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TMI Blog2005 (9) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this section. The sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: ( a ) in the case of a co-operative society engaged in : ( i ) and ( ii ) ****** ( iii ) marketing of the agricultural produce of its members, ( iv ) to ( vii ) ****** the whole of the amount of profits and gains of business attributable to any one or more of such activities." In Assam Co-operative Apex Marketing Society Ltd. v. Addl. CIT [1993] 201 ITR 338 1 , the Hon ble Supreme Court held that the words "agricultural produce of its members" must be held to mean the agricultural produce produced by its members. The Supreme Court was of the view "that the idea and intention behind the provision was to encourage basic level societies engaged in cottage industries, in marketing the agricultural produce of their members and those engaged in purchasing and supplying agricultural implements, seeds, etc., to their members and so on. The words "agricultural produce of its members" must be understood consistent with this object and if so understood, the words mean the agricultur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long as agricultural produce handled by the assessee belonged to its members, it was entitled to exemption in respect of the profits derived from the marketing of the same. Whether the members came by the produce because of their own agricultural activities or whether they acquired it by purchasing it from cultivators was of no consequence for the purpose of determining whether the assessee was entitled to the exemption. The only condition required for qualifying the assessee s income for exemption was that the assessee s business must be that of marketing, the marketing must be of agricultural produce and that agricultural produce must have belonged to the members of the assessee-society before they came up for marketing by it, whether on its own account or on account of the members themselves. Thus, there is no scope to limit the exemption. The co-operative societies are engaged in marketing of an agricultural produce both of its members as well as of non-members. In the later case, there is no difference between a co-operative society or any other business organisation and so will not be entitled to exemption. The exemption is intended to cover all cases where a co-operative soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (13,75,886) 2. Disallowance u/s. 43B 2,38,455 3. Provision for bad and doubtful debts 12,88,685 13,63,009 11,45,33,310 Less : 1. Expenditure disallowed u/s. 43B in the previous year ending 31-3-1997 to be allowed as expenditure since paid this year 34,210 2. Ex Gratia to employees 1,13,80,021 ₹ 3. Rebate to members 1,00,29,000 (2,14,43,231) 9,30,29,000 Less : Deductions Chapter VI-AU/s. 80P(2)( d ) interest and dividend received from Co-operative societies 53,36,000 2. U/s. 80P(2)( a )( iii ) income from marketing of agricultural produce of its members. 10,19,95,000 10,73,31,000 Limited to the extent of Total income 9,30,90,079 Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard and, therefore, the prima facie adjustment made was not proper. Besides the above, the assessee also claimed that it was entitled to deduction under section 80HHC and the same has to be considered. The assessee also claimed that the assessee was entitled to claim deduction of liability towards interest and principal to M/s. Alimenta of Geneva which liability had arisen pursuant to an arbitration award of FOSFA. The assessee also claimed that deduction under section 80P(2)( d ) was to be allowed. 9. The Assessing Officer passed an order dated 1-11-1999 on such application by the assessee allowing claim of the assessee for deduction under section 80HHC. With regard to the claim for deduction under section 80P(2)( d ) the Assessing Officer held that the assessee had claimed the deduction and in the intimation the same was allowed and, hence, there was no apparent mistake calling for rectification. Regarding the claim for deduction under section 80P(2)( a )( iii ) being a debatable issue and hence not amenable to disallowance by way of prima facie adjustment, the Assessing Officer held that since the provisions were amended retrospectively from 1-4-1968, the assessee s cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., 31-10-1998, it was entitled to claim deduction under section 80P(2)( a )( iii ) of the Act, in view of the decision of the Hon ble Supreme Court in the case of Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 231 ITR 814 1 , which decision was rendered on 13-5-1998. He also drew our attention to the fact that only in December, 1998, the Bill to amend the provisions of section 80P(2)( a )( iii ) was introduced in Parliament and ultimately it became law on 8-1-1999 when the law was passed by the Parliament and notified in the Official Gazette. He further drew our attention to the fact that the assessee challenged the constitutional validity of the amendment before the Hon ble Delhi High Court and also before the Hon ble Supreme Court which petitions were dismissed on 16-2-2001 and 25-3-2002, respectively. According to him, the assessee, as per the law prevailing on 31-10-1998 when assessee filed a return of income had made a claim for deduction which was valid in law. He contended that the assessee could not foresee a retrospective amendment to the law when he filed the return of income. In the circumstances, according to him, a prima facie adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause ( iii )( b ) was inserted in section 28, though having retrospective operation by the Finance Act, 1990, the assessee did not include this income in its return, which, as noted above, was filed on 29th December, 1989. The Assessing Officer made prima facie adjustment under section 143(1)( a ) of the Act, by bringing to tax cash assistance received by the assessee against exports, in view of the retrospectively amended law. The Assessing Officer also levied additional tax on the adjustment so made. The Tribunal held that levy of additional tax was unjustified. The stand of the revenue was that under section 143(1A), the Assessing Officer has no choice and he has to levy additional tax once he finds that the assessee has not shown the amount of the cash compensatory support in his return, whatever the reason be. The Supreme Court referred to the decision of the Hon ble Calcutta High Court in the case of Modern Fibotex India Ltd. v. Dy. CIT [1995] 212 ITR 496 where one of the two issues before the Court related to the validity of an intimation under section 143(1)( a ) of the Act. The assessee in the said case, for the assessment year 1989-90 received cash compensatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Company v. Pyre [1861] 142 ER 419, 424]. The injustice in my view is more shocking in this case having regard to the fact that the assessee had itself, in its return, drawn the attention of the Income-tax authorities to the basis upon which the cash compensatory support had been included as income and had clearly offered to include the same in any assessment if the basis is shown to exist. Additionally the change in the law by amendment of section 28 took place several months after the return was filed by the assessee. This Court is not determining the validity of the amendment of section 28, but is merely determining the scope of the power under section 143(1)( a ). The assessee s return could have been taken up by the Assessing Officer under section 143 prior to the amendment. In that event, no adjustment would have been made and no intimation would have been sent. An assessee s liability cannot be made to depend upon such a fortuitous circumstance." (p. 512) High Court allowed the writ petition to the extent that the impugned intimation and adjustment under section 143(1)( a ) were set aside and quashed. The Hon ble Supreme Court after referring to the aforesaid judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stering the provisions of the Act with an evil eye and unequal hand . 8. We uphold the view expressed by the Calcutta High Court. Keeping in view the principles laid by this Court it has to be held that in the circumstances of the present case levy of additional tax taking into account the income by way of cash compensatory support is not warranted. The question is answered in affirmative, i.e. , in favour of the assessee and against the Revenue. The appeal is accordingly dismissed with costs." 15. The aforesaid decision of the Hon ble Supreme Court, squarely applies to the question in controversy in the present appeal. We would therefore hold that the prima facie adjustment made by the Assessing Officer and consequent levy of additional tax is unjustified and the same is directed to be deleted. 16. The argument of the learned DR that the assessee could have filed a revised return after the amendment of the law and prior to issue of an intimation under section 143(1)( a ) cannot be accepted. A revised return could be filed only when an omission or a wrong statement in the original return of income is noticed by an assessee. As on the date when the return of income wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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