TaxTMI 
TaxTMI 
2018 (4) TMI 1268
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....of the case. 3. It would be relevant to for the purpose delineate the background facts of the case. The assessee is an employee welfare society, formed (on 19.07.2002) for the benefit of the employees of Jammu & Kashmir Bank Ltd., registered both under the Societies Registration Act, 1860 as well as under section 12A of the Act. It returning nil income for the relevant year (on 14.11.2011), was called upon by the Assessing Officer (AO) in the verification proceedings under the Act to substantiate its various claims preferred thus. Apart from furnishing a written reply (to the questionnaire) and ledger extracts of some expenses (debited to the Income and Expenditure Account) on 18.07.2013 and 26.07.2013 (through its' Authorised Representatives (ARs), the assessee did not respond to the various (6) notices u/s. 142(1) (from November, 2013 to February, 2014), detailed at para 2 (page 2) of the assessment order, including qua proposed draft assessment order dated 18.02.2014, show causing the assessee for framing the assessment u/s. 144 on the basis of the information available on record, disallowing the following expenditure claimed, aggregating to Rs. 99.13 lakhs : i. Society....
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....cts of the assessee-society. Aggrieved, the Revenue is in appeal. 4. Before us, both the parties relied on the order by the Revenue authorities as favourable to them. 5. We have heard the parties and perused the material on record. Our first observation in the matter is that the assessee did not contest the framing of the best judgement assessment by the AO before the first appellate authority. The merits of a particular expenditure/claim could only be considered once it stands substantiated, i.e., as having been actually incurred for the stated purpose/s, which the assessee failed to despite being allowed abundant opportunity for the same. The assessee did not even respond to the show cause notice u/s. 144, also communicating the draft assessment order. Why, there is no explanation before him even with regard to the non-compliance before the AO, even as it is before us. We, in fact, observe no finding in this respect (by the ld. CIT(A)) in the impugned order. No pleading in this respect seems to have been made before him nor indeed was before us. The ld. Authorised Representative (AR) would, upon being questioned in the matter, submit that the assessment under reference i....
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.... of a charitable institution, so that where (and to the extent) unsubstantiated, or not qualifying 'as an eligible expenditure', the same would lead to an increase in the 'income' of the society for the year, which could be claimed as exempt on its application under and in terms of ss. 11& 12 of the Act. Then, again, while the AO clearly states of the nature of the payment under 'society share' being unexplained, or of the 'bonus to employees' being not in terms of the objects of the assessee-society, the ld. CIT(A) 'allows' the same. His clarification on the former clearly suggests of his consideration of the assessee's explanation, not advanced before and, thus, considered by the AO. Further, his finding qua the latter, i.e., as having been incurred in accordance with the objects of the assessee-society, could only be upon considering the explanation in its respect not before the AO inasmuch as the objects of the assessee-society are the same. There is no reference by the ld. CIT(A) as to the nature of the payment, i.e., the service for which the expenditure on bonus stands incurred by the assessee-society. There is also no reference to the object clause/s under which the said pa....
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....k interest (at Rs. 47.17 lacs, out of the total income of Rs. 47.53 lakhs) (refer para 5 of the assessment order). It is this income (at net of expenditure) which is to be therefore regarded as exempt (from tax) on its application, i.e., where paid to the members as a part of their share in the assesseesociety's income. That is, going by the explanation furnished by the assessee before the ld. CIT(A). It is only the income by way of subscription from the members (Rs. 0.36 lakhs), again at net of the expenses incurred, which could on payment to members - irrespective of their need for the same (i.e., if it indeed represents a monetary help/charitable purpose) or not, be regarded as applied in disbursement to the contributors, i.e., as a transaction covered by mutuality (refer, inter alia, Banglore Club v. CIT [2013] 350 ITR 509 (SC)) Further still, when no material is placed by the assessee in support, it may not by itself lead to the conclusion that no expenditure at all has been incurred, particularly considering that the accounts are audited. But then, if the accounts, including the materials on which they are based, could be produced before the auditor, why we wonder does the....