Provisions of sec. 40(A)(2) not applicable in case of co-operative society: Surat ITAT

Facts:

a) Assessee had filed its return of income declaring total income of Rs. Nil. During the course of assessment proceedings, the Assessing Officer had noticed that Statutory minimum price of Sugar Cane had been fixed at Rs. 94.64 per quintal by National Federation of Co-operative Sugar Factories Ltd. whereas the assessee-society had paid price of sugarcane at the rate of Rs. 1793.60 per quintal to the farmers.

b) He observed that Rs. 1700 was the appropriate market value of Sugar Cane per ton and the balance amount of Rs. 93.6 per ton paid to the farmers was treated as excessive payment u/s 40A(2)(b). Accordingly, AO had made addition of Rs. 5,92,19,981.

c) CIT(A) reversed order of AO. Aggrieved-revenue filed the instant appeal before the ITAT.

The ITAT held in favour of assessee as under:

1) Co-operative society enjoys special status that it has own individuality and distinctness in the scheme of the IT Act. A Co-operative society is a voluntary AOP, it is economic institution formed for social purpose and not motivated by entrepreneurial profits by distinguishing it from the association of business.

2) Therefore, the provisions of section 40A(2)(b) would not apply to co-operative society. Hence, no disallowance under that section can be made in the assessment of co-operative society.   –  [2018] 100 taxmann.com 229 (Surat-Trib.)