2016 (6) TMI 517 - AT - Income Tax

Tribunal rules in favor of assessee, upholding CIT(A)'s decision on tax exemption.

DDIT (E) -I, Kolkata Versus Sasha Association for Craft Products

The Tribunal upheld the CIT(A)'s decision, ruling in favor of the assessee and dismissing the Revenue's appeal. The Tribunal found no violation of Section ... Exemption u/s 11 - Investment in shares in a Private Limited Company - Held that:- Investment in shares in a Private Limited Company if made out of the profit of business then the exemption benefit shall not be denied to the assessee. In the instant case the assessee claimed to have made the investment out of the fund representing the profit and gains of assessee’s business and the Ld. DR failed to bring anything on record contrary to the point of argument of the ld. AR. Accordingly, in our considered view, we find that there is no violation of the provisions of Section 13 of the Act and the assessee is entitled for exemptions under section 11 of the Act. We also find that the Private Limited Company was formed for the furtherance of the objects of the assessee and both the societies were the shareholders in the company. None of the Director had any substantial interest in the company. The members of the assessee society were the directors only in the representative capacity in the company. Therefore, in the instant case benefit under section 11 of the Act cannot be denied. Similarly, we also find that the assessee has been claiming the exemptions benefit under section 11 of the Act for the last several years but the same was not denied therefore in our view principle of consistency should be applied in the instant case. - Decided in favour of assessee. Issues Involved:1. Consistency in assessments despite no res judicata or estoppel in Income Tax proceedings.2. Whether investment in the share capital of a Private Limited Company out of income set apart under section 11(2)(b) violates the provisions of Section 11(5) of the Income Tax Act.Issue-wise Detailed Analysis:1. Consistency in Assessments:The Revenue contended that the Commissioner of Income Tax (Appeals) [CIT(A)] erred in holding that consistency should be maintained in assessments despite the principle of res judicata or estoppel not applying to Income Tax proceedings. The CIT(A) referred to the Supreme Court's principle in Radhasoami Satsang vs. Commissioner of Income Tax, which emphasizes consistency in decisions taken on the same set of facts across different assessment years. The CIT(A) noted that the investment in question was made in the assessment year (AY) 2005-06, and the exemption under section 11 was not denied in subsequent years, including AY 2007-08 and AY 2009-10, where assessments were completed under section 143(3). Therefore, the CIT(A) directed the Assessing Officer (AO) to allow the exemption under section 11, maintaining consistency.2. Violation of Section 11(5):The Revenue argued that the assessee's investment in the share capital of a Private Limited Company violated Section 11(5) of the Act, leading to the denial of exemption under Section 11. The AO found the investment of Rs. 10 lakhs in contravention of Section 11(5) and issued a show-cause notice for the withdrawal of the exemption. The assessee defended the investment, stating it was made to help artisans and craftsmen by promoting their products in national and international markets through a joint venture with an Italian association. The AO, however, held that the company was an interested person under Section 13(3) and denied the exemption under Section 13(1)(d) read with Section 13(2)(h).The CIT(A) overturned the AO's decision, noting that the investment was made in AY 2005-06 and consistently allowed in subsequent assessments. The CIT(A) emphasized the principle of consistency and directed the AO to allow the exemption under Section 11.Tribunal's Analysis:The Tribunal examined whether the investment in the share capital of a Private Limited Company violated Section 11(5). It noted that Section 13(1)(d) exempts income if the investment is made out of business profits and gains, provided separate books of accounts are maintained as per Section 11(4A). The Tribunal found that the assessee's investment was made out of business profits and gains, and the Ld. Departmental Representative (DR) failed to present contrary evidence. The Tribunal also noted that the Private Limited Company was formed to further the assessee's objectives, and the directors had no substantial interest in the company.The Tribunal referenced the Delhi High Court decision in Director of Income Tax (Exemption) vs. Acme Educational Society, which held that interest-free loans between similarly purposed societies did not violate Section 13(1)(d) read with Section 11(5). The Tribunal also cited the Supreme Court's principle of consistency in Radhasoami Satsang vs. Commissioner of Income Tax, reinforcing that the same set of facts should not lead to different conclusions in different years.Conclusion:The Tribunal upheld the CIT(A)'s order, finding no violation of Section 13 and affirming the assessee's entitlement to exemption under Section 11. The Tribunal dismissed the Revenue's appeal, maintaining the principle of consistency and recognizing the investment as aligned with the assessee's objectives and made from business profits.Final Judgment:The Revenue's appeal was dismissed, and the order pronounced in the open court on 27/04/2016.