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TMI Blog2012 (7) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.Act - finding of the AO without bringing any material on record is not sustainable for legal scrutiny - rejection of the claim of the assessee u/s.80P(2)(a)(vi) of the I.T.Act is not correct Disallowance u/s.40A(3) of the I.T.Act – Held that:- Assessing Officer has not made out on record as to whom the payments were made, whether they are members of the assessee society who are executing the contract works or not - He has not even examined the aspect as to who are the persons executing the contracts on behalf of the assessee, whether its members or else - The genuine and bonafide transactions are not to be disallowed under this Section - addition made u/s.40A(3) is not sustainable for legal scrutiny Addition on account of provision for Roller - assessee’s books of account are audited by competent authority as authorized by the Government of Orissa and it was not the case of the AO that the auditors who audited the accounts of the assessee has raised any objection for the financial activities of the assessee – Held that:- Assessee has not claimed any deduction of this provision though shown as provision for Roller - When the assessee has not claimed any deduction, addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, which is reproduced as under : 5.2.5 Thus in the fact and circumstances of the case, assessee does fulfill the condition under section 80P for deduction in respect of income of co-operative societies. Hence, to strictly construed the legislative intention or economic justification, assessee is not allowed benefit of deduction under section 80P(2)(a)(vi) of the Income Tax Act, 1961, on the following grounds: (a) Assessee ceased to be a co-operative society and does not fulfill the terms and condition lay down under section 80P. (b) Most of the contract was executed by one Sri Dipti Kanta Mohapatra, so called President of the society. As discussed at Para 1.2.2 above, bye laws No. 28 specifically stated that in respect of any transaction with regard to execution of contract works the receipt and agreements shall be executed by the Secretary on behalf of the Board of Management of the society. Therefore works contract was done Like a business man not as co-operative society. (c) As discussed at Para-5.1.2(ii) that works contract to the tune of more than 4.5 Crores was executed for society by one SE Mayadhar Rath who is not a member of the society. Market information is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers from a way of works contract in various districts from small dealers to that extent and consume fuel for such purchase. In fact his activities are like any other businessman and not as a member of society. Inspector also reported that he is locally familiar as a big contractor and society is known as his organization. (e) Last but not least, most of the members are not involve in collective disposal of labour in executing works contract as discussed at para 4.2.2 above. Thus income of the assessee does not attributable to the specified activities in Section 80P(2)(a)(vi) of the Act. 3.1. The Assessing Officer further found that the assessee had incurred expenditure amounting to ₹13,09,07,740 which payments were made by cash, otherwise than by account payee cheque drawn on a bank or account payee bank draft, not covered by Rule 6DD of the Income-tax Rules,1962.Therefore, he disallowed ₹2,61,81,548 being 20% of such expenditure. 3.2. The Assessing Officer further found the assessee to have claimed expenditure for provision for Roller to the tune of ₹19,00,000. The Assessing Officer was of the view that purchase of roller is a capital expenditure. He was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no deviation of facts or circumstances. 2. For that, the denial of grant of exemption U/s 80P(2)(a)(vi) deserves to be allowed on the ground that the denial is based upon distortion of facts and wrongful unilateral interpretation of taxing statute and Judicial pronouncements. 3. For that, the addition of ₹10,39,07,740 U/s 40A(3) deserves to be deleted on the ground that no addition U/s4OA(3) can be Justifiable and legally sustainable when the very condition precedent for invocation of Section 40A(3) is absent. 4. For that the addition of ₹10,39,07,740 u/s.40A(3) deserves to be deleted on the ground that no addition u/s.40A(3) can be made on sheer suspicion or surmises or on assumption and presumption without concrete finding of facts. 5. For that the addition of ₹19,00,000 deserves to be deleted being unwarranted, unjustified and unlawful. 6. The learned AR of the assessee contended before us that the income of the assessee is entirely exempt u/s.80P(2)(a)(vi) of the I.T.Act and therefore any addition, even if made to the returned income, though not conceding but for the sake of argument, is also exempt. He further contended that on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and the like . 7.3. Fresh assessment orders were passed for the assessment years 1974-1975 to 1981-1982 and original assessment orders for assessment year 1982-1983 and 1983-1984 following the observations of the SMC Bench of the Tribunal for the assessment year 1973-1974. It was observed that the society took Govt. contracts and got them executed under the supervision of the members . On the basis of this factual finding and the Law as laid down by the SMC of the Tribunal for the assessment year 1973-1974, the society was granted exemption for all the assessment years from 1974-1975 to 1983-1984. 7.4. The dispute however was resumed in the assessment year 1984-1985 with a finding of fact by the A.O. that, the assessee executed works through the engagement of sub-contractors as well as by deployment of outside labourers , and accordingly the exemption was denied by the A.O. which was confirmed by the CIT(A) and sustained by the ITAT although the CIT(A) set aside the matter to A.O. for re-examination. The matter was taken up by the assessee in a writ before the Hon ble High Court in OJC No. 3761 of 92 decided on 5th April, 1994 wherein the High Court taking into considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble High Court, the ITAT in ITA No. 99 to 101/CTK/1995 106/CTK/1996 for A/Y 1989-1990 to A/Y 1992-1993 once again allowed exemption. 7.8. Thereafter from A/Y 1993-1994 onwards till date the exemption was never denied by the CIT(A) or the ITAT although the exemption was denied by the A.O. in between A/Y 1999-2000 to A/Y 2004-2005 on the same unsustainable ground, but the claim was subsequently allowed by CIT(A) sustained by ITAT in ITA No. 13/CTK/2008 for A/Y 1999-2000, in ITA No. 105 47/CTK/2004 for A/Y 2000-2001 2001-2002, in ITA No. 598-599/CTK/2005 for A/Y 2000-2001 2002-2003 and in ITA No. 270 271/CTK/2006 for A/Y 2003-2004 2004-2005. ₹ 7.9. Therefore, it was contended that, the issue of exemption is squarely covered and settled by the Hon ble High Court and fortified by the Hon ble ITAT and the assessee should be granted exemption u/s.80P(2)(a)(vi) of the I.T.Act, on the fact circumstances of the case. 7.10. The learned AR of the assessee submitted the finding of the A.O. for the year under consideration is farfetched, concocted, distorted and far from reality and to demonstrate the same he drew our attention to the allegation made by the A.O. re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous orders of the Assessing Officer, wherein the assessee was allowed exemption u/s.80P(2)(a)(vi). He submitted that the Assessing Officer ought to have examined the Members of the society and also the President of the Society regarding the procedure as to how they are executing the contracts allotted to them. To ascertain that only the Assessing Officer required the presence President and Members of the Society along with books of account during the period from 22.9.2010 to 24.9.2010 and they were all along present in the office of the Assessing Officer but neither they nor the books of account were examined by the Assessing Officer. Instead the Assessing Officer has permitted them to go as there is no necessity for further examination. From this conduct of the Assessing Officer, it is clear that the Assessing Officer is not inclined to examine the crucial aspect involved in the matter i.e., the manner of carrying out the contract allotted to the assessee either by Members or otherwise to arrive at the conclusion whether the assessee is entitled to claim exemption u/s.80P(2)(a)(vi). The learned AR of the assessee further submitted that in paragraph 3.5 the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.80P(2)(a)(vi) and therefore, the additions made by the AO and sustained by the learned CIT(A) may kindly be deleted and the return income be directed to be accepted. 8. The Learned D/R on the other hand vehemently opposed the grant of exemption strongly supporting the orders of the Authorities below. The learned DR took us through the finding of the A.O. in the assessment order wherein the A.O. issued summons U/s. 131 of the I.T. Act at random to 6 members of Co-operative Society out of the present strength of 61 members and after obtaining their statement under oath concluded that 2/3rd members are neither directly nor indirectly concerned with Nilgiri Engineering Co-operative Society Ltd. (Page 26 of AO s order) . On this basis, the learned DR argued that The tests laid down by the Hon ble Odisha High Court in their order for A/Y 1984-1985 have been applied by the A.O. and the learned CIT(A) to the fact circumstance of the assessee s case for the A/Y 2008-2009 and it has been proved by the A.O. that some of the members of the society had no actual link with the actual business affairs of the society and there by the collective disposal of labour specialized/skilled or man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e work, employment of outside labour was obligatory for the assessee society. After considering this remand report of the Assessing Officer, this Tribunal has passed the order by allowing exemption u/s.80P(2)(a)(vi) of the I.T.Act to the assessee in the light of the direction of the Hon ble jurisdictional High Court. 9.1. The learned AR of the assessee has vehemently argued that the Assessing Officer had a pre-determined mind. He required the presence President and Members of the assessee-Society along with the books of account in the period from 22.9.2010 to 24.9.2010 and they were very much present in the office of the Assessing Officer but they were not examined by the Assessing Officer though they waited till the closure of the office on 24.9.2010. Hence, the assessee has written a letter dt.24.9.2010 received in the office of the Assessing Officer on 27.9.2010 stating all these facts that the President and Members of the Society were present along with the books of accounts but they were permitted to go as there is no necessity of further examination. This letter is extracted by the AO in para 3.4 of the assessment order at page 21l and 22. The Assessing Officer further obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or of the Assessing Officer, the Assessing Officer in order to deviate from that finding has to necessarily examine this aspect by examining the aspect as to how the assessee was carrying out the contract with reference to the contractees or the President of the Society or the Members of the Society. Without doing the same, only on assumption and presumptions of his choice, the Assessing Officer has inclined to disallow the claim of the assessee u/s.80P(2)(a)(vi) of the I.T.Act. Such a finding of the AO without bringing any material on record is not sustainable for legal scrutiny. Hence, we are of the considered view that the rejection of the claim of the assessee u/s.80P(2)(a)(vi) of the I.T.Act is not correct and hence, the said finding of the Assessing Officer and confirmed by the learned CIT(A) is set aside by allowing the issue raised by the assessee. We direct the Assessing Officer to allow the exemption u/s.80P(2)(a)(vi) of the I.T.Act as claimed by the assessee. 10. Now coming to the other issue of disallowance u/s.40A(3) of the I.T.Act,1961, it is found that the Assessing Officer has not made out on record as to whom the payments were made, whether they are members of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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