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TMI Blog2019 (9) TMI 978X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80P(2)(b) of the Act should be read liberally. We also note that the assessee has been claiming the deduction under section 80P(2)(b) of the Act consistently for the last several assessment years and there was no disallowance even in the assessment framed under section 143(3) of the Act pertaining to the assessment years 2004-05, 2005-06, 2007-08 and 2009-10 and 2010- 11. The assessment orders for the assessment years mentioned. Therefore we are of the view that claim of the assessee should be allowed on the basis of principles of consistency. We are of the view that the assessee is eligible for deduction under section 80P(2)(b) of the Act. Accordingly we reverse the order of the authorities below. AO is directed to allow the claim of the assessee as per the provisions of law. Hence the ground of appeal of the assessee is allowed. Disallowance on account of delay in deposit in the contribution of employees Provident fund and employees state insurance - HELD THAT:- Issue is covered against the assessee by the Hon ble Gujarat High Court in the case of CIT vs. GSTRC [ 2014 (1) TMI 502 - GUJARAT HIGH COURT] tribunal has erred in deleting respective disallowances being e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us the possibility of claiming the deduction under section 80P(2)(d) of the Act on account of interest income from the deposits made with the nationalized/private banks is ruled out. Taking up the matter further regarding the interest income from the deposits made with the co-operative banks, we note that a cooperative bank is basically a cooperative Society only. It becomes a cooperative bank upon getting a license from the Reserve Bank of India. Therefore, in our considered view such amount of interest income from the deposits made with the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. See THE SURAT VANKAR SAHAKARI SANGH LTD. VERSUS ASST. COMMISSIONER OF INCOME TAX, CIRCLE-5. [ 2016 (7) TMI 1217 - GUJARAT HIGH COURT] We are also conscious to the fact that the assessee has shown interest income as part of the business income, therefore if the same is treated as income from other sources, then the same should be reduced from the business income. But the AO has not done so. Thus in the given facts circumstances, the amount of interest income has been added twice resulting the double addition to the total income of the assessee. Therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and the role played by the appellant co-operative Society and wrongly disallowed the deduction u/s 80P(2)(b), however the primarily objects and activities of the appellant society are duly eligible for the deduction u/s 80P(2)(b) of the act. 1.1 That, the learned CIT(A) has grossly erred in law and on facts by wrongly confirming the disallowance of ₹ 1,24,61,498/- u/s 80P(2)(b) of I.T. Act, 1961 by stating that the nature of activity of the appellant is of an intermediary society and not of a primary co-operative society, hence not eligible for deduction u/s. 80P(2)(b) of LT. Act, 1961. 2. That, the learned CIT(A) has wrongly confirmed the disallowance of contribution to Employees' Provident Fund and Employees' State Insurance of ₹ 4,05,105/- u/s 43B of I.T. Act, 1961 by stating that the same is not deposited within the due date prescribed under section 36(1 )(va) of the I. T. Act, 1961. 3. That, the learned CIT(A) has wrongly confirmed the disallowance of expenses amounting to ₹ 6,13,744/- u/s. 40A(3) of the I.T. Act, 1961. 4. That, Learned CIT(A) has wrongly confirmed the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be amended in the above matters: GROUND NO. 6.2: That, tile learned CIT(A) has wrongly confirmed the disallowance of deduction of interest earned from Co-operative Bank ₹ 1,08,62,154/- u/s 80P(2)(d) of I. T. Act, 1961. The said interest income is also part of the Gross Taxable income shown in the Profit And Loss account. 2. In this regard, we would like to state that in the Assessment order the amount of interest received from the investments with Co-operative Bank has been wrongly taken as ₹ 63,04,010/-. Hence, the appellant while filing an appeal before the Hon'ble IT AT, Rajkot has taken the same amount of interest. However, the actual amount of interest received from the investments with co-operative banks is ₹ 1,08,62,154/-. 3. It is therefore most respectfully requested to allow to amend this ground of appeal with a further prayer that the same may kindly be adjudicated upon. The 1st issue raised by the assessee in ground No. 1 is that the learned CIT (A) erred in confirming the order of the AO by sustaining the disallowance of ₹ 1,11,42,436.00 under the provisions of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the course of each year AND. (b) In the immediately preceding three consecutive accounting years of the federation it has dealing with the federation of an aggregate of 8 lakh units AND (c) In the immediately preceding three consecutive accounting years of federation, it procured milk from its area of operation an average quantity of 30,000 Litres per day. 3.4 Thus, from the above it is clear that none of the primary society is eligible to observe the conditions as discussed above. Accordingly, the primary societies cannot supply the milk directly to the Mother Dairy. As such, these primary societies have to supply the milk procured by them to the assessee being a district level society which in turn will supply the milk to the Mother Dairy. Moreover, the primary credit society cannot become the member of GMMF. Accordingly the assessee claimed that it is facilitating the object of the statute and therefore it is eligible for deduction under section 80P(2)(b) of the Act. 3.5 The assessee also submitted that both the primary and the district level society are eligible for deduction under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F, makes it effectively a primary society. However, this argument of the appellant does not hold good for two main reasons. Firstly, the provision in the Act is very clear. The primary cooperative societies are eligible for the said deduction. The appellant is a district level society collecting milk from over 600 primary milk producing societies which are primary because they are the ones actually doing the work of raising and collectio and supply of milk. Thus, the very nature of its work makes the appellant the second rung of hierarchy and it cannot claim to be a primary society. Secondly, many of the primary milk producing societies from whom the appellant is collecting the milk are also assessed in various charges and it is learnt that they are also claiming deduction u/s. 80P(2)(b) on account of being primary milk producing societies. This fact was also brought to the notice of the appellant's AR. To this the appellant has submitted that there is no bar on both the levels claiming the said deduction. This argument of the appellant is also not acceptable. If it was the intention of the legislature to allow the said exemption to all cooperative societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd along with 17 other said district level societies is engaged in the process of collecting milk from the various primary milk producing cooperative societies and supplying it to the GMMF. As such, its nature is that of an intermediary society and not a primary society. In view of the detailed discussion above, I find no reason to disagree with the finding of the AO and it is held that the appellant was not eligible to claim the said deduction. Accordingly the disallowance made by the Assessing Officer amounting to Rs.l,l1,42,436/- on account of deduction of u/s. 80P(2)(b) of the Act is confirmed. Grounds of appeal Nos. 1 to 3 are dismissed. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. 4. The learned AR before us filed a paper book running from pages 1 to 123 and submitted as under: a. The society constituted for the supply of milk to the Federation by way of acquiring milk from the farmers and performing quality checks. b. The supplies milk raised by their members and do not themselves produce milk. c. The main role of the society is to directly inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... level society. As such the activities of the assessee are interlinked with the activities of the primary co-operative societies. 6.1 Moreover, the primary co-operative societies will be eligible only when they supply milk to a federal co-operative society. To our mind, the assessee is not federal co-operative society to whom these primary cooperative societies are supplying the milk. Thus, even the primary cooperative societies in the given facts and circumstances will not be eligible to enjoy the benefit of the deduction provided under section 80P(2)(b) of the Act. Thus in such a situation we are of the view that the provisions of section 80P(2)(b) of the Act should be read liberally. In this regard we find support and guidance from the judgment of Hon ble Supreme Court in the case of Broach Distt Co-operative Cotton Sales, Ginning pressing Society Ltd. Vs. CIT reported in 177 ITR 418. The relevant extract of the judgement is reproduced as under: The sale of the cotton was effected by the assessee to the outside world and not to its members. The object of section 81(i) was to encourage and promote the growth of co-operative societies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iterating that principle. Thirdly, the same principle, namely, that of setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and traversable by the defendant, has not been traversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken. 6.3 In view of the above and after considering the facts in totality, we are of the view that the assessee is eligible for deduction under section 80P(2)(b) of the Act. Accordingly we reverse the order of the authorities below. Thus the AO is directed to allow the claim of the assessee as per the provisions of law. Hence the ground of appeal of the assessee is allowed. The 2nd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance made by the AO on account of delay in deposit in the contribution of employees Provident fund and employees state insurance for ₹ 4,05,105.00 7. At the outset the learned AR before conceded the fact that the issue is covered ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash payment represents the expenses incurred in the routine manner and the recipients demand such payment only in cash. Accordingly the assessee claimed that it is entitled for the deduction on account of business expediency. 9.1 However the learned CIT (A) disregarded the contention of the assessee by observing that the impugned cash payment does not fall in any of the exception provided under rule 6DD of the Income Tax Rule. Accordingly the learned CIT (A) confirmed the order of the AO. 10. Being aggrieved by the order of the learned CIT (A), the assessee is in appeal before us. The learned AR before us submitted that in none of the case the payment is exceeding ₹20,000. The learned AR in support of his contention drew our attention on pages 66 to 107 where the copies of the sample vouchers were placed. Therefore the learned AR claimed that the provisions of section 40A(3) of the Act are not applicable in the instant case. 11. However, the learned DR submitted that the vouchers placed in the paper book demonstrating that the cash payment was less than ₹20,000 were not produced befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the impugned issue to the file of the AO for fresh adjudication as per the provisions of law. 17. On the other hand the learned DR did not raise any objection if the matter is set aside to the file of the AO for fresh adjudication as per the provisions of law. The learned DR vehemently supported the order of the authorities below. 18. We have heard the rival contentions of both the parties and perused the materials available on record. The facts regarding the impugned dispute are arising from the order of the AO. But there was no discussion in the order of the learned CIT (A). We also note that the AO has not observed the provisions of section 50C and 48 of the Act. Therefore we restore the issue to the file of the AO for fresh/de-novo adjudication as per the provisions of law. It is needless to mention that the assessee should co-operate in the proceedings before the AO. Hence the ground of appeal of the assessee is allowed for the statistical purposes. The next issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by not providing deduction of interest of ₹ 1,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible for deduction under section 80P(2)(b)/ 80P(2)(d) of the Act on account of such interest income. It is because such interest income was not arising from the eligible activity as specified under section 80P(2)(b) of the Act. Accordingly, the AO treated such interest income of ₹1,86,33,269.00 as income from other sources and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the learned CIT (A). 20. The assessee before the learned CIT (A) submitted that it has accepted deposits from its member on interest basis as per its policy which was subsequently deposited with the bank in order to reduce the burden of interest on such deposits. Accordingly the assessee claimed that such interest income was arising in the course of its activities having direct nexus. Therefore the assessee claimed to be eligible for deduction under section 80P(2)(b) of the Act. 20.1 The assessee also submitted that it has deposited the amount with the nationalized and private banks from safety point of view. As such certain co-operative banks became bankrupt. Without prejudice to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its members and hence it could not be said that the interest derived from depositing its surplus funds with the bank was profits and gains of business attributable to the activities of the assessee. It was only the interest income derived from the credit provided to its members which was deductible under section 80P(2)(a)(i) and the interest income derived by depositing the surplus funds with the bank not being attributable to the business carried on by the assessee could not be deducted under section 80P(2)(a)(i). 8.2.2 In another recent judgement, the Hon Ahmedabad ITAT in the case of Shree Modhpatni Co-op Credit Society Ltd. Vs. DCIT in ITA No. 2710/Ahd/2015 vide order dated 10/04/2017 has held as under- ... In the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following, namely : - (a) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX [(b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to - (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company 13 as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business;] On perusal of the section above, it is revealed that there is no mention about any interest income from whatever source. Therefore, we are not in agreement with the argument of the learned counsel for the assessee that the assessee is eligible for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther regarding the interest income from the deposits made with the co-operative banks, we note that a cooperative bank is basically a cooperative Society only. It becomes a cooperative bank upon getting a license from the Reserve Bank of India. Therefore, in our considered view such amount of interest income from the deposits made with the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. In this regard we find support and guidance from the judgment of Hon ble High Court of Gujarat in the case of Surat Vankar Sahakari Sangh Ltd. Vs. a CIT reported in tax appeal numbers 93 to 96 of 2008 wherein the head note reads as under: Section 80P of the Income-tax Act 1961- Deductions- Income of cooperative societies (Computation of deduction) Assessment Years 1991-92 to 1994 Whether assessee-co-operative society was eligible for deduction under section 80P(2)(d) in respect of gross interest received from cooperative bank without adjusting interest paid to said bank Held, yes [In favour of assessee] We are also conscious to the fact that the assessee has shown int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) has not appreciated the nature of transactions 1 operation and the role played by the appellant co-operative Society and wrongly disallowed the deduction u/s 80P(2)(b), however the primarily objects and activities of the appellant society are duly eligible for the deduction u/s 80P(2)(b) of the act. 1.1 That, the learned CIT(A) has grossly erred in law and on facts by wrongly confirming the disallowance of ₹ 1,24,61,4981- u/s 80P(2)(b) of LT. Act, 1961 by stating that the nature of activity of the appellant is of an intermediary society and not of a primary co-operative society, hence not eligible for deduction u/s. 80P(2)(b) of LT. Act, 1961. 2. That, the learned CIT(A) has wrongly confirmed the disallowance of contribution to Employees' Provident Fund and Employees' State Insurance of ₹ 1,72,3941- u/s 438 of IT. Act, 1961 by stating that the same is not deposited within the due date prescribed under section 36(1 )(va) of the I. T. Act, 1961. 3. That, the learned CIT(A) has wrongly confirmed the disallowance of expenses amounting to ₹ 2,30,754/- u/s. 40A(3) of the LT. Act, 1961. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee bearing ITA No. 262/RJT/2018 pertaining to the assessment 2012-13. For the detailed discussion, please refer to the relevant paragraph No. 7 of this order. Respectfully following the same, we do not want to uphold the finding of the authorities below. Hence the ground of appeal of the assessee is dismissed. The 3rd issue raised by the assessee is that the learned CIT (A) erred in confirming the disallowance of ₹ 2,30,754 on account of cash payment exceeding ₹20,000 under the provisions of section 40A(3) of the Act. 27. At the outset we note that, we have decided the identical issue in the own case of the assessee for statistical purposes bearing ITA No. 262/RJT/2018 pertaining to the assessment 2012-13. For the detailed discussion, please refer to the relevant paragraph No.13 of this order. Respectfully following the same, we do not want to uphold the finding of the authorities below. Hence the ground of appeal of the assessee is allowed for statistical purposes. The 4th issue raised by the assessee is that the learned CIT (A) erred in confirming the order of the AO by not providing deduction of inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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