Gujarat High Court
Kaira District Co Op Milk Producers ... vs Assistant Commissioner Of Income Tax - ... on 24 August, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/1124/2015 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 1124 of 2015
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KAIRA DISTRICT CO OP MILK PRODUCERS UNION LIMITED....Petitioner(s)
Versus
ASSISTANT COMMISSIONER OF INCOME TAX - ANAND
CIRCLE....Respondent(s)
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Appearance:
MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1
MR KM PARIKH, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 24/08/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 31.3.2014 issued by respondent Assessing Officer for reopening the petitioner's assessment for the assessment year 20092010 which was originally framed after scrutiny. This notice thus has been issued within a period of four years from the end of relevant assessment year.
2. The petitioner is a Cooperative Milk Producers' Union. For the assessment year 20092010, petitioner had declared nil income. The petitioner had however reported its claim of deduction under section 80P of the Income Tax Act of Rs.1.51 crores(rounded off), which included interest Page 1 of 7 HC-NIC Page 1 of 7 Created On Tue Aug 30 03:08:28 IST 2016 C/SCA/1124/2015 ORDER received by the petitioner from cooperative banks and cooperative societies of Rs.69.98 lacs which according to the petitioner was exempt under section 80P(2)(d) of the Act. The Assessing Officer however framed scrutiny assessment on such return by passing an order on 30.12.2011. In such order, he disallowed certain expenses and depreciation claimed by the assessee but granted the deduction under section 80P of the Act of the full amount of Rs.1.51 crores and computed total income at Rs.4.62 crores.
3. To reopen such assessment, the respondent issued the impugned notice in which he had recorded the following reasons :
"The assessee is engaged in processing of milk and manufacturing of milk products and cattle feed. The assessee filed ereturn of income for AY 200910 on 29.09.2009 declaring "nil" income. The assessment was completed u/s.143(3) and income was determined at Rs.4,62,94,340 vide order dated 30.12.2011.
2. On examination, it is noticed that assessee has claimed deduction u/s.80P(2)(d) of Rs.69,98,348/. It is further noticed that the during the year under consideration, the assessee received total interest of Rs.2,58,93,000/ out of which an amount of Rs.69,98,348/ was interest received from Co operative banks & Cooperative Societies. It is also noticed that the assessee has paid interest of Rs.11,22,07,000/--. As such, net interest income of assessee is ()Rs.8,63,14,000/ (Rs.11,22,07,000/ less Rs.2,58,93,000/). As the net interest income of the assessee is in negative, the assessee is not eligible for deduction of any amount u/s.80P(2)(d) in accordance with Page 2 of 7 HC-NIC Page 2 of 7 Created On Tue Aug 30 03:08:28 IST 2016 C/SCA/1124/2015 ORDER the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Dugdh Utpadak Sahakari Sangh Ltd. 202 CTR 343 and as held in the case of the assessee for A.Y.201112. Therefore, deduction claimed by the assessee u/s.80P(2)(d) amounting to Rs.69,98,348/ is required to be disallowed.
3. In view of the above facts & circumstances, I have reason to believe that the income of Rs.69,98,348/ has escaped the assessment within the meaning of sec.147 of the income tax act, 1961 for the assessment year 200910. Therefore, issue notice u/s. 148 of the act for A.Y.200910 to the assessee."
4. After unsuccessful attempt in persuading the Assessing Officer to drop such proceedings, the petitioner has filed this petition in support of which two grounds are raised before us namely, that Assessing Officer in the original assessment had scrutinised this claim minutely and granted the same after due verification and secondly, that even otherwise the reason on which the reopening is sought to be done lacks validity. In support of this later ground, counsel for the assessee placed reliance on decision of Division Bench of this Court in case of The Surat Vankar Sahakari Sangh Ltd v. Asst. Commissioner of Income Tax, Circle5, judgement dated 12.7.2016 passed in Tax Appeal No.93/2008 and connected appeals. In such judgement, the Court held that deduction under section 80P(2)(d) of the Act would be available on the whole of the interest income and would not be adjusted against the interest expenditure which is not related to earning of such interest income.
5. Revenue however, supports the notice on the ground that the petitioner had not pointed out that the society had Page 3 of 7 HC-NIC Page 3 of 7 Created On Tue Aug 30 03:08:28 IST 2016 C/SCA/1124/2015 ORDER incurred interest expenditure of Rs.11.22 crores. The interest income of Rs.69.98 lacs had to be adjusted against such expenditure before any deduction could be claimed as was held by the Allahabad High Court in case of Commissioner of Income Tax v. Dugdh Utpadak Sahakari Sangh Ltd reported in 202 CTR 343.
6. Having thus heard learned counsel for the parties and having perused the documents on record, we may recall that the sole ground on which the notice for reopening has been passed is that the assessee, a cooperative society, had claimed deduction of Rs.69.98 lacs under section 80P(2)(d) of the Act. As against this, the society had paid interest of Rs.11.22 crores on loan. According to the Assessing Officer, interest income had to be adjusted against interest expenditure before residue, if any, could be claimed by way of deduction.
7. During the original assessment, the Assessing Officer had raised multiple queries under a letter dated 25.7.2011 including the following :
"9. Please furnish detailed interest account(s) for all sorts of interest paid payable and received/receivable.
18. Justify your claim of deduction of 80P(2)(c) 80P(2)(d) 80P(2)(e) of the Act with cogent and sufficient evidences"
8. In response to such queries, the assessee under letter dated 5.9.2011 had conveyed as under :
"4. (Point No.9 a. Details of interest received/receivable is enclosed herewith as per AnnexureC. Page 4 of 7 HC-NIC Page 4 of 7 Created On Tue Aug 30 03:08:28 IST 2016 C/SCA/1124/2015 ORDER b. Details of interest paid/payable is enclosed herewith as per AnnexureD Deduction u/s. 80P(2)(d):
Interest income of Rs.69,98,348/ has been claimed as deduction u/s.8OP(2)(d) on the basis of the chart showing interest income earned. You will please find from the chart that the interest has been earned out of the investment of amount received on sale of milk, milk products etc. from GCMM F Ltd.
Similarly, the dividend of Rs.77,2l,996/ has been claimed as deduction u/s.80P(2)(d) of the IT. Act as the amount was invested in earlier years from our own funds. Please note that we have not borrowed any funds for purchase of shares on which we earned dividend income and claimed as deduction u/s. 80P(2)(d). As the interest and dividend has been received from the CoOperative Societies and earned out of investment made from our own funds, we are entitled to full deduction u/s 80P (2)(d) of the Incometax Act.
We have earned interest on short term deposit with coop Bank or from CoopSocieties. We submits that no expenditure whatsoever in the form of interest has been incurred by us for earning such dividend and interest from CoOpSocieties.
We submit that expenditure of interest has no nexus whatsoever with the income of the interest and dividend during the year.
Relied on :
a) in the case of Banas Dist.CoOpMilk Produces Union Ltd. Hon'ble Appellate Tribunal has dismissed the appeal filed by the department in A.Y.s199091, 199192, 1992 93, 199394.
b) Hon'ble Appellate Tribunal has dismissed on similar Page 5 of 7 HC-NIC Page 5 of 7 Created On Tue Aug 30 03:08:28 IST 2016 C/SCA/1124/2015 ORDER grounds the appeal filed by the department in the case of (1) Kaira Dist.CoopMilk Producer's Union Ltd In A.Y.198687 and (2) Sabarkantha Dist. Coop. Milk Producer's Union Ltd. in. A.Ys. 199293 and 199394.
CIT Vs. Haryana Coop, Sugar Mills Ltd. 180 ITR 631 (P&H)"
9. It was after such examination of the assessee's claim of deduction under section 80P(2)(d) of the Act that the Assessing Officer passed the order of assessment in which, as noted, he allowed the entire claim of deduction under section 80P of Rs.1.51 crores which naturally included the said figure of Rs.69.98 lacs under section 80P(2)(d) of the Act. During the assessment thus Assessing Officer had full materials at his command to consider the relevant question namely, whether the interest income of Rs.69.98 lacs could be allowed deduction without adjustment against the interest expenditure or not? The fact that interest was paid by the assessee on borrowed funds was very much on record as can be seen from the answer given by the petitioner to the queries raised by the Assessing Officer. In fact, in the reasons recorded also, Assessing Officer does not refer to any external material which could be the source of such income that the assessee had expended Rs.11.22 croes by way of interest. Thus the Assessing Officer having examined the specific claim of deduction under section 80P(2)(d) of the Act, it would now not be open for him to reexamine the claim which would be based on mere change of opinion. Quite apart from the question of validity of such reasons, in view of judgement of this Court in case of The Surat Vankar Sahakari Sangh Ltd(supra) in view of settled principles of law, reopening Page 6 of 7 HC-NIC Page 6 of 7 Created On Tue Aug 30 03:08:28 IST 2016 C/SCA/1124/2015 ORDER would not be permissible.
10. In the result, impugned notice 31.3.2014 is set aside. Petition is allowed and disposed of.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) raghu Page 7 of 7 HC-NIC Page 7 of 7 Created On Tue Aug 30 03:08:28 IST 2016