M/S CO-OPERATIVE CANE DEVELOPMENT UNION GOLA,LAKHIMPUR KHERI vs. INCOME TAX OFFICER RANGE-3(4), LAKHIMPUR KHERI-1

PER NIKHIL CHOUDHARY, A.M.:

These three appeals filed by the assessee against the orders of the ld. CIT(A),
Bareilly and ld. CIT, NFAC in which the disallowances made by the ld. AO in respect of claim of deduction under section 80P for interest earned by the assessee were upheld and the appeals of the assessee were dismissed. The grounds of appeal are as under:-

ITA No.37/Lkw/2022 A.Y. 2017-18
1. That the Authorities below erred on facts and in law in not allowing deduction u/s 80P of I.T. Act on Interest received on Investments held with Banks in form of FDR's Rs. 2,68,63,010/-.
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

ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019
M/s Cooperative Cane Development Union Ltd.

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 marketing the agriculture produce of members.

WITHOUT PREJUDICE TO ABOVE

WITHOUT PREJUDICE TO ABOVE
7. That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses of Rs. 5,66,43,874/- and 'Interest paid Rs. 74,15,032/-/- debited in the Profit and Loss Account from the gross interest of Rs. 2,68,63,010/-.
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.

ITA No.15/Lkw/2023 A.Y. 2018-19
1. That the Authorities below erred on facts and in law in not allowing deduction u/s 80P of I. T. Act on Interest received on Investments held with Banks in form of FDR's Rs. 3,45,29,714/-.
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

ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019
M/s Cooperative Cane Development Union Ltd.

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 marketing the agriculture produce of members.

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. 3,45,29,714/-.
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).”

ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019
M/s Cooperative Cane Development Union Ltd.

ITA No.394/Lkw/2019 A.Y. 2016-17
“1. The Ld. C.L.T. (A) erred on facts and in law in not allowing deduction u/s 80P of I.T. Act, 1961 on Interest received from Bank on F.D.R's and Saving Bank
Accounts Rs. 2,61,79,220/-.
2. That in not allowing the deduction u/s 80P of 1. T. Act, 1961, Ld. CIT(A) and the authorities below relied upon the decision of Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Limited Vs. LT.O. without appreciating that the decision of Hon'ble Supreme Court is distinguishable in facts from the case of the appellant assessee.
2.1 That the Ld. C.I.T. (A) erred in not considering that the Assessing Officer has failed to demonstrate in the assessment order that the Interest income from F.D.R's and Saving Bank Accounts was on account of surplus funds of society and in absence of such finding the decision of Hon'ble Supreme Court cannot be relied upon in the present sets of facts and circumstances.
3. The Ld. C.LT. (A) erred on facts and in law in not considering that the appellant assessee is a 'Welfare Society' for cane growers and not a 'Sale Society'
as in the case of Totgar's Co-operative Sale Society Limited and it was not marketing/selling the product of its members.
4. That the Ld. C.I.T. (A) erred in facts and in law in not considering that the funds of the Society are in form of Share Capital from members being farmers and the funds are invested as per byelaws of the society and the same are under the direct control and Management of Cane Commissioner.
5. 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 Sect. 80P of L. T.
Act so as to include income from sources other than the actual conduct of the business of the Society and thus Interest Income from F.D.R.'s and Saving Bank
Accounts is attributable to the business of providing credit facilities and marketing the agriculture produce of members.
6. 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 Ld. A. O.

Additional grounds of appeal
1. That the Authorities below erred on facts and in law in not allowing proportionate deduction for 'Management Expenses of Rs. 5,43,58,995/- and 'Interest paid Rs. 51,91,972/- debited in the Profit and Loss Account from the gross interest of Rs. 2,61,79,220/-.
2. 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 ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019
M/s Cooperative Cane Development Union Ltd.

earning the said income has to be determined and deducted from the Gross
Income.
3. The Ld. C.I.T.(A) erred on facts and in law in not considering that 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 Reserve Fund cannot be said to be made out of surplus funds.
4. The Ld. C.I.T. (A) erred on facts and in law in not considering that the P. F.
Balance of Rs.4,13,76,016/- 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.
5. That the Ld. C.I.T. (A) erred on facts and in law in not considering that the society has taken Loan of Rs. 4,05,03,269/- from Zila Sahkari Bank, Gola and accordingly Interest accruing on the investments of the society to the extent of Loan from Zila Sahkari Bank cannot be said to be made out of Surplus Funds of the Society.”

kindly be condoned. After considering the facts of the case, the delay of 80 days (in 394/Lkw/2019) is condoned. With regard to appeal in ITA No.37/Lkw/2022, it is observed that the entire delay of 65 days is covered in the period that was excluded for the purposes of limitation due to the Covid -19 pandemic by the Hon’ble Supreme
Court in its decision in Suo Moto Writ Petition No. 03/2020. Hence, the delay is condoned and the appeal is admitted for adjudication. In respect of appeal in ITA No.
15/Lkw/2023, where the delay is of 357 days, it is observed that 128 days of said delay are covered in the Covid period as per the decision of Hon’ble Supreme Court in Suo Moto Writ Petition No. 03/2020. For the remaining 229 days, it has been submitted that the order was served on the email ID asif9415168684@gmail.com, which belonged to the counsel of the assessee and the Society did not receive any intimation from the local counsel about the service of the appellate order. It was only upon the receipt of outstanding demand intimation from the juri ictional AO that the assessee society enquired from its counsel about the pendency of the first appeal and was informed by the counsel that the order of the Hon’ble CIT(A), NFAC had been passed on 24.11.2021 and received on his email ID. Thereafter, the Secretary of the Society immediately contacted the counsels at Lucknow. However, due to last date of filing of return and tax audit report, the counsels were busy and could not file the appeal. Once the same was over, the assessee was asked to deposit the appeal fee which it did on 22.11.2022 and thereafter it filed the appeal. It was submitted that the delay was unintentional and caused by the failure of the local counsel to inform the assessee about the passing of the appeal order and the pre-occupation by the counsels at Lucknow with the tax audit and return filing. It was, therefore, prayed that in the interest of justice, the appeal may be admitted. After considering the facts as narrated above, we deem it appropriate in the interest of justice to condone the delay and admit the appeal for hearing.
3. The facts of the case in all the three assessment orders are similar. The assessee had claimed deduction under section 80P with respect to the interest

ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019
M/s Cooperative Cane Development Union Ltd.

earned on deposits made by it with the banks. The ld. AO after detailed discussions in each case held that the assessee was not eligible for deduction under section 80P(2)(a)(i) or section 80P(2)(d) on the interest that had been earned by it on deposits with the bank as the same could not be said to be attributable to the activities of the society and would come in the category of, “income from other sources” and should therefore, be taxed accordingly under section 56 of the Act, in view of the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative
Sale Society Limited vs. ITO, (2010) 322 ITR 263 (SC) and the decision of Hon’ble
Allahabad High Court in its order in ITA No. 520/2008 which had held that such interest i.e. the like of which was erred by a Cooperative Society for investment in a cooperative bank cannot be said to be the activities of the society. Accordingly, the ld.
AO disallowed the deduction claimed by the assessee in respect of interest on deposit held in various banks. In pursuance of the same, a disallowance of Rs.2,61,79,223/- was made in the assessment year 2016-17, a sum of Rs.2,68,63,013/- was disallowed in the assessment year 2017-18 and a sum of Rs.3,45,29,714/- was disallowed in the assessment year 2018-19. 4. Aggrieved with the decisions of the various ld. AOs in the orders, the assessee preferred appeals before the ld. CIT(A), Bareilly and the ld. CIT(A), NFAC. In all three appeals, the ld. CIT(A) in these three cases rejected the plea of the assessee for distinguishing its case from that of the case of M/s Totgars Cooperative Sale
Society Limited and pointed out that the Hon’ble Allahabad High Court in a later decision in ITA No.520 of 2008 dated 11.09.2012 in the case of Cooperative Cane
Development Union Limited had held that in M/s Totgars Cooperative Sale Society
Limited, the Hon’ble Supreme Court had explained the eligibility of deduction under section 80P and held that where the investment in securities was not a primary object of the Cooperative Credit Society, the interest therefrom could not be regarded as income attributable to business but would in fact be regarded as income from other sources. He noted that the Hon’ble Allahabad High Court in the said case had ITA No.37/LKW/2022, ITA No.15/Lkw/2023 & ITA No.394/ Lkw/2019
M/s Cooperative Cane Development Union Ltd.

pointed out that the assessee was a Cooperative Cane Development Union and the objects of the society did not provide for investment of money in the post office or bank and to earn interest on the same and therefore, in its case also, the interest earned out of the investments made in the bank would be an interest which would be income from other sources and chargeable to tax under section 56 of the Act.
Therefore, relying upon the case of the Hon’ble Supreme Court in the case of M/s
Totgars Cooperative Sale Society Limited vs. ITO (supra) and the Hon’ble Allahabd
High Court in ITA No.520 of 2008 in the case of Cooperative Cane Development
Union, Lakhimpur Kheri (supra). The ld. CIT(A) in all three assessment years dismissed the appeals of the assessee and upheld the disallowances made by the assessee.
5. Aggrieved by these disallowances, the assessee is before us in appeal. Sh.
Shubham Rastogi, C.A. (hereinafter referred to as the ld. ‘AR’), arguing the case on behalf of the appellant submitted that the assessee was a cooperative society registered under the U.P. Sahkari Samiti Adhiniyam, 1965 by the