MADHUSUDANKATI SAMABAY KRISHI UNNAYAN SAMITY LTD.,KOLKATA vs. ITO, WD-49(1), KOLKATA, KOLKATA

Per M.Balaganesh, AM

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members of the society. During the year under consideration, the assessee co- operative society earned income from (i) Loan & Banking Division and (ii) Fertiliser section and consumer product division and claimed deduction u/s 80P of the Act. The ld AO on going through the Trading Account of ‘Fertiliser Section and Consumer Product’ Division , observed that the assessee had shown income under the head ‘Other Trading Income’ and claimed ‘Other Trading Expenditure’ in its Profit and Loss Account as below :- Other Trading Expenses (Rs.) Other Trading Income (Rs.) a) Salary 3,60,000 a) Transport & Rack Handing 63,21,738 b) Wages 60,963 b) Trade Cost 7,13,572 c) Transport Charges 47,48,153 c) Loading & Unloading 12,609 d) Carrying 3,17,727 d) Godown rent 18,134 e) Loading & Unloading 36,838 e) Commission f) Trading Cost 1,11,214 i) BENFED - 175826 ii) Ritwi India - 600 iii) IFFCO TOKIO 4117 Gen. Insurance 1,80,543 Total 56,34,895 Total 72,46,596

The ld AO show caused the assessee by stating that the deduction u/s 80P of the Act would not be eligible for the difference income of Rs 16,11,701/- ( 72,46,596- 56,34,895) . In reply the assessee vide its written submission dated 25.7.2012 responded as under:- "2. (a) As regards " Other Trading Income ("from Transport and Rake handling") we would like to state, we purchase fertilizers etc. used for agricultural purposes by our members from Indian Formers Fertiliser Cooperative (lFFCO) and we are also a member of IFFCO. Transport charges on purchases mode from IFFCO are to be borne by IFFCO. We handle transportation of goods from rail side to godown and IFFCO reimbursed the expenditure. The difference between actual transport to us and the amount realized from IFFCO is our income which was booked under "Transport and Rake Handling" charges. The income arose at the time of purchase operations hence covered by the provisions of section of the IT Act, 8O(P)(2)(a)(iv).

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 3 (b) Trading cost: Rs.713572/- We are required to sell at "MRP" rote fixed by IFFCO. Transport and other expenditure incurred by us at the time of sole of goods ore realized at the time of sole of goods ore realized separately from the members. This amount is exempt u/s.80P(2)(a)(iv) of the I.T. Act. (c.) Loading & Unloading Rs.12609/- This amount was realized from IFFCO for expenses incurred by us on this account at the time of purchases mode from IFFCO. (d) Godown Rent Rs. ~ 8134/- This amount is covered by the provisions of Sec.80P(2)(e) and exempt from Tax. (e) Commission from BEN FED : BENFEED is 0 state marketing federation which acts exclusively os agent of the Govt. of West Bengal. BENFEED procures potato on behalf of Government for making seeds which in term way they sell seeds to agriculturist at the beginning of season providing to people. We purchase potato from our members at the rote fixed by the Govt. and sell them to BEN FEED the BEN FEED paid us the handling and carrying charges which has been shown in our books as commission from BENFEED." (v) Vide its letter dt .26-09-2012 the assessee also reiterated that "We buy fertilizers from IFFCO who is to deliver the fertilizers to us at our godowns. As IFFCO has no infrastructure to transport the goods by rood and IFFCO sends the fertilizers to the nearest railway yard and we ore to carry the fertilizers from railway yard to our go- downs, for which IFFCO reimburses our bills for transport and loading charges for carrying fertilizers on their behalf as IFFCO was to bear the transport charges up to our go-down. In view of the facts stated above we respectfully submit that the transportation charges reimbursed to us by IFFCO were received during the course of carrying on of purchases of fertilizers by us for supply to our members. Hence, this transportation is port of our activity in the course of carrying of our business covered by the provisions of section 80(P) (iv) of the Act. Hence income arising as a result of difference between actual cost of transport and the amount realized from IFFCO is the income which arose as 0 port of our business activity and is also covered by the provisions of section 80P(2) (iv) of the IT 1961. In any event no where in the provisions of Section 80P prohibits of excludes the carrying of income from transportation during carrying on the business operation like purchases etc”. The assessee also enclosed a certificate from BENFEED for receipt of commission in the sum of Rs 1,80,543/- before the ld AO.

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2.2. The ld AO reproduced the provisions of section 80P of the Act and observed as under:- 3. (ii) As far as "Other Trading Income" is concerned, income generated through the activities of Transport & Rack Handling, Trade Cost and Loading & Unloading do not fulfil the criteria as stipulated in clause (iv) of sub-section 2 of Section 80P of the I.T. Act. 1961. The nature of works carried out through the above activities by the assessee society was not in conformity with section 80P (2) (a) (iv) of the I.T. Act, 1961 for getting deduction under that section. Deduction u/s.80P(1) is eligible, if gross total income of the assessee society includes any income as referred in sub-section (2) of Section 80P. But income generated through the activities of Transport & Rack Handling, Trade Cost and Loading & Unloading are merely income from other activities which is not in conformity with the provisions of section 80P(2) (a) (iv) of the LT. Act, 1961. There is no relation between the purchase of agricultural implements, seeds. livestock or other articles intended for agriculture for the purpose of supplying them to its members and transportation. Assessee simply earned income from transportation and others and merged the same with income from ‘Fertilizer Section’ to get the benefit of deduction u/s 80P. Vide this office letter dt.17-09-2012 IFFCO was asked to confirm the nature of works performed by the assessee for which they reimbursed. In reply, vide confirmation/letter dt.01-11-2012 they stated at para -3 (copy enclosed as Annex.- I) that "During the year 2009-10 the said party (Madhusudan Kati SKUS Ltd.) has worked as Handling & Transport contractor of our fertilizers from rake point to various warehouses in West Bengal". IFFCO also deducted tax at source on such payment. Attention of the A.R. was also drawn to the above reply of the IFFCO Ltd. for his comment. He finally agreed with the above statement of the IFFCO Ltd. that the assessee was engaged as "Handling & Transport Contractor' of IFFCO. Hence, income earned as 'Handling & Transport Contractor' is not deductible u/s.80P of the I.T. Act, 1961. Further, 'Other Trading Income" includes 'commission' of RS.1,80,543/- from three parties. (i) BENFEED RS.1,75,S26; ii) Ritwi India RS.600 & iii) IFFCO Tokio Gen Ins. 4,117. Against this income, assessee submitted a certificate from BENFEED from which it is seen that assessee received RS.1 ,33,125/- only as Cost of Hessian bags, cost of operation, cost of transportation and administrative charges. And for the balance amount of Rs.47,418/- (Rs.180543 - Rs.133125) assessee could not explain the nature of such income. Under the facts and circumstances as discussed above, it can safely be construed that during the year assessee carried out some activities and profit earned thereof does not come under the purview of Sec.80P(2) (a) (iv) of the I.T. Act, 1961. I,

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 5 therefore, disallowthe claim of deduction u/s.80P in respect of 'Other Income' as calculated below: Income not eligible for deduction U/s.80P: Other Trading income Rs.72,46,596/- Less: Eligible U /s.80P: a. Godown Rent Rs. 18,134/- b. Commission from BEN FEED Rs. 1,33,125/- Rs. 1,51,259/- (A) ... Rs.70,95,337/- RS.56,34,895/- Other Trading Expenses Less: Proportionate expenses in respect of godown rent and Commission from BEN FEED ,. Rs. 1,17,617/- (B) .. Rs.55,17,278/- (A-B)RS.15,78,059/- (c) Hence, I disallow claim of deduction u/s.80P of Rs.15,78,059/-, as above, derived from conducting other activities which does not qualify as deductible income u/s.80(2) (a) (iv) of the IT. Act, 1961. )

2.3. The assessee submitted before the ld CITA as below:- Ground No. 3 & 4 of the Original Ground:- These two grounds were taken against the disallowance of deduction claimed u/s. 80P of the I.T. Act, of Rs. 15,78,0591- out of the' Other trading income' of Rs. 70,95,337/- (as computed by the A. O. himself in paragraph 3 (ii) of his order) on the ground that this income was derived from conducting activities which did not qualify as deductible income U/S 80P(2)(a)(iv)of the I. T. Act 61. During the course of hearing the A.O wrote a letter dated 17.09.2012, u/s. 133(6) of the I. T. Act., to Indian Farmers Fertilizer cooperative Ltd. for information without any intimation to the appellant. M/s. Indian Framers Fertilizer Cooperative Ltd. (IFFCO in short) also sent its reply dated 01.11.2012 directly to the A.O. In para 3(ii) of the order firstly the A.O. wrongly held that the income generated through the activities of Transport & Rake handling. Trade cost of loading & unloading did not fulfil the criteria stipulated u/s 80P(2)(a)(iv) of the I.T. Act'61. The A.O. has further held in the same paragraph that there was no relation between the purchase of agricultural implements, seeds ,livestock or other articles intended for agriculture for the purpose of supplying then to its members and transportation. The A. a. misinterpreted the provisions of section 80P(2)(a)(iv) and I failed to appreciate that transportation has very close nexus with purchase and supply of fertilizers and pesticides intended (used) by the agriculturist for raising paddy, jute etc. transport charges were incurred for bringing purchased fertilizers and pesticides to appellant's godown from railway rake point. The A.O.

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6 also failed to appreciate properly appellants reply dated 25.07.2012 quoted in his order. A copy is also separately enclosed for your kind consideration.

A.O's second ground for denying the benefit of section 80P in respect of Rs 15,78,059/- was that IFFCO Ltd from whom the assessee has received by way of reimbursement of transport charges had in its reply u/s 133(6) dated 01.11.2012 had described the nature of work of the appellant as handling the Transport Contractor of its Fertilizers from rake point to various warehouse in West Bengal. As adequate opportunity was not given, the appellant could not) contradict the above statement of IFFCO, given directly to A. 0. The Appellant has since obtained a confirmation Re! no. SMM/WB/MISC/I10 dated 27.05.2013 in which IFFCO has stated that as per its norm IFFCO was availing the services of the appellant which is one of its members, from time to time for handling and transportation of fertilizer material from rake point to various godown linked to the appellant. IFFCO has further certified that your appellant is not IFFCO's approved Handling & Transport (H&T) contractor selected through tender process. (Vide copy of the certificate enclosed). In this connection 1 am further enclosing another certificate Ref no. SMM/WB/H&T/470 dated 23.09.2013 from IFFCO confirming that transport charges from Rake point to the Godown of Madhusudan Kati S.K.U.S.. were to borne by IFFCO and it had reimbursed the charges to the appellant.

The appellant begs to reiterate that net income earned on account of transport charges paid and reimbursed arose in connection with the purchase operations of fertilizers, pesticides etc. which are intended for use solely in agriculture for supply to its members and is covered by the provisions of section 80(P)(2)(a)(iv) of the 1.T. Act, 1961.

The appellant begs to submit further that the disallowances of income of Rs. 15,78,059/- under the head "Other Trading Income" as not eligible for deduction u/s 80P included the receipts of Trading Cost of Rs. 7,13,572/- and realization of loading and unloading charges of Rs. 12,709/- , without assigning any reasons. The appellant in its letter dated 25.07.13 quoted in the assessment order and also separately enclosed had explained the nature of these two receipts. It was explained that Rs. 7,13,572/- was realized from the members, separately at the time of supply by way of sale at fixed price of fertilizers etc. to them. Hence the income is covered by the provisions of section 80P(2)(a)(iv) of the 1. T. Act. As regards loading and unloading receipts, it was explained that labour charges were paid for loading and unloading at Rake point and it was reimbursed. Both these income have close nexus with purchase and sale of fertilizers intended for agriculture. A.O. was therefore wrong in not allowing deduction claimed u/s 80(P) (2)(a)(iv) of the I.T. Act.

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2.3.1. The ld CITA obtained remand report from the ld AO and furnished the same to the assessee for its objections, if any. The assessee vide its letter dated 9.12.2013 filed its objections / submissions before the ld CITA as below:- "Apropos to your query at the hearing of the above appeal on 29.11.2013, "whether purchase and supply of fertilizers by the co-operative society to the members falls within "or other articles intended for agriculture" as provided under 80P (2)(a)(iv) of the Act 61, we would like to submit as follows: Meanings of the words "article" according to Shorter Oxford English Dictionary are "commodity; a piece of goods property etc. " Fertilizer being a commodity is covered by the word "article" mentioned in section 80P (2)(a)(iv) of the Act. Your Honour's kind attention is further drawn to the decisions of the Hon'ble Allahabad High Court in UP Co.OP Federation Ltd. CIT, 84 ITR, 317 (All). In para 3 in page 320 the Hon'ble High Court has held as follows: "A perusal of this section shows that an exemption has been granted to a co-operative society which is engaged in the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to this members. Articles enumerated in this provision and in respect of which an exemption has been granted are those which are directly required in connection with agricultural operations applying the rule of ejusdem generic " other articles intended for agriculture" should be of the same class of which agricultural implements, seeds and livestock belong. In other words they should be such articles which are directly required in connection with agricultural operations" "CIT vs Thudialur Co-operative Agricultural Services, 143 CTR, 362 (Mad) Head Note:- Deduction u/s 80 P - Allow ability - Sale of manure, pesticides etc. for mixing them - Assessee a Co-operative society, purchase various kinds of manures and pesticides, mixing them to suit the needs of the farmers and thereafter selling them - also purchasing and selling cattle feed entitled to exemption u/s 80 P (2)(a)(iv). " In CIT vs Shetkari Sahakari Sakhar Karkhana Ltd. 238 ITR 983 (Bom). The Hon'ble Bombay High Court in para 2 in page 983 has "held that section 80 P (2) (a) (iv) deals with income from the purchase of agricultural implements seeds, livestock and "other articles intended for agriculture for supplying them to its

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 8 members" Water is an "article" intended for agriculture. Water is obtained by the assessee for the purpose of supplying it to its members….. " In view of the above decisions of the Hon'ble High Courts we respectfully submit that the purchase of fertilizer intended for agriculture for the purpose of supplying them to our members, falls within the word "articles" mentioned in section 80P (2)(a)(iv). The income which arose on reimbursement of the transport charges by 1FFCO for carrying fertilizers purchased by us, has close nexus with purchase of fertilizer intended for agriculture for supplying them to the members and is covered by the provisions of section 80P of the I. T. Act'61.)

2.3.2. The ld CITA upheld the action of the ld AO by observing as under:- “ After carefully considering the issue at hand, it is held that the assessee had not been able to disprove that it had been acting as a Handling & Transport contractor during the previous year 2009-10. M/s IFFCO has carefully mentioned that during this period the assessee was working as a contractor for Handling & Transporting fertilizers from the Rake point to its various warehouse in West Bengal. M/s IFFCO also deducted TDS on such payment. The assessee, during these appellate proceedings, has not been able to adduce any evidence that the fertilizer so transported was only for its own use. The certificate from IFFCO refers to various warehouses all over the state of West Bengal whereas the assessee society, as per its bye laws, was only to operate in Village Teghoria, Madhusudankati, Bishnupur & Faridkati under Gaighata Thana in Bongaon area of Distt. 24 North Parganas. The assessee had filed a copy of the bye laws which are in Bengali containing the above details and also filed an English translation but curiously this English Translation did not translate the area of operation part. The assessee, therefore, could possibly have had a reasonable ground to claim relief u/s 80P if the ‘Transportation’ was from the rake point to its own godowns in its area of operation but this does not appear to be the case at hand. The assessee had not produced any detail or evidence mentioning even the amount of fertilizer transported and the destination point of the same. Since, the assessee has been accorded all possible time and opportunity to produce the necessary evidences, the alleged violation of the principles of Natural Justice has been taken care of in these proceedings but the assessee is not able to rebut the findings of the A.O. When the assessee acts as a H & T Contractor outside its area of operation and as a business person and when the payments are received by it after TDS, it cannot be said that the assessee was eligible for deduction u/s 80P in respect of the surplus of other trading incomes. Any benefit in relation to “Trade Cost” of Rs. 7,13,572/- is also not available to the assessee as it is only a recovery of expenses with no proven profit embedded therein. In view of the above, the additional grounds of appeal no. 1 & 2 and the original grounds of appeal no. 3 & 4 are dismissed.

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Original Ground of appeal no. 1. In this ground of appeal the assessee challenges non-allowance of deduction u/s 80P in respect of a sum of Rs. 47,418/- (details are mentioned above). The total “Commission”receipt of Rs. 1,80,543/- was claimed by the assessee as eligible for deduction u/s 80P but the assessee could only produce one certificate from M/s BENFED for Rs. 1,33,125/-. The assessee procures potato from its members at the rate fixed by the State Government, and sells it to BENFED. The assessee is paid handling & carrying charges for the same. During the appellate proceedings the assessee filed a certificate from BENFED stating that it had been further paid the following sums as commission against procurements of Paddy during the previous year: i) Ch. No. 870322 dated. 10.11.09 Rs. 28,194/- ii) Ch. No. 870323 dated 11.11.09 Rs. 5,570/- Total Rs. 33,764/- The document was sent to the AO for remand report but no objection thereto has been received. Therefore, the assessee is held eligible to claim the additional sum of Rs. 33,764/- as a deduction 80P. As no submissions are made in respect of the balance amount of Rs. 600/- & Rs. 4117/- claimed received as commission from M/s Ritwi India & M/s IFFCO TOKIO Gen. Insurance, their disallowances are confirmed and this original grounds of appeal no. 1 in held to be partly allowed.

2.4. Aggrieved, the assessee is in appeal before us on the following grounds:- 1. For that on the facts and circumstances of the case the Ld. CIT(A)-XXXII, has erred in facts as well as in law in dismissing the appellant’s grounds no. 3 & 4 taken against the A.O.’s order disallowing the appellant’s claim for deduction u/s 80P of the I.T. Act of Rs. 15,78,059/- out of the “other trading income”. 2. For that in any event the Ld. CIT(A)l-XXXII, has erred in fact as well as in law, in ignoring the Certificate no. SMM/WB/H & T/ 470 dated 23.09.2013 from IFFCO Ltd. confirming that IFFCO is responsible for transportation of Fertilizers from rake point to appellant’s godowns and have reimbursed the expenses to the appellant for transporting itself on behalf of IFFCO Ltd. 3. For that in any event the Ld. CIT(A)-XXXII, has erred in ignoring the appellant’s Balance Sheet for the year ended 31.03.2010 filed with him, where in purchase of fertilizers valued Rs. 9,12,00,003/- was shown, which was transported by the appellant itself for supply to its members. 4. That on the facts and circumstances of the case the Ld. CIT(A)-XXXII, has erred in upholding the A.O’s disallowance of trade costs and loading and

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 10 unloading expenses at rake point reimbursed by IFFCO Ltd. from the appellant’s claim for exemption u/s 80P of the I.T. Act.

2.5. We have heard the rival submissions. We find that the ld AR argued that the assessee had made purchase of fertilizers to the tune of Rs 9,12,00,003/- and made sales to its members to the tune of Rs 9,00,03,736/- . Similarly the seeds were also purchased and were sold to members at a price less than the purchase price. In order to subsidise the same, the Government (IFFCO) provides incentives to the assessee in the form of transport subsidy. We find eventhough the transportation charges were incurred during the course of purchase and sales of fertilizers and seeds etc, the ld CITA had given a finding by placing reliance on the certificate from IFFCO wherein the goods transported were not only meant for its own use of the society. It was also indeed transported to various warehouses in West Bengal. Infact it was pointed out that the goods were transported to various warehouses all over the state of West Bengal whereas the assessee as per its bye laws was authorized to operate in village Teghoria, madhusudankati, Bishnupur & Faridkati under Gaighata Thana in Bongaon area of Distt 24 North Parganas. These facts were not disputed by the ld AR before us. Hence we are not inclined to accept the arguments of the ld AR that the transport incentive received from Government should have to be treated as part and parcel of the main activity carried out by the assessee so as to be eligible for claim of deduction u/s 80P(2)(iv) of the Act. However, we find that the other trading income declared in the profit and loss account admittedly included a sum of Rs 7,13,572/- was received from the members of the assessee society separately at the time of supply by way of sale at fixed price of fertilizers etc to them. Hence in our opinion, the same would be covered by the provisions of section 80P(2)(iv) of the Act. Hence we give relief

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 11 to the extent of Rs 7,13,572/- as amount eligible for deduction u/s 80P(2)(iv) of the Act. Accordingly the Grounds 1 to 4 raised by the assessee are partly allowed. 3. The last issue to be decided in this appeal is as to whether the ld CITA was justified in upholding the addition made in the sum of Rs 7,31,400/- in respect of sales made to nominal members of the society , in the facts and circumstances of the case. 3.1. The brief facts of this issue is that the ld AO called for the details of sales above Rs 1 lakh from the assessee. He observed that as per the bye laws of the assessee society, the assessee could operate only in village Teghoria, madhusudankati, Bishnupur & Faridkati under Gaighata Thana in Bongaon area of Distt 24 North Parganas. The ld AO on going through the details of sales filed by the assessee, that it had dealt in trading of fertilizer, seeds, agricultural implements etc with persons / individuals who were outside the jurisdiction of the society and who are not farmers. He also observed that some of the persons were even assessed to tax under his charge and who had even filed their IT returns showing business income and nature of business as ‘Reseller of fertilizer, pesticides etc’. The ld AO observed that the assessee had sold fertilizers, pesticides etc to the following 26 persons who are not farmers :- Sl. Name & Address of the purchasers Amount (in No. Rs.) (Purchases from the assessee) 1 Shri Pradip Paul, Bongaon, Devgor, 24 Pgs. (N)-743235 1,73,210.00 2 Shri Sandip Mondal, Charghat, 24 Pgs. (N)- 743247 3,43,050.00 3 Shri Bikash Majumdar, Chabdoara Bazar, 24 Pgs. (N)-743235 3,23,925.00 4 Shri Ashutosh Ghosh, Ichhapur, Netaji Bazar, 24 Pgs. (N)- 3,66,884.00 743252 5 Shri Ashutosh roy, Bongaon, Mamudpur, 24 Pgs. (N)-743235 6,26,350.00 6 Shri Sadhan Ghosh, Ichhapur Bazar, 24 Pgs.(N),-743252 2,94,251.00 7 M/s Chitya Ranjan Dey, Habra Bazar, 24 Pgs.(N)-743263 79,01,369.00

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8 Shri Tilok Kumar Dutta, Habra Bazar, 24 Pgs. (N)-743263 17,06,100.00 9 Shri Dilip Saha, Chandipur Bazar, 24 Pgs.(N)-743247 21,96,422.00 10 Shri Nitananda Das, Chowongda, Habra, 24 Pgs.(N)-743263 40,87,890.00 11 Bora Gramya S,K.U.S. Ltd., Vill-Bora, Thakurnagar, 24 Pgs.(N)- 11,70,345.00 743287 12 Shri Dayalpada Sandhu, Habra Bazar, 24 Pgs.(N)-743263 5,43,950.00 13 Shri Partho Sarothi Nath, Chatra Bazar, 24 Pgs.(N)-743263 27,99,030.00 14 Shri Nikhil Nath, Jessore Road, Habra Bazar, 24 Pgs.(N)-743263 9,77,250.00 15 Smt. Soilen Ghosh, Bongaon, Panchpota, Sree Palli, 24 Pgs.(N)- 3,95,510.00 743235 16 Shri Narendra Nath Ghosh, Habra Bazar, 24 Pgs(N)-743263 3,95,510.00 17 Shri Uttam Dalal, Basirhat Puratan Bazar, Basirhat, 24 Pgs.(N)- 63,33,811.00 743411 18 M/s Duttapukur Krishi Biponi, Duttapukur, 24 Pgs.(N)-743248 90,21,520.00 19 Smt. Doli Ghosh, Habra Bazar, 24 Pgs.(N)-743263 43,66,890.00 20 Shri Anukul Khaan, Jahowdanga, 24 Pgs. (N)-743273 7,59,510.00 21 Shri Heroonmoy Sarkar, Media Bazar, Bongaon, 24 Pgs.(N)- 10,90,900.00 743235 22 Gobindo Roy, Jiwala Bazar, Bongaon, 24 Pgs.(N)-743235 3,57,309.00 23 Shri Bidyut Ghosh, Panchpota Bazar, 24 Pgs.(N)-743273 5,87,776.00 24 Shri Robindra Nath Sarkar, Tronipur, Swarup Nagar, 24 Pgs. 5,70,225.00 (N)-743273 25 Md. Soudul Islam, Beliaghata Bazar, 24 Pgs.(N)-743423 14,03,300.00 26 Mohisakati S.K.U.S. Ltd., Mohisa Kati, Panchpota, 24 Pgs.(N)- 2,95,053.00 743273 Total 4,90,87,340.00

3.2. The ld AO vide letter dated 1.6.2012 showcaused the assessee to explain as to why profit generated out of these sale proceeds could not be brought to tax by denying deduction u/s 80P of the Act as these sales were not directly to the member agriculturists as per the bye laws of the assessee society. The assessee replied vide letter dated 25.7.2012 that the above 26 persons were their ‘Nominal Members’ as per the West Bengal Co-Operative Societies Act 1940 and udner the provisions of Clause 6(5) of their Bye-laws. The assessee also vide further letter dated 26.9.2012 stated that they don’t have any power / authority to question or direct their members about the utilization of the fertilizers purchased by them from the assessee society. It was also submitted that section 80P(2)(iv) of the Act also

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 13 speaks of purchase of implements seeds, live stock, or other articles intended for agriculture for the purpose of supplying these to its members. Members are free to use the fertilizers purchase from assessee according to their own intention and purpose. Any income arising to assessee from sale of fertilizers to the members would be covered by section 80P(2)(iv) of the Act. 3.3. The ld AO however disregarded the submissions of the assessee and observed that the purpose of provisions of section 80P(2)(iv) of the Act would become futile if assessee is allowed such facilities on such sales made by the members out of purchases made from the assessee. Those parties were purchasing the fertilizers from the assessee and selling the same as their business commodity. The ld AO accordingly brought the profit derived thereon to the tune of Rs 7,31,400/- (Rs 4,90,87,340 * 1.49%) as being earned by sale of agricultural articles to the ‘Nominal Members’ trading in agricultural commodity. In other words, the ld AO held that the ‘Nominal Members’ are not regular members of the assessee society and hence any sale made to them would not be covered by the provisions of section 80P(2)(iv) of the Act. 3.4. The assessee submitted before the ld CITA by quoting the provisions of section 69(3) of the West Bengal Co-operative Societies Act, 1940 and Clause 6(5) of its own bye laws wherein assessee submitted that 26 persons mentioned by the ld AO in his order were admitted as its nominal members. It was submitted that under the aforesaid provisions, any person can be admitted as a nominal member in its own interest by the co-operative society. It argued that nominal members are also members of the co-operative society. It was also pointed out that a member can be removed only as per clause 11 of its bye laws. No member can be removed if he shifts its residence outside the operational area of the society. 3.5. The ld CITA however concurred with the findings of the ld AO by observing as under:-

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 14 “As regards the profit earned by the assessee on sales made to persons outside its area of operations, the assessee claims that as per its Bye laws it can have nominal members. The views of the assessee are considered. Firstly, the assessee has not given a complete and correct translation of its bye laws and the Bengali copy filed is at places difficult to read but what is seen is that the society can appoint any person as a member in the interest of the society but such persons cannot participate in the profit of the society. In the facts of the present case, the nominal member seem to be enjoying the benefit of profit of the society like supply of fertilizer on subsidized rate by IFFCO and this makes their transactions violative of the bye laws. As per the West Bengal Cooperative Societies Act, 1983 these can be a nominal member as per Section 69(3) of that Act but such member is to be admitted to the membership in the interest of the society and such a person is not entitled to any share in any form in the assets or profits of the cooperative society. Hence, it is necessary to be appreciated that any closing stock or stock in trade is always an asset in the books of accounts and the nominal members cannot get any share in any form in the assets or profits of the cooperative society. This also mean that such members are not permitted to acquire the subsided fertilizer given to the society, which was subsidized only for the benefit of agriculturalists. In view of this, the action of the AO is not allowing deduction u/s 80P is upheld. The assessee’s written submissions are largely on the issue that nominal members are also member in a general sense. However, as they cannot share in the subsidized goods or profit of the society, the profit derived by the society on sale made to them is not entitled to deduction u/s 80P(2)(a)(iv) of the Act. In view of the above, the original grounds of appeal no. 5 is dismissed”. 3.6. Aggrieved, the assessee is in appeal before us on the following ground:- 5. That on the facts and circumstances of the case the Ld. CIT(A)-XXXII, was wrong in upholding on misinterpretation of the provisions of Section 80P(2)(a)(iv), the addition of Rs. 7,31,400/- as appellant’s profit on sale of fertilizer to twenty six of its members.

3.7. We have heard the rival submissions. We find that it is not in dispute that the 26 persons to whom the assessee had sold fertilizers are categorized as ‘Nominal Members’ of the assessee society. It would be pertinent to look into the provisions of section 69 (3) of the West Bengal Co-operative Societies Act, 1940 which is reproduced hereunder for the sake of convenience :-

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 15

CHAPTER VIII Eligibility for membership and privileges, liabilities and obligations of members Section 69. Eligibility for membership of co-operative society (1) Subject to the rules and the by-laws, the following persons shall be eligible for membership of a co-operative society , - (a) an individual competent to contract under section 11 of the Indian Contract Act, 1872 (9 of 1872) ; (b) any other co-operative society ; (c ) the State Government ; (d) subject to the approval of the State Government by general or special order, any association or body of persons (whether incorporated or not) or any financial bank; Provided that student who has not attained the age of majority according to the law to which he is subject shall be eligible for membership of a co-operative society formed in an educational institution to which he belongs. (2) ……………. (3) Notwithstanding anything to the contrary contained elsewhere in this Act, a co-operative society may, in its interest, admit any person as a nominal member who shall not be entitled to any share in any form in the assets or profits of the co-operative society and shall not be eligible to be elected as a director of the board and shall have no right to attend the general meeting of the co-operative society but shall have such rights and privileges and shall be subject to such liabilities of a member as may be specified in the by-laws. (4) ……….. (5) Notwithstanding anything contained in sub-section (1), no central society shall have the right to admit individuals to its membership otherwise than as nominal members in terms of sub-section (3) and the existing individual members shall be deemed to be nominal member for the purposes of this Act: Provided that ………………. From the aforesaid provisions, it is very clear that the nominal members also would be regular members of the society without voting rights and without any share in the profits or assets of the society. The assessee society in the instant case admittedly had sold some fertilizers to its nominal members to the tune of Rs 4,90,87,340/- ( 26 persons sale proceeds) . The assessee had not given any share

I.T.A No. 420/Kol/2014 Madhusudankati Unnayan Samity A.Yr : 2010-11 16 in the profits of the society to these nominal members. There is no distribution of assets in any manner whatsoever to these nominal members by the assessee society. Hence the sale transactions made with these nominal members cannot be held to be violative of bye laws of the assessee society and the provisions of West Bengal Co-operative Societies Act, 1940. Hence in our considered opinion, there cannot be any addition in the sum of Rs 7,3,1400/- towards profit from sale of fertilizers to members and in any case the same would be eligible for deduction u/s 80P(2)(iv) of the Act. Accordingly the Ground No. 5 raised by the assessee is allowed. 4. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Court on 14.07.2017

Sd/- Sd/- [A.T.Varkey] [ M.Balaganesh ] Judicial Member Accountant Member

Dated : 14.07.2017

SB, Sr. PS

Copy of the order forwarded to: 1. Madhusudankati Sambay Krishi Unnayan Samity Ltd. 2. I.T.O. Ward 49(1), Kolkata 3..C.I.T.(A)-XXXII, Kolkata 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.