2023 (1) TMI 64 - AT - Income Tax

Tribunal Upholds CIT(A) Decisions on Mutuality & Income Classification, Remands Depreciation Issue for Verification

Assistant Commissioner of Income-tax, Vapi Circle, Vapi Versus M/s Vapi Green Enviro Ltd.

The Tribunal upheld the Ld. CIT(A)'s decisions on the principle of mutuality and the classification of income, dismissing the Revenue's appeal on these ... Principle of mutuality - CPC Bengaluru while processing the return of income considered amount as income of the assessee by treating as income not covered by mutuality - HELD THAT:- We find that there is no dispute that assessee was settled / incorporated as per the order of Hon'ble jurisdictional High Court to treat the effluent of hazardous / created in and around of Vapi. There is no dispute that the similar receipt from its members was treated as income in various preceding years. However, on appeal before Ld.NFAC/CIT(A) the assessee was granted relief in all preceding years and on further appeals by Department the order of Ld.NFAC/CIT(A) were upheld by Tribunal. As in assessee’s own case for assessment years 2013-14 [2021 (11) TMI 1123 - ITAT SURAT]as noted that assessee’s own case for AY 2010-11 [2018 (3) TMI 1983 - ITAT SURAT] the co-ordinate bench of Tribunal while following the order in earlier year accepted the status of assessee as a mutual association - No contrary facts or law is brought to our notice to take other view - Decided against revenue. Allowances of depreciation - not reducing the contribution of members for acquisition of assets while computing depreciation - HELD THAT:- As decided in assessee own case for assessment year 2013- 14 [2021 (11) TMI 1123 - ITAT SURAT] we held the principle of mutuality in the case of assessee, therefore, the allowances of depreciation and prior period expenses by AO has no bearing as the principle of mutuality has been accepted by the Tribunal. In the result, appeal of the assessee is set aside and disposed of for statistical purposes. This ground of Revenue’s appeal is allowed for statistical purposes. Issues Involved:1. Principle of mutuality followed by the assessee.2. Classification of income amounting to Rs. 53,35,87,238/- as business income.3. Allowance of depreciation amounting to Rs. 91,48,183/-.Issue-wise Detailed Analysis:1. Principle of Mutuality:The Revenue challenged the Ld. CIT(A)'s decision allowing the principle of mutuality followed by the assessee. The assessee, a company incorporated under Section 26 of the Companies Act, 1956, operates on mutuality for its members, primarily for the treatment of effluent and disposal of hazardous waste. The CPC, Bengaluru, treated Rs. 54.27 Crore as income not covered by mutuality. However, the Ld. NFAC/CIT(A) accepted the assessee's claim, referencing previous Tribunal decisions that consistently upheld the principle of mutuality for the assessee. The Tribunal found no new contrary facts or law, affirming the Ld. CIT(A)'s decision and dismissing Revenue's appeal on this ground.2. Classification of Income:The CPC, Bengaluru, classified Rs. 53.35 Crore as business income. The assessee argued that this amount, received from its members for effluent treatment charges, should not be treated as business income due to the principle of mutuality. The Ld. NFAC/CIT(A) accepted this argument, referencing prior Tribunal decisions that consistently treated such receipts as non-taxable under mutuality. The Tribunal upheld the Ld. CIT(A)'s decision, affirming that the receipts from members were not taxable as business income.3. Allowance of Depreciation:The Revenue contested the Ld. CIT(A)'s decision allowing depreciation of Rs. 91,48,183/-. The assessee argued that the member's contributions for asset acquisition, shown under member's fund, should not reduce the cost of the asset for depreciation calculation. The Tribunal referenced earlier decisions where the principle of mutuality was accepted, and depreciation was allowed without reducing the member's contributions. The Tribunal directed the Assessing Officer to verify if any services were provided to non-members, which would be taxable, and to grant appropriate relief to the assessee accordingly. This ground was allowed for statistical purposes, requiring verification by the Assessing Officer.Conclusion:The Tribunal upheld the Ld. CIT(A)'s decisions on the principle of mutuality and the classification of income, dismissing the Revenue's appeal on these grounds. The issue of depreciation was remanded for verification, allowing the Revenue's appeal for statistical purposes. The appeal was partly allowed, with specific directions for the Assessing Officer to follow established precedents and verify relevant facts.