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2015 (9) TMI 448 - ITAT MUMBAI

2015 (9) TMI 448 - ITAT MUMBAI - TMI - Concept of mutuality - Enhancement of income by the FAA - Held that:- FAA for enhancing the income during appellate proceedings, the FAA should not travel outside the record, i.e., the return made by the assessee or the assessment order of the AO, that the power of enhancement was restricted to the sources of income which have been the subject-matter of consideration by the AO from the point of view of taxability,that consideration did not mean incidental o .....

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uality. Therefore,the FAA was not justified in enhancing the income of the assessee by applying principles of mutuality for the year under appeal. - Decided in favour of assessee.

Exemption from payment of income tax on interest earned - Decided against assessee as per the decisions of Banglore Club case [2013 (1) TMI 343 - SUPREME COURT]

Allowance of carry forward of short term and long term capital losses to the subsequent assessment years - Held that:- We find that the .....

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r of revenue for statistical purposes.

Allowance of loss on sale of fixed assets - Held that:- We find that the figure of loss claimed on sale of depreciable asset is different from the disallowance made by the AO.In our opinion it needs further verification.Therefore, in the interest of justice we are remitting back the matter to the file of the AO for verifying the exact figure of the loss claimed by the assessee and to allow the same if it has been disallowed by the assessee itself .....

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e remand report from AO before allowing the appeal.Therefore, in the interest of justice we are remitting back the matter to the file of AO to decide the issue again.The assessee is directed to produce relevant certificates before the AO.The AO would give credit for the taxes paid paid in the earlier years,as claimed by the assessee - Decided in favour of revenue for statistical purposes.

Treatment to be given to the entrance fee received by the assessee from Life Members - Held that: .....

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down any ratio for the purpose of splitting entrance fee between revenue and capital receipt. Therefore, the Assessing Officer was wrong in splitting the fee received from life members into capital and revenue receipts in 20:80 ratio. Assessing Officer was not justified in making an addition to the income of the Appellant on account of subscriptions transferred from the advance subscription account of ordinary members to the life members subscription account - Decided in favour of assessee. - IT .....

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ent Years(AY.s): ITA/517/Mum/2010-AY.2005-06: 1 0 Re.: Enhancement of income by the Commissioner of Income-tax (Appeals): 1 1 The Commissioner of Income-tax (Appeals) has erred in enhancing the Appellant's total income for the year under consideration by ₹ 47,22,382/-. 1 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the enhancement made by the Commissioner of Income-tax (Appeals) is in excess of the powers prescri .....

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a 'mutual concern' and hence its income for the year needs to be computed by applying the principles of mutuality. 2 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the principles of mutuality do not apply to it and /or have been erroneously applied to it. Further the assessee has always been treated by the tax department de hors the principles of mutuality since the last 60 years and that the stand taken by the Commi .....

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ing: 3: 0 Re.: Treatment of interest of ₹ 47,22,382/- earned by the Appellant during the year 3: 1 The Commissioner of Income-tax (Appeals) has erred in holding that interest income of ₹ 47,22, 382/- received by the Appellant during the year under consideration is not governed by the principles of mutuality and hence ought to be taxed separately 3 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject, in the event it is .....

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: General: 4 1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. ITA No.518/M/10(06-07): 1 0 Re.: Enhancement of income by ₹ 1,69,07.816/- by the Commissioner of Income-tax (Appeals): 1 1 The Commissioner of Income-tax (Appeals) has earned in enhancing the total income of the Appellant by ₹ 1,69,07,816/- for the year under consideration. 1 2 The Appel .....

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ome ignoring the same. Without prejudice to the foregoing: 2 0 Re.: Treatin2 the Appellant as a 'mutual concern': 2: 1 The Commissioner of Income-tax (Appeals) has erred in holding that the Appellant is a 'mutual concern' and hence its income for the year needs to be computed by applying the principles of mutuality. 2 2 The Appellant submits that considering the facts and circumstances of its case and the law prevailing on the subject the principles of mutuality do not apply to i .....

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that the Assessing Officer be directed to re-compute its total income treating it as a 'trading concern' in accordance with the normal provisions of the Income-tax Act, 1961. Without prejudice to tile foregoing: 3: 0 Re.: Treatment of interest of ₹ 1,69,07,816/- earned by the Appellant during the year: 3: 1 The Commissioner of Income-tax (Appeals) has erred in holding that interest income of ₹ 1,69,07,816/- received by the Appellant during the year under consideration is not .....

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ing Officer should be directed to re-compute its total income for the year including the interest earned as being governed by the principles of mutuality and thereby not being taxable. 4 0 Re.: General: 4 1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. ITA No.1560/M/12((04-05): 1.Whether on the facts and circumstances of the case and in law, the ld. CIT(A) er .....

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ave to amend or alter any ground or add any other grounds which may be necessary. ITA No.803/M/10 (05-06) 1.On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the short term capital loss and carry forward of loss to the subsequent years for adjustment. 2. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the long term capital loss and carry forward of loss to the subsequent years for adjustment. 3. On the facts and .....

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nt craves leave to amend or alter any ground or add any other grounds which may be necessary." ITA No.808/M/10(06-07): 1.On the facts and circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 1,20,91,000/- made on account of entrance fee received from life members ignoring their detailed reasoning given by the Assessing Officer in his order. The appellant prays that the order of the ld. Commissioner of Income tax(Appeals) be set aside and the order o .....

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he revenue for earlier years in assessee s own case? The appellant prays that the order of the ld. CIT(A) be set aside and the order of the Assessing Officer be restored. The appellant craves leave to amend or alter any ground or add any other grounds which may be necessary. C.O.No.52 & 152 /Mum/2013 (04-05) and (07-08): 1: 0 Re.: Validity of re-assessment proceedings: 1: 1 The Commissioner of Income-tax (Appeals) has erred in holding that the re-assessment proceedings were in accordance wit .....

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alter, amend, substitute and/or otherwise modify in any manner whatsoever all or any of the foregoing grounds of cross objection at or before the hearing. Representative of both the sides agreed that the order passed by the First Appellate Authority (FAA) for the AY 2005-06 was the lead year.Therefore,first,we will decide the cross appeals for that year. ITA/517/Mum/2010-AY.2005-06: Assessee company filed its return of income 28.10.2005 declaring loss at ₹ 1.50 crores. The AO completed th .....

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the surplus of funds, that it had received certain payments which were not covered by the concept of mutuality namely interest received from banks(Rs.40.46 lacs),dividend on shares (Rs.65.55 lacs) and interest on TDS refunds (Rs.6.76 lacs).He further observed that the assessee being a mutual concern was not entitled to set off its loss against income from non-mutual activities,that it was incurring losses from providing services to its members, that it was earning interest income/dividend on sha .....

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ers,that it could not be treated as mutual concern,that the Hon'ble Bombay High Court had also in the AY.s 1955-56 -1959-60 held it was engaged in the business of providing services to its members. Challenging the proposed action of enhancement of income,the assessee argued that the FAA had no power to enhance income to consider the item of income which had not been considered by AO while framing assessment.The assessee relied upon the cases of Shapoorji Pallonji Mistry(44 ITR 891),Rai Bahad .....

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t could not be treated as mutual organisation on the ground non members were not entitled to use the facilities of the company, that it had not claimed the status of mutual concern.It relied upon the cases of Secunderabad Club (97 ITD 541) and Canara Bank Golden Jubilee Staff Welfare Fund (308 ITR 202). 2.1. After considering the submission of the assessee,the FAA held that he had gone through the orders of the Hon'ble Bombay High Court delivered in the case of the assessee for the AY.s 1955 .....

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outsiders were no entitled to avail the facility of the assessee company without becoming a member,that it failed to prove that it was conducting a business, that it was immaterial whether a concern was trading or non trading if principle of mutuality were applicable, that there was a complete identity between contributors and participators in the fund/common fund that the activities of the assessee were covered by the concept of mutuality, that even if in the earlier years the assessee was tre .....

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n the ground that the assessee is a mutual concern and that it was covered by the concept of mutuality, that income/loss of the assessee from mutual activity was to be ignored, that even if the assessee was providing facility to outsiders income earned from them was to be taxed as per provisions of the Act, that on dissolution of the club certain members were entitled to share the surplus, that on that basis it could not be held that it was a mutual concern, that members as a class were entitled .....

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ipt accrued to the assessee under the head interest income were substantial,that the subscription received was ₹ 63.87 lacs,that other income including interest income and dividend income amounted to ₹ 1.29 crores,that the assessee had Fixed Deposit in bank of ₹ 9.8 crores,that it had made investment not for safe deposit but for earning interest income, that the income had been earned by it from the banks who were not its members.In view of above facts,the FAA held that interes .....

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income under the head business, that the rule of consistency was not followed without assigning any reason, that there were 13 different types of members.He referred to pages no.206, 207, 234 and 235 of the paper book.He relied upon the cases of .The Departmental Representative (DR) supported the order of the FAA. 2.3.We have heard the rival submissions and perused the material before us.We find that the AO had completed the assessment u/s.144 of the Act for the year under appeal,that he had not .....

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rule of consistency stipulated that income for the year had to be taxed under the income business income.First we would like to discuss the principle of consistencyone of the precedents followed by in judicial proceedings. Rule of consistency is not new. As early as 1956,the rule of consistency was deliberated at length by the Hon ble Bombay High Court in the case of H.A. Shah and Co.(30ITR618)as under: As a general rule the principle of res judicata is not applicable to decision of Income-tax A .....

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ed if that decision is not arbitrary or perverse, if it had been arrived at after due inquiry, if no fresh facts are placed before the Tribunal giving the later decision, and if the Tribunal giving the earlier decision has taken into consideration all material evidence. A Tribunal like the Appellate Tribunal, should be extremely slow to depart from a finding given by an earlier Tribunal. …. There is also a further limitation, namely, that the effect of revising a decision in a subsequent .....

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tax Authority from doing something which would be unjust and inequitable. In the matter of Aroni Commercials Ltd.(362 ITR403),the Hon ble Bombay High Court has observed that though the principle of res judicata is not applicable to tax matters as each year is separate and distinct,nevertheless where facts are identical from year to year,there has to be uniformity and in treatment(emphasis supplied).Similarly,in the case of Gopal Purohit(336 ITR 287)the Hon ble Court reiterated the same principle .....

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03.1976. It was found by the AO that the assessee had deposited ₹ 1,58,400 with the Bank of India, Netaji Subhash Road Branch, Calcutta, on 05.04. 1972,through the assessee's son, D, that the assessee stayed in Tinsukia, that on 04.04.1972 the assessee had no sufficient opening cash balance and had to borrow from other firms on that day and in such a circumstance D could not have reached Calcutta on the 5th before noon.Therefore, the amount of ₹ 90,000 was treated as the assessee .....

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the totality of the circumstances and their combined effect were to be taken into consideration while deciding the question as to whether or not a particular fact is proved. Neither the principle of res judicata nor the rule of estoppel is applicable to the assessment proceedings,yet the rule of consistency does apply to such proceedings.Finally,it was held that the Tribunal cannot take a different view in the subsequent year when in the earlier year on the same facts,it had accepted the claim .....

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he AO had passed a rectification order u/s154 of the Act for the AY.2003-04 and had specifically mentioned that principles of mutuality were inapplicable to the facts of the case(pg.237 of the PB).The coterminous powers of the FAA authorise him to assess the income of an assessee in a different manner as assessed by the AO.But,the right has its own limitation also.From the orders of the FAA it is not clear as to why he had disturbed the findings given by the AO in earlier years.Passage of time i .....

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peal.The AO had even in the best judgment assessment has allowed loss on sale of depreciable assets.It clearly shows that he was convinced about the nature of the activities of the assessee. Besides,the principles of consistency what has to be seen is the decision of the FAA wherein he held that while computing the taxable income for the year under appeal income or loss arising out of mutual activities was to be ignored. As a result,the assessee was deprived of claiming carry forward of loss.The .....

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company.In short,it can be safely be said that the contributors and beneficiaries were not same and that the principles of mutuality was not applicable to the facts of the case under consideration.In the case of Rai Bahadur Hardutroy Motilal Chamaria (supra),the Hon ble Apex Court had held that FAA for enhancing the income during appellate proceedings, the FAA should not travel outside the record, i.e., the return made by the assessee or the assessment order of the AO,that the power of enhancem .....

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idental connection. In the assessment order passed by the AO, there is nothing to show that he had applied his mind to the particular subject matter i.e. applicability of principle of mutuality.Therfore,the FAA was not justified in enhancing the income of the assessee by applying principles of mutuality for the year under appeal.Reversing his orders,we hold that the assessee was carrying out business activities and that the principles of mutuality are not applicable to such activities.The assess .....

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ng from the sales of drinks,refreshments, etc., or amounts received by way of rent for letting out the buildings or amounts received by way of admission fees, periodical subscriptions and receipts of similar nature from its members.The Hon ble Apex court had held in that case that whether or not the persons dealing with each other, were a "mutual club" or carrying on a trading activity or an adventure in the nature of trade", was largely a question of fact.In the case before us,we .....

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50ITR509).Respectfully,following the said judgment,we dismiss ground no.3.,raised by the assessee. ITA/803/Mum/2010AY.2005-06: 4.First two grounds of appeal,filed by the AO for the year under appel deal with allowance of carry forward of short term and long term capital losses to the subsequent assessment years. While passing the assessment order the AO had found that the assessee had claimed long term capital loss of ₹ 2,00,84,224/-and short term capital loss of ₹ 30.10 lakhs. As th .....

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ssessee had filed additional evidences before the FAA during the appellate proceedings. 4.2 We find that the assessee made a request to the FAA for admitting fresh evidence,that the FAA had admitted the same and had decided the issue in favour of the assessee without calling for a remand report from the AO.In our opinion,he should have called for a report from the AO in this regard. We are of the opinion that in the interest of justice,the matter should be restored back the file of the AO for fr .....

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s the assessee contended before the FAA that it had sold depreciable fixed assets at loss of ₹ 93,437/- during the year under appeal, that it had already added back the loss in the statement of computation of taxable income, that no further disallowance was called for. After considering the submission of the assessee, the FAA held that the contention made by the assessee was factually correct, that loss had been added back by the assessee while computing the taxable income.He directed the .....

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submission and perused the material before us.We find that the figure of loss claimed on sale of depreciable asset is different from the disallowance made by the AO.In our opinion it needs further verification.Therefore, in the interest of justice we are remitting back the matter to the file of the AO for verifying the exact figure of the loss claimed by the assessee and to allow the same if it has been disallowed by the assessee itself while computing the income for the year under appeal.The a .....

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,00,541/-. As the assessee did not reconcile the difference, so he brought the said amount to tax and added it back to the total income of the assessee. 6.1.Before the FAA the assessee contended that it had filed details of deduction of TDS vide its letter dt.28.9.2007,that the difference between income credited to the P&L account and the income shown in TDS certificates was on account of TDS certificates of Maharashtra State Road Development Corporation Ltd. and Union Bank of India, and it .....

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ual basis, that same could not be include in the taxable income of the assessee for the current year. Accordingly he deleted the addition of ₹ 2.95 lacs and upheld the balance addition of ₹ 7350/-. 6.2.Before us, the DR stated that no evidence was produced before AO with regard to payment of taxes in the earlier year.The AR supported the order of the FAA. 6.3.We have heard the rival submission and perused the material. As stated earlier the assessment was completed under section 144 .....

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give credit for the taxes paid paid in the earlier years,as claimed by the assessee.Ground no.4 is allowed,in part. Now,we would adjudicate the appeals of other AY.s.,filed by the assessee/the AO. ITA.518/Mum/2010(2006-07): 7.Following our order for the AY.05-06,we decide grounds no.1 and 2 in favour of the assessee as the facts and circumstances of the case are identical to the facts of that year-except for the amounts involved. 8.Ground no.3 is decided against the assessee,following our order .....

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the assessee preferred an appeal before the FAA who following the order of the Hon'ble Bombay High Court delivered in the case of the assessee for the AY.s.1963-64 and 1964-65 allowed the appeal in following manner:- 1.2 The Appellant has filed detail submissions on this issue vide letter dated 28.04.2009. The submissions of the Appellant have been placed on record. 1.3 The only dispute in appeal is what portion of the entrance fee received by the Appellant from persons at the time of admitt .....

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hat Bombay High Court has not laid down any ratio for the purpose of splitting entrance fee between revenue and capital receipt. Therefore, the Assessing Officer was wrong in splitting the fee received from life members into capital and revenue receipts in 20:80 ratio. That part of the entrance fee collected from life members, which collected from ordinary members, is to be treated as capital receipts and over and above this amount is to be treated as compounded value of annual subscriptions and .....

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account. This ground of the appeal of the Appellant is allowed. During the course of hearing before us,the DR left the issue to the discretion of the Bench.The AR supported the order of the FAA. 9.2.We have heard the rival submission and perused the material before us.We find that the matter has been conclusively decided by the Hon'ble Bombay High Court in assessee s own case, as stated by the FAA.Respectfully following the same,we uphold the order of the FAA and decide the effective ground .....

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