SHRI LAXMI CO. OP. CREDIT SOCIETY LTD. vs THE INCOME TAX OFFICER, WARD-3(1)(2),, BARODA

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: Shri Pramod Kumar]

By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A)’s order dated 22nd August, 2016, for the assessment year 2013-14, on the follow grounds:-

“1. The Learned CIT(A) has erred in disallowing deduction u/s 80P and made addition amounting to Rs.15,50,040/-

Assessee is in the business of providing credit facilities to its members and is covered under section 80P and has rightly claimed deduction under section 80P(2)(a)(i) of the I.T. Act, 1961.

The assessee pray that deduction under section 80P(2)(a)(i) of the Act is eligible, hence addition of Rs.15,50,040/- made by ld. AO is unwarranted and bad in law and therefore be deleted.”

Learned representatives fairly agree that the issue, to the extent of netting of interest, is covered in favour of the assessee by a Division Bench decision of this Tribunal in the case of Shri Friends Co-operative Credit Society Ltd Vs. ITO (ITA No.2752/Ahd/2016; order dated 21.12.2017) wherein it was, inter alia, observed as follows:-

SMC-ITA No. 3359 /Ahd/2016 Shri Laxmi Co.op Credit Soc. Ltd Vs. ITO Assessment Year: 2013-14 Page 2 of 4 “7. We have heard both the sides and perused the material on record carefully. We observed that Hon'ble High Court of Gujarat in the case of State Bank of India (SBI) vs. Commissioner of Income tax (2016) 72 Taxmann.com 64 has held that interest derived by the Co-Operative society by depositing surplus fund with the bank not being attributable to business carried on by the society cannot be deducted u/s 80P. As per the Hon'ble High Court of Gujarat interest earned from investment made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d).In view of decision of Hon'ble High Court of Gujarat as supra we considered that the AO has correctly made disallowance of claim of deduction of Rs. 10,64,672/- u/s 80P of the IT Act by treating the same as income from other sources on the ground that this amount of interest income as earned on deposits with Bank of Baroda and 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 Coordinate 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)(c)(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

SMC-ITA No. 3359 /Ahd/2016 Shri Laxmi Co.op Credit Soc. Ltd Vs. ITO Assessment Year: 2013-14 Page 3 of 4 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 thebenefit of the consumers;] 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 earned from deposit held

SMC-ITA No. 3359 /Ahd/2016 Shri Laxmi Co.op Credit Soc. Ltd Vs. ITO Assessment Year: 2013-14 Page 4 of 4 with Bank of Baroda and MGVCL. Therefore, the appeal of the assessee is partly allowed for statistical purposes.”

The views so expressed by the division bench bind me.

In view of the above position, I deem it fit and proper to remit the matter to the file of the Assessing Officer for giving relief by way of netting of interest. Ordered, accordingly.

In the result, the appeal is allowed for statistical purposes. Pronounced in the open court today on the 23rd day of July, 2018. Sd/-

Pramod Kumar (Accountant Member)

Ahmedabad, the 23rd day of July, 2018 **bt Copies to: (1) The appellant (2) The respondent (3) Commissioner (4) CIT(A) (5) Departmental Representative (6) Guard File By order

SHRI LAXMI CO. OP. CREDIT SOCIETY LTD. vs. THE INCOME TAX OFFICER, WARD-3(1)(2),, BARODA