FULWADI DUDH UTPADAK SAHAKARI MANDALI LTD.,AT. FULWADI, TAL. LIMBDI, DIST. SURENDRANAGAR vs. THE INCOME TAX OFFICER, WARD-5, , SURENDRANAGAR

This appeal is filed by the assessee against the order dated 27.08.2018 passed by the Commissioner of Income Tax (Appeals)-7, Ahmedabad (in short “CIT(A)”) arising out of the assessment order dated 29.11.2017 passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the A.Y. 2015-16.

The brief facts of the case the assessee is a Co-operative Society registered under Gujarat Co-operative Society Act engaged in collection of Milk from local small milk producers and supply to SNR District Milk Producers Union. The assessee filed its return of income for the A.Y. - 2 - Fulwadi Dudh Utpadak Sahakari Mandali Ltd. vs. ITO Asst.Year – 2015-16 2014-15 on 13.09.2015 declaring total income of Rs. NIL. During scrutiny assessment proceedings the Assessing Officer noticed that the assessee had paid Rs. 2,25,48,312/- for purchase of milk to one of its member Shri Raghubhai Algotar. Hence, his statement was recorded under Section 131 of the Act on 13.11.2017, whereas he has stated the sale of milk was hardly Rs. 15,000/- per month from the members of the society, whereas the sales made by the non-member villagers of Fulwadi & nearby villages were accounted in his name. Later on Shri Karsanbhai Bharwad, Mantra of the assessee Mandala confirmed this arrangement. Therefore, the Assessing Officer concluded the profit from the business, as regards non-members was not admissible under Section 80P(2)(b) of the Act and estimated 44% of purchases from members and 56% from non-members thereby allowed exemption of Rs. 5,33,052/- and disallowed exemption of Rs. 6,80,976/-.

Aggrieved against the same the assessee filed an appeal before the Commissioner of Income Tax (Appeals), wherein the assessee considered that the books of accounts including the quantity record of milk procured and maintained by the assessee was accepted by the Ld. AO. Clause b of Section 80P(2) did not require that the milk procured by the primary society from its members, may include milk procured from others. Therefore, the disallowance made by the AO is not in accordance with the law. The assessee also further pleaded the statement of Shri Karshanbhai Bharwad not provided to the assessee and no opportunity to cross-examine him. It is also well settled position in law that unless copy of the statement of the third party relied upon by the AO have been furnished to the assessee and an opportunity to cross-examine has been - 3 - Fulwadi Dudh Utpadak Sahakari Mandali Ltd. vs. ITO Asst.Year – 2015-16 allowed. Without following the above procedures, if any addition is made the same is not justifiable in law and relied upon the Supreme Court judgment in case of CIT vs. Smt. Sunita Dhadda (SLP (Civil) Diary No. 9431/2018) dated 28.03.2018. However, the Ld. CIT(A) without going into the statement recorded of Shri Karsanbhai Bharwad and furnishing of copies to the assessee and providing cross-examination but dealt with the case on merits relying upon Section 80P(2)(b) and held that the condition to get eligible for deduction, Produce has to be raised by members, which is not satisfied in assessee’s case, since the profit is attributable also to purchase of milk from non-members. Therefore, the disallowance made by the AO does not require any interference and thereby confirmed the assessment order.

Aggrieved against the same the assessee is before us raising the following grounds of appeal:

None appeared on behalf of the assessee, even in the previous five hearings none appeared on behalf of the assessee in spite of service of notices. So, with the help of the Ld. Sr. D.R. Mr. B. D. Gupta, we proceed to dispose of this appeal. The Ld. D.R. submitted that the statement recorded under Section 131 of the Act from Shri Karshanbhai Bharwad who is a Mantri of the assessee co-operative society, wherein he has clearly admitted the milk was procured from its members as well as non-members. Thus, the statement is not recorded from any third party. The assessee is also not produced any details about the purchase of milk from non-members. Thus, the CIT(A) was correct in confirming the disallowance made by the AO, which does not require any interference and requested to dismiss the appeal.

We have given our thoughtful consideration and perused the material available on record. Section 80P(2)(b) of the Act reads as follows:

Clause b of Section 80P(2) talks about a Co-operative Society to be a primary society engaged in supplying of milk and other goods raised or grown by its members to, a federal co-operative society engaged in the same business or a Government or local authority or a Government company. Thus, the provision clearly prescribes about the procurement of the goods from the Members of the society and not from the non- Members. As submitted by the Ld. D.R. the statement recorded from - 6 - Fulwadi Dudh Utpadak Sahakari Mandali Ltd. vs. ITO Asst.Year – 2015-16 Shri Karsanbhai S. Bharwad who is the Mantri of the assessee co- operative society and not a third person. Therefore, the case laws relied by the assessee is clearly distinguishable and not applicable to the present facts of the case. The grounds of appeal raised by the assessee are devoid of any merits and against the provisions of Section 80P(2)(b). Therefore, the finding of the lower authorities does not require any interference and appeal filed by the assessee is hereby dismissed.

In the result, the appeal of the assessee dismissed.