2022 (3) TMI 666 - AT - Income Tax

Deduction u/s 80P - Assessee is a Cooperative Society engaged in marketing of crops and providing fertilizers, seeds and agricultural equipment s to farmers who are claimed to be its members - AO did not accept the status of the assessee as Co-operative Society rather, the AO held that the assessee is an Association of Person (AOP) and hence in the opinion of the AO , the assessee is not entitled for deduction u/s 80P - HELD THAT - The assessee being aggrieved filed first appeal with ld. CIT(A), who was pleased to grant deduction u/s 80P to the assessee on the income so claimed to be from marketing commission. The relevant paragraphs of the ld. CIT(A) appellate order are reproduced in the preceding para s of this order. CIT(A) simplicitor granted relief to the assessee by allowing deduction u/s 80P of the 1961 Act on the marketing commission claimed to be earned by the assessee from marketing of agricultural produce of its members. CIT(A) did not adjudicated the status of the assessee as to whether the assessee is to be treated as Co-operative society while assessing its income or the assessee is to be assessed as an AOP as there is no discussion whatsoever in the appellate order passed by ld. CIT(A) on this issue which is infact is an issue which goes to the root of the matter as the assessee will only be entitled for deduction u/s 80P if the assessee is held to be Co-operative Society as is defined u/s 2(19) rather on the contrary the ld. CIT(A) proceeded to grant relief to the assessee by allowing deduction u/s 80P of the Act without adjudicating on this issue . CIT(A) also did not addressed the grievance of the AO while granting relief to the assessee as to non furnishing of the explanation by assessee before the AO about nature of sources of gross receipt or commission income as were claimed by assessee to be earned from the marketing of agricultural produce grown by its members , before allowing relief to the assessee u/s 80P of the 1961 Act . The ld. CIT(A) even did not look into the grievance of the AO that accounts of the assessee were not audited and even tax-audit report has not been filed by the assessee despite the assessee being covered by the provisions of Section 44AB of the 1961 Act, rather ld. CIT(A) proceeded to grant relief to the assessee by simplicitor allowing deduction u/s 80P The provisions of Section 80P are benevolent provisions which must be construed with the object of furthering the co-operative movement generally , but the onus is primarily on the assessee to produce all necessary facts before the authorities to satisfy the authorities that it is entitled for claim of deduction u/s 80P of the 1961 Act. Then it is for the authorities to conduct fact finding enquiry to arrive at conclusion as to the eligibility of the assessee to deduction u/s 80P of the 1961 Act. There is a real distinction between the eligibility of the taxpayer for claim of deduction u/s 80P and the attributability of profits and gains to activities of marketing of produce grown by its members to ascertain the quantum of deduction allowable u/s 80P, as there could be some dealings of the tax-payer with non members or with respect to produce not grown by member which will have bearing on quantification of deduction u/s 80P. Thus adjudication of this issue will require enquiries and verification of the facts, we are inclined to set aside the appellate order passed by ld. CIT(A) on this issue of allowability of deduction u/s 80P and restore the matter back to the file of ld. CIT(A) for fresh adjudication on merits and in accordance with law. The ld. CIT(A) is directed to pass detailed , reasoned and speaking order after making such enquiries and verifications as he may deem fit. The ld. CIT(A) shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in accordance with law. Appeal of revenue allowed for statistical purposes.

Summary

Issues Involved:
1. Status of the assessee as a "Co-operative Society" or an "Association of Persons (AOP)".
2. Eligibility for deduction under Section 80P of the Income-tax Act, 1961.
3. Nature and source of income claimed as marketing commission.
4. Compliance with tax audit requirements under Section 44AB of the Income-tax Act, 1961.

Detailed Analysis:

1. Status of the Assessee as a "Co-operative Society" or an "Association of Persons (AOP)":
The primary issue revolves around whether the assessee qualifies as a "Co-operative Society" under Section 2(19) of the Income-tax Act, 1961, which is essential for claiming deductions under Section 80P. The Assessing Officer (AO) contended that the assessee was registered with the "Registrar, Cane Co-operative Societies, U.P." and not with the "Registrar of Co-operative Societies" as required by law. Consequently, the AO classified the assessee as an "Association of Persons (AOP)" and denied the deduction under Section 80P. The CIT(A) did not address this fundamental issue and proceeded to grant the deduction, which led to the Revenue's appeal.

2. Eligibility for Deduction under Section 80P of the Income-tax Act, 1961:
The assessee claimed deductions under Section 80P, asserting that it was a Co-operative Society engaged in marketing agricultural produce and supplying agricultural inputs to its members. The AO denied this deduction, citing the improper registration status of the assessee. The CIT(A) allowed the deduction for the commission income derived from marketing agricultural produce but upheld the AO's decision to tax the interest income under Section 56 as "Income from Other Sources." The Tribunal found that the CIT(A) did not adequately examine whether the assessee met the criteria for a Co-operative Society under the Income-tax Act and the relevant State laws.

3. Nature and Source of Income Claimed as Marketing Commission:
The AO questioned the reliability and genuineness of the assessee's books of accounts due to the lack of supporting evidence for the sources of income, gross receipts, and commission earned. The AO invoked Section 145(3) of the Income-tax Act to reject the books of accounts. The CIT(A) did not address the AO's concerns about the nature and source of the commission income while granting the deduction under Section 80P.

4. Compliance with Tax Audit Requirements under Section 44AB of the Income-tax Act, 1961:
The AO observed that the assessee failed to get its accounts audited and did not furnish the tax audit report as required under Section 44AB. Despite this non-compliance, the CIT(A) allowed the deduction under Section 80P without addressing the AO's concerns regarding the lack of audit and the reliability of the books of accounts.

Tribunal's Decision:
The Tribunal set aside the CIT(A)'s order and remanded the matter for fresh adjudication. The CIT(A) is directed to:
- Determine the status of the assessee as a "Co-operative Society" or an "AOP."
- Examine the eligibility for deduction under Section 80P in detail.
- Investigate the nature and source of the commission income.
- Address the non-compliance with Section 44AB and the reliability of the books of accounts.

The Tribunal emphasized the need for a detailed, reasoned, and speaking order from the CIT(A) after conducting necessary inquiries and verifications. The CIT(A) must provide the assessee with an adequate opportunity to present its case and submit evidence. The Tribunal clarified that it has not commented on the merits of the case, and all contentions remain open for consideration.

Conclusion:
The appeals filed by the Revenue were allowed for statistical purposes, and the case was remanded to the CIT(A) for a comprehensive re-evaluation of all pertinent issues, ensuring compliance with legal requirements and principles of natural justice.