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Income Tax Appellate Tribunal, DELHI BENCH “SMC”: NEW DELHI
Before: SHRI KUL BHARAT
O R D E R PER KUL BHARAT, JM:
This appeal, by the assessee, is directed against the order of the learned Commissioner of Income-tax (Appeals), Muzaffarnagar, dated 01.08.2014, pertaining to the assessment year 2010-11. The assessee has raised following grounds of appeal:
“1. That the order under appeal is contrary to law and facts of the case.
2. That the Id. C.I.T. (A) is not justified and correct in dismissing the appeal treating the assessment order passed u/s 143(3) as valid one when it is illegal and beyond jurisdiction because of change made by the Id. AO. in the disclosed 'status' of the appellant in the return filed.
That the Id. C.I.T. (A) is not justified and correct in dismissing the appeal when the jurisdictional notice issued u/s 143(2) and the assessment order passed u/s 143(3) by the 'Joint Commissioner of Income Tax, R-l, Muzaffarnagar' on this basis is, being without empowered u/s 120(4)(b) of the IT Act 1961, illegal and without jurisdiction.
That on whole facts and circumstances of the case and materials on record, the Id. C.I.T. (A) is not justified and correct in rejecting the plea of the appellant that the 'Joint Commissioner of Income Tax' issuing the jurisdictional notice u/s 143(2) and passing the assessment order u/s 143(3) on this basis is an 'Assessing Officer' within the definition of section 2(7A) of the IT Act 1961 in respect of the appellant's case.
5. That the ground taken by the Id. C.I.T.(A) for rejecting the appellant's plea referred to in above ground no. 4 is not justified and correct.
6. That the Id. C.I.T.(A) is not justified and correct in dismissing the appeal when the assessment order u/s 143(3) was been passed without complying with the mandatory procedure laid down u/s 124(4) of the I.T Act 1961 as the jurisdiction of the J.C.I.T. issuing notice u/s 143(2) was called in question by the appellant u/s 124(3).
7. That on whole facts and circumstances of the case and materials on record, the Id. C.I.T.(A) is not justified and correct in confirming an addition of Rs 1350000/- made on account of 'Sentage' receipts.
That on whole facts and circumstances of the case and materials on record, the Id. authorities below are not justified and correct in treating and assessing the 'Sentage' receipts of Rs 1350000/- as 'income'-' when it is not 'income' falling within the definition of 'income' u/s 2(24) of the I.T. Act'61 in the hands of the appellant.
That the appeal deserves to be allowed and the addition made by the Id.AO. deserves to be deleted and such other necessary relief be allowed for which the appellant is found entitled.”
Facts of the case, in brief, are that for A.Y. 2010-11 the assessee filed its return of income on 16.10.2010, in the status of ‘Local Authority’, at Nil income.
The return was processed u/s 143(1) of the Income-tax Act, 1961 (the “Act”) on returned income. Subsequently, the case was selected for scrutiny assessment. During scrutiny assessment proceedings the assessee was asked to explain as to how it is entitled for exemption of the income. The reply submitted by the assessee was not found acceptable by the Assessing Officer and he assessed the income by making addition of Sentage receipts by observing as under: “14. Since the assessee does not enjoy the exemption u/s 12AA of Income Tax Act, 1961, the benefit of Sec 11 cannot be allowed and the income is to be computed as it is computed in normal business case. However since there are no surplus generated during the year under consideration hence there is no income for tax but the assessment is completed in the status of Artificial Juridical Person in view of the discussion made above. 15. regarding the Sentage Charges, the contention of the assessee is not acceptable in view of the fact that firstly the funds received by the assessee under head “Road Construction” are neither a state grant nor the fund provided by any State /Central Government Agencies. It is also not a grant received from Vidhayak Nidhi/ Sansad Nidhi Fund. It is in fact the amount given by the sugar mill in the area of the assessee’s activity and the assessee enjoys full control over utilization of the amount, which is utilized for the construction of roads and other connected activities. Hence the income of the assessee is taxable within the provision of Income Tax Act, 1961. Secondly the assessee came in to existence by virtue of section 5 of UP Sugar Cane (Regulation of Supply Purchase Rules) 1954. As prescribed under section 8 of the said Act there shall be a fund at disposal of the assessee Council to meet the charges in connection with discharge of duty and performance of its function and such fund consist of (1) Grant by Indian Sugar Cane Committee (2) Grant by the State Government (3) Contribution by Sugar Factory, which is 25% of total statutory commission (which is 3% of total purchase) as provided under Rule 49 of UP sugar Cane (Regulation of Supply Purchase Rules) 1954. (4) Any other sum which the state Govt. may required to be credit to it. Further Rule 49 provide that entire amount of commission will be utilized for the construction of road and other development work When the main object of the assessee is road construction all the receipt should be part of assessee’s income. The assessee cannot be allowed to take benefit of the expenditure ignoring the receipt of similar type. Thirdly it is' not necessary that the receipt from the state is necessarily non taxable as discussed above. In the instant case the grant by the Sugar Mills is considered commission/income of Cane Development Council and TDS is regularly deducted. Later, the expenditure is adjusted from such receipt and surplus is reflected. The argument of the assessee that there is no income receipt is unacceptable because these receipts are income being subjected to TDS. How the same receipt can be subjected to TDS and then be ignored by the income tax department later. Regarding the sentage it is evident from the assessee contention that there is a provision that" @ 12.5% will be raised on contractor amount bill and the amount so raised would be debited to Income & Expenditure Account in respect of Road Construction Expenses. As a system the amount of the contractor’s bill is paid to the contractor and the amount of santage is remitted to Registrar (Cane Commissioner) as per Govt, order. Thus the payment of santage is a statutory payment to Govt. The amount of sant&ge, is ^remitted to the Registrar out of the grant which is known as matching grant received by the assessee council from Govt. under ZILA YOJNA SCHEME. This shows that the receipt on account of sentage has not been shown in the name of the council. Hence sentage to the extent of Rs. 13,50,000/- is brought to tax.”
3. Aggrieved against this, the assessee preferred appeal before the learned CIT(Appeals), which was dismissed by the learned CIT(Appeals) vide order dated 1.8.2014 and addition made by the AO amounting to Rs. 13,50,000/- was sustained. Now the assessee is in appeal before this Tribunal.
4. No one attended the proceedings at the time of hearing. However, a request has been made on behalf of the learned counsel for the assessee to decide the appeal on the basis of the written submissions and the material placed on record.
The learned DR supported the orders of the authorities below.
I have heard the learned DR and perused the material available on record.
The assessee ahs filed various written submissions. The submissions of the assessee are that the assessee is a local authority. The case of the assessee was picked up for scrutiny assessment. The objections of the assessee are that as per the provisions of U.P. Sugar Cane (Regulation of Supply & Purchase) Act, 1953, the assessee is neither authorized to do any business/profession or any other activity with profit motive, nor it is doing any such activity as contemplated u/s 28 of the I.T. Act. The assessee had filed its return of income as a ‘Local Authority’.
However, the assessment was framed in the status of ‘Artificial Juridical person’.
The assessee has placed reliance on the judgment of the Coordinate Bench rendered in the case of JCIT Vs. M/s N.S. Committee, wherein the Tribunal had cancelled the assessment on the basis that the AO had framed assessment in a different status. It is the case of the assessee that in the present case also the AO had issued notice as a ‘Local Authority’ and the assessment has been framed in the name of ‘Artificial Juridical person’. The AO could not have changed the status from ‘Local Authority’ to ‘Artificial Juridical person’ and therefore the assessment framed by the AO is liable to be cancelled.
There is no denying the fact that for the assessment year in question the assessee filed its return of income in the status of ‘Local Authority’ and the Assessing Officer framed the assessment in the status of ‘Artificial Juridical
person’. From the order of the AO it is clear that it had issued notice u/s 143(2) of the Act to the assessee in the status of ‘Local Authority’ as the notice is addressed to the President/Secretary of the assessee. Therefore, in the light of binding precedence by the Division Bench of the Tribunal in the case of JCIT Vs. M/s N.S. Committee (supra), I hereby annul the impugned assessment order being bad in law.
8. Appeal of the assessee stands allowed.