Loading judgment…
Facts
The assessee, a Co-operative Society, declared Nil income for assessment years 2017-18 and 2018-19, claiming exemption under Section 80P for interest earned on FDRs and savings bank accounts. The AO disallowed this claim, treating the interest income as taxable, and completed the assessment under Section 143(3). The CIT(A) dismissed the assessee's appeals.
Held
The Tribunal noted that the lower authorities' decisions were based on case laws now held to be distinguishable by this Bench. Consequently, the Tribunal restored both appeals to the AO for re-examination of the assessee's claim for deduction under Section 80P, considering a specific order of the Tribunal. For AY 2018-19, the AO was also directed to re-consider the claim for depreciation.
Key Issues
Whether interest income earned by a co-operative society from banks is eligible for deduction under Section 80P, and whether the case laws relied upon by the lower authorities are distinguishable.
Sections Cited
80P, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, SMC BENCH, LUCKNOW
Before: SHRI. SUDHANSHU SRIVASTAVA
O R D E R These appeals have been preferred by the assessee against separate orders, both dated 20.07.2022, passed by the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Years 2017-18 and 2018-19.
2.0 Both these appeals filed by the assessee are having identical issues. Therefore, they were taken up for hearing together and are being disposed of by this common order for the sake of convenience.
2.1 The brief facts for assessment year 2017-18 in are that the assessee was a Co-operative Society and derived income from commission from marketing of sugarcane grown by its members, trading of agricultural implements, seeds, etc. to its members. The assessee filed its return of income for the year under consideration on 12.03.2018, declaring Nil income. The case of the assessee was selected for scrutiny under CASS. The Assessing Officer (AO) issued statutory notices to the assessee, requiring the assessee to furnish the details of deduction under Chapter VI-A of the Income Tax Act, 1961 (hereinafter called “the Act’). In response, the assessee submitted that it had earned profit amounting to Rs.22,10,789/- which was inclusive of interest from Saving Bank account and FDRs and that the income of the Society was exempt under section 80P of the Act. The AO noticed from the profit and loss account of the assessee-society that the assessee had earned interest of Rs.19,07,091/- from Saving Bank account and FDRs, maintained with various Banks, during the year under consideration. The submission of the assessee before the AO was that the profit, amounting to Rs.22,10,789/- inclusive of interest was exempt under section 80P of the Act. The AO observed that as per the provisions of section 80P(2)(d) of the Act, interest incomes earned from Banks/Post Offices, other than Co- operative Banks, were taxable and in the instant case, the interests earned by the assessee were not from Co-operative Banks and, therefore, the same were not exempt under section 80P of the Act. The AO, therefore, added the interest income of Rs.19,07,091/- to the income of the assessee. The AO completed the assessment under section 143(3) of the Act, assessing the total income of the assessee at Rs.19,07,091/- as against Nil income returned by the assessee by relying on certain judicial precedents.
2.2 Aggrieved, the assessee preferred an appeal before the Ld. First Appellate Authority. Subsequently, the appeal was migrated to NFAC, which dismissed the appeal of the Assessee by relying on certain judicial precedents.
2.3 Now, the assessee has approached this Tribunal challenging impugned orders of the NFAC. The grounds of appeal raised by the assessee in are as under:
(1) That the Authorities below erred on facts and in law in not allowing deduction u/s 80P of 1. T. Act on Interest received on Investments held with Banks in form of FDR's Rs.19,07,091/-. (2) That the Authorities below erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the Appellant Assessee. (3) That the Ld. C.I.T. (A) erred on facts and in law in considering that the A. O. has failed to demonstrate in the Assessment Order that the Interest Income on FDR's and Saving Bank Accounts was on account of surplus funds of the Society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in Appellant's Case. (4) That the Ld. C.I.T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. WITHOUT PREJUDICE TO ABOVE (5) The Ld. C.I.T. (A) erred on facts and in law in not considering that the funds of the Society in form of Share Capital from members and the society being co-operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE
(7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid ' debited in the Profit and Loss Account from the gross interest of Rs.19,07,091/-. (8) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. (9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A). 2.4 On the same set of facts and on the same reasoning, as in the case of the present assessee for assessment year 2017-18, for assessment year 2018-19 ( AO added interest income of Rs.16,93,135/- to the income of the assessee and the AO also disallowed the claim of depreciation of Rs.44,655/- and added the same to the income of the assessee. Accordingly, the AO completed the assessment under section 143(3) of the Act, computing the total income of the assessee at Rs.17,37,790/- as against Nil income returned by the assessee. 2.5 The appeal filed by the assessee before the NFAC for assessment year 2018-19 also came to be dismissed on identical reasoning. 2.6 The grounds of appeal raised by the assessee in are as under:
(1) That the Authorities below erred on facts and in law in not allowing deduction u/s 80P of 1. T. Act on Interest received on Investments held with Banks in form of FDR's Rs.16,93,135/-. (2) That the Authorities below erred in relying on the decision of Hon'ble Supreme Court in the case of Totgars Co-Operative Sale Society Ltd. Vs. ITO without appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the Appellant Assessee. (3) That the Ld. C.I.T. (A) erred on facts and in law in considering that the A. Ο. has failed to demonstrate in the Assessment Order that the Interest Income on FDR's and Saving Bank Accounts was on account of surplus funds of the Society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in Appellant's Case. (4) That the Ld. C.I.T. (A) erred on facts and in law in not considering that the Law has used the word "attributable" and not the word "derived" in section 80P so as to include income from sources other than the actual conduct of the Business of the Society and thus Interest Income on FDR's & S. B. A/c is attributable to the business of providing credit facilities and providing assistance to cane growers for better development cane crops. WITHOUT PREJUDICE TO ABOVE (5) The Ld. C.I.T.(A) erred on facts and in law in not considering that the funds of the Society in form of Share
Capital from members and the society being co-operative society is statutorily required to maintain a Reserve Fund of a minimum 25% of its profit and thus the investments in form of deposits with Banks to the extent of the Share Capital and Reserve Funds cannot be said to be made out of surplus funds. (6) That Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F. Balance of seasonal employees of society which is held in the form of deposits are not the investments of the society and accordingly interest accruing on the said amount cannot be said to be the Income of the Society. WITHOUT PREJUDICE TO ABOVE (7) That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses and 'Interest paid debited in the Profit and Loss Account from the gross interest of Rs.16,93,135/-. (8) That the Authorities erred on facts and in law in not considering that only the real income/ profit can be Taxed and accordingly, the expenses incurred in earning the said income has to be determined and deducted from the Gross Income. (9) That the addition made is highly excessive, contrary to the facts, law and principle of natural justice and without providing sufficient time and opportunity to have its say on the reasons relied upon by CIT (A). 3.0 The Ld. Authorized Representative for the assessee (Ld. A.R.) submitted that there is a delay of 80 days each in filing the appeals before the Tribunal. He further submitted that the assessee had filed an application dated 07.12.2022 for condonation of delay, duly supported by Affidavits of Shri Mahendra Singh Yadav, stating therein that the impugned orders of the ld. CIT(A) were served on the email id of the Counsel of the assessee-society, who, inadvertently, could not inform the assessee the factum of receiving the ld. CIT(A)’s orders on his email id and it was only upon receipt of demand intimation from the Department that the assessee-society came to know about the orders of the ld. CIT(A) and thereafter the appeals were filed before the Tribunal. It was submitted that the delay caused in filing the appeals was not deliberate and that it was beyond the control of the assessee, which may please be condoned and the appeals be heard on merits.
4.0 The Ld. Sr. D.R. had no objection to the delay being condoned.
5.0 In view of the prayer made by the Assessee, duly supported by an Affidavit and no objection by the Ld. Sr. D.R., we condone the delay in filing of the appeals and admit the appeals for hearing.
6.0 The Ld. A.R. submitted that in both the appeals, the AO has disallowed assessee’s claim under section 80P of the Act completely ignoring the settled judicial precedents which are in favour of the assessee. He placed specific reliance on the order of the ITAT, Lucknow Bench in the case of Co-operative Cane Development Union Limited, Maholi vs. ACIT, Sitapur (New) in 166 and 168/LKW/2023, vide order dated 30.09.2024 and submitted that the assessee’s claim for deduction under section 80P of the Act may be directed to be allowed by the AO in light of the above mentioned order. He accordingly prayed that both the appeals of the assessee may be restored to the AO for the purpose of verifying and adjudicating the assessee’s claim for deduction under section 80P of the Act in light of the aforesaid order of the Tribunal.
7.0 In response, the Ld. Sr. D.R. opposed the prayer for restoration and submitted that the ld. CIT(A) had given a detailed finding and had rightly disallowed the assessee’s claim. He prayed that the appeals of the assessee be dismissed.
8.0 I have heard the rival submissions and have also perused the material on record. A perusal of the orders of the ld. CIT(A) show that the present appeals of the assessee have been decided on the basis of certain case laws which have since been held to be distinguishable by the order of this Bench of the Tribunal in the case of Cane Development Union Limited, Maholi vs. ACIT, Sitapur (New) (supra), wherein the present judicial position has been discussed at length after duly discussing other judicial precedents. Accordingly, I restore both the appeals to the file of the AO for the purpose of examining assessee’s claim for deduction under section 80P of the Act in light of this Bench’s order in the case of Cane Development Union Limited, Maholi vs. ACIT, Sitapur (New) (supra). In assessee’s appeal for assessment year 2018-19, the AO is directed to re-consider the assessee’s claim of depreciation also.
9.0 In the final result, both the appeals of the assessee are allowed for statistical purposes.
Order pronounced in the open Court on 25/08/2025.