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Facts
The assessee, Thrissur District Police Cooperative Society Ltd., a cooperative society providing credit facilities to its members and running a departmental store and gas agency for them, filed appeals for AYs 2014-15 & 2016-17 against the CIT(A)/NFAC's order. The appeals involved a 96-day delay in filing, an addition under Section 69A for unexplained cash deposits, and disallowance of Section 80P deduction for various income sources like interest from savings, term deposits, IT refund, and house property income.
Held
The Tribunal condoned the 96-day delay in filing the appeals, noting it was not intentional or deliberate. It upheld the CIT(A)/NFAC's decision to allow the Section 69A ground, accepting that the assessee had discharged the burden of proof regarding the source of cash deposits. For the Section 80P deduction, the Tribunal remanded the matter back to the AO to separately determine and tax actual income from House Property and other sources, while providing observations on which interest incomes (from credit facilities to members, statutory deposits, and investments in cooperative banks) are eligible for Section 80P deductions and which (from surplus funds in commercial banks, IT refund) are to be treated as Income from Other Sources.
Key Issues
Whether the delay in filing the appeals should be condoned; whether the addition for unexplained cash deposits under Section 69A was valid; and whether various income sources, particularly interest and house property income, are eligible for deduction under Section 80P of the Income Tax Act.
Sections Cited
250, 80P(2)(a)(i), 32, 40(a)(ia), 40A(3), 43B, 154, 253(5), 148, 143(2), 142(1), 69A, 115BBE, 56, 143(3), 147, 144B, 22, 27, 80P(2)(d), 57
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Income Tax Appellate Tribunal, COCHIN BENCH:COCHIN
Before: SHRI INTURI RAMA RAO & SHRI KESHAV DUBEY
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH:COCHIN BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER & 409/Coch/2024 AssessmentYears:2014-15 & 2016-17 Thrissur District Police Cooperative Society Ltd. ACP Office Thrissur PO Vs. Thrissur 680 001 ITO Kerala Thrissur PAN NO : AADAT5043N APPELLANT RESPONDENT Appellant by : Shri M.Ramdas, CA Respondent by : Smt. Leena Lal, Sr. A.R. Date of Hearing : 19.02.2025 Date of Pronouncement : 19.05.2025 O R D E R PERKESHAV DUBEY, JUDICIAL MEMBER: These appeals at the instance of the assessee are directed against the orders of ld. CIT(A)/NFAC both dated 05.12.2023 vide DIN & Order Nos. ITBA/NFAC/S/250/2023-24/1058457420(1) and ITBA/NFAC/S/250/2023-24/1058457386(1) for the assessment years 2014-15 & 2016-17 respectively passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). Since the issue in both the appeals is common, these are clubbed together, heard together and disposed of by this common order for the sake of convenience.
& 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 2 of 19
At the outset, there is a delay of 96 days in filing both these appeals before this Tribunal. The assessee for both these years have filed the separate application for condonation of delay& grounds of & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 3 of 19 petition along with an affidavit in original. Since the grounds of petition for condoning the delay as well as the contents of the affidavit submitted before us are same, we are reproducing the application, grounds of petition and affidavit for the Assessment year 2015-16 below for ease of reference & convenience- & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 4 of 19 & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 5 of 19 & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 6 of 19 & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 7 of 19 3.1 Before us, the ld. A.R. of the assessee submitted that if the delay is not condoned, the assessee would be put to a great hardship and irreparable injury and on the other hand, no hardship or injury would be caused to the revenue if condonation of delay is allowed.
3.2 The ld. D.R. on the other hand submitted that appeal may be dismissed in limine without adjudicating the same as the assessee could have filed the appeal within 60 days from the date of the receipt of the order of the ld.CIT(A)/NFAC. Further the ld. DR submitted that the filing of Appeal and filing of the rectification application are two separate & distinct process & filing of appeal has nothing to do with the filing of rectification application u/s 154 of the Act.
3.3 We have heard the rival submissions and perused the materials available on record. It is worthwhile to mention that u/s 253(5) of the Act, the Tribunal may admit the appeal filed beyond the period of limitation where it is established that there exists a sufficient cause on the part of the assessee for not presenting the appeals within the prescribed time. The explanation therefore, becomes relevant to determine whether the same reflects sufficient and reasonable cause on the part of the assessee in not filing this appeal within the prescribed time.On going through the grounds of petition as well as affidavit as above, we find that the main contention of the assessee for delay in filing the appeal is due to the fact that the assessee after service of the order of the ld. CIT(A)/NFAC filed rectification petition u/s 154 of the Act before him and waited for the rectification order to be passed. After receipt of the order u/s 154 r.w.s. 250 of the Act on 01/05/2024 which was also dismissed by the ld. CIT(A)/NFAC, thereafter the assessee filed the present appeal before this Tribunal with a delay of 96 days & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 8 of 19 in both these appeals & accordingly requested to condone the delay of 96 days in filing both the appeals before this Tribunal by taking a lenient view in the matter.
3.4 We are of the considered opinion that the delay was neither intentional nor deliberate and the assessee cannot be said to be callous in its approach in filing the appeal before us. Therefore, in our opinion there exists a sufficient cause on the part of the assessee for not presenting the appeal within the prescribed time.At this juncture, while considering a similar issue, the apex court in the case of Collector, Land Acquisition v. Mst. Katiji and Ors. (167 ITR 471) laid down six principles. For the purpose of convenience, the principles laid down by the Apex Court are reproduced hereunder: (1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late (2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner. (4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.
& 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 9 of 19 (6) It must be grasped that the judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
3.5 When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right for injustice being done because of non-deliberate delay. Moreover, no counter-affidavit was filed by the Revenue denying the allegation made by the assessee. It is not the case of the Revenue that the appeal was not filed deliberately. Therefore, we have to prefer substantial justice rather than technicality in deciding the issue. Therefore, in our opinion, by preferring the substantial justice, the delay of 96 days has to be condoned.
3.6 Further, in the case of People Education & Economic Development Society Vs/ ITO reported in 100 ITD 87 (TM) (Chen), wherein held that “when substantial justice and technical consultation are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of non-deliberate delay”.
3.7 The next question may arise whether delay was excessive or inordinate. There is no question of any excessive or inordinate when the reason stated by the assessee was a reasonable cause for not filing the appeal. When there was a reasonable cause, the period of delay may not be relevant factor. In fact, the Madras High Court in the case of CIT vs. K.S.P. Shanmugavel Nadai and Ors. (153 ITR 596) considered the condonation of delay and held that there was sufficient and reasonable cause on the part of the assessee for not filing the appeal within the period of limitation. Furthermore, the & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 10 of 19 Chennai Tribunal by majority opinion in the case of People Education and Economic Development Society (PEEDS) v. ITO (100 ITD 87) (Chennai) (TM) condoned more than six hundred days delay.
3.8 In view of the above, we are condoning the delay of 96 days in filing both these appeals before this Tribunal and accordinglywe admit the same for adjudication.
Thebrief fact of the case are that the Assesseebeing an employees' co-operative society formed for the welfare of employees of Kerala Police department of Thrissur District and is registered under Kerala Co-operative Societies Act, 1969.The Assessee is providing credit facilities only to its members. Further the assessee co-operative society is also running a departmental store and Gas agency for its members only.The assessee had not filed any return of income despite having huge financial transactions as per the information received throughMultiyear NMS cases in AIMS module of ITBA as below- Info Code Information Description Value AIR-001 Deposited cash of 2,70,23,297 Rs.10,00,000 or more in a saving Bank Account CIB-410 Deposit in cash 2,41,50,000 aggregating Rs.2,00,000/- or more, with a Banking company & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 11 of 19 4.1 Subsequent to reason recorded, a notice u/s 148 of the Act was issued on 31.03.2021 and in response, the assessee could filed its return of income only on 21.02.2022 due to glitches in the income tax portal on account of switch over to the new portalby declaring total income at Rs. NILclaiming deduction u/s 80 P(2)(a)(i) of the Act of Rs. 1,53,59,677/-.However on the one hand the AO treated the return filed against notice u/s 148 as non-est and on the other hand issued notice u/s 143(2) of the Act on 21.03.2022. The AO also issued 3 nos. of notices u/s 142(1) of the Act as well as a show cause noticedated 19/02/2022. The AO after considering the reply of the assessee during the course of assessment proceedings held that the assessee had failed to prove the source of credits in its bank account. Further the AO was of the view that the assessee has not submitted any concrete evidence to prove and in response to show cause notice also the assessee did not furnish any satisfactory reply and therefore it is established that unexplained cash deposits amounting to Rs. 5,15,83,314/- (2,70,23,297 + 2,45,60,027) is undisclosed income u/s 69A r.w.s. 115BBE of the Act and the same is added to the income of the assessee.
4.2 Further,the AO on perusal of Return and computation of Income, found that the assessee had claimed deduction of Rs.1,53,59,677/- u/s 80P of the Act. The whole amount had been claimed with respect to the income earned from the business of banking/providing credit facilities to members. However as per profit and loss account, the assessee has earned income from miscellaneous income of Rs.36,19,407/-, Reserve for due to the item of Rs.1,30,04,655/- and arrear on interest of Rs. 26,48,290/- during the year.
4.3 The AOwhile passing theassessment order observed as follows- & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 12 of 19 i) The interest earned on balance in savings accounts, interest on term deposits, interest on IT Refund as well as house property incomeare not covered under the provision of section 80P(2)(a)(i) of Act as these incomesare not earned by providing credit facilities to its members. ii) The assessee society regularly invested funds not immediately required for business purposes. Interest on such investments, therefore could not fall within the meaning of the expression ‘ profits and gains of business’. Further such interest income could not be said to be attributable to the activities of the society. iii) Further with regard to interest income derived from the statutory deposits as per the RBI guidelines/Co-operative Societies Act, the AO held that such interest income does not constitute the operational income but simply accrues to the assessee. The source of interest income is the deposits in banks, and it cannot be held to be earned in the normal business operations and accordingly is in the nature of ‘other income’ taxable u/s 56 of the Act. iv) Further deduction u/s 80P(2)(a) of the Act is available only to the income which is attributable to the business operation of the assessee. Depositing/investing funds in a co-operative bank / commercial bank is not a part of the business of providing credit facilities to its members. Consequently, the interest income has to be treated as ‘income from other sources’ not eligible for deduction u/s 80P of the Act.
4.4 Considering the above, it is held that the assessee has earned miscellaneous income of Rs. 36,19,407/-, Reserve for due to the item of Rs. 1,30,04,655/- and arrear on interest of Rs. 26,48,290/- during the year and therefore did not qualify for deduction u/s 80P(2)(a)(i) of the Act as it is not earned from the business of providing credit facility to its members and accordingly disallowed & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 13 of 19 and brought to tax.Thus, The AO completed the assessment u/s 143(3) r.w.s147 r.w.s 144B of the Act on 26.03.2022 on a total assessed income of Rs. 6,69,43,001/-.
Aggrieved by the order of the AO passed u/s 143(3) r.w.s147 r.w.s 144B of the Act on 26.03.2022, the assesseepreferred an appeal before the ld. CIT (Appeals)/NFAC.
The ld. CIT(A)/NFAC partly allowed the appeal of the assessee after calling for the remand report from the LJAO.Regarding the addition made u/s 69A of the Act, the ld. CIT(A)/NFAC observed that the burden of proof had been discharged by the assessee in the remand report proceedings. Further, the ld. CIT(A)/NFAC held that on the basis of cogent explanation and supporting evidence during preparation of remand report, after due verification, it has been accepted by the revenue that members are owners of the deposited cash and not the assessee. As the burden of proof stands discharged by the assessee, on the substantial grounds on merits, the ld. CIT(A)/NFAC allowed this ground of Appeal.
6.1 With regard to disallowance of the claim of deduction u/s 80P(2)(a)(i) of the Act, the ld. CIT(A)/NFAC observed thatthe officer has very strangely rejected the contention on the premises that the interest income under the question was not the interest received from the members of the society for providing credit facilities to them. The said finding of the assessing authority has since been found not correct in the remand report. The ld. CIT(A)/NFAC observed that this fact is fortified from the finding of ld. JAO in the para 3 of the remand report that ‘on the basis of documents, it is to state that cash deposits in both the accounts are from the receipts of cash from members pertains to loan repayments and payments or gas cylinder.’Thus to the extent of ₹ 99,73,924/- which comprises of providing credit facilities to its members is allowed under section 80P(2)(a)(i) of the Act. However for the rest of the & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 14 of 19 amount of ₹ 53,85,753/- (Rs.1,53,59,677 – Rs. 99,73,924 ), there is no submission on how these funds are qualified as income from a cooperative Society. The ld. CIT(A)/NFAC held that as nothing has been brought on record in assessment proceedings, remand report/appellate proceedings, to establish allowability of such excess amount under section 80P(2)(a)(i) of the act and hence the addition of ₹ 53,85,753/- is sustained and accordingly this ground of appeal was partly allowed by the ld. CIT(A)/NFAC.
Aggrieved by the order of the ld. CIT (A)/NFAC vide order dated 5.12.2023, the assessee has filed the present appeal before this Tribunal.
Before us, the ld. AR of the assessee vehemently submitted that the entire gross total income of ₹1, 53,59,677/- are related to the loans provided to members. The amount of ₹ 99,73, 924 is the profit as per profit and loss account. The net profit as declared in the profit and loss account had been adjusted to arrive at the net profit to be declared as profit under the head profits and gains of business and profession as per the provisions of the income tax act. Further, the ld. AR of the assessee submitted that the assessee also relied upon the circular number 37/2016 dated 2.11.2016 of the CBDT in this regard. Lastly, the AR submitted that while passing the order under section 154 read with section 250 of the act, the ld. CIT(A)/NFAC has wrongly mentioned the addition figure as ₹ 1, 61,41,520/- as against the actual figure of ₹ 53,85,753/-
The ld. DR on the other hand relied upon the order of the ld. CIT (A)/NFAC.
On going through the orders of the AO as well as the ld. CIT (A)/NFAC, we find that the issue involved in the present case is whether the Net profit of ₹ 99,73,924/- as declared in the profit and loss account will be treated as the amount eligible for deduction or & 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 15 of 19 the adjusted Net Profit amounting to Rs. 1,53,59,677/- declared as gross total income? Further, whether the entire net profit as claimed to be from providing the credit facilities to its members& treated as profits and gains of business or profession or whether interest & Income from House property is to be excluded & treated under respective heads?
We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that the assessee is a cooperative Society registered under the Kerala Co- operative societies act & providing credit facilities to its members only. Further, the assessee society also runscooperativedepartment stores and a gas agency (trading activity) which are also exclusively for the members of the co-operative society only. The members of the co-operative society are personnel of the police department. The accounts of the cooperative Society have been audited by the joint director of the cooperative Audit department. As per the profit and loss account, the net result of trading activity was a loss of Rs.4,79,544/- and the net result from providing credit facility to the members was Rs.1,04,53,468.49/-. Hence the net profit as per profit and loss account after adjusting the loss from the trading activity is only Rs. 99,73,924.49. The assessee before the ld. CIT (A)/NFAC submitted that at the time of audit, the departmental auditor used to create reserves and provisions for the future expenses and future unforeseen losses as a part of compliance with the cooperative societies act. Such reserves and provisions are debited to the profit and loss account for the year. Similarly, the corresponding opening provisions and reserves which were created during the previous year are reversed and credited to the profit and loss account by the cooperative department auditor. Such reserves and provisions which are debited to profit and loss account are not the expenses for the year and similarly the reserves and provisions which are credited are not the income of the cooperative Society.
& 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 16 of 19 Further while computing the total income of the society, the current year reserves and provisions debited to the profit and loss account which are not expenses for the year,added back to the net profit for the year and the previous year reserves and provisions credited to profit and loss account which are not the income of the year are deducted from the net profit for the year in order to arrive at the net profit as per the provision of the income tax act which is declared as gross total income. Hence the gross total income arrived at ₹ 1,53,59,677.04 after eliminating the adjustment for reserves and entirely consist of income from providing credit facility to the members. The learned CIT(A)/NFAC also extracted the statement of total income in his order. After going through the above submissions as made by the assessee as well as the statement of total income submitted before the learned CIT(A)/NFAC, we find force in the contention of the assessee. It is undisputed fact that the net profit as per profit and loss account after adjusting the loss from the trading activity is Rs. 99,73,924.49. The assessee has added back the reserves and provisions created during the year amounting to Rs. 2,22,64,406.60 and deducted reserves and provisions released during the year as well as depreciation allowable as per IT rules amounting to Rs. 1,68,78,654.05in order to arrive at the net profit of Rs.1,53,59,677.04 as per the provisions of the income tax act and also declared as gross total income. The learned CIT(A)/NFAC by observing that nothing has been brought on record in assessment proceedings, remand report/appellate proceedings, to establish allowability of such excess amount under section 80P(2)(a)(i) of the act and hence the addition of ₹ 53,85,753/- was sustained. However, ongoing through the statement of total income submitted by the assessee before the learned CIT(A)/NFAC, we find the same as self-explanatory. Therefore, we have no hesitation in holding that the net profit declared as a gross total income amounting to Rs.
& 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 17 of 19 Rs.1,53,59,677.04 is the actual net profit of the cooperative Society as per the provisions of the income tax act since it is in compliance with the co-operative societies act.
11.2 Now the next issue that arises here is whether the entire gross total income as declared by the assessee amounting to Rs.1,53,59,677.04 is profits and gains from business or profession and deductible under section 80P(2)(a)(i) of the act. Before us, the assessee furnished neither the audited statement of accounts nor the details of Interest & House property income. In view of the above as well as in the interest of justice & fair play, we are remitting this limited issue back to the file of AO for determining the actual Income from House Property & Income from other Sources to be taxed separately under the respective head in accordance with Law with the following Observations- Income from House Property i) Net Income House Property to be calculated as per the provisions of section 22 -27 of the Act.
Income from Other Sources i) The Interest received exclusively from the credit facilities provided to its members will be treated as operating Profit of the Co-operative society& eligible for deduction u/s 80P(2)(a)(i) of the Act. ii) The Interestincome earned out of the Statutory deposits (Required as per RBI guidelines or Co-operative Societies Act) areattributable to the business activity of the co-operative society & hence eligible for deduction u/s 80P(2)(a)(i) of the Act.
& 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 18 of 19 iii) Deduction under section 80P(2)(d) is available to co- operativesocieties on income earned as interest on investment made with cooperative bankwhich in turn, is a cooperative society itself. [Pr. CIT v. Peroorkada Service Co-Operative Bank Ltd.(2022) 442 ITR 141] iv) The Interest received out of surplus fund invested in the commercial Banks as well as Interest on I. Tax Refund will be treated as ‘Income from Other Sources’. However the cost of fund and related administrative expenses in respect of earning such interest income should also be allowedas deduction u/s 57 of the I.T.Act, 1961.
Needless to say a reasonable opportunity of being heard may be granted to the assessee. The assessee is also directed to submit all the relevant details as well as breakups as per our observation above.
In the result appeal filed by the assessee is partly allowed for statistical purposes.
In the result appeal filed by the assessee in is also partly allowed for statistical purposes.
& 409/Coch/2024 Thrissur District Police Cooperative Society Ltd., Thrissur Page 19 of 19 Order pronounced in the open court on 19th May, 2025 Sd/- Sd/- (Inturi Rama Rao) (Keshav Dubey) Accountant Member JudicialMember Bangalore, Dated 19th May,2025. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Cochin.