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Income Tax Appellate Tribunal, D BENCH: CHENNAI
Before: HONBLE SHRI MANU KUMAR GIRIAND
ORDER \nPER AMITABH SHUKLA, A.M :\nThis appeal is filed by the assessee against the order bearing DIN\n& Order No.ITBA / NFAC / S / 250 / 2025-26 / 1076433581(1) dated\n26.05.2025 of the Learned Commissioner of Income Tax [herein after\n“CIT(A), National Faceless Appeal Center[NFAC], Delhi, for the\n assessment year 2020-21. The reference to the word “Act” in this order\nhereinafter shall mean the Income Tax Act, 1961 as amended from time\nto time.\n2.0\nThe Ld.Counsel for the assessee submitted that the only issue\nraised through its grounds of appeal is regarding disallowance of\nRs.42,78,718/- claimed u/s 80P(2)(a)(i) by the assessee, by the Ld.AO\nand its confirmation by the Ld.CIT(A). The Ld.Counsel submitted that\nthe assessee is a Primary Agricultural Cooperative Society(PACS) whose\nmain object is to provide financial assistance to its members against\nreceipt of interest income. The surplus income available with the\nassessee was invested with Central Cooperative Bank(CDCC),\nCoimbatore. The Ld.AO held the view that the interest income earned\nfrom CDCC was not part of assessee's regular business activity and\nhence not eligible for claim of deduction u/s 80P(2)(a)(i). The Ld.AO\nconcluded that any interest income earned out of surplus funds is in the\nnature of income from other sources liable for taxation u/s 56 of the Act.\nFurther, the Ld.AO rejected the judicial precedents relied upon by the\nassessee and placed reliance upon Apex Court ruling in the case of\nTotgars Cooperative Sales Society Limited. The Ld.Counsel argued\nthat the Ld.CIT(A) concurred with the findings of the Ld.AO qua\napplication of ratio laid down in Totgars Cooperative Sales Society\nLimited supra and confirmed the addition.\n3.0\nIt is the case of the assessee that its case is fully covered by the\ndecision of Hon'ble Madras High Court in the case of Thorapadi Urban\nCooperative Society Limited, Veerakeralam PACC as well as that of a\nCoordinate bench of this tribunal delivered in the case of DAE Employees\nCooperative Thrift and Credit Society Limited vide / Chny\n/ 2023. It was vehemently argued that the Coordinate bench of this\ntribunal after considering Apex Court decision in the case of Totgars\nCooperative Sales Society Limited, and of Hon'ble Madras High Court in\nthe case of Thorapadi Urban Cooperative Society Limited, Veerakeralam\nPACC had concluded that Credit Cooperative Societies are entitled to\nclaim u/s 80P of the Act in respect of interest income earned from\ndeposits kept in other cooperative banks. The Ld.Counsel thus argued\nthat its case is fully covered with the decision of the Coordinate bench of\nthis tribunal in the case of DAE Employees Cooperative Thrift and Credit\nSociety Limited supra.\n4.0\nPer contra, the Ld.DR placed reliance upon the order of lower\nauthorities.\n5.0\nWe have heard the rival submissions in the light of material\navailable on records. We have noted that the Coordinate bench of this\ntribunal in the case of DAE Employees Cooperative Thrift and Credit\nSociety Limited supra have concluded that an assessee which is a PACC\nengaged in the activity of providing financial assistance to its members, is\nentitled to claim deduction u/s 80P(2) in respect of income derived from\nits business activity including interest income earned from fixed deposits\nwith other cooperative banks / societies. We have noted that the Ld.AO\non page 3 of his order in para 4.3 given a finding that the assessee is\nPACC society engaged in the business of financial assistance to its\nmembers. It is also an undisputed fact on records that the interest\nincome was earned by the assessee on account of surplus funds\ninvested in CDCC, Coimbatore.\nWe find force in the argument of the\nassessee that the judicial precedents in the case of Totgars Cooperative\nSales Society Limited relied upon by the Ld.AO, is distinguished in as\nmuch as in the said case the principal business activity of the assessee\nwas trading in agriculture's produce and not providing financial assistance\nto its members as in this case.\n6.0\nThe decision in the case of DAE Employees Cooperative Thrift\nand Credit Society is as under:-\n\".....
5. The brief facts of the case are that, the assessee is a\ncooperative society engaged in the business of providing credit facility\nto its members. The assessee has not filed its return of income for the\n assessment years 2012-13, 2014-15 & 2017-18 u/s.139 of the\nIncome-tax Act, 1961 (hereinafter referred to as “the Act”). Therefore,\nthe assessment has been re-opened u/s.147 of the Act and notice u/s.\n148 of the Act, dated 13.03.2019 was issued and served on the\nassessee. In response to 148 notice, the assessee has filed its return\nof income for the assessment years 2012-13, 2014-15 & 2017-18 on\n26.03.2019 and declared Nil total income, after claiming deduction u/s.\n80P(2)(a)(i) of the Act. The assessment has been completed u/s.\n143(3) r.w.s.147 of the Act on 09.12.2019 where, the Assessing\nOfficer has disallowed deduction claimed u/s.80P(2)(a)(i) of the Act,\non the ground that the assessee did not satisfied the conditions of\nfiling return of income on or before due date prescribed u/s.139(1) or\nu/s.139(4) of the Act. The Assessing Officer had also made additions\ntowards interest earned on fixed deposits with other cooperative banks\non the ground that the assessee is not entitled for deduction toward\ninterest income earned from deposits with other cooperative banks.\nHowever, since the deduction claimed towards total income has been\ndisallowed, no separate addition has been made towards disallowance\nof interest income.
6. The assessee challenged the assessment order\nbefore the CIT(A) and argued that the issue is covered in favour of the\nassessee by the decision of the ITAT, Chennai Benches in assessee's\nown case for assessment year 2013-14. The CIT(A), after considering\nrelevant submissions of the assessee and also by following the\ndecision of ITAT Chennai Benches in assessee's own case, directed\nthe Assessing Officer to delete additions made towards disallowance\nof deduction claimed u/s.80P(2)(a)(i) of the Act.
7. The Id. Senior AR,\nAR V Sreenivasan, submits that the Id. CIT(A) failed to appreciate the\nfact that the assessee society has not earned any interest income from\nother cooperative society, but has earned interest from cooperative\nbank, where it has been parked some of its funds and hence, interest\nearned from surplus fund is not eligible for deduction u/s.80P(2)(d) of\nthe Act. The Id. DR, further relied on the decision of Hon'ble Supreme\nCourt in the case of CIT vs Sun Engineering Works Pvt Ltd [1992] 198\nITR 297, submits that in reassessment proceedings, the assessee\ncannot claim any new benefits or fresh claims, because the reopening\nof assessment is in the benefits of the revenue. Therefore, he\nsubmitted that the CIT(A) erred in allowing relief to the assessee and\ntheir order should be reversed.
The Ld. Counsel for the assessee,\non the other hand submits that the assessee's case is fully covered in\nfavour of the assessee by the decision of ITAT, Chennai Benches in\nassessee's own case in for assessment year\n2013-14, where the Tribunal has considered an identical issue and\nheld that the assessee is entitled for deduction u/s.80P of the Act, in\nrespect of interest income earned from fixed deposits with other\ncooperative banks.\n9. We have heard both the parties, perused materials available on\nrecord and gone through orders of the authorities below. We find that\nan identical issue has been considered by the Tribunal in appellant's\nown case for assessment year 2013-14 in ITA No 3047/Chny/2019\ndated 10.11.2020, where under identical set of facts, the Tribunal held\nthat the assessee is entitled for deduction u/s.80P of the Act, towards\nincome derived from its business activities including interest income\nearned from fixed deposits with other cooperative banks. The relevant\nfindings of the tribunal are as under: “8. We have heard both the\nparties, perused the materials available on record and gone through\nthe orders of authorities below along with various case laws cited by\nboth the parties. There is no dispute with regard to the fact that the\nassessee is a credit co-operative society registered under the Tamil\nNadu Co-operative Societies Act, 1983. It is also not in dispute that\nthe assessee is engaged in the business of providing credit facilities to\nits members. The AO has disallowed deduction claimed\nu/s.80P(2)(a)(i) of the Act primarily on two grounds. The first objection\nof the AO is with regard to claim of deduction in the light of provisions\nof Section 80A(5) of the Act which restricts the deduction unless such\ndeduction is claimed in the return of income. We have gone through\nthe provisions of Section 80P read with Section 80A(5) of the Act and\nfound that nowhere in Section 80P or in Section 80A(5) of the Act it is\nmentioned that the assessee is required to file its return of income\nwithin the prescribed time provided u/s.139(1) or 139(4) of the Act.\nBut, what is required to be seen is whether the assessee has made a\nclaim in the return of income filed for the relevant year or not, even\nthough such return is not filed within due date. In this case, the\nassessee although not filed its return of income for the impugned\n assessment year u/s.139 of the Act but such return of income has\nbeen filed in response to the notice issued u/s.148 of the Act and in\nthe said return of income the assessee has made a claim for deduction\nu/s.80P(2)(a)(i) of the Act. Therefore, we are of the considered view\nthere is no merit in the arguments taken by the Id.DR that the\nassessee is not entitled for deduction u/s.80P unless such deduction is\nclaimed by filing return of income within the prescribed time allowed\nu/s.139(1) or 139(4) of the Act. This view is fortified by the decision of\nthe Hon'ble Kerala High Court in the case of Chirakkal Service\nCooperative Bank Ltd., vs. CIT (2016) 384 ITR 490 (Ker), where the\nHon'ble Kerala High Court held that “a return filed by the assessee\nbeyond the period stipulated u/s.139(1) or 139(4) or 142(1) or 148 of\nthe Act can also be accepted and acted upon provided further\nproceedings in relation to such assessments are pending in the\nstatutory hierarchy of adjudication in terms of the provisions of the IT\nAct. In all such situations, it cannot be treated that a return filed at any\nstage of such proceedings could be treated as non est in law and\ninvalid for the purpose of deciding exemption under Section 80P of the\nAct."
Coming back to the issue of interest income earned from fixed\ndeposits and claimed deduction u/s.80P(2)(d) of the Act. The AO has\ndenied deduction claimed u/s.80P(2)(d) of the Act in respect of interest\nincome earned from a co-operative bank on the ground that as per the\nsaid provisions, interest earned from any other co-operative society is\nonly eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO has\ntaken support from the decision of the Hon'ble Supreme Court in the\ncase of M/s. Totagars Co-operative Sales Society Ltd., supra. We\nhave gone through the findings recorded by the AO in the light of the\ndecision of the Hon'ble Supreme Court in the said case and find that\nthe fact of the case before the Hon'ble Supreme Court is entirely\ndifferent from the facts of the present case. In the case before the\nHon'ble Supreme Court, the assessee was a co-operative sales\nsociety which is engaged in the business of trading in agricultural\nproduce for its members and during the course of its business it has\nparked surplus funds in other co-operative banks / nationalized banks\nand earned interest. In those facts, the Hon'ble Supreme Court came\nto the conclusion that the assessee is not entitled for deduction\ntowards interest income u/s.80P(2)(d) of the Act, because such\ninterest is not earned from its business activity. In this case, the\nassessee is primarily engaged in the business of providing credit\nfacilities to its members and in the course of its business it has parked\nfunds collected from its members in other co-operative banks /\nnationalized banks as per the statutory requirements of the co-\noperative societies Act. The assessee has treated interest earned\nfrom other co-operative banks as part of its business activity. Once the\nassessee has earned interest income as part of its business activity\nand such interest income is earned out of the funds belonging to its\nmembers, then the assessee is entitled for deduction u/s.80P(2)(d) of\nthe Act in respect of such interest income. Therefore, we are of the\nconsidered view that the case laws relied upon by the Id.AO in the\ncase of Totogars Co-operative Sales Society Ltd., is not applicable to\nthe present facts. We further noted that an identical issue was\nconsidered by the Hon'ble Madras High Court in the case of CIT vs.\nVeerakeralam Primary Agricultural Co-operative Credit Society (2016)\n388 ITR 492 (Mad), where the Hon'ble High Court after referring to the\ndecision of the Hon'ble Supreme Court in the case of Totagars Co-\noperative Sales Society Ltd., held that the benefit of deduction u/s.80P\nof the Act is excluded for co-operative banks but credit co-operative\nsocieties are entitled to claim deduction u/s.80P of the Act in respect of\ninterest income earned from deposits kept in other co-operative banks.\n10. In this view of the matter and considering facts and circumstances\nof the case, we are of the considered view that the Id.CIT(A) was right\nin allowing the benefit of deduction claimed u/s.80P of the Act in\nrespect of income derived from the activity including interest income\nearned from fixed deposits. We do not find any error or infirmity in the\norder of the CIT(A). Hence, we are inclined to uphold the order of the\nCIT(A) and dismiss the appeal filed by the Revenue.” 10. In this view\nof the matter and consistent with view taken by the coordinate bench\nin appellant's own case, we are of the considered view that the\nassessee is entitled for deduction u/s.80P(2)(a)(i) of the Act, in\nrespect of income derived from its business activity including interest\nincome earned from fixed deposits with other cooperative\nbanks/societies. The Id. CIT(A), after considering relevant facts has\nrightly directed the Assessing Officer to delete additions made towards\ndisallowance of deduction claimed u/s.80P(2)(a)(i) of the Act and thus,\nwe are inclined to uphold the findings of the Id. CIT(A) and dismiss\nappeals filed by the revenue for assessment years 2012-13, 2014-15\n& 2017-18.
The assessee has filed cross objections in support of\norder of the Id. CIT(A). Since, the appeals filed by the revenue has\nbeen dismissed, the cross objections filed by the assessee in support\nof findings of the Id. CIT(A) becomes infructuous and thus, cross\nobjections filed by the assessee for assessment years 2012-13, 2014-\n15 & 2017-18 are dismissed.