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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: SHRI ANIL CHATURVEDI, AM
आदेश / ORDER
PER ANIL CHATURVEDI, AM :
These two appeals filed by assessee are against the order of 1. Commissioner of Income Tax (Appeals) – 1, Kolhapur for the assessment years 2014-15 and 2015-16, respectively.
Before me, both the parties submitted that though the appeals are for two different assessment years but the issue involved in both the appeals are identical except for the assessment year and the amounts involved. They therefore submitted that they have common arguments for both the years. In view of the aforesaid facts, I, for the sake of convenience proceed to dispose of both the appeals by a consolidated order but however proceed with narrating the facts for assessment year 2014-15.
ITA No. 2215/PUN/2017, (A.Y. 2014-15)
The relevant facts as culled out from the material on record are as under :-
Assessee is a Co-operative Society registered under the Co- operative Societies Act. The society is engaged in the business of collecting milk from primary societies and supplying the same to federal society as well as non-federal parties. The assessee filed its return of income for A.Y. 2014-15 on 29-11-2014 declaring total income at Nil by claiming deduction of Rs.43,36,867/- u/s. 80P of the Act. The case was selected for scrutiny and thereafter assessment was framed u/s 143(3) of the Act vide order dated 26-10-2016 and the total income was determined at Rs.47,15,250/- by inter alia denying the claim of deduction u/s. 80P of the Act.
Aggrieved by the order of AO, assessee carried the matter before Ld. CIT(A), who vide order dated 04-07-2017 (in appeal No. SLI/126/16- 17) dismissed the appeal of assessee. Aggrieved by the order of Ld. CIT(A), assessee is now in appeal and has raised following effective grounds : “On the facts and in the circumstances of the case and in law the Lower Authorities have erred in denying the deduction u/s. 80P(2)(b), to the society for the reason that Society has supplied the Milk collected from its members, to Federal Society as well as to Private parties. On the facts and in the circumstances of the case and in law, alternatively it is submitted that Appellant shall be granted the deduction u/s. 80P(2)(a)(iii), as it has complied with all the provisions of the said section. On the facts and in the circumstances of the case and in law the Lower Authorities have erred in making disallowance of Rs.6,00,000/- under section 40(a)(ia), by disregarding the fact that, reimbursement of expenses to non professional person is not eligible for TDS. On the facts and in the circumstances of the case and in law the Lower Authorities have erred in charging interest u/s 234B, when the disallowance of deduction is disputable and appellant could never have apprehended such addition/disallowances at the time of paying the taxes.”
All the grounds being interconnected are considered together.
During the course of assessment proceedings, the Assessing Officer noticed that the assessee had sold milk of Rs.34,13,70,406/- to the parties other than federal societies and had sold the milk of Rs.1,83,92,433/- to Mahananda Dairy which is a federal society. The assessee was therefore asked to show cause as to why the deduction u/s. 80P(2)(b) of the Act not be disallowed on the profits earned from sale of milk to other than federal society. The assessee made the submissions which were not found acceptable to Assessing Officer. The Assessing Officer noted that the assessee had sold only 5.11% of the total milk to federal society and 94.89% of the milk was sold to the other private parties. He was of the view that on the profits earned from sale of milk to other than federal society, assessee is not
eligible to claim deduction u/s. 80P of the Act. He accordingly, restricted the deduction u/s. 80P to 5.11% of the net profit and accordingly worked out the deduction u/s. 80P(2)(b) at Rs.2,21,612/- as against the assessee’s claim of Rs.43,36,867/-. Aggrieved by the order of Assessing Officer, the assessee carried the matter before the CIT(A) who upheld the order of Assessing Officer. Aggrieved by the order of CIT(A), the assessee is now in appeal.
Before me, the ld. AR reiterated the submissions made by before Assessing Officer and CIT(A) and further submitted that the Mahananda is a state level milk sanstha and its capacity is 1000000 liters per day. Excess over this capacity cannot be purchased by the Mahananda as there are more than 100 members of this federal society and every member is ready to supply the milk. As the collection capacity of the federal society is insufficient to purchase milk from every member of the society, Mahahanda has permitted members to sell the milk to other customers. He submitted that though the assessee was ready to supply the entire milk to Mahananda but due to the limitation of the capacity of Mahananda and due to the highly perishable nature of the goods, assessee could not sell the entire milk to Mahananda and was forced to sell it to outsider. In such a situation, he submitted that assessee be granted deduction on entire profits out of sale of milk. He further submitted that on identical facts in the case of Fattesinghrao Naik (Appa) Sahakari Dudh Utpadak Sangh Limited Vs. ITO in ITA No. 2326/PUN/2017 for assessment year 2009-10, order dated 05-09- 2019, the Co-ordinate Bench of Tribunal has allowed the assessee’s claim of deduction on the milk sold to the outsider. He submitted that the facts of the case in the year under appeal are identical to
that of Sahakari Dudh Utpadak Sangh Limited Vs. ITO (supra). He also placed on record the copy of the aforesaid decision. As far as the issue of addition of Rs.6 lacs u/s. 40(a)(ia) is concerned, he submitted that there is no discussion by the Assessing Officer in the order as to whom the payment was made by the assessee and why the amount has been disallowed and the CIT(A) has also upheld the order of Assessing Officer without much discussion. He therefore submitted that the disallowance be deleted. In the alternate, without admitting for the disallowance, he submitted, that if the disallowance is made u/s. 40(a)(ia) then it would go to increase the profits and which in turn would be available as deduction u/s. 80P of the Act and in such a situation, the assessee be granted deduction u/s. 80P even on such disallowance. He fairly submitted that the matter be remitted to Assessing Officer for necessary verification.
The ld. DR on the other hand submitted that Sec.80P(2)(b) of the Act contemplates that deduction can only be allowed to the extent of profit from sale of milk made to the Federal Co-operative Society or Government or local authority or Government company and not to outsiders. He therefore submitted that in view of the clear provision of the Act, Assessing Officer and ld. CIT(A) have rightly denied the claim of deduction. He thus supported the orders of lower authorities. On the issue of similarity of facts in assessee’s case and in the case of Fattesinghrao Naik (Appa) Sahakari Dudh Utpadak Sangh Limited Vs. ITO (supra) the ld. DR did not controvert the submissions made by the ld. AR.
I have heard the rival submissions and perused the material on record. I find that the issue in the preset case is with respect to
denial of claim of deduction u/s. 80P(2)(b) of the Act on milk sold by the assessee to other than federal society. I find that identical issue arose before the Co-ordinate Bench of Tribunal in the case of Fattesinghrao Naik (Appa) Sahakari Dudh Utpadak Sangh Limited Vs. ITO (supra) wherein the Co-ordinate Bench of Tribunal decided the issue in favour of assessee but however for quantification of deduction, remitted the issue back to the file of Assessing Officer by observing as under : “6. We have heard the rival submissions and perused the material on record. The issue in the present appeal is with respect to claim of deduction u/s 80P(2)(b) of the Act. It is an undisputed fact that assessee is a Co-operative Society engaged in the business of collecting milk from farmers / primary societies and supplying the same to Federal Societies as well as non-federal parties. It is an undisputed fact that for the year under consideration assessee society has made sale of milk and other milk products to the tune of Rs.13,56,51,168/- to the parties which are not covered under the provisions of Sec.80P(2)(b) of the Act. Provisions of Sec.80P(2)(b) contemplates that deduction can be claimed on the amount of gains of business of a co-operative society on sale to Federal Society, the Government or local authority or Government company. In the present case, it is an admitted fact that the sale to the tune of Rs.13.56 crores is not to the parties covered u/s 80P(2)(b) of the Act. 7. Before us, assessee has submitted that the assessee was forced to sell milk to outside parties as Mahanand Dairy which is a Federal Cooperative Society to whom assessee society use to supply the milk, had expressed its inability to accept and process the milk collected from the assessee society. Mahanand Dairy had advised the assessee not to send the milk to them as they would not be in a position to accept the milk due to paucity of processing capacity at its end. The aforesaid contention of the assessee has not been controverted by Revenue. In such a situation, we are of the view that milk being a highly perishable item, its shelf life being very short, the assessee was left with no other alternative but to sell the milk to outside parties. The assessee has placed before us a chart showing the price at which it had sold milk in various months to outside parties and the Co- operative Society during the period relevant to A.Y. under appeal. A perusal of the same reveals that the price charged by the assessee from outside parties is lower than the price at which milk was sold to Federal Society in all the months, except in the month of August, 2009. As per the aforesaid table, it is seen that in the month of August, 2009 there is no sale of milk to Federal society, whereas the sale of milk to outside parties is to the tune of Rs.1,25,54,116/-. We find force in the argument of the Ld.A.R. that it is not a case where assessee has sold the milk at a higher rate to outside parties, in fact assessee was getting higher price on sale of milk to Federal Society in addition to undisputed benefit of deduction u/s 80P(2)(b). It is not a case where assessee has suo-moto volunteered to sell milk in the open market. It was after the denial of Federal Society to accept the milk that the assessee was constrained to sell the milk in open market at a price lower than the price offered by Federal Society.
The Hon’ble Apex Court in the case of Bajaj Tempo Limited Vs. CIT (supra) has held that a provision in a taxing statute which grants incentives to promote growth and development should be construed liberally so as to advance the objective of the section and not to frustrate it. It is an undisputed position that provisions of deduction u/s 80P is a provision to promote development of Co-operative Sector. Considering the totality of the aforesaid facts and relying on the aforesaid decision of Hon’ble Apex Court cited herein we are of the view that assessee is eligible for deduction u/s 80P2(b) of the Act on the milk sold to outside parties. However, the assessee would be eligible for the benefit of deduction u/s 80P(2)(b) on sale of milk at a price at which it has actually sold in the open market or price at which milk is sold to Federal Society, whichever is less. For the month of August, 2008, there is no sale of milk by the assessee to the Federal Society and the sale of Rs.1,24,34,116/- is only to outsiders, hence, we are of the view that benefit of deduction should not be extended on sale of milk for the month of August, 2008. We therefore direct the AO to re-compute the deduction u/s 80P(2)(b) of the Act by excluding the sale made to outsiders in the month of August, 2009. Thus, the ground No.1 of the assessee is partly allowed.”
Since, the facts in the present case are identical to that in the case of Fattesinghrao Naik (Appa) Sahakari Dudh Utpadak Sangh Limited Vs. ITO (supra) I therefore, for the reasons stated in the decision in the case of Fattesinghrao Naik (Appa) Sahakari Dudh Utpadak Sangh Limited Vs. ITO (supra) and for similar reasons restore the issue back to the file of Assessing Officer. The Assessing Officer is directed to decide the issue in line with the decision in the case of Fattesinghrao Naik (Appa) Sahakari Dudh Utpadak Sangh Limited Vs. ITO (supra), in accordance with law and after considering the submissions of assessee. As far as the disallowance u/s. 40(a)(ia) is concerned, I find force in the arguments of ld. AR. I find that Hon’ble Gujarat High Court in the case of ITO Vs. Keval Construction (2013) 33 taxmann.com 277 (Guj.) has held that disallowance for non-deduction of TDS liability would increase the profits of the assessee from business and ultimate profit would qualify for deduction. The Assessing Officer shall thus also examine the issue of disallowance u/s. 40(a)(ia) and its eligibility for deduction in the light of the aforesaid decision and thereafter decide the issue, in
accordance with law. Thus the ground Nos. 1 to 3 raised by assessee are allowed for statistical purpose.
In ground No. 4 of the appeal, the assessee has assailed charging of interest u/s. 234B of the Act. Charging of interest u/s. 234B is consequential and mandatory, hence, ground No. 4 raised in appeal by the assessee is dismissed being devoid of any merit.
In the result, the appeal of assessee is partly allowed for statistical purpose.
ITA No. 1583/PUN/2018, (A.Y. 2015-16)
The assessee has raised following grounds : “1. On the facts and in the circumstances of the case and in law the Lower Authorities have erred in denying the deduction of Rs.27,58,920/- claimed u/s. 80P(2)(b), to the society for the reason that Society has supplied the Milk collected from its members to Federal Society as well as to Private parties. Alternatively, your appellant would like to raise the following ground : 2. On the facts and in the circumstances of the case and in law the lower authorities erred in denying the deduction of Rs.27,58,920/- u/s. 80P(2)(a)(iii), by disregarding the appellant’s contention in this regard as it has complied with all the provisions of the said section.”
The appeal is time barred by two days. The assessee has filed an application seeking condonation of delay in filing of the appeal. After perusal of the same, we are satisfied that the delay in filing of the appeal is not intentional or deliberate but has been caused due to bonafide reasons as stated in the application. The delay in filing of appeal is condoned and the appeal is admitted to be heard and disposed of on merits.
Since, the facts in the assessment year under appeal are identical to the assessment year 2014-15, the findings given by us while adjudicating the appeal in assessment year 2014-15 would mutatis mutandis apply in the assessment year under appeal. The appeal of assessee is thus allowed for statistical purpose.
The appeal of assessee is allowed for statistical purpose.
To sum up, the appeal of assessee in ITA No. 2215/PUN/2017 is partly allowed for statistical purpose and appeal of assessee in ITA No. 1583/PUN/2018 is allowed for statistical purpose.
Order pronounced on the 07th day of October, 2019.
Sd/- (ANIL CHATURVEDI) ऱेखा सदस्य / ACCOUNTANT MEMBER
ऩुणे Pune; ददनाांक Dated : 07th October, 2019. RK आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent 2. The CIT (A)-1, Kolhapur 3. The Pr. CIT – I, Kolhapur 4. ववबागीम प्रतततनधध, आमकय अऩीरीम अधधकयण, “एक सदस्म” / 5 DR, ITAT, “SMC” Pune; गार्ड पाईर / Guard file. 6.
आदेशािुसार/ BY ORDER // True Copy // तनजी सधिव / Private Secretary आमकय अऩीरीम अधधकयण ,ऩुणे / ITAT, Pune.