2023 (9) TMI 1211 - AT - Income Tax

Principle of the mutuality - Maintenance charges received from members - taxing business income against Nil business income filed by the assessee co-operative society - CPC disallowing the claim filed rectified data correction , however, the same was not rectified - HELD THAT - As per the Article 265 of the Constitution of India No tax shall be levied or collected except by Authority of Law . It must be borne in mind that Rules of procedure are not by themselves an end but to achieve the ends of justice. Rules of procedure are tools forged to achieve justice and not hurdles to obstruct the pathways to justice. Technicalities should not come in the way of substantial justice. Refer case of Nirmala Mehta 2004 (4) TMI 43 - BOMBAY HIGH COURT as held that offer of receipt by assessee to tax under the Act, will not estop the assessee from contesting the receipt as not exigible under the Act. Therefore, taking note that the assessee is a premises Co-operative Society and is claiming exempt amount on the ground of principle of Mutuality amount which it has collected from its members for various charges has been disallowed without examining whether it is exempt under the Principle of Mutuality which even though Ld. CIT(A) held to be essential question of fact did not bother to examine the same on the ruse that impugned order before him was an order of CPC u/s 154 of the Act. Be that as it may, for the ends of justice and fair play, we restore this issue back to the file of AO to examine on facts whether the claim of assessee is allowable on the Principle of Mutuality in the light of plethora of decisions the subject and as per the decision of Bombay Oil Seeds Oil Exchange Ltd. 1993 (1) TMI 41 - BOMBAY HIGH COURT and ITO vs Venkatesh Premises Co-operative Society Ltd 2018 (3) TMI 675 - SUPREME COURT - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Confirmation of addition of Rs. 93,20,286/- as business income.
2. Denial of deduction under the Mutuality Principle.

Summary:

Issue 1: Confirmation of Addition as Business Income
The assessee society challenged the addition of Rs. 93,20,286/- as business income by the Ld. CIT(A)/NFAC. The Ld. CIT(A) observed that the appellant society filled up details incorrectly in the 'Exemption schedule' of the Return of Income, leading to a discrepancy between Schedule BP and Schedule EI. The CPC, Bengaluru issued a letter to the appellant society, but the appellant failed to provide clarification within the allowed time. Consequently, the CPC disregarded the rectified data correction and did not rectify the order passed u/s 143(1).

The Ld. AR argued that no new claim was made in the rectification return, and the claim was wrongly filled in the original return. He cited various case laws and emphasized that the correct tax liability should be determined, even if the assessee made a mistake in the return. The Ld. AR also highlighted that the amount collected from members was spent for the intended purposes, and the principle of mutuality should apply.

Issue 2: Denial of Deduction under the Mutuality Principle
The Ld. CIT(A) dismissed the ground of appeal regarding the principle of mutuality, stating that it was a question of fact requiring examination of documents. The Ld. AR contended that the receipts by the co-operative society from its members are exempt based on the mutuality concept, as established in various judicial precedents, including the Hon'ble Supreme Court's decision in ITO vs. Venkatesh Premises Co-operative Society Ltd.

Tribunal's Decision:
The Tribunal noted that the Ld. CIT(A) failed to examine the merits of the assessee's plea regarding the exemption of Rs. 93,20,286/- under the principle of mutuality. The Tribunal emphasized that technicalities should not obstruct substantial justice and referred to Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by the authority of law.

The Tribunal set aside the impugned order of the Ld. CIT(A) and remanded the matter back to the AO to examine whether the claim of Rs. 93,20,286/- is exempt under the principle of mutuality. The AO was directed to consider the relevant facts and judicial precedents and provide the assessee with a proper opportunity of hearing before passing the order.

Conclusion:
The appeal of the assessee was allowed for statistical purposes, and the matter was remanded back to the AO for a fresh examination of the exemption claim under the principle of mutuality.