THE HARYANA STATE CO-OPERATIVE AGRICULTURE AND RURAL DEVELOPMENT,PANCHKULA vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE,, PANCHKULA

Ground No. 2 :

(xii) Indian And Eastern Newspaper (SC) 119 ITR 0996 dtd. 31.08.1979 4. The Ld. AO issued a notice under Section 148 on 30/03/2021 with the approval of the Ld. Pr. CIT, Panchkula, citing reason to believe that income had escaped assessment; however, the assessee's return filed on 29/04/2021 was not e-verified and hence invalid. Despite repeated notices, the assessee failed to provide substantial details until 23/03/2022, leading the AO to complete the reassessment under Section 144, asserting that the reopening was valid, based on recorded reasons, Pr. CIT’s approval, and within the six-year limitation for AY 2014-15.

[2017] 82 taxmann.com 220 (SC) / [2017] 10 SCC 225. Further, the CIT(A) rejected the assessee’s contention that non-furnishing of reasons invalidated the reassessment, treating it as a procedural lapse as per Home Finders Housing Ltd. v. Income-tax Officer [2018] 94 taxmann.com 84 (Madras HC) / [2018] 405 ITR 611 (Mad). Accordingly, Ground No. 2 was dismissed.

8.2 The assessee’s contention that the reassessment amounts to a mere change of opinion is misplaced, as the issue was not examined in the original assessment proceedings. Furthermore, even if the reassessment was triggered by audit objections, it remains valid so long as the Assessing Officer has applied his independent judgment. This legal position has been confirmed by the Hon’ble Supreme Court in P.V.S. Beedies Pvt. Ltd. v. ACIT [(1999) 237 ITR 13 (SC)] and reaffirmed in Larsen & Toubro Ltd. v. State of Jharkhand & Ors. [2017] 82 taxmann.com 220 (SC). 8.3 By respectfully following the above decisions of the Hon’ble Supreme Court, we hold that the Assessing Officer recorded valid reasons and obtained due approval from the competent authority. Accordingly, we uphold the finding of the Ld. CIT(A) and find no infirmity in the initiation and conclusion of the reassessment proceedings. Ground No. 2 is dismissed. Ground No. 3:Overdue Interest from non-standard debts amounting to Rs. 27,66,41,513/- 9. In this regard Ld. Counsel for the Assessee in its synopsis submitted as under: “Not Pressed. The CIT(A) had decided the allowability of this expenditure against us. However, he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not inteGnd to press this issue.”

10. Ld. DR had no objection if this ground is dismissed as not pressed.

“Punjab National Bank, State Bank of India & other nationalized/commercial banks are not members of appellant, they are not registered as a ‘cooperative society’ under any Central or State Act and hence, interest received from these banks is not eligible for deduction neither u/s 80P(2)(a)(i) nor u/s 80P(2)(d) of the Act. On specific query by this office notice dated 05/10/2023 & subsequent notices, the appellant has mentioned in submissions dated 19/01/2014 that Rs. 47,178/- was the amount of interest received from nationalized/commercial banks. Considering the above, except an amount of Rs. 47,178/-, the balance profit is held to be eligible for deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the Act. This amount is to be taxed as income from other sources and no deduction u/s 80P is allowed on this amount.” 14.1 In regard to above, the Ld. Counsel for the assessee in its submission explained the issue to CIT(A) at Pages 221-227 of assessees paper book which are already on record. For the sake of brevity and as the same is part of the record, it is not being reproduced herein. However, the Ld. CIT(A) failed to appreciate and understand and then confirmed the addition.

14.2 It was further submitted by the Ld Counsel for the Assessee that the interest earned on accounts with Banks is part of normal banking activity since all operational funds are routed from these bank accounts. However, when these huge funds move in these accounts, some interest is credited by banks to these accounts. It is not a case of income earned on any investment made. It is not a case where some decision of investment has been taken and that decision has resulted in earning of interest income. Hence, this amount of interest earned being just Rs. 47,178/- only, the same is also part of regular activity and is also inextricably linked to operations of the appellant.

14.3 The above interest is also deductible u/s 80P(2)(a)(i). The relevant extract of this provision is as under :

“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 :— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles (v) intended for agriculture for the purpose of supplying them to its members, or (vi) the processing, without the aid of power, of the agricultural produce of its members, or (vii) the collective disposal of the labour of its members, or (viii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities” 14.4 It is evident from above that any income which is attributable to operations of society is deductible u/s 80P. The above interest from normal bank accounts is nothing but income attributable to operations of assessee. The issue of interest income being attributable to operations of assessee has been dealt by number of courts and they have held as under : i. Hon’ble ITAT in the case of GobindapurPanchpotaSamabay vs ITO, ITA 1102/Kol/2024, dtd. 26.02.2025, wherein it was held that: “9. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, I extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Cooperative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.”

by the assessee are allowed.

12. In the result, the appeal filed by the assessee is allowed.” ii. Hon’ble Jaipur ITAT, in the case of Royal Co-operative Society vs AO, 221/JP/2023 dtd. 20.06.2023. iii. Hon’ble Andra Pradesh High Court in the case of CIT vs Andra Pradesh State Co-operative Bank ltd., (2011) 336 ITR 516 (AP)

is allowed. for A.Y. 2015

16. (Assessee Appeal)

17. In this appeal Ground No. 1 and 3 are general in nature therefore need no adjudication on our part and the same are dismissed.

18. Ground No. 2: Deduction u/s 80P to the extent of interest earned from nationalized banks amounting to Rs. 1,48,093/-.

. Accordingly, this ground of appeal is allowed. AY 2015-16, (Department Appeal

20. In this appeal Ground No. 4&5are General in nature, therefore need no adjudication on our part and same are dismissed as not pressed.

21. Ground No. 1, 2, 3: Overdue interest amount to Rs. 55,60,17,057/- accrued during the year though not received from DPCARDBs.

22. Ground No. 1: In this ground the AO disallowed the assesse’s claim of Rs. 55,60,17,057/- as overdue interest expense on loans to DPCARDBs, treating it as a mere provision, prior period expense, or contingent liability without proof of payment or loss.

23. The Ld. CIT(A) reversed this, relying on NABARD guidelines, audit evidence, ITAT’s earlier ruling, and Bombay High Court precedent, holding the amount as unrealized income, not an expense.

24. Ground No. 2: In this ground the AO denied deduction under Section 80P(2)(a)(i) for interest income, including Rs. 1,48,093/- earned from nationalized banks, citing it was not claimed originally and relying on Goetze (India) Ltd. (supra). The assessee claimed entitlement as a cooperative society providing credit to DPCARDBs, supported by Supreme Court and other precedents.

recoverable figures as on 31.03.2013 which tally with the total overdue interest as per the accounts. In view of the above discussion, the addition of Rs. 20,64,52,575/– on account of overdue interest is ordered to be deleted. This ground of appeal is allowed.”

29. Against above order of CIT(A), revenue preferred appeal before the Hon’ble ITAT who vide their order in dtd. 20.12.2019 has dismissed the appeal of the revenue by upholding the order of Hon’ble CIT(A). The relevant extract from page no. 4 of this judgement is reproduced as under: “5. After considering the rival submissions we do not find any infirmity in the order of the Ld. CIT(A). The ld CIT(A) has categorically held that in fact the impugned amount was unrealized interest on overdue loans which was part of the income which remained unrealized during the year and was not in the nature of expenditure and hence any addition on account of prior period expenditure was un-warranted under these circumstances. That the confusion has occurred due to change of method of presentation of accounts. There is no merit in this Ground of appeal

. The ground of appeal No.1 raised by the Revenue is, therefore, dismissed.

30. In above appeal before the Hon’ble ITAT, the revenue had raised number of issues which included this issue of overdue interest also. The Hon’ble ITAT dismissed all grounds of revenue. Against this order of Hon’ble ITAT, even when tax effect was much higher, the revenue raised all other issues before the Hon’ble P&H High Court but did not raise this issue which meant that even the revenue has accepted the decision of Hon’ble ITAT on this issue. In any case, the decision of Hon’ble ITAT dismissing the appeal of revenue has been upheld by the Hon’ble P&H High Court in of 2021 dtd.

07.04.2025. Hence, this issue has attained finality and has been decided in the favour of the assessee.

is dismissed.

40. Ground No. 3: Overdue Interest from non-standard debts amounting to Rs. 42,53,36,816/-

41. Regarding this ground of appeal the Ld. AR submitted as under: “Not Pressed. The CIT(A) had decided the allowability of this expenditure against us. However he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.”

42. Ld. DR had no objection if this ground is dismissed as not pressed.

is dismissed as not pressed. for AY 2016

17. (AssesseeAppeal )

44. Ground No. 1, 5, 6 are general in nature, hence required no adjudication on our part and the same are dismissed.

45. Ground No. 2: Addition on account of excess interest amounting to Rs.1,44,06,000/- 46. In this regard Ld. AR submitted as under: “Not Pressed. The Ld. AO had disallowed this item of expenditure by holding it to be pertaining to AY 2015-16. In appeal before the CIT(A), he has allowed this as expenditure for AY 2015-16 and not allowed for AY 2016-17. Having got relief on the issue alternatively in other year, we do not want to press this issue in this appeal. “

47. Ld. DR had no objection if this ground is dismissed as not pressed.

49. Ground No. 3: Disallowance of Rs. 38,69,96,590/- made on account of Provision on advances created during the year. In this regard Ld. AR submitted as under: 50.

“Not pressed. The CIT(A) had decided the allowability of this expenditure against us. However, he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.”

is dismissed as not pressed.

53. Ground No. 4: Deduction u/s 80P to the extent of interest earned from nationalized banks.

54. Ld. AR in his synopsis submitted that this issue is identical to the one raised in ground no. 4 of for the A.Y 2014-15.

56. Ground No. 4, 5are General in nature, therefore need no adjudication on our part and the same are dismissed.

57. Ground No. 1, 2, 3: Overdue interest amount to Rs. 68,17,96,002/- accrued during the year though not received from DPCARDBs.

is allowed.”

59. Against above order of CIT(A), revenue preferred appeal before the Hon’ble ITAT who vide their order in dtd. 20.12.2019 has dismissed the appeal of the revenue by upholding the order of Hon’ble CIT(A). The relevant extract from page no. 4 of this judgement is reproduced as under: “5. After considering the rival submissions we do not find any infirmity in the order of the Ld. CIT(A). The ld CIT(A) has categorically held that in fact the impugned amount was unrealized interest on overdue loans which was part of the income which remained unrealized during the year and was not in the nature of expenditure and hence any addition on account of prior period expenditure was un-warranted under these circumstances. That the confusion has occurred due to change of method of presentation of accounts. There is no merit in this Ground of appeal

. The ground of appeal No.1 raised by the Revenue is, therefore, dismissed.

60. In above appeal before the Hon’ble ITAT, the revenue had raised number of issues which included this issue of overdue interest also. The Hon’ble ITAT dismissed all grounds of revenue. Against this order of Hon’ble ITAT, even when tax effect was much higher, the revenue raised all other issues before the Hon’ble P&H High Court but did not raise this issue which meant that even the revenue has accepted the decision of Hon’ble ITAT on this issue. In any case, the decision of Hon’ble ITAT dismissing the appeal of revenue has been upheld by the Hon’ble P&H High Court in of 2021 dtd. 07.04.2025. Hence, this issue has attained finality and has been decided in the favour of the assessee.

AY 2016-17(Assessee Appeal) 63. Ground No. 1, 5, 6 of this appeal are general in nature, therefore no need of adjudication is required on our part and the same are dismissed. Ground No. 2: Reopening u/s 148 is bad in law 64. We noticed that since this issue is identical to the issue involved in AY 2015-16, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Ground No. 3: Overdue Interest from non-standard debts amounting to Rs. 38,69,96,590/-

65. Regarding this ground of appeal the Ld. AR submitted as under:

“Not pressed. The CIT(A) had decided the allowability of this expenditure against us. However, he has further held that we are entitled to enhanced deduction u/s 80P on this issue also and the revenue has not preferred any appeal on that portion of decision of CIT(A). Hence, the ground of allowability of this expenditure having no impact on our taxable income, we do not intend to press this issue.”

is dismissed as not pressed. Ground No. 4: Deduction u/s 80P to the extent of interest earned from nationalized banks.

68. We noticed that since this issue is identical to the issue involved in for AY 2014-15 in respect of Ground No. 4, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Accordingly, this ground of appeal is allowed. for AY 2017-18, (AssesseeAppeal )

71. Ld. DR had no objection if this ground is dismissed as not pressed.

is dismissed as not pressed. Ground No. 4: Deduction u/s 80P to the extent of interest earned from nationalized banks.

73. We noticed that since this issue is identical to the issue involved in for AY 2014-15 in respect of Ground No.

4, therefore,our findings given in that appeal shall apply mutatis mutandis to this ground of appeal as well. Accordingly, this ground of appeal is allowed.

AY 2017-18 (Department Appeal) 74. In this appeal Ground No. 5 & 6 are general in nature therefore same are dismissed.

77. Ground No. 4: Disallowance of Rs. 1,19,67,681/- u/s 14A read with Rule 8D.

78. In regard to this ground, we have agitated before the CIT(A) that the investment on which s. 14A has been applied by the Ld. AO are in the nature of deposits with Co-operative Banks/Societies and also some shares of small amount of Rs. 12.84 lacs of other co- operative societies. We earned interest from deposits which was taxable and has been taken to P&L A/c. On shares of other co- operative societies, we earned dividend and the same being not exempt u/s 10 (only dividend from companies is exempt), this was also offered to tax. Further, in our ITR, we did not claim anything as exempt. Kindly refer ITR & Computation at APB pages Page 42-43 of APB. The CIT(A) appreciating these facts has allowed relief to the assessee on merits. For above, we rely upon the decisions in : a. HDFC Bank Ltd 366 ITR 505 (Bom HC) b. Lakhani Marketing Inc. (2014) 272 CTR 265 (P&H HC) c. Deepak Mittal (2014) 361 ITR 131 (P&H) d. Shivam Motors (P) Ltd. (2015) 230 Taxman 63 (All. HC) e. Vardhman Chemtech Private Ltd. dtd.22.04.2016 79. During hearing, the ld. DR argued that the assessee had made substantial investments and incurred significant interest expenditure of Rs. 156.71 crores during the year. Despite the assessee earning exempt dividend income of Rs. 2,50,000/-, it failed to demonstrate that no expenditure—direct or indirect—was incurred in relation to such exempt income. The reliance placed by the assessee and the CIT(A) on the proposition that no disallowance can be made in the absence of exempt income is misplaced, in light of CBDT Circular No. 5/2014, which clearly states that disallowance u/s 14A is applicable even if no exempt income is earned in a particular year, since the expenditure is incurred to earn such income over a period of time. “In this regard, it is most respectfully submitted that the arguments of Ld. DR were against the real facts of this case. It is not just a case of absence of exempt income only in this year but is a case of impossibility to earn any exempt income from these investments. These could only generate interest which is taxable and dividend from co-op society which is also taxable. Further, even otherwise, the assessee has enough own interest free surplus funds and therefore, s. 14A could not have been invoked. Further, when no exempt income has been earned during the year, s. 14A disallowance could not have been made.”

80. We have considered the rival contentions and perused the material on record. The disallowance of Rs. 1,19,67,681/- under Section 14A read with Rule 8D was made despite the assessee not earning any exempt income during the year. The investments comprised deposits with co-operative banks/societies yielding taxable interest, and shares of co-operative societies, whose dividend is also taxable. No income was claimed exempt in the return.

81. The CIT(A) rightly deleted the disallowance, noting that the nature of the investments made it impossible to earn exempt income. The assessee also had sufficient interest-free funds. The reliance on CBDT Circular No. 5/2014 by the Revenue is misplaced in this context.

83 Since we have discussed and rendered our findings in all the aforementioned appeals, a summary of the results, appeal-wise, is as under:

Sr. Appeal Number and Party Name Appeal by Result No. 1 588/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 2. 590/Chandi/2024 Assessee Dismissed Haryana State Co-operative Agriculture and Rural Development 3. 591/Chandi/2024 Department Partly Allowed Haryana State Co-operative Agriculture and Rural Development 4. 589/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 5. 592/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 6. 593/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative Agriculture and Rural Development 7. 594/Chandi/2024 Department Partly Allowed Haryana State Co-operative Agriculture and Rural Development 8. 595/Chandi/2024 Assessee Partly Allowed Haryana State Co-operative

Agriculture and Rural Development 9. 596/Chandi/2024 Department Partly Allowed Haryana State Co-operative Agriculture and Rural Development Order pronounced in the open Court on 30/05/2025.