AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2013 (11) TMI 212
X X X X Extracts X X X X
X X X X Extracts X X X X
....al. The Ld. Sr. DR was given time to go through the same. On the next date of hearing considering the submissions of the Ld. Sr. DR and the material available on record. The appeals were heard, taking into consideration, the written submissions filed by the assessee are in the appeal. 2. In all the departmental appeals, identical grounds have been raised. For ready-reference, we reproduced grounds from ITA No.-5602/Del/201. It reads as under:- "1. Ld. CIT(A)-II has erred in law and on facts in holding that only surplus remaining after allowing expenses as per the account of the assessee should be brought to tax without appreciating the fact that each and every expenditure claimed by the assessee and not supported by any evidence may not be an allowable expenditure and the Assessing Officer ought to have been given an opportunity to examine and verify the genuineness and admissibility of such claim. 2. Ld. CIT(A)-II has erred in law and on facts in directing the Assessing Officer to allow all expenses claimed by the assessee without affording any opportunity to the Assessing Officer to examine the veracity of such claim and to verify whether such expenses are liable to be d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g of appeal. 8. That the order of Ld. C.I.T.(A) deserves to be set aside & the assessment order passed u/s 143(30 deserves to be declared null & void & the appellant be declared non taxable." 4. The relevant facts of the case are that the assessee declared a NIL income by way of filing a return on 19.12.2007 which was processed u/s 143(1) on 12.01.2010 and subsequently by way of issuance of notice u/s 148 wherein the assessee stated the original return filed u/s 139 may be treated as a compliance of the notice u/s 148. The same was selected for scrutiny assessment by way of issuance of notice u/s 143(2) & 142(1). The assessee in the said proceedings was required to justify the claim of refund. The explanation that it was a local authority was rejected in view of the amendment of section 10(20) as amended by Finance Act 2002 w.e.f 01.04.2003 which contemplated only 4 specific categories and assessee was admittedly not either of those categories. The explanation on facts that the amounts were not taxable and the position of law in support of its contention at page 4 & 5 were not accepted by the AO. For ready-reference, we reproduced the explanation on facts from pages 4 of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he action in assessing the assessee as 'Artificial Juridical Person' (AJP) etc. and the addition on merits are also agitated. The CIT(A) on lack of opportunity decided the issue against the assessee by para 3.2 holding as under :- "3.2. Ground no.-5 is pertaining to alleged denial of proper opportunity of being heard. It is seen from the assessment folder available that ample opportunities have been given to the appellant during the assessment proceedings both through notice u/s 142(1) of the Act and otherwise. Accordingly, there is no force in this ground and the same is dismissed." 7. In regard to issuance of notice u/s 142, the ground was rejected by para 3.3 with the following findings :- "3.3. Ground no.-6 pertains to denying that no notice has been given u/s 142 of the Act for the additions made in the assessment order. It is seen that the appellant has availed of the opportunities provided by the ld. AO to canvass his point of view against the proposed taxability of receipts accruing to the appellant. This ground is thus worthy of rejection." 8. Ground 12 agitating the issue that the assessee was an organ of the state as such immune of Article 289 of the Constitu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t as it was till its amendment. Thus, the contention through this ground of appeal has to be understood in the light of this fact. It is seen in the instant case that the appellant is a distinct legal entity created through an act of the State Govt. and is certainly not the State per se. Thus, the appellant cannot take shelter behind Article 289. Thus, this ground of appeal cannot help the appellant and is hereby rejected." 8.1. The ground challenging initiation of proceedings u/s 148 was also dismissed by ground-4 & 4.1 which is reproduced here under :- "4. Ground no-2 challenged the initiation of proceedings u/s 148 of the Act. During the course of appellate proceedings the assessment folder for this year has been procured from the ld. AO. Copy of the note sheet on which the reasons for reopening of this case were recorded, was handed over to the ld. Counsel for a response. The ld. AR has pointed out several alleged discrepancies in the copy of reasons intimated to the assessee during the course of assessment proceedings as against the reasons recorded on the order sheet placed in the assessment folder. The gist of the objections are as under :- i) The reasons recorde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ect to status as under :- 1) Firm; 2) Local Authority; 3) Co-operative Bank; 4) Other Co-operative Society; 5) Any other AOP/BOI, Artificial Juridical Person This makes it clear that the AO has assessed the appellant in category 5) as mentioned above which includes AOP/BOI and AJP." 5.2. Thus, it is held that the appellant has not suffered on account of arbitrary change of status as claimed by him and thus the authorities relied upon by the ld. AR will not apply on the facts of this case. This ground is accordingly rejected. This finding also takes care of ground no.4 which is a corollary of ground no.3." 8.3. Deciding the issue of taxability of the amount, the CIT(A) decided the same in ground no-6. Against this action both the assessee and the revenue are in appeal. The issue was decided vide para 6 holding as under :- "6. The grounds of appeal seventh to eleventh protest the taxing of entire receipts as evident from the TDS certificates enclosed with the Return of Income. It is stated that the entire receipts have been brought to tax without giving any benefit of deduction for expenditures made. It is seen that the ld. AO has not discussed anywhere in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re into the nature of trade or commerce. This plea has still not allowed them exemption from either taxation or shelter u/s 10(20) of the Act as per verdict in the four case laws mentioned above. 6.2 The point that is being made is that as far as this appellant is concerned it has emphatically claimed itself to be a "local authority" (before the AO and even before this appellate authority as the statement of facts preceding the ground of appeal would show). It is readily evident that the appellant does not get covered under the meaning of "local authority" as per the explanation to Sec. 10(20) of the Act. Thereby taxability has to be presumed of the receipts in the absence of any protection, which could be legally available to it say u/s 11 and 12 or Sec. 10(23C), etc. of the Act. In fact it is seen that a number of such entities have approached the respective Tax Authorities for such exemption as the following cases would demonstrate: - 1) Cane Development Council vs. CIT, Meerut reported in 35 SOT 308 (Delhi). 2) U.P.Awas Evam Vikas Parishad vs. ITO(Tech), Lucknow reported in 162 Taxman 173 (Lucknow)(Mag). In the above two cases, the activities of the concerned organi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r deduction of expenses) will have to be taxed. 6.5 It is also seen that the Id. AR has relied on the following cases to canvass his contention that the appellant is not a profit earning body and hence outside the purview of taxation altogether. Some cases are discussed below:- i) 44 ITR 6 (SC) [no case could be found on this citation] ii) 48 ITR 324 (All) [case on penalty for concealment] iii) 264 ITR 684 (Mad) [This case deals with deciding whether a receipt is capital or of revenue nature] iv) 13 CTR .... (not mentioned) [on reading this case is listed as the case of Surat Art Silk Cloth Manufacturers Assn. reported in 2 Taxmann 501 (SC). This is a leading case which defines the nature and scope of charitable purpose u/s 2(15) of the Act). It is clear that the view canvassed by the ld. AR does not specifically get strengthened due to the principles laid down in the rulings cited by him. 6.6 Coming back to the grounds of appeal, it is seen that the ld. AO has brought to tax the entire quantum of receipts. Such an action cannot be supported since only the surplus remaining after allowing expenses should be considered for taxation. Accordingly, the ld. AO is di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ibution amount in the name of commission is worked out by the Sugar Mill with reference to the amount of purchase of the sugar cane by it from the cane growers or the cane grower's cooperative society. Addressing the amount of commission, it is stated that it is worked out and paid by the Sugar Mill to the appellant, is not sold/supplied by the appellant to the sugar mill nor any service is rendered by the appellant to the Sugar Mill paying amount in the name of commission to the appellant as there is no provision under the aforesaid Act and Rule for it, hence the amount paid by the Sugar Mill to the appellant though is in the name of commission but, in fact, it is just a contribution amount. Referring to the mandatory provisions made under rule 49A, the entire amount of said commission, which is, in fact, just a contribution amount, is required to be utilized on specific purpose of construction of road etc. and other development activities are assigned to the appellant and not otherwise. It is further submitted that there is no provision under the aforesaid Act/Rules made there under authorizing the appellant to utilize the said amount of said contribution paid in the name of comm....
X X X X Extracts X X X X
X X X X Extracts X X X X
....luded that there was no surplus with the assessee and therefore, there was no question of any taxable income. Admittedly, the grant-in-aid in question is a financial aid or subsidy given by the State Government of UP and Sugar factories for the specific purpose of construction of roads. In section 2(24) of the Act, it is declared that "income includes" various items which are enumerated therein in clauses (i) to (xv). In the said section 2(24), such a grant-in-aid has not been specifically included as an income or a revenue receipt. Therefore, considering the use for the worked "include" in section 2(24), the word "income" shall be construed as comprehending not only those items which said section declared that these shall include but also such items which said section declares that these shall include but also such items as it signified according to its natural import. Since section 2(24) has not declared that such a grant-in-aid shall be included in the income the word "revenue" shall be construed as comprehending what it signified according to its natural import. In relation to a business undertaking, the word "revenue" connotes incomings of the undertaking which are products of....