2021 (11) TMI 50 - AT - Income Tax

Addition of gross profit instead of net profit from the sale of Ghee - apportion the expenses to different activities for determining the net profit - assessee is engaged in the trading activity of Ghee which is not possible without incurring the indirect/administrative expenses - HELD THAT - As it is not possible for any organization to run its activities without incurring the basic expenditures. Likewise, the assessee among other activity, is also carrying out the activity of trading in Ghee which is not possible to run without incurring the administrative expenses. The assessee is engaged in multiple activity and some of the activity are eligible for deduction u/s 80P - some of the activity of the assessee are taxable. But the assessee is maintaining common books of accounts, common infrastructure, common facilities, manpower etc. Thus in such a situation, the only option available to the assessee is to apportion the expenses to different activities for determining the net profit of each activity. Accordingly, we are not convinced with the finding of the authorities below by treating the gross profit as taxable income of the assessee. It was the duty of the revenue to pinpoint the infirmity in the expenses apportion by the assessee towards the activity under consideration. To our understanding, all the expenses apportion by the assessee cannot be ignored without bringing any cogent reason on record. Hence, we set aside the finding of the CIT (A) and direct the AO to take the net profit declared by the assessee as taxable income and delete the amount over and above such taxable income of the assessee. Hence the ground of appeal of the assessee is allowed. Non granting the deduction provided u/s 80P (2)(c)(ii) - CIT (A) observed that the activity of the assessee falls under clause (b), therefore the assessee cannot claim the deduction u/s 80P(2)(c)(ii) - HELD THAT - As coordinate bench of Hyderabad Tribunal in case of Film Nagar Co-operative Society Ltd . 2002 (7) TMI 233 - ITAT HYDERABAD-B by following the judgment in case of CIT vs. Ratanabad Co-operative Housing Society Ltd. 1994 (12) TMI 31 - BOMBAY HIGH COURT held that The expression 'profits and gains' in clause (c) of sub-section (2) of section 80P is not confined to 'Profits and gains of business' under clause (a) . Thus, in case of co-operative credit society, income to which benefit of section 80P(2)(a)(i) is not allowed, e.g., rental income, interest income from surplus funds kept in FDs' of banks, etc., basic exemption of ₹ 50,000/- as provided for in section 80P(2)(c)(ii) must be granted. It appears that, though the word 'activity' is not defined, yet the investment activity, activity of renting of immovable property, trading of Ghee etc., and the consequent income attributable to such activities would be covered u/s 80P(2)(c). Hence, we set aside the finding of the learned CIT (A) and direct the AO to allow the deduction to the assessee under the provisions of section under section 80P(2)(c)(ii) of the Act. Hence the ground of appeal of the assessee is allowed.

Summary

Issues Involved:
1. Treatment of gross profit as taxable income instead of net profit from the sale of Ghee.
2. Disallowance of deduction under section 80P(2)(c)(ii) of the Income Tax Act.

Issue 1: Treatment of Gross Profit as Taxable Income:
The assessee, a cooperative society, challenged the addition of gross profit as taxable income instead of net profit from the sale of Ghee. The Assessing Officer (AO) found discrepancies in the assessee's income declaration related to Ghee sales. The AO treated the entire gross profit amount as income due to lack of specific indirect expenses allocation. The assessee contended that only net profit should be taxable, not gross profit. The Commissioner of Income Tax (Appeals) rejected the assessee's argument, citing proportionate expenses already accounted for. However, the Appellate Tribunal disagreed, emphasizing that organizations incur unavoidable administrative expenses for various activities. The Tribunal noted the necessity of apportioning expenses for accurate profit determination. Consequently, the Tribunal directed the AO to consider the declared net profit as taxable income, overturning the lower authorities' decision.

Issue 2: Disallowance of Deduction under Section 80P(2)(c)(ii):
The second issue revolved around the denial of a deduction under section 80P(2)(c)(ii) of the Act amounting to ?50,000. The AO disallowed the deduction, asserting that the cooperative society's profits were already eligible for a deduction under a different clause. The assessee argued that its activities qualified for the specific deduction claimed. The Commissioner (Appeals) disagreed, stating the activities fell under a different clause, thus disallowing the deduction. The Tribunal reviewed relevant legal provisions and precedent, emphasizing that certain activities beyond specified clauses could still qualify for deductions. Citing a relevant court judgment, the Tribunal concluded that activities like trading in Ghee could be covered under section 80P(2)(c). Consequently, the Tribunal directed the AO to allow the deduction of ?50,000 under section 80P(2)(c)(ii) to the assessee, thereby allowing the appeal.

In conclusion, the Appellate Tribunal ruled in favor of the assessee on both issues, directing the Assessing Officer to consider the net profit as taxable income and allowing the deduction under section 80P(2)(c)(ii). The judgment provides clarity on the treatment of gross profit and eligibility for deductions under specific clauses of the Income Tax Act, ensuring fair assessment practices and compliance with legal provisions.