M/S ALWAR KRAY VIKRAY SAHAKARI SAMITI LTD.,ALWAR vs. INCOME TAX OFFICER, WARD-2-3, ALWAR

PER VIJAY PAL RAO, JM :

These two appeals by the assessee are directed against two separate orders

of the ld. CIT (A) for the assessment years 2012-13 and 13-14 dated 19.09.2017

and 16.10.2017 respectively. For the assessment year 2012-13 the assessee has

raised the following grounds :-

“ 1. The ld. CIT (A) has erred on facts and in law in upholding the order of AO in reducing the claim of deduction u/s 80P(2)(a)(iv) at Rs. Nil as against Rs. 6,07,375/- claimed by the assessee.

2 ITA Nos. 787 & 985/JP/2017 Alwar Kray Vikray Sahakari Samiti Ltd., Alwar.

claim of deduction under section 80P(2)(a)(iv) at Nil as against the claim of Rs.

6,07,375/-.

material on record. The assessee is a cooperative society constituted under

Rajasthan Co-operative Act. The assessee is in the business of wholesale trading of

fertilizers, seeds, pesticides, agricultural equipments etc. as well as trading of

consumable goods under PDS (Ration) as per the policy of Government of India.

The income from the wholesale trading of fertilizers, seeds, pesticides, agricultural

equipments is eligible for deduction under section 80P of the IT Act whereas the

income from trading of consumable goods under PDS is not eligible for deduction

under section 80P(2) of the IT Act. In the return of income, the assessee declared

income of Rs. 2,64,640/- after claiming the deduction under section 80P of Rs.

9,72,673/- as under :-

80P(2)(a)(iv)(purchase of agricultural implements, seeds etc) Rs. 6,07,375/- (G.P Rs.11,46,660 – Expenses Rs. 5,39,205) 80P(2)(c)(ii) (General) Rs. 50,000/- 80P(2)(d)(Interest Rs.41,358/- & Dividend Rs.2,73,940) Rs. 3,15,298/- Rs.9,72,673/- ------------------

The AO in the scrutiny assessment has observed that out of total turnover of Rs.

25.21 crores, the turnover of fertilizers, seeds and pesticides is Rs. 8.59 crores and

gross profit is Rs. 11,46,661/-. The assessee has claimed expenses of Rs.

5,39,205/- against the income from fertilizers, seeds and pesticides out of total

expenditure of Rs. 62,51,180/-. Hence the AO was of the view that the claim of

expenditure of Rs. 5,39,205/- against the income eligible for deduction under section

3 ITA Nos. 787 & 985/JP/2017 Alwar Kray Vikray Sahakari Samiti Ltd., Alwar.

80P is not acceptable as it is without any basis. Accordingly, the AO apportioned the

total expenditure on turnover basis and worked out the expenses incurred on

fertilizers, seeds and pesticides business at Rs. 21,31,877/- resulting net loss of Rs.

9,85,216/- in the segment of fertilizers, seeds and pesticides. Thus due to the

allocation of expenses on turnover basis, the net outcome of the eligible business

activity under section 80P of the Act is loss and the deduction of Rs. 6,07,375/- was

reduced to Nil. The ld. A/R of the assessee has submitted that the assessee is

serving 429 PDS shops whereas the fertilizers, seeds and pesticides are supplied

only to 70 village service cooperative societies. Thus when the number of PDS

shops and the village service cooperative societies are not equal, then the

apportionment of the expenditure on turnover basis is not justified. Hence, the ld.

A/R has submitted that the expenditure should have been allocated at the best on

the basis of number of PDS shops and number of village service cooperative

societies to whom the assessee catered the needs.

3.1. On the other hand, the ld. D/R submitted that the assessee is not maintaining

separate books of account to show the expenditure incurred for each of the

segments of business activities, therefore, the AO had no option but to apportion the

expenditure on turnover basis. The ld. D/R relied upon the orders of the authorities

below.

parties, we note that in an ordinary case turnover is a proper basis for allocation of

common expenditure if the activities in various segments are similar in nature.

Therefore, until and unless there is an exception, the turnover is an acceptable basis

of allocation of common expenditure. We further note that the major expenditure

4 ITA Nos. 787 & 985/JP/2017 Alwar Kray Vikray Sahakari Samiti Ltd., Alwar.

which is common and direct expenditure of Head Office of the assessee is on

account of salary and wages. Therefore, when the assessee is catering 70 village

service co-operative societies in the segments of fertilizers, seeds, pesticides,

agricultural equipments as against 429 service points of PDS shops, then allocating

the expenditure on turnover basis may give a distorted result and not the correct

out-come of the activities. Therefore, to the extent of the expenditure which is

incurred in serving the various service points, the same can be allocated on the basis

of number of service points and the remaining expenditure which are invariable in

relation to the number of service points like audit fee etc. and Head Office expenses,

the same can be allocated on the basis of the turnover of the different segments of

the business activities of the assessee. Thus when the assessee is having the

income from different segments comprising the income eligible for deduction under

section 80P as well as the income which is not eligible for deduction under section

80P, then the allocation of the common expenditure should be made after

considering the peculiar facts of the case of the assessee. Accordingly, we set aside

the issue to the record of the AO for re-adjudication of the same by segregating the

common expenditure which can be related to the activities of serving the PDS shops

as well as the service cooperative societies. The same has to be allocated on the

ratio of respective number and the rest of the expenditure has to be allocated on

turnover basis.

grounds :-

5 ITA Nos. 787 & 985/JP/2017 Alwar Kray Vikray Sahakari Samiti Ltd., Alwar.

“ 1. The ld. CIT (A) has erred on facts and in law in confirming the action of AO in not allowing the claim of deduction u/s 80P(2)(a)(iv) at Rs. 3,83,103/-.

Accordingly, in view of our finding on this issue for the assessment year 2012-13,

this ground stands set aside to the record of the AO on same terms.

Rule 8D of the IT Act.

material on record. At the outset, we note that the AO invoked section 14A in

respect of the dividend received by the assessee from the investments made in the

various co-operative societies. Thus it is clear from the record that the said income is

otherwise eligible for deduction under section 80P and not falling in the category of

exempt income under section 10(34) of the Act. Hence this issue is connected with

the issue of allocation of common expenditure between the eligible income under

section 80P(2) as well as non-eligible income. Since the dividend is in the category

of eligible income under section 80P(2), therefore, the provisions of section 14A are

not applicable but this has to be considered for the purpose of allocating the

common expenditure. Hence we set aside this issue to the record of the AO for

6 ITA Nos. 787 & 985/JP/2017 Alwar Kray Vikray Sahakari Samiti Ltd., Alwar.

considering this amount along with the other income of the assessee eligible for

deduction under section 80P(2) of the Act.

purposes.

Order is pronounced in the open court on 30/08/2018.

Sd/- Sd/- (foØe flag ;kno) (fot; iky jkWo ½ (VIKRAM SINGH YADAV ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member

Jaipur Dated:- 30/08/2018. Das/

आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

7 ITA Nos. 787 & 985/JP/2017 Alwar Kray Vikray Sahakari Samiti Ltd., Alwar.