Madhusudankati Samabay Krishi Unnayan Samity Ltd., Kolkata V. ITO, Wd-49(1), Kolkata, Kolkata

ITA 420/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1525 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 19-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARVIND AGARWAL
• Assessee Lawyers: KAKOLI DAS ITO
• Keywords: Business income; Principle of natural justice
• Section: 143(3); 133(6); 69

Judgement Text

I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI A.T.VARKEY, JM & SHRI M.BALA GANESH, AM ] I.T.A NOS. 420/KOL/20 14 ASSESSMENT YEAR : 2010-1 1 MADHUSUDANKATI SAMABAY VS. I.T.O.WARD 49(1), KOL KATA KRISHI UNNAYAN SAMITY LTD. PAN : AAAAM 7591 F] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : KAKOLI DAS, ITO FOR THE RESPONDENT : ARVIND AGARWAL, ADVOCAT E DATE OF HEARING : 23.06.2017. DATE OF PRONOUNCEMENT : 14.07.2017 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -XXXII , KOLKA TA [ IN SHORT THE LD CITA] IN APPEAL NO. 48/XXXII/12-13/49(1)/KOL DATED 10.12. 2013 AGAINST THE ORDER PASSED BY THE ITO WARD 49(1), KOLKATA [ IN SHORT TH E LD AO] UNDER SECTION 143(3) OF THE ACT DATED 30.11.2012 FOR THE ASST YEAR 2010- 11. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DISALLOWING THE DEDUCTION U/S 80P OF T HE ACT IN THE SUM OF RS 15,78,059/- TOWARDS OTHER TRADING INCOME, IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A PRIMARY AGRICULTURAL CO- OPERATIVE SOCIETY REGISTERED UNDER WEST BENGAL CO-O PERATIVE SOCIETIES ACT, 1983, ENGAGED IN ACTIVITIES FOR UPLIFTING THE ECONOMIC CO NDITIONS OF RURAL PEOPLE WHO ARE I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 2 MEMBERS OF THE SOCIETY. DURING THE YEAR UNDER CON SIDERATION, THE ASSESSEE CO- OPERATIVE SOCIETY EARNED INCOME FROM (I) LOAN & BAN KING DIVISION AND (II) FERTILISER SECTION AND CONSUMER PRODUCT DIVISION AN D CLAIMED DEDUCTION U/S 80P OF THE ACT. THE LD AO ON GOING THROUGH THE TRADING A CCOUNT OF FERTILISER SECTION AND CONSUMER PRODUCT DIVISION , OBSERVED THAT THE ASSESSEE HAD SHOWN INCOME UNDER THE HEAD OTHER TRADING INCOME AND CLAIMED OTHER TRADING EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT AS BELOW :- OTHER TRADING EXPENSES (RS.) OTHER TRADING INCOME (RS.) A) SALARY 3,60,000 A) TRANSPORT & RACK HANDING 63,21,738 B) WAGES 60,963 B) TRADE COST 7,1 3,572 C) TRANSPORT CHARGES 47,48,153 C) LOADING & UN LOADING 12,609 D) CARRYING 3,17,727 D) GODOWN RENT 18,1 34 E) LOADING & UNLOADING 36,838 E) COMMISSION F) TRADING COST 1,11,214 I) BENFED - 175826 II) RITWI INDIA - 600 III) IFFCO TOKIO 4117 TOTAL 56,34,895 GEN. INSURANCE TOTAL 72,46,596 1,80,543 THE LD AO SHOW CAUSED THE ASSESSEE BY STATING THAT THE DEDUCTION U/S 80P OF THE ACT WOULD NOT BE ELIGIBLE FOR THE DIFFERENCE INCOME OF RS 16,11,701/- ( 72,46,596- 56,34,895) . IN REPLY THE ASSESSEE VIDE ITS WRITTE N SUBMISSION DATED 25.7.2012 RESPONDED AS UNDER:- '2. (A) AS REGARDS ' OTHER TRADING INCOME ('FROM TR ANSPORT AND RAKE HANDLING') WE WOULD LIKE TO STATE, WE PURCHASE FERTILIZERS ETC . USED FOR AGRICULTURAL PURPOSES BY OUR MEMBERS FROM INDIAN FORMERS FERTILISER COOPE RATIVE (LFFCO) AND WE ARE ALSO A MEMBER OF IFFCO. TRANSPORT CHARGES ON PURCHA SES MODE FROM IFFCO ARE TO BE BORNE BY IFFCO. WE HANDLE TRANSPORTATION OF G OODS FROM RAIL SIDE TO GODOWN AND IFFCO REIMBURSED THE EXPENDITURE. THE DI FFERENCE BETWEEN ACTUAL TRANSPORT TO US AND THE AMOUNT REALIZED FROM IFFCO IS OUR INCOME WHICH WAS BOOKED UNDER 'TRANSPORT AND RAKE HANDLING' CHARGES. THE INCOME AROSE AT THE TIME OF PURCHASE OPERATIONS HENCE COVERED BY THE PR OVISIONS OF SECTION OF THE IT ACT, 8O(P)(2)(A)(IV). I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 3 (B) TRADING COST: RS.713572/- WE ARE REQUIRED TO SE LL AT 'MRP' ROTE FIXED BY IFFCO. TRANSPORT AND OTHER EXPENDITURE INCURRED BY US AT THE TIME OF SOLE OF GOODS ORE REALIZED AT THE TIME OF SOLE OF GOODS ORE REALIZED SEPARATELY FROM THE MEMBERS. THIS AMOUNT IS EXEMPT U/S.80P(2)(A)(IV) OF THE I.T. ACT. (C.) LOADING & UNLOADING RS.12609/- THIS AMOUNT WAS REALIZED FROM IFFCO FOR EXPENSES INCURRED BY US ON THIS ACCOUNT AT THE TIME OF PURCHASES MODE FROM IFFCO. (D) GODOWN RENT RS. ~ 8134/- THIS AMOUNT IS COVERE D BY THE PROVISIONS OF SEC.80P(2)(E) AND EXEMPT FROM TAX. (E) COMMISSION FROM BEN FED : BENFEED IS 0 STATE MA RKETING FEDERATION WHICH ACTS EXCLUSIVELY OS AGENT OF THE GOVT. OF WES T BENGAL. BENFEED PROCURES POTATO ON BEHALF OF GOVERNMENT FOR MAKING SEEDS WHI CH IN TERM WAY THEY SELL SEEDS TO AGRICULTURIST AT THE BEGINNING OF SEASON P ROVIDING TO PEOPLE. WE PURCHASE POTATO FROM OUR MEMBERS AT THE ROTE FIXED BY THE GO VT. AND SELL THEM TO BEN FEED THE BEN FEED PAID US THE HANDLING AND CARRYING CHARGES WHICH HAS BEEN SHOWN IN OUR BOOKS AS COMMISSION FROM BENFEED.' (V) VIDE ITS LETTER DT .26-09-2012 THE ASSESSEE ALS O REITERATED THAT 'WE BUY FERTILIZERS FROM IFFCO WHO IS TO DELIVER THE FERTIL IZERS TO US AT OUR GODOWNS. AS IFFCO HAS NO INFRASTRUCTURE TO TRANSPORT THE GOODS BY ROOD AND IFFCO SENDS THE FERTILIZERS TO THE NEAREST RAILWAY YARD AND WE ORE TO CARRY THE FERTILIZERS FROM RAILWAY YARD TO OUR GO- DOWNS, FOR WHICH IFFCO REIM BURSES OUR BILLS FOR TRANSPORT AND LOADING CHARGES FOR CARRYING FERTILIZ ERS ON THEIR BEHALF AS IFFCO WAS TO BEAR THE TRANSPORT CHARGES UP TO OUR GO-DOWN . IN VIEW OF THE FACTS STATED ABOVE WE RESPECTFULLY S UBMIT THAT THE TRANSPORTATION CHARGES REIMBURSED TO US BY IFFCO WERE RECEIVED DUR ING THE COURSE OF CARRYING ON OF PURCHASES OF FERTILIZERS BY US FOR SUPPLY TO OUR MEMBERS. HENCE, THIS TRANSPORTATION IS PORT OF OUR ACTIVITY IN THE COURS E OF CARRYING OF OUR BUSINESS COVERED BY THE PROVISIONS OF SECTION 80(P) (IV) OF THE ACT. HENCE INCOME ARISING AS A RESULT OF DIFFERENCE BETWEEN ACTUAL COST OF TR ANSPORT AND THE AMOUNT REALIZED FROM IFFCO IS THE INCOME WHICH AROSE AS 0 PORT OF O UR BUSINESS ACTIVITY AND IS ALSO COVERED BY THE PROVISIONS OF SECTION 80P(2) (I V) OF THE IT 1961. IN ANY EVENT NO WHERE IN THE PROVISIONS OF SECTION 80P PROHIBITS OF EXCLUDES THE CARRYING OF INCOME FROM TRANSPORTATION DURING CARRYING ON THE B USINESS OPERATION LIKE PURCHASES ETC. THE ASSESSEE ALSO ENCLOSED A CERTIFICATE FROM BENFE ED FOR RECEIPT OF COMMISSION IN THE SUM OF RS 1,80,543/- BEFORE THE LD AO. I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 4 2.2. THE LD AO REPRODUCED THE PROVISIONS OF SECTION 80P OF THE ACT AND OBSERVED AS UNDER:- 3. (II) AS FAR AS 'OTHER TRADING INCOME' IS CONCERN ED, INCOME GENERATED THROUGH THE ACTIVITIES OF TRANSPORT & RACK HANDLING, TRADE COST AND LOADING & UNLOADING DO NOT FULFIL THE CRITERIA AS STIPULATED IN CLAUSE (IV) OF SUB-SECTION 2 OF SECTION 80P OF THE I.T. ACT. 1961. THE NATURE OF WO RKS CARRIED OUT THROUGH THE ABOVE ACTIVITIES BY THE ASSESSEE SOCIETY WAS NOT IN CONFORMITY WITH SECTION 80P (2) (A) (IV) OF THE I.T. ACT, 1961 FOR GETTING DEDUCTIO N UNDER THAT SECTION. DEDUCTION U/S.80P(1) IS ELIGIBLE, IF GROSS TOTAL INCOME OF TH E ASSESSEE SOCIETY INCLUDES ANY INCOME AS REFERRED IN SUB-SECTION (2) OF SECTION 80 P. BUT INCOME GENERATED THROUGH THE ACTIVITIES OF TRANSPORT & RACK HANDLING , TRADE COST AND LOADING & UNLOADING ARE MERELY INCOME FROM OTHER ACTIVITIES W HICH IS NOT IN CONFORMITY WITH THE PROVISIONS OF SECTION 80P(2) (A) (IV) OF THE LT . ACT, 1961. THERE IS NO RELATION BETWEEN THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SE EDS. LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYI NG THEM TO ITS MEMBERS AND TRANSPORTATION. ASSESSEE SIMPLY EARNED INCOME FROM TRANSPORTATION AND OTHERS AND MERGED THE SAME WITH INCOME FROM FERTILIZER SE CTION TO GET THE BENEFIT OF DEDUCTION U/S 80P. VIDE THIS OFFICE LETTER DT.17-09-2012 IFFCO WAS ASK ED TO CONFIRM THE NATURE OF WORKS PERFORMED BY THE ASSESSEE FOR WHICH THEY REIM BURSED. IN REPLY, VIDE CONFIRMATION/LETTER DT.01-11-2012 THEY STATED AT PA RA -3 (COPY ENCLOSED AS ANNEX.- I) THAT 'DURING THE YEAR 2009-10 THE SAID PARTY (MA DHUSUDAN KATI SKUS LTD.) HAS WORKED AS HANDLING & TRANSPORT CONTRACTOR OF OU R FERTILIZERS FROM RAKE POINT TO VARIOUS WAREHOUSES IN WEST BENGAL'. IFFCO ALSO DEDUCTED TAX AT SOURCE ON SUCH PAYMENT. ATTENTION OF THE A.R. WAS ALSO DRAWN TO THE ABOVE REPLY OF THE IFFCO LTD. FOR HIS COMMENT. HE FINALLY AGREED WITH THE ABOVE STATEMENT OF THE IFFCO LTD. THAT THE ASSESSEE WAS ENGAGED AS 'HANDLI NG & TRANSPORT CONTRACTOR' OF IFFCO. HENCE, INCOME EARNED AS 'HANDLING & TRANS PORT CONTRACTOR' IS NOT DEDUCTIBLE U/S.80P OF THE I.T. ACT, 1961. FURTHER, 'OTHER TRADING INCOME' INCLUDES 'COMMISSIO N' OF RS.1,80,543/- FROM THREE PARTIES. (I) BENFEED RS.1,75,S26; II) RITWI I NDIA RS.600 & III) IFFCO TOKIO GEN INS. 4,117. AGAINST THIS INCOME, ASSESSEE SUBMITTED A CERTIFICATE FROM BENFEED FROM WHICH IT IS SEEN THAT ASSESSEE RECEIVE D RS.1 ,33,125/- ONLY AS COST OF HESSIAN BAGS, COST OF OPERATION, COST OF TR ANSPORTATION AND ADMINISTRATIVE CHARGES. AND FOR THE BALANCE AMOUNT OF RS.47,418/- (RS.180543 - RS.133125) ASSESSEE COULD NOT EXPLAIN THE NATURE OF SUCH INCOM E. UNDER THE FACTS AND CIRCUMSTANCES AS DISCUSSED ABO VE, IT CAN SAFELY BE CONSTRUED THAT DURING THE YEAR ASSESSEE CARRIED OUT SOME ACTI VITIES AND PROFIT EARNED THEREOF DOES NOT COME UNDER THE PURVIEW OF SEC.80P(2) (A) ( IV) OF THE I.T. ACT, 1961. I, I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 5 THEREFORE, DISALLOWTHE CLAIM OF DEDUCTION U/S.80P I N RESPECT OF 'OTHER INCOME' AS CALCULATED BELOW: INCOME NOT ELIGIBLE FOR DEDUCTION U/S.80P: OTHER TRADING INCOME RS.72,46,596/- LESS: ELIGIBLE U /S.80P: A. GODOWN RENT RS. 18,134/- B. COMMISSION FROM BEN FEED RS. 1,33,125/- RS. 1,51,259/- (A) ... RS.70,95,337/- RS.56,34,895/- OTHER TRADING EXPENSES LESS: PROPORTIONATE EXPENSES IN RESPECT OF GODOWN RENT AND COMMISSION FROM BEN FEED ,. RS. 1,17,617/- (B) .. RS.55,17,278/- (A-B)RS.15,78,059/- (C) HENCE, I DISALLOW CLAIM OF DEDUCTION U/S.80P OF RS.15,78,059/-, AS ABOVE, DERIVED FROM CONDUCTING OTHER ACTIVITIES WHICH DOES NOT QUALIFY AS DEDUCTIBLE INCOME U/S.80(2) (A) (IV) OF THE IT. ACT, 1961. ) 2.3. THE ASSESSEE SUBMITTED BEFORE THE LD CITA AS B ELOW:- GROUND NO. 3 & 4 OF THE ORIGINAL GROUND:- THESE TWO GROUNDS WERE TAKEN AGAINST THE DISALLOWAN CE OF DEDUCTION CLAIMED U/S. 80P OF THE I.T. ACT, OF RS. 15,78,0591- OUT OF THE' OTHER TRADING INCOME' OF RS. 70,95,337/- (AS COMPUTED BY THE A. O. HIMSELF IN PA RAGRAPH 3 (II) OF HIS ORDER) ON THE GROUND THAT THIS INCOME WAS DERIVED FROM CONDUC TING ACTIVITIES WHICH DID NOT QUALIFY AS DEDUCTIBLE INCOME U/S 80P(2)(A)(IV)OF TH E I. T. ACT 61. DURING THE COURSE OF HEARING THE A.O WROTE A LETTER DATED 17.0 9.2012, U/S. 133(6) OF THE I. T. ACT., TO INDIAN FARMERS FERTILIZER COOPERATIVE LTD. FOR INFORMATION WITHOUT ANY INTIMATION TO THE APPELLANT. M/S. INDIAN FRAMERS FE RTILIZER COOPERATIVE LTD. (IFFCO IN SHORT) ALSO SENT ITS REPLY DATED 01.11.20 12 DIRECTLY TO THE A.O. IN PARA 3(II) OF THE ORDER FIRSTLY THE A.O. WRONGLY HELD THAT THE INCOME GENERATED THROUGH THE ACTIVITIES OF TRANSPORT & RAKE HANDLING . TRADE COST OF LOADING & UNLOADING DID NOT FULFIL THE CRITERIA STIPULATED U/ S 80P(2)(A)(IV) OF THE I.T. ACT'61. THE A.O. HAS FURTHER HELD IN THE SAME PARAGRAPH THA T THERE WAS NO RELATION BETWEEN THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SE EDS ,LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYI NG THEN TO ITS MEMBERS AND TRANSPORTATION. THE A. A. MISINTERPRETED THE PROVIS IONS OF SECTION 80P(2)(A)(IV) AND I FAILED TO APPRECIATE THAT TRANSPORTATION HAS VERY CLOSE NEXUS WITH PURCHASE AND SUPPLY OF FERTILIZERS AND PESTICIDES INTENDED ( USED) BY THE AGRICULTURIST FOR RAISING PADDY, JUTE ETC. TRANSPORT CHARGES WERE INC URRED FOR BRINGING PURCHASED FERTILIZERS AND PESTICIDES TO APPELLANT'S GODOWN FR OM RAILWAY RAKE POINT. THE A.O. I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 6 ALSO FAILED TO APPRECIATE PROPERLY APPELLANTS REPLY DATED 25.07.2012 QUOTED IN HIS ORDER. A COPY IS ALSO SEPARATELY ENCLOSED FOR YOUR KIND CONSIDERATION. A.O'S SECOND GROUND FOR DENYING THE BENEFIT OF SECT ION 80P IN RESPECT OF RS 15,78,059/- WAS THAT IFFCO LTD FROM WHOM THE ASSESS EE HAS RECEIVED BY WAY OF REIMBURSEMENT OF TRANSPORT CHARGES HAD IN ITS REPLY U/S 133(6) DATED 01.11.2012 HAD DESCRIBED THE NATURE OF WORK OF THE APPELLANT A S HANDLING THE TRANSPORT CONTRACTOR OF ITS FERTILIZERS FROM RAKE POINT TO VA RIOUS WAREHOUSE IN WEST BENGAL. AS ADEQUATE OPPORTUNITY WAS NOT GIVEN, THE APPELLAN T COULD NOT) CONTRADICT THE ABOVE STATEMENT OF IFFCO, GIVEN DIRECTLY TO A. 0. T HE APPELLANT HAS SINCE OBTAINED A CONFIRMATION RE! NO. SMM/WB/MISC/I10 DAT ED 27.05.2013 IN WHICH IFFCO HAS STATED THAT AS PER ITS NORM IFFCO WAS AVA ILING THE SERVICES OF THE APPELLANT WHICH IS ONE OF ITS MEMBERS, FROM TIME TO TIME FOR HANDLING AND TRANSPORTATION OF FERTILIZER MATERIAL FROM RAKE POI NT TO VARIOUS GODOWN LINKED TO THE APPELLANT. IFFCO HAS FURTHER CERTIFIED THAT YOU R APPELLANT IS NOT IFFCO'S APPROVED HANDLING & TRANSPORT (H&T) CONTRACTOR SELE CTED THROUGH TENDER PROCESS. (VIDE COPY OF THE CERTIFICATE ENCLOSED). I N THIS CONNECTION 1 AM FURTHER ENCLOSING ANOTHER CERTIFICATE REF NO. SMM/WB/H&T/47 0 DATED 23.09.2013 FROM IFFCO CONFIRMING THAT TRANSPORT CHARGES FROM RAKE POINT TO THE GODOWN OF MADHUSUDAN KATI S.K.U.S.. WERE TO BORNE BY IFFCO AN D IT HAD REIMBURSED THE CHARGES TO THE APPELLANT. THE APPELLANT BEGS TO REITERATE THAT NET INCOME EAR NED ON ACCOUNT OF TRANSPORT CHARGES PAID AND REIMBURSED AROSE IN CONNECTION WIT H THE PURCHASE OPERATIONS OF FERTILIZERS, PESTICIDES ETC. WHICH ARE INTENDED FOR USE SOLELY IN AGRICULTURE FOR SUPPLY TO ITS MEMBERS AND IS COVERED BY THE PROVISI ONS OF SECTION 80(P)(2)(A)(IV) OF THE 1.T. ACT, 1961. THE APPELLANT BEGS TO SUBMIT FURTHER THAT THE DISAL LOWANCES OF INCOME OF RS. 15,78,059/- UNDER THE HEAD 'OTHER TRADING INCOME' A S NOT ELIGIBLE FOR DEDUCTION U/S 80P INCLUDED THE RECEIPTS OF TRADING COST OF RS . 7,13,572/- AND REALIZATION OF LOADING AND UNLOADING CHARGES OF RS. 12,709/- , WIT HOUT ASSIGNING ANY REASONS. THE APPELLANT IN ITS LETTER DATED 25.07.13 QUOTED I N THE ASSESSMENT ORDER AND ALSO SEPARATELY ENCLOSED HAD EXPLAINED THE NATURE OF THE SE TWO RECEIPTS. IT WAS EXPLAINED THAT RS. 7,13,572/- WAS REALIZED FROM THE MEMBERS, SEPARATELY AT THE TIME OF SUPPLY BY WAY OF SALE AT FIXED PRICE OF FER TILIZERS ETC. TO THEM. HENCE THE INCOME IS COVERED BY THE PROVISIONS OF SECTION 80P( 2)(A)(IV) OF THE 1. T. ACT. AS REGARDS LOADING AND UNLOADING RECEIPTS, IT WAS EXPL AINED THAT LABOUR CHARGES WERE PAID FOR LOADING AND UNLOADING AT RAKE POINT A ND IT WAS REIMBURSED. BOTH THESE INCOME HAVE CLOSE NEXUS WITH PURCHASE AND SAL E OF FERTILIZERS INTENDED FOR AGRICULTURE. A.O. WAS THEREFORE WRONG IN NOT ALLOWI NG DEDUCTION CLAIMED U/S 80(P) (2)(A)(IV) OF THE I.T. ACT. I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 7 2.3.1. THE LD CITA OBTAINED REMAND REPORT FROM THE LD AO AND FURNISHED THE SAME TO THE ASSESSEE FOR ITS OBJECTIONS, IF ANY. THE A SSESSEE VIDE ITS LETTER DATED 9.12.2013 FILED ITS OBJECTIONS / SUBMISSIONS BEFORE THE LD CITA AS BELOW:- 'APROPOS TO YOUR QUERY AT THE HEARING OF THE ABOVE APPEAL ON 29.11.2013, 'WHETHER PURCHASE AND SUPPLY OF FERTILIZERS BY THE CO-OPERATIVE SOCIETY TO THE MEMBERS FALLS WITHIN 'OR OTHER ARTICLES INTENDED FO R AGRICULTURE' AS PROVIDED UNDER 80P (2)(A)(IV) OF THE ACT 61, WE WOULD LIKE T O SUBMIT AS FOLLOWS: MEANINGS OF THE WORDS 'ARTICLE' ACCORDING TO SHORTE R OXFORD ENGLISH DICTIONARY ARE 'COMMODITY; A PIECE OF GOODS PROPERTY ETC. ' FERTILIZER BEING A COMMODITY IS COVERED BY THE WOR D 'ARTICLE' MENTIONED IN SECTION 80P (2)(A)(IV) OF THE ACT. YOUR HONOUR'S KIND ATTENTION IS FURTHER DRAWN TO TH E DECISIONS OF THE HON'BLE ALLAHABAD HIGH COURT IN UP CO.OP FEDERATION LTD. CI T, 84 ITR, 317 (ALL). IN PARA 3 IN PAGE 320 THE HON'BLE HIGH COURT HAS HELD AS FOLLOWS: 'A PERUSAL OF THIS SECTION SHOWS THAT AN EXEMPTION HAS BEEN GRANTED TO A CO-OPERATIVE SOCIETY WHICH IS ENGAGED IN THE PURCHA SE OF AGRICULTURAL IMPLEMENTS, SEEDS, LIVESTOCK OR OTHER ARTICLES INTE NDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYING THEM TO THIS MEMBERS. ARTI CLES ENUMERATED IN THIS PROVISION AND IN RESPECT OF WHICH AN EXEMPTION HAS BEEN GRANTED ARE THOSE WHICH ARE DIRECTLY REQUIRED IN CONNECTION WIT H AGRICULTURAL OPERATIONS APPLYING THE RULE OF EJUSDEM GENERIC ' O THER ARTICLES INTENDED FOR AGRICULTURE' SHOULD BE OF THE SAME CLASS OF WHI CH AGRICULTURAL IMPLEMENTS, SEEDS AND LIVESTOCK BELONG. IN OTHER WO RDS THEY SHOULD BE SUCH ARTICLES WHICH ARE DIRECTLY REQUIRED IN CONNEC TION WITH AGRICULTURAL OPERATIONS' 'CIT VS THUDIALUR CO-OPERATIVE AGRICULTURAL SERVICE S, 143 CTR, 362 (MAD) HEAD NOTE:- DEDUCTION U/S 80 P - ALLOW ABILITY - SALE OF MANURE , PESTICIDES ETC. FOR MIXING THEM - ASSESSEE A CO-OPERATIVE SOCIETY, PURC HASE VARIOUS KINDS OF MANURES AND PESTICIDES, MIXING THEM TO SUIT THE NEE DS OF THE FARMERS AND THEREAFTER SELLING THEM - ALSO PURCHASING AND SELLI NG CATTLE FEED ENTITLED TO EXEMPTION U/S 80 P (2)(A)(IV). ' IN CIT VS SHETKARI SAHAKARI SAKHAR KARKHANA LTD. 23 8 ITR 983 (BOM). THE HON'BLE BOMBAY HIGH COURT IN PARA 2 IN PAGE 983 HAS 'HELD THAT SECTION 80 P (2) (A) (IV) DEALS WITH INCOME FROM THE PURCHASE OF AGR ICULTURAL IMPLEMENTS SEEDS, LIVESTOCK AND 'OTHER ARTICLES INTENDED FOR AGRICULT URE FOR SUPPLYING THEM TO ITS I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 8 MEMBERS' WATER IS AN 'ARTICLE' INTENDED FOR AGRICUL TURE. WATER IS OBTAINED BY THE ASSESSEE FOR THE PURPOSE OF SUPPLYING IT TO ITS MEM BERS.. ' IN VIEW OF THE ABOVE DECISIONS OF THE HON'BLE HI GH COURTS WE RESPECTFULLY SUBMIT THAT THE PURCHASE OF FERTILIZER INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYING THEM TO OUR MEMBERS, FALLS WITHIN THE WOR D 'ARTICLES' MENTIONED IN SECTION 80P (2)(A)(IV). THE INCOME WHICH AROSE ON R EIMBURSEMENT OF THE TRANSPORT CHARGES BY 1FFCO FOR CARRYING FERTILIZERS PURCHASED BY US, HAS CLOSE NEXUS WITH PURCHASE OF FERTILIZER INTENDED FOR AGRICULTURE FOR SUPPLYING THEM TO THE MEMBERS AND IS COVERED BY THE PROVISIONS OF SECTION 80P OF THE I. T. ACT'61.) 2.3.2. THE LD CITA UPHELD THE ACTION OF THE LD AO B Y OBSERVING AS UNDER:- AFTER CAREFULLY CONSIDERING THE ISSUE AT HAND, IT IS HELD THAT THE ASSESSEE HAD NOT BEEN ABLE TO DISPROVE THAT IT HAD BEEN ACTING AS A HANDLING & TRANSPORT CONTRACTOR DURING THE PREVIOUS YEAR 2009-10. M/S IF FCO HAS CAREFULLY MENTIONED THAT DURING THIS PERIOD THE ASSESSEE WAS WORKING AS A CONTRACTOR FOR HANDLING & TRANSPORTING FERTILIZERS FROM THE RAKE POINT TO ITS VARIOUS WAREHOUSE IN WEST BENGAL. M/S IFFCO ALSO DEDUCTED TDS ON SUCH PAYMENT . THE ASSESSEE, DURING THESE APPELLATE PROCEEDINGS, HAS NOT BEEN ABLE TO A DDUCE ANY EVIDENCE THAT THE FERTILIZER SO TRANSPORTED WAS ONLY FOR ITS OWN USE. THE CERTIFICATE FROM IFFCO REFERS TO VARIOUS WAREHOUSES ALL OVER THE STATE OF WEST BENGAL WHEREAS THE ASSESSEE SOCIETY, AS PER ITS BYE LAWS, WAS ONLY TO OPERATE IN VILLAGE TEGHORIA, MADHUSUDANKATI, BISHNUPUR & FARIDKATI UNDER GAIGHAT A THANA IN BONGAON AREA OF DISTT. 24 NORTH PARGANAS. THE ASSESSEE HAD FILED A COPY OF THE BYE LAWS WHICH ARE IN BENGALI CONTAINING THE ABOVE DETAILS AND ALS O FILED AN ENGLISH TRANSLATION BUT CURIOUSLY THIS ENGLISH TRANSLATION DID NOT TRAN SLATE THE AREA OF OPERATION PART. THE ASSESSEE, THEREFORE, COULD POSSIBLY HAVE HAD A REASONABLE GROUND TO CLAIM RELIEF U/S 80P IF THE TRANSPORTATION WAS FROM THE RAKE POINT TO ITS OWN GODOWNS IN ITS AREA OF OPERATION BUT THIS DOES NOT APPEAR T O BE THE CASE AT HAND. THE ASSESSEE HAD NOT PRODUCED ANY DETAIL OR EVIDENCE ME NTIONING EVEN THE AMOUNT OF FERTILIZER TRANSPORTED AND THE DESTINATION POINT OF THE SAME. SINCE, THE ASSESSEE HAS BEEN ACCORDED ALL POSSIBLE TIME AND OPPORTUNITY TO PRODUCE THE NECESSARY EVIDENCES, THE ALLEGED VIOLAT ION OF THE PRINCIPLES OF NATURAL JUSTICE HAS BEEN TAKEN CARE OF IN THESE PROCEEDINGS BUT THE ASSESSEE IS NOT ABLE TO REBUT THE FINDINGS OF THE A.O. WHEN THE ASSESSEE AC TS AS A H & T CONTRACTOR OUTSIDE ITS AREA OF OPERATION AND AS A BUSINESS PER SON AND WHEN THE PAYMENTS ARE RECEIVED BY IT AFTER TDS, IT CANNOT BE SAID THAT TH E ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80P IN RESPECT OF THE SURPLUS OF OTHE R TRADING INCOMES. ANY BENEFIT IN RELATION TO TRADE COST OF RS. 7,13,572/- IS AL SO NOT AVAILABLE TO THE ASSESSEE AS IT IS ONLY A RECOVERY OF EXPENSES WITH NO PROVEN PROFIT EMBEDDED THEREIN. IN VIEW OF THE ABOVE, THE ADDITIONAL GROUNDS OF APP EAL NO. 1 & 2 AND THE ORIGINAL GROUNDS OF APPEAL NO. 3 & 4 ARE DISMISSED. I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 9 ORIGINAL GROUND OF APPEAL NO. 1. IN THIS GROUND OF APPEAL THE ASSESSEE CHALLENGES NO N-ALLOWANCE OF DEDUCTION U/S 80P IN RESPECT OF A SUM OF RS. 47,418/- (DETAILS AR E MENTIONED ABOVE). THE TOTAL COMMISSIONRECEIPT OF RS. 1,80,543/- WAS CLAIMED BY THE ASSESSEE AS ELIGIBLE FOR DEDUCTION U/S 80P BUT THE ASSESSEE COULD ONLY P RODUCE ONE CERTIFICATE FROM M/S BENFED FOR RS. 1,33,125/-. THE ASSESSEE PROCURE S POTATO FROM ITS MEMBERS AT THE RATE FIXED BY THE STATE GOVERNMENT, AND SELL S IT TO BENFED. THE ASSESSEE IS PAID HANDLING & CARRYING CHARGES FOR THE SAME. DURI NG THE APPELLATE PROCEEDINGS THE ASSESSEE FILED A CERTIFICATE FROM BENFED STATIN G THAT IT HAD BEEN FURTHER PAID THE FOLLOWING SUMS AS COMMISSION AGAINST PROCUREMEN TS OF PADDY DURING THE PREVIOUS YEAR: I) CH. NO. 870322 DATED. 10.11.09 RS. 28,194/- II) CH. NO. 870323 DATED 11.11.09 RS. 5,570/- TOTAL RS. 33,764/- THE DOCUMENT WAS SENT TO THE AO FOR REMAND REPORT B UT NO OBJECTION THERETO HAS BEEN RECEIVED. THEREFORE, THE ASSESSEE IS HELD ELIG IBLE TO CLAIM THE ADDITIONAL SUM OF RS. 33,764/- AS A DEDUCTION 80P. AS NO SUBMISSIO NS ARE MADE IN RESPECT OF THE BALANCE AMOUNT OF RS. 600/- & RS. 4117/- CLAIMED RE CEIVED AS COMMISSION FROM M/S RITWI INDIA & M/S IFFCO TOKIO GEN. INSURANCE, T HEIR DISALLOWANCES ARE CONFIRMED AND THIS ORIGINAL GROUNDS OF APPEAL NO. 1 IN HELD TO BE PARTLY ALLOWED. 2.4. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A)-XXXII, HAS ERRED IN FACTS AS WELL AS IN LAW IN DISMISSING THE APPELLANTS GROUNDS NO. 3 & 4 TAKEN AGAINST THE A.O.S ORDER DISALLOWING THE APPE LLANTS CLAIM FOR DEDUCTION U/S 80P OF THE I.T. ACT OF RS. 15,78,059/- OUT OF THE OTHER TRADING INCOME. 2. FOR THAT IN ANY EVENT THE LD. CIT(A)L-XXXII, HAS ERRED IN FACT AS WELL AS IN LAW, IN IGNORING THE CERTIFICATE NO. SMM/WB/H & T/ 470 D ATED 23.09.2013 FROM IFFCO LTD. CONFIRMING THAT IFFCO IS RESPONSIBLE FOR TRANSPORTATION OF FERTILIZERS FROM RAKE POINT TO APPELLANTS GODOWNS AND HAVE REIMBURSED THE EXPENSES TO THE APPELLANT FOR TRANSPORTING ITSELF O N BEHALF OF IFFCO LTD. 3. FOR THAT IN ANY EVENT THE LD. CIT(A)-XXXII, HAS ERRED IN IGNORING THE APPELLANTS BALANCE SHEET FOR THE YEAR ENDED 31.03. 2010 FILED WITH HIM, WHERE IN PURCHASE OF FERTILIZERS VALUED RS. 9,12,00,003/- WA S SHOWN, WHICH WAS TRANSPORTED BY THE APPELLANT ITSELF FOR SUPPLY TO I TS MEMBERS. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A)-XXXII, HAS ERRED IN UPHOLDING THE A.OS DISALLOWANCE OF TRADE COSTS AND LOADING AND I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 10 UNLOADING EXPENSES AT RAKE POINT REIMBURSED BY IFFC O LTD. FROM THE APPELLANTS CLAIM FOR EXEMPTION U/S 80P OF THE I.T. ACT. 2.5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND T HAT THE LD AR ARGUED THAT THE ASSESSEE HAD MADE PURCHASE OF FERTILIZERS TO THE TU NE OF RS 9,12,00,003/- AND MADE SALES TO ITS MEMBERS TO THE TUNE OF RS 9,00,03,736/ - . SIMILARLY THE SEEDS WERE ALSO PURCHASED AND WERE SOLD TO MEMBERS AT A PRICE LESS THAN THE PURCHASE PRICE. IN ORDER TO SUBSIDISE THE SAME, THE GOVERNMENT (IFFCO) PROVIDES INCENTIVES TO THE ASSESSEE IN THE FORM OF TRANSPORT SUBSIDY. WE FIND EVENTHOUGH THE TRANSPORTATION CHARGES WERE INCURRED DURING THE COURSE OF PURCHASE AND SALES OF FERTILIZERS AND SEEDS ETC, THE LD CITA HAD GIVEN A FINDING BY PLACI NG RELIANCE ON THE CERTIFICATE FROM IFFCO WHEREIN THE GOODS TRANSPORTED WERE NOT O NLY MEANT FOR ITS OWN USE OF THE SOCIETY. IT WAS ALSO INDEED TRANSPORTED TO VAR IOUS WAREHOUSES IN WEST BENGAL. INFACT IT WAS POINTED OUT THAT THE GOODS WERE TRANS PORTED TO VARIOUS WAREHOUSES ALL OVER THE STATE OF WEST BENGAL WHEREAS THE ASSESSEE AS PER ITS BYE LAWS WAS AUTHORIZED TO OPERATE IN VILLAGE TEGHORIA, MADHUSUD ANKATI, BISHNUPUR & FARIDKATI UNDER GAIGHATA THANA IN BONGAON AREA OF DISTT 24 NO RTH PARGANAS. THESE FACTS WERE NOT DISPUTED BY THE LD AR BEFORE US. HENCE WE ARE NOT INCLINED TO ACCEPT THE ARGUMENTS OF THE LD AR THAT THE TRANSPORT INCENTIVE RECEIVED FROM GOVERNMENT SHOULD HAVE TO BE TREATED AS PART AND PARCEL OF THE MAIN ACTIVITY CARRIED OUT BY THE ASSESSEE SO AS TO BE ELIGIBLE FOR CLAIM OF DEDUCTIO N U/S 80P(2)(IV) OF THE ACT. HOWEVER, WE FIND THAT THE OTHER TRADING INCOME DECL ARED IN THE PROFIT AND LOSS ACCOUNT ADMITTEDLY INCLUDED A SUM OF RS 7,13,572/- WAS RECEIVED FROM THE MEMBERS OF THE ASSESSEE SOCIETY SEPARATELY AT THE T IME OF SUPPLY BY WAY OF SALE AT FIXED PRICE OF FERTILIZERS ETC TO THEM. HENCE IN OUR OPINION, THE SAME WOULD BE COVERED BY THE PROVISIONS OF SECTION 80P(2)(IV) OF THE ACT. HENCE WE GIVE RELIEF I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 11 TO THE EXTENT OF RS 7,13,572/- AS AMOUNT ELIGIBLE F OR DEDUCTION U/S 80P(2)(IV) OF THE ACT. ACCORDINGLY THE GROUNDS 1 TO 4 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 3. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE ADDITION MADE IN THE SUM OF RS 7,31,400/- IN RESPECT OF SALES MADE TO NOMINAL MEMBERS OF THE SOCIETY , IN T HE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD A O CALLED FOR THE DETAILS OF SALES ABOVE RS 1 LAKH FROM THE ASSESSEE. HE OBSERVED THA T AS PER THE BYE LAWS OF THE ASSESSEE SOCIETY, THE ASSESSEE COULD OPERATE ONLY I N VILLAGE TEGHORIA, MADHUSUDANKATI, BISHNUPUR & FARIDKATI UNDER GAIGHAT A THANA IN BONGAON AREA OF DISTT 24 NORTH PARGANAS. THE LD AO ON GOING THROU GH THE DETAILS OF SALES FILED BY THE ASSESSEE, THAT IT HAD DEALT IN TRADING OF FERTI LIZER, SEEDS, AGRICULTURAL IMPLEMENTS ETC WITH PERSONS / INDIVIDUALS WHO WERE OUTSIDE THE JURISDICTION OF THE SOCIETY AND WHO ARE NOT FARMERS. HE ALSO OBSERVED THAT SOME OF THE PERSONS WERE EVEN ASSESSED TO TAX UNDER HIS CHARGE AND WHO HAD EVEN F ILED THEIR IT RETURNS SHOWING BUSINESS INCOME AND NATURE OF BUSINESS AS RESELLER OF FERTILIZER, PESTICIDES ETC. THE LD AO OBSERVED THAT THE ASSESSEE HAD SOLD FERTI LIZERS, PESTICIDES ETC TO THE FOLLOWING 26 PERSONS WHO ARE NOT FARMERS :- SL. NO. NAME & ADDRESS OF THE PURCHASERS AMOUNT (IN RS.) (PURCHASES FROM THE ASSESSEE) 1 SHRI PRADIP PAUL, BONGAON, DEVGOR, 24 PGS. (N)-74 3235 1,73,210.00 2 SHRI SANDIP MONDAL, CHARGHAT, 24 PGS. (N)- 743247 3,43,050.00 3 SHRI BIKASH MAJUMDAR, CHABDOARA BAZAR, 24 PGS. (N )-743235 3,23,925.00 4 SHRI ASHUTOSH GHOSH, ICHHAPUR, NETAJI BAZAR, 24 P GS. (N)- 743252 3,66,884.00 5 SHRI ASHUTOSH ROY, BONGAON, MAMUDPUR, 24 PGS. (N) -743235 6,26,350.00 6 SHRI SADHAN GHOSH, ICHHAPUR BAZAR, 24 PGS.(N),-74 3252 2,94,251.00 7 M/S CHITYA RANJAN DEY, HABRA BAZAR, 24 PGS.(N)-74 3263 79,01,369.00 I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 12 8 SHRI TILOK KUMAR DUTTA, HABRA BAZAR, 24 PGS. (N)- 743263 17,06,100.00 9 SHRI DILIP SAHA, CHANDIPUR BAZAR, 24 PGS.(N)-7432 47 21,96,422.00 10 SHRI NITANANDA DAS, CHOWONGDA, HABRA, 24 PGS.(N) -743263 40,87,890.00 11 BORA GRAMYA S,K.U.S. LTD., VILL-BORA, THAKURNAGA R, 24 PGS.(N)- 743287 11,70,345.00 12 SHRI DAYALPADA SANDHU, HABRA BAZAR, 24 PGS.(N)-7 43263 5,43,950.00 13 SHRI PARTHO SAROTHI NATH, CHATRA BAZAR, 24 PGS.( N)-743263 27,99,030.00 14 SHRI NIKHIL NATH, JESSORE ROAD, HABRA BAZAR, 24 PGS.(N)-743263 9,77,250.00 15 SMT. SOILEN GHOSH, BONGAON, PANCHPOTA, SREE PALL I, 24 PGS.(N)- 743235 3,95,510.00 16 SHRI NARENDRA NATH GHOSH, HABRA BAZAR, 24 PGS(N) -743263 3,95,510.00 17 SHRI UTTAM DALAL, BASIRHAT PURATAN BAZAR, BASIRH AT, 24 PGS.(N)- 743411 63,33,811.00 18 M/S DUTTAPUKUR KRISHI BIPONI, DUTTAPUKUR, 24 PGS .(N)-743248 90,21,520.00 19 SMT. DOLI GHOSH, HABRA BAZAR, 24 PGS.(N)-743263 43,66,890.00 20 SHRI ANUKUL KHAAN, JAHOWDANGA, 24 PGS. (N)-74327 3 7,59,510.00 21 SHRI HEROONMOY SARKAR, MEDIA BAZAR, BONGAON, 24 PGS.(N)- 743235 10,90,900.00 22 GOBINDO ROY, JIWALA BAZAR, BONGAON, 24 PGS.(N)-7 43235 3,57,309.00 23 SHRI BIDYUT GHOSH, PANCHPOTA BAZAR, 24 PGS.(N)-7 43273 5,87,776.00 24 SHRI ROBINDRA NATH SARKAR, TRONIPUR, SWARUP NAGA R, 24 PGS. (N)-743273 5,70,225.00 25 MD. SOUDUL ISLAM, BELIAGHATA BAZAR, 24 PGS.(N)-7 43423 14,03,300.00 26 MOHISAKATI S.K.U.S. LTD., MOHISA KATI, PANCHPOTA , 24 PGS.(N)- 743273 2,95,053.00 TOTAL 4,90,87,340.00 3.2. THE LD AO VIDE LETTER DATED 1.6.2012 SHOWCAUSE D THE ASSESSEE TO EXPLAIN AS TO WHY PROFIT GENERATED OUT OF THESE SALE PROCEEDS COU LD NOT BE BROUGHT TO TAX BY DENYING DEDUCTION U/S 80P OF THE ACT AS THESE SALES WERE NOT DIRECTLY TO THE MEMBER AGRICULTURISTS AS PER THE BYE LAWS OF THE AS SESSEE SOCIETY. THE ASSESSEE REPLIED VIDE LETTER DATED 25.7.2012 THAT THE ABOVE 26 PERSONS WERE THEIR NOMINAL MEMBERS AS PER THE WEST BENGAL CO-OPERATIVE SOCIET IES ACT 1940 AND UDNER THE PROVISIONS OF CLAUSE 6(5) OF THEIR BYE-LAWS. THE A SSESSEE ALSO VIDE FURTHER LETTER DATED 26.9.2012 STATED THAT THEY DONT HAVE ANY POW ER / AUTHORITY TO QUESTION OR DIRECT THEIR MEMBERS ABOUT THE UTILIZATION OF THE F ERTILIZERS PURCHASED BY THEM FROM THE ASSESSEE SOCIETY. IT WAS ALSO SUBMITTED THAT SECTION 80P(2)(IV) OF THE ACT ALSO I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 13 SPEAKS OF PURCHASE OF IMPLEMENTS SEEDS, LIVE STOCK, OR OTHER ARTICLES INTENDED FOR AGRICULTURE FOR THE PURPOSE OF SUPPLYING THESE TO I TS MEMBERS. MEMBERS ARE FREE TO USE THE FERTILIZERS PURCHASE FROM ASSESSEE ACCORDIN G TO THEIR OWN INTENTION AND PURPOSE. ANY INCOME ARISING TO ASSESSEE FROM SALE OF FERTILIZERS TO THE MEMBERS WOULD BE COVERED BY SECTION 80P(2)(IV) OF THE ACT. 3.3. THE LD AO HOWEVER DISREGARDED THE SUBMISSIONS OF THE ASSESSEE AND OBSERVED THAT THE PURPOSE OF PROVISIONS OF SECTION 80P(2)(IV ) OF THE ACT WOULD BECOME FUTILE IF ASSESSEE IS ALLOWED SUCH FACILITIES ON SUCH SALE S MADE BY THE MEMBERS OUT OF PURCHASES MADE FROM THE ASSESSEE. THOSE PARTIES WERE PURCHASING THE FERTILIZERS FROM THE ASSESSEE AND SELLING THE SAME AS THEIR BUS INESS COMMODITY. THE LD AO ACCORDINGLY BROUGHT THE PROFIT DERIVED THEREON TO T HE TUNE OF RS 7,31,400/- (RS 4,90,87,340 * 1.49%) AS BEING EARNED BY SALE OF AGR ICULTURAL ARTICLES TO THE NOMINAL MEMBERS TRADING IN AGRICULTURAL COMMODITY . IN OTHER WORDS, THE LD AO HELD THAT THE NOMINAL MEMBERS ARE NOT REGULAR MEM BERS OF THE ASSESSEE SOCIETY AND HENCE ANY SALE MADE TO THEM WOULD NOT BE COVERE D BY THE PROVISIONS OF SECTION 80P(2)(IV) OF THE ACT. 3.4. THE ASSESSEE SUBMITTED BEFORE THE LD CITA BY Q UOTING THE PROVISIONS OF SECTION 69(3) OF THE WEST BENGAL CO-OPERATIVE SOCIE TIES ACT, 1940 AND CLAUSE 6(5) OF ITS OWN BYE LAWS WHEREIN ASSESSEE SUBMITTED THAT 26 PERSONS MENTIONED BY THE LD AO IN HIS ORDER WERE ADMITTED AS ITS NOMINAL MEMBERS. IT WAS SUBMITTED THAT UNDER THE AFORESAID PROVISIONS, ANY PERSON CAN BE ADMITTED AS A NOMINAL MEMBER IN ITS OWN INTEREST BY THE CO-OPERATIVE SOCI ETY. IT ARGUED THAT NOMINAL MEMBERS ARE ALSO MEMBERS OF THE CO-OPERATIVE SOCIET Y. IT WAS ALSO POINTED OUT THAT A MEMBER CAN BE REMOVED ONLY AS PER CLAUSE 11 OF ITS BYE LAWS. NO MEMBER CAN BE REMOVED IF HE SHIFTS ITS RESIDENCE OUTSIDE T HE OPERATIONAL AREA OF THE SOCIETY. 3.5. THE LD CITA HOWEVER CONCURRED WITH THE FINDING S OF THE LD AO BY OBSERVING AS UNDER:- I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 14 AS REGARDS THE PROFIT EARNED BY THE ASSESSEE ON S ALES MADE TO PERSONS OUTSIDE ITS AREA OF OPERATIONS, THE ASSESSEE CLAIMS THAT AS PER ITS BYE LAWS IT CAN HAVE NOMINAL MEMBERS. THE VIEWS OF THE ASSESSEE ARE CONSIDERED. FIRSTLY, THE ASSESSEE HAS NOT GIVEN A COMPLETE AND CORRECT TRANSLATION OF ITS BYE LAWS AN D THE BENGALI COPY FILED IS AT PLACES DIFFICULT TO READ BUT WHAT IS SEEN IS THAT T HE SOCIETY CAN APPOINT ANY PERSON AS A MEMBER IN THE INTEREST OF THE SOCIETY BUT SUCH PERSONS CANNOT PARTICIPATE IN THE PROFIT OF THE SOCIETY. IN THE FACTS OF THE PRESENT CASE, THE NOMINAL MEMB ER SEEM TO BE ENJOYING THE BENEFIT OF PROFIT OF THE SOCIETY LIKE SUPPLY OF FER TILIZER ON SUBSIDIZED RATE BY IFFCO AND THIS MAKES THEIR TRANSACTIONS VIOLATIVE OF THE BYE LAWS. AS PER THE WEST BENGAL COOPERATIVE SOCIETIES ACT, 1 983 THESE CAN BE A NOMINAL MEMBER AS PER SECTION 69(3) OF THAT ACT BUT SUCH M EMBER IS TO BE ADMITTED TO THE MEMBERSHIP IN THE INTEREST OF THE SOCIETY AND SUCH A PERSON IS NOT ENTITLED TO ANY SHARE IN ANY FORM IN THE ASSETS OR PROFITS OF THE C OOPERATIVE SOCIETY. HENCE, IT IS NECESSARY TO BE APPRECIATED THAT ANY CLOSING STOCK OR STOCK IN TRADE IS ALWAYS AN ASSET IN THE BOOKS OF ACCOUNTS AND THE NOMINAL MEMB ERS CANNOT GET ANY SHARE IN ANY FORM IN THE ASSETS OR PROFITS OF THE COOPERATIV E SOCIETY. THIS ALSO MEAN THAT SUCH MEMBERS ARE NOT PERMITTED TO ACQUIRE THE SUBSI DED FERTILIZER GIVEN TO THE SOCIETY, WHICH WAS SUBSIDIZED ONLY FOR THE BENEFIT OF AGRICULTURALISTS. IN VIEW OF THIS, THE ACTION OF THE AO IS NOT ALLOWING DEDUCTIO N U/S 80P IS UPHELD. THE ASSESSEES WRITTEN SUBMISSIONS ARE LARGELY ON THE I SSUE THAT NOMINAL MEMBERS ARE ALSO MEMBER IN A GENERAL SENSE. HOWEVER, AS THEY CA NNOT SHARE IN THE SUBSIDIZED GOODS OR PROFIT OF THE SOCIETY, THE PROFIT DERIVED BY THE SOCIETY ON SALE MADE TO THEM IS NOT ENTITLED TO DEDUCTION U/S 80P(2)(A)(IV) OF THE ACT. IN VIEW OF THE ABOVE, THE ORIGINAL GROUNDS OF APPEA L NO. 5 IS DISMISSED. 3.6. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A)-XXXII, WAS WRONG IN UPHOLDING ON MISINTERPRETATION OF THE PROV ISIONS OF SECTION 80P(2)(A)(IV), THE ADDITION OF RS. 7,31,400/- AS AP PELLANTS PROFIT ON SALE OF FERTILIZER TO TWENTY SIX OF ITS MEMBERS. 3.7. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT IT IS NOT IN DISPUTE THAT THE 26 PERSONS TO WHOM THE ASSESSEE HAD SOLD FERTILIZER S ARE CATEGORIZED AS NOMINAL MEMBERS OF THE ASSESSEE SOCIETY. IT WOULD BE PERT INENT TO LOOK INTO THE PROVISIONS OF SECTION 69 (3) OF THE WEST BENGAL CO-OPERATIVE S OCIETIES ACT, 1940 WHICH IS REPRODUCED HEREUNDER FOR THE SAKE OF CONVENIENCE :- I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 15 CHAPTER VIII ELIGIBILITY FOR MEMBERSHIP AND PRIVILEGES, LIABILIT IES AND OBLIGATIONS OF MEMBERS SECTION 69. ELIGIBILITY FOR MEMBERSHIP OF CO-OPERAT IVE SOCIETY (1) SUBJECT TO THE RULES AND THE BY-LAWS, THE FOLLO WING PERSONS SHALL BE ELIGIBLE FOR MEMBERSHIP OF A CO-OPERATIVE SOCIETY , - (A) AN INDIVIDUAL COMPETENT TO CONTRACT UNDER SECTI ON 11 OF THE INDIAN CONTRACT ACT, 1872 (9 OF 1872) ; (B) ANY OTHER CO-OPERATIVE SOCIETY ; (C ) THE STATE GOVERNMENT ; (D) SUBJECT TO THE APPROVAL OF THE STATE GOVERNMENT BY GENERAL OR SPECIAL ORDER, ANY ASSOCIATION OR BODY OF PERSONS (WHETHER INCORPO RATED OR NOT) OR ANY FINANCIAL BANK; PROVIDED THAT STUDENT WHO HAS NOT ATTAINED THE AGE OF MAJORITY ACCORDING TO THE LAW TO WHICH HE IS SUBJECT SHALL BE ELIGIBLE FOR ME MBERSHIP OF A CO-OPERATIVE SOCIETY FORMED IN AN EDUCATIONAL INSTITUTION TO WHI CH HE BELONGS. (2) . (3) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAI NED ELSEWHERE IN THIS ACT, A CO-OPERATIVE SOCIETY MAY, IN ITS INTEREST, ADMIT AN Y PERSON AS A NOMINAL MEMBER WHO SHALL NOT BE ENTITLED TO ANY SHARE IN ANY FORM IN THE ASSETS OR PROFITS OF THE CO-OPERATIVE SOCIETY AND SHALL NOT BE ELIGIBLE TO B E ELECTED AS A DIRECTOR OF THE BOARD AND SHALL HAVE NO RIGHT TO ATTEND THE GENERAL MEETING OF THE CO-OPERATIVE SOCIETY BUT SHALL HAVE SUCH RIGHTS AND PRIVILEGES A ND SHALL BE SUBJECT TO SUCH LIABILITIES OF A MEMBER AS MAY BE SPECIFIED IN THE BY-LAWS. (4) .. (5) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (1), NO CENTRAL SOCIETY SHALL HAVE THE RIGHT TO ADMIT INDIVIDUALS TO ITS ME MBERSHIP OTHERWISE THAN AS NOMINAL MEMBERS IN TERMS OF SUB-SECTION (3) AND THE EXISTING INDIVIDUAL MEMBERS SHALL BE DEEMED TO BE NOMINAL MEMBER FOR THE PURPOS ES OF THIS ACT: PROVIDED THAT . FROM THE AFORESAID PROVISIONS, IT IS VERY CLEAR THA T THE NOMINAL MEMBERS ALSO WOULD BE REGULAR MEMBERS OF THE SOCIETY WITHOUT VOT ING RIGHTS AND WITHOUT ANY SHARE IN THE PROFITS OR ASSETS OF THE SOCIETY. TH E ASSESSEE SOCIETY IN THE INSTANT CASE ADMITTEDLY HAD SOLD SOME FERTILIZERS TO ITS NO MINAL MEMBERS TO THE TUNE OF RS 4,90,87,340/- ( 26 PERSONS SALE PROCEEDS) . THE ASSESSEE HAD NOT GIVEN ANY SHARE I.T.A NO. 420/KOL/2014 MADHUSUDANKATI UNNAYAN SAMITY A.YR : 2010-11 16 IN THE PROFITS OF THE SOCIETY TO THESE NOMINAL MEMB ERS. THERE IS NO DISTRIBUTION OF ASSETS IN ANY MANNER WHATSOEVER TO THESE NOMINAL ME MBERS BY THE ASSESSEE SOCIETY. HENCE THE SALE TRANSACTIONS MADE WITH THE SE NOMINAL MEMBERS CANNOT BE HELD TO BE VIOLATIVE OF BYE LAWS OF THE ASSESSEE SO CIETY AND THE PROVISIONS OF WEST BENGAL CO-OPERATIVE SOCIETIES ACT, 1940. HENCE IN OUR CONSIDERED OPINION, THERE CANNOT BE ANY ADDITION IN THE SUM OF RS 7,3,1400/- TOWARDS PROFIT FROM SALE OF FERTILIZERS TO MEMBERS AND IN ANY CASE THE SAME WOU LD BE ELIGIBLE FOR DEDUCTION U/S 80P(2)(IV) OF THE ACT. ACCORDINGLY THE GROUND NO. 5 RAISED BY THE ASSESSEE IS ALLOWED. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 14.07.2017 SD/- SD/- [A.T.VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 14.07.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. MADHUSUDANKATI SAMBAY KRISHI UNNAYAN SAMITY LTD. 2. I.T.O. WARD 49(1), KOLKATA 3..C.I.T.(A)-XXXII, KOLKATA 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S