Gadat Vibhag Vividh Karyakari Sahakari ... vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL " B " BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 3171/AHD/2011 (Assessment Year: 2007-08)

Income-tax Officer, Ward-2, V/S Gadat Vibhag Vividh Navsari Karyakari Sahakari Mandali Ltd., At & Po: Gadat, Tal: Gandevi Dist: Navsari (Appellant) (Respondent)

PAN: AAAAG0537B

Appellant by : Shri Roop Chand, Sr. D.R. Respondent by : Shri Tushar P. Hemani, A.R.

(आदे श)/ORDER

Date of hearing : 13-04-2015 Date of Pronouncement : 24 -04-2015

PER SHRI ANIL CHATURVEDI,A.M.

1. This appeal filed by the Revenue is against the order of CIT(A), Valsad, Gujarat dated 12.09.2011 for A.Y. 2007-08.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is a Multipurpose Co. Op. Society carrying out different type of

activities that are agricultural and non-agricultural, providing credit facilities, rental income etc. Assessee filed its return of income for A.Y. 2007-08 on 22.10.2007 declaring total income at Rs. Nil after claiming 2 ITA No 3171/AHD/2011 . A.Y. 2007-08 deduction of Rs. 56,98,026/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 10.12.2009 and the total income was determined at Rs. 23,17,376/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 12.09.2011allowed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us and has raised the following grounds;-

1.On the facts and in the circumstances of the case and in law, the Ld. CIT(A), Valsad, without appreciating the facts, has erred in deleting the addition of Rs.23,17,376/- in respect of Administrative & managerial expenses related to non-agricultural activities by directing not to apply the Rule of 3, though present assessee, being a co. op. society, engaged in both the agricultural and non-agricultural activities, Rule of 3 is applicable in sequence to provision of section 14A and the ratio of judgment of Hon'ble High Court, Rajasthan in the case of CIT Vs Rajasthan Rajya Sahakari Upbhokta Sangh Ltd. (1996) 84 TAXMAN 33 (Raj.) and also decision in the case of Kota Co-operative marketing Society Ltd. Vs CIT(1994) 76 TAXMAN 245 (Raj.) to tax the profit earned from non-agricultural activities and interest from nationalized bank.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A), Valsad ought to have upheld the order of the A.O.

4. During the course of assessment proceedings, A.O noticed that Assessee was carrying out agricultural as well as non-agricultural activities and the sales were made to members as well as non-members. He also noticed that Assessee had agricultural income, interest from Co. Op. Society, interest from members and had also earned income from various non-agricultural activities like income from sale of building material, petrol pump, departmental store etc. He also noticed that the Assessee carried out mixed activities and of the various activities carried on by Assessee, the profits earned from some of the activities were exempt and some of them were not exempt u/s. 80P of the Act but according to the A.O., Assessee has claimed deduction u/s. 80P on the entire profits. He was of the view that the interest 3 ITA No 3171/AHD/2011 . A.Y. 2007-08 earned by the Assessee from nationalized bank and other activities were not exempt u/s. 80P (2) and therefore the Assessee was issued a show cause notice and asked to justify its claim to which Assessee interalia submitted that it has claimed deduction under 80P of the Act on the income only on the income which is exempt u/s. 80P. The submission of the Assessee was not found acceptable to the A.O in view of the fact that Assessee was keeping mix accounting records for all the activities and thus it was difficult to decide the net profit earned from agricultural activities and non-agricultural activities. He thereafter on the basis of ratio of agricultural and non- agricultural income, applied Rule of 3 basis, for working out the eligible deduction u/s. 80P and restricted the claim of Assessee. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who after considering the submissions of the Assessee deleted the addition by holding as under:-

DECISION ; I have carefully gone though the submissions made before me by the Ld. A.R of the appellant and the findings of the A.O in the assessment order and the various judicial decisions as relied upon by both the parties. The appellant has two types of income i.e. income deductible u/s. 80P and not deductible. The short issue here is that the appellant determined the taxable income at Nil by claiming the deduction u/s. 80P of the Act whereas the AO determined the income of the appellant at Rs. 23,17,376/-. The activities, income there from and the eligibility of deduction u/s. 80P can be summarized in the tabular structure as under:

Income | |-------------| Agricultural items Non-Agri.items | | ________ ________ | | | Sold to Sold to Sold to Members Members Members & & Non-Members Non- Members | | | Deduction Deduction Deduction u/s. 80P u/s. 80P not u/s. 80P not claimed claimed due to loss allowable and not claimed

5. The AO held that as the appellant is keeping mixed accounting records of all activities, it is difficult to decide the net profit from agricultural and non- agricultural activities. He observed that when there is

4 ITA No 3171/AHD/2011 . A.Y. 2007-08 uncertainty of matching concept exists or cascading effect cannot be identified, in such case Rule 3 is applied. There was no dispute on item-was not supported by deduction u/s. 80P. In my view, the action of the AO was not supported by valid reasons and corroborated by evidences brought out in records. The appellant has maintained separate sets of books of a/c. for income eligible/non-eligible for deduction u/s.80P. The Id. AR relied upon several judicial decisions in support of his arguments. The invocation of Rule 3 by the AO was arbitrary and unjustified, What is the objectives of the Co- Operative Society is important here. The Society was primarily for the benefits of its Members. With regards the interest income from SBI and IDBI Banks, the appellant has clearly stated that such income accumulation was out of multiple activities done with the Banks. I have also perused the computation of income submitted by the appellant and found no anomaly therein. The AO has not brought on record what he means by Rule 3 and how that is applicable in this case. In the interest of revenue and fairness to the appellant what is to be worked out is the correct application of law to the fact and circumstances of the case. In this case, in my view, the dispute was the chargeability of income. The AO, instead of bringing on record which specific income was not exempted, applied an unknown formula Rule 3 which not correct. In this circumstances, the AO is directed to delete the addition made of Rs. Rs.23,17,376/- by invoking Rule 3. Accordingly, the appellant's appeal on this ground is allowed.

6. Aggrieved by the aforesaid order of ld. CIT(A), Revenue is now in appeal before us.

7. Before us, ld. D.R. supported the order of A.O. On the other hand ld. A.R. reiterated the submissions made before A.O and ld. CIT(A) and further submitted hat A.O adopted some unknown Rule of 3 and disallowed administrative and managerial expenses and worked out the Assessee's income at Rs. 23,17,376/-. He further submitted that Assessee has maintained, separate set of books of accounts for income eligible and non- eligible for deduction u/s. 80P and when such separate books were not maintained A.O should not have resorted to Rule of 3 to artificially work out Assessee's income. He thus supported the order of ld. CIT(A).

8. We have heard the rival submissions and perused the material on record. In the present case Assessee was undertaking various activities and out of the various activities, profit from some activities were exempt and from some other activities the profit was not exempt u/s 80P and accordingly A.O has re-worked out the amount eligible for deduction u/s. 80P. We find that ld.

5 ITA No 3171/AHD/2011 . A.Y. 2007-08

CIT(A) while deciding the issue in favour of the Assessee has given a finding that Assessee has maintained separate set of books of accounts for income eligible and non-eligible for deduction u/s. 80P and the invocation of Rule 3 by A.O to allocate the exempt profits was arbitrary and unjustified. He has also noted that A.O has not brought on record what he meant by Rule 3 and how it was applicable to the case. He has further noted that A.O has applied an unknown formula of Rule 3 which was not correct. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A). In view of the aforesaid facts, we find no reason to interfere with the order of ld. CIT(A) and thus the grounds of Revenue are dismissed.

9. In the result, the appeal of Revenue is dismissed.

Order pronounced in Open Court on 24 - 04 - 2015.

Sd/- Sd/- (SHAILENDRA Kr. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad