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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI ABY T VARKEY, HON’BLE & SHRI S. RIFAUR RAHMAN, HONBLEShri Bhupendra Shah Shri S.N. Kabra
O R D E R PER S. RIFAUR RAHMAN (AM)
This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] dated 30.12.2022 for the A.Y.2018-19. (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd 2. Brief facts of the case are, assessee is a cooperative credit society filed its return of income declaring profit in its income and expenditure account of ₹.4,01,566/- under Income-tax Act, 1961 (in short “Act”) as per schedule BP and claimed the same as exemption under section 80P(2)(a)(i) of the Act. During the course of assessment proceedings, Assessing Officer observed that assessee has claimed an expenditure of the daily agent commission to the extent of ₹.25,54,352/- and disallowed the same under section 40(a)(ib) of the Act. Therefore, the total income under the head business and profession determined at ₹.29,55,918/- and Assessing Officer has allowed the deduction under section 80P(2)(a)(i) of the Act to the extent of ₹.4,01,566/- as claimed by the assessee in its return of income. However, he brought to tax the commission amount disallowed under section 40(a)(ib) of the Act to tax of ₹.25,54,352/-. Aggrieved assessee filed a rectification petition under section 154 of the Act and the same was rejected.
Aggrieved assessee preferred appeal before the Ld. CIT(A) and before Ld. CIT(A), assessee has filed detailed submissions and also made a plea that assessee has filed revised return of income. After considering the submissions of the assessee, Ld. CIT(A) found discrepancies in the revised return of income filed, in particular the details submitted by the Page No. 2 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd assessee in Column – 8A. Accordingly, Ld. CIT(A) has allowed the deduction under section 80P(2)(a)(i) to the extent of the amount claimed by the assessee in its return of income and sustained the additions made by the Assessing Officer to the extent of disallowance made under section 40(a)(ib) of the Act.
Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. NATURAL JUSTICE: 1.1 The Centralized Processing Center / Income Tax Officer
30. (1) (4), Mumbai ["the A.O."], erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the assessment / making the impugned additions. 1.2. It is submitted that in the facts and the circumstances of the case, and in law, the assessment so framed be held as bad and illegal, as the same is framed in breach of the principles of natural justice. WITHOUT PREJUDICE TO THE ABOVE 2.1 The A.O. erred in the taxing Rs. 25,54,350/-, as the income from Business and Profession of the Appellant. 2.2. The A.O. erred in not granting deduction u/s. 80P(2)(a)(i) of the Income -tax Act, 1961. 2.3. It is submitted that in the facts and the circumstances of the case, and in law, no such disallowance was called for. 2.4. The Appellant craves leave to add, alter, delete or modify all or any the above grounds at the time of hearing.”
Page No. 3 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd 5. At the time of hearing, Ld.AR of the assessee submitted as under: - “1) Ours is a Co-operative Credit Society, registered under the Maharashtra Co- operative Societies Act on 05.06.2004 vide Registration Certificate No. VSN/MUMBAI/[RSR]/CR/41/2004-2005 YEAR 2004. The only and the sole aim of us is to encourage thrift and co-operation among the members by pooling financial resources and using the same to help the needy members. No outsider is involved, either as contributor or as beneficiary. In other words, there is a complete identity between the contributors and the beneficiaries. The share capital of the Co-op. Society comprises of monies contributed by its members. From the monies so received from its members along with the deposits received from its members only, we provides financial assistance to our needy members by granting loans to them. These fact s are evident from the objects and bye laws of the Society. 2) For The year under consideration we have filed our Original return of income declaring total income of Rs. Nil after claiming deduction U/s. 80P(2)(a)(i) of the Income Tax Act, 1961 on 22.09.2018. Communication of proposed adjustment u/s 143(1)(a) of Income Tax Act, 1961 was served on 12.02.2019 vide Communication Reference No. CPC/1819/G22/1857138812. for Amount disallowable under section 40(a)(ib) on account of non- compliance with the provisions of Chapter XVII- B of Rs. 25,54,352/- . In reply to said notice we filed our revised return making the said addition and enhancing our Deduction U/s. 80P(2)(a)(i) to Rs.29,55,916/- 3) The Revised return was rejected on following grounds: The submission of the appellant that it has filed revised return making the said addition and enhanced deduction u/s 80P(2)(a)(i) to Rs.29,55,916/- is found mentioned in schedule VIA in revised return of income. But the schedule in the return likes BP/DEP/DPM/DOA/ P&L/PARTA-OI are found properly not filled for which revised return was filed by the appellant. On perusal the schedule BP, it appears that profit & loss is shown of ₹.4,01,566/-/- 4) On 31.05.2019 Intimation U/s. 143(1) was received after making addition of Rs. 25,54,352/- on account of Disallowance U/s. 40(a)(ib) computing our Gross Total Income of Rs. 29,55,918/-. In Page No. 4 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd Intimation U/s. 143(1) Deduction U/s.80(P)(2)(a)(i) was allowed to the tune of Rs. 4,01,566/- only and Rest of Income of Rs. 25,54,350/- was taxed. 5) On 09.07.2019 we have applied for rectification of Mistake but the Assessing Officer erred in making addition of Rs. 25,54,352/- on account of Disallowance U/s. 40(a)(ib) computing our Gross Total Income of Rs. 29,55,918/-. In Intimation U/s. 143(1) Deduction U/s.80(P)(2)(a)(i) was allowed to the tune of Rs. 4,01,566/- only and Rest of Income of Rs. 25,54,350/- was taxed. Particulars Amount Income from Business and Profession as shown in Return 4,01,566/- of Income Disallowance U/s. 40(a)(ib) Commission paid 25,54,352/- Total Income for Business and Profession 29,55,918/- Less Deduction U/s. 80(P)(2)(a)(i) allowed as per 4,01,566/- Intimation U/s. 143(1) & Order U/s 154 Balance Taxable Income 25,54,352/- 6) On 04.09.2019 we filed appeal before Commissioner of Income Tax Appeal 41, Mumbai. But the commissioner in his order dismissed our appeal station as under. "the only income from the business of the banking or providing credit facilities to its members is deductible u/s 80P(2)(a)(i). Accordingly, amount of Rs. 4,01,566/- being total income from the business of the banking or providing credit facilities by the Appellant as shown in the revised return under Part B (TI)- "Computation of total income" is allowed as deduction u/s 80P(2)(a)(i) of the IT Act as claimed in its return. Accordingly, this ground of appeal is dismissed." 7) The Commissioner of Income Tax Appeal Erred in treating Disallowance of Rs 25,54,350/- as Income other than Income Form Business and Profession. In Intimation U/s. 143(1) & 154 the Assessing Officer has disallowed Rs 25,54,350/- U/s. 40(a)(ib) which falls under the head Income form Business and Profession. And in their computation the Assessing officer have shown Rs. 29,55,918/- as income form Business and Profession. 8) Under section 80P of the Income Tax Act, 1961
Page No. 5 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd "(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee (2) The sums referred to in sub-section (1) shall be the following, namely:- (1) carrying on the business of banking or providing credit facilities to its members." Hence we are eligible for deduction of Rs. 29,55,918/- as entire income for business and profession. Including Commission paid of Rs. 25,54,352/- disallowance on account of U/s. 40(a)(ib). 9) It was claimed that the society was entitle for the deduction U/s. 80P(2)(a)(i) as it was a Cooperative Society carrying on the business of providing credit facilities to its members, in support of our claim we pace reliance on Circular No. 37/2016 Dated 2nd November, 2016 of Central Board of Direct Taxes.(copy of circular was enclosed in our paper book at page no 55). 10) In the instant case, the enhance income is business income and hence we pray that the enhanced income of society is eligible for deduction U/s. 80P(2)(a)(i) of the Act. and Rs. 25,54,352/- be allowed as deduction U/s. 80P(2)(a)(i).”
On the other hand, Ld. DR relied on the orders of revenue authorities.
Considered the rival submissions and material placed on record, we observe that during proceedings under section 143(1) of the Act the Assessing Officer has allowed the claim made by the assessee under section 80P(2)(a)(i) of the Act and at the same time disallowed the claim
Page No. 6 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd made by the assessee towards agent commission under section 40(a)(ib) of the Act and brought to tax under the Act. Before us, Ld.AR of the assessee brought to our notice “income and expenditure” for the year under consideration and we observe that assessee has earned the income by lending the funds to its own members and the business carried on by the assessee is not on dispute and also the claim of deduction under section 80P(2)(a)(i) is not in dispute. Therefore, it is fact on record that the profit earned by the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act. Since the Assessing Officer has disallowed the agent commission which is also part and parcel of the business carried on by the assessee, since the agent commission is disallowed under section 40(a)(ib) of the Act otherwise it is an allowable business expenditure. Since it is a business expenditure and also the business carried by the assessee is only towards its object. Therefore, the profit earned by the assessee to the extent of carrying on its objects is eligible to claim the deduction under section 80P(2)(a)(i) of the Act. In the given case due to disallowance made by the Assessing Officer the profit declared by the assessee is increased to the extent of disallowance. The adjusted profit determined by the Assessing Officer is nothing but profit earned by the assessee during the year in the eligible business of which the profit is eligible to get deduction under section 80P of the Act. As per the CBDT
Page No. 7 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd Circular 37/2017 dated 02nd November, 2016, for the sake of clarity it is reproduced below: - “Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A.
The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. […..]”
From the above it is clear that the disallowance made by the Assessing Officer by invoking section 32, 40(a)(ia), 40A(3), 43B etc., under Chapter – VIA , the above disallowance will increase in the profits. As per the above CBDT Circular the deduction needs to be allowed on the enhanced profits. Even in the given case assessee has claimed deduction under section 80P(2)(a)(i) of the Act and due to disallowance made under section 40(a)(ib) the profit of the assessee is increased to that extent. Therefore, the above increased profit is eligible to be claimed under section 80P(2) of the Act. Therefore, we direct the Assessing Officer to allow the claim made by the assessee under section 80P(2)(a)(i) of the Act, accordingly, ground raised by the assessee is allowed.
Page No. 8 (A.Y: 2018-19) Ramkrishna Hari Sahakari Patpedhi Ltd 9. With regard to other grounds raised by the assessee we are not inclined to adjudicate the same. Accordingly, we keep it open for academic purpose.
In the result, appeal filed by the assessee is partly allowed.