admin November 16, 2019

SURENDRANAGAR DISTRICT CO-OP. MILK PRODUCERS UNION LTD. vs. DEPUTY COMMISSIONER OF INCOME TAX

RAJKOT TRIBUNAL

RAJPAL YADAV, JM & WASEEM AHMED, AM.

ITA No. 262-263/Rjt/2018

Sep 20, 2019

(2019) 57 CCH 0073 RajkotTrib

Legislation Referred to

Section 36(1)(va), 80P(2)(b), 80P(2)(d)

Case pertains to

Asst. Year 2012-13 & 2013-14

Held

The assessee is not the primary co-operative society but its activities are depending upon the primary co-operative societies. As such the primary co-operative societies can also not operate without the assessee being a district level society. As such the activities of the assessee are interlinked with the activities of the primary co-operative societies. Moreover, the primary co-operative societies will be eligible only when they supply milk to a federal co-operative society. The assessee is not federal co-operative society to whom these primary co-operative societies are supplying the milk. Thus, even the primary co-operative societies in the given facts and circumstances will not be eligible to enjoy the benefit of the deduction provided under section 80P(2)(b) of the Act.

(Paras 6&6.1)

 

The assessee has been claiming the deduction under section 80P(2)(b) of the Act consistently for the last several assessment years and there was no disallowance even in the assessment framed under section 143(3) of the Act pertaining to the assessment years 2004-05, 2005-06, 2007-08 and 2009-10 and 2010-11. Therefore, claim of the assessee should be allowed on the basis of principles of consistency.

(Para 6.2)

CIT versus Excel Industries Ltd., 358 ITR 295, followed.

Conclusion

When authorities have taken a consistent view in favour of the assessee on the questions raised before them, a different view cannot be taken unless there are convincing reasons for taking that different approach.

In favour of

Assessee

Business expenditure—Deduction for sum credited to the employees’ accounts in certain funds—AO made disallowance on account of delay in deposit in contribution of employees’ Provident fund and employees state insurance—CIT(A) confirmed disallowance made by AO—Held, with respect to sum received by assessee from any of his employees to which provisions of s. 2(24)(x) applies, assessee should be entitled to deduction in computing income referred to in s. 28 with respect to such sum credited by assessee to employees’ account in relevant fund or funds on or before “due date” mentioned in explanation to s. 36(1)(va)—Assessee’s ground allowed.

Held

High Court in the case of CIT vs. GSTRC has held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’ account in the relevant fund or funds on or before the “due date” mentioned in explanation to section 36(1)(va).

(Para 7)

CIT vs. GSTRC, followed.

Provisions of section 80P(2)(b) does not mention about any interest income from whatever source. Therefore, the assessee is not eligible for the deduction of interest income under section 80P(2)(b) of the Act. Provisions of s. 80P(2)(d) revealed that the assessee can claim the deduction of interest /dividend income if it is derived from the investments with any other co-operative society. Thus, the possibility of claiming the deduction under section 80P(2)(d) of the Act on account of interest income from the deposits made with the nationalized/private banks is ruled out.

(Paras 24.1&24.2)

A cooperative bank is basically a cooperative Society only. It becomes a cooperative bank upon getting a license from the Reserve Bank of India. Therefore, such amount of interest income from the deposits made with the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. The assessee has shown interest income as part of the business income, therefore if the same is treated as income from other sources, then the same should be reduced from the business income. But the AO has not done so. Thus, the amount of interest income has been added twice resulting the double addition to the total income of the assessee. The assessee cannot claim the benefit of section 80P(2)(d) of the Act in respect of the interest earned by it from the deposits made with the nationalized/private banks. But the assessee is eligible for deduction under section 80P(2)(d) of the Act in respect of the interest income on the deposits made with the co-operative bank. The impugned issue is set aside to the file of the AO for fresh verification/examination the amount of disallowance under section 80P(2)(d) of the Act as per the provisions of law.

 

(Para 24.3)

 

State Bank of India Vs. CIT, Surat Vankar Sahakari Sangh Ltd. Vs. a CIT, ITA numbers 93 to 96 of 2008, followed.

Conclusion

Interest income from the deposits made with the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act.

In favour of

Matter Remanded

Cases Referred to

M.M. Ipoh & Ors. Vs. CIT (SC) 67 ITR 106

New Jehangir Vakil Mills Co. Ld. Vs. CIT (SC) 49 ITR 137

Bharat Sanchar Nigam Limited & Anr. Vs. Union of India & Ors. (SC) 282 ITR 273

CIT Vs. Seshasayee Industries Ltd. (Mad.) 242 ITR 691

Distributors (Baroda) P. Ltd. Vs. CIT (SC) 155 ITR 120

Ace Investments (P) Ltd. Vs. CIT (Mad) 244 ITR 166

Broach Distt Co-operative Cotton Sales, Ginning & pressing Society Ltd. Vs. CIT reported in 177 ITR 418

Radhasoami Satsang Saomi Bagh v. CIT [1992] 193ITR 321/60 Taxman 248 (SC)

CIT versus Excel Industries Ltd reported in 358 ITR 295

SBI vs CIT 389 ITR 578

Counsel appeared:

Kalpesh Doshi, A.R for the Appellant.: Jitender Kumar, DR for the Respondent

WASEEM AHMED, AM.

1. The captioned appeals have been filed at the instance of the Assessee against the separate orders of the Learned Commissioner of Income Tax (Appeals)-7, Ahmedabad [Ld. CIT(A) in short] of even dated 12/01/2018, arising in the matter of assessment order passed under 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) dated 26/03/2015 relevant to Assessment Years (A.Ys) 20012-13 & 2013-14.

First, we take up ITA no. 262/RJT/2018 for A.Y. 2013-14

The assessee has raised the following grounds of appeal:

1. That, the learned CIT(A) has not appreciated the nature of transactions / operation and the role played by the appellant co-operative Society and wrongly disallowed the deduction u/s 80P(2)(b), however the primarily objects and activities of the appellant society are duly eligible for the deduction u/s 80P(2)(b) of the act.

1.1 That, the learned CIT(A) has grossly erred in law and on facts by wrongly confirming the disallowance of Rs.1,24,61,498/- u/s 80P(2)(b) of I.T. Act, 1961 by stating that the nature of activity of the appellant is of an intermediary society and not of a primary co-operative society, hence not eligible for deduction u/s. 80P(2)(b) of LT. Act, 1961.

2. That, the learned CIT(A) has wrongly confirmed the disallowance of contribution to Employees’ Provident Fund and Employees’ State Insurance of Rs. 4,05,105/- u/s 43B of I.T. Act, 1961 by stating that the same is not deposited within the due date prescribed under section 36(1 )(va) of the I. T. Act, 1961.

3. That, the learned CIT(A) has wrongly confirmed the disallowance of expenses amounting to Rs. 6,13,744/- u/s. 40A(3) of the I.T. Act, 1961.

4. That, Learned CIT(A) has wrongly confirmed the disallowance amounting to Rs.40,000/- u/s.40(a)(ia) of the I.T. Act, 1961 for non-deduction of TDS u/s.194J for payment made for laboratory testing charges.

5. That the learned CIT(A) has wrongly confirmed the profit on sale of Rs.5,52,499/- as business income and also not allowed the indexation benefit u/s.48 of the act and also taxed at higher rate.

6. That Learned Assessing Officer has wrongly assessed interest income of Rs.1,86,33,269/- as part of net profit from “Business & Profession” and also assessed the same income as income under the head ‘’Income from other sources” and therefore the said income has been taxed twice.

6.1 That, the learned CIT(A) has wrongly confirmed the disallowance of deduction of interest Rs. 1,86,33,269/- u/s 80P(2)(d) of I.T. Act, 1961 by stating that the interest earned from Nationalized and Private Commercial Bank are not eligible for deduction u/s 80P(2)(d).

6.2 That, the learned CIT(A) has wrongly confirmed the disallowance of deduction of interest earned from Co-operative Bank Rs. 63,04,010/- u/s 80P(2)(d) of I.T. Act, 1961. The said Interest income is also part of the Gross Taxable income shown in the Profit And Loss account.

6.3 That, the learned CIT(A) has wrongly confirmed disallowance of interest expenses amounting to Rs.94,09,347/- without appreciating the nature of transaction.

7. That the Learned Assessing Officer has not allowed the deduction u/s.80P(2)(d) of Dividend income of Rs.13,95,000/- earned from the investment in Co-operative Society.

8. That, the findings of the learned CIT(A) and Assessing Officer are not justified and bad-in-law.

The appellant craves to add, alter, amend or delete any of the above grounds of appeal.

2. The assessee vide application dated 25th of March 2019 has amended its ground of appeal bearing No. 6.2 filed along with the memo of appeal.

The amended ground reads as under:

Prayer for amending ground of appeal:

1. The appellant most respectfully prays before the Hon’ble Income Tax Appellate Tribunal, Rajkot to allow the following grounds of appeal to be amended in the above matters:

GROUND NO. 6.2: That, tile learned CIT(A) has wrongly confirmed the disallowance of deduction of interest earned from Co-operative Bank Rs. 1,08,62,154/- u/s 80P(2)(d) of I. T. Act, 1961. The said interest income is also part of the Gross Taxable income shown in the Profit And Loss account.

2. In this regard, we would like to state that in the Assessment order the amount of interest received from the investments with Co-operative Bank has been wrongly taken as Rs. 63,04,010/-. Hence, the appellant while filing an appeal before the Hon’ble IT AT, Rajkot has taken the same amount of interest. However, the actual amount of interest received from the investments with co- operative banks is Rs. 1,08,62,154/-.

3. It is therefore most respectfully requested to allow to amend this ground of appeal with a further prayer that the same may kindly be adjudicated upon.

The 1st issue raised by the assessee in ground No. 1 is that the learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of 1,11,42,436.00 under the provisions of section 80P(2)(b) of the Act.

3. The facts in brief as culled out from the order of the authorities below are that the assessee in the present case is a district level co-operative society which is above the primary co-operative society. The assessee has 646 members which are primary co-operative societies. These primary co-operative societies have the members such as farmers, their family members and other rural family unit. These primary co-operative societies are procuring milk from the members and in turn supplying to the assessee being a single society in the district. Thereafter the assessee is supplying the milk to the mother dairy. The assessee further claimed that all the activities involved in the supply of milk to the mother dairy are controlled as per the direction of Gujarat Milk Marketing Federation (For short GMMF). Accordingly the assessee claimed to be eligible for claiming the deduction under section 80P(2)(b) of the Act and hence claimed the deduction of 1 1142336.00 only.

3.1 However, the AO was not satisfied with the claim of the assessee on the ground that such deduction is available to the primary co-operative societies. As such the assessee is the district level society and therefore the same cannot be held eligible for deduction under section 80P(2)(b) of the Act. Accordingly the AO disallowed the deduction of 1,11,42,336.00 claimed and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A).

3.2 The assessee before the learned CIT (A) submitted that the deduction was claimed for the milk produced by the members of the primary co-operative societies. As such the products were not produced by the composition of the societies.

3.3 The assessee also submitted that GMMF controls the supplies of the milk in the state of Gujarat through the channel of district level societies, primary level societies and their members. For this purpose, GMMF has made its members representing the societies in every district of Gujarat. To become a member in GMMF, there are certain conditions attached to it as described below:

(a) In the immediately preceding two consecutive accounting years of the federation it has dealing with the federation of 3 lakh units in a regular manner during the course of each year AND.

(b) In the immediately preceding three consecutive accounting years of the federation it has dealing with the federation of an aggregate of 8 lakh units AND

(c) In the immediately preceding three consecutive accounting years of federation, it procured milk from its area of operation an average quantity of 30,000 Litres per day.

3.4 Thus, from the above it is clear that none of the primary society is eligible to observe the conditions as discussed above. Accordingly, the primary societies cannot supply the milk directly to the Mother Dairy. As such, these primary societies have to supply the milk procured by them to the assessee being a district level society which in turn will supply the milk to the Mother Dairy. Moreover, the primary credit society cannot become the member of GMMF. Accordingly the assessee claimed that it is facilitating the object of the statute and therefore it is eligible for deduction under section 80P(2)(b) of the Act.

3.5 The assessee also submitted that both the primary and the district level society are eligible for deduction under section 80P(2)(b) of the Act as all the conditions as specified therein have been complied with.

3.6 The assessee also claimed that it has been claiming deduction under section 80P(2)(b) of the Act for the last more than 25 years and the same was allowed even in the scrutiny assessment framed under section 143(3) of the Act.

3.7 However the learned CIT (A) rejected the contention of the assessee and confirmed the order of the AO by observing as under:

4.2.2 A perusal of the above provision shows that the said deduction is available to a “primary society” engaged in supplying milk to a federal cooperative society, Govt or a local authority or a Govt company. In this case, the appellant by its very nomenclature is a district level cooperative milk producers union and therefore a district level society and not a primary cooperative society. During the course of appellate proceedings, the annual report of the GMMF was called for and perusal of the same as well as the website of GMMF shows that GMMF includes 18 district level cooperative societies from all over Gujarat, the appellant being one of them. GMMF which is the federal agency to which all these district milk producers unions are supplying milk, does no distinguish between these 18 district level societies and all are equal under the umbrella of GMMF. These district level cooperative milk producers unions in turn have hundreds of primary societies under them which do the actual supply of milk to the district level producers unions, which in turn supply the same to the GMMF.

4.2.3 During the appellate proceedings, I have also made enquiries from the assessing officers of the other district level cooperative milk producers unions under the GMMF. It is learnt from the responses of the AOs that the other cooperative societies are not claiming deduction u/s. 80P(2)(b) of the Act like the appellant has done. The AOs have informed that these are not primary cooperative societies and hence they are not eligible to claim the same either. This fact was brought to the notice of the AR of the appellant during the course of appellate proceedings. It has been submitted by the appellant that the nature of function:’ being performed by the appellant i.e. collecting milk from the primary societies and supplying the same to the GMMF, makes it effectively a primary society. However, this argument of the appellant does not hold good for two main reasons. Firstly, the provision in the Act is very clear. The primary cooperative societies are eligible for the said deduction. The appellant is a district level society collecting milk from over 600 primary milk producing societies which are primary because they are the ones actually doing the work of raising and collection and supply of milk. Thus, the very nature of its work makes the appellant the second rung of hierarchy and it cannot claim to be a primary society. Secondly, many of the primary milk producing societies from whom the appellant is collecting the milk are also assessed in various charges and it is learnt that they are also claiming deduction u/s. 80P(2)(b) on account of being primary milk producing societies. This fact was also brought to the notice of the appellant’s AR. To this the appellant has submitted that there is no bar on both the levels claiming the said deduction. This argument of the appellant is also not acceptable. If it was the intention of the legislature to allow the said exemption to all cooperative societies engaged in the production and supply of milk, the same would have been clearly mentioned in the Act itself. As it stands now, the relevant Section clearly states that the deduction is available only to a primary society. Thus, the appellant is clearly not eligible to claim deduction u/s. 80P(2)(b) which has been rightly disallowed by the AO.

4.2.4 The appellant has also argued that the said deduction has been claimed by it and also allowed in the earlier assessment years and therefore should be allowed during the year under consideration as well. However, it is a settled principle of law that the principle of res judicata does not apply to assessment proceedings. Hence, the appellant’s contention in this regard is rejected by relying upon the following decisions:-

(a) Res Judicata not applicable as each assessment year is a separate proceedings – M.M. Ipoh & Ors. Vs. CIT (SC) 67 ITR 106, New [ehanglr Vakil Mills Co. Ld. Vs. CIT (SC) 49 IR 137, Bharat Sanchar Nigam Limited & Anr. Vs. Union of India & Ors. (SC) 282 ITR 273.

(b) The fact that its claim was not questioned in earlier years does not entitle the assessee to contend that the law should not be applied during the A.Y. – CIT Vs. Seshasayee Industries Ltd. (Mad.) 242 ITR 691.

(c) To perpetuate an error is not heroism – The doctrine of stare decisis should not deter the Court from overruling an earlier decision, if it is satisfied that such decision is manifestly wrong or proceeds upon a mistaken assumption in regard to the existence or continuance of a statutory provision or is contrary to another decision of the court – Distributors (Baroda) P. Ltd. Vs. CIT (SC) 155 ITR 120.

(d) A patently wrong view taken in the past cannot be allowed to perpetuate on the basis of consistency – Indian Vaccines Corporation Ltd. Vs ITO 2010- TIOL-587-ITAT-DEL, Jat Education Society Vs DCIT (ITAT, Del) 10 taxmann.com 127

(e) Facts can be reconsidered in a later year and record different finding-Finding for earlier year not conclusive – Ace Investments (P) Ltd. Vs. CIT (Mad) 244 ITR 166.

4.2.5 During the year under consideration, through the enquiries made during the appellate proceedings, it is established that the appellant is only one of the 18 district level cooperative societies and along with 17 other said district level societies is engaged in the process of collecting milk from the various primary milk producing cooperative societies and supplying it to the GMMF. As such, its nature is that of an intermediary society and not a primary society. In view of the detailed discussion above, I find no reason to disagree with the finding of the AO and it is held that the appellant was not eligible to claim the said deduction. Accordingly the disallowance made by the Assessing Officer amounting to Rs.1,11,42,436/- on account of deduction of u/s. 80P(2)(b) of the Act is confirmed. Grounds of appeal Nos. 1 to 3 are dismissed.

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

4. The learned AR before us filed a paper book running from pages 1 to 123 and submitted as under:

1. The society constituted for the supply of milk to the Federation by way of acquiring milk from the farmers and performing quality checks.

1. The supplies milk raised by their members and do not themselves produce milk.

1. The main role of the society is to directly interact with the lower level farmers and to carry out transactions with them. Therefore, the society is duly considered as the primary co-operative society.

1. All the benefits/sale proceeds to the society have been passed on to the society members. The society retained only minimum portion.

1. Deduction u/s.80P(2)(b) is available only if the society is engaged in the supplying milk etc. raised or grown by the members of the society to the Federation.

1. The word “primary” is not defined in the law so it has to be understood in larger respect.

1. The section 80P(2)(b)(i) clearly states that the deduction is available to all other societies other than the Federal Co-operative Society.

1. A small agricultural Co-operative society does not have any facilities to supply milk to federation; it can become a member of apex society which may supply milk to federation. The society can supply milk only to the Federation to which it is federated and not to any other agency.

4. The detailed eligibility criteria to supply milk to federation society has been stated in para 4.1 page 8 of the CIT(A) order.

1. The language adopted in the section 80P(2)(b) will admit the interpretation that the society is engaged in supply of milk to the federation produced by its members.

1. The provision of section 80P admits a wider exemption and there is no reason to cut down scope of the provision.

1955. CBDT Circular no.14(XL-35),dated April 11,1955.

1. Past Assessments Deduction u/s80P(2)(b) is allowed. Thereafter no material change in activities.

5. On the other hand, the learned DR vehemently supported the order of the authorities below by reiterating the findings contained therein.

6. We have heard the rival contentions of both the parties and perused materials available on record. The issue in the case on hand relates whether the assessee is eligible for deduction under section 80P(2)(b) of the Act in the given facts and circumstances. Admittedly, it appears that the assessee is not the primary co-operative society but its activities are depending upon the primary co-operative societies. As such the primary co-operative societies can also not operate without the assessee being a district level society. As such the activities of the assessee are interlinked with the activities of the primary co-operative societies.

6.1 Moreover, the primary co-operative societies will be eligible only when they supply milk to a federal co-operative society. To our mind, the assessee is not federal co-operative society to whom these primary co-operative societies are supplying the milk. Thus, even the primary co-operative societies in the given facts and circumstances will not be eligible to enjoy the benefit of the deduction provided under section 80P(2)(b) of the Act. Thus in such a situation we are of the view that the provisions of section 80P(2)(b) of the Act should be read liberally. In this regard we find support and guidance from the judgment of Hon’ble Supreme Court in the case of Broach Distt Co-operative Cotton Sales, Ginning & pressing Society Ltd. Vs. CIT reported in 177 ITR 418. The relevant extract of the judgement is reproduced as under:

“The sale of the cotton was effected by the assessee to the outside world and not to its members. The object of section 81(i) was to encourage and promote the growth of co-operative societies, and, consequently, a liberal construction must be given to the operation of that provision.”

6.2 Besides the above, we also note that the assessee has been claiming the deduction under section 80P(2)(b) of the Act consistently for the last several assessment years and there was no disallowance even in the assessment framed under section 143(3) of the Act pertaining to the assessment years 2004-05, 2005-06, 2007-08 and 2009-10 and 2010-11. The assessment orders for the assessment years mentioned above are placed on pages 54 to 62 of the paper book. Therefore we are of the view that claim of the assessee should be allowed on the basis of principles of consistency. In this regard we find support and guidance from the judgment of Hon’ble Supreme Court in the case of CIT versus Excel Industries Ltd reported in 358 ITR 295 wherein it was held as under:

28. Secondly, as noted by the Tribunal, a consistent view has been taken in favour of the assessee on the questions raised, starting with the assessment year 1992-93, that the benefits under the advance licences or under the duty entitlement pass book do not represent the real income of the assessee. Consequently, there is no reason for us to take a different view unless there are very convincing reasons, none of which have been pointed out by the learned counsel for the Revenue.

• 29. In Radhasoami Satsang Saomi Bagh v. CIT [1992] 193ITR 321/60 Taxman 248 (SC) this Court did not think it appropriate to allow the reconsideration of an issue for a subsequent assessment year if the same “fundamental aspect” permeates in different assessment years. In arriving at this conclusion, this Court referred to an interesting passage from Hoystead v. Commissioner of Taxation, 1926 AC 155 (PC) wherein it was said:

“Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken.”

6.3 In view of the above and after considering the facts in totality, we are of the view that the assessee is eligible for deduction under section 80P(2)(b) of the Act. Accordingly we reverse the order of the authorities below. Thus the AO is directed to allow the claim of the assessee as per the provisions of law. Hence the ground of appeal of the assessee is allowed.

The 2nd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO on account of delay in deposit in the contribution of employees Provident fund and employees state insurance for 4,05,105.00

7. At the outset the learned AR before conceded the fact that the issue is covered against the assessee by the Hon’ble Gujarat High Court in the case of CIT vs. GSTRC reported in 41 taxmann.com 100 wherein it was held as under:

“In view of the above and for the reasons stated above, and considering section 36(1)(va) of the Income Tax Act, 1961 read with sub-clause (x) of clause 24 of section 2, it is held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section (2) applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees’ account in the relevant fund or funds on or before the “due date” mentioned in explanation to section 36(1)(va). Consequently, it is held that the learned tribunal has erred in deleting respective disallowances being employees’ contribution to PF Account / ESI Account made by the AO as, as such, such sums were not credited by the respective assessee to the employees’ accounts in the relevant fund or funds (in the present case Provident Fund and/or ESI Fund on or before the due date as per the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees’ contribution to the employees’ account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act. ”

In view of the above, we don’t find any reason to interfere in the finding of order of the authorities below. Hence the ground of appeal of the assessee is dismissed.

The 3rd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of 6,13,744 on account of cash payment exceeding 20,000 under the provisions of section 40A(3) of the Act.

8. The AO during the assessment proceedings observed that the assessee has made cash payment exceeding 20,000 violating the provisions of section 40A(3) read with rule 6DD of Income Tax Rule amounting to 6,13,744.00 only. Accordingly the AO disallowed the same and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

9. The assessee before the learned CIT (A) submitted that the impugned cash payment represents the expenses incurred in the routine manner and the recipients demand such payment only in cash. Accordingly the assessee claimed that it is entitled for the deduction on account of business expediency.

9.1 However the learned CIT (A) disregarded the contention of the assessee by observing that the impugned cash payment does not fall in any of the exception provided under rule 6DD of the Income Tax Rule. Accordingly the learned CIT (A) confirmed the order of the AO.

10. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. The learned AR before us submitted that in none of the case the payment is exceeding 20,000. The learned AR in support of his contention drew our attention on pages 66 to 107 where the copies of the sample vouchers were placed. Therefore the learned AR claimed that the provisions of section 40A(3) of the Act are not applicable in the instant case.

11. However, the learned DR submitted that the vouchers placed in the paper book demonstrating that the cash payment was less than 20,000 were not produced before the authorities below. The learned DR accordingly submitted that these papers cannot be considered for deciding the issue on hand.

12. The learned AR in his rejoinder requested the bench to restore the matter to the AO for the fresh adjudication. The learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per the provisions of law. The learned DR vehemently supported the order of the authorities below.

13. We have heard the rival contentions of both the parties and perused the materials available on record. The facts regarding the impugned dispute are arising from the order of the authorities below. Therefore, the consideration of these documents as discussed above is necessary for adjudication the issue on hand. Therefore we admit the same and restore the issue to the file of the AO for fresh adjudication as per the provisions of law. It is needless to mention that the assessee should co-operate in the proceedings before the AO. Hence the ground of appeal of the assessee is allowed for the statistical purposes.

The 4th issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of 40,000 on account of non-deduction of TDS.

14. At the outset the learned AR for the assessee submitted that he has been instructed not to press the impugned issue. Therefore we dismiss the same as not pressed.

The 5th issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by treating the profit on sale of land as business income and without allowing the indexation benefit under section 48 of the Act.

15. At the outset we note that the assessee in the year under consideration has sold different pieces of lands and earned a profit of 5,52,499 only. But the assessee has neither computed the long-term capital gain as per the provisions of section 50C of the Act nor claimed the benefit of indexation as provided under section 48 of the Act. Therefore, the AO treated the same as business income of the assessee and made the addition to the total income. We further find that, there was no discussion in the order of the learned CIT (A).

16. The learned AR before us accordingly prayed to restore the impugned issue to the file of the AO for fresh adjudication as per the provisions of law.

17. On the other hand the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per the provisions of law. The learned DR vehemently supported the order of the authorities below.

18. We have heard the rival contentions of both the parties and perused the materials available on record. The facts regarding the impugned dispute are arising from the order of the AO. But there was no discussion in the order of the learned CIT (A). We also note that the AO has not observed the provisions of section 50C and 48 of the Act. Therefore we restore the issue to the file of the AO for fresh/de-novo adjudication as per the provisions of law. It is needless to mention that the assessee should co-operate in the proceedings before the AO. Hence the ground of appeal of the assessee is allowed for the statistical purposes.

The next issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by not providing deduction of interest of 1,86,33,269.00 under section 80P(2)(d) of the Act.

19. The assessee in the year under consideration has shown gross interest income amounting to Rs. 4,41,44,006.00 only. The impugned interest income was earned by the assessee on the deposits made with the nationalized banks/private banks/co-operative banks. The assessee against such gross income has also claimed to have incurred interest expenses amounting to 2,86,16,074.00 only. Thus the net positive income comes for Rs. 1,55,27,932.00. But in the assessment order the amount mentioned as net interest income of 1,86,33,269.00 only.

19.1 The assessee has shown such interest income and the expenses in the profit and loss account and worked out the net profit at 1,11,42,336.00. The relevant extract of the computation of income stands as under:

Particulars

Amount

Amount

Net Profit as per Profit and Loss account

1,11,42,336

 

Add: Depreciation as per book

1,38,98,042

 

Less:Depreciation as per rule

(1,38,98,042)

 

Total

1,11,42,336

 

Less: Income from other sources

(1,86,33,268)

 

Income from Profits and Gains of Business and Profession

 

(74,90,933)

Interest Taxed under Income from other Sources

 

1,86,33,269

Total Taxable Income

 

1,11,42,336

19.2 Thus the assessee claimed the deduction under section 80P(2)(b) of the Act was worked out after considering the interest income and the expenses as discussed above amounting to 1,11,42,336.00

19.3 However, the AO was of the view that the assessee is not eligible for deduction under section 80P(2)(b)/ 80P(2)(d) of the Act on account of such interest income. It is because such interest income was not arising from the eligible activity as specified under section 80P(2)(b) of the Act. Accordingly, the AO treated such interest income of 1,86,33,269.00 as income from other sources and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

20. The assessee before the learned CIT (A) submitted that it has accepted deposits from its member on interest basis as per its policy which was subsequently deposited with the bank in order to reduce the burden of interest on such deposits. Accordingly the assessee claimed that such interest income was arising in the course of its activities having direct nexus. Therefore the assessee claimed to be eligible for deduction under section 80P(2)(b) of the Act.

20.1 The assessee also submitted that it has deposited the amount with the nationalized and private banks from safety point of view. As such certain co-operative banks became bankrupt.

Without prejudice to the above, the assessee also submitted that the interest expenses incurred against such interest income should only be considered for the purpose of the disallowance.

21. However, the learned CIT (A) disregarded the contention of the assessee by observing as under:

8.2.1 Thus the contention of the appellant is not acceptable. Firstly, as per the provisions of the relevant section, it is clear that a co-operative society engaged in carrying on business of banking or providing credit facilities to its members is eligible to claim deduction u/s 80P(2)(a)(d) of the Act from investments made with another coopera.ive society, The appellant is not engaged in the business of banking or providing credit facilities to its members. Secondly, this issue of taxability of interest income from fixed deposit with nationalized banks has in any case been settled by the decision of the Hon’ble Gujarat High Court in the case of SBI vs CIT 389 ITR 578 wherein it has been held that no deduction can be given on interest income earned on fixed deposits with nationalized banks. The finding of the Hon. Court is reproduced as under-

” …. That the assessee did not carry on any banking business and its objects did not contemplate investment of surplus funds received from its members. The business of a credit society like that of the assessee was limited to providing credit to its members and the income that was earned by providing such credit facilities to its members was deductible under section 80P(2) ( a)(i). The character of interest was different from the income attributable to the business of the assessee-society providing credit facilities to its members. The interest income derived from investing surplus funds with the bank must be closely linked with the business of providing credit facilities for is to be held attributable to the business of the assessee. Therefore, the profits and gains could be said to be directly attributable to the business of providing credit facilities to its members if there was a direct and proximate connection between the profits and gains and the business of the assessee. There was no obligation on the assessee to invest its surplus funds with the bank. Investing surplus funds in a bank was no part of the business of the assessee providing credit facilities to its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i).

8.2.2 In another recent judgement, the Hon Ahmedabad ITAT in the case of Shree Modhpatni Co-op Credit Society Ltd. Vs. DCIT in ITA No. 2710/Ahd/2015 vide order dated 10/04/2017 has held as under-

” … In the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2) (a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co- operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act.

8.2.3 In view of the detailed discussion above and respectfully following the decision of the Hon’ble Gujarat High Court cited supra, as well as the decision of the Hon’ble ITAT, Ahmedabad referred to above, the disallowance of Rs.1,86,33,269/-

Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us.

22. The learned AR before us reiterated the submissions as made before the authorities below. The learned AR also asserted that if the claim of the assessee is denied for the deduction of interest income under section 80P(2)(b) of the Act, then the same should be allowed under section 80P(2)(d) of the Act.

23. On the contrary, the learned DR supported the view of the authorities below by reiterating the findings contained therein.

24. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates whether the assessee is entitled for the deduction on account of interest income on the deposits made with the nationalized banks/private banks/co-operative banks.

24.1 The 1st question arises before us for our adjudication whether the impugned interest income can be treated as arising from the eligible activity as specified under section 80P(2)(b) of the Act. At this juncture, we find important to refer the provisions of section 80P(2)(b) of the Act which reads as under:

4[Deduction in respect of income of co-operative societies.

580P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely :—

(a) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

[(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to—

(i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or

(ii) the Government or a local authority; or

(iii) a Government company4 5 * * * * * * * 13 as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount ofprofits and gains of such business;]

On perusal of the section above, it is revealed that there is no mention about any interest income from whatever source. Therefore, we are not in agreement with the argument of the learned counsel for the assessee that the assessee is eligible for the deduction of interest income under section 80P(2)(b) of the Act.

The 2nd question arises before us for our adjudication whether the impugned interest income can be subject to deduction under the provisions of section 80P(2)(d) of the Act. At this juncture, we find important to refer the provisions of section 80P(2)(d) of the Act which reads as under:

4[Deduction in respect of income of co-operative societies.

580P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely :—

(a) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;

24.2 On perusal of the section above, it is revealed that the assessee can claim the deduction of interest /dividend income if it is derived from the investments with any other co-operative society. Thus the possibility of claiming the deduction under section 80P(2)(d) of the Act on account of interest income from the deposits made with the nationalized/private banks is ruled out. In this connection we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT reported in 72 taxmann.com 64 wherein it was held as under:

“Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i). If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d).”

24.3 Taking up the matter further regarding the interest income from the deposits made with the co-operative banks, we note that a cooperative bank is basically a cooperative Society only. It becomes a cooperative bank upon getting a license from the Reserve Bank of India. Therefore, in our considered view such amount of interest income from the deposits made with the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. In this regard we find support and guidance from the judgment of Hon’ble High Court of Gujarat in the case of Surat Vankar Sahakari Sangh Ltd. Vs. a CIT reported in tax appeal numbers 93 to 96 of 2008 wherein the head note reads as under:

Section 80P of the Income-tax Act 1961- Deductions- Income of co-operative societies (Computation of deduction) – Assessment Years 1991-92 to 1994 – Whether assessee-co-operative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank – Held, yes [In favour of assessee]

We are also conscious to the fact that the assessee has shown interest income as part of the business income, therefore if the same is treated as income from other sources, then the same should be reduced from the business income. But the AO has not done so. Thus in the given facts & circumstances, the amount of interest income has been added twice resulting the double addition to the total income of the assessee. Therefore, we direct the AO to be careful in effect giving order.

We also make it clear that in case there arises some loss from the activity carried on by the assessee i.e. procuring and supplying the milk on account of the adjustment as discussed above, then such loss can be set off against the income from any other head as per the provisions of law.

In view of the above, we hold that the assessee cannot claim the benefit of section 80P(2)(d) of the Act in respect of the interest earned by it from the deposits made with the nationalized/private banks. But the assessee is eligible for deduction under section 80P(2)(d) of the Act in respect of the interest income on the deposits made with the co-operative bank.

24.4 Before parting, we note that there were certain calculation errors in the order of the AO while working out the net interest income. Such as, the net interest income as discussed above is of Rs. 1,55,27,932.00 only whereas the AO has made the addition of 1,86,33,269.00 only.

24.5 Accordingly, we direct the AO, while working out the amount of disallowance with respect to the interest income earned on the deposits made with the nationalized/private banks, to allow the direct corresponding expenses incurred by the assessee with respect to such income. Accordingly, for this limited purpose, we are setting aside the impugned issue to the file of the AO for fresh verification/examination the amount of disallowance under section 80P(2)(d) of the Act as per the provisions of law after providing a reasonable opportunity of being heard to the assessee. Hence the ground of appeal of the assessee is partly allowed for the statistical purposes.

In the result the appeal of the assessee is partly allowed for the statistical purposes.

Coming to ITA 263/RJT/2018 for A.Y.2013-14

The assessee has raised following grounds of appeal:

1. That, the learned CIT(A) has not appreciated the nature of transactions 1 operation and the role played by the appellant co-operative Society and wrongly disallowed the deduction u/s 80P(2)(b), however the primarily objects and activities of the appellant society are duly eligible for the deduction u/s 80P(2)(b) of the act.

1.1 That, the learned CIT(A) has grossly erred in law and on facts by wrongly confirming the disallowance of Rs. 1,24,61,4981- u/s 80P(2) (b) of LT. Act, 1961 by stating that the nature of activity of the appellant is of an intermediary society and not of a primary co-operative society, hence not eligible for deduction u/s. 80P(2)(b) of LT. Act, 1961.

2. That, the learned CIT(A) has wrongly confirmed the disallowance of contribution to Employees’ Provident Fund and Employees’ State Insurance of Rs. 1,72,3941- u/s 438 of IT. Act, 1961 by stating that the same is not deposited within the due date prescribed under section 36(1)(va) of the I. T. Act, 1961.

3. That, the learned CIT(A) has wrongly confirmed the disallowance of expenses amounting to Rs. 2,30,754/- u/s. 40A(3) of the IT. Act, 1961.

4. That, Learned AD has wrongly assessed interest income of Rs. 1,43,91,7751- as part of net profit from “Business & Profession” and also assessed the same income as income under the head “Income from other sources” and therefore the said income has been taxed twice.

4.1 That, the learned CIT(A) has wrongly confirmed the disallowance of deduction of interest Rs. 1,43,91,7751- u/s 80P(2)(d) of IT. Act, 1961 by stating that the interest earned from Nationalized and Private Commercial Bank are not eligible for deduction u/s 80P(2) (d).

4.2 That, the learned CIT(A) has wrongly confirmed the disallowance of deduction of interest earned from Co-operative Bank Rs. 67,22,6081 u/s 80P(2)(d) of IT. Act, 1961. The said Interest income is also part of the Gross Taxable income shown in the Profit And Loss account.

5. That the Learned Assessing Officer has not allowed the deduction u/s.80P(2)(d) of Dividend income of Rs.47,70,000/- earned from the investment in Co-operative Society.

6. That, the findings of the learned CIT(A) and Assessing Officer are not justified and bad-in-law. The appellant craves to add, alter, amend or delete any of the above grounds of appeal.

The 1st issue raised by the assessee in ground No. 1 is that the learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of 1,24,61,498.00 under the provisions of section 80P(2)(b) of the Act.

25. At the outset we note that, we have decided the identical issue in the own case of the assessee in its favour bearing ITA No. 262/RJT/2018 pertaining to the assessment 2012-13. For the detailed discussion, please refer to the relevant paragraph No. 6 of this order. Respectfully following the same, we do not want to uphold the finding of the authorities below. Hence the ground of appeal of the assessee is allowed.

The 2nd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO on account of delay in deposit in the contribution of employees Provident fund and employs state insurance for 1,72,3394.00

26. At the outset we note that, we have decided the identical issue in the own case of the assessee in favour of Revenue and against the assessee bearing ITA No. 262/RJT/2018 pertaining to the assessment 2012-13. For the detailed discussion, please refer to the relevant paragraph No. 7 of this order. Respectfully following the same, we do not want to uphold the finding of the authorities below. Hence the ground of appeal of the assessee is dismissed.

The 3rd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of 2,30,754 on account of cash payment exceeding 20,000 under the provisions of section 40A(3) of the Act.

27. At the outset we note that, we have decided the identical issue in the own case of the assessee for statistical purposes bearing ITA No. 262/RJT/2018 pertaining to the assessment 2012-13. For the detailed discussion, please refer to the relevant paragraph No.13 of this order. Respectfully following the same, we do not want to uphold the finding of the authorities below. Hence the ground of appeal of the assessee is allowed for statistical purposes.

The 4th issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by not providing deduction of interest of 1,43,91,775.00 under section 80P(2)(d) of the Act.

28. At the outset we note that, we have decided the identical issue in the own case of the assessee for the statistical purposes bearing ITA No. 262/RJT/2018 pertaining to the assessment 2012-13. For the detailed discussion, please refer to the relevant paragraph No. 24 of this order. Respectfully following the same, this ground of appeal is allowed for statistical purposes. Hence the ground of appeal of the assessee is allowed for statistical purpose.

29. In the combined results, both the appeals of the assessee are partly allowed for statistical purposes.

This Order pronounced in Open Court on 20/09/201