IN INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD Before Shri S. S. Godara, JM, & Shri Manish Borad, AM. ITA No.1395/Ahd/2009 Asst. Year: 2006-07 Purshottam Farmers Co- Vs. ACIT, Circle-9, Surat. op. Cotton Ginning & Pressing Soc. Ltd., Khand Bazar, Varacha Road, Surat. Appellant Respondent PAN AAAAT 3000E AND ITA No.1789/Ahd/2009 Asst. Year: 2006-07 ACIT, Circle-9, Vs. Purshottam Farmers Co-op. Surat. Cotton Ginning & Pressing Soc. Ltd., Khand Bazar, Varacha Road, Surat. Appellant Respondent Appellant by Shri M. K. Patel, AR Respondent by Shri Jagdish, CIT, DR Date of hearing: 29.7.2016 Date of pronouncement: 14/10/2016 ORDER PER Manish Borad, Accountant Member. These cross appeals by assessee and the Revenue for Asst. Year 2006-07 are directed against order of ld. CIT(A)-V, Surat, dated 13.02.2009 in appeal No.CAS-V/143/2008-09 passed ITA No. 1395 & 1789/Ahd/2009 2 Asst. Year 2006-07 against order u/s 143(3) of IT Act, 1961 (in short Act) for Asst. Year 2006-07 on 11.12.2008 by ACIT, Circle-9, Surat. 2. Briefly stated facts of case as culled out from assessment record are that assessee is farmers co-operative Ginning and pressing society and involved in activities of marketing of agricultural produce of members & supplying seed fertilizers, insecticides to members. Return of income was filed on 31.12.2006 declaring total income at Rs.26,73,820/- which constituted income from house property and loss under head business & profession and income from other sources after claiming deduction of Rs.60,70,436/- u/s 80P(2)(d) of IT Act. case was selected for scrutiny and notice u/s 143(2) of Act was issued on 24.12.2007 followed by notice u/s 142(1) along with questionnaire was duly served upon assessee. During course of assessment proceedings, it came to notice of Assessing Officer that assessee has sold land of co-operative society and building associated with it and got income and no such income figured under head income from capital gain. On further verification it was observed that during Asst. Year 2005-06 deposit of Rs.25.47 crores was shown as advance and in Asst. year 2006-07 same was adjusted against sale consideration. In Asst. year 2006-07 deposit of Rs.12,47,20,000/- in bonds of National Bank for Agricultural and Rural Development (NABARD) and also Rs.6,17,30,000/- as deposit in national housing bank have been shown. On further gathering of relevant documents and details it was observed by Assessing Officer that during year under appeal assessee has ITA No. 1395 & 1789/Ahd/2009 3 Asst. Year 2006-07 sold 35,336 sq.m. land for Rs.25,47,49,129/- and exemption u/s 54EC of Act claimed for investment in specified assets i.e NABARD and national housing bank of Rs.18,64,50,000/-. These information were furnished through revised computation of income filed on 6.11.2008 i.e. during course of assessment proceedings. On further examination of details of capital gain ld. AO s main focus was on sale consideration. As per registered valuer s report fair market value of impugned land was Rs.5,800/- per sq.m. in year 2003. Jantri rate as per Stamp Duty Authority during F.Y. 2005-06 was at Rs.8000/- per sq.m.. Market value of land as estimated by ld. Assessing Officer on basis of comparative sale instances was Rs.10,000/- per sq.m. As regards departmental valuation report, reference was made to DVO vide letter dated 7.11.2008 but report was awaited till finalization of assessment. Ld. Assessing Officer went ahead to calculate capital gain by applying rate of Rs.10,000/- per sq.m. on 33,817/- sq.m. land and as regards remaining part of 1519 sq.m. land occupied by tenants sale consideration shown by assessee was accepted. Accordingly addition towards long term capital gain was calculated at Rs.8,34,45,225/-. 3. Assessing Officer also disallowed deduction of unabsorbed depreciation of Rs.53,90,948/- and current depreciation of Rs.4,58,320/- taking into consideration provisions of section 14A of Act and observed that assessee is not eligible for deduction as well as carry forward to future years for setting off against other heads of income which are taxable in case of assessee. Assessing Officer also denied deduction of ITA No. 1395 & 1789/Ahd/2009 4 Asst. Year 2006-07 Rs.20,16,663/- u/s 80P of Act as there was no positive income under head business or profession . After making aforesaid additions and disallowance of depreciation and deduction u/s 80P(2)(d) of Act income was assessed at Rs.9,44,55,900/-. 4. Aggrieved, assessee went in appeal before ld. CIT(A) and partly succeeded, 5. Assessee and Revenue both are now in appeal before Tribunal. 6. First we take up assessee s appeal in ITA No.1395/Ahd/2009. Ground no.1 reads as under :- 1. ld. CIT(A(-V, Surat has grievously erred in confirming action of Assessing Officer in adopting sale rate of Rs.10,000/- per sq. metre as against sale rate of Rs.7301/- per sq. metre shown by assessee in respect of land sold and thereby confirming addition to capital gains income. 7. In appeal against impugned addition by way of applying sale price at Rs.10,000/- per sq.m. on land measuring 33817 sq.m. made by Assessing Officer, and ld. CIT(A) sustained impugned addition by observing as under :- I have considered submissions made by assessee, findings of AO as contained in assessment order as also materials and evidences on record however, arguments of assessee are not acceptable since- In valuation report of Govt. approved valuer for cost of acquisition of land as on 01-04-1931 value adopted is Rs. 450/- per sq. mtr i.e. 3.28 times of comparable sale instance of Rs. 136/- per sq. ITA No. 1395 & 1789/Ahd/2009 5 Asst. Year 2006-07 mtr. whereas in valuation report of same valuer sale rate as on 2-12-2003 has been adopted at Rs. 5800/- per sq. mtr. i.e. only 1.37 times of comparable sale instance of Rs. 4238/- per sq. mtr., which is absolutely inconsistent and adopting basis of valuation as per report giving cost as on 1-4-81, i.e. 3.28 times of comparable sale instance market rate would work out to Rs. 13900/- per sq. mtr. (i.e Rs. 4238 x 3.28 times), as against which AO has adopted rate of Rs. 10,000/- per sq. mtr. which is most fair and reasonable and does not call for any interference. Out of total land of 35,336 sq. mtrs, sold during year only 1,519 sq. mtrs of land was occupied by tenants which is very negligible and AO has accepted sale price as shown by assessee in respect of said 1,519 sq. mtrs. of land and only for balance non tenated land of 33817 sq. mtrs. sale rate of Rs. 10,000- per. sq. mt. has been adopted by him. Further, it is also sent that property of assessee is situated in very commanding location at Varachha Main Road and is very close to Surat Railway Station which is very prominent commercial and industrial area of Surat as stated by valuer in his valuation report availed for purpose of cost of acquisition as on 01-04-1981. Moreover, it is pertinent to note that same valuer has valued land of Surat District Spinning Mills located at Rs. 5,948/- per sq. mt. which is in fact 4 km. away on interior side from land of assessee that too in year 2000 i.e. six years back. Hence, considering this factor valuation of land of assessee which is on main Varachha Road and much nearer to railway station at Rs. 5,800/- per sq. mt. that too after three years in year 2003 cannot be accepted. Further, AO has also given another comparable instance of sale rate of around Rs. 40,000/- per sq, mt. in case of Mangukia Brothers of land in nearby vicinity which also assessee not been able to rebut. Another important fact is that valuation of Rs. 5,800/- per sq. mt. has been made for year 2003 when land is sold in year 2006 and jantry rate (stamp duty valuation) for year 2006 is Rs. 8,000/- per sq, mt. whereas market value of land is Rs. 20,000/- to Rs. 30,000/- per sq. mt. In this regard, ! agree with AO that in city of Surat, jantry rate was not revised since last many years and thus, there was huge difference in actual market rate and jantry, which has been ultimately been revised to Rs. 14,000/- per sq. mt. w.e.f. 01-04-2008 ITA No. 1395 & 1789/Ahd/2009 6 Asst. Year 2006-07 and accordingly, I am of opinion that AO has been quite fair and reasonable in adopting bare minimum value of Rs. 1Q,000/- per sq. mt. assessee's argument that it has not received any notice of additional stamp duty and hence value as per sale deed has to be accepted is also not acceptable since stamp duty value of all lands in state of Gujarat has been revised with effect from 01-04-2008 and as per revised stamp duty valuation sales rate of said land is Rs. 14,500/- per sq. mt. This increase in stamp duty valuation clearly indicates that overnight value of land cannot increase by 2 to 3 times i.e. from Rs. 5,800 per sq. mt. to Rs. 14,500/- per sq. mt. and thus, it gets established that actual value of land prior to 01-04-2008 was also much higher. As regards assessee's argument that Revenue has not discharged onus of proving under statement and its reliance on decision of Hon'ble Supreme Court in case of K.P. Varghese (supra), I am of opinion that AO has fully discharged onus of proving understatement not only from valuation reports submitted by assessee, adopting different basis but also from other comparable instances and even stamp duty valuation and thus, decision as relied upon by assessee is not applicable to facts of case. Hence, I hold that AO has been fair and reasonable in adopting sales rate at Rs. 10,000/- per sq. mt. and computing long term capital gain on said basis and therefore, grounds of assessee regarding adoption of sale rate of Rs. 10,000/- per sq. mt. and computing long term capital gain on said basis are hereby dismissed. 8. Ld. AR submitted that as per valuation report of registered valuer value of land has been valued at Rs.5,800/- per sq. m. whereas sale price shown by assessee is Rs.7301/- per sq.m.. Further no notice on additional stamp duty has been received from Stamp Duty Authorities which strengthens case of assessee that value as per sale deed has to be accepted. Further no report of Departmental Valuation Officer has been received till date which ITA No. 1395 & 1789/Ahd/2009 7 Asst. Year 2006-07 might have justified impugned addition made by Assessing Officer. 9. Ld. AR further submitted that advertisement for sale of land was given in different local news papers in Surat along with clarification that some portion of land i.e. 1519 sq.m. is occupied by tenants out of total 35336 sq.m. Necessary tenders were called for and negotiations were made with prospective buyers so that better sale price can be achieved. In this process Ratnatal Realty Services Pvt. Ltd. offer of Rs.7,301/- per. Sq.m. was accepted. Further when Assessing Officer referred matter to Departmental Valuation Officer (DVO) nothing was done by DVO. Thereafter ld. Assessing Officer applied estimated rate of Rs.10,000/- per sq.m. for 33817 sq.m. which was not having any basis. In these circumstances sale consideration of Rs.7301/- per sq.m. should have been accepted by lower authorities. Ld. AR referred and relied on decision of Co-ordinate Bench in case of Surat Dist. Co- op. Spinning Mills Ltd. vs. ACIT in ITA No.3381/Ahd/2008 dated 17.2.2009 and another decision of Co-ordinate Bench in case of DCIT vs. Surat Dist. Co-op. Spinning Mills Ltd. in ITA No.3384 & 1612/Ahd/2010 with CO. No.41/Ahd/2011 for asst. years 2003-04 & 2004-05 vide order dated 10.5.2013. 10. On other hand ld. DR relied on orders of lower authorities and also submitted that valuation report which has been heavily relied upon by assessee has been made by same registered valuer who has valued land at Rs.5,948/- per ITA No. 1395 & 1789/Ahd/2009 8 Asst. Year 2006-07 sq.m. in year 2000 in case of Surat District Co-op. Spinning Mills located on same Varachha road 4-5 kms. away from assessee s land. On other hand, assessee s land which is situated just 200 metres from Railway Station and having prime location has been valued by same registered valuer at Rs.5,800/- per sq.m. in year 2003. This itself shows that in three years there has been no increase in land price. 11. We have heard rival contentions and perused material on record and also gone through decions/judgments referred and relied on by assessee. Through this ground assessee has challenged order of ld. CIT(A) sustaining addition towards long term capital gain by way of applying sale price at Rs.10,000/- per sq.m. as against Rs.7,301/- per sq.m. shown by assessee. We find that during year under appeal assessee has sold 35,336 sq.m. of land situated at Varachha road, Surat out of which1519 sq.m. land was occupied by tenants. sale consideration of 1519 sq.m. of land has been accepted by Revenue as shown by assessee so there is no dispute with regard thereto. As far as remaining land portion of land 33817 sq.m. assessee has shown sale price of Rs.7,301/- per sq.m. Jantri price as per Stamp Duty authorities Rs.8,000/- per sq. m. As per registered valuer s report dated 2.12.2003 fair market value rate has been shown at Rs.5,800/- per sq. m. DVO who was requested by Assessing Officer to provide valuation report vide letter dated 7.11.2008 is still pending for action as no report has been received till date. Ld. Assessing Officer on basis of comparative sale price in ITA No. 1395 & 1789/Ahd/2009 9 Asst. Year 2006-07 immediately vicinity estimated fair market value by way of applying Rs.10,000/- per sq.m. 12. Apart from above facts, one more crucial point which came up during assessment proceedings which relates to sale of land at Varachha road 4-5 kms. away from assessee s land owned by Surat District Co-op.Spinning Mills which happened in year 2000 and valued at Rs.5948/- per sq.m. by same registered valuer who has valued land of assessee in year 2003 at Rs.5,800/- per sq.m. even when it was having locational advantage in comparison of land owned by Surat District Spinning Mills Pvt. Ltd. as land was very close to Railway Station. These two reports of same registered valuer in year 2000 and 2003 indicate that there has been no increase in fair market value of land and therefore registered valuer s report is not convincing. 13. Similarly adoption of estimated rate of Rs.10,000/- per sq.m. by ld. Assessing Officer was not having any authentic basis except comparative sale instances and even reference made to DVO vide letter dated 7.11.2008 issued by Assessing Officer had no action and as result ld. Assessing Officer estimated rate of Rs.10,000/- per sq.m. for 33817 sq.m. However, jantri rate of Rs.8,000/- per sq.m. for F.Y.2005-06 as observed in assessment order seems to fulfill conditions envisaged u/s 50C of Act which reads as below :- ITA No. 1395 & 1789/Ahd/2009 10 Asst. Year 2006-07 50C. (1) Where consideration received or accruing as result of transfer by assessee of capital asset, being land or building or both, is less than value adopted or assessed [or assessable] by any authority of State Government (hereafter in this section referred to as "stamp valuation authority" ) for purpose of payment of stamp duty in respect of such transfer, value so adopted or assessed [or assessable] shall, for purposes of section 48, be deemed to be full value of consideration received or accruing as result of such transfer. (2) Without prejudice to provisions of sub-section (1), where (a) assessee claims before any Assessing Officer that value adopted or assessed 16[or assessable] by stamp valuation authority under sub-section (1) exceeds fair market value of property as on date of transfer; (b) value so adopted or assessed [or assessable] by stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or High Court, Assessing Officer may refer valuation of capital asset to Valuation Officer and where any such reference is made, provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to reference made by Assessing Officer under sub-section (1) of section 16A of that Act. [Explanation 1]. For purposes of this section, "Valuation Officer" shall have same meaning as in clause (r) of section 2 of Wealth-tax Act, 1957 (27 of 1957). [Explanation 2. For purposes of this section, expression "assessable" means price which stamp valuation authority would have, notwithstanding anything to contrary contained in any other law for time being in force, adopted or assessed, if it were referred to such authority for purposes of payment of stamp duty.] (3) Subject to provisions contained in sub-section (2), where value ascertained under sub-section (2) exceeds value adopted or assessed [or assessable] by stamp valuation authority referred to in sub-section (1), value so adopted or assessed [or assessable] by such authority shall be taken as full value of consideration received or accruing as result of transfer.] 14. On analyzing facts with reference to above provisions of Act it contemplates that for purpose of calculation of capital gain if sale consideration is less than value assessable by any authority of State Government i.e. jantri rate then said jantri rate shall be deemed to be full valuation of consideration received or accruing as result of transfer. As per provisions of sec.50C(2) of ITA No. 1395 & 1789/Ahd/2009 11 Asst. Year 2006-07 Act Assessing Officer if not satisfied with value so adopted then he may refer valuation of capital asset to Valuation Officer, which in this case is impugned land for which reference was made to DVO but no report has been received. 14.1 We further observe that Co-ordinate Bench in case of DCIT vs. Surat Dist. Co-op. Spinning Mills Ltd. in ITA Nos.3384 and 1612/Ahd/2010 for Asst. Years 2003-04 & 2004-05 vide order dated 10.5.2013 dealt with such issue by observing as below :- 5. We have considered rival submissions carefully and have gone through orders of AO and CIT(A). We find that even after deletion of provision of section 52(1) from statute, onus lies with Revenue to prove by bringing some evidence on record that assessee has taken some amount, over and above, stated sale consideration in registered documents, evidencing sale of immovable property. No such evidence could be brought on record by Revenue. DVO has not filed valuation report till date. It is not disputed fact that assessee has closed its business in year 1999 and has not done any other business tillITA No.3384 and 1612/Ahd/2010 With CO No.41/Ahd/2011 year 2007-2008. It is also undisputed fact that during period from 1999 to 2007, assessee has sold out its machinery and has also demolished all factory building, and cleared land. assessee was under heavy liability of payment of dues to its ex-employees. matter has travelled till level of Hon'ble High Court, which has directed and empowered President of Employees' Union to sell land in question. In facts of case, there seems to be no justification for substituting apparent sale consideration of land in question with estimate of fair market value of land in question, and particularly so, in view of absence of any material brought on record to suggest understatement of sale consideration or charging of any on-money by assessee. Power of attorney, as per direction of Hon'ble high Court was given in favour of Chairman of Labour Union, Shri N.B. Desai, to sell land and under that power of attorney, land was sold by plotting said land issue before us is covered in favour of assessee with decision of ITAT, Ahmedabad in assessee's own case for A.Y.2005-2006 (supra) and 2006-2007 (supra) wherein in identical facts, issue was decided in favour of assessee, and addition made by substituting sale consideration was deleted. We being in agreement with decision of Co-Ordinate Bench of Tribunal in assessee's own case for A.Y.2005-2006 (supra) and 2006-2007 ITA No. 1395 & 1789/Ahd/2009 12 Asst. Year 2006-07 (supra), decide issue in favour of assessee and grounds of appeal of Revenue in both years are dismissed. 15. However, facts of present case do not fit completely to above said decision as in above cited case by ld. AR matter travelled upto Hon. Gujarat High Court which has directed and empowered President of Employees Union to sale land in question. 15.1 We further observe that in case of Surat District Co-op. Spinning Mills Ltd. vs. ACIT in ITA No.3381/Ahd/2008 for Asst. Year 2005-06 vide its order dated 17.02.2009 Co-ordinate Bench has decided similar issue relating to adopting sale rate for land located at Varachha road (the same as that of assessee) and allowed assessee s appeal for related ground by observing as under :- 7. We have carefully considered rival submissions and, perused material on record. We have also gone through decision of Hon. Supreme Court in case of K.P. Varghese v. ITO (1981) 131 ITR 597(SC) wherein it has been held as under: Which is in fact never accrued or was never received cannot be computed as capital gain under s.48. Sub-section 52 (1) does not deem income to accrue or to be received which in fact never accrued or was never received. It seeks to bring within net of taxation only that income which has accrued or is received by assessee as result of capital asset. But since it would not be possible for Income-tax officer to determine precisely how much more consideration is received by assessee than that declared by him, sub- section (1) provides that fair market value of property as on date of transfer shall be taken to be full value of consideration for transfer which has accrued to or is received by assessee. net effect of this provision is as if statutory best judgment assessment of actual consideration received by assessee is made, in absence of reliable materials. ITA No. 1395 & 1789/Ahd/2009 13 Asst. Year 2006-07 onus of establishing that conditions of taxability are fulfilled is always on revenue. In view of above, respectfully following aforesaid decision of Hon. Supreme Court, we allow claim of assessee. Thus, this ground raised by assessee is allowed. 16. In above referred decision of Co-ordinate Bench in case of Surat District. Co-op. Spinning Mills reliance was placed on judgment of Hon. Supreme Court in case of K.P. Varghese vs. ITO (supra) and relevant provisions of section 52 of Act. We find that section 52 of Act was deleted by Finance Act, 1987 w.e.f. 1.4.1988 and certainly will not squarely apply to case of assessee. 16.1 However, drawing inference from above cited decision of Co-ordinate Bench and in view of provisions of section 50C of Act, we are of considered view that in given facts and circumstances of case wherein assessee has shown sale consideration @ Rs.7,301/- per sq.m., registered valuer valued it at Rs.5,800/- per sq.m., ld. Assessing Officer estimated rate at Rs.10,000/- per sq.m. no report from DVO and jantri price of Rs.8,000/- per sq.m., we are of view that in order to meet ends of justice, it will be justified to adopt jantri price of Rs.8,000/- per sq.m. for sale consideration towards sale of 33817 sq.m. of land. We accordingly do so. Ground no.1 of assessee s appeal is partly allowed. 17. Ground no.2 which reads as under :- ITA No. 1395 & 1789/Ahd/2009 14 Asst. Year 2006-07 2. That CIT(A) has grievously erred in holding that assessee is not entitled to set off unabsorbed business loss of Rs.8,60,125/- of earlier year against income from other sources of current year. 18. At outset ld. DR submitted that similar type of ground has been allowed in favour of Revenue by Co-ordinate Bench in case of Assessee in ITA No.3381/Ahd/2008 (supra). 19. Ld. AR could not controvert submissions of ld. DR. 20. We have heard rival contentions and perused material on record. Through this ground assessee has challenged action of ld. CIT(A) sustaining action of Assessing Officer in not allowing set off of unabsorbed business loss of Rs.8,60,125/- of earlier year against income from other sources of current year. We find that ld. CIT(A) has sustained action of Assessing Officer by observing as under :- second issue is assessee's eligibility to set off business loss of earlier years against income from other sources of current year. In present case, assessee has claimed set off of business loss of Rs. 8,60,125/- of earlier years against income from other sources of current year. issue of carried forward and set off of business losses is governed by provisions of section 72 of Income Tax Act. As per provisions of sub-section (1) of section 72, business loss other than loss from speculation business can be set off against any head of income in year in which it is incurred and amount of such business loss which cannot be set off, can be carried forward for being set off in subsequent years. However, in subsequent year, such carried forward business loss is allowed to be set off only against business income of ITA No. 1395 & 1789/Ahd/2009 15 Asst. Year 2006-07 same business or of any other business but not against income under any other head. Hence, in view of clear provisions of section 72(1) of I.T. Act, it is held that claim of assessee in setting off business loss of earlier years against current year s income from other sources is illegal and not allowable as per law and assessee s ground of appeal on this issue is dismissed. 21. We further observe that in case of Surat Dist. Co-op. Spinning Mills vs. ACIT for Asst. Year 2005-06 (supra) similar issue was adjudicated and decided against assessee by observing as under :- 3. We have considered rival submissions and perused material on record. We agree with findings given by CIT(A) that as per provisions of section 72(1), business loss other than loss speculation business can be set off against any head of income in year in which it is incurred and amount of such business loss which cannot be set off, can be carried forward for being set off in subsequent years. However, in subsequent year, such carried forward business loss is allowed to be set off only against business income of same business or of any other business but not against income under any other head. We, therefore, do not find any infirmity in order of CIT(A) and uphold his order in this regard. Thus, ground raised by assessee stands dismissed. 22. As issue before us in this ground is squarely covered against assessee by decision of Co-ordinate Bench cited above, respectfully following same we find no reason to interfere with order of ld. CIT(A). We uphold same and dismiss ground no.2 of assessee s appeal. 23. Ground no.3 reads as under :- 3. That ld. CIT(A) has grievously erred in partially confirming disallowance of claim of deduction under section 80P of Act of Rs.19,16,663/- in respect of business income under ITA No. 1395 & 1789/Ahd/2009 16 Asst. Year 2006-07 section 80P(2)(a)(iii), Rs.10,800/- under sec.80P(2)(e) in respect of godown rent. 24. During course of assessment proceedings while examining allowability of deduction u/s 80P of Act, ld. Assessing Officer observed that inspite of having negative income under head business or profession deduction u/s 80P of Act has been claimed excess by Rs.20,27,463/-. When matter came up before first appellate authority, claim of Rs.1 lacs was allowed under section 80P(2)(c)(i) of Act out of total disallowance of Rs.20,27,463/-. 25. Ld. AR reiterated submissions made before ld. CIT(A) and ld. DR supported orders of lower authorities. 26. We have heard rival contentions and perused material on record placed before us. Through this ground assessee has urged for allowability of deduction u/s 80P of Act at Rs. 19,16,663/- in respect of business income under section 80P(2)(a)(iii), Rs.10,800/- under sec.80P(2)(e) in respect of godown rent. 26.1 We find that as per return of income assessee has shown net business loss is of Rs.85,27,214/- net income from other sources at Rs.1,72,54,361/- and house property income at Rs.17107/-. These figures show that assessee incurred losses out of business activities income of which is deductible u/s 80P. After claiming loss from other heads of income gross total income of Rs.87,44,254/- was shown. Out of this gross total income apart from deduction of ITA No. 1395 & 1789/Ahd/2009 17 Asst. Year 2006-07 Rs.40,42,973/-, claim towards income by way of dividend/interest derived by assessee society from its investment with other Co-op. societies as per provisions of section 80P(2)(d) of Act, further deduction of Rs.20,16,663/- was also claimed towards income from marketing agricultural produce grown by its members u/s 80P(2)(a)(iii) of Act and Rs.10,800/- claimed u/s 80P(2)(iii) for income earned out of godown/warehouse rent marketing of commodities. 26.2 We further observe that ld. CIT(A) only granted relief for Rs.1 lacs u/s 80P(2)(c)(i) of Act and held action of ld. Assessing Officer to be correct for not allowing deduction of Rs.19,16,663/- u/s 80P(2)(iii) of Act and Rs.10,800/- by observing as under :- I have considered facts of case, submissions made by assessee and findings of AO as contained in assessment order. contention of assessee that business income of Rs. 19,16,663/-is eligible for deduction u/s. 80P(2)(a)(iii) is not acceptable since, deduction u/s. 80P under chapter VIA is allowable on net income and not on gross income as per clear provisions of sec. 80AB of Act. It is seen that income of Rs. 19,16,663/- under head business income gets set off under other current year's business loss and in event of there being no income under head business income, there is no question of claiming deduction in respect of amount of Rs. 19,16,663/- /s. 80P(2)(a)(iii). As regards claim of Rs. 1,00,000/- u/s. 80P(2)(c)(i) it is seen that assessee is consumer co-op, society is hence eligible for same. As regards, deduction of Rs. 10,800/- u/s. 80P(2)(e) in respect of godown rent it is held that if same is offered under head business income and is set off against current year's loss then same is not allowable. However if same is offered under head 'Income from house property' then same is allowable u/s. 80P(2)(e) of Act for. which AO will do necessary verification at his end. ITA No. 1395 & 1789/Ahd/2009 18 Asst. Year 2006-07 Hence, it is held that assessee's claim for deduction of Rs. 19,16,663/- u/s. 80P(2)(a)(iii) of Act is rejected, assessee's claim for deduction of Rs. 1,00,000/- u/s. 80P(2)(c)(i) is allowed and in respect of assessee's claim for deduction of Rs. 10,800/- u/s. 80P(2)(e), AO is asked to verify as to whether same is offered under head 'Income from house property7 and if so, same is to be allowed and if it is offered under head 'Business Income' same is to be rejected. 27. In given facts and circumstances of case and observations of ld. CIT(A), we are of view that as there is loss during year from business activities of society which includes all types of income relating to marketing of agricultural produce grown by its members as well as income from letting out godown/warehouse, assessee is not eligible for any deduction u/s 80P(2)(iii) and 80P(2)(e) of Act for lack of positive income. Therefore, we find no reason to interfere with order of ld. CIT(A) and uphold same. This ground of assessee is dismissed. 28. Ground nos. 4 & 5 are of general nature, which need no adjudication. 29. Now we take up Revenue s appeal in ITA No.1789/Ahd/2009 wherein following grounds have been raised :- 1. On facts and in circumstances of case and in law, ld. CIT(A) has erred in deleting addition of Rs.58,49,268/- made by AO on account of disallowance of depreciation loss of earlier year and current year, without appreciating facts of case. 2. On facts and in circumstances of case and in law, ld. CIT(A) has erred in granting relief of Rs.1,00,000/- ITA No. 1395 & 1789/Ahd/2009 19 Asst. Year 2006-07 on account of disallowance of deduction which is available for consumer co-op. society u/s 80P(2)(c)(i), without appreciating facts of case and intent of law. It is, therefore, prayed that order of CIT(A) be set aside and that of assessing officer be restored. 30. Ld. Assessing Officer denied deduction of claim of assessee of Rs.53,90,948/- as unabsorbed depreciation and also claim of Rs.458320/- of current depreciation by applying provisions of section 14A of Act for purpose of computing total income under this chapter and taking view that no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under this Act. ld. CIT(A) deleted disallowance. 31. Revenue is now in appeal before Tribunal. 32. Ld. DR supported order of Assessing Officer. 33. Ld. AR relied on order of ld. CIT(A). 34. We have heard rival contentions and perused material placed before us. Through this ground Revenue has challenged order of ld. CIT(A) allowing depreciation claim of Rs.58,49,268/- which includes Rs.53,90,948/- as unabsorbed depreciation and Rs.458320 of current depreciation. Reason for said disallowance by Assessing Officer was mainly focused on his view of application of provisions of section 14A of Act on basis of which inference ITA No. 1395 & 1789/Ahd/2009 20 Asst. Year 2006-07 was drawn that no deduction should be allowed for expenditure incurred by assessee in relation to income which does not form part of total income under Act as assessee is eligible for 100% deduction u/s 80P of Act for business income earned from activities undertaken by assessee society. 35. We further observe that ld. CIT(A) has allowed claim of assessee of unabsorbed depreciation of earlier years and current year totaling to Rs.58,49,268/- by observing as under :- As regards assessee's eligibility to set off depreciation loss of earlier years and current year's depreciation against income from other sources of current year, AO has contended that unabsorbed depreciation of Rs.53,90,948/- claimed by assessee pertains to expenses incurred for earning income which is deductible u/s. 80P of Act and which is not included in total income. AO further argued that even as per section 14A, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not from part of total income under this Act, however I do not agree with AO on this count since as per provisions of sub section (2) of section 32, it is seen that where in assessment of assessee full effect cannot be given to any allowance under sub section (l) of section 32 in any pervious year on account of there being no business income or business income being less then depreciation allowance, then depreciation allowance or part thereof which could not be set off shall be added to amount of depreciation allowance for following previous year and deemed to be part of that allowance, and if there was no such allowance for that previous year, it shall be deemed to be allowance for that previous year and so on for succeeding previous years. Accordingly, as per sub section (2) of section 32 brought forward unabsorbed depreciation loss pertaining to earlier years shall be added to depreciation allowance of A.Y. 2006-07 and then shall be deemed to be part of current year's depreciation and this process will continuously go on for succeeding years and as per provisions of section 71 assessee would be entitled to set off said depreciation loss against income under head income from other sources and long term capital gain. ITA No. 1395 & 1789/Ahd/2009 21 Asst. Year 2006-07 Hence, in view of clear provisions of section 32(2) of I.T. Act, It is held that claim of assessee in setting off depreciation loss of earlier years as also current year's depreciation against current year's income from other sources and long term capital gain is in order and is allowable as per law and assessee's ground of appeal on this issue is allowed. 36. We observe that depreciation is claimed as per provisions of section 32 of Act and sub-section (2) of section 32 allows assessee to claim unabsorbed depreciation of earlier years. Further in order to compute business income of assessee society computation of income has to pass through provisions of section 32 of Act so as to arrive at correct business income. Sec. 14A of Act refers to income which are not included in total income i.e. exempt income dividend, for example tax free interest etc. Whereas in case of assessee deduction has to be claimed u/s 80P of Act. Further as per section 80P(2)(a)(iii) of Act, deduction is allowable for amount of profits and gain of business attributable to marketing of agricultural produce grown by members of society and in order to calculate profits and gains of business assessee needs to calculate business income after claiming depreciation as per provisions of sec. 32 of Act. Therefore, ld. CIT(A) has rightly allowed claim u/s 32 of Act towards deduction of unabsorbed depreciation of earlier years at Rs. 53,90,948/- and deduction of current year depreciation at Rs.458320/- and therefore, we find no reason to interfere with order of ld. CIT(A). We uphold same. This ground of Revenue is dismissed. ITA No. 1395 & 1789/Ahd/2009 22 Asst. Year 2006-07 37. In result, appeal of assessee is partly allowed and appeal of Revenue is dismissed. Order pronounced in open Court on 14th October, 2016 Sd/- sd/- (S. S. Godara) (Manish Borad) Judicial Member Accountant Member Dated 14/10/2016 Mahata/- Copy of order forwarded to: 1. Appellant 2. Respondent 3. CIT concerned 4. CIT(A) concerned 5. DR, ITAT, Ahmedabad 6. Guard File BY ORDER Asst. Registrar, ITAT, Ahmedabad 1. Date of dictation: 13/10/2016 2. Date on which typed draft is placed before Dictating Member: 14/10/2016 other Member: 3. Date on which approved draft comes to Sr. P. S./P.S.: 4. Date on which fair order is placed before Dictating Member for pronouncement: 5. Date on which fair order comes back to Sr. P.S./P.S.: 6. Date on which file goes to Bench Clerk: 17/10/2016 7. Date on which file goes to Head Clerk: 8. date on which file goes to Assistant Registrar for signature on order: 9. Date of Despatch of Order: Purshottam Farmers Coop. Cotton Ginning & Pressing Soc. Ltd. v. ACIT, Circle-9, Surat