. Rahatal 18,000.00 16 Subhash Shantram Shelke 18,000.00 17 B.S. Yadav 18,000.00 18 Ramesh Vital Lolge 18,000.00 19 Bahusaheb S.Dindore 18,000.00 20 R.A. Sirsat 18,000.00 21 S.M. Avhad 18,000.00 22 P.C. Gangad 18,000.00 23 Balu Jagannath Pawar 18,000.00 24 S.T. Jadhav 18,000.00 25 Govind T.Sirsat 18,000.00 26 S.B. More 18,000.00 27 B.D. Thete 18,000.00 28 Arjun Singh Mahara 18,000.00 29 P. N. Jamdade 18,000.00 30 Ashok K.Bamre 18,000.00 540,000.00 Zenith Birla (I) Ltd.- Indian Tool 1 B.S. Ahirao 20,000.00 2 S.B. Gaidhani 20,000.00 3 V.D.Shewale 20,000.00 4 S.B. Moharil 20,000.00 5 S.M. Gulve 20,000.00 6 A.T. Pagare 20,000.00 7 S.D. Jagtap 20,000.00 140,000.00 Business Combine Ltd. 41 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 1 Santosh T.C. 20,000.00 2 L.B. Gite 20,000.00 3 Viajy B. Pawar 20,000.00 4 Krishan L. Chawanke 20,000.00 5 D.N. Kapadnis 20,000.00 6 Bharat E. Umale 20,000.00 7 W.S. Bagul 20,000.00 8 Jibhau Borse 20,000.00 9 B.K. Zankar 20,000.00 10 D.R. Bharati 20,000.00 11 Ashok V. Pund 20,000.00 12 Dattatray Kisan Ugale 20,000.00 13 Balkrishna Waman Survade 20,000.00 14 Ashok Ramdas Patil 20,000.00 15 Bhika Gopal Pawar 20,000.00 16 J.S. Borse 20,000.00 17 Y.D. Mall 20,000.00 18 Sayaji Tulsiram Jadhav 20,000.00 360,000.00 Bhor Industries Ltd. 1 H.D. Pandey 18,000.00 18,000.00 PCI Group of Companies 1 S.P. Golap 20,000.00 2 Sanjeev Mdoshi 20,000.00 3 J.A. Desai 20,000.00 4 H.N. Shetigar 20,000.00 5 Sampat Ghavri 20,000.00 6 J.R. Roundal 20,000.00 7 Sopan Naik 20,000.00 8 Rajesh Kapadia 20,000.00 9 Philomina Narona 20,000.00 10 Adhok R. Khopade 20,000.00 11 Vilas Sawant 20,000.00 12 Balram Pawar 20,000.00 13 A.P. Kadam 20,000.00 14 Arjun Gholap 20,000.00 15 Dattaram N. Kerkar 20,000.00 16 V.S. Naikre 20,000.00 17 P.H. Solanki 20,000.00 18 C.N. Balachandran 20,000.00 19 Karmala Fernandes 20,000.00 20 Tejaswani Pawar 20,000.00 21 C.D. Todankar 20,000.00 42 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 22 N.R. Sarale 20,000.00 23 K. Balasubramaniam 20,000.00 24 B.S. Chivalkar 20,000.00 25 Yeshwant R. Mate 20,000.00 26 Kishan More 20,000.00 27 Shankar K. Jadhav 20,000.00 28 Sadanand Patil 20,000.00 29 K.M. Dalvi 20,000.00 30 Milan Mehta 20,000.00 31 Rajesh Samani 20,000.00 32 Anita L. D’Souza 20,000.00 33 Kusum Shetty 20,000.00 34 Indrajit Kahar 20,000.00 35 Harish Gujjar 20,000.00 36 G. Kolappa Pillai 20,000.00 37 Indira Salian 20,000.00 38 P.N. Trivedi 20,000.00 39 Ganpat Kalambate 20,000.00 40 D.R. Bhagat 20,000.00 41 Raghuram S. Shetty 20,000.00 42 S.L. Rane 20,000.00 43 V.D. Todankar 20,000.00 44 Vincent Periera 20,000.00 45 Sadanand Mali 20,000.00 46 Vijay Jawrat 20,000.00 47 Bhagwan R. Mali 20,000.00 48 Gopal Khadke 20,000.00 49 R.K. Jadhav 20,000.00 50 Ramdular Bari 20,000.00 51 F. D’Souza 20,000.00 52 Elsie D’Costa 20,000.00 53 Anuradha V. Limaye 20,000.00 54 Shital A. Parab 20,000.00 55 Roshni R. Patil 20,000.00 56 Ramdas Pisal 20,000.00 57 R. Pande 20,000.00 58 R.B. Mishra 20,000.00 59 R. B. Mali 20,000.00 60 Mahadev B. Naikre 20,000.00 61 Manjula P Shroff 20,000.00 1,220,000.00 4,066,280.00 43 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 EXTRACT OF MEETING OF GENERAL COUNCIL COMMITTEE OF MUMBAI MAZDOOR SABHA HELD ON 13TH AUGUTST 2005 AT 5:30 P.M. AT THE REGISTERED OFFICE OF THE SABHA SITUATED AT KENNEDY HSOUE, 4TH FLOOR, GOREGAONKAR ROAD, MUMABAI “RESOLVED THAT the workers aid to the tune of Rs.28,31,513/- given to the workmen of the following company as detailed herein below for the year 2004-05. i. Business Combine: Rs.8,43,280/- ii. PCI Group: Rs.4,00,000/- iii. Indian Tool Mfrs: Rs.5,00,000/- iv. Binani Glass Fibres: Rs.1,80,000/- v. Khimji Vishram: Rs.1,40,000/- vi. Lalji Corporation: Rs.2,00,000/- vii. Hindustan Ciba-Geigy: Rs.3,00,000/- viii. Parsee Gen. Hospital: Rs.1,00,000/- ix. K.V. Cotton & Ginning: Rs.2,00,000/- x. Babubhai Jagjivandas: Rs.1,00,000/- Was read out and the same be and is hereby authorised by this General Council Body in the absence of any objection from the present Council Members.”
6.2. We have considered the rival submissions and perused the material available on record. So far as, non-production of vouchers is concerned, the assessee has filed affidavit from Shri N.R. Agrawal & Company, who audited the account of the assessee and has duly confirmed that they saw the vouchers at the relevant time and due to reasons stated before us as well as before the Ld. Commissioner of Income Tax (Appeals), such vouchers could not be produced. Identical affidavits were filed form the General Secretary of the Union, from accountant of the union, three affidavits from the workers as a sample, detailed chart with name of each worker to whom the aid was provided, resolution of the Managing commission etc. It is also noted that such expenses are authorized by the Constitution of the Union and such aid is 44 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 paid to the workers when the units of a particular union of workers are on strike and such workers are unable to meet their household expenditure. It is also noted that no such addition was made for Assessment year 2003-04 which is also based on similar facts. The original assessment for earlier three Assessment years was made under section 143(3) of the Act and no addition was made as is evident from pages 88 & 89 of the paper book. Considering the totality of facts, this ground of the assessee is allowed. This view of ours will cover identical ground raised in ITA No.354 & 355/MUM/2014.
7. So far as ground no.4 with respect to charging of interest u/s 234B (3) of the Act was not pressed by the ld. counsel for the assessee, therefore, this ground is dismissed as not pressed.
8. The last ground i.e. No.5, raised by the assessee pertains to confirming the reopening of assessment u/s 147/148 of the Act after a lapse of four years. The stand of the assessee is that there is no failure on the part of the assessee to disclose the material facts fully and truly and confirmation of order of the Assessing Officer, passed u/s 143(3) r.w.s 147 of the Act, by the Ld. Commissioner of Income Tax (Appeal) and that too without disposing off the objections, raised by the assessee is not justified. It was explained that no addition was made in Assessment year 2003-04, which is also based upon the same facts. It was also claimed that original assessment or earlier three years was made u/s 143(3) of the 45 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 Act and no addition was made. Our attention was invited to pages 88 & 89, containing the assessment order of Assessment year 2005-06 (Financial Year 2004-05). Our attention was further invited to pages 90 to 95 of the paper book, containing workers aid paid to workmen for Assessment year 2005-06 and the extract of the meeting of general council held on 13/08/2005 at 5:30 P.M. at the registered office of the sabha. The crux of argument on behalf of the assessee is that reopening was made beyond four years. It was explained that notice under section 148 was issued on 29/03/2012 and four years ends on 31/03/2010, thus, reopening was made in the sixth year i.e. 2012. It was contended addition was based upon suspicion as necessary material on same facts was available with the Assessing Officer even in Assessment year 2003-04, wherein while framing the assessment under section 143(3), no addition was made. This factual assertion was not controverted by learned D.R.
In the light of the above factual matrix, now, question arises whether there was a change of opinion by the Assessing Officer and the validity of reopening of assessment u/s 147/148 after a period of four years. Since, we have upheld that an opinion was formed by the Assessing Officer that too after due deliberation, therefore, we shall analyzed the validity of reopening of assessment. Considering the totality of facts, we find that reassessment proceedings will be invalid, in case, the assessment order itself records that the issue was raised 46 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 and is decided against the assessee, therefore, the reassessment proceedings in this case is hit by the principle of “change of opinion” because reassessment proceedings will be invalid as notices along with detailed questionnaire were issued, query was raised and answered by the assessee in original assessment proceedings. The expression “change of opinion” postulates formation of opinion and then a change thereof. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. A distinction must be drawn between erroneous application/ interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record or not made available by the assessee, during assessment proceedings, the principle of “change of opinion” will apply. The reason is that “opinion” is formed on facts. “Opinion” formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of “change of opinion”. Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the 47 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 information or material available should relate to material facts. The expression “material facts” means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have a remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the assessment proceedings on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. If a subject-matter, entry or claim/deduction is not examined by an Assessing Officer, it cannot be presumed that he must have examined the claim/deduction or the entry, and, therefore, it is a case of “change of opinion”. When at the first instance, in the original assessment proceedings, no opinion is formed, the principle of “change of opinion” cannot and does not apply. There is a difference between “change of opinion” and “failure or 48 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 omission” of the Assessing Officer to form an opinion on a subject-matter, entry, claim, deduction, etc. When the Assessing Officer fails to examine a subject-matter, entry, claim or deduction, he forms no opinion. It is a case of no opinion. Whether or not the Assessing Officer had applied his mind and examined the subject-matter, claim, etc., depends upon factual matrix of each case. The Assessing Officer can examine a claim or subject-matter even without raising a written query. There can be cases where an aspect or question is too apparent or obvious to hold that the Assessing-Officer did not examine a particular subject-matter, claim, etc. The stand and substance of the assessee and the Assessing Officer in such cases are relevant.
Section 114 of the Evidence Act, 1872, is permissive and not a mandatory provision. Nine situations by way of illustrations are stated. These are by way of example or guidelines. As a permissive provision it enables to judge to support his judgment but there is no scope of presumption when facts are known. Presumption of facts under section 114 is rebuttable. The presumption raised under illustration (e) to section 114 of the Act means that when an official act is proved to have been done, it will be presumed to have been regularly done but it does not raise any presumption that an act was done for which there is no evidence or proof.
49 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 (i) Assessments cannot be validly reopened under section 147 of the Act even within four years, if an assessee had furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made under section 143(3). So long as the assessee has furnished full and true particulars at that time of original assessment and so long as the assessment order is framed under section 143(3) of the Act, it matters little that the Assessing Officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects.
(ii) Section 114(e) of the Act can be applied to an assessment order framed under section 143(3) of the Act, provided there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. The ratio laid down in the following cases usefully throw lights on the issue in hand:-
A. L. A. Firm v. CIT [1976] 102 ITR 622 (Mad) (para 9) A. L. A. Firm v. CIT [1991] 189 ITR 285 (SC) (paras 32, 60, 61) Anandji Haridas and Co. P. Ltd. v. Kushare (S. P.), STO [1968] 21 STC 326 (SC) (para 35) Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC) (para 34) Barium Chemicals Ltd. v. CLB [1966] 36 Comp Cas 639 (SC) (para 56) BLB Ltd. v. Asst. CIT [2012] 343 ITR 129 (Delhi) (para 14) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (para 45) CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) (paras 9, 34)
50 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 (Bom) (para 21) CIT v. DLF Power Ltd. [2012] 345 ITR 446 (Delhi) (para 14) CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi) (paras 10, 28) CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) [FB] (paras 2, 12, 20, 48) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) (paras 2, 28) CIT v. Khemchand Ramdas [1938] 6 ITR 414 (PC) (para 50) CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) (para 18) CIT (Asst.) v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 (SC) (paras 4, 12) CIT v. Sharma (H. P.) [1980] 122 ITR 675 (Delhi) (para 9) Consolidated Photo and Finvest Ltd. v. Asst.CIT [2006] 281 ITR 394 (Delhi) (paras 9, 11) Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi) (para 17) G. R. Ramachari and Co. v. CIT [1961] 41 ITR 142 (Mad) (paras 38, 61) Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H) (para 10) ITO v. Habibullah (S. K.) [1962] 44 ITR 809 (SC) (para 50) Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) (paras 34, 35) Indian Hume Pipe Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom) (para 17) 3i Infotech Ltd. v. Asst. CIT [2010] 329 ITR 257 (Bom) (para 26) International Woollen Mills v. Standard Wool (U. K.) Ltd. [2001] 5 SCC 265 (para 30) Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) (paras 9, 33, 34, 35) KLM Royal Dutch Airlines v. Asst. Director of I. T. [2007] 292 ITR 49 (Delhi) (para 12) Kunhayammed v. State of Kerala [2000] 245 ITR 360 (SC) (para 31) Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC) (para 34) Muthukrishna Reddiar v. CIT [1973] 90 ITR 503 (Ker) (para 9) New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi) (para 18) Praful Chunilal Patel v. Makwana (M. J.)/Asst. CIT [1999] 236 ITR 832 (Guj) (para 21) Snowcem India Ltd. v. Deputy CIT [2009] 313 ITR 170 (Bom) (para 31) Sri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC) (paras 56, 58) Suresh Budharmal Kalani v. State of Maharashtra [1998] 7 SCC 337 (para 29) Union of India v. Suresh C. Baskey [1996] AIR 1996 SC 849 (para 20)
51 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 United Mercantile Co. Ltd. v. CIT [1967] 64 ITR 218 (Ker) (para 9) "(i) What is meant by the term 'change of opinion' ? (ii) Whether assessment proceedings can be validly reopened under section 147 of the Act, even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion ? (iii) Whether the bar or prohibition under the principle 'change of opinion' will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects ? (iv) Whether and in what circumstances section 114(e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion ?"
To explain the aforementioned position of the law, we are reproducing hereunder the relevant provision of section 147 of the Act. "147. Income escaping assessment.—If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
52 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the fore going proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but— (i) income chargeable to tax has been under assessed ; or 53 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allow ance under this Act has been computed. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148."
For reopening an assessment made under section 143(3) of the Act, the following conditions are required to be satisfied:-
(i) the Assessing Officer must form a tentative or prima facie opinion on the basis of material that there is underassessment or escapement of income ; (ii) he must record the prima facie opinion into writing ; (iii) the opinion formed is subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion. (iv) reasons recorded and/or the documents available on record must show a nexus or that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. (v) In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. The Explanation to the section stipulates that mere production of books of account or other documents from which the Assessing Officer could have, with due diligence, inferred material facts, 54 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 does not amount to "full and true disclosure of material facts" (the proviso is not applicable where reasons to believe for issue of notice are recorded and notice is issued within four years from the end of assessment year).
The expression "change of opinion" postulates “formation of opinion” and then a “change thereof”. In the context of section 147 of the Act it implies that the Assessing Officer should have formed an opinion at the first instance, i.e., in the proceedings under section 143(3) and thereafter, with the initiation of the reassessment proceeding, the Assessing Officer proposes or wants to take a different view. The word "opinion" is derived from the latin word "opinari" which means "to believe", "to think". The word "opinion" as per the Black's Law Dictionary means a statement by a judge or a court of a decision reached by him incorporating cause tried or argued before them, expounding the law as applied to the case and, detailing the reasons upon which the judgment is based. Advanced Law Lexicon by P. Ramanatha Aiyar (third edition) explains the term "opinion" to mean "something more than mere retaining of gossip or hearsay; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question . . . An opinion is a conviction based on testimony . . . they are as a result of reading, experience and reflection".
In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of 55 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 understanding, experience and reflection to use the words in Law Lexicon by P. Ramanatha Aiyar. The question of change of opinion arise when an Assessing Officer forms an opinion and decides not to make an addition or holds that the assessee is correct and accepts his position or stand. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H), a Division Bench of the Hon’ble Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed on record by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted/rejected the view canvassed by the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why 56 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 the assessee should be made to suffer the consequences of his lapses.
The Hon’ble Delhi High Court in Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 (Delhi) held as under: "In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere 57 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion."
From the foregoing discussion, the clear position emerges as under: (1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.
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17. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort may be made through section 263 of the Act. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. Here a distinction has to be drawn between erroneous application/interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression "material facts" means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. Correct material facts can be ascertained from the assessment records also and it is not necessary that 59 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 the same may come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer’s proceeding on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. A decision of from Hon’ble Delhi High Court dated September 26, 2011 in Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi) and another decision from Hon’ble jurisdictional High Court dated November 8, 2011, in Indian Hume Pipe Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom.) are two such cases, which throws light on the issue. In the first case, the Assessing Officer in the original assessment had made addition of Rs. 19,86,551 under section 40(1) on account of unconfirmed sundry creditors. The reassessment proceedings were initiated after noticing that unconfirmed sundry creditors, of which details, etc., were not furnished, were to the extent of Rs. 52,84,058 and not Rs. 19,86,551. In Indian Hume Pipe Co. Ltd. (supra), after verification the claim under section 54EC was allowed but subsequently on examination it transpired that the second property was purchased prior to the date of sale. The aforesaid decisions/ facts cases must be distinguished from cases where the material facts on record are correct but the Assessing Officer 60 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 did not draw proper legal inference or did not appreciate the implications or did not apply the correct law. The second category will be a case of "change of opinion" and cannot be reopened for the reason that the assessee, as required, has placed on record primary factual material but on the basis of legal understanding, the Assessing Officer has taken a particular legal view. However, as stated above, an erroneous decision, which is also prejudicial to the interests of the Revenue, can be made subject-matter of adjudication under section 263 of the Act.
18. A division Bench of Hon’ble Delhi High Court in New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi), referred to the decision of the Hon’ble Apex Court in CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) and made following observations. (page 392) :
In the case of CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC), the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee.
“As recorded above, the reasons recorded or the documents available must show nexus that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding 61 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 escapement of income. At the same time, it is not the requirement that the Assessing Officer should have finally ascertained escapement of income by recording conclusive findings. The final ascertainment takes place when the final or reassessment order is passed. It is enough if the Assessing Officer can show tentatively or prima facie on the basis of the reasons recorded and with reference to the documents available on record that income has escaped assessment.” This brings us to the observations of the Delhi High Court in Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) [FB] which read as under (page 18):
The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on October 31, 1989. The said circular admittedly is binding on the Revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular.
From a perusal of clause 7.2 of the said circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had been carried out, i.e., only with a view to allay the fears that the omission of the expression 'reason to believe' from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessment on mere change of opinion. It is, therefore, evident that even according to the CBDT a “mere change of opinion” cannot form the basis for reopening a completed assessment.
Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra virus article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the Income-tax Officer 62 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 exercises its jurisdiction for initiating a proceeding for re- assessment only upon mere change of opinion, the same may be held to be unconstitutional. We are, therefore, of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon mere change of opinion.
The Hon’ble Apex Court thereafter referred to the subsequent decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) wherein it was observed that some of the observations made in Kalyanji Mavji (supra) were far too wide and the statute did not permit reappraisal of material considered by the Assessing Officer during the original assessment. The observations in Kalyanji Maviji (supra) that reopening would cover a case "where income has escaped assessment due to the oversight, inadvertence or mistake" was too broadly expressed and did not lay down the correct law. It was clarified and observed at page 1004 in Indian and Eastern Newspaper Society [1979] 119 ITR 996 (SC) as under :
Now, in the case before us, the Income-tax Officer had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC), where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within 63 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 section 34(1)(b) of the Indian Income-tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income-tax Officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC), CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC), and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) suggesting the contrary do not, we say with respect, lay down the correct law.
22. In A. L. A. Firm (supra), the Hon’ble Apex Court explained that there was no difference between the observations of the Supreme Court in Kalyanji Maviji [1976] 102 ITR 287 (SC) and Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC), as far as proposition (4) is concerned. It was held that (page 297 of 189 ITR) :
"We have pointed out earlier that Kalyanji Maviji's case [1976] 102 ITR 287 (SC) outlines four situations in which action under section 34(1)(b) can be validly initiated. The Indian Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has only indicated that propo sition (2) outlined in this case and extracted earlier may have been somewhat widely stated ; it has not cast any doubt on the other three propositions set out in Kalyanji Mavji's case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). Proposition (2) may be briefly summarized as permitting action even on a 'mere change of opinion'. This is what has been doubted in the Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji 64 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 Maviji's case [1976] 102 ITR 287 (SC). This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on 'information' in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of. To give a couple of illustrations ; suppose an Income-tax Officer, in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently, he finds, in the forest of papers filed in connection with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the Income- tax Officer derives information from the record on an investigation or enquiry into facts not originally undertaken. Again, suppose the Income-tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji. The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed comes to him only much later. What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Maviji's case [1976] 102 ITR 287 (SC). The difference, if one keeps in mind the trend of the judicial decisions, is this. Proposition (4) refers to a case where the Income- tax Officer initiates reassessment proceedings in the light of 'information' obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the Income-tax Officer, having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from 65 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 the earlier assessment should have been brought to tax. In other words, as pointed out in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC), it also ropes in cases of a 'bare or mere change of opinion' where the Income-tax Officer (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income- tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji [1976] 102 ITR 287 (SC). The second paragraph from the judgment in the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the Income-tax Officer realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas 21 STC 326. Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law (at page 629 of 102 ITR) : The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act'." (emphasis supplied) The aforesaid observations are a complete answer to the issue that if a particular subject-matter, item, deduction or claim is not examined by the Assessing Officer, it will 66 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 nevertheless be a case of “change of opinion” and the reassessment proceedings will be barred.
We are conscious of the fact that the aforesaid observations have been made in the context of section 147(b) with reference to the term "information" and conceptually there is difference in scope and ambit of reopening provisions incorporated with effect from April 1, 1989. However, it was observed by the Hon’ble Apex Court in Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) that the amended provisions are wider. What is important and relevant is that the principle of "change of opinion" was equally applicable under the un- amended provisions. The Supreme Court was, therefore, conscious of the said principle, when the observations mentioned above in A. L. A. Firm [1991] 189 ITR 285 were made.
24. Under the new provisions of section 147, an assessment can be reopened if the Assessing Officer has "reason to believe" that income chargeable to tax has escaped assessment; but if he wants to do so after a period of four years from the end of the assessment year, he can do so only if the assessee has fallen short of his duty to disclose fully and truly all material facts necessary for his assessment. It does not follow that he cannot reopen the assessment even within the period of four years as aforesaid if he has reason to believe that the assessee has failed to make the requisite disclosure.
67 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 All that the section says is that in a case where the assessment is sought to be reopened after the period of four years, the only reason available to the Assessing Officer is the non-disclosure on the part of the assessee. The Act places a general duty on every assessee to furnish full and true particulars along with the return of income or in the course of the assessment proceedings so that the Assessing Officer is enabled to compute the correct amount of income on which the assessee shall pay tax. The position has been further clarified by the proviso itself in a case where assessment under sub-section (3) of section 144 of the Act or this section has been made for the relevant assessment year, no action shall be taken after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such year by the reason of failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose truly and fully all material facts necessary for his assessment for that assessment year. It is also noted that the scope of newly substituted (w.e.f. 01/04/1989) section 147 has been elaborated in department circular number 549 dated 31st October, 1989, meaning thereby, on or after 01/04/1989, initiation of reassessment proceedings has to be governed by the provisions of section 147 to 151 as substituted (amended) w.e.f. 01/04/1989. Still, power u/s 147 of the Act, though very wide but no plenary.
68 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 We are aware that Hon’ble Gujarat High Court in Praful Chunilal Patel: Vasant Chunilal Patel vs ACIT (1999) 236 ITR 82, 840 (Guj.) even went to the extent that action under main section 147 is possible in spite of complete disclosure of material facts. The primary condition of reasonable belief having nexus with the material on record is still operative. However, we are of the view, that mere fresh application of mind to the same set of facts or “mere change of opinion” does not confer jurisdiction to the Assessing Officer even under the post 1989 section 147 of the Act. Our view find support from the decision from Hon’ble Delhi High court in Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.), Garden Silk Mills Pvt. Ltd. vs DCIT (1999) 151 CTR (Guj.) 533, Govind Chhapabhai Patel vs DCIT 240 ITR 628, 630 (Guj.), Foramer vs CIT (2001) 247 ITR 436 (All.), affirmed in CIT vs Foramer Finance (2003) 264 ITR 566, 567 (SC), Ipica Laboratories vs DCIT (2001) 251 ITR 416 (Bom.), Ritu Investment Pvt. Ltd.(2012) 345 ITR 214 (Del.), Ketan B. Mehta vs ACIT (2012) 346 ITR 254 (Guj.), Ms. Praveen P. Bharucha vs DCIT (2012) 348 ITR 325 (Bom.), CIT vs Usha International Ltd. 348 ITR 485 (Del.), Agricultural Produce Market Committee vs ITO (2013) 355 ITR 348 (Guj.), B.B.C. World News Ltd. vs Asst. DIT (2014) 362 ITR 577 (Del.). Identical ratio was laid down in CIT vs Malayala Manorma Company Ltd. (2002) 253 ITR 378 (Ker.) We think this thread runs through the various provisions of the Act. But Explanation 1 to the section confines the duty to 69 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 the disclosure of all primary and material facts necessary for the assessment, fully and truly. As to what are material or primary facts would depend upon the facts and circumstances of each case and no universal formula may be attempted. The legal or factual inferences from those primary or material facts are for the Assessing Officer to draw in order to complete the assessment and it is not for the assessee to advise him, for obvious reasons. The Explanation, however, cautions the assessee that he cannot remain smug with the belief that since he has produced the books of account before the Assessing Officer from which material or evidence could have been with due diligence gathered by him, he has discharged his duty. It is for him to point out the relevant entries which are material, without leaving that exercise to the Assessing Officer. The caveat, however, is that such production of books of account may, in the light of the facts and circumstances, amount to full and true disclosure; this is clear from the use of the expression "not necessarily" in the Explanation. Thus, the question of full and true disclosure of primary or material facts is a pure question of fact, to be determined on the facts and circumstances of each case. No general principle can be laid down. It was observed by the Hon’ble Apex Court, in various cases that there should be some "tangible material" coming into the possession of the Assessing Officer in such cases to enable him to resort to section 147 of the Act. Despite being a case of full and true disclosure, tangible material coming to 70 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 the possession of the Assessing Officer after he made the original assessment under section 143(3), would influence the opinion, formed or presumed to have been formed earlier, by the assessing authority; he can with justification change it, but that would not be a case of a "mere change of opinion" unguided by new facts or change in the legal position. It will be a case of the assessing authority having "reason to believe", notwithstanding that full and true particulars were furnished by the assessee which were examined, or presumed to be examined, by him. There was a divergence of opinion amongst various High Courts as to what constitute “Information” for the purposes of section 34(1)(b) of the 1922 Act (which corresponds to section 147(b) of the 1961 Act) the Hon’ble Apex Court in CWT vs Imperial Tobacco Company Ltd. (1966) 61 ITR 461 has noted such divergence of opinion on the point. Hon’ble jurisdictional High Court in CIT vs Sir Mohammad Yusuf Ismail (1944) 12 ITR 8 (Bom.) held that mere change of opinion on the same facts are on question of law or mere discovery of mistake of law is not sufficient information and that in order to sustained action u/s 34 by further holding that reassessment is not permissible. The Hon’ble Apex Court in Simon Carves Ltd. (1976) 105 ITR 212 held that errorless legally correct order cannot be reopened, therefore, it is settled law that without any new information and on the basis of mere change of opinion, reopening of assessment is not permissible. As was held in CIT vs TTK Prestige ltd. (2010) 322 ITR 390 71 Mumbai Mazdoor Sabha to 355 & 1340 to 1342/Mum/2014 (Karn.) SLP dismissed in 2010 322 ITR (St.) 14 (SC). Reference also made to Asian Paints ltd. vs DCIT (2009) 308 ITR 195 (Bom.), Andhra Bank Ltd. vs CIT (1997) 225 ITR 447 (SC). The observations of the Supreme Court are a protection against the abuse of power; they also protect the Revenue which can, in the light of subsequent coming into light of facts or law, reopen the assessment. In the light of the aforesaid discussion, since, there was no new tangible material available with the Assessing Officer while resorting to section 147/148 of the Act, more specifically, while framing original assessment u/s 143(3) of the Act, there was full disclosure of material facts by the assessee and on the basis of those facts, assessment was completed u/s 143(3) of the Act, therefore, on the legal issue also we decide the issue in favour of the assessee. Thus, this appeal of the assessee is partly allowed.
25. So far as & 355/MUM/2014 are concerned, ground No.4 with respect to charging under section 234B of the Act is, dismissed as not pressed and the remaining grounds are covered by the aforesaid decision.
Now we shall take up appeal of the Revenue (ITA Nos. 1340, 1341 & 1342/MUM/2014), wherein the principle of mutuality and receipt of subscription from members and considering this same as business receipts by the Ld. Commissioner of Income Tax (Appeals) has been challenged. We have dispassionately perused the order of the Ld. 72 Mumbai Mazdoor Sabha ITA Nos.353 to 355 & 1340 to 1342/Mum/2014 Commissioner of Income Tax (Appeals) and after considering the rival submissions and the factual finding recorded therein, we find no infirmity in the same. Even otherwise, we have already dealt with this issue in the preceding para of this order, in favour of the assessee, therefore, on the same reasoning we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeals). Consequently, these appeals of the Revenue are dismissed.
Finally, the appeals of the assessee are partly allowed and the Revenue are dismissed. This Order was pronounced in the open court in the presence of ld. representatives from both sides at the conclusion of the hearing on 24/10/2016.