M/S ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR V. INCOME TAX OFFICER, WARD-2-3, ALWAR

ITA 787/JPR/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1917 (ITAT-JAIPUR)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 30-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI JCIT DHK
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,OA JH FOE FLAG ;K NO ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM AND SHRI VIKRAM SING H YADAV, AM VK;DJ VIHY LA-@ ITA NO. 787 & 985/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2012-13 & 13-14. M/S. ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., D-10, NEW MANDI YARD, ALWAR. CUKE VS. THE INCOME TAX OFFICER, WARD 2(3)/ THE ACIT, CIRCLE-2, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAABA 0196 R VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI P.C. PARWAL (CA) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 28.08.2018. ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 30/08/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, JM : THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST TWO SEPARATE ORDERS OF THE LD. CIT (A) FOR THE ASSESSMENT YEARS 2012-13 AND 13-14 DATED 19.09.2017 AND 16.10.2017 RESPECTIVELY. FOR THE ASSESSMENT YE AR 2012-13 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE ORDER OF AO IN REDUCING THE CLAIM OF DEDUCTION U/S 80P(2)(A)(IV) AT RS. NIL AS AGAINST RS. 6,07,375/- CLAIMED BY THE ASSESSEE. 2. THE ASSESSEE CRAVES RIGHT TO ADD, ALTER OR AMEND ANY OF THE GROUNDS OF THE APPEAL. 3. THE APPROPRIATE COST BE AWARDED TO THE ASSESSE E. 2 ITA NOS. 787 & 985/JP/2017 ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR. 2. THE ONLY ISSUE ARISES IN THIS APPEAL OF THE ASSE SSEE IS REGARDING REDUCTION OF CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(IV) AT N IL AS AGAINST THE CLAIM OF RS. 6,07,375/-. 3. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS A COOPERATIVE SOCIETY CONSTITUTED UNDER RAJASTHAN CO-OPERATIVE ACT. THE ASSESSEE IS IN THE BUSINESS OF WHOLESALE TRADING OF FERTILIZERS, SEEDS, PESTICIDES, AGRICULTURAL EQUIPM ENTS ETC. AS WELL AS TRADING OF CONSUMABLE GOODS UNDER PDS (RATION) AS PER THE POLI CY OF GOVERNMENT OF INDIA. THE INCOME FROM THE WHOLESALE TRADING OF FERTILIZER S, SEEDS, PESTICIDES, AGRICULTURAL EQUIPMENTS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE IT ACT WHEREAS THE INCOME FROM TRADING OF CONSUMABLE GOODS UNDER PDS I S NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE IT ACT. IN THE RETURN OF INCOME, THE ASSESSEE DECLARED INCOME OF RS. 2,64,640/- AFTER CLAIMING THE DEDUCTI ON UNDER SECTION 80P OF RS. 9,72,673/- AS UNDER :- 80P(2)(A)(IV)(PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS ETC) RS. 6,07,375/- (G.P RS.11,46,660 EXPENSES RS. 5,39,205) 80P(2)(C)(II) (GENERAL) RS. 50,000/- 80P(2)(D)(INTEREST RS.41,358/- & DIVIDEND RS.2,73, 940) RS. 3,15,298/- RS.9,72,673/- ------------------ THE AO IN THE SCRUTINY ASSESSMENT HAS OBSERVED THAT OUT OF TOTAL TURNOVER OF RS. 25.21 CRORES, THE TURNOVER OF FERTILIZERS, SEEDS AN D PESTICIDES IS RS. 8.59 CRORES AND GROSS PROFIT IS RS. 11,46,661/-. THE ASSESSEE HAS CLAIMED EXPENSES OF RS. 5,39,205/- AGAINST THE INCOME FROM FERTILIZERS, SEE DS AND PESTICIDES OUT OF TOTAL EXPENDITURE OF RS. 62,51,180/-. HENCE THE AO WAS OF THE VIEW THAT THE CLAIM OF EXPENDITURE OF RS. 5,39,205/- AGAINST THE INCOME EL IGIBLE FOR DEDUCTION UNDER SECTION 3 ITA NOS. 787 & 985/JP/2017 ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR. 80P IS NOT ACCEPTABLE AS IT IS WITHOUT ANY BASIS. A CCORDINGLY, THE AO APPORTIONED THE TOTAL EXPENDITURE ON TURNOVER BASIS AND WORKED OUT THE EXPENSES INCURRED ON FERTILIZERS, SEEDS AND PESTICIDES BUSINESS AT RS. 2 1,31,877/- RESULTING NET LOSS OF RS. 9,85,216/- IN THE SEGMENT OF FERTILIZERS, SEEDS AND PESTICIDES. THUS DUE TO THE ALLOCATION OF EXPENSES ON TURNOVER BASIS, THE NET O UTCOME OF THE ELIGIBLE BUSINESS ACTIVITY UNDER SECTION 80P OF THE ACT IS LOSS AND T HE DEDUCTION OF RS. 6,07,375/- WAS REDUCED TO NIL. THE LD. A/R OF THE ASSESSEE HAS SU BMITTED THAT THE ASSESSEE IS SERVING 429 PDS SHOPS WHEREAS THE FERTILIZERS, SEED S AND PESTICIDES ARE SUPPLIED ONLY TO 70 VILLAGE SERVICE COOPERATIVE SOCIETIES. THUS WHEN THE NUMBER OF PDS SHOPS AND THE VILLAGE SERVICE COOPERATIVE SOCIETIES ARE NOT EQUAL, THEN THE APPORTIONMENT OF THE EXPENDITURE ON TURNOVER BASIS IS NOT JUSTIFIED. HENCE, THE LD. A/R HAS SUBMITTED THAT THE EXPENDITURE SHOULD HAVE BEEN ALLOCATED AT THE BEST ON THE BASIS OF NUMBER OF PDS SHOPS AND NUMBER OF VILL AGE SERVICE COOPERATIVE SOCIETIES TO WHOM THE ASSESSEE CATERED THE NEEDS. 3.1. ON THE OTHER HAND, THE LD. D/R SUBMITTED THAT THE ASSESSEE IS NOT MAINTAINING SEPARATE BOOKS OF ACCOUNT TO SHOW THE EXPENDITURE I NCURRED FOR EACH OF THE SEGMENTS OF BUSINESS ACTIVITIES, THEREFORE, THE AO HAD NO OPTION BUT TO APPORTION THE EXPENDITURE ON TURNOVER BASIS. THE LD. D/R RELIED U PON THE ORDERS OF THE AUTHORITIES BELOW. 4. HAVING CONSIDERED THE RELEVANT FACTS AS WELL AS THE RIVAL SUBMISSIONS OF THE PARTIES, WE NOTE THAT IN AN ORDINARY CASE TURNOVER IS A PROPER BASIS FOR ALLOCATION OF COMMON EXPENDITURE IF THE ACTIVITIES IN VARIOUS SEG MENTS ARE SIMILAR IN NATURE. THEREFORE, UNTIL AND UNLESS THERE IS AN EXCEPTION, THE TURNOVER IS AN ACCEPTABLE BASIS OF ALLOCATION OF COMMON EXPENDITURE. WE FURTHER NO TE THAT THE MAJOR EXPENDITURE 4 ITA NOS. 787 & 985/JP/2017 ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR. WHICH IS COMMON AND DIRECT EXPENDITURE OF HEAD OFFI CE OF THE ASSESSEE IS ON ACCOUNT OF SALARY AND WAGES. THEREFORE, WHEN THE AS SESSEE IS CATERING 70 VILLAGE SERVICE CO-OPERATIVE SOCIETIES IN THE SEGMENTS OF F ERTILIZERS, SEEDS, PESTICIDES, AGRICULTURAL EQUIPMENTS AS AGAINST 429 SERVICE POIN TS OF PDS SHOPS, THEN ALLOCATING THE EXPENDITURE ON TURNOVER BASIS MAY GIVE A DISTOR TED RESULT AND NOT THE CORRECT OUT-COME OF THE ACTIVITIES. THEREFORE, TO THE EXTE NT OF THE EXPENDITURE WHICH IS INCURRED IN SERVING THE VARIOUS SERVICE POINTS, THE SAME CAN BE ALLOCATED ON THE BASIS OF NUMBER OF SERVICE POINTS AND THE REMAINING EXPEN DITURE WHICH ARE INVARIABLE IN RELATION TO THE NUMBER OF SERVICE POINTS LIKE AUDIT FEE ETC. AND HEAD OFFICE EXPENSES, THE SAME CAN BE ALLOCATED ON THE BASIS OF THE TURNO VER OF THE DIFFERENT SEGMENTS OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. THUS WHEN THE ASSESSEE IS HAVING THE INCOME FROM DIFFERENT SEGMENTS COMPRISING THE INCOM E ELIGIBLE FOR DEDUCTION UNDER SECTION 80P AS WELL AS THE INCOME WHICH IS NOT ELIG IBLE FOR DEDUCTION UNDER SECTION 80P, THEN THE ALLOCATION OF THE COMMON EXPENDITURE SHOULD BE MADE AFTER CONSIDERING THE PECULIAR FACTS OF THE CASE OF THE A SSESSEE. ACCORDINGLY, WE SET ASIDE THE ISSUE TO THE RECORD OF THE AO FOR RE-ADJUDICATI ON OF THE SAME BY SEGREGATING THE COMMON EXPENDITURE WHICH CAN BE RELATED TO THE ACTI VITIES OF SERVING THE PDS SHOPS AS WELL AS THE SERVICE COOPERATIVE SOCIETIES. THE SAME HAS TO BE ALLOCATED ON THE RATIO OF RESPECTIVE NUMBER AND THE REST OF THE EXPE NDITURE HAS TO BE ALLOCATED ON TURNOVER BASIS. 5. FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSEE HA S RAISED THE FOLLOWING GROUNDS :- 5 ITA NOS. 787 & 985/JP/2017 ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR. 1. THE LD. CIT (A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF AO IN NOT ALLOWING THE CLAIM OF DEDUCTION U/S 80P(2)(A)(IV) AT RS. 3,83,103/-. 2. THE LD. CIT (A) HAS ERRED ON FACTGS AND IN LAW I N CONFIRMING THE DISALLOWANCE OF RS. 29,609/- U/S 14A OF THE IT ACT, 1961 READ WITH RULE 8D. 3. THE ASSESSEE CRAVES RIGHT TO ADD, ALTER OR AMEND ANY OF THE GROUNDS OF THE APPEAL. 4. THE APPROPRIATE COST BE AWARDED TO THE ASSESSE E. 6. GROUND NO. 1 IS COMMON TO THE GROUND RAISED IN A SSESSMENT YEAR 2012-13. ACCORDINGLY, IN VIEW OF OUR FINDING ON THIS ISSUE F OR THE ASSESSMENT YEAR 2012-13, THIS GROUND STANDS SET ASIDE TO THE RECORD OF THE A O ON SAME TERMS. 7. GROUND NO. 2 IS REGARDING DISALLOWANCE MADE UNDE R SECTION 14A READ WITH RULE 8D OF THE IT ACT. 8. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT TH E AO INVOKED SECTION 14A IN RESPECT OF THE DIVIDEND RECEIVED BY THE ASSESSEE FR OM THE INVESTMENTS MADE IN THE VARIOUS CO-OPERATIVE SOCIETIES. THUS IT IS CLEAR FR OM THE RECORD THAT THE SAID INCOME IS OTHERWISE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P AND NOT FALLING IN THE CATEGORY OF EXEMPT INCOME UNDER SECTION 10(34) OF THE ACT. HEN CE THIS ISSUE IS CONNECTED WITH THE ISSUE OF ALLOCATION OF COMMON EXPENDITURE BETWE EN THE ELIGIBLE INCOME UNDER SECTION 80P(2) AS WELL AS NON-ELIGIBLE INCOME. SIN CE THE DIVIDEND IS IN THE CATEGORY OF ELIGIBLE INCOME UNDER SECTION 80P(2), THEREFORE, THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE BUT THIS HAS TO BE CONSIDERED FOR TH E PURPOSE OF ALLOCATING THE COMMON EXPENDITURE. HENCE WE SET ASIDE THIS ISSUE T O THE RECORD OF THE AO FOR 6 ITA NOS. 787 & 985/JP/2017 ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR. CONSIDERING THIS AMOUNT ALONG WITH THE OTHER INCOME OF THE ASSESSEE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT. 5. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 30/08/ 2018. SD/- SD/- ( FOE FLAG ;KNO ) ( FOT; IKY JKWO (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER JAIPUR DATED:- 30/08/2018. DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- M/S. ALWAR KRAY VIKRAY SAHAKARI S AMITI LTD., ALWAR. 2. THE RESPONDENT THE ACIT, CIRCLE-2/THE ITO WARD 2(3), ALWAR. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO. 787 & 985/JP/2017) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NOS. 787 & 985/JP/2017 ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD., ALWAR.