GUNJA SAMABAY KRISHI UNNAYAN SAMITY LTD,PURULIA vs. PCIT,, ASANSOL

IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCH “B”, KOLKATA BEFORE SHRI ABY T VARKEY, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.110/Kol/2021 Assessment Year: 2016-17 GUNJA SAMABAY KRISHI PCIT, Asansol UNNAYAN SAMITY LTD. Vill. Gunja, Golbera, P.S. Vs. Joypur, Dist. Purulia, Pin. 723103 PAN: AABAG 2110 M (Appellant) (Respondent)

Present for: Appellant by : Shri M. Goenka, CA Respondent by : Shri Sudipta Guha, CIT, DR Date of Hearing : 04.04.2022 Date of Pronouncement : 28.06.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the assessee is arising out of the order of ld. PCIT, Asansol vide Order No. ITBA/REV/F/REV5/202021/1031352789(1) dated 09.03.2021 passed u/s 263 of the Income-tax Act, 1961 (hereinafter referred to as the ‘Act’)

2 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 4. Brief facts of the case are that the assessee is a primary agricultural credit society registered as Co-operative Society under West Bengal State Co-operative Act. The main object of the assessee is to collect deposit from its members and to provide credit facilities to its members. The assessee filed its return of income on 15.10.2016 reporting a total income at Rs. Nil after claiming a deduction of Rs. 32,31,576/- under the provisions of section 80P of the Act. The case of the assessee was selected for limited scrutiny through CASS for examination, inter alia, “correct claim of deduction made by the assessee under Chapter VIA”. Statutory notices were issued which were complied by the assessee. In its written submission before the AO, assessee submitted on the claim of deduction u/s 80P that the assessee has correctly claimed deduction u/s 80P under chapter VIA. As per section 80P(2)(a)(i) business for providing credit to members is exempted for co- operative society is exempted under section 80P(2)(a)(iv) of the IT Act. Besides interest earned from co-operative society is exempted under section 80P(2)(d).

“ii. Issue relating to deduction under Chapter VIA:- You were asked vide notice u/s 142(1) of the I.T. Act 1961 to furnish justification of claiming deduction u/s 80P amounting to Rs. 32,31,376/- specifically mentioning the amount claimed under section 80P(2)(a)(i), 80P(P)(2)(iii), 80P(2)(a)(iv) and 80P(2)(d).

3 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 In compliance of the notice u/s 142(1) of the I.T. Act 1961 you have stated that you have claimed deduction amounting to Rs. 32,31,576/- under section 80(P)(2)(a)(i) of the I.T. Act 1961 But on examination of the materials on record it is noticed that you have deposited/invested in Bank other than co-operative Bank and earned interest income amounting to Rs. 39,44,212/- on such deposits/ investments. It is also noticed that you have credited Rs. 14,48,006/- in P & L A/C under the head " Int. received & receivable which includes interest income amounting to Rs. 39,44,212/- as detailed below:- Sl. No. Name of Types of Amount of Interest institution deposit deposit earned 1 IDBI Bank FD 5000000 588500 2 -do- -do- 6500000 765050 3 -do- -do- 5000000 438500 4 -do- -do- 5000000 438500 5 -do- -do- 3000000 189600 6 -do- -do- 5000000 452000 7 -do- MF 5000000 535081 8 -do- MF 6000000 409744 9 -do- Savings A/c 36099 10 Axis Bank -do- 90728 11 Bandhan Bank -do- 410 Total 39,44,212

On perusal of your compliance it is noticed that you have failed to furnish any explanation to justify that interest earned from deposits/investment in financial institution other than co-operative society/ bank are qualified for deduction u/s 80P(2)(i)(a) or your interest income is also eligible for deduction u/s 80 P(2)(d) or your interest income is not covered by the provision of section 80P (2) (d) of the I.T. Act 1961.

4 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 Section 80P(2)(d) of the I.T. Act 1961 provides that the whole of interest and dividend income derived by a co-operative society from its investments in any other co-operative society is deductible under section 80P(2)(d) of the I.T. Act 1961. Thus the interest income amounting to Rs. 32,31,576/- earned on deposit from IDBI Bank, Axis Bank and Bandhan Bank is not deductible under section 80P(2)(d) of the IT Act 1961. Under these circumstances you are requested to show cause why deduction u/s 80P should not be disallowed on the ground that you have earned interest income amounting to Rs: 39.44,212/- on deposits/investments made in financial limitation other than co- operative society/Bank and interest income is not attributable either to the activity mentioned in section 80P(2)(i)(a) of the I.T. Act 1961 or section 80P(2)(a)(iv) of the I.T. Act 1961. 5.1. In response to the above questionnaire, assessee made a detailed reply explaining its case. The relevant extract is reproduced hereunder for ease of reference:-

“In reply to your above referred notice the above named assessee beg to state as under- 1. That the turnover of the assessee as per Audited Accounts is 17120826/-. Synopsis from Audited statement is attached and as per Audit report the turnover is Rs. 171208.27. So there is only difference of Rs.1 on both the figures. 2) That the assessee has claimed deduction of entire income of the society under section 80P[2](a)(i) as being income for business of banking or providing credit facilities to its member. No part of the income can be treated as income from other sources and taxed as there was no income from other sources. That the assessee's contention is well supported by the decision of Income Tax Appellate Tribunal Banglore Branch SMC "B" in the case of Sri Basavaraj, CEO, Primary Agriculture Credit Co-operative Society Ltd., Kolur Post, Bellary Dist- 583102 vs Commissioner of income Tax (Appeals), Kalburgi-585101. A Copy of the decision is attached.

5 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 4 That similarly above contention of the Assessee is well supported by the decision two decision of Income Tax Appellate Tribunal Ahmedabad in case of Jalfer Moumin Vikas Co-op. Credit Society vs Department of Income Tax and also by the decision of Hon’ble High Court of Gujarat at Ahmedabad in the case Commissioner of Income Tax Gandhinagar vs Jafari Momin Vikas Co-op. Credit Society LId. Copies of all the above decision are attached. 5) That the Learned ACIT Circle 3, Asansol had added the interest received from bank other than co-operative Bank as income from other sources and did not allow deduction under section 80P(2)(i)(a) in the case of Kashipur Co-operative Credit Society Ltd. for the assessment year 2012-13 on appeal before the Learned Commissioner of Income Tax (Appeal), Asansol rejected the addition and accepted the deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961, for the interest earned from deposit from other nationalised Banks. A copy of the Appellate order is attached. 6. That assessee has earned a gross profit of Rs. 59860/- a Trading Account is attached and you can give deduction under section 80P(2)(a)(iii) and rest of the income is deductible under section 80P(2)(a)(i) of the Act.” 6. After due consideration of the submission made by the assessee and by verifying the material on record, the ld. AO observed that out of the total income of Rs. 32,31,576/-, the business income is of Rs. 26,96,495/- and the balance Rs. 5,35,081/- is on account of short term capital gain and thus he restricted the deduction u/s 80P of the Act to the amount of Rs. 26,96,495/- which relates to the business income. Relevant portion of the findings given by the ld. AO are reproduced as under:

(vii) During the year under consideration the assessee has declared his business income to the tuned Rs. 32,31,576/- which was arrived after considering the income of Rs. 5,35.081/, Therefore the business income is assessed at Rs. 26,96,495/- (Rs. 32,31,576/- - Rs. 5,35,081/-) and short termed capital gain is assessed at Rs. 5,35,081/-.

6 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 Penalty proceeding u/s 271(1)(c) of the Income Tax Act 1961 is initiated separately for furnishing inaccurate particulars of income to the tune of Rs.5,35,081/-. 7. Disallowance of deduction claimed u/s 80P of the Act. (i) During the year under consideration the assessee has claimed deduction u/s 80P of the Act amounting to Rs. 32,31,576/- on his total business income amounting to Rs. 32,31,576/- But the total business income of the assessee is comprised of Rs. 26,96,495/- and Rs.5,35,081/- on account of business income and income from short term capital gains respectively. ii) The short term capital gains of the assessee is chargeable u/s 111A of the Act as discussed in para 6 of the order. Therefore deduction under section 80P of the Act is not allowable to the assessee on its income from short term capital gain. (iii) Considering the facts and circumstances of the case, declared business income and deduction claimed u/s 80P of the Act is reduced by an amount of Rs.5,35,081/- which is the short term capital gains of the assessee chargeable to tax as per provision of section 111A of the Act.” 7. Subsequently, the ld. PCIT on examination and verification of assessment record observed that the assessee had earned an amount of Rs. 39,44,212/- as interest income on deposits with Banks namely IDBI, Axis and Bandhan Bank which has been claimed as deduction u/s 80P of the Act. Ld. PCIT arrived at a consideration for invoking the revisionary proceeding u/s 263 of the Act by observing that although the provisions of section 80P of the Act provides exemption to various co-operative societies including a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members from the whole of the amount of profits and gains of business attributable to any one or more of such activities. Ld. PCIT placed reliance on the decision of Hon’ble Supreme Court in the case of M/s. Totagars Co-operative Societies Ltd. (C.N. 7572 of 2022) wherein it was held that interest income from surplus fund invested in the deposits

7 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 with banks and Govt. Securities would come in the category of income from other sources u/s 56 of the Act which does not qualify for deduction u/s 80P of the Act. Thus, the ld. PCIT arrived at a conclusion that assessment was completed without disallowing the interest income which has not been charged to tax u/s 56 of the Act, leading the impugned assessment as erroneous in so far as prejudicial to the interest of revenue for which a show-cause notice (SCN) was issued by the ld. PCIT dated 09.02.2021.

7.1. Against this show-cause notice assessee furnished its written submission on 04.03.2021 and claimed that assessee is a primary agricultural credit society registered as Co-operative society under West Bengal State Co-operative Act having its main object of collecting deposits from its members and providing credit facilities to its members. It claimed that deduction u/s 80P(2)(a)(i) of the Act for a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is fully deductible. No part of its income can be treated as income from other sources which stands rightly considered by the ld. AO in the assessment proceeding completed u/s 143(3) of the Act. The assessee further submitted that the decision in the case of Totagars Co-operative Societies Ltd. (supra) is not applicable to it since that is a case where the society is marketing and credit society which retained the sale proceeds of agricultural products of its members and deposited the surplus fund in short term deposits with banks and Govt. Securities. It was submitted that in the assessee’s case, there is no surplus fund rather it took deposits from its members and provided credit facilities to its members. It also kept funds with various banks to earn interest and to keep liquid funds to repay its members whenever the deposits mature. The society had no surplus fund and the entire fund is used for business purposes. The assessee placed reliance on the decision of (i) Hon’ble High Court of Gujarat in

8 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 the case of CIT vs Jafari Moumin Vikas Co-operative Credit Society Ltd. in tax appeal no. 442 of 2013 dated 15.01.2014, (ii) decision of Co- ordinate Bench of ITAT, Bangalore in ITA No. 867/Bang/2017 in the case of Shri Basavraj CFO Primary Agricultural Credit Co-operative Society Ltd. and (iii) decision of Co-ordinate Bench of ITAT, Ahmedabad in ITA No. 1491/Ahd/2012 in the case of M/s. Jafri Momin Vikash Co- operative Society Ltd.

7.2. Ld. PCIT concluded by placing reliance on the decision of Hon’ble Apex Court in the case of Totagars Co-operative Societies Ltd. (supra) and set aside the impugned assessment order for fresh consideration by the AO.

9 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED AS ON 31.03.2016 LOSS RS. P. PROFIT Rs. P. Int. paid & payable 82,50,943 Gross profit b/d 38,747 Management cost 17,91,840 Int. Received & 1,44,83,006 89 Receivable Bank Commission 500 Miscellaenous 35,986 Wages 1,09,650 Service Charge 88,383 99 Provision for 2,02,584 Admission 1150 depreciation Provision for 1,11,520 Tractor 10,600 Gratuity Provision for Audit 11,000 NPA 3,52,511 Feee Provision for O.D. 3,99,167 Int. Suspence Death Subsidy 1000 (member) Synargice Software 1,59,376 Donation R.K. 2000 Smritimela Building Repairing 22,502 Provision for live 5,09,400 salary staff 150 day Net profit 34,38,902 88 Total 1,50,10,384 88 Total 1,50,10,384 88

9.1. He also referred to synopsis of various types of deposits account held by the assessee in the books of account which is reproduced as under:

SYNOPSIS OF ALL TYPES DEPOSIT A/C AS ON 31.03.2016 TYPE OF A/C PRINCIPAL INTEREST REMARKS SAVINGS A/C 8,73,49,414 30,82,634 S.H.G A/C 3,05,203 11,574 P.T.S A/C 5,72,687 13,867 NREGS A/C 2,49,747 TOTAL 8,84,77,051 31,08,075 R.D. A/C 55,28,915 13,24,962 TOTAL 55,28,915 13,24,962 F.D. A/C 1,67,58,190 24,97,102 TOTAL 1,67,58,190 24,97,102

10 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17

S.S.C A/C 2,45,77,500 1,08,32,580 TOTAL 2,45,77,500 1,08,32,580 MIDR 34,15,000 48,038 TOTAL 34,15,000 48,038

9.2. Also a synopsis of various types of loans placed in the compilation is reproduced as under:

SYNOPSIS OF ALL TYPES DEPOSIT A/C AS ON 31.03.2016 Disburse Principal INTERE 1-3 3-4 4-6 6 ST YEARS YEARS YEARS ABOVE KCC 2568367 2229764 1135339 1009996 103852 199205 895436 TOTAL 2568367 2229764 1135339 1009996 103852 199205 895436 M.T. 5366137 4355693 1251055 3117972 617240 43328 577153 LOAN D.A. 4445578 3845963 986228 LOAN S.S. 3325000 4640273 614610 4170812 469461 LOAN OLD 241321 110403 124907 110403 MT LOAN HYPO 785000 446068 745399 446068 LOAN C.C. 49800 28995 32738 28995 LOAN TOTAL 1421283 1342739 3754937 7288784 617240 43328 163208 6 5 0 ADVAN 6,19,789 CE

9.3. The ld. counsel pointed out from the compilation to the chart showing the provisioning made for non-performing assets (NPA) on various loan accounts, which is reproduced as under:

11 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 PROVISION FOR NPA 2015-16 1-3 YEARS 3-4 YEARS 4-6 6 ABOVE D/A YEARS CURRENT K.C.C. LOAN 1009996 103852 199205 895436 OWN FUND 3617972 617240 43328 1632080 LOAN TOTAL 4627968 721092 242533 2527516 D/A LOAN 38,45,963 CURRENT 36,70,812 LOAN TOTAL 75,16,775 STANDER 75,16,775 @ 0% 00 SUB-STANDER 46,27,968 @ 5% 2,31,398 DOUBT FUL-1 7,21,092 @ 10% 72,109 DOUBT FUL-2 2,42,533 @ 15% 36,380 DOUBT FUL-3 25,27,516 @ 50% 12,63,758 TOTAL 16,03,645 OTHER ASSETS NPA DEFICIT IN 9,37,027 S.B. A/C 90530 DEFICIT IN 1,26,046 ADVACNE DEFICIT IN 1,58,875 KCC LOAN DEFICIT IN A. 100 PURNA RICE MILL DEFICIT IN 100 JOYPUR L.S. MARKET DEFICIT IN 100 JHALDA L.S. MARKET DEFICIT IN 1000 PURULIA COLD STORAGE DEFICIT IN 1000 IFFCO TOTAL 12,24,248 G.T. NPA 28,27,893

12 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 9.4. A detailed reconciliation of interest income received and receivable and the interest paid and payable by the assessee is also placed on record in the compilation which gives the details in respect of interest earned on various types of loans and also the interest expenses incurred on various types of loans and deposits. The same is also reproduced as under:

Interest Received & Receivable (2015-16) Int. Received on KCC Robi Loan 905 Int. Received on CC Loan 64 Int. Received on KCC Loan 280312 Int. Received on Own Fund Loan 1048839 Int. Received on Investment 10205911.89 Total Int. Received 11536031.89 Add Receivable (2015-16) Int. Receivable on KCC Loan 1135339 Int. Receivable on Own Fund Loan 3754937 Int. Receivable on Investment 23538575 Total Interest Receivable 28428851 Total 39964882.89 Less Receivable (Last Year) Interest Receivable on loan 4491109 Interest Receivable on Investment 20990767 Total Receivable Last year 25481876 Total Interest Received & Receivable 14483006.89 Interest Paid & Payable (2015-16) Int. Paid on Loan 246069 Int. Paid on Deposit 7399103 EPF Int. Paid 163937 Total Int. Paid 7809109 Add Int. Payable (2015-16) Int. Payable on SB Deposit 3108075 Int. Payable on RD Deposit 1324962 Int. Payable on FD Deposit 2497102 Int. Payable on SSC Deposit 10832580 Int. Payable on MIDR 48038 Total Int. Payable 17810757 Total 25619866 Less Int. Payable Last Year 17368923 Total Int. Paid & Payable 8250943

13 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 9.5. He, thus, strongly submitted that on the basis of above undisputed factual details, the income of the assessee is income from profits and gains of business or profession, eligible for deduction u/s 80P(2)(a)(i) of the Act.

“This appeal has been preferred by the assessee against the order u/s.263 of the I. T. Act passed by the Ld. PCIT, Asansol on 09.03.2021. The only issue involved is claim of deduction of Rs.39,44,212/- u/s.80P(2)(a)(i).

As per the contents of internal pages 4 and 5 of the assessment order passed u/s. 143(3) on 27.12.2018 it is true that the assessing officer had raised this issue before the assessee. However, he did not draw any adverse inference purportedly being satisfied by the explanation put forth by the assessee that such income was claimed as deduction has been income for business of banking or providing credit facilities to its members. Further, they relied upon certain case laws in support of their arguments.

Thereafter, the Ld. PCIT passed order u/s.263 of the Income Tax Act holding that –

"Although the provisions of section 80P of income tax provides exemption to various cooperative societies including a cooperative society engaged in carrying on the business of banking or providing credit facilities to its members from the whole of the amount of profits and gains of business attributable to any one or more of such activities. In this regard, the Hon'ble Supreme Court in the case of M/s. Totagars Cooperative Societies Ltd. SLP (C N. 7572 of 2009) has j held that interest income from surplus fund invested in the deposits with banks; and Govt. Securities would come in the category of income from other sources u/s.56 of income tax act and such interest income does not qualify for deduction u/s.80P of the I. T. Act, 1961.

In view of the above, the amount of Rs.39,44,212/- should have been charged to income tax u/s.56 of the I. T. Act, 1961."

In this respect the judgment of the Hon'ble Supreme Court in the case of M/s. Totagars Cooperative Societies Limited, 322 ITR 283 (SC) is discussed as below.

14 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 The question before the Hon'ble Court was whether interest earned on surplus fund invested in short term deposits with Bank and Government Securities was business profit and thus eligible for deduction. The Hon'ble Apex Court held that section 80P(2)(a)(i) allows deduction in case of Cooperative Societies engaged in carrying on business of providing credit facilities to its members on the whole of the amount of the profits and gains of business attributable to such activities that the words "profits and gains of business" means "business profit" and not "income from other sources". The interest on surplus invested in short term deposits, not being attributable to business of providing credit facilities to its members is assessable as "other source income" and not as "business profit". The words "the whole of the amount of profit and gains of business" mean that the source of income is relevant and income must be operational income.

In their submission before the Ld. PCIT, the assessee stated that the aforesaid judgment is not applicable in their case and however, failed to bring in any logic to show that it is distinguishable.

Accordingly, provisions of the explanation 2(d) of section 263 which has been duly indicated by the Ld. PCIT in his order makes the order of the AO erroneous and prejudicial to the interest of Revenue.

The appeal of the assessee may accordingly be dismissed.”

“80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.

(2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in-

15 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) *********** the whole of the amount of profits and gains of business attributable to any one or more of such activities. *************************** ***************************

(3) ***********************

(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation.—For the purposes of this sub-section,— (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.”

16 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 held that exclusion clause of section 80P(4) will not apply to cases where the assessee is a primary agricultural co-operative credit society. Relevant extracts from the decision of Hon’ble High Court of Gujarat in the case of M/s. Jafri Momin Vikash Co-operative Society Ltd. (supra) is reproduced as under:

“2. Revenue has challenged the judgment of the Income Tax Appellate Tribunal (for short “the Tribunal”) raising following question for our consideration:- “Whether the Hon’ble Tribunal is correct in allowing deduction under section 80P(2)(a)(i) to assessee’s society even though same is covered under section 80P(4) r.w.s 2(24) (viia) being income from providing credit facilities carried on by a co-operative society with its member?” 3. Issue pertains to interpretation of section 80P(2) and 80P(4) of the Income Tax Act, 1964 (“the Act” for short). Respondent assessee is a Cooperative Credit Society and claims benefit of deduction under section 80P(1) of the Act by virtue of the provisions contained in section 80P(2)(a)(i) of the Act. As is well known under sub- section(1) of section 80P certain co-operative societies are granted deductions of the sum specified in sub-section(2) in computing the total income. As per section 80P(2)(a)(i), the sums referred in sub-section(1) would be in case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members the whole of the amount of profits and gains of business attributable to any one or more of such activities. Revenue, however, contends that by virtue of newly amended sub-section(4) of section 80P inserted with effect from 1.4.2007 by Finance Act, 2006, section 80P would not apply to the respondent assessee. Section 80P(4) in the present form refers as under:- “(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation-For the purposes of this subsection,-(a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949(10 of 1949); (b) “primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.” 4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co- operative agricultural and rural development bank. As per the explanation, the terms “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949.

17 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17

13.1. We further note that in the case of of Gutti Gedarara Co-operative Society Ltd. vs ITO 377 ITR 464 (Karnataka), the Hon’ble High Court considered this issue in para 7 to 12 which is reproduced as under:

“7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question.

18 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 8. In this regard, it is necessary to notice the relevant provision of law i.e, Section 80P(2)(a)(i):- “80P Deduction in respect of income of co-operative societies: 80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) *********** the whole of the amount of profits and gains of business attributable to any one or more of such activities.” 9. The word ‘attributable’ used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd., v. Commissioner of Income Tax, Gujarat-II, reported in ITR Vol. 113 (1978) 84 (at page 93) as under:- “As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of” the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from”. Had the expression “derived from” been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression “derived from”, as, for instance, in section 80J. In our view, since the expression of wider import, namely, “attributable to”, has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.” 10. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct

19 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act.

Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of Commissioner of Income Tax-III, Hyderabad v. Andhra Pradesh State Co-operative Bank Ltd., reported in (2011) 336 ITR 516/200 Taxman 220/12 taxmann.com 66.”

20 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 From the said decision, it is clear that when the amount which is deposited in the bank was not an amount due to members and it was not the liability of the society to the members then the interest earned from the deposits in the banks was held to be eligible for deduction u/s 80P(2)(a)(i) of the Act.

13.2 We also note that Assessing Officer has made an extensive enquiry by raising a separate questionnaire on the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act to which a detailed reply was furnished by the assessee, considering which the ld. AO concluded that out of total claim of Rs. 32,31,576/-, only Rs. 26,96,495/- is the business income of the assessee and the balance of Rs. 5,35,081/- is the income towards short term capital gain. He thus allowed the claim u/s 80P(2)(a)(i) to the extent of Rs. 26,96,495/-. The sole grievance of the ld. PCIT in passing the order u/s 263 relates to inadequate enquiries conducted by the ld. AO in respect of claim of the assessee u/s 80P(2)(a)(i) of the Act. Based on which the impugned assessment order was set aside by holding it erroneous in so far as it is prejudicial to the interest of the revenue. Considering the detailed enquiry made by the AO in the case, the factual matrix and the judicial precedents, we find that claim of the assessee u/s 80P(2)(a)(i) of the Act in respect of interest income is an allowable claim and the ld. AO has taken a well reasoned stand while making the assessment.

13.3 We note that Ld. PCIT on an analysis of both, the records and the order passed by the Assessing Officer, has to arrive at a consideration that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. This is exercised by calling for and examining the records relating to any proceeding under this Act available at the time of examination by the PCIT. The term ‘record’ has been explained in Explanation 1(b) to section 263 of the Act as – ‘record’ shall include

21 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner.

13.4 Record shall include all the documentary evidences which were submitted before Ld. AO and also those submitted before Ld. PCIT against the SCN issued to invoke the provisions of section 263. Ld. PCIT is required to examine all the documentary evidences including those which were before Ld. AO and submitted before him. We find that in the assessment proceedings and before the Ld. PCIT, detailed explanations along with judicial precedents and verifiable financial details were placed on record to demonstrate the nature of activities carried on by the assessee resulting into business income which is covered by the provisions of section 80P(2)(a)(i) of the Act. For the above finding of ours, we find force from the decision of Hon’ble Bombay High Court in the case Gabriel India Ltd. [1993] 203 ITR 108 (Bom) wherein it is observed as under (page 113) –

" . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction.” [Emphasis supplied by us by underline]

13.5 On a perusal of the material brought on record and the order passed by the Ld. PCIT, it is perceptible that the said authority has not kept in view the requirement of section 263 of the Act in as much as the

22 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 order does not reflect any kind of satisfaction based on correct and verifiable set of facts relating to claim of deduction u/s 80P of the Act. That having not been done, in our considered opinion, exercise of jurisdiction under section 263 of the Act is totally erroneous and cannot withstand scrutiny. In the aforesaid view of the matter, it must be held that the exercise of the power under section 263 by the Ld. PCIT was illegal and without jurisdiction.

13.6 We further observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, the assessee had furnished the relevant details and explained the issue supporting its contentions by relevant documentary evidences and judicial precedents. It is well settled law that for invoking the provisions of section 263 of the Act, both the conditions that the order must be erroneous and prejudicial to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts.

13.7 The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. [2012] 343 ITR 329 (Del), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon’ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and

23 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the AO, making the order unsustainable in law. In some cases, possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the AO had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the AO to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged “inadequate investigation”, it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is

24 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17 erroneous and is unsustainable in law. It was further observed by the Hon’ble High Court that the material, which the CIT can rely up on includes not only the records as it stands at the time when the order in question was passed by the AO but also records as it stands at the time of the examination by the CIT. Nothing prohibits CIT from collecting and relying new/additional material which evidence to show and state that the order of the AO is erroneous.

13.8 We find that Ld. PCIT in the present case has not carried out any enquiry of his own and has merely set aside the assessment to the file of the AO to pass a fresh assessment order on the issue of claim of deduction u/s 80P(2)(a)(i) of the Act. Therefore, it is contrary to the guidelines as mandated in the Hon'ble Delhi High Court decision in the case of ITO v. DG Housing Projects Ltd. (supra). Therefore, the consideration arrived at by the Ld. PCIT invoking provisions of section 263 of the Act on the issue recorded by him is not justified and cannot be sustained under the facts and circumstances of the present case.

13.9 Accordingly, in terms of our above observations and findings, we have no hesitation in quashing the impugned order passed u/s 263 and allow the appeal of the assessee. Accordingly, the appeal of the assessee is allowed.

Order pronounced in the open court on 28.06.2022.

Sd/- Sd/- (ABY T VARKEY) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Kolkata, Dated: 28.06.2022. Biswajit, Sr. P.S.

25 ITA No.110/KOL/2021 Gunja Samabay Krishi Unnayan Samity Ltd. A.Y. 2016-17

Copy to: 1. The Appellant: Gunja Samabay Krishi Unnayan Samity Ltd. 2. The Respondent: PCIT, Asansol. 3. The CIT, Concerned, Kolkata 4. The CIT (A) Concerned, Kolkata 5. The DR Concerned Bench //True Copy// [ By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata