Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd, Talaja V. DCIT, Circle-2, Bhavanagar

ITA 1328/AHD/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5101 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 22-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V.K. SINGH
• Keywords: Competent authority
• Section: 80P; 143(2)

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 1328/AHD/2018 / ASSESSMENT YEAR: 2015-16 TRAPAJ VIBHAGEEYA KHET UDYOG MAL RUPANTAR FOOD PROCESSING SAHAKARI MANDALI LIMITED C/O. BHATI & ASSOCIATES A-902, TITANIUM SQUARE THALTEJ CROSS ROADS S.G. HIGHWAY AHMEDABAD 380 054. PAN : AACAT 5510 D. VS DCIT, CIR.2 BHAVNAGAR. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI V.K. SINGH, SR.DR / DATE OF HEARING : 27/06/2018 /DATE OF PRONOUNCEMENT : 01/08/2018 O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER : PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE ASSESSEE AGAINST OR DER OF LD.CIT(A)-6, AHMEDABAD DATED 1.3.2018 PASSED FOR THE ASSESSMENT YEAR 2015-16. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE, THEREFO RE, WE PROCEED TO DISPOSE OF APPEAL EX PARTE QUA THE ASSESSEE-APPELLANT AFTER HEARING LD.DR AND CONSIDERING MATERIAL AVAILABLE ON RECORD. ITA NO.1328/AHD/2018 - 2 - 3. THOUGH THE ASSESSEE HAS RAISED FIVE GROUNDS OF A PPEAL, EFFECTIVE GROUND IN THIS APPEAL IS AGAINST DENIAL OF EXEMPTIO N OF RS.16,41,836/- UNDER SECTION 80P OF THE INCOME TAX ACT MAINLY ON T HE GROUND THAT CREDIT FACILITIES EXTENDED TO NOMINAL MEMBERS FAR EXCEEDS REGULAR MEMBERS, AND THEREFORE, PRINCIPLE OF MUTUALITY HAS BEEN BROKEN. 4. BRIEF FACTS OF THE CASE INVOLVED IN THE PRESENT APPEAL IS THAT ASSESSEE CO-OP. CREDIT SOCIETY REGISTERED UNDER GUJ ARAT COOPERATIVE SOCIETIES ACT, 1961. IT IS ENGAGED IN PROVIDING CR EDIT FACILITIES TO ITS MEMBERS. RETURN OF INCOME FOR THE ASSESSMENT YEAR 2015-16 WAS FILED ON 30.10.2015 DECLARING TOTAL INCOME OF RS.NIL. TH E CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UND ER SECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. DURING THE SC RUTINY ASSESSMENT THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCT ION UNDER SECTION 80P FOR RS.16,41,836/-. ON VERIFICATION OF DETAILS , IT WAS OBSERVED BY THE AO THAT ASSESSEE HAS RECEIVED INTEREST FROM REGULAR MEMBERS AS WELL AS NOMINAL MEMBERS. IN THE LIST OF MEMBERS, THE AO NO TED THAT THERE WERE 138 NOMINAL MEMBERS AND 88 REGULAR MEMBERS, WHICH M EANS, NOMINAL MEMBERS FAR EXCEEDED REGULAR MEMBERS. ASSESSEE HAS STATED THAT IT WAS PROVIDING SAME FACILITIES TO THE NOMINAL MEMBERS AS PROVIDED TO THE REGULAR MEMBERS. AO WAS OF THE VIEW THAT SINCE SAM E TYPE OF CREDIT FACILITIES WERE EXTENDED TO THE NOMINAL MEMBERS WHO HAS NO VOTING POWER, THE CONCEPT OF PRINCIPLE OF MUTUALITY WILL B E BROKEN AND CONSEQUENTLY BENEFIT UNDER SECTION 80P WOULD STAND WITHDRAWN. AO ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO JUSTI FY ALLOWABILITY OF DEDUCTION UNDER SECTION 80P OF THE ACT. ASSESSEE S UBMITTED THAT ASSESSEE SOCIETY IS A PRIMARY AGRICULTURAL CREDIT S OCIETY AND MAIN OBJECT WAS TO PROVIDE CREDIT FACILITIES TO FARMERS, THEREF ORE, INTEREST INCOME ITA NO.1328/AHD/2018 - 3 - RECEIVED FROM FARMERS ARE EXEMPT UNDER SECTION 80P OF THE ACT. HOWEVER, SUBMISSION OF THE ASSESSEE WAS NOT FOUND A CCEPTABLE TO THE AO. THE LD.AO HAS HARBOURED A BELIEF THAT BY PROVI DING CREDIT FACILITIES TO THE NOMINAL MEMBERS WHO WERE MORE THAN THE REGUL AR MEMBERS, ASSESSEE WAS TRYING TO EARN MAXIMUM PROFIT IN THE B USINESS WHICH ARE AGAINST THE OBJECT OF THE SOCIETY, AND THEREFORE, B Y FOLLOWING JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPE RATIVE SOCIETY LTD. VS. ACIT DATED 8.8.2017 DISALLOWED THE CLAIM OF THE ASSESSEE UNDER SECTION 80P AND THE ADDED THE SAME TO THE TOTAL INC OME OF THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE LD.AO, THE ASSESSE E WENT IN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.FIRST APPELLAT E AUTHORITY THE ASSESSEE FILED WRITTEN SUBMISSIONS, WHICH ARE REPRO DUCED IN THE IMPUGNED ORDER FROM PAGE NOS.2 TO 6. IN THE WRITTE N SUBMISSIONS, THE ASSESSEE INTER ALIA PLEADED THAT ASSESSEE-SOCIETY IS PRIMARY AGRICULTU RE CREDIT SOCIETY AS PER THE PART V OF THE BANKING REG ULATION ACT. A CERTIFICATE WAS ALSO ISSUED TO THIS EFFECT BY REGIS TRAR OF COOPERATIVE SOCIETIES. IT PROVIDES VARIOUS FACILITIES VIZ. DIST RIBUTION OF FERTILIZERS, DIESEL INCLUDING CREDIT FACILITIES TO ITS MEMBERS; WHETHER REGULAR OR NOMINAL AS PER ITS BYE-LAWS. ASSESSEE HAS NOT PROVI DED CREDIT FACILITIES TO ANY OUTSIDERS. DEPARTMENT HAS ACCEPTED THIS FACTUM OF CASE, AND ALLOWED SIMILAR CLAIM UNDER SECTION 80P IN SCRUTINY ASSESSM ENT FOR ASSTT.YEAR 2014-15. THE AO PRESUMED THAT ASSESSEE WITH PROFIT MOTIVE PROVIDED CREDIT FACILITIES TO THE NOMINAL MEMBERS WHO EXCEED ED FAR MORE IN NUMBER THAN THE REGULAR MEMBERS, AND THEREFORE, THE RE WAS BREAK-DOWN OF PRINCIPLE OF MUTUALITY FOR CLAIMING 80P BENEFITS . JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE S OCIETY LTD. RELIED UPON BY THE AO WAS NOT APPLICABLE TO THE CASE OF TH E ASSESSEE, BECAUSE, ITA NO.1328/AHD/2018 - 4 - HONBLE SUPREME COURT WAS NOT DEALING WITH THE CASE OF PRIMARY AGRICULTURAL CREDIT SOCIETY, BUT IN THE CONTEXT OF A CO-OPERATIVE SOCIETY. RATHER, THE HONBLE APEX COURT EMPHASISED THAT BY I NSERTION OF SUB- SECTION (4) TO SECTION 80P OF THE ACT, PRIMARY AGRI CULTURAL CREDIT SOCIETY IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P. THE CASE BEFORE THE HONBLE SUPREME COURT WAS THAT THE ASSESSEE WAS RECEIVING D EPOSITS MOSTLY FROM A CARVED OUT CATEGORY OF MEMBERS VIZ. NOMINAL MEMBERS WHO WERE NOT MEMBERS AS PER THE PROVISIONS OF LAW, AND THAT MOST OF THE BUSINESS OF THE ASSESSEE THEREIN WAS WITH THIS CARV ED OUT CATEGORY OF PERSONS, WITHOUT THE APPROVAL FROM THE REGISTRAR OF SOCIETIES. THE HONBLE APEX COURT HELD THAT THE MAIN REASON FOR DI SENTITLING THE ASSESSEE FROM GETTING THE DEDUCTION PROVIDED UNDER SECTION 80P IS NOT SUB-SECTION (4) OF THE ACT, BUT ACTIVITIES OF THE A SSESSEE WERE IN VIOLATION OF PROVISIONS OF MULTI STATE CO-OPERATIVE SOCIETIES ACT. IT WAS SUBMITTED THAT AS PER THE DEFINITION PROVIDED IN SECTION 2(13 ) OF GUJARAT COOPERATIVE SOCIETIES ACT, THE EXPRESSION MEMBER ALSO INCLUDES NOMINAL, ASSOCIATE OR SYMPATHIZER MEMBER AND THEY W ILL HAVE SUCH PRIVILEGES AND RIGHTS OF A MEMBER AND BE SUBJECT TO SUCH LIABILITIES OF A MEMBER, AS MAY BE SPECIFIED IN THE BYE-LAWS OF THE SOCIETY. IT WAS FURTHER POINTED OUT THAT EXPRESSION MEMBER HAS NO T DEFINED IN THE INCOME TAX ACT AND IT HAS TO BE CONSTRUED IN THE CO NTEXT OF THE PROVISIONS LAW ENACTED THE UNDER THE STATE LEGISLA TURE. INCOME TAX ACT HAS NOT DRAWN ANY DISTINCTION BETWEEN REGULAR MEMB ER AND NOMINAL MEMBER. IT HAS ONLY REFERRED MEMBER, WHICH IN F ACT BROADER IN MEANING. AS SUCH, CREDIT FACILITIES EXTENDED TO NO MINAL MEMBERS CANNOT BE CONSIDERED OR TREATED AS FROM THE NON-MEMBERS OR FROM PUBLIC, AND RELIANCE PLACED ON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF ITA NO.1328/AHD/2018 - 5 - CITIZEN COOPERATIVE SOCIETY LTD. IS CLEARLY DISTING UISHABLE ON THE FACTS OF THE PRESENT CASE. ASSESSEE ALSO RELIED UPON ORDERS OF ITAT COCHIN BENCH IN THE CASE OF ITO VS. MUTTOM SERVICES COOPERATIVE BANK LTD., ITA NO.451/COCH/2016 DATED 15.1.2018 AND ITO VS. NILAMB UR SERVICES COOPERATIVE BANK LTD., ITA NO.400/COCH/2017 DATED 1 .2.2018. 6. THE LD.DR ON THE OTHER HAND, RELIED UPON THE ORD ERS OF THE REVENUE AUTHORITIES AND SUBMITTED THAT SINCE ORDERS OF BOTH AUTHORITIES ARE IN LINE WITH JUDGMENT OF THE HONBLE SUPREME CO URT IN THE CASE OF CITIZENS COOPERATIVE SOCIETY LTD. (SUPRA), IMPUGNE D ORDER BE UPHELD. 7. WE HAVE HEARD LD.DR AND GONE THROUGH THE RECORD. WE HAVE ALSO GONE THROUGH CASE LAWS CITED BOTH THE SIDES BEFORE LD.CIT(A). WE FIND THAT FUNDAMENTAL FACTS WHICH ARE NOT DISPUTED BY TH E REVENUE AUTHORITIES ARE THAT THE ASSESSEE IS A PRIMARY AGRI CULTURAL CREDIT SOCIETY REGISTERED UNDER THE GUJARAT COOPERATIVE SOCIETIES ACT, 1961. IT IS ENGAGED IN PROVIDING CREDIT FACILITIES TO THE FARME RS IN THE REGION OF BHAVNAGAR DISTRICT. AS PER THE AO, MEMBERS OF THE ASSESSEE-SOCIETY CONSISTED OF TWO TYPES VIZ. REGULAR MEMBER AND NOMI NAL MEMBERS. IT IS THE CASE OF THE REVENUE THAT ASSESSEE IS DOING MORE BUSINESS WITH NOMINAL MEMBERS THAN THE REGULAR MEMBER IN ORDER TO EARN MORE PROFIT, WHICH IS AGAINST THE LAW, AND THEREFORE, THERE IS A BREAK-DOWN OF PRINCIPLE OF MUTUALITY RESULTING DISENTITLEMENT OF EXEMPTION UNDER SECTION 80P. THE LD.AO RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CITIZENS COOPERATIVE SOCIETY L TD. (SUPRA) TO SUPPORT HIS VIEW. WHILE THE CASE OF THE ASSESSEE IS THAT B EING A PRIMARY AGRICULTURE CREDIT SOCIETY, IT IS ENTITLED FOR EXEM PTION UNDER SUB-SECTION (4) OF SECTION 80P. JUDGMENT OF HONBLE APEX COURT RELIED UPON BY THE ITA NO.1328/AHD/2018 - 6 - REVENUE IS DISTINGUISHABLE ON FACTS. IN THAT CASE ASSESSEE WAS A COOPERATIVE SOCIETY REGISTERED UNDER MULTI STATE CO OPERATIVE SOCIETIES ACT, 2002, WHILE IN THE PRESENT CASE, ASSESSEE IS A PRIMARY AGRICULTURE CREDIT SOCIETY REGISTERED UNDER GUJARAT STATE COOPE RATIVE SOCIETIES ACT. THE HONBLE SUPREME COURT DISENTITLED THE ASSESSEE FROM CLAIMING EXEMPTION UNDER SECTION 80P DUE TO VIOLATION OF PRO VISIONS OF MACSA, UNDER WHICH IT WAS FORMED, AND MOST OF THE BUSINESS OF THE ASSESSEE WAS WITH CARVED OUT CATEGORY OF PERSONS WITHOUT APPROVA L OF REGISTRAR OF THE SOCIETIES. WEIGHING POINT OF VIEW OF BOTH SIDES, W E FIND THAT BALANCE TILT IN FAVOUR OF THE ASSESSEE. WE FIND THAT BY VIRTUE O F SUB-SECTION (4) OF SECTION 80P, THE ASSESSEE IS ENTITLED FOR DEDUCTIO N UNDER SECTION 80P(2). FURTHER, INCOME TAX ACT DOES NOT DEFINE MEMBER, NOR HAS PROVIDED DISTINCTION BETWEEN REGULAR MEMBER AND NOMINAL M EMBER AND THEREFORE, ITS MEANING AND OBJECTS HAS TO BE UNDERS TOOD IN THE CONTEXT OF DEFINITION GIVEN IN THE STATE ACT. THE REVENUE AUT HORITIES ARE TRYING TO EXTRAPOLATE THE MEANING OF EXPRESSION MEMBER CONT RARY TO THE SPIRIT OF THE ACT. IT IS EVIDENT FROM THE DEFINITION OF M EMBER PROVIDED IN SECTION 2(13) OF THE GUJARAT COOPERATIVE SOCIETIES ACT THAT MEMBER INCLUDES NOMINAL, ASSOCIATE OR SYMPATHIZER MEMBER. THEREFORE, IN THE PRESENT CASE, THE NOMINAL MEMBERS ARE MEMBERS AS PR OVIDED IN THE ACT AND THAT DEPOSITS RECEIVED AND LOAN ADVANCED TO THE NOMINAL CANNOT BE TREATED AS FROM NON-MEMBERS OR FROM PUBLIC AND IN T HE NATURE OF BANKING BUSINESS. THAT BEING SO, THEN, AN ASSESSEE ENGAGED IN PRIMARY AGRICULTURE ACTIVITIES AND PROVIDING CREDIT FACILIT IES AND AGRICULTURE FACILITIES TO THE FARMER-MEMBERS OF A PARTICULAR RE GION, CLAIM OF DEDUCTION UNDER SECTION 80P(2) CANNOT BE DENIED. I T IS NOT DENIED BY THE REVENUE THAT THE ACTIVITIES OF THE ASSESSEE SOCIETY ARE OF PRIMARY ITA NO.1328/AHD/2018 - 7 - AGRICULTURE ACTIVITIES. COMPETENT AUTHORITY HAS AL SO RECOGNIZED THE ASSESSEE AS PRIMARY AGRICULTURE CREDIT SOCIETY. IN THE EARLIER ASSESSMENT YEAR ALSO, REVENUE HAS ACCEPTED THIS FACT AND ALLOW ED THE CLAIM OF THE ASSESSEE. JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF CITIZENS CO-OPERATIVE SOCIETY LTD. (SUPRA) IS DISTINGUISHABL E ON FACTS. IN THAT CASE, STATUS OF THE ASSESSEE IS THAT OF CO-OPERATIVE BANK , WHEREAS ASSESSEE IN THE PRESENT CASE IS A PRIMARY AGRICULTURE CREDIT SO CIETY AND APPLICABILITY OF SECTION 80P(2)(4) OF THE ACT. CONSIDERING ALL T HESE FACTS, WE ARE NOT CONVINCED WITH THE REASONING AND FINDING GIVEN BY T HE REVENUE AUTHORITY IN DENYING CLAIM OF THE ASSESSEE UNDER SE CTION 80P(2). WE ALLOW THE CLAIM OF THE ASSESSEE AND DIRECT THE LD.A O TO RE-COMPUTE INCOME OF THE ASSESSEE BY ALLOWING CLAIM UNDER SECT ION 80P(2)(4) OF THE ACT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 1 ST AUGUST, 2018. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER