2022 (6) TMI 77 - AT - Income Tax

Deduction u/s 80P denied - this assessee is a milk cooperative who has claimed the impugned deduction regarding income derived from sale of Shenkhat and Palapachola to its members - Profit on selling of Shenkhat and Palapachola is not seen for the benefit of members and not according to objectives mentioned in Bye laws of society. The motive of supplying the shenkhat and palapachola is to earn more profit which is outside from the preview of objectives mentioned in Bye-laws of the society - HELD THAT - No merit in the learned lower authorities stand first of all since this is not a case involving bogus purchase of the twin foregoing twin fodder products sold to the members. We reiterate that the assessee s sole substantive grievance claim is u/s 80P deduction wherein it has sold organic manure to its milk producers so as to ensure better production of fodder meant for consumption of the milch animals thereby increasing dairy outputting. This crucial direct nexus amongst the assessee, the organic manure sold at its behest for better fodder production milk producers milch animals appears to have escaped the learned lower authorities valuable consideration. Hon ble apex court recent decision in Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT has settled the law that we ought to adopt liberal construction in an instance involving section 80P deduction. We accordingly hold in light of the foregoing factual and legal backdrop that the assessee is very much entitled for section 80P deduction in issue - Decided in favour of assessee.

Summary

Issues:
1. Delay in filing appeal due to Covid-19 pandemic.
2. Disallowance of section 80P deduction by lower authorities.

Analysis:
1. Delay in filing appeal due to Covid-19 pandemic:
The appellant's appeal faced a delay of 36 days due to the Covid-19 pandemic outbreak period. The delay was condoned solely due to this reason, allowing the appeal to proceed.

2. Disallowance of section 80P deduction by lower authorities:
The main issue in this case revolved around the denial of section 80P deduction of Rs.38,69,712 by the lower authorities. The Assessing Officer (AO) disallowed the deduction under section 80P(2)(a)(iv) of the Income Tax Act, 1961, pertaining to the sale of organic manure to members for agricultural purposes. The AO contended that the sale of organic manure was not in line with the society's objectives as per the Bye laws, and hence, the deduction was not allowed. The AO also initiated penalty proceedings for underreporting of income due to the disallowance.

3. Appellant's argument and Tribunal's decision:
The appellant, a milk cooperative, argued that the sale of organic manure was essential for better fodder production for milch animals, leading to increased dairy output. The Tribunal found merit in the appellant's argument and held that the direct nexus between the sale of organic manure and increased dairy output was crucial. Referring to a recent Supreme Court decision, the Tribunal emphasized the need for a liberal construction in cases involving section 80P deduction. Consequently, the Tribunal allowed the appellant's appeal, stating that the appellant was entitled to the section 80P deduction of Rs.38,69,712.

4. Conclusion:
The Tribunal allowed the appellant's appeal, overturning the lower authorities' decision to disallow the section 80P deduction. The judgment highlighted the importance of a direct nexus between the claimed deduction and the objectives of the appellant, ultimately ruling in favor of the appellant and ordering the deduction accordingly.