THE SAHYOG CO.-OP. CREDIT SOCIETY LIMITED.,,DAHOD vs. THE ITO, WARD-1,, DAHOD

आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-

This assessee’s appeal for A.Y. 2014-15, arises from order of the CIT(A)-4, Vadodara dated 02-05-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.

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The fact in brief is that assessee has filed return of income on 9th Sep, 3. 2014 declaring total income at Rs. nil. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 28th August, 2015. The assessee is a co-operative society engaged in providing credit facilities to its members on interest and used to claim deduction u/s. 80P(2)(a)(i) of the act. During assessment, the assessing officer has noticed that assessee has also received interest income from schedule bank to the amount of Rs. 1,26,63,604/- and commission income of Rs. 2,73,215/- from MGVCL. Apart of the above, the assessee has shown interest income from its members on loan and advances to the amount of Rs. 3,01,37,554/-. However, the assessee has also claimed deduction u/s. 80P on the interest income earned from schedule bank and commission income from MGVCL. After examination of the material furnished by the assessee during the course of assessment proceedings, the assessing officer has observed that assessee had earned the aforesaid interest income totaling to Rs. 1,26,63,604/- from the nationalized bank which was not derived from its activity of providing credit facilities to its members and also the commission income of Rs. 2,73,215/- from MGVCL was also not attributable to the

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business of the assessee. The assessing officer has also referred section 80P(2)(a)(i) of the act that a co-operative society engaged in carrying the business of banking or providing credit facilities to its member, the whole of the profit and gains of business attributable to such activities would be deductible under the section. Since earning of interest income from bank is not activity attributable to the activity of providing of credit facilities to its member, therefore, the assessing officer has disallowed the deduction u/s. 80P on the aforesaid amount and treated the same as income from other sources u/s. 56 of the act. Similarly the assessing officer has treated the commission income to the amount of Rs. 2,73,215/- as income from other sources and added to the total income of the assessee.

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MGVCL is not the business income which is eligible for deduction u/s 80P of the act. The ld. counsel has contended that benefit of netting of interest should be provided to the assessee as provided by the different benches of the ITAT on identical issues therefore, we have considered the decision of the Co-ordinate Bench of the ITAT in the case of Dhan Laxmi Credit Co- operative Society vide ITA No. 2426/Ahd/2013 dated 24th Jan, 2017. In the above decision, the Co-ordinate Bench has decided on identical issue on the claim of the assessee for pro rata expenses for earning interest income. The relevant part of the decision is reproduced as under:- “10. We further observe that during the course of hearing before us, Id. AR accepted that assessee is not eligible to claim deduction u/s 80P(2)(a)(i) of the Act on the interest earned on surplus deposits/investments held with Scheduled/Nationalized bank but urged for allowing deduction on pro rata expenses incurred for earning the interest income and also for allowing statutory deduction of Rs.50,000/- u/s 80P(2)(c)(ii) of the Act. Ld. AR also submitted that a total expenses incurred for the year stood at Rs.28,60,298/- and pro rata expenses for earning interest income of Rs.8,55,854/- as against total interest income of Rs.42,39,515/- will be calculated at Rs.5,77,423/-. 11. We observe that Id. AR has referred to the decision of the Co-ordinate Bench in the case of Kherava Co-op. Credit Society Ltd. vs.lTO, Ward-4, Mehsana in ITA No.2704/Ahd/2015 for Asst. Year 2012-13 wherein similar issue of allowing pro rata expenses and allowing statutory deduction of Rs.50,000/- u/s 80P(2)©(ii) of the Act has been adjudicated by the Co-ordinate Bench by observing as under :- 10. From going through the alternate submissions made by the assessee we find that major portion of interest income is from government securities and are not in the nature of short term deposits. Therefore, the facts of the case are clearly distinguishable from the facts discussed in the case of Totagars Co-op. Sale Society Ltd. vs. ITO (supra) and that of co-ordinate bench in the case of Jafari Momin Vikas Co-op. Credit Society Ltd. (supra) as well as in the case of Dhanalaxmi Credit Co-op. Society Ltd. vs. ITO (supra). This interest income is on investments not of short term nature except bank interest which too includes interest on Fixed Deposits. In these circumstances, we are of the view that as the assessee suo moto has given a proposition of taxing the interest and commission income on investments to be taxed u/s 56 of the Act and has also shown that proportionate expenses of Rs.3,31,828/- have been incurred to earn the above income and the same has duly been accepted by the assessing authority, so we find it justified that Assessing Officer has rightly taxed the interest income of Rs.2,16,689/- as income from other sources. However, deduction u/s 80P(2)(c) ought to have been allowed to the assessee as section 80P(2)(c) reads as under:- Section 8oP(2)(c) (c) in the case of a co- operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co- operative society is a consumers' co- operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.- In this clause," consumers" co- operative society" means a society for the benefit of the consumers;]

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From going through the above provisions it is very clear that the assessee is eligible for deduction of Rs.50,000/- u/s 80P(2)(a)(i) of the Act and the same should have been allowed by the Assessing authority.. 11. Therefore, in view of our above discussion, we quash the order of Id. CIT(A) enhancing the addition and also partly allow the appeal of assessee and accordingly the addition made by Assessing Officer shall be reduced to Rs.1,68,305/- [Rs.2,16,689/- minus Rs.50,000/- deduction u/s 80P(2)(c)]. 11. Respectfully following the judgment of Hon. Jurisdictional High Court and examining the facts of the case as also in the light of decision of the Co-ordinate Bench discussed in the above paragraphs, we are of following view :- (1) Assessee is not eligible for deduction u/s 80P(2)(a)(i) of the Act on the interest income earned from surplus deposits held with Nationalized/Scheduled banks. (2) Assessee will be eligible to statutory deduction of Rs.50,000/-u/s 80P(2)©(ii) of the Act. (3) Assessee will also be eligible to claim pro rata expenses for earning interest income of Rs.8,55,854/- assessee's claim of pro rata expenses of Rs.5,77,423/- against the interest income of Rs.8,55,854/- after due verification by the learned Assessing Officer. We, therefore, direct the Assessing Officer to verify assessee's claim of pro rata expenses by examining the record to be shown for verification by the assessee. Needless to mention proper opportunity of being heard is to be given to the assessee. We order accordingly. The appeal of the assessee is partly allowed for statistical purposes.”

In view of the above mentioned facts and decision of the Co-ordinate Bench of ITAT, we direct the assessing officer to verify assessee’s claim on pro rata expenses after examination of record to be produced by the assessee for computing the deduction u/s. 80P in respect of interest and commission earned from deposit held with nationalized banks and MGVCL. Therefore, the appeal of the assessee is partly allowed for statistical purposes.

Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 07/03/2019 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:-

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