THE JANGID BRAJMAN CO-OPERATIVE CREDIT AND SAVING SOCIETY LTD. ,AJMER vs. PR.CIT, AJMER

(a) Sales turnover mismatch (b) Deduction under Chapter VI-A (c) Low income and high loans/ advances/ investments

7. It was submitted that in the present case, the Ld. PCIT has referred to the decision of Supreme Court in case of Totgars Cooperative Sale Society Ltd. Vs. ITO 322 ITR 283 but this decision is not applicable on the assessee and has been distinguished by the Ld. CIT(A) in assessee’s own case for AY 2012-13 and also by ITAT, Ahmedabad Bench and ITAT, Pune Bench. Therefore, for this reason the observation of Ld. CIT that the order passed by AO is erroneous is not as per settled principle of law stated above. 5 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT 8. It was submitted that the Ld. PCIT has wrongly assumed that interest income earned on funds are required to be taxed u/s 56 and is not eligible for deduction u/s 80P(2)(a)(i). There is no basis for the same. Deduction u/s 80P is allowable from gross total income and not only from business income. Therefore, only because Ld. PCIT has perceived some wrong notion, order of AO cannot be said to be erroneous so far as it is prejudicial to the interest of revenue. In this connection reliance is placed on the decision of Mumbai Tribunal in case of Sir Dorabji Tata Trust Vs. DCIT(E) 188 ITD 38. It was submitted that the principles laid down in this decision when applied to the facts of assessee’s case is evident that in the assessee’s case AO has made all the necessary enquiry and verification as can be expected of a of a prudent, judicious and responsible AO in normal course of his assessment work. The Ld. PCIT has not specified as to what type of enquiry ought to have been made by AO which would have resulted into income or disallowance or any other adverse action. Hence, the order passed by AO can’t be branded as erroneous and prejudicial to the interest of revenue.

“5. In its reply, the assessee has submitted that the deduction of Rs. 12,98,599/- u/s 80P(2)(a)(i) of I.T. Act, 1961 has been correctly claimed and allowed by the AO. The assessee had filed copy of order of the CIT(A) in respect of A.Y. 2012-13 before the AO wherein the CIT(A) had accepted the interest received from bank on FDR as business income and allowed the deduction. It has further been submitted that the interest income derived from fixed deposit with bank also as attributable to the business of allowing credit facilities to the members of the assessee society and allowable deduction-u/s 80P(2)(a)(i) of the I.T. Act, 1961.

6. The reply of the assessee has been considered but not found to be acceptable. The assessee has submitted that during the assessment proceedings, the AO had examined the issue of interest on FDR received from Bank and allowed the same. However, the AO without making appropriate inquiries or verification and considering the CIT(A)'s order wherein the issue was decided in favour of the assessee, passed the assessment order without disallowing the deduction claimed u/s 80P(2)(a)(i) of the I.T. Act, 1961. Therefore, the AO failed to carry out necessary enquiries which should have been made during the assessment 7 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT proceedings. Thus, the order passed by the AO is erroneous in so far as it is prejudicial to the interest of the Revenue.

6.1 It has further been submitted that the assessee society is carrying on the business of banking as it accepts deposits from members and provides credit facility to members of the society and to meet the eventuality, the assessee is required to maintain some liquid funds hence it has deposited the amount in FDR. The assessee also relied upon the decision of the ITAT, Ahmadabad Bench in the case of ITO Vs. Jafari Momin Vikas Co-operative Credit Society Ltd. (in and CO No. 138/Ahd/2012, dated 31.10.2012) and decision of ITAT, Pune Bench in the case of ITO Vs. Niphad Nagari Sahakari Patsanstha Ltd. (in ITA No. 1336/PN/2011, dated 31.07.2013).

6.2 However, in both the decisions of the ITAT (supra), the ITAT have not correctly appreciated the decision of the Hon'ble Supreme Court taken in the case of Totgars Co- operative Sales Society Ltd. Vs ITO — 322 ITR 233 (SC). In this case, on the issue of interest income taxed under the head "Income from other sources", the Hon'ble Supreme Court held as under:-

"10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short- term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not 8 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer……..”

6.3 Further, the decision of the Hon'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. was distinguished by stating that in the cases of Jafari Momin Vikas Cooperative Credit Society Ltd. and Niphad Nagari Sahakari Patsanstha Ltd., the assessee was bound to keep money ready for repayment of deposit to its members on maturity and, therefore, the same was kept invested in bank. For such reasons, it was argued that the assessee had no surplus funds and the ratio of the Hon’ble Supreme Court (supra) has no application to the assessee’s case.

6.4 However, the above reasoning is not acceptable. In both type of cases, the amount whether it was the surplus funds not required immediately for business purpose or repayment of deposit to its members on maturity, were kept as FDR by the assessees. Thus, there is only difference of nomenclature and ultimately FDRs were generated by the assessees.

9 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT

It was accordingly submitted that there is no infirmity in the findings of the ld PCIT and the appeal of the assessee may thus be dismissed.

“4.3 I have gone through the assessment order, statement of facts, grounds of appeal, written submission, remand report and rejoinder carefully. It is seen that the assessee is Cooperative Credit Society. The object of the assessee society is to accept deposits from its members and provide loans to needy members of the society. The assessee has shown gross total income of Rs. 7,48,193/- which has been claimed as deductible u/s 80P(2)(a)(i)/ 80P(2)(d). The AO allowed the deduction of Rs. 97,724/- u/s 80P(2)(d) in respect of the interest earned by the appellant on the deposits made with Cooperative Banks. The remaining amount of Rs.6,50,469/- (Rs. 7,48,193 — Rs. 97,724) was not allowed as deduction u/s 80P(2)(a)(i), as according to the AO, deduction u/s 80P(2)(a)(i) is only available solely if the society is engaged in providing credit facility only whereas the assessee society was not only providing credit facility to its members but also engaged in business activity of providing the premises of the society to its members for various ceremonies like marriage etc. While disallowing the claim of the appellant made u/s 80P(2)(a)(i), the AO has relied upon the decision of Supreme Court in the case of Totgar's Cooperative Sale Society Ltd. vs. ITO(S.C) 322 ITR 283. I have gone through the decision of Supreme Court relied upon by the appellant carefully. In that case, the assessee society was providing credit facilities to its members and also marketing the agricultural 13 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT produce of its members whereas, appellant is engaged only in providing credit facilities to its members. The decision given by the Hon'ble Supreme Court was in respect of the interest earned on surplus funds invested in bank and government securities. In the case under consideration, it is seen from the income and expenditure account of the assessee that out of the total gross income of Rs. 49,19,225/-, the gross income from the activity of providing the premises of the society to its members for various ceremonies was only Rs.5,92,409/- (Rs. 4,62,800 + Rs. 17,609 + 46,000 + 66,000). The appellant has filed the computation of income from this activity which shows that there was loss of Rs. (-) 2,01,779/- from this activity under the provisions of I.T. Act. Thus, there was no surplus from the activity of providing the premises of society for various ceremonies. Hence, I am of the view that the facts of the case relied upon by the AO are different from the facts of the case under consideration. The appellant has relied upon the decision of ITAT, Ahmedabad in the case of ITO vs. M/s Jafari Momin Vikas Co-op. Credit Society Ltd. and decision of ITAT Pune in the case of ITO vs. Niphad Nagari Sahakari Pat Sanstha Limited. In both the decisions, the ITATs after discussing the decision of Hon'ble Supreme Court in the case of Totgar's Cooperative Sale Society Ltd. vs. ITO(S.C) 322 ITR 283 have held that interest earned on the deposits made with bank by the Co-operative Society engaged in providing credit facilities to its members is also deductible u/s 80P(2)(a)(i). Accordingly, relying on the above two decision of ITAT, the AO is directed to allow deduction of Rs.6,50,469/- claimed by the appellant u/s 80P(2)(a)(i).” 14 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT

16. The ld CIT(A) held that there is no surplus from the activity of providing the premises of the society for various ceremonies and has thus distinguished the decision of the Hon’ble Supreme Court in case of Totjars Co-operative Sales Society Ltd vs ITO (supra) on facts and further, has relied upon two Coordinate Bench decisions which have considered the aforesaid decision of the Hon’ble Supreme Court in support of his findings that interest earned on deposits with banks is eligible for deduction u/s 80P(2)(a)(i) of the Act.

17. In the year under consideration, it is noted that the facts under consideration are pari-materia with that of A.Y 2012-13 where there is no surplus from the activity of providing premises on hire and assessee has reported a loss of Rs 105,899/- under the “mandap keeper’s head and which has been reduced from income in respect of which deduction has been claimed u/s 80P(2)(a)(i) of the Act and in effect, no deduction has been claimed in respect of such activity of providing premises on hire. It is an admitted and undisputed fact that the AO has considered the aforesaid decision of the ld CIT(A) for A.Y 2012-13 while allowing the claim of deduction u/s 80P(2)(a)(i) of the Act as apparent from the findings of the ld PCIT in the impugned order. The ld PCIT has however held that in two Coordinate Bench decisions which have been relied upon by the ld CIT(A) in A.Y 2012-13, the Coordinate Benches have not correctly appreciated the decision of the Hon’ble Supreme Court in case of Totjars Co-operative Sales Society Ltd vs ITO (supra) and reasoning so adopted by the Coordinate Benches are not acceptable to him. 15 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT 18. To our mind, it is therefore a case where the Coordinate Benches have taken a view in the matter taking into consideration the decision of the Hon’ble Supreme Court and which has been followed in case of the assessee by the ld CIT(A) in assessee’s own case for A.Y 2012-13 and for the year under consideration, the AO follows the same however, the ld PCIT on identical set of facts reaches a different conclusion on appreciating the same set of decisions/authorities on the subject. Similarly, we find that in case of Chitradurga City Multipurpose Co-operative society (supra), the Coordinate Bangalore Benches following the decision of Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Co-operative Ltd has held as under:-

“7. I have perused the orders and heard the rival contentions. There is no doubt that assessment order is very cryptic. Nothing whatsoever is mentioned with regard to the claim of the assessee for deduction U/s 80P(2)(a)(i) or 80P(2)(d) in the order. Assessee has also not been able to place on record any correspondence that might have been there between it and the AO during the course of assessment proceedings. Lack of enquiry into the aspect of the claim made by assessee for deduction U/s 80P(2)(a)(i) is therefore glaring on record. However, what we find is that assessee had claimed deduction u/s 80P(2)(a)(i) of the Act for interest on bank deposit and also for rental from building. Vis-à-vis interest from bank deposits, claim of the assessee is that such deposits were out of funds kept as statutory reserves. Hon’ble jurisdictional High Court in the case of Tumkuar Merchants Souharda Credit Co-operative Ltd. vs. ITO [2015] 230 Taxman 309/55 taxmann.com 447 (Kar) had held that interest earned on short-term deposits out of funds which were not due to its members would not be hit by 16 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT the restrictions placed by Hon’ble Apex Court in Totgars Co- operative Sale Society Ltd. (Supra). Relevant para 10 of the judgment dt. 20.09.2014 is reproduced hereunder:

“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. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME-TAX Ill, HYDERABAD vs. ANDHRA PRADESH STATE COOPERATIVE BANK LTD., reported in (2011) 200 TAXMAN 220/12 In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order.

In the result, the appeal of the assessee is allowed.