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

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,”B” JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA. No. 13/JP/2021 fu/kZkj.k o"kZ@Assessment Years : 2015-16 cuke The Jangid Brahman Cooperative Credit The Pr. CIT, Vs. and Savings Bank Ltd., Ajmer. 1 Angira Nagar, Nasirabad Road, Ajmer. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAAAT 9156 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (C.A.) jktLo dh vksj ls@ Revenue by : Shri B.K. Gupta (Pr.CIT) a lquokbZ dh rkjh[k@ Date of Hearing : 06/10/2021 mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 09/11/2021 vkns'k@ ORDER

PER: VIKRAM SINGH YADAV, A.M.

This is an appeal filed by the assessee against the order of ld. Pr.CIT, Ajmer passed u/s 263 dated 28.02.2020 pertaining to assessment year 2015-16 wherein the assessee has taken the following grounds of appeal:-

“1. Under the facts and circumstances of the case, order passed by the ld. PCIT u/s 263 is illegal & band in law and the same be quashed. 2. The ld. PCIT has erred on facts and in law in holding that AO has not examined the issue of deduction u/s 80P(2)(a)(i) on

ITA No. 13/JP/2021 2 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT interest on FDR received from bank and accepted the same by relying on the order of CIT(A) for AY 2012-13 ignoring that once an issue has been considered and decided by CIT(A), the PCIT has no power to invoke section 263 on that issue.”

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

ITA No. 13/JP/2021 3 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT

ITA No. 13/JP/2021 4 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT ITR 283 was considered and distinguished after referring to the decision of ITAT, Ahmedabad Bench and ITAT, Pune Bench where also the said decision of Supreme Court was distinguished and appeal of the assessee was allowed by relying on the two decisions of ITAT. Thus, when the AO has made necessary verification of claim of deduction u/s 80P(2)(a)(i) and allowed the same considering the order of CIT(A) which is not challenged by the department, his order cannot be said to be erroneous so far as it is prejudicial to the interest of revenue.

ITA No. 13/JP/2021 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.

ITA No. 13/JP/2021 6 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT therefore, the CIT has no power u/s 263 to pass an order under this section in respect of any matter which has been considered and decided in the appeal. In view of above, order passed by Ld. CIT u/s 263 is illegal & bad in law and the same be quashed.

“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.

ITA No. 13/JP/2021 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 ITA No. 1491/Ahd/2012 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

ITA No. 13/JP/2021 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.

ITA No. 13/JP/2021 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.

ITA No. 13/JP/2021 10 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Pr. CIT/CIT under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.” The said explanation is in respect of an order passed by the Assessing officer which has been subject matter of any appeal and it has been stated that the powers of the ld PCIT/CIT shall extend to such matters as had not been considered and decided in such appeal and where we read the said explanation along with main body of the section, it provides that the ld PCIT/CIT where it founds such an order passed by the Assessing officer as erroneous and prejudicial to the interest of the Revenue, pass such order as he deems necessary including an order of enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. The assessment is conducted for the relevant assessment year and the order of assessment/reassessment is passed for the relevant assessment year and thus, the powers enshrined under 263 are in relation to order of assessment/reassessment passed by the Assessing officer for the relevant assessment year. Therefore, the assumption of jurisdiction by the ld PCIT/CIT u/s 263 is qua the order of assessment/reassessment passed by the Assessing officer for the relevant assessment year. In the instant case, the returned income at Nil has been accepted and the assessment order has been passed u/s 143(3) accepting the returned income and thus, the question of assessment order so passed u/s 143(3) being the subject matter of appeal before the ld CIT(A) doesn’t arise for consideration and hence, the explanation 1(c) to section 263 doesn’t come to the rescue of the assessee. There is thus nothing

ITA No. 13/JP/2021 11 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT under explanation 1(C) to section 263 that where a particular matter has been considered and decided by the ld CIT(A) for a particular assessment year, the ld PCIT/CIT cannot assume jurisdiction on the said matter for subsequent assessment year.

ITA No. 13/JP/2021 12 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT eligible for deduction u/s 80P(2)(a)(i) and on appeal, the ld CIT(A) has allowed relief to the assessee society and his findings read as under:

“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

ITA No. 13/JP/2021 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).”

ITA No. 13/JP/2021 14 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT

ITA No. 13/JP/2021 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

ITA No. 13/JP/2021 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.

ITA No. 13/JP/2021 17 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT “13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall in any of the categories mentioned under section 80P(2)(a) of the Act. In the case of Totgars Co-operative Sale Society (supra), as rightly submitted by the learned counsel for the respondent, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. This is further clear when one peruses the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. This court is, therefore, of the view that the above decision is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides

ITA No. 13/JP/2021 18 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. For the above reasons, this court respectfully does not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law.”

ITA No. 13/JP/2021 19 The Jangid Brahman Cooperative Credit and Savings Bank Ltd. vs. Pr. CIT decisions rendered by the Hon’ble High Courts, however, a view taken by the AO, being a plausible view taken by a quasi-judicial authority cannot be held as erroneous in nature unless it is unsustainable in eyes of law.

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

Order pronounced in the open Court on 09/11/2021. Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼foØe flag ;kno½ (Sandeep Gosain) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 09/11/2021. *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- The Jangid Brahman Cooperative Credit and Savings Bank Ltd., Ajmer. 2. izR;FkhZ@ The Respondent- Pr. CIT, Ajmer. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File { ITA No. 13/JP/2021} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत