Income Tax Appellate Tribunal - Ahmedabad
Surat District Co.Op.Milk Producers ... vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH AHMADABAD
Before Shri D.K.Tyagi, Judicial Member and
Shri T.R. Meena, Accountant Member
ITA Nos. 367 & 3386/Ahd/2010
Assessment Years : 2006-07 & 2007-08
&
ITA Nos. 1739/Ahd/2011
Assessm ent Year : 2008-09
The Deputy Commissioner of V/s. The Surat District Co.op
Incom e-tax, Milk Producer Union Ltd.,
Circle-9, Sumul Dairy Road, Station
Room No.423, Aayakar Road, Surat.
Bhavan, Majura Gate, Surat.
P AN No. AAAAS3450M
(Appellant) .. (Respondent)
राजःव कȧ ओर से Shri T. Sankar, Sr. D.R.
By Revenue
आवेदक कȧ ओर से/By Assessee Shri Mitesh Modi, A.R.
सुनवाई कȧ तारȣख/Date of Hearing
17.06.2013
घोषणा कȧ तारȣख/Date of Pronouncement 02.08.2013
ORDER
PER : Shri T.R.Meena, Accountant Member
These three appeals are filed by the Revenue which have emanated from the orders of CIT(A)-V, Surat, dated 23.10.2009 for A.Y. 2006-07, dated 15.09.2010 for A.Y. 2007-08 & dated 15.03.2010 for A.Y. 2008-09. These three appeals were heard together and are being disposed of by way of this common order because facts are common in all appeals and for the sake of convenience. The effective grounds of Revenue's all appeals are as under:
I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 2 Grounds of ITA No.367/Ahd/2010 (A.Y. 06-07)
1. The Ld. CIT(A) has erred in law and in fact in accepting fresh evidences without affording an opportunity to the Assessing Officer to rebut the same thereby violating the provisions of Rule 46A of the IT Act.
2. The Ld. CIT(A) has erred in law and in fact in concluding that there is no nexus between the interest/dividend income earned from the Co-op. Societies and the interest expenditure incurred by the assessee on borrowed funds on the ground that there is no proof of the investment of such interest bearing funds to earn the said income without appreciating the fact that the assessee has failed to substantiate the above in full measure with proper evidences.
Grounds of ITA No.3386/Ahd/2010 (A.Y. 07-08) "1. On the facts and in the circumstances of the case and in law, the Id. CIT (A) has erred in concluding that there is no nexus between the interest/dividend income earned from the Co-op. Societies and the interest expenditure incurred by the assesses on borrowed funds on the ground that there is no proof of the investment of such interest bearing funds to earn the said income without appreciating the fact that the assessee has failed to substantiate the above in full measure with proper evidences.
2. On the facts and in the circumstances of the ease and in law.
the CIT(A) has erred in deleting the addition made by the AO at Rs.1,74,82,509/-on excess deduction claimed u/s.80P(2)(d), despite the fact that the assessee had failed to net the expenses incurred tor earning the exempt income.
I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 3
3. On the facts and in the circumstances of the ease and in law, the Id.CIT(A) has erred in holding that no expenses were incurred for earning such income on which assessee has claimed deduction u/s 80P despite the fact that the assessee had been using interest bearing funds for its business activity keeping such income intact.
4. On the facts and in the circumstances of the case and in law the Id.CIT(A) has erred in holding that as such income on which assessee has claimed deduction u/s 80 P, was earned from investments made in earlier years it could be held to have no expenses attached to it, despite the tact that the assessee had to use interest bearing funds for its day to day business activities claiming double deduction in the form of interest expenses as well as deduction on such income.
5. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in holding that there can be income without incurring expenses.
6. On the facts and in the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition made after disallowing the excess depreciation of Rs.2,95,924/- despite the fact that the concerned items were electrical goods not computer parts/peripherals, therefore liable for depreciation @ 10% not 60% as claimed by the assessee."
Grounds of ITA No.1739/Ahd/2011 (A.Y. 08-09)
[1] On the facts and in the circumstances of the case and in Law
the CIT(A) has erred in deleting the addition of
Rs.2,15,30,155/- made by the A.O. on account of
disallowance U/s.80AB of the Act.
I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11
A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 4
[2] On the facts and in the circumstances of the case and in Law
the CIT(A) has erred in deleting the addition of Rs.14,20,334/- made by the A.O. on account of insurance expenses.
[3] On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the assessing officer."
2. Ground no.1 & 2 in A.Y. 06-07, ground no.1,2,3,4 & 5 for A.Y. 07-08 and ground no.1 in A.Y. 08-09 are against not allowing the deduction u/s. 80P(2)(d) and in A.Y. 06-07 at Rs.81,13,580/-, in A.Y. 07-08 at Rs.1,75,41,509/- and in A.Y. 08-09 at Rs.2,15,30,155/-. 2(i). The assessee is a co-operative society registered under Gujarat Co- operative Society Act, engaged in the business of procurement, processing and marking of milk productions, cattle food etc. The assessee society claimed deduction u/s.80P(2)(d) of the Act gross interest and dividend income earned from other co-operative societies of Rs.1,55,75,371/- in A.Y. 06-07, Rs.1,74,82,509/- in A.Y. 07-08 & Rs.2,16,10,539/- in A.Y. 08-09. The ld. A.O. observed that the assessee had earned total interest of dividend income as under:
Asst. Year Deduction Interest expenditure
u/s.80P(2)(d) incurred
2006-07 Rs.1,55,75,378/- Rs.1,38,66,436/-
2007-08 Rs.1,74,82,509/- Rs.2,07,17,824/-
2008-09 Rs.2,16,10,539/- Rs.2,07,17,824/-
Ld. A.O. observed that the appellant had shown total interest and dividend income of Rs.2,88,18,922/- in A.Y. 06-07 and incurred interest expenses at Rs.1,38,66,436/- which were shown in the debit side of the p&l account. The I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 5 appellant had claimed deduction u/s. 80P(2)(d) on the gross figure of interest and dividend income of Rs.1,55,75,371/- but ignored interest expenses at Rs.1.38 crore. The ld. A.O. analyzed the Section 80AB including the chapter C on deduction in respect of certain income and concluded that deduction under chapter VIA is with reference to the income computed in accordance with the provisions of this Act in form of the gross total income and not with reference to the full amount of such income i.e. deduction is available in respect of net income as computed under the provisions of the Act after allowing the expenses and not in respect of the gross income since gross income is not included in the total income but the net income. On this issue, the ld. A.O. gave the reasonable opportunity of being heard which was replied by the appellant. The appellant relied upon the following decisions before the A.O.:
i. CIT vs. Haryana State Co-operative Housing Society (1998) 234 ITr 714 (P&H) ii. CIT vs. U. P. Rajya Sahkari Bhumi Vikas Bank Ltd. (1994) 208 ITR 758 (ALL) The ld. A.O. considered assessee's reply and also he relied upon following decisions:
i. Distributors (Baroda) P. Ltd. vs. Union of India & Ors. (1985) 155 ITR 120 (SC) ii. CIT vs. Shri Digvijay Cement Co. Ltd. (1986) 138 ITR 45 (Guj) iii. CIT vs. Maganlal Chhaganlal (P) Ltd. (1999) 236 ITR 456 (Bom) I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 6 iv. Williamson Financial Services Ltd. vs. CIT & Anr. (2007) 295 ITR 372 (Gau) and held that claim deduction u/s. 80P(2)(d) is available on net after deducting the interest expenses on the investment. Thus, he allowed the deduction u/s.
80P(2)(d) at Rs. 81,13,880/- in A.Y. 06-07. In A.Y. 07-08, the ld. A.O. also applied the Section 14A and Rule 8D on exempt income disallowed interest u/s. 14A at Rs. 19,08,803/- and under chapter VIA at Rs.1,75,41,509/-. The ld. A.O. also applied Section 80AB on it. He also relied upon same case laws which were relied upon in A.Y. 06-07. The similar findings given by the A.O. for A.Y. 08-09 and difference u/s. 80P/80AB was also made at Rs.1,15,30,155/-.
3. Being aggrieved by the order of the A.O., the assessee carried the matter before the CIT(A) who had allowed the appeal in all the years. The operative portion in A.Y. 2006-07 is as under:
"6. I have perused the view taken by the assessing officer and also submission made by the A.R. of the appellant. The total interest and dividend income of the appellant during the year 2,88,18,922/- which includes dividend and interest income from other cooperative societies for Rs.1,55,75,371/-. The total break up is as under:-
Particulars Amount (Rs.)
1. Dividend income received from other co- 49,20,450/-
operative societies.
2. Interest income from deposits with The 1,06,54,921/-
Surat Dist. Co-op. Bank Ltd.
Total Deduction claimed u/s 80P(2)(d) 1,55,75,371/-
I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11
A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 7
6.1 Interest expenses debited to profit and loss account is
Rs.1,38,66,351/-. The break up is given on para 5 above. There are two issues for determination, first whether the deduction u/s.80P(2)(d) is available on the gross amount or the net amount, second whether in the facts of the case, there is any expenditure attributable to the income earned by way of dividend and interest income from other cooperative societies. As far as first issue is concerned, the law is very clear. Section 80AB stipulates that where any deduction is required to be allowed under any section included in Chapter VIA, the amount of income computed in accordance with the provision of this Act which alone be deemed to be the amount of income which is derived and received by the assessee and which is included in his gross total income. Therefore, as clearly elaborated by the assessing officer, there is no doubt that the assessee is eligible to avail deduction on the net income i.e. after allowing expenses from the gross amount as deduction under any section in Chapter VIA which includes 80P(2)(d). Having said this, then the next issue arises is the quantum of deduction in the present case. The assessing officer has taken a very simplistic stand whereby he has computed the proportionate expenses of interest relatable to the interest and dividend income received from other cooperative societies, thereby presuming that the assessee has incurred interest expenses for earning the interest and dividend income from other cooperative societies. This stand does not find support from facts of the case. As submitted, the appellant society has been statutorily investing its surplus funds right from 1951-52 with other cooperative societies. On such investments, the appellant has been receiving interest and dividend which have been claimed as deduction u/s. 80P(2)(d). It is not a case where this income has been derived out of investments I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 8 made during the year for which the assessee has incurred any expenditure directly or indirectly. An analysis of interest expenses would show that the same has been incurred by way of interest paid to members' societies savings accounts, members' societies FD account, bank commission and interest and debentures to members of the societies and towards over drafts facilities from banks. It is evident from the details of interest expenses filed that there is no direct or indirect nexus between such expenses arid interest and dividend earned from investments made with other cooperative societies. The assessing officer should have examined the facts to find the existence of such linkage if any. The prorate allocation of interest expenses resulting in part disallowance of deduction has been done without examining the issue in details or appreciating the facts in its correct prospective. Therefore, the deduction claimed by the appellant is in order and in absence of any expenses directly or indirectly correlated to such income part disallowance of deduction u/s.80P(2)(d) by the assessing officer is deleted."
Ld. CIT(A) gave the similar findings in A.Y. 07-08 and followed the predecessor CIT(A) order for A.Y. 06-07 & 07-08 and allowed the appeal.
4. Now the Revenue is before us. Ld. Sr. D.R. submitted that CIT(A) had admitted the additional evidence during the appellate proceeding in A.Y. 06- 07 and no opportunity was given to the A.O. He drawn our attention on page no.4 and argued that the particulars of the bank deposit and interest expenses were not given to the A.O. He relied upon the case of Punjab State Co- operative Milk Producer's Federation Ltd. vs. CIT-II [2011] 336 ITR 495 (Punj. & Har.), wherein it was held that deduction u./s. 80P(2)(d) is allowable after excluding expenditure attributable to the earning of eligible income. Thus, he I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 9 requested to set aside the order to the A.O. Ld. CIT(A) was not right on allowing the appeal on the basis of no nexus between interest free fund and invested in exempt income. Similar argument for A.Y. 07-08 and 08-09 was put forth at the time of hearing for deleting the addition made by the A.O. in A.Y. 06-07 at Rs.81,31,580/-, in A.Y. 07-08 at Rs.1,74,42,509/- & in A.Y. 08- 09 at Rs.2,15,30,155/-.
4(i). At the outset, ld. Counsel for the appellant contended that the appellant society had earned income by way of dividend and interest from investment made with other co-operative society as provided in Section 71 of the Gujarat Co-operative Society Act. This investment had been made since long back from the year 1951-52 to March 2006 out of surplus fund of the society. It was further argued that the income by way of dividend and interest from other society had not been resulted out of investment made during the year neither by making any direct or indirect expenditure for earning such. The ld. A.O. had erroneously presumed linkage between interest expenditure incurred with income of interest and dividend from investment with other society while in fact there was no such direct or indirect expenditure for earning such income eligible u/s.80P(2)(d) of the Act. He further drawn our attention on various paper book filed by which he had demonstrated that investment in shares and deposit with other societies were made in much before year under consideration. He further relied upon following cases:
I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 10 i. ITO vs. Petlad Taluka Purchase & Sales Union Ltd. [1992] 42 ITD 442 (Ahmedabd) (SMC) on interest paid late payment of purchase whether adjustable against the interest income earned by the society held 'no'.
ii. Punjab State Federation of Co.op Housing Building Societies Ltd. vs. ITO (1982) 2 ITD 617 (Chd.), whether interest received on saving bank deposit that another co-operative society for qualify for deduction as income from investment as contemplated in Section 80P(2)(d) held 'Yes'.
iii. CIT vs. Anakapalli Co-operative Marketing Society (1988) 40 Taxman 127 (AP), whether amount deductible u/s.80P in respect of a co-operative society is gross total income attributable to activities of the nature defined u/s.80P, viz., gross total income as defined in Section 80(B)(5) held 'Yes'.
iv. CIT vs. Haryana Co-operative Sugar Mills Ltd. [1989] 180 ITR 631 (Punj. & Har.), deposit with co-operative bank for short, period and interest earned on it is qualified for deduction u/s. 80P(2)(d). v. CIT vs. KRIBHCO [2012] 349 ITR 618 (Delhi), disallowance of expenditure incurred in earning of non taxable income difference between exemption and special deduction. Section 14A is not applicable in case of special deduction given under chapter VIA.
He further argued that in A.Y. 04-05 & 05-06, the ld. A.O. had allowed the deduction u/s. 80P(2)(d) as claimed in the return accepted by him u/s. 143(3) of the IT Act in scrutiny assessment. Thereafter case was re-opened by the A.O. in A.Y. 04-05 on the ground of that deduction u/s. 80P(2)(d) is allowable on net of income earned and expenditure incurred on earning. But Hon'ble I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 11 Gujarat High Court in Special Civil Application No. 18592/2011 held that there was no failure on the part of the petitioner to disclose fully and duly all the material facts necessary for assessment. Therefore, reopening is bad in law and SLP filed by the Revenue has been dismissed by the Hon'ble Supreme Court. He further argued that Chapter VIA constitutes a separate code dealing with deduction to be made in computing total income. Chapter VIA reference to special deduction for the nature of activity which are distinct, different, independent and separate to each other has specified under sub- section 2 of Section 80P of the Act which inter alia covers the deduction u/s. 80P(2)(a)(i) for the activity of providing credit facility to its member by the co- operative society and also the deduction u/s. 80P(2)(d) for the income by way of interest and dividend from the investment in other co-operative society. He relied upon CIT vs. Iqbalpur Co.op. Cane Development Union Ltd. (2009) 315 ITR 441 (Uttarakhand). He further argued that there is a restriction imposed u/s. 80P aiming to ensure that the deduction does not exceed the net income under particular source. The language of Section 80P(2)(d) made it clear that profit attributable to specify activity is to be deducted from the gross total income as held in case of CIT vs. Agency Marketing Co.op. Societies Ltd. (1993) 201 ITR 881 (Ori.) and requested to confirm the order of the CIT(A).
5. We have heard the rival contentions and perused the material on record. It is undisputed fact that the appellant had invested surplus fund right from 1951 with other co-operative society. On such investment the appellant had been receiving interest and dividend which had been claimed as I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 12 deduction 80P(2)(d). It is not a case that appellant had either earned income or borrowed fund and invested in this investment and deposits. As claimed by the ld. Sr. D.R. that these details were submitted before ld. CIT(A) not before the A.O. is not acceptable. The appellant had given all the details before the A.O. on which ld. A.O. concluded otherwise. The balance sheet as well as p&l account were available in all the years that the A.O. gave these figures on which the ld. CIT(A) relied upon, had taken from either balance sheet or p&l account. Thus, there is no additional evidence submitted by the appellant before the CIT(A) in A.Y. 2006-07. We dismiss the appeal on ground no.1 in A.Y. 06-07. Further the A.O. considered Hon'ble Supreme Court decision in Distributors (baroda) P. Ltd. vs. Union of India [1985] 155 ITR 120 (SC), wherein, it was held that deduction u/s.80M is to be calculated with reference to amount on dividend computed in accordance with the provisions of the Act and forming on the gross total income and not with reference to full amount of dividend received by the assessee. The Hon'ble Supreme Court decision is squarely applicable on deduction under any Section in Chapter VIA and is to be allowed on the net income. However, in the assessee's case, interest expenses were incurred for acquiring debenture, deposit with member society, Fix Deposit of member society, employee saving accounts , interest on over draft facilitate from bank and bank commission, which was claimed by the appellant u/s. 80P(2)(d)(a)(i). For the sake of convenience, we are reproducing Sections as under:
I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 13 Section 80P(2)(a)(i)- Carrying on the business of banking or providing credit facilities to its members.
Section 80P(2)(d)- In respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income.
After considering the factual as well as legal position on this issue, the appellant had not incurred any expenditure on the earning of the dividend and interest from other co-operative society as this investment was made long back. No new investment had been made by the appellant during the year under consideration. Thus, we confirm the order of the CIT(A) in all the years.
6. Ground no.6 in A.Y. 07-08 is against deleting the addition made by the A.O. on account of excess depreciation of Rs.2,95,924/-. The facts of the case is that the appellant had added assets at Rs. 86,17,183/- in the block of computers. The appellant had claimed depreciation 60% on assets added to the computers. On this issue, the A.O. gave reasonable opportunity of being heard and bifurcating the non computer item separately and he allowed the depreciation @ 10% on electrical items and made addition of Rs.2,95,924/-.
7. The CIT(A) allowed the appeal by observing that the computer peripherals purchase and put to use by the appellant society or the part and parcel of the electric data processing unit i.e. computer hardware the rate of depreciation is allowable @ 60%. By relied on the ITAT (SB), Delhi in case of Amway India Enterprises vs. Dy. CIT, (2008) 111 ITD (SB) (Del.), wherein depreciation @ 60% on the items of EDP unit purchased and put to use were I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 14 printers and other hardware peripherals which cannot be, by stretch of any imagination, said to be the electrical goods. The Sr. D.R. again heavily relied on the order of the A.O. and ld. Counsel for the appellant on the order of the CIT(A). The facts and circumstances of the case show that these computer items cannot be used for the purpose of business without peripherals which is the composite item and cannot be segregated. Thus, we confirm the order of the CIT(A).
8. Ground no.2 in A.Y. 08-09 is against deleting the addition of Rs.14,20,334/- made by the A.O. on account of Insurance Expenses. The A.O. found that the assessee had claimed prepaid insurance expenses of Rs.14,20,334/- on the basis of bill issued by the insurance company, which was not found by the A.O. relevant to the assessment year under consideration. Thus, he made addition of Rs.14,20,334/-.
9. The CIT(A) allowed the appeal by observing that the liability to pay the insurance premium is not fixed for every year and this is accounted as and when the notice of payment is received. He, after relying various cases referred at page no.11 of his order. The ld. Sr. D.R. reiterated the fact as and relied upon the order of the A.O., whereas ld. Counsel for the appellant argued that the insurance company had raised the bill every year and claimed these expenses repeatedly and consistently as per their bills. Accordingly, the expenses are accounted for. The expenditures had been crystallized during the year and had claimed by the assessee consistently on the basis of bills issued by the Insurance Company in preceding years and subsequent I T A No s . 3 67 & 3 38 6/ A hd /1 0 & 17 3 9/ A h d/ 20 11 A . Y. 0 6- 0 7, 0 7- 08 & 0 8- 0 9 Page 15 years. Thus, no interference is required in the order of CIT(A). We uphold the order of the CIT(A).
10. In the result, Revenue's appeals in all years are dismissed. These Orders pronounced in open Court on 02.08.2013 Sd/- Sd/-
(D.K.Tyagi) (T.R. Meena)
Judicial Member Accountant Member
True Copy
S.K.Sinha
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।