SHREE BASAVESHWAR CREDIT CO-OP SOCIETY LIMITED,HUNGUND vs. INCOME-TAX OFFICER, WARD-1, BAGALKOT

Assessment Year : 2013-14 M/s. Shri Basaveswar Credit Co-op Income Tax Officer, Society Ltd., Ward –1, Raichur Road, Vs. Bagalkot. Hungund– 587 118. PAN : AACAS5117 L APPELLANT RESPONDENT Assessee by : Shri.Ravishankar S. V, Advocate Revenue by : Shri. Ganesh R. Ghale, Standing Counsel Date of hearing : 26.04.2023 Date of Pronouncement : 18.05.2023 O R D E R

Per Laxmi Prasad Sahu, Accountant Member :

3. The learned CIT(A) was not justified in directing the assessing a) officer to disallow the claim of deduction of interest earned from Page 2 of 9 associate members, of Rs. 1,48,606/-, which is contrary to the provisions of section 8oP of the Act, on the facts and circumstances of the case. The learned CIT(A) was not justified in holding that the business b) was not carried on, "on the principle of mutuality", thus the interest earned from other sources was not eligible, which is not the issue on hand, when the appellant has merely made a claim of deduction under section 8oP of the Act, on the facts and circumstances of the case. The learned CIT(A) was not justified in holding that the c) interest income since taxable under the head of other sources, would not be attributable to the business of the appellant and thus not eligible for deduction under section 8o(P)(2)(a) of the act, on the facts and circumstances of the case. Other sources: 4. The authorities below failed to appreciate that the interest a) income of Rs. 2,35,527/- was attributable to the business of the appellant and was to be considered as a business receipt, on the facts and circumstances of the case. Without prejudice, the assessing officer ought to have b) reduced the proportionate interest incurred to earn the interest income and the nett income alone could have been taxed under the head of other sources, on the facts and circumstances of the case. 40(a)(ia) 5. The learned CIT(A) was not justified in holding that the a) appellant has not contested the disallowances of Rs. 6,68,149/-, when the entire additions of Rs. 23,77,260/- have been contested in the appeal. b) The authorities below failed to appreciate that the commission paid to pigmy collectors of Rs. 5,68,149/- was to be treated as salary as per the circular of the DT and no disallowance ought to have been made under section 4o(a)(ia) of the act, on the facts and circumstances of the case. The authorities below filed to appreciate that the audit fees c) of Rs. 1,00,000/-was paid in the following year and the recipient has already offered the same to tax and thus no Page 3 of 9 disallowance ought to have been made in the hands of the appellant, on the facts and circumstances of the case. The appellant denies itself to pay interest under section 234A, 234B 6. and section 234C in view of the fact there is no additional liability to additional tax as determined by the learned Assessing Officer.

Page 4 of 9 of the Act, the assessee is not eligible to claim deduction under section 80P(2)(a)(i) of the Act since the assessee society is running banking business. The AO also examined the primary objectives and aims of the society and relevant provisions of the Banking Regulation Act (Part V) and also relied on various judgments and he denied the claim of deduction under section 80P(2)(a)(i) of the Act by observing as under : “27. As discussed above in detail and after careful analysis of Section 80P(4) read with section 2(24)(viia) of the Income-tax Act, 1961 and Part V of the Banking Regulation Act and the facts of the case, the assessee co-operative credit society is held to be a 'Primary Cooperative Bank' Hence, the assessee is not eligible for deduction under sec.80P in view of the provisions of section 80P(4).”

Page 5 of 9 that the assessee has received interest from loan given to associate members of Rs.7,71,905/- out of the total interest received from loan of Rs.1,13,51,557/- and the assessee is eligible to claim deduction under section 80P(2)(a)(i) of the Act on interest received only from members earned on the principal on mutuality wherein all members are having equal rights to vote and shares in the profit. He also observed that the assessee had earned interest income of Rs.2,35,527/- from FD in banks and interest income of Rs.52,048/- from its savings accounts with banks on which deduction has been claimed under section 80P(2)(a) of the Act and the assessee was also asked to furnish the cash flow statements showing the source of funds available as on the date of investment of such profit and gains but the assessee was unable to do so. The learned CIT(A) also examined in the light of section 80P(2)(d) of the Act and after relying on various judgments, he held that the interest income received by the assessee is not eligible for claiming of deduction and it is to be treated as income from other sources. Accordingly, he partly allowed the appeal of the assessee. The ld. CIT (A) also confirm the addition made u/s 40(a)(ia) of the Act.

Page 7 of 9 the amendment made in section 80P(4) of the Act r.w.s. 2(24)(viia) the assessee is not eligible for claim of deduction as per section 80P(2) of the Act.

7. After hearing both the parties and perusal of the orders of the authorities below, I have noted as pointed out by the ld. AR of the assessee that the CIT(A) has taken figures wrongly and in what manner he has collected the information is not clear. I found substance on the submission of the learned AR. & gone through the financial statements. I am unable to understand how the CIT(A) has considered the income from fixed deposits and bank interest income, the figures are not tallied from the financial statements as well as from the submission of the assesee. During the course of hearing, the learned AR stated that the assessee has not so much of the members as observed by the CIT(A) at para No.7. On going through the Paper Books of the learned AR of the assessee containing page Nos.1 to 77, the assessee has placed the submissions made before the CIT(A) which is placed at Paper Book Page Nos.4 to 12, the assessee has not contested for deduction under section 80P(2)(d) of theAct. He has contested only on section 80P(2)(a)(i) of the Act and other issues raised by the AO. Therefore, considering the totality of the facts, this issue is remitted back to the CIT(A) for fresh consideration. The assessee is given liberty to give necessary documents for substantiating its case and the CIT(A) is also directed to give reasonable opportunity of being heard.

Page 8 of 9 filed by the assessee which is placed at page Nos.72 to 77 issued by the Revenue department in which it has been clearly stated that the pigmy commission will be treated as a salary and subject to the TDS under section 192 of the Act. Accordingly, this issue is also sent back to the CIT(A) for the verification whether the payment made by the assessee towards pigmy commission is liable for TDS or not in above terms of the circular/letter/notification. Further, in respect of non-deduction of TDS on audit fee, in this respect, the learned AR has submitted that the concerned recipient has offered it as income. In this regard, he will submit the necessary certificates as required. Therefore, considering the submission of the assessee, this issue is also remitted back to the CIT(A) for the purpose of the verification and decide the issue as per law. Since I am sending all the three issues to the CIT(A), therefore the CIT(A) is directed to give reasonable opportunity of being heard to the assessee and assessee is also directed not to seek unnecessary adjournments for early disposal of the case.