Income Tax Appellate Tribunal - Chandigarh
Haryana State Agricultural Marketing ... vs Acit, Panchkula on 21 December, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.1103/Chd/2008
(Assessment Years : 2000-01)
ITA No.47/Chd/2009
(Assessment Years : 2001-02)
Haryana State Agricultural Vs. The A.C.I.T.,
Marketing Board, Panchkula Circle.
Sector 6, Panchkula. Panchkula.
PAN: AAALH 0016 R
ITA No.1104/Chd/2008
(Assessment Years : 2002-03)
ITA No.452/Chd/2010
(Assessment Years : 2003-04)
Haryana State Agricultural Vs. The A.C.I.T.,
Marketing Board, Panchkula Circle.
Sector 6, Panchkula. Panchkula.
PAN: AAALH 0016 R
ITA No.1245/Chd/2012
(Assessment Years : 2001-02)
&
ITA No.1246/Chd/2012
(Assessment Years : 2002-03)
Haryana State Agricultural Vs. The D.C.I.T.,
Marketing Board, Panchkula Circle.
Sector 6, Panchkula. Panchkula.
PAN: AAALH 0016 R
(Appellant) (Respondent)
Appellant by : Shri Harish Nayyar
2
Respondent by : Shri Ravi Sarangal, DR
Date of hearing : 22.09.2016
Date of Pronouncement : 21.12.2016
O R D E R
PER ANNAPURNA GUPTA, A.M. :
This bunch of six appeals are all filed by the same assessee against separate orders passed by Commissioner Of Income Tax(Appeals) , Panchkula.
2. The appeals filed in ITA Nos.1103/CHD/2008, 47/CHD/2009, 1104/CHD/2008, & 452/CHD/2010 have been filed against the orders passed by the Commissioner Of Income Tax( appeals), Panchkula in quantum proceedings for assessment years 2000-01 ,2001-02, 2002-03 and 2003-04 dated 24.10.08, 03.11.08, 24.10.08 & 01.03.10 respectively. The appeal filed by the assessee in ITA Nos. 1245/CHD/12 and 1246/CHD/12 are against orders of Commissioner Of Income Tax (Appeals), Panchkula, dated 17.09.12 ,upholding the levy of penalty under section 271(1)(c) of the Income Tax Act,1961, and pertain to assessment year 2001-02 and 2002- 03 respectively.
3. Since the issues involved in the appeals relating to quantum proceedings were common and the issue in the penalty appeals relate to the quantum proceedings, all the 3 appeals were taken up and heard together and are being disposed off by this common order.
4. We shall first be dealing with the appeals of the assessee against the orders of the Commissioner of Income Tax (Appeals) in quantum proceedings. The issues involved in ITA No.1103/Chd/2008, ITA No.47/Chd/2009 and ITA No.1104/Chd/2008 are common and identical and therefore for the sake of convenience we shall be dealing with the facts in the case of ITA No. 1103/CHD/2008. The decision rendered in this case will apply mutatis mutandis in the other appeals also.
ITA No. 1103/CHD/2008
5. Brief facts relating to the case are that the assessee board was set up under section 3 (1) of the PAPM Act by the Government of Haryana with a view to regulate the functioning of market committee's in the state of Haryana. During the impugned assessment year the assessee showed revenue receipts in its return of income comprising of Profit from Rent, Interest on loan and Contributions received from Market Committees. Original assessment was framed under section 143 (3) at an income of Rs. 2,03,15,120/-in the status of AOP, vide order dated 09.12.2002. The matter was taken up in appeal and the ITAT, vide their order dated 13.09.2005 in ITA No. 1199/CHD/04, remanded the case back to the 4 Assessing Officer, directing that the assessee be assessed in the status of "local authority". Thereafter assessment was framed vide order dated 22.12.2006, denying the assessee exemption claimed under section 10(20) of the Income Tax Act,1961, for the reason that income earned by it did not arise from supply of services, as required under the section and also since the incomes did not qualify to be assessed under the heads specified for the purpose of exemption under section 10 (20) of the Act. Thereafter the Assessing Officer assessed the excess of revenue receipt over expenditure of the assessee, amounting to Rs. 2,03,15,118/- as the income of the assessee chargeable to tax and made addition thereto of the following :
1. Contribution to Unapproved Pension fund Rs.1,45,00,000/-.
2. Interest earned on deposits Rs.7,43,56,181/-
3. Miscellaneous Income Rs.49,05,712/-
And assesseed the income of the assessee at Rs.11,40,77,011/-.
6. The matter was carried in appeal before the CIT(A) who stated that the surplus earned from contributions received from Market Committees as well as rental income of the assessee arose in the course of supply of its services rendered while carrying out its prescribed functions and were therefore exempt under section 10 (20) of the Income Tax Act, 1961. As for 5 addition made of Interest income and Miscellaneous Income and disallowance of Contribution to Pension fund, the order of the AO was upheld.
7. Aggrieved by the same the assessee filed the present appeal before us.
At the outset it may be stated that Ground Nos. 1 and 6 raised by the assessee are general in nature and need no adjudication. Further the grounds raised by the assessee have not been serially numbered and there is no Ground No.3 raised by the assessee.
8. Ground No. 2 and 4 raised by the assessee are against the action of the CIT(appeal) in upholding the addition on account of interest earned on deposits amounting to Rs. 7,43,56,181/-and Miscellaneous Income of Rs. 49,05,712/-.The grounds raised read as under:
"2] That the CIT (A) has erred both on facts and law in confirming the disallowance of Rs.74356181 on account of interest earned on bank deposits. This addition has been made without considering the facts of the case correctly and applying the correct provisions of law. The income of the assessee derived from other sources is fully exempt under Section 10(20) of Income tax Act.
The addition is unjustified, illegal and deserves to be quashed. Suitable directions in the matter may be given to allow exemption under Section 10(20) of the Income tax Act in respect of the interest earned from Bank Deposit.
It is prayed that the addition of Rs.74356181 may kindly be ordered to be deleted.6
4] That the CIT (A) has erred both on facts and law in confirming the disallowance of Rs.4905712, on account of miscellaneous income. This addition is arbitrary, illegal hence unjustified and deserves to be deleted.
It is prayed that the addition of Rs. 4905712 may kindly be ordered to be deleted.
9. Brief facts relating to the issue are that the assessee had shown Interest Income of Rs. 7,43,56,181/- and Miscellaneous Income of Rs.49,05,712/-as capital receipts. The AO held that the same were revenue receipts and added the same to the Income of the assessee. Ld. CIT (A) held that the interest income having been earned on the funds received from market committee for carrying out the work, which were deposited in the bank's, had direct nexus with the functioning of the assessee and was therefore taxable as business income, but since it had not been earned by providing any services or commodity it was not entitled to exemption under section 10 (20) of the Act.
10. Before us Ld. Counsel for the assessee argued that the CIT( appeal) had erred in holding that the same was assessable under the head business income since the Assessing Officer himself had in the remand report for the impugned year, i.e. A.Y 2000-01 and in the assessment order passed for assessment year 2001-02, held the same to be income assessable under the head "income from other sources" which is exempt under section 10(20) of the Act. Ld. Counsel for the assessee 7 relied upon a number of judgements, to state that interest earned on idle/surplus funds was assessable under the head income from other sources which in turn was exempt under section 10 (20) of the Act. Alternately Ld. Counsel for the assessee argued that interest income earned was incidental to and accrued from the supply of services to market committee which has been held by the I.T.A.T. to be falling within the purview of section 10(20) of the Act vide its order in ITA Nos.18, 19 & 60/Chd/2009 dated 29.7.2016.
11. As for Miscellaneous Income, Ld. Counsel for the assessee argued that the denial of exemption under section 10 (20) of the Act, was not dealt with by the Ld.CIT(A) who had merely upheld its treatment as revenue in nature as against capital treated by the assessee, Further Ld. Counsel stated that the miscellaneous income earned comprised of sale of tender forms and enlistment fees received from contractors and other incomes all of which arose during the course of rendering services to the market committees and was therefore exempt under section 10(20) of the Act. Alternatively Ld. Counsel argued that even if it was treated as income from other sources it was exempt under section 10(20) of the Act.
12. Ld.DR on the other hand relied on the order of the Commissioner of Income Tax (Appeals). 8
13. We have heard the contentions of both the parties, perused the orders of the authorities below as also the documents placed before us.
14. The issue in dispute before us is whether Interest earned on deposits with Banks and Miscellaneous Income earned by the assessee are eligible for exemption under section 10 (20) of the Act.
15. The undisputed facts necessary for adjudicating the issue are that the assessee is a body formed under section 3 (1) of the PAPM Act by the government of Haryana with a view to regulate the functioning of Market Committees in the state. The activity carried out by the assessee, of assisting and monitoring the functions of Market Committees has been held by the CIT(A) and upheld by the ITAT vide its order dated 29.07.16 in ITA No.18,19 & 60/CHD/2009, to be falling within the ambit of section 10 (20) of the Act.
16. As part of its function the assessee board carries out capital works for the Market Committees who in turn place lump sum amounts at the disposal of the assessee Board for the same. The assessee deposits the amounts in banks till they are utilised for the execution of the project and earns interest thereon, which during the year amounted to Rs.7,43,56,181/-. Further the Miscellaneous income is attributable to sale of Tender 9 Forms, Enlistment fees from contractors and other incomes.
17. Having outlined the facts of the case we consider it necessary to deal with the provisions of section 10 (20) of the Act, which grants exemption to incomes earned by local authorities. Section 10 (20) is reproduced hereunder:
"10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-- ................................................................................................... ...................
20) the income of a local authority which is chargeable under the head [* * *] "Income from house property", "Capital gains" or "Income from other sources" or from a trade or business carried on by it which accrues or arises from the supply of a commodity or service [(not being water or electricity) within its own jurisdictional area or from the supply of water or electricity within or outside its own jurisdictional area]."
18. A plain reading would show that the section exempts income of local authorities which are chargeable under the head Income from House Property, Income from Other Sources and Capital gains and also income from trade or business arising from supply of commodity/ services within the jurisdiction of the local authority or income from the supply of water and electricity.
19. What has now to be seen is whether the Interest Income and Miscellaneous Income earned by the assessee qualifies to be exempt under section 10 (20) of the Act. 10
20. In the case of Interest income, the facts demonstrate, that the same was earned from the funds received from market committees for investing in capital projects, which were held in bank deposits till they were utilised for the execution of projects. There is no dispute about this fact. Thus interest was earned on temporarily available funds with the assessee. It is also a fact on record that earning of interest is not the business of the assessee. Nothing was brought on record before us or even the lower authorities to show that the assessee is engaged in some kind of money lending or deposit business with the surplus funds. In such circumstances the interest earned by the assessee cannot be attributed to arising from the business of the assessee of rendering services and is clearly assessable under the head "income from other sources". The Hon'ble Apex Court in the case of Tuticorin Alkali Chemical Vs. CIT (1997) 227 ITR 172 has categorically stated that interest received by a company from bank deposits and loans would be chargeable as income under the head 'income from other sources". Following the decision of the Apex Court, the Madhya Pradesh High Court in the case of Ferro Concrete Construction (India) (P) Ltd. versus CIT (2007) 290 ITR 713 has held that interest on short-term deposits, not being in the nature of the business of the assessee, was assessable under the head income from other sources. The Hon'ble High Court relied upon the decision of the Apex court in the case of Tuticorin Alkali Chemical (1997) 227 11 ITR 172 (supra) and stated that though the issue before the Supreme Court was slightly different yet observations made therein were binding. The relevant para 8 to 12 of the order are reproduced hereunder:
"8. I n o u r o p i n i o n , t h e i n c o me e a r n e d b y wa y o f interest on short-term deposit (FDR) by an assessee has to be taxed as an income chargeable under section 56 of the Act, i.e., i n c o me f r o m o t h e r s o u r c e s i n v i e w o f t h e f a c t s e me r g i n g f r o m s t a t e m e n t o f f ac t s . Though the i s s u e b e f o r e t h e S u p r e me C o u r t i n t h e c a s e o f Tuticorin Alkali Chemicals and Fertilizers Ltd. v. C I T ( 1 9 9 7 ) 2 2 7 I T R 1 7 2 wa s s l i g h t l y d i f f e r e n t , yet s o me of the observations made by the S u p r e me Court wh i l e deciding the said case cannot be ignored by this court as being even obiter. Since even the obiter of the Supreme C o u r t i s b i n d i n g o n u s , we a r e i n c l i n e d t o r e l y u p o n t h e s a i d o b s e r v a t i o n s o f t h e S u p r e me C o u r t for a n s we r i n g the question regarding income earned out of interest against an assessee. These observations read as under (page 178) :
"In the usual course, interest received by the comp an y from bank deposits and l o a n s wo u l d b e t a x a b l e a s i n c o m e u n d e r t h e head " I n c o me from other sources' under s e c t i o n 5 6 o f t h e I n c o me T a x A c t "
9. F u r t h e r d o wn a t p a g e 1 7 9 :
" L i k e wi s e , a c o m p a n y m a y h a v e i n c o me from other sources. It may buy shares and get dividends. Such dividends wi l l be taxable under section 56 of the Act. The co mp any may al so, as in th is case, keep the 12 surplus funds in short-term deposits, in o r d e r t o e a r n i n t e r e s t . S u c h i n t e r e s t wi l l b e c h a r g e a b l e u n d e r s e c t i o n 5 6 o f th e A c t .
10. I n v i e w o f t h e a f o r e s a i d o b s e r v a t i o n s wh i c h a r e s u b t l e i n t h e i r e x p r e s s i o n , we c a n n o t hold that interest earned by an assessee is t h e i r b u s i n e s s i n c o me . In the f irst place, it is not their main or ancillary business. S e c o n d l y , n o me m o r a n d u m o f a s s o c i a t i o n i s f iled or relied upon to show that the assessee in addition to its main business of civil construction, etc., are also engaged in s o me kind of mo n e y - l e n d i n g or deposit business wi t h their surplus funds. We cannot ignore the pointed observations a n d / o r f i n d i n g s o f t h e S u p r e me C o u r t q u o t e d supra on the ground that it was made in al toge ther dif f erent context and, hence, the s a me i s l i a b l e t o b e i g n o r e d . On the other h a n d , we a r e i n c l i n e d t o r e s p e c t f u l l y f o l l o w b e i n g a l a w l a i d d o wn b y t h e S u p r e me C o u r t on the subject holding the f ield.
11. Learned counsel f or the assessee no doubt c i t e d s o me o f t h e a u t h o r i t i e s o f t h e v a r i o u s H i g h C o u r t s wh i c h t o s o me e x t e n t c a n b e construed as supporting his submissions.
These authorities a r e - C IT v. Madras R e f i n e r i e s L t d . [ 1 9 9 7 ] 2 2 8 IT R 3 5 4 ( M a d ) , S n a m P r o g e t t i S . P . A . v . A d d l . C IT [ 1 9 8 1 ] 1 3 2 IT R 70 (Delhi), CIT v. T irupati Woollen Mills Ltd. [1992] 193 IT R 252 (Cal). H o we v e r , i n v i e w o f t h e d e c i s i o n o f t h e S u p r e me C o u r t relied on by us supra, we cannot place reliance on the decisions rendered by the High Courts.
13
12. In this vie w of the matter, we h o l d t h a t i n c o me earned by the assessee on their funds invested in short-term deposits in order to earn interest is not to be treated as t h e i r b u s i n e s s i n c o me b u t i t i s c h a r g e a b l e t o t a x u n d e r s e c t i o n 5 6 o f t h e A c t a s a n i n c o me from other sources."
21. The issue in the present case being identical to that decided by the Hon'ble Court ,the decision rendered therein squarely applies to the present case following which we hold that the Interest earned by the assessee on its surplus/idle funds was assessable under the head"
Income From Other Sources".
22. We find no merit in the argument of the Ld.DR that the interest income earned has direct nexus with the activity of the assessee and therefore is taxable as business income ,in view of the clear-cut observation of the Supreme Court in the case of Tuticorin Alkali Chemicals (supra), relied upon by the Madhya Pradesh High Court in its decision. For the same reason the case laws relied upon by the Ld. DR also merit no consideration.
23. In view of the above we hold that the interest income earned by the assessee amounting to Rs.7,43,51,181/-is assessable under the head income from other sources and is therefore exempt under section 10 (20) of the Act.
14
24. As for the Miscellaneous Income, the facts on record demonstrate that it has been earned from the sale of Tender Forms, Enlistment fees received from contractors and other Misc. Income. The Assessing Officer, we find, made the addition holding it to be Revenue in nature as against Capital shown by the assessee, which was upheld by the CIT(A). The assessee is not aggrieved by the treatment of the Misc. Income as Revenue, but has all along claimed the same to be exempt under section 10(20) of the Act. This issue has neither been dealt with by the Assessing Officer nor the CIT(A). Before us the Ld Counsel for the assessee stated that the Misc. income earned by the assessee is assessable under the head Income from other sources, since it is not carrying on any business other than rendering services in its own jurisdiction. Alternatively it was argued that the income comprising of sale of tender forms, enlistment fees from contractors and other income arose during the course of rendering services to market committees. Ld.AR stated that either ways the income was exempt as per section 10(20) of the Act.
25. We find merit in the contentions of the Ld.AR. The assessee being engaged in the activity of promotion and development of Market Committees and in the process engaging in undertaking capital projects of the Market Committees, the I ncome from sale of Tender forms and enlistment fees of contractors has direct nexus with the 15 main activity carried out by the assessee and therefore is to be treated as having been earned in the course of carrying out its activities. Further the activities of the assessee having been held to be falling in the purview of section 10(20) of the Act by the I.T.A.T. vide its order in ITA Nos.18, 19 & 60/Chd/2009 dated 29.1.2016, these incomes are also exempt under section 10(20) of the Act. The rest of the income, being miscellaneous in character is assessable as income from other sources, which is also exempt u/s 10(20) of the Act. Therefore the entire Miscellaneous Income amounting to Rs.49,05,712/- is held to be exempt under section 10 (20) of the Act.
26. Ground No. 2 and 4 raised by the assessee are therefore allowed
27. Ground No. 5 has been raised by the assessee against the disallowance made of contribution to Pension fund holding that the same to be to an unrecognised fund. The ground raised reads as under:
"5] T h a t t h e C IT ( A ) h a s e r r e d b o t h o n f a c t s a n d law in conf irming the d i s a l l o wa n c e of Rs.14500000 on account of contribution to pension fund. This addition has been made without considering the f acts correctly. The addition has been made in an arbitrary manner, illegal and deserves to be quashed."
28. Brief facts relating to the issue are that the contribution made by the assessee to pension fund was 16 disallowed since it was found to have been made to an unrecognised fund. The same was upheld by the CIT (A) relying upon the decision rendered in the preceding year by the CIT (appeal) and further relying on certain judicial pronouncements in this regard. Before us the assessee argued that even Contributions to unrecognized Provident Funds are allowable and relied upon various judicial precedents in this regard. Ld. DR on the other hand relied upon the order of the CIT (A).
29. We have heard the contentions of both the parties, perused the orders of the authorities below as also the documents placed before us.
30. We find that there is no case for making the impugned disallowance at all. The assessee's entire income earned by way of Contribution to Fund, Rental Income, Interest Income and Miscellaneous Income has been held to be exempt under section 10 (20) of the Act. The income earned by way of Contribution received from Market Committees and Rental Income had been held to be exempt under section 10 (20) of the Act, by the CIT (A) which has been upheld by the ITAT vide its order dated 29-07-16 in ITA No.18,19 & 60/CHD/2009. In the present Appeal the Interest Income earned and Miscellaneous Income have also been held to be exempt at para 23 & 25 of the order respectively. In such circumstances where the entire income of the assessee has been held to be exempt under section 10 (20) of the 17 Act there is no case for making disallowance of any expense at all. Any disallowance made of expenditure will only result in enhancing the income of the assessee which in any case has been held to be exempt from tax. Further the entire income earned from rendering services had been held to be exempt at the threshold itself therefore there is no requirement of resorting to the computational provisions relating to income under the head business and profession stipulated under section 28 to 44 of the Income Tax Act ,1961.
31. Since the addition made on account of Contribution to Pension Fund has been deleted for the above reason, we do not consider it necessary to go into the merits of the arguments made before us.
32. In view of the above the disallowance made on account of contribution to pension fund is deleted and the ground raised by the assessee is allowed.
33. The appeal of the assessee therefore stands allowed.
ITA No. 47/CHD/2009
34. The effective grounds raised by the assessee in this appeal are as follows :
"2] That the CIT (A) has erred both on facts and law in not giving specific findings in respect of the ground taken up to challenge the disallowance of Rs.11035518 on account of interest earned on bank 18 deposits, Rs.5633092 on account of rent received from godowns and Rs.54449580 on account of business receipts (Total Rs.71118190) . The exemption under section 10(20) of .the Act denied without considering the facts of the case correctly and applying the correct provisions of law.
The action of CIT(A) not passing a speaking order in the matter is unjustified, illegal and deserves to be quashed. Suitable directions in the matter may be given to pass a speaking order after allowing exemption under Section 10(20) of the Income tax Act in respect of the incomes as stated above.
4] That the CIT (A) has erred both on facts and l a w i n confirming the disallowance of Rs.64525986.23, on account of miscellaneous income. The addition mad~e by AO is arbitrary, illegal hence unjustified and deserves to be deleted. It is prayed that the addition of Rs.64525986.23 may kindly be ordered to be deleted.
5] That the CIT(A) has erred both on facts and law in confirming the disallowance of Rs.16312892 on account of contribution to pension fund. This addition has been made without considering the facts correctly. The addition has been made in an aribitrary manner, illegal and deserves to be quashed.
It is prayed that the addition of Rs.16312892 may kindly be ordered to be deleted."
35. At the outset it may be stated that it was conceded by the Ld. counsel for the assessee that the assessee is not aggrieved against the order passed by the Ld. CIT (Appeals) on the issue raised in ground No.2 pertaining to denial disallowance of exemption under section 10(20) of the Act on account of rent received from godowns, interest earned on bank deposits and business receipts totaling in all to Rs.7,11,18,190/-, since the assessee had been granted relief on the entire income. This ground was, therefore, not pressed before us and is, 19 therefore treated as dismissed. Further no ground No.3 was raised before us.
36. As regards the issue raised in ground Nos.4 and 5 pertaining to disallowance of Rs.6,45,25,986/- on account of miscellaneous income and Rs.1,63,12,892/- on account of contribution to PF, it was conceded by both the parties that the issue was identical to that raised in ground Nos. 2, 3 and 4 in ITA No.1103/Chd/2008. The ground Nos.4 and 5 of the present appeal are, therefore, covered by our decision in ITA No.1103/Chd/2008 vide paras 25 and 30-32 respectively and the findings given therein shall apply to this case also with equal force.
37. The appeal of the assessee is, therefore, partly allowed.
ITA No. 1104/CHD/2008 . The effective grounds of appeal raised by the assessee in this appeal read as under :
2] That the CIT (A) has erred both on facts and law in confirming the disallowance of Rs.27892651 by making a disallowance on account of Contribution to pension fund. The addition made is illegal, arbitrary and not in consonance with the provisions of law.
3] That the CIT (A) has erred both on facts and in law in confirming the disallowance of Rs.90292 on account of expenditure incurred on Krishak Uphar Yojna. The addition made is illegal, arbitrary and not in consonance with the provisions of law.20
It is prayed that the addition of Rs. 90292 may kindly be ordered to be deleted.
4] That CIT (A) has erred both on facts and in law in confirming the disallowance of Rs.11518370 on account of repair of Godowns/Boundary Walls/ Roads. The addition made is illegal, arbitrary and not in consonance with the provisions of law.
It is prayed that the addition of Rs.11518370 may kindly be ordered to be deleted .
5] That the CIT(A) has erred both on facts and law in confirming the disallowance of Rs.12894316 on account of Miscellaneous Income. The addition made is illegal, arbitrary and not in consonance with the provisions of law."
39. Ground Nos.2 and 5 raised by the assessee pertain to the disallowance upheld by the Ld. CIT (Appeals) on account of contribution of pension fund and addition made of miscellaneous income. It was conceded by both the parties that that the issue was identical to that raised in ground Nos.5 and 4 in ITA No.1103/Chd/2008. The ground Nos.2 and 5 of the present appeal are, therefore, covered by our decision in ITA No.1103/Chd/2008 and vide paras 30-32 and 25 respectively and the findings given therein shall apply to this case also with equal force.
40. Ground No.3 raised by the assessee was not pressed before us, since it was wrongly taken in appeal as the Ld. CIT (Appeals) had allowed this ground of the assessee and the assessee was not aggrieved against the same.21
This ground raised by the assessee is, therefore, dismissed.
41. Ground No.4 raised by the assessee is against the disallowance of Rs.1,15,18,370/- on account of repair of godowns/boundary walls/roads.
42. Briefly stated, the Assessing Officer had denied the claim of the assessee holding the same to be capital in nature. Since the assessee had himself admitted this during the assessment proceedings, the Ld. CIT (Appeals) upheld the same.
43. We find no reason to uphold the disallowance for the same reason as that stated in ITA No.1103/Chd/2008 in ground No.4 while dealing with the disallowance made on account of contribution of pension fund. Undeniably the entire income of the assessee earned by way of contribution of fund, rental income, interest income and miscellaneous income has been held to be exempt under section 10(20) of the Act. The income earned by way of contribution received from market committee and rental income has been held to be exempt under section 10(20) of the Act by CIT (Appeals), which has been upheld by the I.T.A.T. vide its order dated 29.7.2016 in ITA Nos.18, 19 & 60/Chd/2009. In the present appeal, miscellaneous income has been held to be exempt following the decision rendered on identical facts in the case of the assessee in ITA No.1103/Chd/2008. In such circumstances, where 22 entire income of the assessee has been held to be exempt under section 10(20) of the Act, there is no case for making disallowance of any expenses at all. Any disallowance made will only result in enhancing the income of the assessee which in any case has been held to be exempt from tax. Further the entire income earned from rendering services has been held to be exempt at the threshold itself and, therefore, there is no requirement of resorting to computational provision relating to income under the head business and provision stipulated under sections 28 to 44 of the Income Tax Act, 1961. In view of the above, the disallowance of repair of godowns/boundary walls/roads of Rs.1,15,18,370/- is deleted and the ground raised by the assessee is allowed.
44. The appeal of the assessee is partly allowed. ITA No. 452/CHD/2010
45. The facts in this case slightly differ from that in the appeals dealt with hereinabove, as in the present case the assessee was not entitled to exemption under section 10(20) of the Act but was eligible to claim exemption under sections11 and 12 of the Income Tax Act,1961. The Assessing Officer denied the assessee exemption under sections 11 and 12 of the Act and further made disallowance of contribution made to pension fund establishment and pension fund work establishment. In first appeal, the Ld. CIT (Appeals) allowed the assessee's 23 claim of exemption of its income under sections 11 and 12 of the Act but upheld the disallowance made on account of contribution to pension fund for the reason that the same were unapproved.
46. Aggrieved by the same, the assessee has come up in appeal before us and has raised following grounds :
2. That the CIT (A) has erred both on facts and law in confirming addition of Rs.18800000 being contribution to Pension fund establishment and Rs. 9500000 to Pension fund work establishment without considering the facts of the case correctly.
It is prayed that the addition of Rs. 18800000 being contribution to Pension fund establishment and Rs.9500000 to Pension fund work establishment may be ordered to be deleted.
3. That the CIT (A), has erred both on facts and law in confirming addition of Rs.19635 being contribution to Provident Fund establishment and Rs.95991 to Provident fund work establishment without considering the facts of the case correctly.
It is prayed that the addition being contribution to Pension fund establishment and to Pension fund work establishment may be ordered to be deleted.
47. During the course of hearing before us the Ld. counsel for the assessee argued that the disallowance made was unwarranted since the pension and gratuity trust of the assessee was recognized w.e.f. 27.3.2003 and, therefore, all payments made were eligible for deduction under section 36 of the Act for assessment year 2003-04. The Ld. counsel for the assessee relied upon decision of 24 the Hon'ble Punjab & Haryana High Court in the case of Bitoni Lamps Ltd. Vs. CIT, 178 ITR 421 in this regard.
48. The Ld. DR, on the other hand, relied upon the order of the CIT (Appeals) and stated that the fund was unapproved and, therefore, the disallowance had been rightly made under section 36 of the Act.
49. Having heard the contentions of both the parties we find that it is not denied that the assessee is entitled to exemption under sections 11 and 12 of the Act. The Ld. CIT (Appeals) has upheld the exemption claimed by the assessee and it was stated at the Bar that no appeal against the order of the Ld. CIT (Appeals) has been filed by the Revenue. Therefore, the order of the Ld. CIT (Appeals) has attained finality on the issue. Thus for all intents and purposes the assessees income is exempt under sections 11 and 12 of the Act. Having said so, we find that the disallowance made on account of contribution of unapproved pension and gratuity funds, relate to the computational provisions of the Income assessable under the head "Income from business and profession" more specifically under section 36 of the Act. Since the income of the assessee has been held to be exempt under sections 11 and 12 of the Act at the threshold itself, we hold that there is no occasion to apply the computational provision provided under Chapter IV of the Act running from sections 28 to 44 , in computing the income since the same is attracted only if the income 25 is brought to tax under the head 'income from business and profession'. Even the CBDT vide its circular No.5P(LXX-6) dated 19.6.1968 has stated that the word "income" for the purpose of claiming exemption under sections 11 and 12 of the Act should be understood in its commercial sense. In view of the above we hold that in the present case, the assessee being entitled to exemption under section11 and 12 of the Act, no disallowance on account of contribution to unapproved pension and gratuity funds can be made and the addition made on account of the same is, therefore, directed to be deleted. All the grounds raised by the assessee are, therefore, allowed and the appeal of the assessee stands allowed. ITA Nos.1245 & 1246/CHD/2012
50. Both the appeals have been filed by the assessee against the consolidated order of the Ld. CIT (Appeals), Panchkula upholding the levy of penalty under section 271(1)(c) of the Act for assessment year 2001-02 and 2002-03.
51. Briefly stated, penalty in both the years was levied on the additions made by the Assessing Officer and upheld by the Ld. CIT (Appeals) in first appeal. For the assessment year 2001-02 the penalty was levied on the following additions upheld by the Ld. CIT (Appeals) : 26
I. Miscellaneous Income :-
A Interest on deposit Rs.
work 5,78,64,016/-
B Sale of tender form Rs.2,62,4724
C Enlistment fee of Rs.
contractors 22,61,550/-
D Other Misc Income Rs.
included in suspense 17,79,295/- 6,45,25,986/-
account
II. Contribution to 16200000/-
Pension Fund
TOTAL 8,07,25,986/-
52. The Assessing Officer held that the assessee had furnished inaccurate particulars to the extent of the above and levied penalty @ 100% of tax sought to be evaded on the same amounting to Rs.2,83,34,821/-.
53. Similarly for assessment year 2002-03 penalty was levied on the following additions made by the Assessing Officer and upheld by the CIT (Appeals) :
I. Miscellaneous Income :-
A Interest on deposit Rs.0000170/-
work
B Sale of tender form Rs.1591918
C Enlistment fee of Rs.1191750/-
contractors
D Other Misc Income Rs.110478/-
included in
suspense account Rs.1,28,94,316/-
II. Contribution to Rs.2,35,00,000/-
Pension Fund
III. Contribution to Rs.15,00,000/-
Kissan Mela
IV Repair to Rs.1,15,18,370/-
Godown/Boundary
walls/roads
TOTAL Rs.4,94,02,686/-
54. In assessment year 2002-03, the Assessing
Officer held that the assessee had furnished in accurate particulars of income to the above extent and, therefore, levied penalty @ 100% of tax sought to be evaded ont eh 27 same amounting to Rs.1,63,02,887/-.
55. The Ld. CIT (Appeals) vide his consolidated order passed on 17.9.2012 upheld the levy of penalty.
56. Aggrieved by the same, the assessee has filed both the above appeals before us.
57. We find no reason to uphold the penalty levied since the additions made have been deleted in the quantum proceedings before us in the order passed in ITA No.47/Chd/2009 and ITA No.1104/Chd/2008 above. Since the very basis for the levy of penalty has been deleted there can be no occasion to levy penalty under section 271(1)(c) at all.
58. In view of the above, we set aside the order of the CIT(A) and delete the penalty levied under section 271(1)(c) of the Act.
59. In effect both the appeals of the assessee stand allowed.
59. In the result;
1) The appeal filed by the assessee in ITA No. 1103/Chd/2008 is allowed.
2) The appeals filed by the assessee in ITA No.47/Chd/2009 & ITA No.1104/Chd/2008, are partly allowed.
28
3) The appeals filed by the assessee in ITA No.452/Chd/2010 is allowed.
4) The appeals filed by the assessee in ITA Nos.1245 & 1246/Chd/2012 are allowed.
Order pronounced in the open court.
Sd/- Sd/-
(BHAVNESH SAINI) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 21 s t December, 2016
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh