2022 (6) TMI 562 - AT - Income Tax

Deduction u/s 80P(2)(a)(iii) with respect to gross commission receipts - Denial of deduction assessee is not engaged in marketing of agricultural produce grown by its members, and is merely a facilitator / agent for ensuring timely payments to the farmers for the purchase of sugar cane by sugar mills for which it is entitled to receive commission at a specified rate on every purchase made by the sugar mills - CIT(A) allowed the appeal filed by the assessee and held that the assessee is into marketing of sugar cane grown by farmers who are its member, and the assessee is entitled for deduction u/s 80P(2)(a)(iii) - HELD THAT - As observed that there are completely contrary finding recorded by ld. CIT(A) in its appellate order, as opposed to finding of fact recorded by AO, firstly that payments to farmers are made by the assessee society, while the fact as recorded by AO in its assessement order is that the sugar mills are making direct payments to farmers for sugar cane procured from the farmers, while the assessee is getting commission payments from sugar mill. The second contrary finding recorded by ld. CIT(A) as opposed to finding of fact recorded by AO, is that it is engaged in the aspect of marketing of sugar cane right from sowing of the crop and until payment is realized by its member, but the facts recorded by AO clearly stipulates in para 4.1 (i) that the farmers who grow sugar cane , obtain membership of the assessee when the season comes for crushing of the sugar cane, the members , who desires to sell. The third contrary finding of fact recorded by ld. CIT(A) in its appellate order as opposed to finding of fact recorded by AO, is that the assessee supplies sugar cane grown by its member to the sugar mills and also realizes sugarcane prices from sugar mills, but the finding of fact recorded by AO in para 4.1(ii) is that the farmers who are its members take their sugar cane to the sugar mills named in parchi where weight of the sugar cane is taken by sugar mills authorities but under inspection supervision of the assessee s staff and then the delivery of the sugar cane is accepted by sugar mill as also the AO has recoded finding of fact at page 7 that farmers sell their produce directly to the sugar mills, and for that the assessee is paid commission. Thus, it could be seen that completely contrary findings of fact are recorded by ld. CIT(A) while adjudicating appeal in favour of the appellant, which findings of fact is totally opposite/contrary to what was recorded by AO in its assessment order , thus the conclusion arrived at by ld. CIT(A) cannot be relied upon as there are no supportive evidences referred to by ld. CIT(A) in arriving at totally contrary/opposite findings of facts as opposed to finding of facts recorded by AO in its assessment. These are factual matters and correct finding of fact based on evidence is required to adjudicate this appeal,as it goes to the root of the matter for adjudicating this appeal. We are inclined to set aside appellate order passed by ld. CIT(A) and restore this issue to the file of ld. CIT(A) for denovo adjudication of the assessee appeal. Needless to say that powers of ld. CIT(A) are co-terminus with powers of the AO. The ld. CIT(A) is directed to record complete and correct facts based on evidence, of the complete chain of activities / processes undertaken by assessee with respect of sale of sugarcane to sugar mills by farmers, including chain of activities/ processes undertaken by farmers/ sugarmills in this entire process , from beginning to end, before arriving at its decision in set aside proceedings . This appeal filed by Revenue is allowed for statistical purposes

Issues Involved:
1. Whether the assessee is entitled to deduction under Section 80P(2)(a)(iii) of the Income-tax Act, 1961.
2. Whether the activities of the assessee constitute "marketing" of agricultural produce grown by its members.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction under Section 80P(2)(a)(iii):
The primary issue in this case is whether the assessee, a cooperative society, is entitled to claim a deduction under Section 80P(2)(a)(iii) of the Income-tax Act, 1961. The assessee claimed this deduction on the grounds that it was engaged in the marketing of sugar cane grown by its members.

The Assessing Officer (AO) denied the deduction, arguing that the assessee was not involved in marketing activities but merely acted as a facilitator or agent ensuring timely payments to farmers for the purchase of sugar cane by sugar mills. The AO contended that the assessee's role did not meet the criteria for "marketing" as required under Section 80P(2)(a)(iii) and described the assessee as a commission agent.

The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, holding that the assessee was engaged in marketing activities, including negotiating prices, establishing purchase centers, and managing the physical delivery of sugar cane. The CIT(A) relied on previous appellate orders and concluded that the activities of the assessee constituted marketing, thereby qualifying for the deduction under Section 80P(2)(a)(iii).

2. Activities Constituting "Marketing":
The AO's assessment emphasized that the activities carried out by the assessee did not amount to marketing. The AO argued that the geographical area of operation was confined to specific sugar mills, and there was no marketing involved per se. The AO referred to various judicial precedents to support the view that the assessee's activities did not meet the definition of marketing, which generally involves a range of activities from production to the ultimate consumer, including storage, transportation, and processing.

The CIT(A), on the other hand, found that the assessee's activities, as outlined in its bylaws, included marketing functions such as negotiating prices, establishing purchase centers, and ensuring the delivery of sugar cane. The CIT(A) referred to previous appellate decisions where similar activities were deemed to constitute marketing, thereby allowing the deduction under Section 80P(2)(a)(iii).

Tribunal's Decision:
The Income Tax Appellate Tribunal (ITAT) noted the conflicting findings between the AO and the CIT(A). The Tribunal observed that the CIT(A) had recorded findings that were contrary to the facts established by the AO, particularly regarding the payment process and the role of the assessee in the marketing chain.

Given these discrepancies, the Tribunal set aside the appellate order of the CIT(A) and remanded the matter back to the CIT(A) for a de novo adjudication. The Tribunal directed the CIT(A) to record complete and correct facts based on evidence, detailing the entire chain of activities undertaken by the assessee in the sale of sugar cane to sugar mills. The CIT(A) was instructed to grant proper and adequate opportunities for the assessee to present its case and to admit all relevant evidence before making a fresh decision.

The Tribunal clarified that it had not commented on the merits of the issue and kept all contentions open for reconsideration. The appeal filed by the Revenue was allowed for statistical purposes, and the matter was remanded for fresh adjudication in accordance with the law.

Conclusion:
The Tribunal's decision highlights the need for a thorough and evidence-based examination of the activities carried out by the assessee to determine whether they constitute marketing under Section 80P(2)(a)(iii). The matter was remanded to the CIT(A) for a fresh adjudication to ensure that the correct facts and legal principles are applied in determining the assessee's entitlement to the deduction.

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