ACIT, Circle - 2, Gorakhpur V. M/s Seorahi Cooparetive Cane Development Union Ltd., Seorahi

ITA 144/VNS/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 8863 (ITAT-VARANASI)
• Duration Of Justice: 2 year(s) 10 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2022
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 09-07-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; TDS; Set aside
• Section: 154; 143(3); 142(1); 80P; 143(2); 207

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CIRCUIT BENCH, VARANASI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ITA No. 144/VNS/2019 Assessment Year: 2013-14 The Asst. Commissioner of Income Tax, Circle-2, Gorakhpur, U.P. v. M/s. Seorahi Cooperative Cane Development Union Ltd. Seorahi, Kushinagar, U.P. PAN:AABAS8968D (Appellant) (Respondent) Assessee by: None, written submissions filed by the assessee Revenue by: Shri Ramendra Kumar Vishwakarma, CIT DR & Shri A K Singh, Sr. DR Date of hearing: 24.05.2022 Date of pronouncement: 09.06.2022 O R D E R PER SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER: This appeal, filed by assessee, being ITA No. 144/VNS/2019, is directed against appellate order dated 08.04.2019 passed by ld. Commissioner of Income Tax (A), Gorakhpur (hereinafter called "the CIT(A)") in Appeal No. CIT(A)/GKP/2016-17 for assessment year (ay) 2013-14, the appellate proceedings had arisen before Learned CIT(A) from assessment order dated 29.02.2016 passed by learned Assessing Officer (hereinafter called “the AO”) under Section 143(3)(ii) of the Income-tax Act, 1961 (hereinafter called “the Act”). This appeal was heard in Open Court through Physical hearing mode. ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 2 2. The grounds of appeal raised by Revenue in memo of appeal filed with Income Tax Appellate Tribunal, Varanasi (hereinafter called “the tribunal”), reads as under: “1. That the order of the Ld. CIT(A) is perverse and bad in law. 2. The Ld. CIT(A) has erred in law and fact to treat Commission Income arising out of Core business activity, disregarding that it was incidental to its business of marketing of agricultural produce. 3. The relief given by CIT(A) is without appreciating the full facts and legal position as well as objective of section 80P(2)(a)(iii) of the I.T. Act. 4. The appellant craves right to add alter or amend any ground which may be taken at the time of hearing.” 3. This appeal is filed by Revenue. The brief facts of the case are that the assessee is Co-operative society. The assessee e-filed its return of income, on 31 st July, 2013 for impugned assessment year 2013-14, declaring Nil income. The case of the assessee was selected by Revenue under CASS for framing scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act. The notice dated 04.09.2014 under Section 143(2) was issued by AO to the assessee, which was claimed by Revenue to have been duly served on the assessee. There was part compliance to this notice. The AO issued further notice(s) dated 16 th July, 2015 and 12.10.2015 , both under Section 142(1) , which were also complied with in part by the assessee. Thereafter, AO issued Show Cause Notice(SCN) along with notice u/s 142(1) on 19 th February, 2016 to the assessee , and response thereof the assessee submitted its reply dated 24.02.2016, as under : “ The observation in the notice that our activities against which we have received commission from the sugar mills are not of ‘marketing’ (of the sugar cane grown by our members) is not justified and correct considering the details of this activity given in the written reply filed before you earlier. It is important to note that the supply of the sugar cane of the members is made to the sugar mills under an agreement on prescribed Form C between us and the sugar mill making payment ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 3 of commission to us. If there is no such agreement, no supply of the sugar cane of the members can be made to the sugar mills. Apart from it , the whole supply work including physical delivery of the sugar cane to the sugar mill is managed by us through our employees, as already stated in detail in the written reply filed earlier, hence it is not correct to say that we play only the role of the facilitator for ensuring payment of sugar cane to the members. This role is only one of the activity in connection with the activity of ‘marketing’ of the sugar cane of the members. It is also important to note that we also decide the particular sugar mill to whom supply of sugar cane of the members should be made, considering many factors i.e. the capacity of sugar cane crushing of the sugar mill, prompt payment of cane price by the sugar mill, distance of the sugar mill from the ‘purchase centre’ and also the rate of cane price etc. Not only this, we also work for ascertainment of the quantity of production of sugar cane quantity of the sugar cane to be supplied to the sugar mills besides to work for production of better quality and huge quantity of the sugar cane to be supplied. We also work by filing court cases against the sugar mills if they are indulged in any activity against the interest of the members in the process of supply of sugar cane. Considering all these activities together, it is clear that this activity in total is a ‘marketing’ of the sugar cane by us.” 3.2. The AO observed that the main objects of the assessee as per bylaws and written submissions of the assessee, are as under: “(i)They are doing business of marketing of agricultural produce being sugar cane grown by our member who are the farmer (sugar cane growers). The assessee submitted that the farmers who grow sugar cane, obtain their membership when the season comes for crushing of the sugar cane, the members, who desire to sell. (ii)Their sugar cane grower approach them for issue of Ganna parchi to them as according to govt. rules & regulations, the assessee further submitted that Ganna Parchi issued by the cooperative society which is just a certificate as to the membership of the person named therein, mention the names and address of the members supplying sugar cane besides the name of the sugar mill where the members has to make supply and also the quantity of the cane to be supplied. On receipt of ganna parchi, the supplier members take their sugar cane to be sugar mill named in the parchi where weight of the sugar cane is taken by the sugar mill authorities but under inspection supervisions of our staff and then the delivery of sugar cane is accepted by the sugar mill. For the said activity of marketing a commission at the rate fixed by the govt. Is paid by the sugar mills to them which is their business receipts. It is worked out with reference to the sugar cane supplied by the members. Their this activity falls under Section 80P(2)(a)(iii). ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 4 (iii)As per the assessee they provide credit facilities to our members for purchase of seeds, insecticide for agricultural purposes for it, they charge interest from farmers. The assessee submitted that in respect of the said interest income on lending to the members ,exempt U/s 80P(2)(a)(i). The assessee has also submitted that supply of fertilizers, insect sides, seeds, and agricultural implements etc. to the members for agricultural purposes. He said that this activities fall under Section 80P(2)(a)(iv).” 3.3. The AO observed that so far as deduction claimed under Section 80P(2)(a)(i) & 80P(2)(a)(iv) is concerned on test checking basis, it was held by AO that the society was engaged in such activities for which deduction claimed under Section 80P(2)(a)(i) & 80P(2)(iv) is allowable, which stood allowed by the AO . 3.4. The AO further observed that so far as claim of deduction under Section 80P(2)(a)(iiii) is concerned, the assessee has not submitted bifurcation of the expenses. The AO observed that the assessee has placed reliance on the appellate order passed by ld. CIT(A), Lucknow in Appeal No. 59/ACIT/R2/GKP/2008-09 vide order dated 09.08.2009 , wherein ld. CIT(A) deleted all additions and net loss was accepted. The AO further observed that the assessee has also relied upon assessment order passed under Section 143(3) on 12.09.2008 by ITO Kashipur , wherein under similar facts and circumstances who are doing similar activities with similar objects and received similar commission against similar activities, the deduction was allowed. The AO also observed that the assessee has also relied upon ITAT order dated 16.04.2013, wherein deduction under Section 80P(2)(a)(iii) from this activity, was allowed by the tribunal. The AO observed that the fact of collection of commission is very simple , the cane mill deposit the commission against ganna parchies directly into the assessee’s account after deducting TDS, and there is little effort to earn commission by the assessee. The AO ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 5 proposed to allow 1/3 of the gross commission receipts as total expenses incurred for earning commission income and proposed to bring to tax remaining commission receipts, and the assessee was asked by AO to give reply to the same. 3.5 The assessee submitted in reply thereof with respect to proposed disallowance of deduction under Section 80P(2)(a)(iii) with respect to gross commission receipts to the tune of Rs. 2,70,99,232/- to the AO, as under: “The disallowance of the deduction u/s 80P(2)(a)(iii) in respect of the net profit out of the commission receipts from the sugar mills is also not justified and correct as we are a registered cooperative society. Our bylaws is also registered a copy of which has already been filed. Our objects have been setforth in this bylaws. These objects have been the same since their registration in the year 1950 and therefore, these objects and all our activities as per these objects during (A.Y. 06-07) and onwards have also been the same. Our assessment for A.Y. 06-07, for which in return was filed showing net loss, was completed u/s 143(3) vide assessment order dt. 31.12.2008 making many additions against which an appeal was filed. In this appeal No. 59/ACIT/R-II/GKP/08-09, The Ld. CIT(A)-III, Lko, vide its order dt. 09/08/09, deleted all the additions in consequences of which the returned net loss was accepted but, at same time, finding was given by the ld. CIT(A) in his order that the commission receipts from the sugar mills was not eligible for deduction u/s 80P(2)(a)(iii) as the activities, against which it was paid to us, was not of ‘marketing’ as required under this section. In the order dt. 30.11.2010 u/s 251/143(3) giving effect to this appellate order of ld. CIT(A), the total income was determined at the disclosed net loss but, later on, this order u/s 251/143(3) was rectified on 08.12.11 and in it the commission receipts from the sugar mills was charged to tax disallowing deduction u/s 80P(2)(a)(iii) in view of the said observation of the Ld. CIT(A) in his order dt. 09.08.2009 but since after deletion of all the additions by the ld. CIT(A) assessed total income came to the disclosed net loss and therefore, there was no positive gross total income because of which there was no question of allowance of any deduction u/s 80P and therefore, there was also no question of its disallowance even in view of observation of the Ld. CIT(A), hence for rectification of the mistake in the order dt. 08.12.11 u/s 251/143(3)/154, we filed an application u/s 154 on which the order dt. 08.12.11 was rectified u/s 154 vide order dt. 30.03.12 in which the total income was assessed at the disclosed net loss treating the commission receipts from the sugar mills as not a taxable income. Here it is important to mention that against the said order Dt. 09.08.09 ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 6 of the Ld. CIT(A) we and the department also filed appeals before the tribunal and the Hon’ble tribunal has vide its order dt. 16.04.13 in ITA No. 01/Alld/2011 A.Y. 06-07 and ITA No. 04/Alld/2011 A.Y. 06-07 dismissed both the appeals on the ground that the disclosed net loss was already accepted by you vide order dt. 30.03.12 u/s 154. Besides it, it is also mentioned that against your order dt. 08.12.11 passed u/s 154 disallowing deduction u/s 80P(2)(a)(iii), we had filed an appeal and the Ld. CIT(A) vide his order dt. 14.03.13 in appeal No. 180/ACIT/Range-11/GKP/CIT(A)-III/Lko/11-12, dismissed this appeal confirming your order dt. 30.3.12 u/s 154 accepting the disclosed net loss. In this way the commission receipts from the sugar mills have not been treated and assessed as taxable income in the assessment u/s 143(3) for A.Y. 06-07. It is also important to mention here that our assessment for A.Y. 2007-08 has also been completed u/s 143(3) a copy of which is enclosed. In this assessment the deduction u/s 80P(2)(a)(iii) in respect of said commission receipts has been allowed by you and since the nature of the activities are the same as in A.Y. 06-07 and 07-08 hence the deduction u/s 80P(2)(a)(iii) in respect of the net profit out of commission receipts for the year is also deserves to be allowed. In case of another assessee namely “Kashipur Sahkari Ganna Vikash Samiti, Kashipur” (PAN No. AAAT8319A), which is doing similar activities under similar objects and received the similar commission against similar activities, the deduction u/s 80P(2)(a)(iii) has been allowed by the ITO-1, Kashipur, in the order dt. 12.09.08 passed u/s 143(3), a copy of which is enclosed. It is therefore, requested to kindly accept the above explanation and allow the deduction claimed u/s 80P”. 3.6. The AO rejected the contentions of the assessee , by observing as under: “5.1The assessee has earned commission income of Rs.2,70,99,232/- from one party for marketing of the cane sugar. 5.3 Deduction under Section 80P(2)(a)(iii) is available to the Co-operative society in respect of income earned from marketing of agricultural produce grown by its members only. Exception in respect of incomes earned by Co-operative societies, if available, under any other statute prior to the enactment of Section 80P could not be availed of after this enactment in view of Section 297(2)(9a), therefore, the assessee co-operative society entitled to exemption under Part B of the State Taxation Concession Act, was held not entitled to get that benefit after coming into operation of Section 80P. This was held in the case ITO vs Shri Gopal Sewa Sahakari mandi Ltd. (1991) 371TD 476 (Ahem-Trib). 6.Specific Provisions held to Exclude the General Provision:- ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 7 By virtue of Section 297(2)(10), A co-operative society is not entitled to the benefit of clause 13(v) of the merged States (Taxation Concession) Act, 1949 for and from 1962-63. 6.1 Co-operative Society not an Authority Within the meaning of Section 10(29) The preamble to the “Co-operative Society Act, 1912” shows that it was enacted to facilitate the formation of Co-operative society for the promotion of thrift and self-help among agriculturists, artisans and persons of limited means. The Act, was not a law enacted by the legislature to create an authority within the meaning of section 10(29) of the Act. Section 80P deals specifically with deduction in respect of Co-operative and the fact, that they have been specifically dealt with in a clear pointer to the assessee society registered under the Co- operative Society Act, 1912 could not be held to be an authority within the meaning of Section 10(29). It was held in case of Ludhiana Co-operative Marketing Society Ltd. Vs. CIT(1989) 44 Taxman 78: (1989) 177 ITR 42 (P&H). 6.2 Reasons for Enactment: Section 80P was enacted with a view to encourage and promote growth of a cooperative sector in economic life of the country. There are different heads of exemption enumerated in the section. Each is a distinct and independent head of exemption. Whenever a question arises whether a particular category of income of a co-operative society is exempt from tax, it would have to be seen whether such income falls within any of the several heads of exemption. This was held in the case of UP Co-operative Bank Ltd. Vs. CIT(1996) 61 ITR 56 (ALL): Surat Vanker Sahakari Sangh Ltd Vs CIT (1971) 79 ITR 722, 727 (Guj.) The co-operative society must prove that it had engaged itself in carrying on any of the several business referred to in section 80P(2). The business of the assessee society must have a direct or proximate connection with or nexus to the earning of income in order to enjoy the exemption. It was held in the case of Andhra Pradesh Co-operative General Land Mortgage Bank Ltd Vs. CIT (1975), 100 ITR (AP) The exemption clause in a taxation statute has to be construed strictly and cannot be extended beyond the clear language used in the section it was held in the case of Kota Co-operative Marketing Ltd. Vs CIT (1994) 207 ITR 608,612 (Raj.) 100% deduction could be availed only where the income was derived from the specific activities. The activity which was not so specified could not enjoy the full exemption. Deduction under Section 80P is allowable on the net profit of activity carried out by the society and further setting off of losses of the earlier year u/s 72. In the case of Vidarbha Co-operative Marketing Society Ltd. CIT(1983) 36 CTR 400 (1985) 156 ITR 422 (BOM). Held that the whole object of section 81 was to ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 8 exempt profit and gains of the business of cooperative society, if it carried on the business as specified in the several clause of that Section. It is well known that one who claims the exemption must fall strictly within the four corners of the exemption must fall within the four corner of the exemption provisions and an exemption must be strictly constructed. The benevolent purpose of the exemption scheme u/s 80P(2)(a)(iii) is to encourage a vital national activity in the interest of rural economy. Therefore the term marketing occurring in that section, has to be construed in a manner which would achieve this benevolent purpose of exemption rather than defeat this said purpose of course applying the settled rules of construction. It was held in the case of Menachi Rubber Marketing & Processing Co-operative Society Ltd. Vs. CIT (1992) 193 ITR 108, 117 (Kar.) So long as agricultural produce handled by the assessee belonged to its member, it would be entitled to exemption in respect of profits derived from the marketing thereof in terms of provisions section 80P(2)(a)(iii), the only condition required for qualifying the assessee’s income for exemption would be the assessee’s business was marketing of agricultural produce and such agricultural produce must have belonged to the member of the assessee society before they came up for marketing. 7. Marketing Marketing is an expression of wide sense to refer to the performance of business activities directed towards and incidental to the flow of goods and services from producer to consumer. The marketing function involves exchange function such as buying and selling. Physical function such as storage, transportation, processing and other commercial function like standardization, financing, marketing intelligence etc. 8.Relationship of Buyer and Sellers must exist A cooperative society engaged in the purchase of articles for agricultural, extended into contract with the Government to distribute fertilizers and earned commission thereof, it was held that contact was an agreement to act as sale agents and not an agreement of sale. The commission earned was not exempt u/s 80P(i)(d), it was held in the case of Punjab State Co-operative Supply and Marketing Federation Ltd. Vs. CIT(1980) 4 Taxman211: (1980) 18CTR 71(1981) 128ITR 189(P&H). The jurisdictional area of operation of each Council corresponds with that of the respective Sugar Factory of that jurisdictional area meaning: thereby geographical area of operation of a Council is directly proportional or confirmed to the area of operation define. The cane council unions/societies are claiming exemption u/s 80P(2)(a)(iii) on account of marketing of agricultural produce ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 9 grown by its members, the claim does not appear to be justified in view of the fact that the area of jurisdiction of such cane development unions is specified the sugar mills to whom the farmers can sell their produce are also earmarked and there is no marketing per se which can be said to have been carried out by such societies. Marketing involves a gamut of activities including surveys of the market, identification of buyers, facility for purchasing the produce of its members and other activities like exploring avenues for giving a competitive and remunerative price for the sale of the produce. The produce being cane can only be sold to the sugar mills for crushing and manufacture of sugar and other by product. Once the captive area, where the produce can be consumed, is localized to such an extent that the farmers of particular village sell their produce to a particular mill, there is no marketing involved in the whole process as such. As per the state Government of UP law i.e. UP Sugarcane (Regulation of Supply and Purchase) Act, 1953 it is to facilitate the payment of the produce of the farmers by the sugar mills, and since the sugar mills had to deal with a large number of farmers who are mostly illiterate and find it difficult to receive payment in the sugar mills, such Cane Sugar Councils have been formed. On perusal of the balance sheet of the Cane Sugar Councils it may be find that these societies has not discharged its functions for which it had been formed as per the bylaws and in which intervention of the State Government is also there as the Secretary of the Society is as State Government, the amount of payment are remaining outstanding, from sugar mills and the same have not been disbursed to members for the cane purchased. Hence, instead of doing marketing the cane sugar societies have the role of a facilitator/agent for ensuring timely payments to the farmers for the purchase of sugarcane by the sugar mills for which it is entitled to receive commission, as per the specified rate on every purchase made by the sugar mills. Therefore, in place of a marketer, the assessee can be better described as commission agent, hence the deduction claimed u/s 80P(2)(a)(iii) for the sum relating to the commission received from sugar mills for sale of the agricultural produce grown by its member is not allowable The meaning of marketing has been discussed in case of Addl. CIT Vs. Ryots Agricultural Produce Co-operative marketing Ltd. (1978)115ITR 709(Kar), wherein it is defined as that marketing is an expression of wide import and it generally means the performance of all business activities involved in the flow of goods and services from the point of initial agricultural production until they are in the hands of ultimate consumers. The marketing functions involves exchange function such as buying and selling, physical function such as storage transportations, processing and other commercial functions such as standardization, financing, market intelligence etc. the sugarcane societies are farmers for disbursement to the farmers. It is not involved either in the transportation or in the storage or in the processing of the cane till it reaches the ultimate consumers i.e. common man using the sugar. As no marketing is involved in mere sell of sugarcane to the ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 10 sugar mills, therefore, deduction u/s 80P(2)(a)(iii) is not allowable on profits and gains attributable to the commissions received from the sugar mills. 8.1 Further it will be not out of place to mention here that on the same issue in the earlier year in present case the Ld. CIT(A)-III Lucknow has not allowed the claim of assessee for deduction u/s 80P(2)(a)(iii) on marketing of agricultural produce grown by its members, when it is sold to Single sugar mills. In similar type of Co-operative Cane Society, the department has also filed an appeal before Hon’ble ITAT against order of Ld. CIT(A). The appeal yet to be decided by Hon’ble ITAT. As the issue is alive before Hon’ble ITAT, therefore, same stand has been taken in this case also. 8.2 During the course of assessment proceedings , the AR of the assessee has filed a reply on 19.10.2015 vide para 1 submitted a revised computation alongwith manual return but same cannot be accepted in view of Hon’ble Supreme Court decision rendered in the case of M/s Goetze (India) Ltd. Vs. CIT reported vide 204 CTR SC 182 wherein Hon’ble Court has held that the assessee cannot claim any deduction and amendment in the rerun of income by modifying an application at assessment stage without revising return. 8.3 In view of the above discussion it is held that the assessee is not involved in activities of marketing of agricultural produce in terms of the provisions of sec. 80P(2)(a)(iii) therefore, no deduction in terms of the provision of Section 80P(2)(a)(iii) is allowed however expenses pertaining to earning these commission is allowed to the assessee.” 4. Aggrieved by assessment framed by the AO denying the assessee, benefit of deduction u/s 80P(2)(a)(iii) of the 1961 Act , the assessee filed first appeal before Ld. CIT(A) , who was pleased to allow the appeal of the assessee, by holding as under: “ 5. The appellant is a duly registered cooperative society under the cooperative societies Act 1912. Sugar Cane growers of a particular are the members of the society. The appellants bylaws are also duly registered. 5.2 As per the objects set forth in the bylaws the appellants main objects are to do with Cane management of the members where sugar Cane of the members is supplied to the sugar mills and getting payments from the sugar mills. Payments to the member farmers are made by the society. The society also provides credit facilities to its member for agriculture purpose and also to purchase agriculture implements, seeds, livestock or other articles intended for agriculture purpose. As ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 11 per the set objects the appellant is mainly engaged in providing credit facilities to the members and marketing of the sugar Cane i.e.an agriculture produce grown by the members. It is also important to mention that appellant is not authorized to render its service to any non-member. The AO in his assessment order has noted that the appellant society has a role of facilitator/agent for insuring timely payments to the farmers for the purchase of the cane by the sugar mills for which it is entitled to receive commission as per the specified rate on every purchase made by the sugar mills, therefore, in place of a marketer the appellant can be better described as a commission agent. He further held that as no marketing is involved in mere sale of sugar cane to the sugar mills therefore deduction u/s 80P(2)(a)(iii) of the Act is not allowable on Profit & Gain attributable to the commission received from the sugar mills. According to the bylaws and the object of the appellant society it is engaged in the aspect of marketing of sugar cane right from the sowing of the crop and until the payment is realized by its member the entire activity of the appellant society is guided by the policies and rules of the State Government.The state government through , its Cane Commissioner, formulates and implements the policy for purchase and sale of sugar cane for each crushing season. They area of the appellant society is also ascertained by the Cane Commissioner. The appellant society receives the proposal from the mills and makes an offer to the concerned sugar mill for supply of sugar cane. Thereafter the sugar mill executes an agreement with the appellant, on the basis of which sugar cane is supplied by the members to the mills. The fixation of the selling price for the members is also negotiated by the appellant. Thereafter purchase centers are established and physical of the sugar cane is made by the appellant society. The said issue is covered by the decision of CIT(A)-3, Lucknow in her order dated 25.08.2014 in Appeal No. 123/66/DCIT/GKP/CIT(A)-3/LKO/13-14 in the case of Sahkari Ganna Vikas Ltd. Khadda. In this order Ld. Commissioner of Income Tax (A)-3 has held that the activities of the appellant society as marketing activity and claim for deduction u/s 80P(2)(a)(iii) of the Act was allowed. Recently the commissioner of Income Tax, Aligarh also allowed the appeal of M/s Sahkari Ganna Vikas Samiti, Dal Mandi Bulandahar on similar facts vide order dated 15.09.2017 in the appeal No. 96/16-17/GZB/Aligarh. The facts of the case outlined in the above referred appellate order of CIT(A), Lucknow and Aligarh are identical to the facts of the present case. In the appellants own case for A.Y. 2012-13, the identical issue was decided by the undersigned and after discussing the role of the appellant. It was held that appellant society supplies sugar cane grown by its member to the sugar mills and also realizes cane price from sugar mills. The entire activity was held completely as a marketing activity. ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 12 Since the issues are identical in both the years and nothing contrary to decisions referred above has been brought on the record by the AO hence in view of the above referred appellate order it is held that the activities of the appellant society are marketing activity for the purpose of claiming deduction as per the section 80P(2)(a)(iii) of the Act. The AO is directed to allow full deduction u/s 80P(2)(a)(iii) of the Act. The grounds of appeals are allowed.” 5. Now , it was turn of Revenue to be aggrieved by decision of Ld. CIT(A) , who has now come in appeal before tribunal. None appeared on behalf of assessee when this appeal was called for hearing before the Division Bench, however, letter dated 29.04.2022 was received by Registry on 04 th May, 2022(placed on record in file), in which the assessee’s Secretary Mr. Ramashray Yadav (Sachiv) has stated that the assessee has filed written submissions/paper- book dated 16.04.2022 , and the appeal may be decided based upon the submissions made in the paper-book/written submissions. The Registry has placed letter dated 29.04.2022 and paper book/written submissions dated 16.04.2022 , before the Division Bench. The said written submissions/paper book, dated 16.04.2022 filed by the assessee is placed on record in file. 5.2 . The Ld. Departmental Representative opened arguments before DB and submitted that deduction under Section 80P(2)(a)(iii) was denied to the assessee by AO, because the assessee was not doing marketing of agricultural produce grown by its members. Our attention was drawn by ld. DR to Para 8.3 of the assessment order passed by the AO. It was submitted that ld. CIT(A) has allowed deduction to the assessee u/s 80P(2)(a)(iii) . Our attention was drawn to the appellate order passed by ld. CIT(A). The Ld. DR submitted that matter can be restored to the file of the AO for fresh determination of the issue on merits, for which reliance was placed by ld. DR on the appellate order dated 11.03.2022 passed by tribunal in ITA No. 92&93/ALLD/2020(in which ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 13 both of us were part of DB who pronounced the said order) in the case of ITO v. Sahkari Ganna Vikas Samiti. 6. We have heard ld. Departmental Representative and perused the material on record. This appeal was heard in open court proceedings through physical hearing mode. None appeared on behalf of the assessee, when this appeal was called for hearing before the DB. However, the assessee has filed written submissions and prayers were made by assessee to adjudicate this appeal based on written submissions filed by assessee and other material on record. The solitary issue in this appeal concerns itself with disallowance of deduction claimed by assessee u/s 80P(2)(a)(iii) of the 1961 Act by the AO on the ground that the assessee is not engaged in marketing of agricultural produce grown by its members, and is merely a facilitator / agent for ensuring timely payments to the farmers for the purchase of sugar cane by sugar mills for which it is entitled to receive commission at a specified rate on every purchase made by the sugar mills . The AO observed that the assessee at best can be described as commission agent , and hence the deduction u/s 80P(2)(a)(iii) is not allowable to the assessee. The AO observed that area of these co-operative societies corresponds with that of respective sugar factory of that jurisdictional area meaning thereby that geographical area of operation of these societies is directly proportional or confined to the area of operation . These societies are claiming exemption u/s 80P(2)(a)(iii) on account of marketing of agricultural produce grown by its members, and the AO observed that the claim is not justified in view of the fact that the area of jurisdiction of such societies is specified sugar mills to whom the farmers can sell their produce are also earmarked and there is no marketing per-se which ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 14 can be said to have been carried out by such societies. The AO further observed that the captive area, where the produce can be consumed , is localized to such an extent that the farmers of particular village sell their produce to a particular mill, there is no marketing involved in the whole process as such.It was observed by AO that as per State law viz. U P Sugarcane (Regulation of Supply and Purchase) Act, 1953 ,it is to facilitate the payment of the produce of the farmers by the sugar mills, and since the sugar mills had to deal with large number of farmers who are mostly illiterate and find it difficult to receive the payment in the sugar mills , such societies have been formed. The AO further observed that on perusal of balance sheet of these societies, it is found that these societies have not discharged their functions for which these societies were formed as per their byelaws for which intervention of the State Government is also there, the payments are remaining outstanding, from sugar mills and they have not been disbursed to members for cane purchased. The AO referred to meaning of marketing and concluded that the assessee is not engaged in marketing of agricultural produce grown by its members. The AO relied on judgment and order of Hon’ble Karnataka High Court in the case of Addl. CIT v. Ryots Agricultural Produce Co-operative Marketing Limited (1978) 115 ITR 709(Kar.) . The AO observed that marketing is an expression of wide import and generally means the performance of all business activities involved in flow of goods and services from the point of initial agricultural production until they are in hands of ultimate consumers. The marketing function involves exchange function such as buying and selling , physical function such as storage , transportation, processing and other commercial functions such as standardization , financing , marketing intelligence etc.. The sugar cane ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 15 societies are formed for disbursement to farmers. It is not involved in transportation or storage or in the processing of cane till it reaches ultimate consumers . The AO observed that since no marketing is involved in mere selling of sugarcane to sugar mills, therefore deduction u/s 80P(2)(a)(iii) is not allowable on the profits and gains attributable to the commission received from the sugar mills. The AO observed that the assessee is not engaged in marketing of agricultural produce grown by its members, and is merely a facilitator / agent for ensuring timely payments to the farmers for the purchase of sugar cane by sugar mills for which it is entitled to receive commission at a specified rate on every purchase made by the sugar mills . The AO observed that the assessee at best can be described as commission agent , and hence the deduction u/s 80P(2)(a)(iii) is not allowable to the assessee. The ld. CIT(A) allowed the appeal filed by the assessee and held that the assessee is into marketing of sugar cane grown by farmers who are its member, and the assessee is entitled for deduction u/s 80P(2)(a)(iii) of the 1961 Act. However, it is observed that there are completely contrary finding recorded by ld. CIT(A) in its appellate order, as opposed to finding of fact recorded by AO, firstly that payments to farmers are made by the assessee society, while the fact as recorded by AO in its assessement order is that the sugar mills are making direct payments to farmers for sugar cane procured from the farmers, while the assessee is getting commission payments from sugar mill. The second contrary finding recorded by ld. CIT(A) as opposed to finding of fact recorded by AO, is that it is engaged in the aspect of marketing of sugar cane right from sowing of the crop and until payment is realized by its member, but the facts recorded by AO clearly stipulates in para 4.1 (i) that the farmers who grow sugar cane , obtain membership of the assessee when ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 16 the season comes for crushing of the sugar cane, the members , who desires to sell. The third contrary finding of fact recorded by ld. CIT(A) in its appellate order as opposed to finding of fact recorded by AO, is that the assessee supplies sugar cane grown by its member to the sugar mills and also realizes sugarcane prices from sugar mills, but the finding of fact recorded by AO in para 4.1(ii) is that the farmers who are its members take their sugar cane to the sugar mills named in parchi where weight of the sugar cane is taken by sugar mills authorities but under inspection supervision of the assessee’s staff and then the delivery of the sugar cane is accepted by sugar mill as also the AO has recoded finding of fact at page 7 that farmers sell their produce directly to the sugar mills, and for that the assessee is paid commission. Thus, it could be seen that completely contrary findings of fact are recorded by ld. CIT(A) while adjudicating appeal in favour of the appellant, which findings of fact is totally opposite/contrary to what was recorded by AO in its assessment order , thus the conclusion arrived at by ld. CIT(A) cannot be relied upon as there are no supportive evidences referred to by ld. CIT(A) in arriving at totally contrary/opposite findings of facts as opposed to finding of facts recorded by AO in its assessment. These are factual matters and correct finding of fact based on evidence is required to adjudicate this appeal,as it goes to the root of the matter for adjudicating this appeal. Thus, under these circumstance , we are inclined to set aside appellate order passed by ld. CIT(A) and restore this issue to the file of ld. CIT(A) for denovo adjudication of the assessee appeal. Needless to say that powers of ld. CIT(A) are co-terminus with powers of the AO. The ld. CIT(A) is directed to record complete and correct facts based on evidence, of the complete chain of activities / processes undertaken by assessee with respect of sale of sugarcane to sugar mills by ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 17 farmers, including chain of activities/ processes undertaken by farmers/ sugarmills in this entire process , from beginning to end, before arriving at its decision in set aside proceedings . Thus, the issue is restored to the file of ld. CIT(A) for fresh adjudication on merits in accordance with law. Needless to say that ld. CIT(A) shall grant proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice and in accordance with law, in set aside denovo adjudication proceedings . We clarify that we have not commented on the merits of the issue , and all contentions are kept open. Further, ld. CIT(A) shall admit all evidences/explanations submitted by assessee in its defense , before adjudicating appeal on merits in accordance with law. This appeal filed by Revenue is allowed for statistical purposes. We order accordingly. 7. In the result, appeal filed by Revenue in ITA No. 144/VNS/2019, for ay: 2013-14 , is allowed for statistical purposes. Order pronounced on 09/06/2022 at Allahabad, U.P, in accordance with Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963 SSd/-/- SSSd/-Sd [VIJAY PAL RAO] [RAMIT KOCHAR] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09/06/2022 KD Azmi Copy forwarded to: 1. Appellant – The ACIT Circle-2,Aayakar Bhawan, Gorakhpur-273001, U.P. ITA No.144/VNS/2019 Assessment Year: 2013-14 ACIT, Circle-2, Gorakhpur v. M/s Seorahi Cooperative Cane Development Union Ltd.,Seorahi, Kushinagar 18 2. Respondent – M/s. Seorahi Cooperative Cane Development Union Ltd., Seorahi, Kushingar-274401,U.P. 3. The CIT-DR/Sr. DR , ITAT, Varanasi, U.P. 4. CIT, Varanasi,U.P. 5. CIT, Gorakhpur, U.P. 6. The CIT(A),Gorakhpur, U.P. 7. Guard File Sr. P.S.