INCOME TAX OFFICER, WARD 6(3), PUNE vs. MAHARASHTRA BANK EMPLOYEES COOP CREDIT SOCIETY LIMITED, PUNE

On the facts and circumstances of the case and in law, the learned CIT(A) erred in granting relief to the assessee Co-operative society without appreciating the fact that the above interest income does not satisfy the ingredients of mutuality having been earned by commercial activities carried out by the assessee with the non- member banks/Co-operative banks and hence, such interest income needs to be charged as income from other sources under section 56 of the Income Tax Act, 1961. 3. On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate the fact that the entire deposits accepted from the members was a facility to the members, instead they were put into the cooperative bank as deposits to earn interest, the income of which cannot be considered to be attributable to the business of providing credit facility to its members.

On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that interest earned by the assessee on its surplus investments with co-operative banks is eligible for deduction u/s.80P(2) (d) of the Income Tax Act, 1961 despite the fact that the provisions of Sec.80P(4) of the Act specifically provides that the provisions of Sec.80P shall not apply in relation to a cooperative bank and therefore, the benefit of deduction under the said provisions could not have been extended to interest received on deposits kept in such cooperative banks.

On the facts and circumstances of the case and in law, the learned CIT(A) erred in not giving due consideration to the decision of the Hon'ble Karnataka High Court in the case of Pr. Commissioner of Income Tax vs. Totagars Cooperative Sale Society (2017). (395 ITR 611 Kar 2017), wherein, based on the decision of the Hon'ble Apex Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO, (SC) (322 ITR 283) (2010), it was held that a co-operative society would not be eligible for deduction u/s 80P(2)(d) on the interest income earned by it on account of deposit of its surplus funds in a co- operative bank.

On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that the assessee is entitled to 100% of deduction under section 80P(2)(a)(i) in respect of whole of its income, without appreciating that not all of the income of the assessee were not earned from the business of offering credit facilities to its members.

The appellant craves leave to add to, amend, alter any of the above grounds of appeal.”

Briefly stated, the facts of the case are that the assessee is a Co- operative Society registered under the Maharashtra Co-operative Societies Act, 1960. It is engaged in the business of providing credit facilities to its members. The assessee society’s membership is restricted to the employees of the Bank of Maharashtra, which is a Nationalized Bank. The assessee filed its return of income for A.Y. 2013-14 on 28.09.2013 declaring a total income of Rs. Nil. The return was duly processed u/s 143(1) of the Income Tax Act, 1961 (the “Act”). Subsequently, the case was selected for scrutiny under CASS. Statutory notice u/s 143(2) of the Act was issued to AYs 2013-14 & 2017-18

Aggrieved, the assessee carried the matter before the Ld. CIT(A) who allowed the deduction of interest claimed by the assessee u/s 80P(2)(a)(i) of the Act observing that the identical issue has already been decided by the Juri ictional ITAT Pune in assessee’s own case for earlier years and also placing reliance on the decision(s) of Hon’ble Supreme Court in the case of PCIT vs. Annasaheb Patil Mathadi Kamgar sahkari patpedhi reported in 454 ITR 117 and 454 ITR 528. The relevant observations and findings of the Ld. CIT(A) reads as under : “9. Decision:

0. The instant appeal has been filed against order u/s. 143(3) r.w.s.264 of the Income-Tax Officer, dated 15-12-2018 passed by Income-Tax Officer, Ward-6(3) Pune for A.Y.2013-14. 9.1. The brief facts of the case are that the appellant filed return of income for A.Yr.2013-14 declaring total Nil income under AOP status claiming deduction deduction u/s.80P(2)(a)(i) of the I.T.Act. Subsequently the case was selected for scrutiny under CASS and the assessment was completed assessing the total income of Rs.2,99,19,646/- towards the interest income received on fixed deposits and interest received on SB account during the relevant assessment year. AYs 2013-14 & 2017-18

2. Subsequently, the appellant preferred an application before the Pr.CIT as per the provisions of section 264 and the take was taken up by the Pr.CIT. The Ld.Pr.CIT examined the case and directed the Assessing Officer to give adequate opportunity considering the Apex Court orders and to pass a fresh assessment order in accordance with provisions of law. However the AO, for the reasons discussed in the assessment order completed the assessment 143(3) r.w.s., 264 making addition of Rs.2,99,19,650/-.

3. During the course of appellate proceedings, notices u/s.250 have been issued on various dates. The written submissions filed by the appellant has been extracted in the preceding paras.

4. I have considered the assessment order, written submission filed by the appellant and the grounds of appeal and statement of facts. The grounds of appeal mainly relate to the only issue of addition of Rs.2.99,19,650/-being interest on fixed deposits with Bank of Maharashtra on which the appellant society claimed deducted u/s.80P(2)(a)(i) of the Act. The appellant has stated that it is registered under the Maharashtra Cooperative Societies Act, 1960 and is engaged in the business of credit facilities to its members. It is required to create a reserve fund and invest the same in accordance with the provisions of the Maharashtra Cooperative Societies Act and accordingly the society had invested part of its reserve fund in fixed deposits with Bank of Maharashtra which is the nationalized bank. The appellant society had applied for requisite permission from the