TaxTMI 
TaxTMI 
2019 (9) TMI 978
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofit 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 Rs. 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 cooperative 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 fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 deducti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mary 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 principl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved 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: a. The society constituted for the supply of milk to the Federation by way of acquiring milk from the farmers and performing quality checks. b. The supplies milk raised by their members and do not themselves produce milk. c. 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. d. All the benefits/sale proceeds to the society have been passed on to the society members. The society retained only minimum portion. e. 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. f. The word "primary" is not defined in the law so it has to be understood in larger respect. g. The section 80P(2)(b)(i) clearly states that the deduction is available to all other societies other than the Federal Co-operative Soc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....otton 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 un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f delay in deposit in the contribution of employees Provident fund and employees state insurance for Rs. 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 res....
X X X X Extracts X X X X
X X X X Extracts X X X X
....duced 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 Rs. 2,86,16,074.00 only. Thus the net positive income comes for Rs. Rs. 1,55,27,932.00. But in the assessment order the amount mentioned as net interest income of Rs. 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 Rs. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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 ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ow 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) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpenses 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 ap....