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2016 (1) TMI 948 - GUJARAT HIGH COURT

2016 (1) TMI 948 - GUJARAT HIGH COURT - [2016] 387 ITR 183 - Reopening of assessment - receivable from GCMMFL for which a provision was made by the assessee which according to the Assessing Officer was not shown as income of the assessee in the Profit and Loss account - Held that:- Provision of ₹ 76 crores was made for milk purchases and sales account for milk pool price receivable from GCMMFL. It was clarified that same has been credited to respective primary cooperative societies. It was .....

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der the profit and loss account is not correct. This ground for reopening therefore, must fail. - Decided in favour of assessee. - Interest under section 80P(2)(d) was not allowable - Held that:- The entire issue of the petitioner's claim of deduction of interest of ₹ 2.29 crores under section 80P(2)(d) of the Act was examined by the Assessing Officer threadbare during the original assessment proceedings. It was in response to the queries raised by the Assessing Officer that the petiti .....

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t term deposits with the cooperative banks or from Cooperative societies. It was stated that no expenditure in the form of interest was incurred for earning such interest. The assessee also submitted that the expenditure of interest has no nexus with the income of the interest earned during the year. The assessee relied on decisions in its own case for earlier years pointing out that on this very ground, the assessee has succeeded before the appellate Tribunal.However, having accepted the detail .....

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hus a total sum of ₹ 21.34 lacs was reflected in the income side. Though somewhat curiously and rather awkwardly, the assessee reduced the expenditure by ₹ 14.69 lacs and thereby indirectly increasing the income. The Assessing Officer was therefore, wrong in recording that said sum of ₹ 14.68 lacs represented prior period expenditure of the assessee. There was no material to support this assertion and consequently his conclusion that such expenditure though not allowable was cl .....

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notice dated 26.3.2015 as at AnnexureG to the petition issued by the Assessing Officer seeking to reopen the assessment of the petitioner for the assessment year 20102011 which was previously framed after scrutiny. 2. Brief facts are as under. The petitioner is a cooperative society of milk producers which purchases milk from primary cooperative societies which are members of the petitioner society and is also engaged in supplying such milk and milk products to the federal cooperative society na .....

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ening. Such reasons read as under : 3.1 As per clause 11(a) of the 3CD Report, the assessee is following mercantile system of accounting. On perusal of notes on account of assessee in the audit report for financial year 200910 (Asst. Year 201011) read as provision of ₹ 76 crore for milk purchase/ sale account for milk pool price receivable from Gujarat Cooperative Milk Marketing Federation Ltd has been made by union and the same has been credited to respective primary cooperative societies .....

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ome was not included in P & L items. 3.2 Section 5 of the Act provides that the total income of a person for any previous year shall include all incomes from whatever sources derived, actually received or accrued or deemed to be received or accrued. 3.3 As this involves income to the extent of ₹ 76 crore which falls within the ambit of section 5 of the Act. 4.1 On further perusal of P&L account, computation of income as well as Tax Audit Report in Form No. 3CD, it has been also not .....

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It was further noticed from the P&L a/c that assessee has paid interest of ₹ 12,52,58,000/. As such, net interest income of assessee is () ₹ 9,00,32,000/( ₹ 12,52,58,000 ₹ 3,52,26,000). As net interest income was in the negative, the assessee was not eligible for deduction of any amount u/s.80P(2)(d). 4.3 As per section 80P(2)(d) of the Act, where, in the case of an assessee being a cooperative society, the gross total income includes any income by way of interest or .....

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deduction on that account is allowable. Reliance is placed on decision of the Allahabad High Court in the case of CIT V/s. Dugdh Uptpadak Sehkari Sangh Ltd. 202 CTR 343 in which the above mentioned ratio was decided by the Hon ble High Court. 4.4 In view of the above facts. the assessee was not eligible for deduction of any amount u/s.80P(2)(d) of the Act of ₹ 2,29,17,577/ 5.1 On further perusal of Tax Audit Report in Form No.3CD, note forming part of income furnished by assessee and compu .....

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ior period expenditure of ₹ 14,68,985/- as reported by assessee itself. 5.2 As per section 37(1) of the act, any expenditure not being in the nature of capital expenditure or personal expenses of the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession . As per clause 22(b) of the 3cd report, the ca has to furnish particulars of inco .....

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xplanation 2( c)(i) therto for, the Asstt. Year 201011. 4. The petitioner objected to such notice of reopening. However, such objections were rejected by an order dated 25.8.2015. Hence this petition. 5. Upon perusal of the reasons, we notice that the Assessing Officer had recorded three separate reasons for issuing the notice for reopening. In short, these reasons are as under : 1) Regarding a sum of ₹ 76 crores, receivable from GCMMFL for which a provision was made by the assessee which .....

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e net interest income was in the negative, no deduction under section 80P(2)(d) could have been granted. 3) According to the Assessing Officer, the sum of ₹ 14.68. lacs (rounded off) which was a prior period expenditure was claimed by the assessee which was not allowable. 6. Inviting our attention to such reasons and other material on record, counsel for the petitioner challenged the notice for reopening on the following grounds : 1) That there has been no escapement of income regarding su .....

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erest income under section 80P(2)(d) of the Act was examined by the Assessing Officer during the original assessment for which written queries were raised and replies were given by the assessee. Any reexamination of such issue would only be on the basis of change of opinion not permissible even within period of four years from the end of relevant assessment year. 3) Regarding the ground no.3, counsel contended that sum of ₹ 14.68 lacs did not represent the assessee's prior period expen .....

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er proviso to section 147 that income chargeable to tax had escaped assessment due to failure on part of the assessee to disclose truly and fully all material facts, therefore, cannot be applied. Admittedly so far as reasons no. 1 and 3 are concerned, there was no scrutiny during the original assessment. The Assessing Officer therefore, must be allowed to examine these questions. He further submitted that a sum of ₹ 76 crores had not been reflected in Profit and Loss account and, therefore .....

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the materials on record, we would segregate our observations on the basis of three separate reasons recorded by the Assessing Officer. 9. With respect to the first reason of sum of ₹ 76 crores previously receivable from GCMMFL not being offered to tax, we notice that the assessee had in the Profit and Loss account indicated sum of ₹ 736.68 crores by way of milk sales. As against that the assessee had shown a sum of ₹ 111.4 crores towards milk purchases during the previous year .....

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ocieties. To this extent, Trading, Profit and Loss account and Balance Sheet show provisional figures. 10. Thus, this note merely clarifies that provision of ₹ 76 crores was made for milk purchases and sales account for milk pool price receivable from GCMMFL. It was clarified that same has been credited to respective primary cooperative societies. It was further clarified that to this extent trading, profit and loss account and balance sheet show provisional figures. This note, in fact, cl .....

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ening, we may recall that it pertained to the claim of deduction of interest of ₹ 2.29 crores under section 80P(2)(d) of the Act. In this context, the Assessing Officer during the assessment proceedings had raised the following queries in writing : 9. Please furnish detailed interest account(s) for all sorts of interest paid/payable and received/receivable. 29. Justify your claim of deduction u/s.80G, 80P(2)(d) and 80(P)(2)(e) with cogent and sufficient evidences. 12. To these queries, the .....

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k products etc from GCMMF Ltd. Similarly the dividend of ₹ 1,06,54,490/has been claimed as deduction u/s.80P(2)(d) of the I.T 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 ful .....

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ppellate Tribunal has dismissed the appeal filed by the department in A.Ys.199091, 199192, 199293. b) Hon'ble Appellate Tribunal has dismissed on similar grounds the appeal filed by the department in the case of (1) Kaira Dist. Coop Milk Producer's union Ltd. In A.Y. 198687 and (2) Sabarkantha Dist. Coop Milk Producer's Union Ltd in A.Ys. 199293 and 199394. c) CIT Vs. Haryana Coop Sugar Mills Ltd., 180 ITR 631 (P&H) 13. It can thus be seen that the entire issue of the petitioner& .....

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ted out that since the interest was received from the cooperative society and earned out of investment made from its own fund, the assessee was entitled to full deduction under section 80P(2)(d) of the Act. It was further clarified that such interest was earned on short term deposits with the cooperative banks or from Cooperative societies. It was stated that no expenditure in the form of interest was incurred for earning such interest. The assessee also submitted that the expenditure of interes .....

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always open to raise further queries or to squeeze the assessee further on this issue. However, having accepted the detail explanation of the assessee on the question of deduction of interest, the Assessing Officer cannot be allowed to reopen the issue on a mere rethinking. Though in the context of notice for reopening, the issue withing a period of four years from the end of relevant assessment year, the element of failure on part of the assessee to disclose truly and fully all material facts, .....

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ing to the Assessing Officer, sum of ₹ 14,68 lakhs which was prior period expenditure was erroneously claimed by the assessee and thus income to that extent escaped assessment. We may however, notice the objections raised by the petitioner to this ground under communication dated 30.7.2015 which reads as under : 3. Prior period expenses of ₹ 14,68,985/ 3.1 The AO has proposed to disallow the prior period expenses of ₹ 14,68,985/. In this regard it is submitted that this net amo .....

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