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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
O R D E R Per Bench
The present appeal is filed by the assessee against the order dated 27/03/2023 passed by the NFAC, Delhi for the assessment year 2015-16 to 2018-19. 2. It is submitted by both the sides that common issues arose out of the impugned order in all the appeals under consideration. The relief claimed by the assessee is in support of the deduction denied u/s 80P(2)(d) of the Act - 379/Bang/2023 Page 2 of 12 on the interest and dividend received from cooperative bank/cooperative society from the investments made in other cooperative banks The ld.AR submitted that the issues in all the appeals are common, hence he requested to consider the facts relating to asst. year 2015-16. For the sake of conveniences grounds raised by the assessee for asst. year 2015-16 are reproduced as under:- “The Grounds mentioned hereinafter are without prejudice to one another.
1. That the learned Commissioner of Income Tax (Appeals) [`CIT(A)'] erred on facts and circumstances of the case and in law so far as his Order passed under section 250 of the Income Tax Act, 1961 ('the Act') is prejudicial to the interests of the Appellant.
2. That the learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the Assessment Order passed by the learned Assessing Officer ('AO') who has held that the interest received by the Appellant from Co-operative Banks is not eligible for deduction under section 80P(2)(d) of the Act.
3. The learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the Assessment Order passed by the learned Assessing Officer ('AO') who has viewed that the judgement of the Honourable High Court of Karnataka for an earlier Assessment Year in the Appellant's own case which had allowed deduction under section 80P(2)(d) of the Act for interest received by the Appellant from Co-operative Banks is not applicable due to a contradictory judgement of the Honourable High Court for another Assessment Year in the Appellant's own case under identical facts and circumstances.
4. That the learned CIT(A) has erred on facts and in circumstances of the case and in law by considering that the interest received by the Appellant from Co-operative Bank is not eligible for deduction even under section 8oP(2)(a)(i) of the Act.
5. That the learned CIT(A) has erred on facts and in circumstances of the case and in law by considering that the - 379/Bang/2023 Page 3 of 12 interest received by the Appellant from Co-operative Bank is not eligible for deduction even under section 80P(2)(a)(iii) of the Act.
6. The learned CIT(A) has erred on facts and in circumstances of the case and in law by confirming the Assessment Order passed by the learned Assessing Officer ('AO') who has held that the interest received by the Appellant from Co-operative Banks for deposit of amount of Cash Reserve and Liquid Assets which are required to be statutorily maintained (in accordance with the Karnataka Co-operative Societies' Act, 1959 read with the Order of the Registrar of Co-operative Societies) is not eligible for deduction under section 8oP(2)(a)(i) of the Act.
7. The learned CIT(A) has grossly erred on facts and in circumstances of the case and in law by confirming the Assessment Order passed by the learned Assessing Officer ('AO') who has held that the Appellant is not entitled for deduction claimed by it under section 57 of the Act for the cost / expenses incurred by it against interest received from Co- operative Banks and by ignoring the unambiguous judgement and direction of the Honourable High Court of Karnataka reported at 231 Taxman 794 for the earlier Assessment Years in the Appellant's own case under identical facts and circumstances.
8. The learned CIT(A) has erred in confirming the levy of interest under sections .234B and 234C of the Act though the same should not have been levied in the present situation. 2.1 The facts in brief for the assessment year 2015-16 are as under : The assessee is a cooperative society and is carrying on the activities of marketing agricultural produce grown by the members and providing credit facilities to the members by advancing loans to them. Hence, there were reasons to believe that income had escaped assessment in case of the assessee. Notice u/s 148 was issued on 23.03.2021 and was duly served. Assessee sent a communication dated 15/02/2022 saying that the return - 379/Bang/2023 Page 4 of 12 filed on 12/02/2016 vide Ack. No. 951898291120216 for the Assessment Year 2015-16 may be treated as return filed in response to notice under section 148 of the Act. Notice u/s 143(2) of the Act was issued to the assessee on 18/02/2022 along with reasons for reopening. The assessee did not raise any objection against the reopening of assessment proceedings. Statutory notice u/s. 142(1) was issued on 28/06/2021, 09.02.2022 and 15.02.2022 along with questionnaire and duly served on the assessee. In response to the above notices, assessee has submitted the details called for through electronically.
The assessee is a marketing cooperative society registered under Karnataka Cooperative Society Act 1959. The main business activity is (a) processing & marketing of agricultural produce grown by its members (b) providing credit facilities to its members (c) the purchase & selling of agricultural implements, seeds or other articles intended for agriculture to its members (d) running a kiranna shop(super market) (e) running a rice mill (f) hiring, of vans (g) running a boarding place (h) trading in arecanut grown by its members (i) trading in arecanut in the open market from non-members (j) manufacturing and selling of scented sweet supari. The reason for scrutiny selection was verified from the submissions of the assessee made during the assessment - 379/Bang/2023 Page 5 of 12 proceedings vis-a-vis the return of income filed by the assessee and the following issue have emerged as discussed below 4. Disallowance of deduction under chapter VIA: On perusal of ITR, it is seen that the assessee has claimed total deduction of Rs. 84778465/- u/s 80P of the Act from gross total income earned during the year. The deduction for the asst. year 2015-16 are as follows — a) 80P(2)(a) — Rs. 30221435 b) 80P(2)(d) — Rs. 54051877 c) 80P(2)(e) — Rs. 505163 4.1 The assessee has also submitted details in response to notice u/s 133(6) of the Act before reopening of assessment proceedings. Subsequently, the assesse was also asked to furnish relevant details during the reassessment proceedings vide notice u/s 142(1) of the Act. 4.2 It is seen from submissions that the assessee has claimed deduction of Rs. 54051877/- u/s 80P(2)(d) of the Act on receipt of interest and dividend from cooperative societies. The assessee has submitted details for the claim of deduction u/s 80P of the Act. The following has be submitted by the assessee — - 379/Bang/2023 Page 6 of 12 4.3 The claim of assessee u/s 80P(2)(d) of the Act at Rs.54051877/- is disallowed by the AO.
Aggrieved by the order of the AO, the assessee filed appeal before the ld.CIT(A).
The ld.CIT(A) passed impugned order by granting partial relief to the assesee by holding that assessee is not eligible for deduction in support of interest received from the coordinate banks u/s 80P(2)(a)(i) and 80P(2)(d) of the Act.
Aggrieved by the order of the ld.CIT(A), the assessee is in appeal before this Tribunal for all the assessment year under consideration. - 379/Bang/2023 Page 7 of 12
Ground No.2-3 are regarding disallowance of claim u/s 80P(2)(d) 8.1 The ld.AR submitted that the cooperative societies /cooperative banks with which assessee had made investments, are registered with the Karnataka Cooperative Societies Act and, therefore, the interest/dividend earned by the assessee from such investments, made with such cooperative banks are eligible for deduction u/s 80P(2)(d) of the Act. He relied on the decision of Hon’ble Karnataka High Court in assessee’s own case reported in (2017) 392 ITR 74, wherein the Hon’ble Court observed and held as under:- “1. In this regard, the Appellant relies on the decision of the High Court of Karnataka in Appellant's own case reported in [2017]392 ITR 74. In this decision, the High Court had allowed deduction under section 80P(2)(d) of the Act and held that: Quote: The word "Co-operative Society" are the words of a large extent, and denotes a genus, whereas the word "Co-operative Bank" is a word of limited extent, uuhich merely demarcates and identifies a particular species of the genus Co-operative Societies. Co-Operative Society can be of different nature and can be involved in different activities; the Cooperative Society Bank is merely a variety of the Co-operative Societies. Thus, the Co-operative Bank which is a species of the genus would necessarily be covered by the word "Co-operative Society ". Unquote 8.2 On the contrary, the ld.DR relied on the orders of the lower authorities and decision of Hon’ble Supreme Court - 379/Bang/2023 Page 8 of 12 in assessee’s own case reported in (2010) 188 Taxman 282.
We have perused the submissions advanced by both the sides in the light of the records placed. When we look at the decision of Hon’ble Supreme Court in case of Totgars Co-operative Sale Society's case reported in (2010) 188 Taxman 282, relied by the Ld.DR. Hon’ble Supreme Court was dealing with a case where the assessee therein, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. On these facts Hon’ble Supreme Court held the assessing officer was righ t in taxing the interest income indicated above under Section 56 of the Act. Hon’ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case. - 379/Bang/2023 Page 9 of 12 9.1 In the instant case, the amount which was invested in banks to earn interest was not any amount due to its members. Further the claim of the assessee in u/s 80P(2)(d) 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 its members, as there were no takers. Therefore they had deposited the money in a co-operative bank again which interest/dividend was earned.. 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. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220/12 taxmann.com 66. 9.2 Therefore, reliance was placed by the Ld.DR on the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO reported in (2010) 188 Taxman 282 is distinguishable on facts. The adjudication by the Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO(supra) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under - 379/Bang/2023 Page 10 of 12 Sec.80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. 9.3 At this juncture, we refer to subsequent decision of Hon'ble Karnataka High Court in the case of PCIT Vs. Totagars cooperative Sale Society reported in (2017) 395 ITR 611, wherein Hon’ble Court held that, a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble Karnataka High Court in the case of PCIT & Anr. vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, held, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9.3 At this juncture, we respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT & Anr. Vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, hold that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. - 379/Bang/2023 Page 11 of 12 9.4 It is directed that the interest earned by the assessee from commercial banks may be considered under the head ‘income from other sources’ and relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. Accordingly ground No.2 and 3 raised by the asseseee stands partly allowed for statistical purposes.
Ground No.4-6 raised by the assessee is without prejudice to the ground and alternative claim, as we have considered the claim of the assessee by allowing the deduction u/s 80P(2)(d) of the Act. This issue need not be adjudicated and is left open to the asseseee for arguing in appropriate circumstances.
In has been noted that the issues contested by the assessee in asst. year 2016-17, 2017-18 & 2018-19 are same and on identical facts. Accordingly, the view taken for asst. year 2015-16 shall apply mutatis mutandis to the asst. years 2016-17, 2017-18 and 2018-19.