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Facts
The assessee, a multi-state cooperative society, filed a nil return after claiming Section 80P deduction. The AO made additions for interest income from banks and a difference in depreciation. The Ld. CIT(A) deleted both additions, leading the Revenue to appeal.
Held
The Tribunal upheld the CIT(A)'s decision to delete the interest income addition, relying on Supreme Court precedents (Mavilayi Service Co-operative Bank Ltd.) that cooperative societies' interest from other co-operative societies is eligible for deduction. However, the Tribunal remanded the depreciation addition issue back to the CIT(A) for fresh adjudication due to the cryptic nature of the CIT(A)'s order.
Key Issues
1. Whether interest income earned by a cooperative society from banks is eligible for Section 80P deduction. 2. Whether the addition of excess depreciation claimed under Section 69C read with Section 115BBE was correctly deleted by the CIT(A).
Sections Cited
80P, 143(3), 56, 80P(2)(d), 69C, 115BBE, 271AAC(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the Revenue is directed against the order dated 09.08.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2018-19.
Facts of the case in brief, are that the assessee is a multi-state Co-operative Society registered under the Maharashtra State Co-operative Societies Act, 1960 and also under the (Central) Multi State Cooperative Societies Act, 2002. It fled its return of income for the relevant assessment year on 23rd September 2018 declaring total income at Rs. Nil after claiming deduction u/s 80P of the Act of its entire profit i.e. Rs.1,60,45,544/-. The case of the assessee was selected for complete scrutiny under E-assessment Scheme, 2019 on the following issues : the following issues:- i. Depreciation Claim ii. Investments/Advances/Loans
iii. Expenses Incurred for Earning Exempt Income iv. Sales Turnover/Receipts v. Deduction from Total Income under Chapter VI-A vi. Verification of Transactions 2.1 The AO completed the assessment u/s 143(3) of the Act determining the total income at Rs.1,90,85,659/- wherein he made addition of Rs.59,01,465/- being interest from Nationalized Banks and Co-operative Banks. Similarly, he also made addition of Rs.1,31,84,194/- being the difference between the depreciation claimed in the return at Rs.1,71,60,564/- and the depreciation as per revised audit report 3CA/3CD at Rs.39,76,370/-.
In appeal, the Ld. CIT(A) deleted both the additions. So far as the deletion of Rs.59,01,465/- is concerned, he deleted the same by observing as under : “Ground No. 1: The ground of appeal
has been raised on account of Ld. AO holding that the interest income of Rs.59,01,465/- earned by the appellant is chargeable u/s 56 of the Act as 'Income From Other Sources'. The Ld. AO has relied on the ruling of Hon'ble Supreme Court in the case of Totgars, Co-operative Sales Society Ltd. Vs. ITO (2010) 322 ITR 283(SC) and related decisions of judicial fora. From the submissions filed by the appellant and the observations of the Ld. AO in his assessment order, it is inferred that the aforesaid ruling of the Hon'ble Supreme Court can be differentiated by facts. The Totgars case (Supra) was in respect of addition u/s 56 of the Act since the co-operative society had invested the surplus funds in short term deposits with banks and in Govt. Security for purely commercial purposes. However, in the case of the appellant, the same were investments which are allowable as per provisions of section 80P(2)(d) of the Act. In this matter, the reliance is against placed on the ruling of Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. [2021] 431 ITR
1. (SC) wherein it has been averred that:- “……………….35. Eighthly, sub-clause (d) also points in the same direction, in that interest or dividend income derived by a co-operative society from investments with other co-operative societies, are also entitled to deduct the whole of such income, the object of the provision being furtherance of the co-operative movement as a whole”……………. In view of the above, the grounds of appeal no 1 is Allowed.”
3.1 So far as the deletion of Rs.1,31,84,194/- is concerned, he deleted the same by observing as under : “Ground No. 2:- The ground of appeal has been raised as the Ld. AO has increased the income of the appellant by Rs.1,31,84,194/- u/s 69C r.w.s. 115BBE. The merits of the matter have been discussed and the same has been allowed as per ground no.
1. The grounds of appeal stands allowed.
Aggrieved with such order of the Ld. CIT(A) / NFAC, the Revenue is in appeal before the Tribunal by raising the following grounds of appeal :
1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 59,01,465/- made by the AO on account of interest income received by the assessee without appreciating the fact that the assessee society has received interest on Fixed Deposits from Scheduled Commercial banks viz. Bank of Baroda, Indian Overseas Bank and other financial institutions in violation of the binding judgment of the Hon'ble Supreme Court in the case of Totgar's Co-operative Sales Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC)?
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) is justified in deleting the addition of Rs. 1,31,84,194/- made by the AO u/s 69C r.w.s. 115BBE of the Act on account of excess depreciation claimed in the ITR without discussing the merits of the issue?
3. The appellant craves leave to add, amend, alter, vary and/or withdraw any or all of the above grounds of appeal in the course of appellate proceedings.”
5. So far as the first issue is concerned i.e. deletion of Rs.59,01,465/- earned by the assessee as interest from various banks u/s 80P, we find that identical issue had come up before the Tribunal in the case of ITO Vs. Mico Employees Credit Co-op. Society Ltd. We find the Tribunal vide for AY 2017-18, order dated 18.09.2024 after considering various decisions including the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC) and in the case of Mavilayi Service Co-operative Bank Ltd. (2021) 431 ITR 1 (SC) has dismissed the grounds raised by the Revenue by observing as under :
“9. We have heard the Ld. Representatives of the parties and perused the material on record. We find that the impugned issue is no more res-integra by virtue of catena of decisions passed by the Co-ordinate Benches of this Tribunal as also the decision of Hon’ble Apex Court and High Court (supra) cited by the Ld. CIT(A)/NFAC. We find that there is no dispute on facts regarding the assessee having derived the impugned interest income from deposit of surplus funds in Nationalized Bank(s). Nothing has been brought on record by the Revenue to rebut the findings of Ld. CIT(A)/NFAC.”
Respectfully, following the decision of the Tribunal cited (supra) and in absence of any contrary material brought on record by the Ld. DR, the first issue raised by the Revenue in grounds of appeal is dismissed.
7. So far as, the second issue is concerned the same relates to addition of Rs.1,31,84,194/- made by the AO u/s 69C r.w.s. 115BBE of the Act, we find the AO while making the addition made the following observations : “During the course of assessment proceedings, the assessee vide notice dated 30.12.2020 was asked to furnish the details and justification of depreciation claimed and substantial difference between Opening WDV of Fixed Assets as per ITR of current year and closing WDV of Fixed Asset as per ITR of preceding year. On the perusal of the ITR filed by the society for the AY 2017-18 and 2018-19 for the relevant assessment year, it has been noticed that the opening WDV of the assets have been declared at Rs. 10.59.38.263/-on 01.04.2018 and the closing WDV of the FY 2016-17 relevant to the assessment year 2017-18 was at Rs. 2.28.67,890/-. In response to this the assessee society furnished the reply and stated that "In the course of filling the ITR for A.Y 2019-20, the assessee discovered a mistake in the computation of depreciation for the A.Y 2018-19. The opening WDV as at 01.04.2017 did not match with the closing WDV as at 31.03.2017 as per the ITR for A.Y 2017-18 Besides there was an error in the amount of additions to fixed assets. Hence the assessee's tax auditor revised the form 3CA/3CD for the AY 2018-19 on 03.03.2020 showing the correct opening balances and additions to fixed assets. The assessee society has further stated that in March 2020, the assessee could not revise its return for the A/Y 2017-18 and has also requested for treating its business income by the amount of difference between the depreciation claimed in the return i.e Rs. 1,71,60,564/- and the depreciation as per revised assessee's revised 3CA/3CD i.e Rs. 39,76,370/- Such difference works out to Rs. 1,31,84,194/-. The assessee further submit in its reply to increase the deduction claimed u/s 80(P)(2)(a)(i) by Rs. 1,31,84,194/-, The reply of the assessee society has been carefully perused and the claim of the assessee cannot be accepted and excess depreciation debited to income & expenditure account is treated to be unexplained within the meaning of section 69C of the Income Tax Act. Though, the assessee society has requested for treating the difference workout in the Fixed Asset which amounts to Rs. 1,31,84,194/- and prays for to increase the deduction, but the same is not acceptable as declaration has been made only when query is raised in this respect and not suo-moto by the assessee. Hence, the excess depreciation claimed of Rs. 1,31,84,194/- treated as unexplained expenditure u/s 69C read with section 115BBE. Further penalty proceedings for u/s 271AAC(1) is also being initiated separately. A show cause notice was issued on 05.04.2021 to reply on or before 07.04.2021, but on perusal of the record no reply received. Therefore, this office left with no other option to pass an order as proposed in the show cause notice. Thus, income of the assessee is recomputed as under:- Income declared before deduction Rs.1,60,45,544/ Less interest earned for separate consideration Rs.59.01,465/- Net Business Income Rs.1,01,44,079/- Deduction allowed u/s 80P Rs. 1,01,44,079/- Total Income NIL Addition as per PARA 2 Rs. 59,01,465/- Addition as para 3 Rs. 1,31,84,194/- Total Assessed income Rs. 1,90,85,659/-
8. However, a perusal of the Ld. CIT(A)’s order shows that the same is very cryptic and does not address the issue raised by the AO. The Ld. AR also could not justify the order of Ld. CIT(A) which is a very cryptic one and does not address the issue based on which the AO has made the addition. Under these circumstances and considering the totality of the facts of the case and in the interest of justice, we deem it proper to restore the issue to the file of the Ld. CIT(A)/NFAC with a direction to adjudicate the issue afresh by passing a speaking order in accordance with law after giving due opportunity of being heard to the assessee. We hold and direct accordingly. Thus, the second issue raised by the Revenue is accordingly allowed for statistical purposes.
In the result, the appeal filed by the Revenue is allowed for statistical purposes. Order pronounced in the open Court on 01st April, 2025.