TaxTMI 
TaxTMI 
2021 (7) TMI 211
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....assessee society was working on mutuality basis and such principle of mutuality was applicable. 2. The AO/ CIT(A) wrongly added/confirmed the entire sale proceeds in the hands of society without assigning any cogent reason. 3. The Ld CIT has erred in not assigning any cogent reason for his decision, especially when assessee had filled detailed written submission with facts and figures. For this failure it can be said that no proper reason has been assigned for rejection of assessee's explanation. 4. The Ld CIT has erred in confirming 15% of profit on the sale of flats of Rs. 46,60,000/- without giving any basis or citation of the comparable cases. Alternatively, it is submitted that, if any, profit was assessable u/s 44AD though not applicable in the present case. 5. The Ld CIT has erred in not directing that capital gain, if any, was assessable in the hands of original flat owners. 6. The Ld CIT has erred in confirming the substantive assessment in the hands of assessee society." 3. Briefly stated, the facts of the case are that the Assessing Officer was in receipt of certain information that the assessee society has sold certain immovable property amounting to Rs. 15,5....
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....s according to the approved map on the basis of per square feet rate with material and labour. 6. It was submitted that the Assessing Officer has made an addition of Rs. 46,60,000/- being difference of closing balance of member's fund at the close of the financial year and opening balance as on the beginning of the financial year holding the same as investment made by the assessee society out of undisclosed income. It was submitted that both the lower authorities have not appreciated the fact that the increase in the member's fund was on account of contributions received during the year from its members out of sale consideration of the flats. It was accordingly submitted that the said amount of Rs. 46,60,000/- was received by the assessee society from its members from sale of their respective flats and therefore, there is no question of any investment made by the society out of its undisclosed income. It was further submitted that the ld. AO firstly made the addition of Rs. 46,60,000/- u/s 68 of the Act and the same amount was made the basis of another addition of Rs. 6,99,000/- towards undisclosed profit on sale of flats which was calculated @ 15% of Rs. 46,60,000/- on an arbitra....
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....g therein name of owners of the flat along with their respective flat numbers. (the copy of Lease deed (Patta) is enclosed and marked as Annexure B. However, main purpose of the society was to construct the flats on the said Plot as directed by the JDA on behalf of the members collectively. The name of the members who applied for plot is as under and flat number assigned by JDA to respective member :- S. No. Name of members Flat No. 1. Smt. Usha Devi Jajusariya 10/1/1(1) 2. Shri Sanjay Kala 10/1/1(2) 3. Shri Naresh Kumar 10/1/1(3) 4. Shri Sharad Agarwal 10/1/1(4) 5. Shri Shyam Sunder Bhargava 10/1/1(5) 6. Shri Rajenda Prasad Agarwal 10/1/1(6) 7. Shri ArunTulsiyan 10/1/1(7) 8. Shri Khusiram 10/1/1(8) The above eight members are collectively called as Society. According to Section 5(1)(a) of the Rajasthan Cooperative Society Act, 2001 Application of Registration "at least fifteen members of persons, each of them being a member of different family, intend to form a cooperative society having objects to undertake certain co-operative activities, for promotion of the economic interests of its members in accordance with the co-operativ....
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....of West Bengal & Ors V/S Calcutta Club Limited 311 CTR 121 (2019)(SC)-it was held that the doctrine of mutuality continues to be applicable to incorporated and unincorporated members' clubs after the 46th Amendment adding Art. 366(29A) to the Constitution of India. 2. ITO Vs. Venkatesh Premises Calcutta Club Limited 301 CTR 514 (2018) (SC).- it was held that "The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable. Sec. 2(24) of the IT Act defines taxable income. The income of a co-operative society from business is taxable under s. 2(24)(vii) and will stand excluded from the principle of mutuality." 3. CIT vs Prabhukunj Co-operative Housing Society Ltd. (2015) 377 ITR 13 (Guj) 4. CIT vs. Adarsh Co-operative Housing Society Ltd (1995) 213 ITR 677 (Guj) 5. Chelmsford Club vs. CIT (2000) 159 CTR (SC) 235 : (2000) 243 ITR 89 (SC) 6. CIT vs. Bankipur Club Ltd. (1997) 140 CTR (SC) 102 : (1997) 226 ITR 97 (SC) 7. CIT vs. Royal Western India Turf Club Ltd. (1953) 24 ITR 551 (SC) 8. Delhi Stock Exchange Association ....
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.... mutuality is not applicable in this case. Kindly refer to Para 5.3 of the order of the Ld. CIT(A), which is reproduced as under for your kind perusal:- "5.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submissions carefully. It is seems that either during the course of assessment proceedings or appellate proceedings the appellant has not been able to produce any documents evidences in support of the submission made by the appellant. Therefore, the contentions raised in the written submission are not accepted. In view of the facts discussed by the AO in the assessment order, addition of Rs. 6,99,000/- (15% of Rs. 46,60,000/-) and addition of Rs. 46,60,000/- are hereby confirmed." The written submission filed before the Ld. CIT(A) is enclosed and marked as Annexure -D. It has been clearly mentioned that this increase was on account of contribution received during the year from its members out of sale consideration of flats. The details are as under:- F.Y.- 2008-09 Date of Sale Flat No. Sale Deed was executed between Details of sale consideration Amount received during the year 23-09-2008 5 VIP SHREE SHYAM SUNDAR BHARG....
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.... society have been invested. Society did not have any business activity merely working on mutuality concept then how unaccounted money had been generated by the assessee society. The Ld. AO failed to prove the generation of unaccounted money in his order. The Ld. AO also failed to assess the income in the hands of original owner of the flats and the Ld. CIT (A) has confirmed the same without assigning cogent reason. As mentioned above that the society was working under the principle of mutuality and the funds contributed by the members in the common fund/members capital fund cannot be treated as undisclosed income of the Society. G.O.A-4 "On the facts and in the circumstances of the case the Ld CIT has erred in confirming the 15% of profit on the sale of flats of Rs. 46,60,000/- without giving any basis or citation of the comparable cases. Alternatively it is submitted that, if any, profit was assessable u/s 44AD though not applicable in the present case." SUBMISSION During the year under consideration the assessee society has received the contribution from three members out of sale consideration of their respective flats. The Ld. AO made the addition of Rs. 46,60,000/- u/s....
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....tary evidence of investment made in construction by each of the members but no such details were filed during the course of assessment proceedings. However, the assessee only submitted that the said amount was from receipt of sale of flats. It was submitted that purchaser of the flat from whom the money has been received cannot be said to be member of the society and therefore, the Assessing Officer has rightly brought to tax the said amount introduced as member's fund as investment out of undisclosed income of the society. The ld DR accordingly supported the order of the lower authorities. 11. We have heard the rival contentions and perused the material available on record. We find that there are three sale deeds which have been executed during the financial year relevant to assessment year under consideration. On perusal of sale deed for flat no. 5, it is noted that the same has been executed on 23.09.2008 among Shri Anil Singhal as power of attorney holder of Shri Shyam Sundar Bhargav who was allotted the flat, the assessee society through its president, Shri Anil Singhal, and Smt Rinku Maharshi, the buyer of the flat for a total consideration of Rs. 16,40,000/-. Out of total ....
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.... cannot be ignored in absence of any other contradictory and compelling documentary evidence brought on record. Therefore, as far as addition of Rs. 46,60,000/- u/s 68 is concerned, there is no legal basis for such addition in hands of the assessee society which has been assessed as a separate assessable person in the status of AOP and the same is hereby directed to be deleted. 15. The next issue that arises for consideration is as to why the amount of sale consideration has been received by the assessee society and not retained by individual members who have executed the impugned sale deeds and in whose name the flats were initially allotted. In this regard, it has been submitted by the ld AR that since the assessee society has appointed the contractor and borne the cost of construction on behalf of the individual members, the latter have an obligation towards the society and to discharge their past unfulfilled obligation, they have paid the amount out of sale consideration so received on sale of individual flats. In support of his contentions, he has relied on the contents of the sale deeds which carries a similar narration of facts as also admitted by the parties to the sale de....
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....society and has estimated a profit percentage of 15%. As we have discussed above, these receipts have been received by the assessee society from its members towards the cost of construction incurred by it on behalf of respective members. Once the assessee society has been assessed as a separate person, it carries its identity distinct from its members and revenues in the hands of members need not be revenues in the hands of the society. Even if we were to consider the receipts as revenues in the hands of the society, no basis has been spelt out as to how the 15% profit percentage has been arrived at by the AO or where any third party comparable data has been considered, the details of such data. In contrast, we find that we have the construction cost figures as per the assessee's society financial statements before us. If we look at the cumulative construction cost of Rs. 1,24,46,381/- as on the close of the financial year 2008-09 relevant to impugned assessment year, proportionate cost of construction for three flats out of total eight flats comes to Rs. 46,67,392/- as against total receipts of Rs. 46,60,000/- received during the year resulting in shortfall of Rs. 7,392/. Therefo....
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....g any cogent reason for rejecting the assessee's explanation and without stating how the appellant/assessee is real owner. We are enclosing herewith the Written Submission filed before the CIT (A) and marked as Annexure A (Pg 10 to 11 of Paper book). Kindly refer to Para 5.3 of the order of the Ld. CIT(A), which is reproduced as under for your kind perusal:- "5.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submissions carefully. It is seems that either during the course of assessment proceedings or appellate proceedings the appellant has not been able to produce any documents evidences in support of the submission made MI the appellant. Therefore, the contentions raised in the written submission are not accepted. In view of the facts discussed by the AO in the assessment order, addition of Rs. 6,99,000/- (15% of Rs. 46,60,000/-) and addition of Rs. 46,60,000/- are hereby confirmed." The appellant/assessee was president of Society and working on honorary basis. He was involved in day to day working of society in the capacity of president and not in his individual capacity to earn any income. The appellant/assessee neither i....
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....775(SC) wherein it was held by the Apex Court that the "ITO is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under s. 23(3)". (ii) Lalchand Bhagat Ambika Ram Vs CIT (1959) 37 ITR 288 (SC) wherein it was held by the Apex Court that "It is, therefore, clear that the Tribunal in arriving at the conclusion it did in the present case indulged in suspicions, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, perverse and this court in entitled to interfere. The Jaipur Development Authority (JDA) is a statutory body formed by Government of Rajasthan. The JDA has never objected or questioned that society formed was unregistered society and not eligible to get the aforesaid plot allotted in scheme, if it was mandatory condition then JDA would not allot the Plot. Therefore it is wrong to say that members somehow ....
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....list of original * It appears that flats were constructed a group of persons lead by the assessee after allotment of plot from JDA in the name of society. It is not an irregularity because the society was working on the principle of mutuality and being assessee was President of the society, therefore, it was the responsibility of the assessee to perform his duties assigned by all the members. * Total 8 residential units/flats were constructed over this land and sold out bq the assessee in different year as POA holder. Return of income of M/ s VIP Group Housing Co-operative Society has not been filed u/ s 139. The Jaipur Development Authority (JDA) allotted Plot No. 10/1/1, Sector 10, Vidhayadhar Nagar, Jaipur measuring 682.76 Sq. meters on lottery basis to the 8 members under the banner of society (VIP Group Housing Society) for the consideration of Rs. 2,76,542/- on 23-11-1990 through letter of allotment number 2149. The lease deed was executed after 15 years on 1807-2005. Since there was long time gap between allotment and execution of lease deed, some of the members appointed assessee as Power of Attorney holders to do any act on behalf of respective members before any Gov....
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....eliance is also placed on decision of Hon'ble Madras High Court in the case of CIT Vs Shri C.Sugumaran Tax case (Appeal) No 840 of 2014 order dated 03-112014 {2014 (11) TMI 320) where in it was held that:- "11. In the present case we find that there is no transfer to or enabling enjoyment of property in favour of the assessee in any manner and therefore, sub-clause (vi) of Section 2(47) of the Income Tax Act does not get attracted. Clause 21 of the power of attorney, which has been already referred to supra, clearly reveals that no consideration was received from the power agent for appointing him as power of attorney. It also emphasised therein that the property right has not been handed over to the power agent. We are, therefore, unable to accept the plea of the Revenue that there was an element of transfer or enabling enjoyment in favour of the assessee. The letter of the land owner subsequently issued does not come to the aid of the Department. It is the duty of the power of attorney holder to deliver the amount received for the purpose of transfer of property. Therefore, no fault could be found on the part of the assessee. Assuming that he had delivered certain sum to ....
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....e of Shri Bharat Singh and Shri Vijay Pal Singh, sold the same to Smt. Radha Devi Khatoria vide sale deed dated 19/ 12/2007 placed at assessee's paper book pages 49 to 54. The said sale deed has been executed by the appellant in his capacity as a power of attorney of Shri Bharat Singh and Shri Vijay Pal Singh for a sale consideration of Rs. 4.11 lacs. Smt. Radha Devi Khatoria happens to be wife of the appellant. The enquiries conducted by the Assessing Officer reveals that Shri Suraj Narain Khatoria, the appellant has not returned or made payment of the aforesaid sale consideration of Rs. 4.11 lacs to Shri Bharat Singh and Shri Vijay Pal Singh as the same is stated to have been denied categorically by them, but appellant's case is that the said payment stood made to Smt. Manju Yadav as is evidenced by the sale deed executed by the appellant. For such a controversy, the remedy lies somewhere else. The Sub- Registrar, in this case has adopted value of this property at Rs. 42 lacs for stamp duty purposes, which has been treated as sale consideration by the Assessing Officer. 13. Perusal of the sale deed dated 19/ 12/2007 at page 50 of the assessee's paper book, it is rev....
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.... of the assessee's appeal is allowed." Flats cannot be constructed separately by each member of the society therefore the flats were constructed by the society on the Principle of Mutuality. The assessee on behalf of Society executed a Flat Construction Agreement with Contractor to construct flats according to the approved map on the basis of per square feet rate with material and labour. Copy of agreement between society and contractor is enclosed and marked as Annexure- D (Pg 35 to 38 of Paper book). The assessee/appellant look after the construction activities on behalf of the society. Kindly refer Pg 37 of Paper book and we are reproducing the relevant extract of the Construction Agreement as under:- Due to above clauses of construction agreement it was liability of the society to make the payment to the contractor therefore assessee/appellant has signed the sale deed on behalf of the society to collect the payment from the members." 22. Per contra, the ld DR submitted that Shri Anil Singhal is the president of M/s VIP Group Housing Co-operative society and he has signed all the sale deeds on behalf of the society and also as POA holder. It was submitted that he was ....