Gadat Vibhag Vividh Karyakari Sahkari Mandali Ltd., Navsari V. The Income Tax Officer, Ward-2, Navsari

ITA 1835/AHD/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1159 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 24-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.1835/AHD/2013 / ASSTT. YEAR: 2009-2010 GADAT VIBHAG VIVIDH KARYAKARI SAHKARI MANDALI LTD. AT & POST GADAT TAL. GANDEVI, DIST.NAVSARI PAN : AAAAG 0537 B VS THE ITO, WARD - 2 NAVSARI. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI TUSHAR HEMANI REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 24/06/2016 / DATE OF PRONOUNCEMENT: 117/2016 $%/ O R D E R THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAIN ST THE ORDER OF THE LD.CIT(A), VALSAD DATED 25.3.2013 PASSED FOR THE AS STT.YEAR 2009-10. 2. GROUNDS OF APPEAL ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) RULES, 1963 - THEY ARE DES CRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF THE GRIEVANCE O F THE ASSESSEE IS THAT THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE AO FOR DENYING THE DEDUCTION UNDER SECTION 80P OF THE INCOME TAX ACT, 1961 OF A SUM OF RS.16,22,570/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COOPERATIVE SOCIETY, HAS FILED ITS RETURN OF INCOME ON 7.9.2009 DECLARING TO TAL INCOME AT NIL. IT HAS CLAIMED DEDUCTION UNDER SECTION 80P OF THE INCOME T AX ACT OF RS.34,39,810/- . THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT THE ASSESSEE IS A MULTI- ITA NO.1835/AHD/2013 2 PURPOSE COOPERATIVE SOCIETY DEALING MAINLY IN MARKE TING AGRICULTURE PRODUCTS GROWN BY ITS MEMBERS AND OTHER ALLIED ACTIVITIES OV ER THE LAST 62 YEARS. THE LD.AO HAS BASICALLY DENIED DEDUCTION UNDER SECTION 80P(2) OF A SUM OF RS.8,87,420/- WHICH REPRESENTED INTEREST INCOME MAI NLY FROM FDRS. WITH NATIONALIZED BANKS. HE FURTHER MADE SOME HYPOTHETI CAL CALCULATIONS ON THE BASIS OF HIS UNDERSTANDING AND WORKED OUT THE INCOM E OF THE ASSESSEE PERTAINING TO NON-AGRICULTURE TRADING ACTIVITIES, A ND THEREAFTER MADE A FRESH COMPUTATION OF TOTAL INCOME. IN THIS WAY, HE WORKE D OUT A SUM OF RS.16,22,570/- WHICH ACCORDING TO HIS UNDERSTANDING DOES NOT CALL FOR GRANT OF DEDUCTION UNDER SECTION 80P(2) OF THE INCOME TAX AC T. 4. DISSATISFIED WITH THE ASSESSMENT ORDER, THE ASSE SSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). IT WAS CONTENDED T HAT AN IDENTICAL ASSESSMENT ORDER WAS PASSED IN THE ASSTT.YEAR 2007-08. THE AO HAS MADE REFERENCE TO SOME RULE 3, WHICH IN THE OPINION OF THE ASSESSEE A RE NOT AVAILABLE IN ANY OF THE BOOK. THE LD.CIT(A) HAS RE-APPRECIATED THE CON TENTIONS OF THE ASSESSEE AND GRANTED DEDUCTION UNDER SECTION 80P(2) OF THE I NCOME TAX ACT. HOWEVER, IT EMERGES OUT THAT IN THE PRESENT YEAR, T HE LD.CIT(A) HAS FAILED TO TAKE COGNIZANCE TO THE ORDER OF HIS PREDECESSOR IN THE ASSTT.YEAR 2007-08. THE FINDING RECORDED IN THIS ASSESSMENT YEAR BY THE LD.CIT(A) READS AS UNDER: 5.3 DECISION :- I HAVE CONSIDERED THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER AS WELL AS THE CONTENTION RAISED B Y THE AR OF THE APPELLANT IN THE WRITTEN SUBMISSION. DURING THE ASS ESSMENT THE AO NOTICED THAT THE APPELLANT IS HAVING MULTIPLE BUSIN ESS ACTIVITIES I.E. BOTH AGRICULTURAL AND NON-AGRICULTURAL. THE APPELLANT HA D CLAIMED RS. 34,39,8IO/- AS DEDUCTION U/S. 8OP OF THE ACT. IN TH E OPINION OF THE AO, INCOME EARNED FROM ALL SOURCES ARE NOT EXEMPT U/S. 8OP AND THEREFORE, HE RECOMPUTED THE TAXABLE AND NONTAXABLE INCOME BY APPORTIONING THE TURNOVER TO THE EXPENDITURE INCURRED. THEREBY THE A O WORKED OUT A RATIO OF 3:17 AS AGRICULTURAL VS NON-AGRICULTURAL A CTIVITIES INCOME. FURTHER, THE AO OBSERVED THAT WHILE COMPUTING THE T OTAL INCOME OF THE SOCIETY AFTER NETTING OF THE INTEREST INCOME AND IN TEREST EXPENSES, ITA NO.1835/AHD/2013 3 CREDITED THE SURPLUS INTEREST TO THE P&L A/C. AND I N THE COMPUTATION OF INCOME, IT CLAIMS ENTIRE INTEREST INCOME AS DEDUCTI ON U/S. 8OP(2) OF THE ACT. THUS, THE DEDUCTION U/S. 8OP WAS CLAIMED TWICE . BUT SINCE, THE DEPOSIT RECEIVED ARE USED FOR ALL ACTIVITIES INCLUD ING NON-AGRICULTURAL AND OTHER THAN CREDIT FACILITIES AND TOWARDS ADMINI STRATIVE EXPENSES, THE INTEREST PAID TO MEMBERS AND CLAIMED BY THE SOC IETY AS EXPENSES SHOULD BE TREATED AS USED FOR NON-AGRICULTURAL ACTI VITIES AND TO THAT EXTENT INTEREST U/S. 8OP IS NOT ELIGIBLE. IN SUPPOR T OF HIS CONTENTION, THE AO RELIED UPON THE DECISION IN THE CASES OF (I) KOT A CO-OPERATIVE MARKETING SOCIETY LTD. V/S. CIT [1994] 207 ITR 6O8( RAJ.) AND (II) CIT V/S. RAJASTHAN RAJYA SAHAKARI UPBHOKTA SANGH [1995] 215 ITR 448 (RAJ.), IN WHICH, THE ASSESSEE HAD DEPOSITED ITS SU RPLUS FUND INTO NATIONALIZED BANKS , THE INTEREST EARNED ON THEM DO ES NOT QUALIFY FOR DEDUCTION U/S. 8OP(2)(D) OF THE I.T.ACT. IN THE INS TANT CASE, THE ASSESSEE , INCURRED INTEREST EXPENSES OF RS. 56,45,487/- AND EARNED INTEREST INCOME OF RS.77,22,132/- AND AFTER NETTING OF THE S AME IT HAS CLAIMED DEDUCTION U/S 8OP(2)(A)(IV) TO THE TUNE OF RS. 56,4 5,467/-. THE AO, THEREFORE, DISALLOWED INTEREST EXPENDITURE TO THE EXTENT OF NON- AGRICULTURAL/NON-CREDIT FACILITY RATIO WHICH HAS BE EN DETERMINED AT 3:17 OUT 6 INTEREST EXPENDITURE CLAIMED AT RS. 77,22,13 27- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. IN SHORT, THE AO WORK ED OUT INCOME FROM AGRICULTURAL AND NON-AGRICULTURAL ACTIVITIES IN THE RATIO OF 3:17. FURTHER, THE AO DID NOT AGREE WITH APPELLANT'S CLAI M OF ENTIRE INTEREST INCOME U/S. 8OP OF THE ACT. ON THE OTHER HAND THE I D. AR MADE ELABORATE SUBMISSION INCLUDING SOME CASE LAWS TO ST RENGTHEN HIS CASE. IT IS WELL SETTLED LAW THAT INTEREST DERIVED FROM N ATIONALISED BANK ETC AS PROVIDED IN SEC. 8OP OF THE ACT. 5. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE, AT T HE VERY OUTSET SUBMITTED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY TH E ORDER OF THE ITAT IN THE ASSTT.YEAR 2007-08 WHEREIN THE TRIBUNAL HAS UPHELD THE ORDER OF THE LD.CIT(A). HE PLACED ON RECORD COPY OF THE TRIBUNA LS ORDER PASSED IN ITA NO.3171/AHD/2011. THE LD.COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSEE HAS NOT MADE ANY CLAIM UNDER SECTION 8 0P(2) OF THE INCOME TAX ACT WITH REGARD TO PROFIT ARISING TO IT FROM TRADIN G OF AGRICULTURE PRODUCTS NOT GROWN BY MEMBERS. THE LD.DR, ON THE OTHER HAND, CO NTENDED THAT THIS ASPECT DOES NOT DISCERNIBLE IN THE ORDER OF THE AO. ACCOR DING TO THE AO, THE ITA NO.1835/AHD/2013 4 ACCOUNTS ARE MIXED, AND THEREFORE, HE HAS WORKED OU T A PRO-RATA TURNOVER OF AGRICULTURE AND NON-AGRICULTURE ACTIVITIES. 6. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. I FIND THAT IDENTICAL ISSUE WAS CONSIDE RED BY THE TRIBUNAL IN THE ASSTT.YEAR 2007-08. THE TRIBUNAL HAS REPRODUCED TH E FINDING OF THE LD.CIT(A). IT IS IMPERATIVE UPON ME TO TAKE NOTE OF THE TRIBUNALS FINDING, WHICH READS AS UNDER: 1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, A. O NOTICED THAT ASSESSEE WAS CARRYING OUT AGRICULTURAL AS WELL AS N ON-AGRICULTURAL ACTIVITIES AND THE SALES WERE MADE TO MEMBERS AS WE LL AS NON-MEMBERS. HE ALSO NOTICED THAT ASSESSEE HAD AGRICULTURAL INCO ME, INTEREST FROM CO. OP. SOCIETY, INTEREST FROM MEMBERS AND HAD ALSO EARNED INCOME FROM VARIOUS NON-AGRICULTURAL ACTIVITIES LIKE INCOM E FROM SALE OF BUILDING MATERIAL, PETROL PUMP, DEPARTMENTAL STORE ETC. HE ALSO NOTICED THAT THE ASSESSEE CARRIED OUT MIXED ACTIVIT IES AND OF THE VARIOUS ACTIVITIES CARRIED ON BY ASSESSEE, THE PROFITS EARN ED FROM SOME OF THE ACTIVITIES WERE EXEMPT AND SOME OF THEM WERE NOT EX EMPT U/S. 80P OF THE ACT BUT ACCORDING TO THE A.O., ASSESSEE HAS CLA IMED DEDUCTION U/S. 80P ON THE ENTIRE PROFITS. HE WAS OF THE VIEW THAT THE INTEREST EARNED BY THE ASSESSEE FROM NATIONALIZED BANK AND OTHER AC TIVITIES WERE NOT EXEMPT U/S. 80P (2) AND THEREFORE THE ASSESSEE WAS ISSUED A SHOW CAUSE NOTICE AND ASKED TO JUSTIFY ITS CLAIM TO WHICH ASSE SSEE INTERALIA SUBMITTED THAT IT HAS CLAIMED DEDUCTION UNDER 80P O F THE ACT ON THE INCOME ONLY ON THE INCOME WHICH IS EXEMPT U/S. 80P. THE SUBMISSION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O IN VIEW OF THE FACT THAT ASSESSEE WAS KEEPING MIX ACCOUNTING RECORDS FO R ALL THE ACTIVITIES AND THUS IT WAS DIFFICULT TO DECIDE THE NET PROFIT EARNED FROM AGRICULTURAL ACTIVITIES AND NON-AGRICULTURAL ACTIVI TIES. HE THEREAFTER ON THE BASIS OF RATIO OF AGRICULTURAL AND NON-AGRICULT URAL INCOME, APPLIED RULE OF 3 BASIS, FOR WORKING OUT THE ELIGIBLE DEDUC TION U/S. 80P AND RESTRICTED THE CLAIM OF ASSESSEE. AGGRIEVED BY THE ORDER OF A.O., ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO A FTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITION BY HOLDING AS UNDER:- DECISION ; I HAVE CAREFULLY GONE THOUGH THE SUBMISSIONS MADE BEFORE ME BY THE LD. A.R OF THE APPELLANT AND THE FINDINGS OF THE A.O IN THE ASSESS MENT ORDER AND THE VARIOUS JUDICIAL DECISIONS AS RELIED UPON BY BOTH THE PARTIES. THE APPELLANT HA S TWO TYPES OF INCOME I.E. INCOME DEDUCTIBLE U/S. 80P AND NOT DEDUCTIBLE. THE SHORT ISSUE HERE IS THA T THE APPELLANT DETERMINED THE TAXABLE INCOME AT NIL BY CLAIMING THE DEDUCTION U/S. 80P OF THE ACT W HEREAS THE AO DETERMINED THE INCOME OF THE ITA NO.1835/AHD/2013 5 APPELLANT AT RS. 23,17,376/-. THE ACTIVITIES, INCOM E THERE FROM AND THE ELIGIBILITY OF DEDUCTION U/S. 80P CAN BE SUMMARIZED IN THE TABULAR STRUCTURE AS U NDER: INCOME | || AGRICULTURAL ITEMS NON-AGRI.ITEM S | | ________ ________ | | | SOLD TO SOLD TO SOLD TO MEMBERS MEMBERS MEMBERS & & NON- MEMBERS NON- MEMBERS | | | DEDUCTION DEDUCTION DEDUCTION U/S. 80P U/S. 80P NOT U/S. 80P N OT CLAIMED CLAIMED DUE TO LOSS AL LOWABLE AND NOT CLAIME D 1. THE AO HELD THAT AS THE APPELLANT IS KEEPING MIXED ACCOUNTING RECORDS OF ALL ACTIVITIES, IT IS DIFFICU LT TO DECIDE THE NET PROFIT FROM AGRICULTURAL AND NON- AGRICULTURAL ACTIVITIES. HE OBSERVED THAT WHEN THERE IS UNCERTAINTY OF MATCHING CONCEPT EXISTS OR CASCADING EFFECT CANNOT BE IDENTIFIED, IN SUCH CASE RULE 3 IS APPLIED. THERE WAS NO DISPUTE ON ITEM-WAS NOT SUPPORTED BY DEDUCTION U/S. 80P. IN MY VIEW, THE ACTION OF THE AO WAS NOT SUPPORTED BY VAL ID REASONS AND CORROBORATED BY EVIDENCES BROUGHT OUT IN RECORDS. THE APPELLANT HAS MAINTAI NED SEPARATE SETS OF BOOKS OF A/C. FOR INCOME ELIGIBLE/NON-ELIGIBLE FOR DEDUCTION U/S.80P. THE ID. AR RELIED UPON SEVERAL JUDICIAL DECISIONS IN SUPPORT OF HIS ARGUMENTS. THE INVOCATION OF RULE 3 BY THE AO WAS ARBITRARY AND UNJUSTIFIED, WHAT IS THE OBJECTIVES OF THE CO- OPERATIVE SOCIETY IS I MPORTANT HERE. THE SOCIETY WAS PRIMARILY FOR THE BENEFITS OF ITS MEMBERS. WITH REGARDS THE INTEREST INCOME FROM SBI AND IDBI BANKS, THE APPELLANT HAS CLEARLY STATED THAT SUCH INCOME ACCUMULATION WA S OUT OF MULTIPLE ACTIVITIES DONE WITH THE BANKS. I HAVE ALSO PERUSED THE COMPUTATION OF INCOME SUBMI TTED BY THE APPELLANT AND FOUND NO ANOMALY THEREIN. THE AO HAS NOT BROUGHT ON RECORD WHAT HE M EANS BY RULE 3 AND HOW THAT IS APPLICABLE IN THIS CASE. IN THE INTEREST OF REVENUE AND FAIRNESS TO THE APPELLANT WHAT IS TO BE WORKED OUT IS THE CORRECT APPLICATION OF LAW TO THE FACT AND CIRCUMST ANCES OF THE CASE. IN THIS CASE, IN MY VIEW, THE DISPUTE WAS THE CHARGEABILITY OF INCOME. THE AO, INSTEAD OF BRINGING ON RECORD WHICH SPECIFIC INCOME WAS NOT EXEMPTED, APPLIED AN UNKNOWN FORMU LA RULE 3 WHICH NOT CORRECT. IN THIS CIRCUMSTANCES, THE AO IS DIRECTED TO DELETE THE ADD ITION MADE OF RS. RS.23,17,376/- BY INVOKING RULE 3. ACCORDINGLY, THE APPELLANTS APPEAL ON THIS GROUND IS ALLOWED. 2. AGGRIEVED BY THE AFORESAID ORDER OF LD. CIT(A), REV ENUE IS NOW IN APPEAL BEFORE US. 3. BEFORE US, LD. D.R. SUPPORTED THE ORDER OF A.O. ON THE OTHER HAND LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE A.O AND LD. CIT(A) AND FURTHER SUBMITTED HAT A.O ADOPTED SOME UNKNOWN RULE OF 3 AND DISALLOWED ADMINISTRATIVE AND MANAGERIAL EXPENSES A ND WORKED OUT THE ASSESSEES INCOME AT RS. 23,17,376/-. HE FURTHER SU BMITTED THAT ASSESSEE HAS MAINTAINED, SEPARATE SET OF BOOKS OF A CCOUNTS FOR INCOME ELIGIBLE AND NON-ELIGIBLE FOR DEDUCTION U/S. 80P AN D WHEN SUCH SEPARATE BOOKS WERE NOT MAINTAINED A.O SHOULD NOT H AVE RESORTED TO RULE OF 3 TO ARTIFICIALLY WORK OUT ASSESSEES INCOM E. HE THUS SUPPORTED THE ORDER OF LD. CIT(A). ITA NO.1835/AHD/2013 6 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN THE PRESENT CASE ASSESSEE WAS UNDERTAKIN G VARIOUS ACTIVITIES AND OUT OF THE VARIOUS ACTIVITIES, PROFIT FROM SOME ACTIVITIES WERE EXEMPT AND FROM SOME OTHER ACTIVITIES THE PROFIT WA S NOT EXEMPT U/S 80P AND ACCORDINGLY A.O HAS RE-WORKED OUT THE AMOUN T ELIGIBLE FOR DEDUCTION U/S. 80P. WE FIND THAT LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS GIVEN A FINDING THAT ASS ESSEE HAS MAINTAINED SEPARATE SET OF BOOKS OF ACCOUNTS FOR INCOME ELIGIB LE AND NON-ELIGIBLE FOR DEDUCTION U/S. 80P AND THE INVOCATION OF RULE 3 BY A.O TO ALLOCATE THE EXEMPT PROFITS WAS ARBITRARY AND UNJUSTIFIED. H E HAS ALSO NOTED THAT A.O HAS NOT BROUGHT ON RECORD WHAT HE MEANT BY RULE 3 AND HOW IT WAS APPLICABLE TO THE CASE. HE HAS FURTHER NOTED THAT A .O HAS APPLIED AN UNKNOWN FORMULA OF RULE 3 WHICH WAS NOT CORRECT. BE FORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVER T THE FINDINGS OF LD. CIT(A). IN VIEW OF THE AFORESAID FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THUS THE GROUNDS O F REVENUE ARE DISMISSED. 7. A PERUSAL OF THE ABOVE WOULD INDICATE THAT THE L D.CIT(A) IN THE ASSTT.YEAR 2007-08 WAS OF THE VIEW THAT DEDUCTION U NDER SECTION 80P WOULD NOT BE ADMISSIBLE ON THE PROFIT ARISEN TO THE ASSES SEE ON TRADING OF NON- AGRICULTURE ITEMS, EITHER SOLD TO ITS MEMBERS OR NO N-MEMBERS. THIS DEDUCTION WAS NOT ALLOWABLE, AND NOT CLAIMED. ON THIS PREMIS E, THE LD.CIT(A) HAS DECIDED THE ISSUE. THIS ASPECT WAS BROUGHT TO THE NOTICE OF THE LD.CIT(A) IN THE PRESENT ASSESSMENT YEAR ALSO, BUT NO COGNIZANCE WAS TAKEN. FACED WITH THIS SITUATION, I SET ASIDE BOTH THE ORDERS AND RES TORE THIS ISSUE TO THE FILE OF THE AO FOR RE-ADJUDICATION. THE LD.AO SHALL EXAMINE TH E FACTS IN THE LIGHT OF THE TRIBUNALS ORDER PASSED IN THE ASSTT.YEAR 2007-08. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE COURT ON 11 TH JULY, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 11/07/2016