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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI S.S. GODARA & DR. DIPAK P. RIPOTE
Assessee by Shri Girish Ladda Revenue by Shri Saradar Singh Meena Date of hearing 12-07-2022 Date of pronouncement 29-07-2022 आदेश / ORDER
PER S.S. GODARA, JM :
This assessee‟s appeal for AY 2017-18 arises against the Pr.CIT, Pune-4, Pune‟s order dated 25-03-2022 passed in case No. ITBA/REV/F/REV5/2021-22/1041491920(1) in proceedings under Section 263 of the Income Tax Act, 1961, in short „the Act‟.
Heard both the parties. Case file perused. 2. The assessee‟s sole substantive ground raised in the instant appeal challenges correctness of learned PCIT‟s revision directions
Umasa Chavan Nagari Sah Patsanstha. holding the corresponding regular assessment dated 30.12.2019 as an erroneous one causing prejudice to the interest of Revenue for the reason that the Assessing Officer had wrongly accepted its section 80P(2)(a) deduction claim regarding interest income of Rs.41,61,947/- derived from deposits made in the co-operative banks.
Learned CIT-DR vehemently supported the PCIT‟s revision directions under challenge read as under:
“6. I have examined the submission made by the assessee and issues involved. I have also gone through various, case laws filed and relied upon by the assessee in support of claim u/s 80P(2)(a)(i) or 80P(2)(d) of the Act. It is found that Assessing officer has arrived at decision without properly examining the eligibility of assessee to claim deduction u/s 80P of the Act. As per provisions of section 80P(2)(a)(i), the Society is required to substantiate the principle of mutuality with respect to the loans taken from members to loan advanced/ investment made by it. To come to a conclusive discussion, the AO should have verified whether the loans/ deposit taken are given back to the members as loans/ advances or not. The assessment order does not indicate whether this exercise has been done or not. The non-verification of principle of mutuality by the Assessing Officer has rendered the view taken by him regarding allowability of deduction u/s 80P of the Act is legally unsustainable. Since the view taken by the Assessing Officer is unsustainable, the assessment order passed by the Assessing Officer is liable for revision u/s 263 of the Act.
7. As seen from the Balance Sheet, the assessee has received deposits amounting to Rs. 110.30 Or as on 31.03.2017, Share Capital Rs. 1.01 Cr. and Reserve Fund of Rs. 3.17 Cr & interest payable of Umasa Chavan Nagari Sah Patsanstha.
Rs. 2.04 Cr. Against the same, the assessee has advanced Rs. 77.76 Cr only to its members. Thus, around Rs. 38.76 Cr have not been utilized for the activity of lending to the members by the assessee and have been invested in time deposits with various banks. Out of total interest income of Rs. 16.39 Cr. shown in the Profit & Loss account, interest to the tune of Rs.5.71 Cr. has been received by way of interest on deposits with banks. Thus, in the assessee’s case, a considerable portion of its income is earned by way of interest on deposits made with other nationalized/co-operative banks. As has been held by the Hon'ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd. Vs. ITO (supra) and also by Hon’ble Karnataka High Court in the case of Pr. Commissioner of Income Tax, Hubali Vs. Totgars Cooperative Sale Society (supra) this act of making deposits out of the deposits received from members cannot be considered to be attributable to the business of carrying on of the business of providing credit facilities to its members. In view of the aforesaid decisions of the Hon'ble Supreme Court & Karnataka High Court, Interest earned on such deposits kept with Scheduled Bank/Cooperative Bank cannot be allowed as deduction under section 80O of the Act and such interest should be brought to tax. a. In this regard, the Assessment record has been verified in detail. The submissions made before the Assessing Officer regarding the deposits made with different bank/institution are seen to have been given without details as to when they were made and whether they were made out of the Deposits of the members or otherwise from out of the surplus generated. b. Also, the assessee has claimed that it accept deposits from its members only. However, no requisite details were furnished by the assessee either before, the Assessing Officer or during the present proceedings. The Assessing Officer also has not verified this aspect.
8. It is seen from the Profit and Loss account that the assessee has received interest & dividend income of Rs.6,69,28,997/- on fixed deposits investments with various co-operative banks. It is not clear whether these co-operative banks are registered with the RBI or not. If it is registered with the RBI then the interest received from the bank is not entitled for deduction u/s 80P(2)(d). The Assessing Officer has not caused any verification of this issue.
Umasa Chavan Nagari Sah Patsanstha.
9. Since the assessee's large claim of deduction under chapter VI- A was the reason of selection of its case for scrutiny; the Assessing Officer was required to conduct in-depth verification of the assessee's claim. Since the above mentioned bank is not a cooperative society, the interest earned is not eligible for deduction under Section 80P(2)(a)(i) or 80P(2)(d). Hence, allowing of the deduction by the Assessing Officer under section 80P for the above amount is not as per the provisions of the Income Tax Act, 1961. In Para 10 of the Hon’ble Karnataka High Court decision in the case of Tumkur Merchants Souharda Credit Co-op Society Ltd V CIT (2017) 396 ITR, the Hon'ble Court has held that the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account." In the case of the present assessee, it was stated that the society accepts deposits only from its members which means deposits in banks are made out of deposits made by members. These deposits are liable to be returned back to the members and hence, are to be shown as liability in the balance sheet. These deposits from members are invested in the fixed deposits and interest income is earned from them. As mentioned in Para 7, the assessee has received deposits amounting to Rs. 110.30 Cr as on 31.03.2017, Share Capital Rs. 1.01 Cr. and Reserve Fund of Rs.3.17 Cr & interest payable of Rs. 2.04 Cr. Against the same, the assessee has advanced Rs. 77.76 Cr only to its members.
Loans/Advances/Deposits received from 116.52 Cr members by the society including share capital from members, reserve fund & interest payable
Loans/Advances given to members by the 77.76 Cr society Excess of Loan/Advances/Deposits from 38.76 Copyright members available with the society It implies that the deposits accepted from the members were not used by the society in its business of providing credit facilities to its members. Instead they are put in to deposits to earn interest.
Umasa Chavan Nagari Sah Patsanstha.
Investments made in fixed deposits with 60.12 Cr institutions by the society out of Loans/Advances made by members This act of making deposits out of the deposits received from members cannot be considered to be attributable to the business of providing credit facilities to its members. Thus, making deposits to the bank out of the deposits received from Members is not in accordance to the principles of mutuality.
In the light of these facts, the Assessment Order dt 30.12.2019 is hereby set aside to the Assessing Officer for proper verification of facts and to re-examine the assessee’s claim of deduction under section 80P of the Income-tax Act, 1961. However, before arriving at any conclusion, the Assessing Officer shall give reasonable opportunity to the assessee to adduce the evidence and information with regard to: a. the Source of deposits made with all institutions from which interest income is earned with specific details and nexus as to whether those deposits are made from the deposits received from the members which are returnable to the members or from out of the surplus funds arising from profits and gains. b. Whether the deposits are made with institutions which are registered with RBI for carrying out business of Banking. c. Whether the Principle of Mutuality is satisfied to allow deduction u/s 80P in respect of income earned from deposits made with Co-op Banks. d. Based on the evidence, decide the allowability of deduction u/s 80P. The Assessing Officer shall, accordingly, re-frame the assessment in the assessee's case in due compliance with the above directions.”
Mr. Meena further quoted PCIT vs. The Totagars Co- operative Sale Society (2017) 392 ITR 74 (Kar) that such an Umasa Chavan Nagari Sah Patsanstha.
interest income deserves to be treated as „income from other sources‟ than under regular head of business u/s 80P of the Act.
We have given our thoughtful consideration to the Revenue‟s foregoing arguments supporting the learned PCIT‟s revision directions and find no merit therein as this tribunal‟s recent co- ordinate bench‟s order in Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT 07.01.2022: “7. We have heard the ld. authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether or not the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order. In our considered view, the issue involved in the present appeal hinges around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub- section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with the co-operative bank, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not cooperative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
Umasa Chavan Nagari Sah Patsanstha.
After necessary deliberations, we are unable to persuade ourselves to concur with the view taken by the Pr. CIT. Before proceeding any further, we may herein cull out the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. “80P(2)(d) (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 :- (a)............................................................................................ (b)............................................................................................ (c)............................................................................................ (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;” On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) to Sec. 80P of the Act, vide the Finance Act, 2006 with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardize the claim of deduction of a co- operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly
Umasa Chavan Nagari Sah Patsanstha. available. We find that the term „co-operative society‟ had been defined under Sec. 2(19) of the Act, as under:- “(19) “Co-operative society” means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;” We are of the considered view, that though the co-operative banks pursuant to the insertion of sub-section (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.
In so far the judicial pronouncements that have been relied upon by the ld. A.R are concerned, we find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co- operative bank is covered in favour of the assessee in the following cases: (i) M/s Solitaire CHS Ltd. vs. Pr. CIT, dated 29.11.2019 ( ITAT “G” Bench, Mumbai); (ii) Majalgaon Sahakari SAkhar Karkhana Ltd. Vs. ACIT, Circle-3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune) (iii) Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible
Umasa Chavan Nagari Sah Patsanstha. for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006 also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), as had been relied upon by the ld. D.R before us, had held, that a co-operative society would not be entitled to claim deduction under Sec. 80P(2)(d); but then, the Hon'ble High Court in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. Backed by the aforesaid conflicting judicial pronouncements, we may herein observe, that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court‟s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and that of the Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co- operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.”
Learned CIT-DR could hardly pinpoint any distinction on facts and on law regarding the instant issue of 80P deduction claim raised on interest income derived from deposits made in co-
Umasa Chavan Nagari Sah Patsanstha. operative banks. We accordingly reverse the learned PCIT‟s revision directions in issue. Ordered accordingly.
This assessee‟s appeal is allowed in above terms.
Order pronounced in the Open Court on 29th July, 2022.
Sd/- Sd/- (DIPAK P. RIPOTE) (S.S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे Pune; ददिधांक Dated : 29th July, 2022 GCVSR आदेश की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to: अपीऱधर्थी / The Appellant; 1. प्रत्यर्थी / The Respondent; 2. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, पुणे “B” / 3. DR „B‟, ITAT, Pune गार्ड फाईल / Guard file 4. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अविकरण ,पुणे / ITAT, Pune
Umasa Chavan Nagari Sah Patsanstha.
Date 1. Draft dictated on 12-07-2022 Sr.PS 2. Draft placed before author 28-07-2022 Sr.PS 3. Draft proposed & placed before the JM second member 4. Draft discussed/approved by Second JM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.