Mohan Cooperative Industrial Estate Ltd. Vs. Assistant Commissioner of Income Tax. - Court Judgment

Excerpt:
- - there is also the further argument that the affairs of the assesses-society are subject to control and supervision by the registrar of co-operative societies and under these circumstances the likelihood of any deliberate and intentional act vis-a-vis the legal provisions is likely to be remote although we would like to add that the registrar of co-operative societies does not engage him in dealing with matters under the it act and that being best left to the authorities. 16,860. 15. after hearing both the parties, we find no good ground to sustain the penalties in question as the facts are identical to those prevailing in asst. we would only like to mention that as far as penalty under s. 1984-85 as well.orderr. m. mehta, a. m. :these penalty appeals directed against separate orders passed by the cit(a) were heard together and inasmuch as they involve a common issue the same are disposed of by means of a consolidated order.2. the relevant facts in all these appeals revolve around asst. yr. 1983-84 when an addition of rs. 1,76,551 came to be made on account of interest. in the said assessment year the assessed, which is a co-operative society, its main purpose being to develop industrial sites and provide other infrastructure for the development of an industrial estate for its members, filed a return on 27th july, 1983 showing a loss of rs. 72,817. in its accounts it had shown interest income to the tune of rs. 32,228. the other relevant fact in this case is that every member of the said co-operative society was to pay entrance fees of rs. 100 and also to subscribe to atleast one share of the face value of rs. 1,000. the assessed had also received from its members a sum of rs. 62,09,279 towards cost of land, development charges, etc. the surplus funds of the assesses-society were invested in fixed deposits with the bank and which earned interest income to the tune of rs. 1,76,551. this figure was over and above the interest income of rs. 32,228 which had already been shown in the accounts and consequently the tax return.3. the stand taken by the assessed before the tax authorities was that the aforesaid amount of interest was not its income as it had been resolved to allocate the same to the members and make adjustments in the development charges which they would be paying to the assesses-society subsequently. this plea was rejected by the ito and subsequently by the cit(a). before the first appellate authority the assesseds claim for being treated as a mutual benefit society was also rejected.4. being aggrieved with the order of the cit(a), the assessed came up in appeal before the tribunal raising for its consideration, the following ground :'the authorities below has erred in holding that interest income earned on fixed deposit purchased from bank from the funds provided by its members for meeting their liabilities towards development charges, i.e., electrification by desu and cost of land payable to dda is assessable as an income under the head 'other sources' of the society.'5. the tribunal rejected the arguments advanced vis-a-vis the question of mutuality and also upheld the addition of rs. 1,76,551 on account of interest. according to the tribunal the purpose for which the amount earned as interest was to be used was immaterial and irrelevant and all that mattered was that interest income had been earned by the assessed from the funds deposited with banks.6. in view of the aforesaid addition of rs. 1,76,551 the ito initiated penalty proceedings at the assessment stage and subsequently by means of an order dt. 3rd june, 1987 he imposed a penalty of rs. 61,861 being 150 per cent of the tax sought to be evaded. he took due note of the observations of the ito in the assessment order as also the further fact that the cit(a) had upheld the addition. on further appeal filed against the penalty order the cit(a) confirmed the same taking due note of the order of the tribunal in the quantum appeal confirming the addition on account of interest.7. the learned counsel for the appellant, at the outset, contended that this was not a case which could be said to attract the penal provisions of s. 271(1)(c) since the assessed in fact had not concealed any income nor had it furnished inaccurate particulars. according to him the assessed had itself disclosed all the relevant facts and the ito had detected the figure of interest from the audit report which had been filed along with the tax return. the further submission on the part of the learned counsel was that although the tribunal had been pleased to confirm the addition it could not be said that relevant facts had been concealed with a mala fide motive, since this was the case of a co-operative society having a large number of members and none of them either individually or collectively had any personal interest in the financial affairs of the said society. he reiterated the submissions made before the lower authorities to the effect that the assessed was under the bona fide belief that interest earned from the bank on the amount received from the members towards development charges and cost of land which was payable to the dda was in fact their money and which was required to be adjusted from the future demands which would be made on these members. the further submissions on the part of the assessed were to the effect that the assessed was a society registered under the societies registration act and its affairs wee being subjected to scrutiny by the registrar of co-operative societies. it was further stated that, as and when the society were to be wound up, the assets etc., would not got to any individual or a group of individuals. the learned counsel further stated that in the asst. yr. 1986-87 a similar addition had been made by the ito, but penalty proceedings initiated under s. 271(1)(c) were subsequently dropped. as regards asst. yr. 1985-86 the learned counsel stated that penalty proceedings were initiated, but no penalty was levied. on the question of mensrea/mala fide intention, the learned counsel placed reliance on the decision of the supreme court in cement marketing co. of india ltd. vs . asstt. cst : [1980]124itr15(sc) and that of the allahabad high court in the case of cit vs . university printers : [1991]188itr206(all) . in concluding his arguments the learned counsel urged that the penalty be cancelled.8. the learned departmental representative, on the other hand, strongly supported the orders passed by the tax authorities and the subsequent arguments advanced by him were a reiteration of the reasons recorded by the ito in levying the penalty and the cit(a) in confirming the same. he highlighted the further fact that subsequently the tribunal had also been pleased to uphold the addition in the quantum appeal.9. we have examined the rival submissions and have also perused the material on record, to which our attention was invited by the parties. the decisions cited at the bar have also been duly considered. no doubt this is a case in which the addition on account of interest made by the ito came to be confirmed by the tribunal, but in our opinion, all additions necessarily do not give rise to penalty proceedings, much less, those under s. 271(1)(c). it is not disputed before us on the part of the revenue that the assessed is a co-operative society having a large number of members and the amount in question, viz., rs. 62,00,000 and odd had been received from such members towards cost of land and development charges payable subsequently to the dda. the assessed in the audit report which was filed along with the tax return did disclose relevant facts about the amount received as interest and it was from this audit report that the ito was able to cull out the necessary information. then again, the assessed took the stand all along both at the assessment stage and subsequently before the cit(a) and the tribunal that it was under the bona fide belief that the interest earned on the amount deposited with the bank belonged to the members and required to be adjusted from the future dues towards the society. in our opinion, the aforesaid stand does not appear to be a far-fetched one although the order of the tribunal confirming the addition has become final as there is nothing on record to show that a reference application had been filed by the assessed. we are, however, in the realm of penalty under s. 271(1)(c) and although the findings recorded in the quantum matters are to be considered, these by themselves cannot be the sole basis for levy of penalty and that also under s. 271(1)(c). the learned counsel has also raised an argument to the fact that this is the case of a co-operative society and no individual or a group of individuals has any personal interest in its financial affairs. in other words, no such individual or group of individuals stands to benefit vis-a-vis the sum not offered to tax in the return filed with the tax authorities. there is also the further argument that the affairs of the assesses-society are subject to control and supervision by the registrar of co-operative societies and under these circumstances the likelihood of any deliberate and intentional act vis-a-vis the legal provisions is likely to be remote although we would like to add that the registrar of co-operative societies does not engage him in dealing with matters under the it act and that being best left to the authorities.10. in the final analysis, we, on the facts and in the circumstances of the present case, hold that penal provisions of s. 271(1)(c) are not attracted and penalty of rs. 61,860 is required to be cancelled.11. for the asst. yr. 1983-84 the assessed also came to be penalised under s. 273/274 of the it act, 1961. in initiating the aforesaid proceedings the ito took due note of the assessment having been completed at a figure of rs. 1,03,730 and tax payable rs. 41,241. in the final analysis, the penalty came to be imposed at a figure of rs. 6,190 being 20 per cent of the tax in default. on further appeal the cit(a) confirmed the levy of penalty, but directing in the process, the ito to verify the actual payment of advance tax under s. 210 stated at a figure of rs. 16,720 by the assessed and re-calculate the penalty 'as per law.'12. we have heard both the parties at some length in respect of the appeal pertaining to levy of penalty under s. 273/274. the learned counsel argued that the assessed did not have any positive income at the assessment stage as the returned figure was a negative one. it was stated that the addition on account of interest was not contemplated at the point of time when necessary compliance was to be made vis-a-vis the provisions pertaining to advance tax. the further submissions on the part of the learned counsel were on the same lines as raised in the earlier appeal pertaining to penalty under s. 271(1)(c). the learned departmental representative, on the other hand, supported the order passed by the cit(a).13. after considering the rival submissions, we are of the view that there is no justification to sustain the penalty of rs. 6,190 under s. 273/274. this was the case of a co-operative society which filed a return showing a negative figure, but which subsequently came to be assessed on an income of rs. 1,03,730 as a result of addition on account of interest and which it did not anticipate at the point of time when it was required to comply with the provisions pertaining to payment of advance-tax. as already observed by us while disposing of the appeal pertaining to penalty under s. 271(1)(c) there is nothing on record to show that the action on the part of the assessed was mala fide or intentional. in this view of the matter and more so in the light of our observations in deciding the earlier appeal the penalty of rs. 6,190 under s. 273 is also cancelled.14. for the asst. yrs. 1984-85, three appeals have been filed by the assessed pertaining to levy of penalties under ss. 271(1)(a), 271(1)(c) 273/274. in this assessment year the assessed filed a return on 1st oct., 1984 showing a loss of rs. 84,335, but after the addition on account of interest on the same lines as in asst. yr. 1983-84 the taxable income was computed at a figure of rs. 2,59,840. as the return was late the ito initiated penalty proceedings under s. 271(1)(a) and as a result of the income being computed at a positive figure the other two penalties also came to be initiated. on the same lines as in asst. yr. 1983-84, the penalty for late filing came to be imposed at a figure of rs. 6,750 and that under s. 271(1)(c) at rs. 1,68,640. the penalty under s. 273/274 was to the tune of rs. 16,860.15. after hearing both the parties, we find no good ground to sustain the penalties in question as the facts are identical to those prevailing in asst. yr. 1983-84 and which we have already discussed at length while disposing of the appeals for the said assessment year. we would only like to mention that as far as penalty under s. 271(1)(a) is concerned the assessed did not have any positive income and the returned figure was a loss of rs. 84,335. there is nothing on record to show that any notice was served on the assessed requiring it to file a return. in case the addition on account of interest has not been made then the net result of the assessment would have still been a loss and under these circumstances penalty otherwise would not have been imposed. in the final analysis, and also in the light of the detailed reasons recorded by us in the appeals pertaining to asst. yr. 1983-84, we proceed to cancel all the penalties imposed for the asst. yrs. 1984-85 as well.16. in the result, all the appeals are allowed.

Judgment:
ORDER

R. M. MEHTA, A. M. :

These penalty appeals directed against separate orders passed by the CIT(A) were heard together and inasmuch as they involve a common issue the same are disposed of by means of a consolidated order.

2. The relevant facts in all these appeals revolve around asst. yr. 1983-84 when an addition of Rs. 1,76,551 came to be made on account of interest. In the said assessment year the assessed, which is a co-operative society, its main purpose being to develop industrial sites and provide other infrastructure for the development of an industrial estate for its members, filed a return on 27th July, 1983 showing a loss of Rs. 72,817. In its accounts it had shown interest income to the tune of Rs. 32,228. The other relevant fact in this case is that every member of the said co-operative society was to pay entrance fees of Rs. 100 and also to subscribe to atleast one share of the face value of Rs. 1,000. The assessed had also received from its members a sum of Rs. 62,09,279 towards cost of land, development charges, etc. The surplus funds of the assesses-society were invested in fixed deposits with the bank and which earned interest income to the tune of Rs. 1,76,551. This figure was over and above the interest income of Rs. 32,228 which had already been shown in the accounts and consequently the tax return.

3. The stand taken by the assessed before the tax authorities was that the aforesaid amount of interest was not its income as it had been resolved to allocate the same to the members and make adjustments in the development charges which they would be paying to the assesses-society subsequently. This plea was rejected by the ITO and subsequently by the CIT(A). Before the first appellate authority the assesseds claim for being treated as a mutual benefit society was also rejected.

4. Being aggrieved with the order of the CIT(A), the assessed came up in appeal before the Tribunal raising for its consideration, the following ground :

'The authorities below has erred in holding that interest income earned on fixed deposit purchased from bank from the funds provided by its members for meeting their liabilities towards development charges, i.e., electrification by DESU and cost of land payable to DDA is assessable as an income under the head 'other sources' of the society.'

5. The Tribunal rejected the arguments advanced vis-a-vis the question of mutuality and also upheld the addition of Rs. 1,76,551 on account of interest. According to the Tribunal the purpose for which the amount earned as interest was to be used was immaterial and irrelevant and all that mattered was that interest income had been earned by the assessed from the funds deposited with banks.

6. In view of the aforesaid addition of Rs. 1,76,551 the ITO initiated penalty proceedings at the assessment stage and subsequently by means of an order dt. 3rd June, 1987 he imposed a penalty of Rs. 61,861 being 150 per cent of the tax sought to be evaded. He took due note of the observations of the ITO in the assessment order as also the further fact that the CIT(A) had upheld the addition. On further appeal filed against the penalty order the CIT(A) confirmed the same taking due note of the order of the Tribunal in the quantum appeal confirming the addition on account of interest.

7. The learned counsel for the appellant, at the outset, contended that this was not a case which could be said to attract the penal provisions of S. 271(1)(c) since the assessed in fact had not concealed any income nor had it furnished inaccurate particulars. According to him the assessed had itself disclosed all the relevant facts and the ITO had detected the figure of interest from the audit report which had been filed Along with the tax return. The further submission on the part of the learned counsel was that although the Tribunal had been pleased to confirm the addition it could not be said that relevant facts had been concealed with a mala fide motive, since this was the case of a co-operative society having a large number of members and none of them either individually or collectively had any personal interest in the financial affairs of the said society. He reiterated the submissions made before the lower authorities to the effect that the assessed was under the bona fide belief that interest earned from the bank on the amount received from the members towards development charges and cost of land which was payable to the DDA was in fact their money and which was required to be adjusted from the future demands which would be made on these members. The further submissions on the part of the assessed were to the effect that the assessed was a society registered under the Societies Registration Act and its affairs wee being subjected to scrutiny by the Registrar of Co-operative Societies. It was further stated that, as and when the society were to be wound up, the assets etc., would not got to any individual or a group of individuals. The learned counsel further stated that in the asst. yr. 1986-87 a similar addition had been made by the ITO, but penalty proceedings initiated under S. 271(1)(c) were subsequently dropped. As regards asst. yr. 1985-86 the learned counsel stated that penalty proceedings were initiated, but no penalty was levied. On the question of mensrea/mala fide intention, the learned counsel placed reliance on the decision of the Supreme Court in Cement Marketing Co. of India Ltd. vs . Asstt. CST : [1980]124ITR15(SC) and that of the Allahabad High Court in the case of CIT vs . University Printers : [1991]188ITR206(All) . In concluding his arguments the learned counsel urged that the penalty be cancelled.

8. The learned Departmental Representative, on the other hand, strongly supported the orders passed by the tax authorities and the subsequent arguments advanced by him were a reiteration of the reasons recorded by the ITO in levying the penalty and the CIT(A) in confirming the same. He highlighted the further fact that subsequently the Tribunal had also been pleased to uphold the addition in the quantum appeal.

9. We have examined the rival submissions and have also perused the material on record, to which our attention was invited by the parties. The decisions cited at the bar have also been duly considered. No doubt this is a case in which the addition on account of interest made by the ITO came to be confirmed by the Tribunal, but in our opinion, all additions necessarily do not give rise to penalty proceedings, much less, those under S. 271(1)(c). It is not disputed before us on the part of the Revenue that the assessed is a co-operative society having a large number of members and the amount in question, viz., Rs. 62,00,000 and odd had been received from such members towards cost of land and development charges payable subsequently to the DDA. The assessed in the audit report which was filed along with the tax return did disclose relevant facts about the amount received as interest and it was from this audit report that the ITO was able to cull out the necessary information. Then again, the assessed took the stand all along both at the assessment stage and subsequently before the CIT(A) and the Tribunal that it was under the bona fide belief that the interest earned on the amount deposited with the bank belonged to the members and required to be adjusted from the future dues towards the society. In our opinion, the aforesaid stand does not appear to be a far-fetched one although the order of the Tribunal confirming the addition has become final as there is nothing on record to show that a reference application had been filed by the assessed. We are, however, in the realm of penalty under S. 271(1)(c) and although the findings recorded in the quantum matters are to be considered, these by themselves cannot be the sole basis for levy of penalty and that also under S. 271(1)(c). The learned counsel has also raised an argument to the fact that this is the case of a co-operative society and no individual or a group of individuals has any personal interest in its financial affairs. In other words, no such individual or group of individuals stands to benefit vis-a-vis the sum not offered to tax in the return filed with the tax authorities. There is also the further argument that the affairs of the assesses-society are subject to control and supervision by the Registrar of Co-operative Societies and under these circumstances the likelihood of any deliberate and intentional act vis-a-vis the legal provisions is likely to be remote although we would like to add that the Registrar of Co-operative Societies does not engage him in dealing with matters under the IT Act and that being best left to the authorities.

10. In the final analysis, we, on the facts and in the circumstances of the present case, hold that penal provisions of S. 271(1)(c) are not attracted and penalty of Rs. 61,860 is required to be cancelled.

11. For the asst. yr. 1983-84 the assessed also came to be penalised under S. 273/274 of the IT Act, 1961. In initiating the aforesaid proceedings the ITO took due note of the assessment having been completed at a figure of Rs. 1,03,730 and tax payable Rs. 41,241. In the final analysis, the penalty came to be imposed at a figure of Rs. 6,190 being 20 per cent of the tax in default. On further appeal the CIT(A) confirmed the levy of penalty, but directing in the process, the ITO to verify the actual payment of advance tax under S. 210 stated at a figure of Rs. 16,720 by the assessed and re-calculate the penalty 'as per law.'

12. We have heard both the parties at some length in respect of the appeal pertaining to levy of penalty under S. 273/274. The learned counsel argued that the assessed did not have any positive income at the assessment stage as the returned figure was a negative one. It was stated that the addition on account of interest was not contemplated at the point of time when necessary compliance was to be made vis-a-vis the provisions pertaining to advance tax. The further submissions on the part of the learned counsel were on the same lines as raised in the earlier appeal pertaining to penalty under S. 271(1)(c). The learned Departmental Representative, on the other hand, supported the order passed by the CIT(A).

13. After considering the rival submissions, we are of the view that there is no justification to sustain the penalty of Rs. 6,190 under S. 273/274. This was the case of a Co-operative society which filed a return showing a negative figure, but which subsequently came to be assessed on an income of Rs. 1,03,730 as a result of addition on account of interest and which it did not anticipate at the point of time when it was required to comply with the provisions pertaining to payment of advance-tax. As already observed by us while disposing of the appeal pertaining to penalty under S. 271(1)(c) there is nothing on record to show that the action on the part of the assessed was mala fide or intentional. In this view of the matter and more so in the light of our observations in deciding the earlier appeal the penalty of Rs. 6,190 under S. 273 is also cancelled.

14. For the asst. yrs. 1984-85, three appeals have been filed by the assessed pertaining to levy of penalties under Ss. 271(1)(a), 271(1)(c) 273/274. In this assessment year the assessed filed a return on 1st Oct., 1984 showing a loss of Rs. 84,335, but after the addition on account of interest on the same lines as in asst. yr. 1983-84 the taxable income was computed at a figure of Rs. 2,59,840. As the return was late the ITO initiated penalty proceedings under S. 271(1)(a) and as a result of the income being computed at a positive figure the other two penalties also came to be initiated. On the same lines as in asst. yr. 1983-84, the penalty for late filing came to be imposed at a figure of Rs. 6,750 and that under S. 271(1)(c) at Rs. 1,68,640. The penalty under S. 273/274 was to the tune of Rs. 16,860.

15. After hearing both the parties, we find no good ground to sustain the penalties in question as the facts are identical to those prevailing in asst. yr. 1983-84 and which we have already discussed at length while disposing of the appeals for the said assessment year. We would only like to mention that as far as penalty under S. 271(1)(a) is concerned the assessed did not have any positive income and the returned figure was a loss of Rs. 84,335. There is nothing on record to show that any notice was served on the assessed requiring it to file a return. In case the addition on account of interest has not been made then the net result of the assessment would have still been a loss and under these circumstances penalty otherwise would not have been imposed. In the final analysis, and also in the light of the detailed reasons recorded by us in the appeals pertaining to asst. yr. 1983-84, we proceed to cancel all the penalties imposed for the asst. yrs. 1984-85 as well.

16. In the result, all the appeals are allowed.