Goghat Thana Large Sized primary Cooperative Agricultural Marketing Society Ltd., Hooghly V. ACIT, Cir-1, Hooghly, Hooghly

ITA 1872/KOL/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0764 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 22-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SRIHARI
• Assessee Lawyers: P K ROY
• Keywords: Business income; Bad and doubtful debts
• Section: 43B; 40A(3); 143(3); 40(a)(ia); 6; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI A T VARKEY, JM, & SHRI M.BAL AGANESH, AM] I.T.A NO. 1872 /KOL/2 017 ASSESSMENT YEAR : 2012-1 3 M/S GOGHAT THANA LARGE SIZED PRIMARY -VS- ACIT, CIRCLE-1, HOOGHLY COOPERATIVE AGRICULTURAL MARKETING SOCIETY LTD. [PAN: AAALG 0062 E ] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI P.K. ROY, ADV OCATE FOR THE RESPONDENT : SHRI P.K. SRIHARI, CIT D R DATE OF HEARING : 27.11.2018 DATE OF PRONOUNCEMENT : 30.11.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX-8, KOLKATA [IN SHORT THE LD CIT] IN MEMO NO.PCIT-8, KOLKATA/2016-17/U/S263/905963 DATED 03.03.2017 PAS SED U/S 263 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSME NT YEAR 2012-13. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT WAS JUSTIFIED IN INVOKING REVISIONARY JURISDICTION U/S 263 OF THE AC T, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO.1872/KOL/2017 M/S GOGHAT THANA LARGE SIZED PRIMARY COOPERATIVE A GRICULTURAL MARKETING SOCIETY LIMITED. A.YR. 2012-13 2 3. AT THE OUTSET GROUND NO. 2 RAISED BY THE ASSESSE E WAS STATED TO BE NOT PRESSED, FOR WHICH NECESSARY ENDORSEMENT IS MADE IN OUR FILE. A CCORDINGLY GROUND NO. 2 RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 4. BRIEF FACTS OF THIS APPEAL AGAINST THE ORDER PAS SED U/S 263 OF THE ACT ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 30.09.2012 DECLARING TOTAL INCOME OF RS. NIL SINCE THE ASSESSEE BEING A CO-OPERATIVE SOCIETY, ITS INCOME WAS ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT. THE ASSE SSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 04.02.2015 DETERMINING TOTAL INCOME OF R S. 7,76,190/-. IN THE SAID ASSESSMENT, THE LD. AO CATEGORICALLY HELD THAT THOU GH THE ASSESSEES INCOME WAS ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT, THE SAID DEDUCTIO N IS NOT APPLICABLE IN RESPECT OF INTEREST INCOME AND RENTAL INCOME FOR WHICH DEDUCTI ON U/S 80P OF THE ACT WAS DENIED. IN THE SAID ASSESSMENT, DISALLOWANCE OF HANDLING AND T RANSPORTATION CHARGES FOR WANT OF PRODUCTION AND BILL WAS ALSO MADE. THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE LD. CITA AGAINST THE SAID ORDER OF THE LD. AO, WHICH WA S DISPOSED OFF BY THE LD. CIT(A)-6, KOLKATA IN APPEAL NO. 402/CIT(A)-6/KOL/2014-15 DATE D 31.01.2017 ALLOWING THE APPEAL OF THE ASSESSEE. AFTER DISPOSAL OFF THE APP ELLATE ORDER BY THE LD. CIT(A) AGAINST THE ORIGINAL ASSESSMENT ORDER, THE LD. ADMINISTRATI VE CIT SOUGHT TO TREAT THE ORDER OF THE LD. AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST S OF THE REVENUE VIDE ISSUANCE OF SHOW CAUSE NOTICE DATED 02.02.2017 U/S 263 OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD DEBITED THE FOLLOWING SUMS OF RS. 23,770/- AND RS. 4,26,785/- TOWARDS PROVISION FOR GRATUITY AND PROVISION FOR BAD AND DOUBTFUL ADVANCE S RESPECTIVELY, WHICH REQUIRES TO BE DISALLOWED U/S 40A(7)(A) AND SECTION 36(1)(VII) OF THE ACT RESPECTIVELY. IN THE OPINION OF LD. CIT, BOTH THESE PROVISIONS WERE MADE IN RES PECT OF UNASCERTAINED LIABILITY AND HENCE NOT ALLOWABLE AS DEDUCTION FROM THE COMPUTATI ON OF TOTAL INCOME. THE ASSESSEE REPLIED IN RESPONSE TO SHOW CAUSE NOTICE U/S 263 OF THE ACT STATING THAT IT IS A CO- OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF MARKET ING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS, PURCHASE OF AGRICULTURAL IMPLEMENTS, S EEDS, LIVE STOCK OR OTHER ARTICLES 3 ITA NO.1872/KOL/2017 M/S GOGHAT THANA LARGE SIZED PRIMARY COOPERATIVE A GRICULTURAL MARKETING SOCIETY LIMITED. A.YR. 2012-13 3 INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLY ING THEM TO ITS MEMBERS. THE ASSESSEE STATED THAT IT IS UNDER WEST BENGAL CO-OPERATIVE SO CIETIES ACT AND / OR GOVERNED BY THE RULES FRAMED THEREON. THE INCOME DERIVED BY THE ASS ESSEE IS ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT. THE PROVISION OF SECTION 80P(2)(A)( III) AND (IV) STATES THAT THE INCOME OF THE CO-OPERATIVE SOCIETY FOR ACQUIRING FOR PURCHASI NG OF AGRICULTURAL IMPLEMENTS, SEEDS, LIVE STOCK OR OTHER ARTICLES INTENDED FOR AGRICULTU RE FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS IS DEDUCTED FROM INCOME UNDER CHAPTER V IA OF THE ACT. THE ENTIRE INCOME OF CO-OPERATIVE SOCIETY AFTER DEBITING EXPENSES IF THE CO-OPERATIVE SOCIETY IS ENGAGED IN THE BUSINESS OF MARKETING FOR AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS, THE PURCHASE OF AGRICULTURE IMPLEMENTS, SEEDS, LIVE STOCK OR OTH ER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS IS DED UCTED UNDER CHAPTER VIA OF THE ACT AND ACCORDINGLY, THE END RESULT OF DEBITING OF EXPE NSES FOR PROVISION OF BAD AND DOUBTFUL DEBTS AND THE PROVISIONS OF GRATUITY FUND IN THE PR OFIT AND LOSS ACCOUNT DOES NOT CAUSE ANY PREJUDICE TO THE INTERESTS OF THE REVENUE. IN E FFECT, THE ASSESSEE WAS PLEADING BEFORE THE LD. ADMINISTRATIVE CIT THAT SINCE ITS ENTIRE IN COME IS ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT AND THAT THE ISSUE OF PROVISION FOR GRAT UITY AND PROVISION FOR BAD AND DOUBTFUL DEBTS ALSO EMANATES OUT OF ITS INTENDED ACTIVITIES, WHEN THE SAID PROVISION IS SOUGHT TO BE DISALLOWED, THEN IT WOULD ONLY GO TO INCREASE THE I NCOME OF THE ASSESSEE THEREBY AUTOMATICALLY MAKING IT ELIGIBLE FOR DEDUCTION UNDE R 80P OF THE ACT. HENCE THERE IS NO PREJUDICE THAT COULD BE CAUSED TO THE INTERESTS OF THE REVENUE WITHIN THE MEANING OF SECTION 263 OF THE ACT. ACCORDINGLY, IT WAS PLEADED TO DROP THE 263 PROCEEDINGS INITIATED BY THE LD. CIT. 5. THE LD. CIT HOWEVER, DID NOT HEED TO THE CONTENT IONS OF THE ASSESSEE AND HELD THAT NO PROPER ENQUIRY WAS MADE BY THE LD. AO WITH REGARD T O THESE TWO ITEMS AND DIRECTED THE LD. AO TO VERIFY THE GENUINENESS OF THE CLAIM OF DE DUCTION IN RESPECT OF THESE TWO ITEMS AND SET ASIDE THE ASSESSMENT TO THIS LIMITED EXTENT TO THE FILE OF LD. AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4 ITA NO.1872/KOL/2017 M/S GOGHAT THANA LARGE SIZED PRIMARY COOPERATIVE A GRICULTURAL MARKETING SOCIETY LIMITED. A.YR. 2012-13 4 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. AT THE OUTS ET, WE FIND THAT EVEN IF THE PROVISION FOR BAD AND DOUBTFUL DEBTS AND PROVISION FOR GRATUI TY FUND ARE TO BE DISALLOWED IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE, THE SAM E WOULD ONLY GO TO INCREASE THE INCOME OF THE CO-OPERATIVE SOCIETY, WHICH IN TURN, AUTOMATICALLY LEAD TO ENHANCED DEDUCTION OF SECTION 80P OF THE ACT. THERE IS NO DI SPUTE THAT THE ASSESSEE SOCIETY IS INDEED ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT. I N THIS REGARD, WE WOULD LIKE TO PLACE RELIANCE ON THE CIRCULAR ISSUED BY THE CBDT VIDE CI RCULAR NO. 37/2016 DATED 02.11.2016 IN THE CONTEXT OF ENHANCED CLAIM OF DEDUCTION U/S 8 0IA OF THE ACT WITH REGARD TO DISALLOWANCES MADE U/S 40A(IA), 40A(3) AND 43B ETC. THE SAID CIRCULAR IS REPRODUCED HEREIN BELOW: 80-IA OF THE INCOME-TAX ACT, 1961 - DEDUCTIONS - P ROFITS AND GAINS FROM INFRASTRUCTURE DEVELOPMENT UNDERTAKINGS - CHAP TER VIA DEDUCTIONS ON ENHANCED PROFITS CIRCULAR NO.37/2016 [F.NO.279/MISC./140/2015/ITJ] , DATED 2-11-2016 CHAPTER VI-A OF THE INCOME-TAX ACT, 1961 ('THE ACT' ), PROVIDES FOR DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PROFIT S AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCE S, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA), 40A(3), 43B E TC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MAD E. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAI SED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT-LINK ED DEDUCTION UNDER CHAPTER VI-A. 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON THE E NHANCED PROFITS HAS BEEN A CONTENTIOUS ONE. HOWEVER, THE COURTS HAVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS ACTIVITY AGAI NST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ALLOWED ON THE ENHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLO WS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR TH E PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT OF NON-DEDUCTI ON OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEE'S P ROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOU LD QUALIFY FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY TH E COURTS IN THE FOLLOWING CASES: 5 ITA NO.1872/KOL/2017 M/S GOGHAT THANA LARGE SIZED PRIMARY COOPERATIVE A GRICULTURAL MARKETING SOCIETY LIMITED. A.YR. 2012-13 5 INCOME-TAX OFFICER -WARD 5(1) V. KEVAL CONSTRUC TION [2013] 33 TAXMANN.COM 277 (GUJ.) COMMISSIONER OF INCOME-TAX-IV, NAGPUR V. SUNIL VISHWAMBHARNATH TIWARI [2016] 63 TAXMANN.COM 241 (BOM.) (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROFITS OF THE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80-IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR V. SURYA MERCHANTS LTD. [ 2016] 72 TAXMANN.COM 16 (ALL.). THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUD GMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN ACCEPTED BY THE DEP ARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SE TTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40 A(3), 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACT IVITY AGAINST WHICH THE CHAPTER VI-A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT O F THE PROFITS OF THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI-A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED O N THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED IN COURTS/TRIB UNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTIC E OF ALL CONCERNED. THOUGH THE AFORESAID CIRCULAR WAS ISSUED IN THE CON TEXT OF CLAIM OF DEDUCTION U/S 80IA OF THE ACT, THE ANALOGY COULD BE DRAWN TO THE FACTS OF THE INSTANT CASE AND ULTIMATE EFFECT OF THE CIRCULAR WOULD BE MADE APPLICABLE TO THE FAC TS OF THE INSTANT CASE. ACCORDINGLY, WE HOLD THAT ANY DISALLOWANCE EVEN IF IT IS TO BE M ADE TOWARDS PROVISION FOR GRATUITY FUND AND PROVISION FOR BAD AND DOUBTFUL DEBTS WOULD ONLY GO TO INCREASE THE BUSINESS INCOME OF THE ASSESSEE SOCIETY AND IN TURN, AUTOMAT ICALLY RESULT IN ENHANCED CLAIM OF DEDUCTION U/S 80P OF THE ACT. HENCE IT BECOMES REVE NUE NEUTRAL. ACCORDINGLY, IT COULD BE SAFELY CONCLUDED THAT THERE IS NO PREJUDICE THAT IS CAUSED TO THE INTERESTS OF THE REVENUE. EVEN IF THE ORDER OF THE LD. AO IN NOT ENQ UIRING ABOUT THESE TWO ISSUES, BECOMES ERRONEOUS, WE HOLD THAT TWIN CONDITIONS OF SECTION 263 OF THE ACT IS NOT CUMULATIVELY SATISFIED IN THE INSTANT CASE. RELIANC E IS MADE ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF MALABAR INDUSTRIES LTD. R EPORTED IN 243 ITR 83 (SC). ACCORDINGLY, WE HAVE NO HESITATION IN QUASHING THE REVISION PROCEEDINGS INITIATED U/S 6 ITA NO.1872/KOL/2017 M/S GOGHAT THANA LARGE SIZED PRIMARY COOPERATIVE A GRICULTURAL MARKETING SOCIETY LIMITED. A.YR. 2012-13 6 263 OF THE ACT IN THE FACTS OF THE INSTANT CASE BY THE LD. ADMINISTRATIVE CIT. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALL OWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 30.11.2 018 SD/- SD/- [A T VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 30.11.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. GOGHAT THANA LARGE SIZED PRIMARY COOPERATIVE AGR ICULTURAL MARKETING SOCIETY LIMITED, AT VIKDAS, P.O. & P.S. GOGHAT, DISTRICT-HO OGHLY, PIN-712614 2. ITO, WARD-24(4), HOOGHLY, AAYAKAR BHAWAN, G.T. R OAD, CHINSURAH, HOOGHLY-PIN- 712101. 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES