THE WEST COAST PAPER MILL EMPLOYEES SOUHARDA CREDIT CO-OPERATIVE SOCIETY LTD ,DANDELI vs. INCOME TAX OFFICER WARD-1(7), HUBLI

“1.0 The assessment order passed u/s. 143(3) of the Income Tax Act, 1961 dated 19/11/2019 by the Income Tax Officer, Ward-1 (7), Hubli is erroneous to the facts and law and the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi has erred in confirming the assessment order. 2.0 The learned Income Tax Officer, Ward-1(7), Hubli has erred in disallowance of Rs. 9,93,255/- 80P(2)(a)(i)of the Income Tax Act, 1961 and the learned Commissioner of Income Tax (Appeals), National .Faceless Appeal Centre has erred in law and facts in confirming the additions. 3.0 The learned Income Tax Officer, Ward-1(7), Hubli has erred in disallowance of Rs. 9,93,255/ - which is allowable under section 80P(2)(a)(i) or 80P(2)(d) and hence, addition to the income and the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre has erred in law and facts in confirming the additions to the extent of Rs. 9,93,255/-.”

“The learned AO has relied upon the decision of the Hon'ble ITAT, Bangalore in the case of M/s. Udaya Souhardha Credit Co- operative Ltd in dated 17.08.2018 and held that the assessee is registered under the Karnataka Souhardha Sahakari Act, 1997 and therefore does not qualify to be a Co-operative Society as per the provisions of Section 2(19) of the Act. The learned CIT(A) has considered the submissions of the assessee had held that the assessee is eligible to claim deduction u/s. 80P(2)(i) of the Act from the interest income earned from its members. But, the learned CIT(A) has sustained the additions to the extent of Rs. 9,93,255/- (Interest and dividend income received from Co-operative Banks) and relied on the decision of the Hon'ble Supreme Court in the case of M/ s. Totgar Cooperative Sale Society Limited Vs ITO [ITR 283(SC)l. The learned CIT(A) has erred on law and facts for the simple reasons that the assessee is a Credit Co-operative society and, whereas Totgars Co-operative is a "Sales Society." The Hon'ble ITAT, Bangalore in various decisions has distinguished the facts and allowed the deduction on the interest income earned/received by a Co-operative Society from Co-operative banks. The Learned AO and The NFAC has not considered the decision of Hon'ble ITAT, Bangalore in the case of M/s. The Jayanagar Co-operative Society Ltd in Date of decision 23 July 2019. ……. As per the provisions of Section 80P(1) of the Income Tax Act, 1961, the income of a Co-operative Society specified in Section 80P(2) of the Act is eligible for deduction in computing total income of the assessee. ………. The jurisdictional High Court of Karnataka in the case of CIT Vs. M/s. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot reported in [2015] 56 Taxmann.com 280 (Karnataka) has held as under: "Assessee, a credit co-operative society, engaged in providing credit facilities to its members only, was entitled to claim deduction under section 80P(2)(a)(i).” In view of the above, assessee credit co-operative society is eligible to claim deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961. The interest income earned by the credit co-operative society from investments and deposits is attributable to its business activities and therefore is eligible for deduction u/s. 80P(2) of the Income Tax Act, 1961. ……………. the jurisdictional Hon'ble High Court of Karnataka in the case of M/s. Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO, Ward-5, Tumkuru reported in [2015] 55 taxmann.com 447 (Karnataka), has held as under; "10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. ………………………….. .” The Hon'ble ITAT, ‘B’ Bench, Bengaluru in the case of M/s. Shri Siddasiri Pattina Souharda Sahakari Niyamita reported in [2015] 61 taxmann.com 332 has held as under "Where assessee was in business of providing credits to its members and earned interest on deposits in bank which were out of deposits received from members, interest earned was exempt under section 80P and, accordingly, assessee was entitled to section 80P(2)(a)(i).” In view of the above, it is- submitted that the interest and dividend income earned by the assessee from Co-operative banks is also eligible for deduction u/s. 80P(2)(i) of the Income Tax Act, 1961 and therefore it is requested to delete the additions of Rs. 9,93,255/- confirmed by the learned CIT(A). ……… It is also submitted that the Hon'ble ITAT, Bangalore in appellant's own case for A.Y. 2010-11 in Date of decision 14/08/2015 has considered and allowed deduction u/s. 80P of the Act. Thus, it is respectfully submitted that the deduction claimed u/s. 80P(2)(a)(i) of the Act on the interest income earned from Co-operative banks is covered by appellants's own decision rendered by the Hon'ble ITAT, Bangalore. The Learned AO has allowed interest received from Co-op bank u/s 80P in the AY 2020-21.”

“12. It is no doubt true that the appellant did initially claim deduction under Section 80P(2). Upon the pronouncement of the order by the Apex Court, in these appeals referred to supra, the income earned on the interest is declared as "other income" falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from "other sources", the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the net income which the appellant earns after deducting cost and expenditure incurred and administrative expenses incurred by the assessee.”

Pronounced in the open court on this 22nd day of August, 2023.