TMI Blog2018 (4) TMI 1268X X X X Extracts X X X X X X X X Extracts X X X X ..... t] - Appeal of the revenue is allowed for statistical purposes - I.T.A No.597(Asr)/2014 - - - Dated:- 22-3-2018 - SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER For The Appellant : Smt Balwinder Kaur (DR) For The Respondent : Sh. M. A. Mir (Cost Accountant) ORDER Per Sanjay Arora, A.M This is an Appeal by the Revenue directed against the Order by the Commissioner of Income Tax (Appeals), Jammu ( CIT(A) for short) dated 25.07.2014, partly allowing the assessee s appeal contesting its' assessment u/s. 143(3) of the Income Tax Act, 1961 ('the Act' hereinafter) dated 10/3/2014 for the Assessment Year (AY) 2011-12. 2. The appeal raises, in principle, a single issue, i.e., the maintainability of the assessees claim for exemption u/s. 11 of the Act as well as the allowability of the different sums disallowed as either expenses or as application of income, claimed by the assessee per its return of income for the year, i.e., in law and in facts and circumstances 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure claimed under the head Bonus to Employees at ₹ 28,57,578/-. 3. The Ld. AO has erred in law and facts by disallowing the expenditure claimed under the head Provisions at ₹ 28,57,578/-.(*) 4. The Ld. AO has erred in law and facts by allowing [to be read as disallowing , as otherwise it is without any meaning and/or consequence] exemption under section 11 12 of the Income Tax Act, 1961. 5. The appellant reserves the right to amend, alter, delete or add any ground of appeal. (emphasis, by underlining/italics, ours) [(*) the correct amount is ₹ 43,57,578/-) The ld. CIT(A) allowed the assessee s claim in respect of society share and bonus to employees , confirming the disallowance qua provisions inasmuch as the same (provisions) was neither credited to the account of the member/s nor paid thereto during the year. The same could, therefore, neither be regarded as a real expenditure nor as an application of income. The deletion of the other disallowances was on the ground that the same represented the assessee- society s share (for the welfare of the employees) and, as the case may be, bonus to inservice employees (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion whether the AO has committed any error in his judgment u/s. 144 of the Act can be decided only on the materials gathered by him and not on the basis of the materials produced later by the assessee. It is (after all) his best judgment and not of anyone else. There cannot be a procedure where a best judgment of the assessing authority is subjected to the discretion of the assessee to produce materials/evidence at the appellate stage and, thus, convert the proceedings of a best judgment assessment into proceedings for regular assessment. That is, convert a section 144 assessment into a sec. 143(3) assessment! How could, for example, the AO s finding in the present case of the impugned expenditure being non substantiated be met where there has been no production of account books (including the subsidiary material on which they are based) before the AO. And, in any case, without pursuing and examining the assessee s records by the first appellate authority? In fact, the ld. CIT(A) issues no such finding, so that the said finding by the AO to the contrary remains un-rebutted. How could, one may ask, the deduction of such unsubstantiated expenditure/payment be considered, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its objects to be charitable in nature. Why, the ld. CIT(A) himself finds the claim for provisions as not representing a valid claim of expenditure. The assessee, as was clarified by the ld. AR during hearing, is not in appeal. Further, the ld. CIT(A) has regarded the claim for society share paid/allowed to members as an application of income, as well as covered by the principle of mutuality. The former, where so (inasmuch as the same is up till now unsubstantiated), as afore-noted, could only be on the basis of an explanation not furnished before the assessing authority for his examination, consideration and/or verification. Not only is the plea as to mutuality, taken for the first time before him, considered by the ld. CIT(A), it was, as for other explanations/materials led before him, in disregard of rule 46A of the Income Tax Rules, 1962 ( the Rules ). The finding as to mutuality is clearly misplaced. The reason is simple. Firstly, the same cannot be, as claimed, an expenditure, which represents a resource utilized/expended for/toward generating revenue or maintaining an establishment, only whereupon it can survive or continue to exist (for the purpose for which it is for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said authority to make an arbitrary assessment, which has to be based on relevant material. This, it explained, is as the best judgment is not an arbitrary power and is to be judicially exercised. What, for example, is the basis of the bonus to employees, stated to be for the benefit of the in-service employees of the bank. How are these members differently placed, or their status any different from that of the ex-employees? Every employee would retire from service in time, but that should not alter his standing as a member of the society. Further, is the payment against any services rendered by the payees ? Even so, how can the said expenditure be regarded as incurred for earning revenue by the assessee, which is principally from bank interest? Or, is the bonus, as the account name suggests, in lieu of profit, in which case it is an appropriation of profit by the members or, as the case may be, a category of members. Then, again, the same may not be in accordance with the objects of the society, but his order does not, as that of the first appellate authority, specify or even indicate the basis for his so stating, after gathering the relevant material. The burden thus cast by l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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