SHIVKRIPA SAHAKARI PATPEDHI LTD,MUMBAI vs. PCIT-29, MUMBAI

The brief facts of the case are, assessee filed its return of income for assessment year 2014-15 on 28.09.2014 declaring total income of Rs. Nil. The return was processed u/s 143(1) of the Income Tax Act, 1961 (in short ‘Act’). Subsequently, the case was selected for scrutiny under CASS selection. Accordingly, statutory notices u/s 143(2) and 142(1) were issued and served Shivkrupa Shakari 2 on the assessee. In response, the AR of the assessee attended and filed the relevant information as called for. Subsequently, the assessment u/s 143(3) of the Act was completed on 19.12.2016, in the return of income assessee had claimed deduction u/s 80P of the Act to the extent of Rs.15,02,44,211/- and the Assessing Officer allowed the above deduction claimed by the assessee u/s 80P and the total income was assessed at Rs.20,76,874/- 3. The Ld. Pr. CIT-29, Mumbai on verification of the order passed by the Assessing Officer u/s 143(3) of the Act, observed that in the original assessment, the Assessing Officer notices from income and expenditure account that assessee had made investment in the various banks including Co- operative Banks and earned interest income of Rs.24,75,98,759/- on bank deposits and other income of Rs.13,78,137/-. Ld. Pr. CIT observed that the assessee has not offered the same for taxation and claimed exemption u/s 80P(2)(a), 80P(2)(d) and 80P(2)(e) of the Act, which was allowed by the Assessing Officer and no addition was made towards interest income not offered for taxation. Ld. Pr. CIT observed that as per provision of section 80P(2)(c) in the case of Co-operative Society engaged in the activities other than those specific in clauses (a), (b) in addition to or any other activities so specified so much of its profit and gain attributable to such activities, there shall be allowed deduction of sum does not exceed Rs.50,000/-. He observed that the assessee should have disclosed the nature and source of interest income on bank deposits and other income before the Assessing Officer during assessment proceedings. Since, the assessee failed to do so and the Assessing Officer failed to make any inquiry relating to the issue of interest income of bank deposits and other income. On Shivkrupa Shakari 3 ITA No. 1672/M/2019 failure on the part of Assessing Officer to enquire and examine the taxability of interest income of bank deposits and other income during this period, the assessment order dated 19.12.2016 appear to be prima facie erroneous and prejudicial to the interest of revenue. Accordingly, he issued notice u/s 263 of the Act to the assessee with the above facts on the record and assessee was asked why the assessment order passed u/s 143(3) should not be revised u/s 263 of the Act. In response to the above show cause notice, assessee filed the following submissions before Ld. Pr. CIT, for the sake of clarity is reproduced below : “Explanation : 1- Regarding taxability of interest income received from co-operative banks. Shivkripa Sahakan Patpedhi Ltd is a registered co-operative society, registered by the Registrar of co-operative societies, Mumbai. The main object of the society is providing credit facilities to its members and collect deposits from them. The gross total income includes any income referred to in subsection (2), in computing the total income of the assessee. As per section 80P(2)(a)(i)(d) in respect of any income by way of interest or derived by co-operative society from its investment with other co-operative society, whole of such income is exempt from income fax Act, 1961. In prison case the Shivkrupa Sahakari Paipedhi Ltd has claim the total income of Rs.15,02,44,210/- as EXEMPT u/s 80P(2)(a)(i) & (d) as exempt income. We have received interest income of Rs.24,75,93,759.47 from investment in cooperative bank, nationalized bank and public sector bank and commission income. On 15/12/2017 we have paid advance tax of Rs.1,79,000/-on interest income received from nationalized banks, private sector bank and on commission income. CBDT has issued notification in aspect of interest income of co-operative society is income from the business and not from the other sources hence it is allowable under section 80P of the Income Tax Act, 1961.

After considering the submissions of the assessee, Ld. Pr. CIT rejected the submissions of the assessee and observed that the assessee had received interest income on bank deposits and other income during the relevant assessment year and this income was not offered by the assessee for taxation. The interest earned by way of investment in Co-operative Banks and other banks and other income was not eligible for deduction u/s 80P(2)(a) of the Act. He further observed that the income derived by way of interest from fixed deposits and saving accounts with Co-operative Banks and other banks falls under the head ‘income from other sources’ and it cannot fall within the expression profit and gains of business, therefore, is not admissible for deduction u/s 80P(2)(a), (b) (d) whereas if its income from other sources deduction is admissible u/s 80P(2)(c) of the Act to the extent of Rs.50,000/- only. Since, the assessee has claimed the above said income u/s 80P of the Act and Assessing Officer also failed to make necessary inquiry and examination in respect of this transaction. He observed that omission to do so has resulted in Shivkrupa Shakari 5 ITA No. 1672/M/2019 under assessment of income. Accordingly, he set aside the order passed by the Assessing Officer u/s 143(3) dated 19.12.2016 is required to be revised and set aside under provisions of section 263 of the Act as the same is erroneous and so far as it is prejudicial to the interest of the revenue and the same was completed without making inquiries or verification and directed the Assessing Officer to frame the assessment de novo.

Aggrieved with the above order, assessee is in appeal before us and filed the modified grounds of appeal

Before us, Ld. AR brought to our notice page 55 of the Paper Book wherein he brought to our notice statement containing summary of profitability and past assessment for assessment year 2011-12, 2012-13, 2013- 14 and 2014-15. With reference to the above, he submitted that assessee has claimed deduction u/s 80P for the interest earned by the assessee from fixed deposits with Nationalized Bank as well as Co-operative Bank. All along assessee was allowed to claim the deduction u/s 80P and consequently Assessing Officer allowed the above claim made by the assessee in this AY also. Further, he brought to our notice page 84 of the Paper Book to submit that the issue raised by the Pr. CIT in 263 order, he submitted that this issue is already covered by the decisions of Hon’ble Karnataka High Court in Guttigedarara Credit Co-operative Society Ltd. v. Income Tax Officer, Ward 2(2), [2015] 60 taxmann.com 215 (Karnataka) that the income earned by assessee by providing credit facilities to its members was deposited in banks for a short duration which earned interest. The Hon’ble High Court has allowed the interest income earned by the assessee on such deposits with the banks. Similarly, he brought to our notice 89 of the Paper Book to submit the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. v. Income Tax Officer Ward-V [2015] 55 taxmann.com 447 (Karnataka) submit that Co- operative Society was engaged in the activity of carrying of business of providing credit facilities to its members and the amount not immediately Shivkrupa Shakari 7 ITA No. 1672/M/2019