TaxTMI 
TaxTMI 
2021 (7) TMI 211
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppreciating the assessee's reply and in not holding that the 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 certa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... purposes, the assessee society executed a flat construction agreement with a Contractor to construct flats 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. 6,99,0....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter is enclosed and marked as Annexure-A. The lease deed was executed after 15 years on 18-07-2005 accompanied with the list of Members mentioning 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bove activities were done by the society on behalf of its members on combined basis with non-profit earning motive on the Doctrine of Mutuality. Reliance is placed on the following judgements where Principle of Mutuality is relied by the courts:- 1. State 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 Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... addition of Rs. 46,60,000/- (difference of closing balance 91,61,000/- and opening balance 45,01,000/- of members' Fund) u/s 68 as investment out of undisclosed income. However the Ld CIT(A) has confirmed the same ignoring the facts of the case and without assigning any cogent reason for rejecting the assessee's explanation and without stating why the principle of 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 An....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amount is not undisclosed income of the assessee. It has already been stated that society is not the actual owner of the flats. According to the terms of Flat Construction Agreement the society was liable to pay construction cost to the contractor. Kindly refer and we are reproducing the relevant extract of the Construction Agreement as under:- Thus the A.O. has wrongly stated that funds of unaccounted money of group housing 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o, the real beneficiary of sale of flat cannot be ascertained, to protect interest of Revenue, substantive assessment has been made in the hands of the assessee society and protective assessment in the hands of the President of society, Sh. Anil Singhal. 10. Regarding addition of Rs. 46,60,000/- u/s 68 of the Act, it was submitted that there is an increase of the said amount in the funds shown in the name of the members of the society and assessee was asked to file documentary 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cernable from the sale deeds duly executed and the same cannot therefore be termed as amount received from undisclosed sources. The identity of the members in whose name the flats were allotted and have sold the flats, the identity of the buyers, the mode and manner of receipt of amount is clearly discernable from the sale deeds which are duly executed and registered with the stamp duty authorities and are therefore clear pieces of evidence in support of known sources of receipts which 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of their respective flats and which has been credited in their individual members account in the books of assessee's society. 17. The next and related issue that arises for consideration relates to taxability of profits arising on sale of these three flats through execution of sale deeds. In terms of determination of quantum of taxable income, we need to consider total revenues and total cost, and it is only the net income which can be brought to tax. The AO has considered total receipts of Rs. 46,60,000/- as revenues in the hands of the assessee 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 c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e entire work has been done by the appellant/assessee under the guise of society holding him to be the real owner and beneficiary of the transactions made by the society, since the appellant/assessee signed the sale deed in the capacity of President of the Society. However the Ld AO has also stated that since the real beneficiary of the land cannot be ascertained therefore to protect the interest of revenue simultaneous addition was being made in the total income of the appellant/assessee. The Ld CIT(A) has confirmed the same ignoring the facts of the case and without assigning 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 appellan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ipur in the name of society. Therefore, these 8 members draw a lottery and got one flat each. The Ld. AO used the word "somehow" which reflects that the Ld AO has formed his opinion based on suspicion. This irregularity is based on suspicion, surmises and conjectures. The AO is quasi-judicial authority and he should form his opinion judicially not in an arbitrary manner. The AO has just made the addition for the sake of addition based on suspicion, surmises and conjectures. Suspicion how so strong cannot take place of proof. Reliance is placed on the decision of Apex Court in the following cases:- (i) Dhakeshwari Cotton Mills Ltd. V/S CIT (1954) 26 ITR 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 suspici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on Agreement with contractor and same had been signed by the appellant/assessee on behalf of the society. The Ld. AO has not mentioned that how this actuality is irregularity. The appellant / assessee was representing all the members of the society therefore there was no role of involvement of 8 members required. * No detail whatsoever is filed regarding change of membership in the society. The Ld AO noticed this irregularity without going through the assessment order of Ms. VIP Group Housing Society. The Society has provided list of initial members as well as members changed thereafter on account of sale of flats by the original owner to other person. Kindly refer the assessment order of M/s VIP Group Housing Society Para no 7 at Page No. 6 the 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the assessee Reliance is placed on decision of Hon'ble Supreme Court in the case of Suraj Lamp and Industries (P.) Ltd. v. State of Haryana [2012] 340 ITR 1 where it was held that:- "Scope of Power of Attorney 13. A power of attorney is not an instrument of transfer in regard to any right, title or interest in an immovable property. The power of attorney is creation of an agency whereby the grantor authorizes the grantee to do the acts specified therein, on behalf of grantor, which when executed will be binding on the grantor as if done by him (see section 1A and section 2 of the Powers of Attorney Act, 1882). It is revocable or terminable at any time unless it is made irrevocable in a manner known to law. Even an irrevocable attorney does not have the effect of transferring title to the grantee." Reliance 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....wer of attorney holder and there is also no provision for enabling enjoyment. It is not the case of the Department that the power of attorney is sham. If they accept the power of attorney is valid, then the plea of capital gains at the hands of the assessee has no legs to stand. Accordingly, we find no merits in this Tax Case (Appeal)." On similar issue the Hon'ble ITAT Jaipur Bench has decided in the case of Shri Gyan Chand Agarwal vs ACIT, Circle-6, Jaipur (ITA No. 266/JP/2017) wherein the Hon'ble Bench has referred the decision of ITAT Jaipur Bench in the case of Shri Suraj Narain Khatoria vs. ITO (ITA No. 1043/JP/2021) under the identical facts. The relevant portion of the decision is reproduced herein below:- 12. The admitted fact is that the appellant after correction of revenue record and recording the said land measuring 0.30 hect. in the name 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 Pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tified nor called for. The authorities below, therefore, have erred in bringing to tax the income from capital gains in his hand though the same may be a subject matter of taxation in the hands of the real owners. In this view of the matter, the addition so made being unjust and uncalled for, the same is directed to be deleted. Therefore, liability of tax cannot be fixed on the assessee and the income from the sale of land cannot be added in the assessee's income. The humble assessee prays your honor kindly set aside the orders of lower authorities and delete the addition made by ld AO and confirmed by ld CIT(A). 4.5 In view of the above binding precedents, on the issue under consideration. We are unable to sustain the finding of the Ld. CIT(A). Hence, the AO is directed to delete the addition however, he is free to take action against the real owners as per law. The ground no. 2 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 Cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Housing Society, and Smt Seema Jindal, the buyer of the flat. Therefore, we find that the assessee has signed only two sale deeds as power of attorney holder of originally allottees of the respective flats. Therefore, as per documentary evidence available on record, the assessee has executed two sale deeds in the capacity of power of attorney holder and not in the capacity of owner of the property and accordingly, as far as power of attorney and sale deeds are concerned, nothing can be inferred that the assessee has acquired the property in question and subsequently sold the same via two sale deeds as owner of the said property. The lease deed issued by JDA to M/s VIP Housing society along with original allottees of respective flats continue to remain valid and pursuant thereto, the sale deeds have been executed. Further, there is nothing on record that the sale consideration has been received by the assessee in his personal capacity rather as we have noted above, the sale consideration has been paid by respective members to M/s VIP Group Housing Society towards discharge of their past obligations towards cost of construction. Therefore, in light of the aforesaid discussion,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ेतà¥à¤°à¤«à¤² 1450 वरà¥à¤—फीट बिलà¥à¤Ÿà¤…प à¤à¤°à¤¿à¤¯à¤¾ है, की खरीद शà¥à¤°à¥€ संजय काला ने अपने हिसà¥à¤¸à¥‡ की राशि को पर उकà¥à¤¤ वी.आई.पी. गà¥à¤°à¥à¤ª हाउसिंग सोसायटी, जयपà¥à¤° कारà¥à¤¯ करवाने हेतॠसमय समय क à¤à¥à¤—तान की । उकà¥à¤¤ का पà¥à¤²à¥‰à¤Ÿ पर फà¥à¤²à¥‡à¤Ÿà¥‹à¤‚ के निरà¥à¤®à¤¾à¤£ हà¥à¤ खरà¥à¤šà¥‡ को वी.आई.प....
X X X X Extracts X X X X
X X X X Extracts X X X X
....¤¯à¤¶à¥à¤¦à¤¾ राशि का à¤à¥à¤—तान करने की जिमà¥à¤®à¥‡à¤¦à¤¾à¤°à¥€ लेता है । यह कि कोई à¤à¥€ सदसà¥à¤¯ अपने फà¥à¤²à¥ˆà¤Ÿ का बेचान करता है तो à¤à¤¸à¥€ परिसà¥à¤¥à¤¿à¤¤à¤¿ में विकà¥à¤°à¤¯ पà¥à¤°à¤¤à¤¿à¤«à¤² राशि में से दà¥à¤µà¤¿à¤¤à¥€à¤¯ पकà¥à¤· को à¤à¥à¤—तान किये जाने की जिमà¥à¤®à¥‡à¤¦à¤¾à¤°à¥€ पà¥à¤°à¤¥à¤® पकà¥à¤· लेता है । Document 3 हम, शà¥à¤°à¥€à¤®à¤¤à¥€ सीà¤....
X X X X Extracts X X X X
X X X X Extracts X X X X
....¤¶à¥€ राम ने अपना मà¥à¤–à¥à¤¤à¤¯à¤¾à¤°à¤†à¤® शà¥à¤°à¥€ अनिल सिंघल को नियà¥à¤•à¥à¤¤ किया है जिसे उकà¥à¤¤ फलैट संखà¥à¤¯à¤¾ 10/1/1 (8) थरà¥à¤¡ फलोर पर सà¥à¤¥à¤¿à¤¤ के बावतॠसà¤à¥€ पà¥à¤°à¤•à¤¾à¤° की लिखित व मौखिक कारà¥à¤¯à¤µà¤¾à¤¹à¥€ करने के तमाम अधिकार मà¥à¤–à¥à¤¤à¥à¤¯à¤¾à¤°à¤†à¤® शà¥à¤°à¥€ अनिल सिंघल को आज तक यथावत पà¥à¤°à¤¾à¤ªà¥à¤¤ है। Document....