2010 (4) TMI 911 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessment under section 147 of the Income-tax Act.
2. Denial of exemption under section 10(23C)(iiiab) of the Income-tax Act.
3. Denial of exemption under section 11 of the Income-tax Act.
4. Denial of exemption on the grounds of mutual benefit association.
5. Deletion of penalty levied under section 271(1)(c) of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147 of the Income-tax Act:
The appellant did not press ground No. 1 related to the jurisdiction of the Assessing Officer in invoking the provisions of section 147 of the Act. Therefore, this ground was dismissed as not pressed.

2. Denial of Exemption under Section 10(23C)(iiiab) of the Income-tax Act:
The assessee, a co-operative society registered under the Maharashtra State Co-operative Societies Act, 1960, claimed exemption under section 10(23C)(iiiab) of the Income-tax Act. The Assessing Officer denied the exemption, stating that the assessee did not receive funds directly from the Government but from member co-operative societies. The Commissioner of Income-tax (Appeals) upheld this decision, noting that the assessee is financed by member societies, not directly by the Government.

Upon appeal, the Tribunal examined whether indirect financing through mandatory contributions by member societies, as per section 68 of the Maharashtra State Co-operative Societies Act, met the requirement of "financed by the Government." The Tribunal concluded that the legislative participation in financing the institution, whether direct or indirect, fulfills the condition of being "financed by the Government." Therefore, the assessee's claim for exemption under section 10(23C)(iiiab) was justified. The appeal on this ground was allowed.

3. Denial of Exemption under Section 11 of the Income-tax Act:
Given the Tribunal's decision to allow the exemption under section 10(23C)(iiiab), the adjudication of grounds related to section 11 became academic and did not warrant separate adjudication.

4. Denial of Exemption on the Grounds of Mutual Benefit Association:
Similarly, the adjudication of grounds related to the mutual benefit association became academic and did not warrant separate adjudication due to the allowance of exemption under section 10(23C)(iiiab).

5. Deletion of Penalty Levied under Section 271(1)(c) of the Income-tax Act:
The Revenue's appeal related to the deletion of penalty levied under section 271(1)(c) was connected to the quantum additions, which were the subject matter of the appeal adjudicated in I.T.A. No. 1239/PN/06. Since the Tribunal allowed the assessee's appeal for exemption under section 10(23C)(iiiab), the penalty under section 271(1)(c) was not warranted. Consequently, the Revenue's appeal was dismissed.

Conclusion:
The Tribunal allowed the appeal of the assessee, granting exemption under section 10(23C)(iiiab) and dismissed the Revenue's appeal concerning the penalty under section 271(1)(c). The order was pronounced in the open court on 30th April 2010.