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Friday, October 23, 2015

Deductions u/s 80P(2)(iv)—Deduction in respect of income of co-operative societies

BHADRAN SEVA SAHAKARI MANDLI LTD. vs.INCOME TAX OFFICER
AHMEDABAD TRIBUNAL
RAJPAL YADAV, JM & ANIL CHATURVEDI, AM.
ITA No. 2946/Ahd/2013, 119 & 120/Ahd/2014
Oct 19, 2015
(2015) 45 CCH 0126 AhdTrib
Legislation Referred to Section 80P(2)(iv)
Case pertains to Asst. Year 2008-09, 2009-10 & 2010-11
Decision in favour of:Assessee (partly)

Deductions u/s 80P(2)(iv)Deduction in respect of income of co-operative societies—Business if sale and credit facility services—Assessee was co-operative society alleged to have been established in 1958—Assessee was engaged in business of selling fertilizers, petrol, diesel and retail consumer items as well as providing credit facilities to its members through bank etc.—Assessee was assessed to tax from Asst. Year it came into existence—Assessee filed returns of income in all three years declaring Nil income—AO computed income for all years—Appeal to CIT(A) did not bring any relief to Assessee—AO construed that total sale was being made to non-members and denied exemption u/s 80P(2) to Assessee—Held, sale of diesel to farmers who were members of Assessee society would fall within meaning of expression “other articles intended for agriculture for purpose of supplying them to its members”—Thus if diesel was being supplied to farmers for agricultural use, then profit would qualify for deduction u/s 80P(2)—However, Assessee had not been able to maintain specific details demonstrating sales exclusively made to farmers and who used such diesel for agricultural operation—In past, Assessee had been claiming deduction to extent of 70% on ground that only 30% of sales were made to outsiders, but that figure had always been adopted by Assessee on estimate basis—It was not possible to verify sale bills because to identify purchasers out of sale bills was quite difficult for any adjudicator—Thus in totality of facts and circumstances of AO was directed to consider 50% of sales to farmers who were members of Assessee society—Rest 50% was being estimated as made to non-members—This estimation should not be considered as guiding factor in future—Appeals filed by Assessee partly allowed.
Held
Sale of diesel to the farmers who are members of the assessee society would fall within the meaning of expression “other articles intended for agriculture for the purpose of supplying them to its members”. Thus if diesel is being supplied to the farmers for agricultural use, then the profit would qualify for deduction under section 80P(2) of the Act. However, we find that assessee has not been able to maintain specific details demonstrating the sales exclusively made to the farmers and who have used such diesel for agricultural operation. In the past assessee has been claiming deduction to the extent of 70% on the ground that only 30% of the sales were made to the outsiders, but this figure has always been adopted by the assessee on estimate basisIt is not possible to verify the sale bills at this stage because to identify purchasers out of the sale bills is quite difficult for any adjudicator. Thus in the totality of facts and circumstances of the case we direct the AO to consider 50% of the sales to the farmers who are members of assessee society. The rest 50% is being estimated as made to the non-members. This estimation should not be considered as guiding factor in future. (para 5)
Conclusion
Sale of diesel to the farmers who are members of the assessee society would fall within the meaning of expression “other articles intended for agriculture for the purpose of supplying them to its members”, hence, diesel being supplied to the farmers for agricultural use, would qualify for deduction under section 80P(2) of the Act.
In favour of
Assessee (partly)
Counsel appeared:
S. N. Divetia, AR for the Appellant.: Somogyan Pal, Sr.DR for the Respondent
RAJPAL YADAV, JM.
1. The present three appeals are directed at the instance of assessee against separate orders of CIT(A) dtd. 23/09/2013, and dtd.1.10.2013, passed for Asst. Years 2009-10, 2008-09 & 2010-11 respectively. The grounds of appeal taken by the assessee are not in consonance with Rule-8 of ITAT Rules, 1963. They are descriptive and argumentative in nature. In brief the grievance of the assessee is that ld. CIT(A) has erred in upholding the disallowance of deduction under section 80P(2)(iv) of the Income-tax Act, 1061 (in short the Act) in respect of the profit earned from diesel pump division.

2. The facts on vital points are common, therefore, for the sake of convenience, we take the facts for Asst. Year 2008-09. Brief facts of the case are that the assessee is a co-operative society alleged to have been established in 1958. It is engaged in the business of selling fertilizers, petrol, diesel and retail consumer items as well as providing credit facilities to its members through bank etc. The assessee is assessed to tax from the Asst. Year it came into existence. It has filed returns of income in all these three years declaring Nil income. The ld. AO has computed the income these years as under :-

For AY 2008-09

Total income as per return of income
Rs.Nil
Add: Net profit from diesel and petrol as per account filed by the assessee
Rs.4,57,817/-
Add: Net profit from provision items including edible oils & Misc.
Rs.14,683/-
Total income
Rs.4,72,500/-
Less: Deduction u/s 80P(2)©(ii)
Rs.50,000/-
Taxable income
`Rs.4,22,500/-
Total income as per return of income
Rs.Nil
Add: Net profit from diesel and petrol as per account filed by the assessee
Rs.3,94,740/-
Add: Net profit from provision items including edible oils & Misc.
Rs.55,508/-
Add: Loss from Handloom, Hosiery & school dress
Rs.(-)759/-
Total income
Rs.4,49,489/-
Less: Deduction u/s 80P(2)©(ii)
Rs.50,000/-
Taxable income
`Rs.3,99,489/-
i.e.
Rs.3,99,490/-
Total income as per return of income
Rs.Nil
Add: Net profit from diesel and petrol as per account filed by the assessee
Rs.43,300/-
Add: Net profit from provision items including edible oils & Misc.
Rs.23,137/-
Add: Loss from Handloom, Hosiery & School Dress
Rs.(-) 1,300/-
Total income
Rs.65,137/-
Less: Deduction u/s 80P(2)©(ii)
Rs.50,000/-
Taxable income
`Rs.15,140/-


For AY 2009-10


For AY 2010-11


3. The appeal to the CIT(A) did not bring any relief to the assessee. The ld. counsel for the assessee has filed Paper Book running into 272 pages. He has also placed on record copies of registration certificates of the tractors owned by the members of the society. The ld. counsel for the society submitted that diesel is an item which is used by the farmers in the agricultural operation. Therefore, as per section 80P(2)(iv) any article intended for agricultural purposes and such articles are being supplied by the assessee than profits earned on the supply of such articles would qualify for exemption under section 80P(2) of the Act. He conceded to the fact that the assessee has not been maintaining specific account exhibiting the purchase and sale of diesel to the members only. In the past assessee has recognized 70% of its sale to the members and 30% to general public. This accounting method adopted by the assessee has always been accepted by the AO. This year ld. AO has construed that the total sale is being made to non-members and denied exemption under section 80P(2) of the Act to the assessee. For buttressing his contentions he placed on record copies of certain bills, copies of ledger account exhibiting different sales made by the assessee. He also placed on record details showing how members have deposited the amount with the assessee out of which sales were made to them.

4. On the other hand, the ld. DR relied upon the order of A.O. She contended that assessee failed to demonstrate the sales made to the members as well as sales made to the non-members. The assessee ought to have maintained accounts specifying its sales.

5. We have duly considered the rival contentions and gone through the record carefully. We deem it pertinent to note all the relevant provisions of section 80P(2) of the Act. It read as under :-

80P. (1) Where, in the case of an assessee being a co- operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to 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) Carrying on the business of banking or providing credit facilities to its members, or

(ii) A cottage industry, or

(iii) The marketing of agricultural produce grown by its members, or

(iv) The purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or

(v) The processing, without the aid of power, of the agricultural produce of its members, or

(vi) The collective disposal of the labour of its members, or

A bare perusal of sub-clause (iv) of section 80P(2) (a) would indicate that the sale of diesel to the farmers who are members of the assessee society would fall within the meaning of expression “other articles intended for agriculture for the purpose of supplying them to its members”. Thus if diesel is being supplied to the farmers for agricultural use, then the profit would qualify for deduction under section 80P(2) of the Act. However, we find that assessee has not been able to maintain specific details demonstrating the sales exclusively made to the farmers and who have used such diesel for agricultural operation. In the past assessee has been claiming deduction to the extent of 70% on the ground that only 30% of the sales were made to the outsiders, but this figure has always been adopted by the assessee on estimate basis. This situation put us in a difficult position. Taking into consideration the material placed on record, though remained unverifiable and it is not possible to verify the sale bills at this stage because to identify purchasers out of the sale bills is quite difficult for any adjudicator. Thus in the totality of facts and circumstances of the case we direct the AO to consider 50% of the sales to the farmers who are members of assessee society. The rest 50% is being estimated as made to the non-members. This estimation should not be considered as guiding factor in future. We hope that assessee would maintain specific details exhibiting sales made to the farmers. Rather the assessee should keep specific account of each member who is owner of a tractor or a diesel pump or any other machinery required for agricultural operation. The AO can verify such details in future by calling that farmer. We allow the appeal partly and direct the AO to re-computed the income of assessee after treating 50% sales in the diesel pump operation division made to the members. The profit on such sales could be considered as eligible for deduction under section 80P(2).
6. In the result, all the appeals filed by the assessee are partly allowed.

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