AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 562
X X X X Extracts X X X X
X X X X Extracts X X X X
....d with Income Tax Appellate Tribunal, Varanasi (hereinafter called "the tribunal"), reads as under: "1. That the order of the Ld. CIT(A) is perverse and bad in law. 2. The Ld. CIT(A) has erred in law and fact to treat Commission Income arising out of Core business activity, disregarding that it was incidental to its business of marketing of agricultural produce. 3. The relief given by CIT(A) is without appreciating the full facts and legal position as well as objective of section 80P(2)(a)(iii) of the I.T. Act. 4. The appellant craves right to add alter or amend any ground which may be taken at the time of hearing." 3. This appeal is filed by Revenue. The brief facts of the case are that the assessee is Co-operative society. The assessee e-filed its return of income, on 31st July, 2013 for impugned assessment year 2013-14, declaring Nil income. The case of the assessee was selected by Revenue under CASS for framing scrutiny assessment u/s 143(3) read with Section 143(2) of the 1961 Act. The notice dated 04.09.2014 under Section 143(2) was issued by AO to the assessee, which was claimed by Revenue to have been duly served on the assessee. There was part compliance to this n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....per bylaws and written submissions of the assessee, are as under: "(i)They are doing business of marketing of agricultural produce being sugar cane grown by our member who are the farmer (sugar cane growers). The assessee submitted that the farmers who grow sugar cane, obtain their membership when the season comes for crushing of the sugar cane, the members, who desire to sell. (ii)Their sugar cane grower approach them for issue of Ganna parchi to them as according to govt. rules & regulations, the assessee further submitted that Ganna Parchi issued by the cooperative society which is just a certificate as to the membership of the person named therein, mention the names and address of the members supplying sugar cane besides the name of the sugar mill where the members has to make supply and also the quantity of the cane to be supplied. On receipt of ganna parchi, the supplier members take their sugar cane to be sugar mill named in the parchi where weight of the sugar cane is taken by the sugar mill authorities but under inspection supervisions of our staff and then the delivery of sugar cane is accepted by the sugar mill. For the said activity of marketing a commission at the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion receipts, and the assessee was asked by AO to give reply to the same. 3.5 The assessee submitted in reply thereof with respect to proposed disallowance of deduction under Section 80P(2)(a)(iii) with respect to gross commission receipts to the tune of Rs. 2,70,99,232/- to the AO, as under: "The disallowance of the deduction u/s 80P(2)(a)(iii) in respect of the net profit out of the commission receipts from the sugar mills is also not justified and correct as we are a registered cooperative society. Our bylaws is also registered a copy of which has already been filed. Our objects have been setforth in this bylaws. These objects have been the same since their registration in the year 1950 and therefore, these objects and all our activities as per these objects during (A.Y. 06-07) and onwards have also been the same. Our assessment for A.Y. 06-07, for which in return was filed showing net loss, was completed u/s 143(3) vide assessment order dt. 31.12.2008 making many additions against which an appeal was filed. In this appeal No. 59/ACIT/R-II/GKP/08-09, The Ld. CIT(A)-III, Lko, vide its order dt. 09/08/09, deleted all the additions in consequences of which the returned net loss ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been completed u/s 143(3) a copy of which is enclosed. In this assessment the deduction u/s 80P(2)(a)(iii) in respect of said commission receipts has been allowed by you and since the nature of the activities are the same as in A.Y. 06-07 and 07-08 hence the deduction u/s 80P(2)(a)(iii) in respect of the net profit out of commission receipts for the year is also deserves to be allowed. In case of another assessee namely "Kashipur Sahkari Ganna Vikash Samiti, Kashipur" (PAN No. AAAT8319A), which is doing similar activities under similar objects and received the similar commission against similar activities, the deduction u/s 80P(2)(a)(iii) has been allowed by the ITO-1, Kashipur, in the order dt. 12.09.08 passed u/s 143(3), a copy of which is enclosed. It is therefore, requested to kindly accept the above explanation and allow the deduction claimed u/s 80P". 3.6. The AO rejected the contentions of the assessee , by observing as under: "5.1The assessee has earned commission income of Rs.2,70,99,232/- from one party for marketing of the cane sugar. 5.3 Deduction under Section 80P(2)(a)(iii) is available to the Co-operative society in respect of income earned from marketing of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he several business referred to in section 80P(2). The business of the assessee society must have a direct or proximate connection with or nexus to the earning of income in order to enjoy the exemption. It was held in the case of Andhra Pradesh Co-operative General Land Mortgage Bank Ltd Vs. CIT (1975), 100 ITR (AP) The exemption clause in a taxation statute has to be construed strictly and cannot be extended beyond the clear language used in the section it was held in the case of Kota Co-operative Marketing Ltd. Vs CIT (1994) 207 ITR 608,612 (Raj.) 100% deduction could be availed only where the income was derived from the specific activities. The activity which was not so specified could not enjoy the full exemption. Deduction under Section 80P is allowable on the net profit of activity carried out by the society and further setting off of losses of the earlier year u/s 72. In the case of Vidarbha Co-operative Marketing Society Ltd. CIT(1983) 36 CTR 400 (1985) 156 ITR 422 (BOM). Held that the whole object of section 81 was to exempt profit and gains of the business of cooperative society, if it carried on the business as specified in the several clause of that Section. It is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or confirmed to the area of operation define. The cane council unions/societies are claiming exemption u/s 80P(2)(a)(iii) on account of marketing of agricultural produce grown by its members, the claim does not appear to be justified in view of the fact that the area of jurisdiction of such cane development unions is specified the sugar mills to whom the farmers can sell their produce are also earmarked and there is no marketing per se which can be said to have been carried out by such societies. Marketing involves a gamut of activities including surveys of the market, identification of buyers, facility for purchasing the produce of its members and other activities like exploring avenues for giving a competitive and remunerative price for the sale of the produce. The produce being cane can only be sold to the sugar mills for crushing and manufacture of sugar and other by product. Once the captive area, where the produce can be consumed, is localized to such an extent that the farmers of particular village sell their produce to a particular mill, there is no marketing involved in the whole process as such. As per the state Government of UP law i.e. UP Sugarcane (Regulation of Suppl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ommissions received from the sugar mills. 8.1 Further it will be not out of place to mention here that on the same issue in the earlier year in present case the Ld. CIT(A)-III Lucknow has not allowed the claim of assessee for deduction u/s 80P(2)(a)(iii) on marketing of agricultural produce grown by its members, when it is sold to Single sugar mills. In similar type of Co-operative Cane Society, the department has also filed an appeal before Hon'ble ITAT against order of Ld. CIT(A). The appeal yet to be decided by Hon'ble ITAT. As the issue is alive before Hon'ble ITAT, therefore, same stand has been taken in this case also. 8.2 During the course of assessment proceedings , the AR of the assessee has filed a reply on 19.10.2015 vide para 1 submitted a revised computation alongwith manual return but same cannot be accepted in view of Hon'ble Supreme Court decision rendered in the case of M/s Goetze (India) Ltd. Vs. CIT reported vide 204 CTR SC 182 wherein Hon'ble Court has held that the assessee cannot claim any deduction and amendment in the rerun of income by modifying an application at assessment stage without revising return. 8.3 In view of the above discussion it is held ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ire activity of the appellant society is guided by the policies and rules of the State Government. The state government through , its Cane Commissioner, formulates and implements the policy for purchase and sale of sugar cane for each crushing season. They area of the appellant society is also ascertained by the Cane Commissioner. The appellant society receives the proposal from the mills and makes an offer to the concerned sugar mill for supply of sugar cane. Thereafter the sugar mill executes an agreement with the appellant, on the basis of which sugar cane is supplied by the members to the mills. The fixation of the selling price for the members is also negotiated by the appellant. Thereafter purchase centers are established and physical of the sugar cane is made by the appellant society. The said issue is covered by the decision of CIT(A)-3, Lucknow in her order dated 25.08.2014 in Appeal No. 123/66/DCIT/GKP/CIT(A)-3/LKO/13-14 in the case of Sahkari Ganna Vikas Ltd. Khadda. In this order Ld. Commissioner of Income Tax (A)-3 has held that the activities of the appellant society as marketing activity and claim for deduction u/s 80P(2)(a)(iii) of the Act was allowed. Recently ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee u/s 80P(2)(a)(iii) . Our attention was drawn to the appellate order passed by ld. CIT(A). The Ld. DR submitted that matter can be restored to the file of the AO for fresh determination of the issue on merits, for which reliance was placed by ld. DR on the appellate order dated 11.03.2022 passed by tribunal in ITA No. 92&93/ALLD/2020(in which both of us were part of DB who pronounced the said order) in the case of ITO v. Sahkari Ganna Vikas Samiti. 6. We have heard ld. Departmental Representative and perused the material on record. This appeal was heard in open court proceedings through physical hearing mode. None appeared on behalf of the assessee, when this appeal was called for hearing before the DB. However, the assessee has filed written submissions and prayers were made by assessee to adjudicate this appeal based on written submissions filed by assessee and other material on record. The solitary issue in this appeal concerns itself with disallowance of deduction claimed by assessee u/s 80P(2)(a)(iii) of the 1961 Act by the AO on the ground that the assessee is not engaged in marketing of agricultural produce grown by its members, and is merely a facilitator / agent for ens....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ar.) . The AO observed that marketing is an expression of wide import and generally means the performance of all business activities involved in flow of goods and services from the point of initial agricultural production until they are in hands of ultimate consumers. The marketing function involves exchange function such as buying and selling , physical function such as storage , transportation, processing and other commercial functions such as standardization , financing , marketing intelligence etc.. The sugar cane societies are formed for disbursement to farmers. It is not involved in transportation or storage or in the processing of cane till it reaches ultimate consumers . The AO observed that since no marketing is involved in mere selling of sugarcane to sugar mills, therefore deduction u/s 80P(2)(a)(iii) is not allowable on the profits and gains attributable to the commission received from the sugar mills. The AO observed that the assessee is not engaged in marketing of agricultural produce grown by its members, and is merely a facilitator / agent for ensuring timely payments to the farmers for the purchase of sugar cane by sugar mills for which it is entitled to receive co....