SHIRALA TALUKA SAHAKARI DUDH UTPADAK & PURAVATHA SANSTHA LTD,,SANGLI vs. INCOME-TAX OFFICER, WARD - 2(1),, SANGLI

आदेश / ORDER PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the order of 1. Commissioner of Income Tax (Appeal) – 1, Kolhapur dated 25.07.2017 for A.Y. 2009-10.

Assessee is a Co-operative Society engaged in purchase and sale of milk and milk products. Assessee electronically filed its return of income for A.Y. 2009-10 on 03.09.2009 declaring total income at Rs. Nil after claiming deduction of Rs.35,12,878/- U/S 80P(2) of the Act. The case was

selected for scrutiny and thereafter assessment was framed u/s 143(3) of

the Act vide order dt.31.10.2011 and the total income was determined at

Rs. 23,33,840/-. The AO partially disallowed assessee’s claim of deduction

u/s 80P(2)(b) of the Act. Aggrieved by the order of AO, assessee carried the

matter before Ld.CIT(A), who vide order dt.25.07.2017 (in appeal

No.SLI/241/11-12) dismissed the appeal of assessee. Aggrieved by the

order of Ld.CIT(A), assessee is now in appeal before us and has raised the

following grounds :

“1. On the facts and in circumstances of the case and in law, the lower authorities have erred in incorrectly invoking provisions of section 80P(2)(b) of the Income Tax Act, 1961 and thereby incorrectly denying the deduction claimed by the assessee amounting Rs.23,33,840/- for the reason that society has supplied the Milk collected from its members to federal society as well as to private parties. 2. On the facts and in circumstances of the case and in law, alternatively it is submitted that the appellant shall be granted deduction under section 80P(2) (a)(iii) as the appellant has complied with provisions of the said section.”

details furnished by the assessee noticed that assessee had sold milk

worth Rs.19,24,82,650/- which included sales of Rs.10,86,33,592/- made

to persons other than Federal Society, the Government or local authority or

a Government company as specified u/s 80P(2)(b) of the Act. The details of

such sales are listed and tabulated by the AO on Page 3 and 4 of the

assessment order. He also noticed that assessee had also sold Packing

milk amounting to Rs.1,56,48,867/- to various persons other than Federal

Society or the Government or local authority. Apart from the aforesaid

sales, he also noticed that assessee had made sales to the tune of

Rs.93,68,709/- which includes sale of allied Dudh products of

Rs.8,93,599/-, store material of Rs.35,50,791/-, animal breading of

Rs.47,03,000/- to persons other than Federal Society, Government or local

authority. AO was of the view that profits earned by the assessee from

the sale of milk aggregating to Rs.13,36,51,168/- made to persons not

covered under Sec.80P(2)(b) of the Act, are not eligible for deduction. He

accordingly re-worked the deduction u/s 80P(2)(b) at Rs.11,29,038/- and

disallowed the balance amount claimed as deduction. Aggrieved by the

order of AO, the assessee carried the matter before Ld.CIT(A), who upheld

the order of AO by observing as under :.

“6. I have considered the submissions of the appellant with reference to the facts of the case. From the above submission it can be seen that the appellant has now claimed deduction under section 80P(2)(a)(iii). From a plain reading of section 80P it can be seen that the section classifies co-operative societies into different types. Where, on the one hand, clause (a) of section 80P(2) is applicable to co-operative societies providing various facilities to its members, on the other, clause (b) applies to co-operative societies, being a primary society engaged in supply of milk etc. Thus, there is a clear distinction. What has to be taken note of is that the expression "members" under section 80P(2)(a) cannot be extended to include the members of a primary co-operative society which is a member of the federated cooperative society. Therefore, the issue involved is not regarding the agricultural produce but of the class of cooperative society to which the appellant belongs, which also defines its members. From records, it is clear that the appellant in the instant case is a primary co-operative society engaged in supply of milk received from its members. The appellant's correspondence during assessment also testifies the above fact. In the circumstances, I find that the claim was rightly made under section 80P(2)(b) and the assessing officer has also rightly applied provisions of section 8OP(2)(b). The assessing officer has observed that the appellant had sold only 32.14% of the total sales to federal societies and a major portion i.e. 67.86% of the sales were made to private parties whereas it has claimed 100% deduction under section 80P(2)(b). The appellant has not denied this finding of the assessing officer. The assessing officer is bound by the Income-tax Act and under the above circumstances he could not have allowed 100% of the claim of deduction. I find that the appellant has not complied with any of the sub-clauses (i), (ii) and (iii) of section 80P(2)(b) in order to make itself eligible for the claim deduction. In the circumstances, I hold that the assessing officer was justified in restricting the claim of deduction to only that portion of profits derived from sale of milk made to federal societies. Accordingly, this ground of appeal is dismissed.

Aggrieved by the order of Ld.CIT(A), assessee is now before us.

Ld.CIT(A). The Ld.A.R. further submitted that though the assessee wanted

to supply the entire milk collected by it to Mahanand Dairy, Mumbai which

is a federal Society but Mahanand Dairy expressed its inability to accept

100% of the milk collected by the assessee society from the farmers due to

paucity of processing capacity and demand of Mahanand Dairy products

and therefore advised the assessee not to send the entire milk to it. He

submitted that in view of the aforesaid fact, assessee was forced to sell the

milk to outside purchasers as the milk collected by the assessee has a very

short shelf life and if the milk is not processed immediately, the entire

milk would get spoiled. He therefore submitted that in such a situation for

the reasons beyond the control of assessee, the assessee was forced to sell

the milk to the outsiders. He submitted that in such situation, the

assessee could not be denied the benefit of deduction u/s 80P(2) of the Act.

In support of his contention about the inability of Mahanand Dairy to

accept milk from the assessee, he placed on record copy of the letter

bearing No.MND/02/DAIRY/Shirala tal-milk supply/18-19/D73 dated

15.12.2018, issued by the Dairy Manager, Mahanand Dairy. He further

submitted that the sale made by the assessee to outside parties is not at a

rate higher than the price at which the milk was sold to the Federal Society

and therefore, it cannot be said that assessee, with the intention to claim

higher price sold the milk to outside purchasers instead of selling the milk

to the Federal Society. In support of his aforesaid contention, the Ld.A.R.

placed on record a tabulated statement indicating rate and quantity of

milk sold to outside parties and the Federal Society. The ld.A.R. further

relied on the decision of Hon’ble Apex Court in the case of Bajaj Tempo

Limited Vs. CIT reported in (1992) 196 ITR 188 for the proposition that a

provision in a taxing statute granting incentives for promoting growth and

development should be construed liberally.

Act contemplates that deduction can only be allowed to the extent of 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, AO and Ld.CIT(A)

have rightly denied the claim of deduction. He thus supported the orders

of lower authorities.

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.

sell milk to outside parties as Mahanand Dairy which is a Federal Co-

operative 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.

(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.

alternate ground raised by the assessee has become academic and hence,

the same is dismissed as such.

Order pronounced on 5th day of September, 2019.

Sd/- Sd/- (VIKAS AWASTHY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 5th September, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to :

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.