TMI Blog1991 (7) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1986 respectively. The CIT(A) decided the quantum appeals for these two years vide consolidated order dt. 9th Dec.,1987.The Revenue has preferred appeals against the order of the CIT(A) relating to quantum appeal for both these years, which are marked as ITA No.393 and 394. The assessee has submitted cross objections which are marked as C.O. Nos. 182 and 183. The ITO also imposed penalty under s. 271(1)(a) for asst. yr. 1982-83 amounting to Rs. 1,63,920 which was subsequently rectified and reduced to Rs. 94.378. This order of the ITO was confirmed by the CIT(A). He, however, directed the ITO to recompute the amount of penalty after giving effect to the appellate order passed by him in the quantum appeal. The Revenue has preferred an appeal against this order relating to penalty under s. 271(1)(a) which is marked as ITA No. 392. The assessee has submitted cross objection against the said penalty matter which is marked as C.O. No. 181. 2. We will first deal with the Revenue's appeal relating to quantum for asst. yr. 1982-83. 2.1. Ground No.1 reads as under: "The learned CIT(A) has erred in directing to work out gross profit after including sales of fertilizers, seeds, inse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r working out the gross profit derived in fertilizer account for computing the amount of exemption allowable under the aforesaid provision. 2.3 The learned counsel for the assessee contended that exemption on income derived by the society from supply of seeds, fertilizer, insecticides, light diesel, mobil oil which are solely used for direct use for agricultural purposes for running the engines installed in the farm have always been allowed to the assessee in the past as well as in the subsequent assessments. The assessee is not claiming exemption on all the petroleum products but such exemption was claimed only in respect of two items, viz., light diesel (crude) and Mobil oil directly sold to the members of the society for agriculture purposes. The income derived on sale of other petroleum products used for plying of vehicles, etc., has not been claimed. Our attention was invited towards order passed by the CIT under s. 263 for asst. yr. 1980-81 in which the CIT has himself held that the assessee is entitled to deduction in respect of income derived from sale of Fertilizer, Rajdan, Hybrid seeds, pesticides and Mobil oil aggregating to Rs. 65,716. It was contended that similar e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction allowable under the aforesaid provision as per working submitted by the assessee in accordance with the directions given by the CIT(A) is as under: 1. . Total Sales G.P. Sales to members of society (a) Sales of Rajdan, etc. 15,00,727 26,650 2,40,685 (b) Sales of petrol division [only light diesel (crude)] 56,28,468 24,814 53,39,939 (c) Sales of insecticides 17,15,813 99,686 7,16,426 . Add: Sales of fertilizers from Total Sales 9,44,39,870 19,32,250 7,83,94,931 . Total 10,32,84,878 20,83,400 8,46,96,982 Average G.P. will be = 2.017% (Thus the G.P. on sales to members will be : 2.017 x 84,69,69,982/100=17,08,338). . . Thus the G.P. on Sales to members will be 2.017 2. The management expenses will be as under: (a) Head Office expenses net as per details filed and as per page No. 11 to 15 of paper book 20,39,651 (b) From direct purchases a/c. as per page 25 of the report as per details filed 78,411 (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the assessee, we confirm the findings given by the CIT(A) directing the ITO to allow deduction in respect of income derived by the assessee from sale of all the aforesaid items to its members. Ground No.1 is, therefore, rejected. 3. Ground No. 2 reads as under: "The learned CIT(A) has erred in allowing deduction of Rs. 31,200 under s. 80P(2)(e) being rent received from Gujarat Sate Co-op. Marketing federation." The CIT(A) held that amount of Rs. 31,200 received by the assessee from Gujarat State Co-operative Marketing Federation by way of godown rent is exempt under s. 80P(2)(c). He also relied upon the judgment of Hon'ble Madras High Court reported in CIT v. South Arcot District Co-operative Marketing Society Ltd. [1973] 92 ITR 371. The ld. Sr. Deptl. Representative contended that the burden lies upon the assessee to prove that such income was derived from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities. No such material has been produced by the assessee, in the absence of which the CIT(A) should be have granted this deduction. 3.1 The leaned counsel for the assessee submitted that the rent was receiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in respect of the aforesaid amount of Rs. 25,000 is valid. The contribution being statutory liability constitutes and overriding charge in income or profits of the society and is clearly an allowable deduction. This view is fully fortified by the decision of Karnataka High Court. 5. Ground No. 4 reads as under: "The learned CIT(A) has erred in granting deduction of Rs. 98,862 which was not claimed before the ITO." 5.1 This point has been discussed by the learned CIT(A) in para 10 of his order. He has observed that the amount of Rs. 98,862 claimed as deduction represent the amount of rebate given to various customers and the same obviously results in reduction of the sale price received by the society. He, therefore, allowed the said deduction. 5.2 The ld. Sr. Deptl. Representative contended that no such deduction was specifically claimed before the ITO. The CIT(A) has clearly erred in allowing the said deduction without giving specific opportunity to the ITO. 5.3 The learned counsel for the assessee contended that the claim for this deduction is included in the printed annual account submitted before the ITO. It is incorrect to say that no such deduction was claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents to which our attention was drawn during the cross of hearing. A perusal of the printed balance sheet at page 25 there of reveals that in the interest account appearing in the ledger folio No. 254 credit in interest account was Rs. 16,40,882.95 ps. The debits in this interest account was Rs. 14,03,572.33 ps. Thus there was a net credit in interest account of only Rs. 2,37210. The details of credits in interest account aggregating to Rs. 16,40,882 placed at page 17 of the paper book reveals that the assessee received by way of interest an amount of Rs. 13,93,250 from, Gujarat State Sahakari Marketing Federation Ltd. For Loan given by the society for purchase of groundnut, groundnut seeds, (HPS) and Til, etc. The CIT(A) granted deduction under s. 80P(2)(d) on the aforesaid amount of interest of Rs. 13,93,250 received from said Marketing Federation. In our view the nature of interest income received by the assessee from Gujarat Sate Sahakari Marketing Federation Ltd. for loan given for the purchase of goods on their behalf would clearly come within the scope of, exemption provided under s. 80P(2)(d). The funds provided by the society for purchase of goods on behalf of the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative purpose of providing incentives to the co-operative movement may be fulfilled. The High Court was right in holding that the provisions contained in s. 14(3) should be liberally construed." 6.5. However, one more important aspect which requires our consideration is as to whether the gross amount of interest received from Gujarat State Sahakari Marketing Federation Ltd. amounting to Rs. 13,93,250 would be eligible for deduction under section 80P(2)(d) or only the net amount of income in this interest account amounting to Rs. 2,37,210 should be held to be eligible for grant of deduction under this section. The provisions of section 14(3)(iii) of IT Act, 1922 provided exemption in respect of interest and dividends derived from its investments with any other co-operative society. Section 14 of IT Act, 1922 dealt with exemptions of general nature and was not a section appearing under the chapter of deductions like section 80P appearing in Chapter VI-A in the IT Act, 1961. Chapter VI-A of the IT Act, 1961 provides for deductions to be made in computing total income. Prior to introduction of section 80AA and section 80AB various High Courts had held that in the absence of expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from other sources the interest expenditure debited in the said interest account will have to be deducted from the gross interest income under section 57 of the IT Act, 1961. Only the net income after allowing the aforesaid deductions under section 36 or section 57 will form part of gross total income and that net amount of interest income only will be eligible for grant of relief under section 80P(2)(d). In the present case the credits in the said interest account was Rs. 16,40,882 which includes the interest received from Gujarat State Sahakari Marketing Federation Ltd. amounting to Rs. 13,93,250. The debits in this interest account as per page 25 of the printed balance sheet was Rs. 14,03,572. There is a net credit of only Rs. 2,37,210 in this account. We are therefore of the view that deduction under section 80P(2)(d) should be allowed only in respect of the net income from interest on such investments under section 80P(2)(d). This view is fully fortified by the decision of Hon'ble Andhra Pradesh High Court in the case of CIT v. Anakapalli Co-operative Marketing Society [1989] 175 ITR 584. The relief granted by the CIT(A) amounting to Rs. 13,93,250 is accordingly reduced to o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the learned CIT(A). The learned counsel for the assessee contended that the bonus payment was made as per the provisions of Bonus Act. Our attention was also invited towards the resolution passed by the society placed at page 36 of the paper book in which the said bonus payment of Rs. 13,000 has been mentioned. Similar submissions were made with regard to bonus amounting to Rs. 20,585 paid for asst. yr. 1983-84. 11.1 After considering the submissions made by the learned representatives and after going through the relevant details and resolution passed by the society, we are of the view that the amount of bonus paid to the staff amounting to Rs. 13,000 and Rs. 20,585 in these two year respectively are allowable as business expenditure, in view of second proviso to s. 36(1)(ii) r/w judgment of Hon'ble Supreme Court in the case of Shahzada Nand Sons v. CIT [1977] 108 ITR 358. The ITO is directed to allow deduction in respect of the same. 12. The second ground of cross objection in both these years relate to assessee's claim for grant of deduction under s. 80P(2)(a)(i) in respect of interest received from member co-operative societies for providing credit facilities to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration, the relief claimed by the assessee in Ground No. 3 of their cross objection for both the years under consideration is not allowable. 13A. No arguments were advanced in relation to Ground No. 4 of cross objection for both these years. This ground does not arise out of the order passed by the CIT(A). Hence, the same is rejected. 14. In the result the Revenue appeals are treated as partly allowed for statistical purposes for asst. yr. 1982-83 and 1983-84. The cross objections submitted by the assessee for both these years are partly allowed. 15. Now we will deal with Revenue's appeal No. 392 relating to penalty under sw. 271(1)(a) and the cross objection No. 181 submitted by the assessee in relation to the aforesaid penalty matter for asst. yr. 1982-83. 15.1 The return of income for aforesaid year was due on 30th June, 1982 but the same was actually submitted on 12th April, 1984. The ITO levied penalty for default of 33 completed months at the rate of 2 per cent per month which worked out to Rs. 1,63,920. The ITO vide hid order under s. 154 dt. 8th July, 1987 reduced the penalty to Rs. 94,378 for a default of 19 completed months after taking into consideration the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e course of hearing, we are of the view that the assessee could entertain a bona fide belief under the facts and circumstances of the present case that its income was not liable to tax. Not only that the assessee had formed such bona fide belief but the belief the assessee has been corroborated by the order of the CIT(A) in which he granted a relief of Rs. 27,88,446. Even according to the order of the CIT(A) the income of the assessee would be nil or would be a figure of assessed loss. The mere fact that the assessee could not anticipate certain additions or disallowance's of a debatable nature, it would not establish that the assessee failed to furnish the return in time without any reasonable cause. Such a bona fide belief that its income is not liable to tax constitutes reasonable cause. The contentions relating to various items of additions were accepted in the past as well as in the subsequent years. The latest assessed income for asst. yr. 1980-81 was nil figure. The return of income was furnished only with a view to claim refund of advance tax amounting to Rs. 2,81,600. Under the aforesaid circumstances we are of the considered view that these circumstances constituted reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X
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