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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE
O R D E R This appeal is filed by the assessee against order dated 19.03.2024 passed by the Addl./JCIT(A)-6, Kolkata for the assessment Year 2017-18.
The assessee has raised the following grounds of appeal:-
“1 The Learned Additional Commissioner of Income Tax (A) - VI has erred in law and on facts and in the circumstance of case in upholding assessment order passed without serving show cause notice and draft order u/s.144B of the Act prior to passing of assessment order thus without providing enough opportunity to explain appellant claim thus violating rules of natural justice.
2. The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in overlooking the decision of hon. Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs Income-tax Officer, Karnataka (2010) 188 Taxman 282 (SCO) and confirming the disallowance made by ACIT for deduction u/s. 80P(2)(a) of the Act.
The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in overlooking the decision of hon. Gujarat High Court in the case of State Bank of India (SBI) vs. Commissioner of Income-tax, [2016] 72 taxmann.com 64
(Gujarat) and confirming the disallowance of deduction u/s. 80P(2)(d) of the Act.
The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in wrongly interpreting the provision of the section 2(19) of the IT Act relied upon by himself defining Cooperative society and not considering Saurashtra Gramin Bank a Regional Rural bank as Cooperative society though Section 2(19) clearly provide that Regional Rural Bank (which is the status of Saurashtra Gramin Bank) is Cooperative Society. Rejection of Claim of Rs.13,97,679/- for deduction u/s.80P(2)(d) of the Act wrongly confirmed.
5. The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in overlooking the Circular No. 319 (F. No. 178/47/81-IT(A-I) dated 11-01-1982 confirming status of Cooperative society to Regional rural Bank and wrongly confirming disallowance of deduction u/s.80P(2)(d) for Interest earned from Saurashtra Gramin Bank being Regional Rural Bank.
6. The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in confirming the addition of interest income earned from State Bank of India of Rs.1,08,418/- considering as not eligible for deduction u/s.80P(2)(a) of the Act overlooking various judicial pronouncement including hon Supreme Court decision in the case of CIT vs. Karnataka State Co- operative Apex Bank (2001) 251 ITR 194 (SC) .
7. The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in confirming addition for the interest income of Rs.15,06,097/- earned on Deposit with SBI and Saurashtra Gramin Bank (RRB) considering the same as not eligible for deduction u/s.80P(2) of the Act.
8. The Learned Additional Commissioner of Income Tax (A) - VI has erred in law and on facts and in the circumstance of case in not allowing Interest and proportionate administrative expenses attributable to earning of interest Income of Rs.15,06,097/-considered ineligible for deduction u/s.80P by Id. ACIT from total income so decided by him.
The Learned Additional Commissioner of Income Tax (A)-VI has erred in law and on facts and in the circumstance of case in rejecting our all grounds of appeal without considering the same on merit and wrongly confirming the entire addition of Rs.15,06,097/- made by Ld. ACIT.
The appellant craves and reserve its right to add, to modify, to alter and/or to withdraw any or all grounds of appeals.”
3. The assessee is a Co-operative Credit and Consumers Society for the benefit of employees of Gujarat Vidhyut Board. The assessee society filed return of income for Assessment Year (A.Y.) 2017-18 on 07.01.2017 declaring income at Rs.98,020/-. Notice under Section 143(2) of the Income Tax Act, 1961 was issued on 13.08.2018. Notice under Section 142(1) of the Act alongwith detailed questionnaire was issued on 09.07.2019, 10.10.2019, 04.11.2019, 21.11.2019. Show cause notice dated 04.12.2019 was issued. The reason for selection under CASS was deduction under Chapter VI-A by the Revenue. The Assessing Officer observed that the assessee earned interest income of Rs.1,08,418/- from fixed deposits with Sate Bank of India and since this income does not constitute part of income from routine activities of the Co-operative Credit Society, such income will fall under the head “income from Other Sources”. Thus, the Assessing Officer disallowed interest income of Rs.1,08,418/- under Section 56 of the Act. The Assessing Officer further observed that the assessee society earned interest of Rs.13,97,679/- from Fixed Deposits with Saurashtra Gramin Bank. The Assessing Officer held that since the Rural bank is not a member of the Co-operative Society, deduction cannot be allowed under Section 80P2(a) of the Act. Thus, deduction on interest income of Rs.13,97,679/- was disallowed and charged under Section 56 of the Act.
4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The Ld. AR submitted that the Assessing Officer was not right in disallowing deduction under Section 80P(2)(d) of the Act in respect of claim of Rs.13,97,679/- earned as interest income from Saurashtra Gramin Bank. The Ld. AR submitted that Regional Rural Bank are treated as Co-operative Society as held under Section 2(19) of the Act. The Ld. AR further submitted that the CIT(A) as well as the Assessing Officer overlooked the Circular No.319(F.No.178/47/81-IT(A)-I) dated 11.01.1982 confirming status of Co-operative Society and Regional Rural Bank. Thus, interest income earned from Saurashtra Gramin Bank being Regional Rural Bank qualifies deduction under Section 80P(2)(a) of the Act. The Ld. AR relied upon the decision of Hon’ble Apex Court in the case of CIT vs. Karnataka State Co-operative Apex Bank, 251 ITR 194 (SC). As regards second issue relating to the interest earned from deposits with State Bank of India, the Ld. AR submitted that the netting of proportionate income/expenses to earn the interest income should have been allowed by the Assessing Officer.
The Ld. DR relied upon the Assessment Order and the order of the CIT(A) and further submitted that the Regional Rural Banks are not Co-operative Societies as Section 2(19) of the Act categorically mentions the same. As regards the proportionate administrative expense to earn interest income from SBI, the Ld. DR submitted that the same should be remanded back to the file of the Assessing Officer for proper verification and adjudication.
Heard both the parties and perused all the relevant material available on record. As regards ground nos.1 to 5 which is related to the interest earned from Saurashtra Gramin Bank which is Regional Rural Bank, the submissions of the Ld. AR appear to be not correct as the Circular No.319 dated 11.01.1982 stands withdrawn w.e.f. A.Y. 2007-08 vide Circular No.6/2010 dated 20.09.2010. Thus, ground nos.1 to 5 are dismissed.
7.1 As regards ground nos.6 to 9 in respect of proportionate administrative expenses, requires to be allowed if the assessee has incurred expenditure while earning the interest income from State Bank of India. Thus, this issue is remanded back to the file of the Assessing Officer for proper adjudication of the issues to determine the interest income as well as miscellaneous income earned by the assessee from State Bank of India and only thereafter that income can be considered for admissibility of the deduction under Section 80P(2) of the Act. The assessee be given opportunity of hearing by following the principles of natural justice. Thus, ground nos.6 to 9 are partly allowed for statistical purpose.
In the result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open Court on this 16th January, 2025.