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2024 Supreme(Online)(ITAT) 3956
INCOME TAX APPELLATE TRIBUNAL (CHANDIGARH BENCH)
PARESH M. JOSHI, JM, VIKRAM SINGH YADAV, AM
Revenue – Appellant
Versus
Star Cooperative Labour & Construction Society Ltd. – Respondent
Income Tax Appeal | ITA NO. 1015/Chd/2019
For the Appellants/Petitioners: Shri Vivek Vardhan, JCIT, Sr. DR
For the Respondents: Shri Nalin Nohria, CA, Shri B.K. Nohria, CA
Incomes derived from both labor and incidental material trading can qualify for deductions under Section 80P(2)(a)(vi) of the Income Tax Act if the primary activity is collective labor disposal.
Headnote:(A) Income Tax Act, 1961 - Section 80P(2)(a)(vi) - Deduction eligibility - The assessee, a registered cooperative society engaging in construction work with the government, claimed deduction under Section 80P(2)(a)(vi); the assessing officer disallowed this claim on grounds of income from material trading, deeming it apart from collective labour disposal - Ld. CIT(A) allowed the claim of Rs. 14,70,480/- for deduction holding that these transactions were incidental to the primary objective of providing labor. (Paras 5-15)
(B) Appeal - Appeal grounds; whether the CIT(A) erred by allowing the deduction without adequate examination of income nature - The Revenue did not establish any falsity in the appellant's demonstration of benefits accrued solely from labor outputs, as discussed through relevant judgments. (Para 13)
Facts of the case:
The Revenue challenged the Ld. CIT(A)'s order allowing the deduction claimed by a cooperative society, asserting significant income was received from materials contradicting eligibility criteria under the act. Further issues regarding failure to bifurcate labour and material receipts were raised.
Findings of Court:
The court reiterated that the deductibility of income under Section 80P(2)(a)(vi) applies primarily to collective labour activities and reiterated the dependency of income on labour involvement, sustaining CIT(A)’s decision.
Issues: Whether the income from service contracts includes materials; if such considerations negate the eligibility for deductions under Section 80P.
Ratio Decidendi: The court held that incomes from collective disposal of member labour that occasionally associates with material trading can be permissible for deductions, emphasizing the principle that incidental incomes do not undermine the primary characterization as collective labour disposal.
Result: Appeal of Revenue dismissed and the initial ruling by CIT(A) sustaining the deduction claim of Rs. 14,70,480/- is upheld.
| Table of Content |
|---|
| 1. tax assessments must consider the nature of income from labor versus material. (Para 2 , 3 , 4 , 5 , 6) |
| 2. eligibility for deductions hinges on the classification of income and compliance with statutory provisions. (Para 10 , 11 , 12 , 13) |
| 3. the court supports deductions when the core activity is labor-related despite incidental material trading. (Para 15) |
आदेश Order /
PER PARESH M. JOSHI, J.M. :
This is an appeal which is filed by the Revenue under section 253 of the Income Tax Act, 1961 as they are aggrieved by an order dt. 12/04/2019 passed in Appeal No. 10328/2/17-18 by the Ld. CIT(A) in terms of Section 250(6) of the Income Tax Act, 1961 which is hereinafter referred to as the “impugned order”.
Factual Matrix
2. The assessee is a registered cooperative society under the Cooperative Societies Act, 1912 and the prime object of the society is to promote the economic interest of manual labour, skilled worker for the purpose of obtaining and execution of work contracts of Govt. Municipal Corporation or Private work. The society is primarily engaged in construction work with Govt. and Semi Govt.
Departments.
3. Income Tax Return was filed on 30/09/2012 declaring NIL income. The original assessment was framed under section 143(3) vide order dt. 28/02/2015 by the then DCIT Circle 6(1), while framing the assessment, the returned income was accepted.
4. Subsequently, it was noticed by the A.O. that order passed by the then A.O. under section 143(3) dated 28/2/2015 is erroneous in so far as it is prejudicial to the interest of the revenue in terms of provisions of section 263 of the Income Tax Act, 1961 . Therefore, the case was referred by the A.O. to the Pr. Commissioner of Income Tax-2, Chandigarh with the recommendation for invoking the provisions of section 263 of the Income Tax Act, 1961 . Consequently, a show cause notice was issued to the assessee by the Pr. Commissioner of Income Tax-2, Chandigarh on 10.2.2017 for invoking the provisions of Section 263 with the following observation:-
"Please refer to the return of income filed by you on 30.9.2012 declaring returned income at NIL and the assessment order u/s 143(3) passed by the Dy. Commissioner of Income Tax, Circle 6(1), Mohali (the assessing officer concerned in your case) on 28.2.2015 at returned income.
5. Perusal of assessment record in your case for the A. Y. 2012-13 reveals that the following issues remained unexplained on the part of assessing officer:
i) A perusal of Profit & Loss account reveals that during the year under consideration you had earned income on account of work contracts which included receipts on account of materials also. As per provisions of section 80P(2)(a)(vi) an assessee being a cooperative society engaged in the collective disposal of the labour of its members is eligible for deduction equal to the whole of amount of profits and gains of business atrributable to such activity subject to conditions laid down in the proviso. The assesee had earned income on account of work contracts including receipts on account of materials and had claimed deduction u/s 80P of Rs. 14,70,481/-. As such you had not fulfilled the conditions laid down u/s 80P of the Act and hence you were not eligible for the deduction. The issue was neither examined by the A.O. nor you offered any detail regarding such income during the assessment proceedings before allowing the said deduction to you.
6. In view of the facts stated above, it appears that the assessment framed u/s 143(3) on 28.2.2015 is erroneous in so far as prejudicial to the intrest of the revenue in terms of provisions of section 263 of the Income Tax Act, 1961 including Explanation 2 inserted by the Finance Act. 2015 w.e.f. 1.6.2015. You are, therefore, requested to show cause as to why assessment framed vide assessment order dated 28.2.2015 u/s 143(3) of the Income Tax Act, 1961 should not be cancelled by invoking the provisions of section 263 of the Income Tax Act. 1961.
7. You case is fixed fo
