Income Tax Appellate Tribunal: Cooperative societies exempt from sec. 40(A)2(b) ruling. Revenue appeal dismissed.

The ITAT Surat ruled that section 40(A)2(b) of the Income Tax Act does not apply to cooperative societies. The appeal by the revenue was dismissed, upholding the decision of the ld.CIT(A) in favor of the assessee.

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Issues Involved:
Disallowance under section 40A(2)(b) of the Income Tax Act for excess payment to farmers by a cooperative society.

Analysis:
The appeal before the ITAT Surat concerned the disallowance of excess payment made by a cooperative society to farmers under section 40A(2)(b) of the Income Tax Act for the assessment year 2009-10. The Assessing Officer observed that the society paid a price for sugarcane to farmers above the statutory minimum price, leading to the disallowance of Rs. 5,92,19,981. The assessee contended that section 40A(2)(b) did not apply to cooperative societies, as supported by the decision of ITAT Pune Bench in a similar case. The ld.CIT(A) allowed the appeal, relying on the ITAT and Bombay High Court decisions that the provision did not apply to cooperative societies.

During the appellate proceedings, the ld.DR supported the Assessing Officer's order, while no representation was made from the assessee's side. The ITAT noted that the ITAT Pune Bench had previously held that cooperative societies have a special status and are distinct entities under the Income Tax Act. It was emphasized that cooperative societies are formed for social purposes and not for entrepreneurial profits, distinguishing them from business associations. The ITAT also highlighted that the Bombay High Court had ruled that section 40A(2) does not apply to cooperative societies, further reinforcing the non-applicability of the provision to such entities.

The ITAT found that the cooperative society in question had specific characteristics, such as limitations on individual shareholders' beneficial interests and restrictions on share subscriptions without government approval. These facts were not disputed by the Assessing Officer. Considering the legal precedents and the unique nature of cooperative societies, the ITAT concluded that section 40(A)2(b) of the Act did not apply to cooperative societies. Therefore, the ITAT upheld the decision of the ld.CIT(A) and dismissed the revenue's appeal.

In conclusion, the ITAT Surat held that the provisions of section 40(A)2(b) of the Income Tax Act were not applicable to cooperative societies. The appeal filed by the revenue was consequently dismissed, affirming the decision of the ld.CIT(A) in favor of the assessee.

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