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Income Tax Appellate Tribunal, “SMC” BENCH,
Before: SHRI PARTHA SARATHI CHAUDHURY, JM
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM :
This appeal preferred by the assessee emanates from the order of the National Faceless Appeal Centre (NFAC), Delhi, dated 30.03.2022 for assessment year 2015-16 as per the following grounds of appeal: “1. On the facts and in law the CIT(A) is not justified in making the addition of Rs.4,94,750/- in respect of collection from members @ 2.5% of the loan account which is attributable to the activity of the credit co-operative society of providing credit facilities to its members. (The AO has worked out demand in the assessment order at Rs.31,030/- which was subsequently rectified u/s 154 raising demand of about Rs.1,75,000/-.) 2. The appellant craves, leave to add, alter, amend and delete any of the above grounds of appeal.
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At the very outset, the ld. AR submitted that there is a delay of 2 days in filing the appeal before the Tribunal. The assessee had filed condonation petition and an affidavit. I have gone through the contents of the condonation petition and affidavit and the reasons enumerated therein. I am of the considered view that such a delay of 2 days cannot be attributable to the deliberate or malafide conduct of the assessee. The delay was purely circumstantial and un-intentional. The ld. DR did not had any objection for condonation of the delay. Accordingly, I condone the delay of 2 days and the case is heard on merits.
In this case it was observed from the Profit and Loss Account of the assessee that it had received Rs.4,97,750/- as ‘Vikas Nidhi’. It was observed further by the Assessing Officer (AO) that such receipt was not covered within the main objective of the assessee’s society. Accordingly, the AO provided only the deduction u/s 80P(2)(c) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) of Rs.50,000/- and while adding the said income from other sources i.e. ‘Vikas Nidhi’ of Rs.4,94,750/- and adjusting the deduction u/s 80P(2)(c), computed the total income at Rs.4,44,750/- and added to the income of the assessee. That, before the NFAC the assessee had filed detailed submissions where they have contended that the amount of Rs.4,94,750/- represents the amount of interest collected from the members @ 2.5% of the loan given to the members. This fact is evident from the Resolution passed by the Board of Directors in the meeting dated 30.05.2014. Therefore, it was the contention of assessee that since it has been passed in the Resolution of Board of Directors the calculation of such amount is directly attributable to the business of assessee and hence allowable for deduction u/s
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80P(2)(a)(i) of the Act. The NFAC after considering the assessment order and submissions of assessee, supported the findings of AO and upheld the addition by opining that the provisions of section 80P(2)(a)(i) of the Act provides deduction only in respect of the business activity of the assessee in this case it is providing credit facilities to members, the activity of giving loan to members and receiving interest is only eligible for deduction u/s 80P(2)(a)(i) of the Act. If there is any income arising to the co-operative society from the non-members, that will not be subject to deduction under the said provision and accordingly, the NFAC upheld the addition.
At the time of hearing, the ld. AR submitted that as already evident from the submissions made before the NFAC, the additional rate of interest charged from the members @ 2.5% as development fund under the head ‘Vikas Nidhi’, such provision was approved in the Resolution passed by the Board of Directors in its meeting dated 30.05.2014. This is very much therefore, attributable to the business activity of the assessee i.e. providing credit facilities to its members, hence an allowable deduction under the said provision. The ld. AR further placed reliance on the decision of Hon’ble Madhya Pradesh High Court in CIT vs. Dhar Central Co-operative Bank Ltd. (1984) 149 ITR 438 (MP) where the deduction u/s 80P(2)(a)(i) of the Act allowed in respect of the following income which was held to be attributable to the business of banking or providing credit facilities to its members as the commission earned for dealing in bills of exchange, subsidy from government, admission fee from members, incidental charges and financial penalties. Per contra, the ld. DR contended that as per Resolution of the Board of Directors, for which the English translation has been provided in the submission of the assessee placed before the NFAC
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which was also placed on record before me, it was pointed out by the ld. DR that the assessee was charging interest @ 2.5% of the loan amount as development fund. The ld. DR vehemently submitted that what exactly is the characterization of this development fund, whether it can be said to be attributable to the business activity of giving credit facilities to members, nothing is clear from such Resolution. The assessee has also not brought on record any evidence or material to substantiate what exactly the nature of such development funds for which the interest @ 2.5% of the loan amount is charged. Therefore, it cannot be said that the deduction u/s 80P(2)(a)(i) of the Act is allowable to the assessee. The ld. DR therefore, submitted the matter may be restored to the file of AO for verification regarding the ‘development fund’ and whether that can be said to be attributable to the business activity of the assessee.
Having heard the parties, I am in conformity with the submissions of the ld. DR. The provisions of section 80P(2)(a)(i) of the Act allows deduction to the amount earned from the profits and gains of business attributable to the business activity of the assessee, which in this case is providing credit facilities to its members. The interest rate charged @ 2.5% of the loan amount as development fund, this has been passed in the Resolution of the Board of Directors of the assessee, but as rightly submitted by the ld. DR, the nature and characterization of the term ‘development fund’ is not clear on record whether this fund is something which can be said to be attributable to the business activity of giving credit facilities to its members of the assessee or is it something outside the purview that has to be examined. In the interest of justice, therefore, I set aside the order of NFAC and remand the matter to the file of the AO for
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adjudication as per law to conduct the detailed verification regarding interest of 2.5% of the loan amount taken as development fund by the assessee and whether it is attributable to the business activity of the assessee. That after examination of the facts and circumstances, if the AO finds that such calculation of the amount can be said as attributable to the business of the assessee, in such case, he shall allow deduction u/s 80P(2)(a)(i) of the Act. Needless to say, the AO shall provide reasonable opportunity of hearing to the assessee.
In the result, the appeal of assessee is allowed for statistical purposes.
Order pronounced in the open court on 26th October, 2022.
Sd//- Sd/-/- PARTHA SARATHI CHAUDHURY JUDICIAL MEMBER पुणे / Pune; दिनाांक / Dated : 26th October, 2022 GCVSR/Ankam आदेश की प्रतिललपप अग्रेपिि / Copy of the Order forwarded to : अपीलार्थी / The Appellant 1. प्रत्यर्थी / The Respondent 2. 3. The concerned CIT (Appeals), Pune. 4. The concerned Pr.CIT, Pune. 5. DR, ITAT, “SMC” Bench, Pune. गार्ड फ़ाइल / Guard File. 6. //सत्यापपत प्रतत// True Copy// आिेशानुसार / BY ORDER,
वररष्ठ तनजी सचिव / Sr. Private Secretary आयकर अपीलीय अचिकरण, पुणे / ITAT, Pune
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Date 1 Draft dictated on 20-10-2022 Sr.PS 2 Draft placed before author 20-10-2022 Sr.PS 3 Draft proposed and placed before the JM/AM second Member 4 Draft discussed/approved by second AM/JM Member 5 Approved draft comes to the Sr. PS/PS Sr.PS/PS 6 Kept for pronouncement on 26-10-2022 Sr.PS/PS 7 Date of uploading of order 26-10-2022 Sr.PS/PS 26-10-2011 8 File sent to Bench Clerk Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order