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Income Tax Appellate Tribunal, BANGALORE BENCHES “ B ” BENCH: BANGALORE
Before: SHRI B.R. BASKARAN & SHRI PAVAN KUMAR GADALE
O R D E R PER BENCH : All the stay applications have been filed by the assessee seeking stay of outstanding demand raised in Asst. Years 2011-12, 2015-16 & 2016-17.
2 TO 281/Bang/2020 & SP Nos.92 to 94/Bang/2020 2. The learned Authorised Representative submitted that the assessment orders have been passed for the A.Ys 2011-12 and 2015-16 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short 'the Act') consequent to the reopening of assessment of these two years by issuing notice under Section 148 of the Act. The assessment for AY 2016-17 has been taken up for scrutiny. He submitted that the issues contested in all the three years are identical in nature. He submitted that the assessee is challenging the validity of reopening of assessments in AY 2011-12 and 2015-16 and also contending the additions made in all the three years. The learned Authorised Representative submitted that the additions made by the Assessing Officer are now covered in favour of the assessee by the following decisions:- i. Swabhimani Souharda Co-operative Bank Ltd. Vs. ITO, Ward 5(2)(3), Bangalore in WP No.48414/2018 (Kar) Dt.16.01.2020. ii. Totgars Co-operative Sale Society Ltd. Vs. ITO (322 ITR 283) (SC) iii. Totgars Co-operative Sale Society Ltd. Vs. ITO (231 Taxman 794) (Kar) 3. Since the learned Authorised Representative submitted that the issues raised in all the three appeals on merits are covered by the decisions rendered by Hon'ble jurisdictional High Court of Karnataka and Hon'ble Supreme Court, with the concurrence of both the parties, all the three appeals are taken up for hearing.
3 TO 281/Bang/2020 & SP Nos.92 to 94/Bang/2020 4. We heard both the parties and perused the material on record. The learned Authorised Representative submitted that the assessee is a credit co-operative society registered under Karnataka Souharda Sahakari Act. It claimed exemption under Section 80P of the Act claiming that it is a co-operative society. The Assessing Officer however rejected the claim under Section 80P of the Act by holding that the assessee is carrying on banking activities and hence it will be hit by provisions of Section 80P(4) of the Act which bar deduction under Section 80P to co-operative societies who carry on banking business. Accordingly, the Assessing Officer held that the assessee is not eligible for deduciton under Section 80P(2)(a)(i) of the Act. The Assessing Officer also observed that the assessee has been registered as a “co-operative” under the name Udaya Souhardha Pattina Sahakari Niyamitha and not as a “co-operative society”. Accordingly he held that the assessee is not eligible to claim deduction u/s 80P at all. He also observed that the assessee is also having nominal Members/associate members. Further, the business of E-Stamping and Mutual Funds activity carried on by the assessee are open to public and not restricted to its Members. The AO held that the same should not have been done. Hence, on cumulative considerations, the AO rejected the claim for deduction u/s 80P of the Act.
4 TO 281/Bang/2020 & SP Nos.92 to 94/Bang/2020 5. The Assessing Officer also held that the interest earned by co-operative society on surplus funds invested in Short Term Deposits with banks and Govt. Securities are not eligible for deduction under Section 80P of the Act. In this regard, the Assessing Officer placed reliance on the decision of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Limited Vs ITO (Appeal No.1622 of 2010 DT.8.2.2010).
Accordingly, the Assessing Officer disallowed the claim of deduction under Section 80P of the Act in all the three years. The CIT (Appeals) also confirmed the order passed by the Assessing Officer.
The learned Authorised Representative submitted that the Hon'ble Karnataka High Court has decided the issue relating to eligibility of the Co-operative societies registered under Karnataka Souharda Sahakari Act, 1997 to claim deduction under Section 80P of the Act in the case of Swabhimnani Souharda Co-operative Bank Ltd. (supra) and it was held that the entities registered under the above said act fit into the definition of “co-operative society” as enacted under Section 2(19) of the Income Tax Act, 1961. He further submitted that the Hon'ble Supreme Court in the case of Totgar Co-operative Sale Society Limited (supra) has not decided the issue on taxability of interest earned by the co-operative society on surplus funds invested in Short Term Deposits. as observed by the Assessing Officer. Inviting 5 ITA Nos.279 TO 281/Bang/2020 & SP Nos.92 to 94/Bang/2020 our attention to the decision of Hon'ble Supreme Court in the above said case reported in 322 ITR 283 (SC), more particularly para 14 of the order, the learned Authorised Representative submitted that the manner of taxability of interest income was restored to the Hon'ble High Court. The learned Authorised Representative submitted that the Hon'ble Karnataka High Court has since decided the said issue in pursuant to remand of the said issue by Hon'ble Supreme Court in the case reported in (2015) 58 Taxman.com 35. It has been held that the jurisdictional High Court that the assessee should be allowed proportionate expenditure incurred in earning the interest income, while computing the taxable interest income under Section 56 of the Act. Accordingly, the learned Authorised Representative submitted that the grounds on which the Assessing Officer has disallowed under Section 80P of the Act in these years have since been reversed by Hon'ble High Court and Hon'ble Supreme Court in the above said cases. When the bench proposed to restore the issue relating to eligibility of the assessee for deduction u/s 80P of the Act and also the manner of computation of interest income u/s 56 of the Act, the Ld A.R submitted that, without prejudice to his right to contend validity of reopening of assessment at appropriate forum, the matters may be restored to the file of the Assessing Officer for examining them afresh.
6 TO 281/Bang/2020 & SP Nos.92 to 94/Bang/2020 8. The learned Departmental Representative also agreed that the matters may be restored to the file of the Assessing Officer in view of the binding decisions of Hon'ble Karnataka High Court.
We notice that the Hon'ble Karnataka High Court has held in the case of Swabhimani Souharda Co-operative Bank Ltd. (supra) that the entities registered under Karnataka Souhardha Sahakari Act will also fall under the definition of “co- operative society” given under the Income Tax Act. In view of the above said binding decision, the view of the assessing officer on this point has been overruled. We have noticed that the AO has disallowed the claim for deduction u/s 80P of the Act holding that the assessee would be hit by sec.80P(4) of the Act. However, it is the contention of the assessee that the assessee is carrying on money lending activity mainly with its Members and hence it cannot be categorized as Bank as held by the Assessing Officer. The Ld A.R submitted that there are decided cases on this issue in favour of the assessee. Further, the quantum of interest income to be taxed under other sources has also been decided by the Hon'ble Karnataka High Court in the case of Totgar Co-operative Sale Society Ltd. (supra).
In view of above said legal developments, we feel it appropriate to restore all the issues to the file of the Assessing Officer for examining them afresh in the light of various decisions rendered by Hon'ble High Court and Hon'ble Supreme Court.
7 TO 281/Bang/2020 & SP Nos.92 to 94/Bang/2020 Accordingly, we set aside the orders passed by the CIT (Appeals) in all the three years under consideration and restore them to the file of Assessing Officer for examining them afresh.
Since we have restored the issues urged on merits to the file of Assessing Officer, we do not find it necessary to adjudicate legal issue of validity of reopening of assessment in A.Ys 2011-12, 2015-16 and accordingly keep that issue open in both the years.
Since we have disposed of the appeals themselves, the stay petitions shall become infructuous and accordingly dismissed.
In the result, all the three appeals filed by the assessee are treated as allowed for statistical purposes. The stay petitions are dismissed as infructuous. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (PAVAN KUMAR GADALE) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 15.06.2020. *Reddy GP