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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED&
PER Ms. MADHUMITA ROY - JM:
The instant appeal has been filed before us by the assessee against the order dated 07.12.2016 passed by the Commissioner of Income Tax (Appeals)-2, Vadodara under section 143(3) of the Income Tax Act, 1961 arising out of the order dated 28.08.2015 for the Assessment Year 2013-14 with the following grounds : “1. The assessment order passed u/s. 143(3) of I.T. Act by the assessing officer and partly confirmed by the first appellate authority is bad in law and deserves to be quashed. 2. The assessing officer as well as first appellate authority has erred in law and on facts in making disallowances of deduction u/s. 80P(2)(a)(i) amounting to Rs. 4,39,254/-.The same deserves to be deleted. 3. The appellant craves to reserve his right to add, alter, amend, or delete any ground of appeal during the course of hearing.”
- 2 - ITA No.750/Ahd/2017 Uma Co-operative Credit Society vs. ITO Asst.Year – 2013-14 2. The moot point involved in this matter as to whether the order passed by the authorities below in making disallowance of deduction u/s 80P(2)(a)(i) amounting to Rs.4,39,254/- is erroneous or not.
The brief fact leading to the case is this that the assessee, a co-operative society filed its return of income on 18.09.2013 declaring total income at Rs.1,980/- after claiming deduction u/s 80P(2) of the Act to the tune of Rs.17,92,433/-. Upon scrutiny notice u/s 143(2) of the Act was issued on 03.09.2014 followed by a notice u/s 142(1) of the Act along with questionnaire dated 11.06.2015 asking for furnishing all details from the assessee. On verification of the P&L account it appears that the assessee earned interest on FDs of Rs.4,39,254/- on investment made with the scheduled/nationalized Bank in addition to advancing loans to its members and the same falls under the head “Income from other sources”. The show cause notice, therefore, dated 07.08.2015 was issued to the assessee as to why such interest income to the tune of Rs.4,39,254/- could not be disallowed and added to the total income of the assessee treating the same as ‘income from other sources’.
The explanation made by the assessee towards the activities of the co-operative societies providing credit facilities to its members or that allowing of deduction u/s 80P(2)(a)(i) made by the CIT(A) on 17.01.2013 in the earlier year was though considered by the ld Assessing officer, but such plea was ultimately rejected by him in view of the judgment passed in the matter of Mafatlal Industries Employees Co-operative Credit Society Ltd. passed by the jurisdictional High Court in favour of the revenue while deciding the issue relating to deduction u/s 80P(2)(a)(i) of the Act. The said amount of Rs.4,39,254/- was thus disallowed and added to the total income of the assessee which was confirmed by the first appellate authority in the appeal preferred by the assessee by its order dated 07.12.2016 relying on the decision of the Co-ordinate Bench in the matter of M/s. Jafari Momin Vikas Co-operative Credit Society Ltd.-vs-ITO and the judgments passed by the
- 3 - ITA No.750/Ahd/2017 Uma Co-operative Credit Society vs. ITO Asst.Year – 2013-14 Hon’ble jurisdictional High Court in the matter of State Bank of India (SBI)-vs-CIT (2016) 72 taxmann.com 64 (Guj.) wherein it was held that in the case where the society is engaged in providing credit facility to its members, interest derived from credit provided to its members is only deductible u/s 80P(2)(a)(i) and not the interest derived from surplus funds deposited with the nationalized bank. Hence, the instant appeal before us.
At the time of hearing of the instant appeal none appeared on behalf of the assessee in spite of notice being served upon it. On the contrary, the Learned Representative of the Revenue relied upon the judgment passed by the Hon’ble jurisdictional High Court in support of his argument for dismissal of the matter and also the contention made by authorities below in its order impugned before us. Since the issue is covered by several judgments passed by the Co-ordinate Bench which were ultimately affirmed by the Hon’ble jurisdictional High Court, we have decided to dispose off the matter on merit. The judgment referred by the assessment officer as well as the first appellate authority is pat on the point. We have gone through the same, the relevant portion of the judgment passed by the Hon’ble jurisdictional High Court in the matter of SBI-vs-CIT(supra) is as follows: "16. In case where the co-operative society is a bank, one of its objects would be to carry on the general business of bonking, like other banks, money would be its stock-in-trade or circulating capital and its normal business is to deal in money and credit. The business of such a bank does not consist only of receiving deposits and lending money to its members or such other societies as ore mentioned in the objects. When such a society lends out its monies so that they may be readily available to meet the demands of its depositors it and when they arise, it is a legitimate mode of carrying on its banking business. In case of a credit society like the present one, the business of the society is limited to providing credit to its members and the income that is earned from providing such credit facilities to its members is deductible under section 80P(2)(a)(1) of the Act. However, Investing Its surplus funds with the State Bank of India is no part of the business of the appellant of providing credit to Its members and hence, It cannot be said that the Interest Income derived from depositing surplus funds with the state Bank of India is profits and gains of business attributable to
- 4 - ITA No.750/Ahd/2017 Uma Co-operative Credit Society vs. ITO Asst.Year – 2013-14 the activities of the appellant society. The character of the Interest Is different from the Income attributable to the business of the society of providing credit facilities to its members. The interest income derived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of the appellant. In the present rasp there is no obligation upon the appellant to invest its surplus funds with the Stare-Bank of India. Investing surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its members. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a)(i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a cooperative bank and avail of deduction under section 80P(2)(d) of the Act."
Further that the relevant portion of the judgment passed by the Co-ordinate Bench in ITA No.280/Ahd/2017 for A.Y. 2013-14 in the matter of Balasinor Vikas Co-Op Credit Society Ltd.-vs-ITO while dealing with the identical issue in favour of the revenue is as follows: “4. At the outset, the learned counsel for the assessee fairly conceded that issue in dispute is squarely covered against the assessee by the decision of the Hon'ble jurisdictional High Court in the case of State Bank of India Vs. CIT, 389 ITR 578 wherein Hon'ble Court held that interest earned from the investment made in any bank is not deductible under section 80P(2)(a)(i) of the Act. In this view of the matter, we dismiss the appeal of the assessee. However, we direct the AO to exclude the amount of net interest income from the deduction claimed u/s 80P(2)(a)(i) of the Act. Thus the AO will allow the expenses incurred by the assessee in the earning of such interest income not eligible for deduction under section 80P(2)(a)(i) of the Act.
In other words, the ld.AO has to determine the net interest income earned by the assessee on such investment with the bank, and only after that net interest income has to be excluded from the admissibility of deduction under section 80P(2) of the
- 5 - ITA No.750/Ahd/2017 Uma Co-operative Credit Society vs. ITO Asst.Year – 2013-14 Act. Hence, grounds of appeal filed by the assessee are allowed for statistical purposes.”
The issue is, therefore, squarely covered by the judgments as mentioned herein above and respectfully following the same we do not find any infirmity in the order passed by the authorities below in disallowing the claim of the assessee. In that view of the matter, we dismiss the appeal preferred by the assessee. However, for the ends of justice we further direct the AO to exclude the amount of net interest income from the deduction claimed u/s 80P(2)(a)(i) of the Act. Thus the AO will allow the expenses incurred by the assessee in the earning of such interest income not eligible for deduction under section 80P(2)(a)(i) of the Act. The AO is, therefore, directed to determine the net interest income of the assessee on such investment made with the said nationlized bank which is to be excluded from the admissibility of deduction under section 80P(2) of the Act.
In the result, the assessee’s appeal is thus allowed for statistical purposes. This Order pronounced in Open Court on 15/11/2018
Sd/- Sd/- ( WASEEM AHMED ) ( Ms. MADHUMITA ROY ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 15/11/2018 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Vadodara. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad