2020 (2) TMI 27 - AT - Income Tax

Deduction u/s 80P(2)(a)(vi) - objection of the DR is that when the only work carried out by its members was overall supervision like any other prudent businessmen and the actual supervision at the field was done by the paid employees of the society and outside labourers actually carried out the work, therefore, the assessee is not entitled to the benefit of deduction - assessee submitted that the guiding factor must be that the earning of the society is through utilization of the particular kind of labour in which members specialize - HELD THAT - Matter needs verification at the level of AO for a limited purpose as to whether the works executed by the society by the collective disposal of its own members or not after providing reasonable opportunity of being heard to the assessee. Before us the ld. AR of the assessee has acceded that if requires, the assessee is ready to produce the books of accounts before the AO for verification. If the AO finds that the works executed by the assessee society fall within the framework of the provisions of Section 809(2)(a)(vi) of the Act, then the AO shall allow deduction u/s.80P(2)(a)(vi) of the Act to the assessee society. Accordingly, we restore the matter to the file of AO for consideration of the claim of the assessee as per our above observations and the assessee shall cooperate with the AO for early disposal of the case. - Decided in favour of assessee for statistical purposes

Issues Involved:
1. Justification of deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961.
2. Execution of work by the assessee-society through its members or outside laborers.
3. Eligibility of interest income for deduction under Section 80P(2)(a)(vi).

Detailed Analysis:

1. Justification of Deduction under Section 80P(2)(a)(vi):

The Revenue contended that the CIT(A) was not justified in allowing the deduction under Section 80P(2)(a)(vi) of the Income Tax Act, 1961. The Revenue argued that the CIT(A) ignored the decision of the jurisdictional High Court in the assessee's own case for the A.Y. 1984-85, which upheld the contention that the assessee-society engaged outside laborers and supervisors to carry out the contract work, thereby disqualifying it from the deduction under Section 80P(2)(a)(vi).

The CIT(A) allowed the deduction based on previous favorable decisions by the ITAT, Cuttack, and the remand report from the AO, which conceded that the assessee should be granted the exemption. The CIT(A) followed the consistency of the Tribunal's decisions in the assessee's favor for earlier years.

2. Execution of Work by the Assessee-Society:

The Revenue argued that the assessee-society was not entitled to the deduction because the actual work was carried out by paid employees and outside laborers, with the members only performing overall supervision. The AO observed that the assessee could not establish that the income was earned through the collective disposal of the labor of its members.

The CIT(A) countered this by stating that the eligibility for the deduction had been repeatedly upheld by the ITAT, Cuttack, in the assessee's case for previous years. The CIT(A) also noted that the interest income earned from fixed deposits made for performance guarantees of contracts should be treated as business income and exempt under Section 80P(2)(a)(vi).

3. Eligibility of Interest Income for Deduction:

The CIT(A) allowed the deduction on the interest income, stating that the interest earned was from hired deposits made for performance guarantees of contracts. The CIT(A) opined that if the performance guarantee had not been a pre-condition for receiving the contract, the appellant could have used the amount in its own business, thus justifying the deduction under Section 80P(2)(a)(vi).

Tribunal's Decision:

The Tribunal noted that the AO denied the deduction because the assessee could not produce books of accounts and supporting documents to substantiate its claim. The AO also observed that the burden of proof was on the assessee to demonstrate that the conditions for claiming the deduction were satisfied.

The Tribunal decided that the matter needed verification at the AO's level to ascertain whether the work was executed by the collective disposal of the society's members. The Tribunal restored the matter to the AO for this limited purpose, directing the AO to allow the deduction if the conditions under Section 80P(2)(a)(vi) were met. The Tribunal also allowed the cross-objection filed by the assessee for statistical purposes, supporting the order of the CIT(A).

Conclusion:

The Tribunal set aside the order of the CIT(A) and restored the issue to the AO for verification. The AO was directed to determine whether the work was executed by the collective disposal of the society's members and to allow the deduction if the conditions under Section 80P(2)(a)(vi) were satisfied. Both the Revenue's appeal and the assessee's cross-objection were allowed for statistical purposes.

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