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Income Tax Appellate Tribunal, “SMC” BENCH KOLKATA
Before: Sri S. S. Godara]
Appellant by : None Respondent by : Smt. Ranu Biswas, Addl. CIT सुनवाई क" तार"ख/ Date of Hearing : 29/01/2020 घोषणा क" तार"ख/Date of Pronouncement : 14/02/2020 आदेश / O R D E R Per Shri S. S. Godara: This assessee’s appeal for assessment year 2016-17 arises against the Commissioner of Income Tax (A) - 6, Kolkata order dated 19.08.2019 passed in case No.CIT(A),Kol-6/10449/2018-19 involving proceedings u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
Case called twice. None appears at assessee’s behest to pursue the adjournment petition dated 12.01.2020. It is accordingly proceeded ex parte.
The assessee’s sole substantive grievance pleaded in the instant appeal challenges the CIT(A)'s order confirming Assessing Officer’s action disallowing its section 80P(2)(a)(i) deduction claim of Rs.17,81,003/- in the nature of interest income derived from investments in nationalized banks and cooperative society(ies). The CIT(A)’s detailed discussions to this effect reads as follows: “4. The appellant is a co-operative Society which carries on a business of providing credit facilities for its members. During the year the appellant claimed deduction u/s 80P amounting to Rs.25,12,492/- and the A.O disallowed this claim to the extent of Tribeni Tissues Co-Operative Credit Society Ltd Rs.17,81,003/-. The A.O has argued that interest on deposits made by the appellant in nationalized banks and co-operative banks will not get an exemption u/s 80P. In support of this contention the A.O has cited the case of Totgar’s Co-operative Sales Society – Vs- ITO 188 Taxmann 282 SC.
5. Grounds No.1 &2 of the appeal are against the action of the A.O to disallow deduction u/s 80P by the A.O who also ignored appellant’s submissions dated 17-11-2018 & 08-12- 2018. During the appellate proceedings, the AR could not furnish the letters dated 17-11- 2018 & 08-12-2018 addressed to the A.O and hence Grounds No.1 & 2 are treated as dismissed. 6.1 At Ground No.3 & 4 the AR of the appellant argues that the judgment of ‘Apex Court’ in the case of Totgar’s Co-operative Sales Society is not applicable to the case of the appellant. In his written submission the AR has argued that such deposits were made out of operational and circulating funds and hence the fixed deposits should be treated as stock-in-trade of the appellant and any income earned on it falls outside the tax net. The AR further argued that such liquid funds are always required to be kept for smooth running of the business in case of eventualities like emergencies. The AR further argues that operational funds are not to be treated as surplus funds and hence the judgment of the Totgar’s Co-operative Sales Society is not applicable. 6.2 The only limited issue which is to be considered is whether the fixed deposits were made out of operational funds or surplus funds available with the appellant. The AR during the appellate proceedings could not produce any evidence in support of his argument that only operational funds were utilized for making such fixed deposits. I am therefore of the view that judgment of the ‘Apex Court’ in the case of ‘Totgar’s Co- operative Sales Society’, it is fully applicable in case of the appellant. The appellant is not eligible for deduction u/s 80P(2)(a)(i) on the interest earned out of deposits made in banks out of which income has been earned during the year. Such income is not related to the business of providing credit facilities to its members. As the appellant has not been able to demonstrate that only operational funds were utilized to make deposits, I am of the view that the appellant generated surplus funds which were utilized to make investment in banks and co-operative society from which interest to the extent of Rs.17,81,003/- was earned and such interest cannot be held to be allowable u/s 80P(2)(a)(i) of the Act. Accordingly Grounds No.3 & 4 of the appeal stand dismissed.
Mrs. Biswas vehemently contends during the course of hearing that both the learned lower authorities have rightly disallowed assessee’s section 80P deduction claim qua interest income from investments of surplus funds made in nationalized banks. I notice that apart from hon’ble apex court’s judgment (supra), their lordships of hon’ble jurisdictional high court in (2017) 390 ITR 524(Cal) CIT vs. South Eastern Railway Employees Co-operative Credit Society have also decided the very issue in Revenue’s favour. I thus affirm the impugned section 80P deduction disallowance in principle.
Next comes equal important aspect as to whether the impugned disallowance is to be computed on netting or gross basis. This tribunal’s co- Tribeni Tissues Co-Operative Credit Society Ltd ordinate bench’s order in ITO vs. M/s Kolkata Reserve Bank Co-Operative Credit Society Ltd. dated 18.10.2019 takes note of the foregoing case law to hold that such a disallowance has to be made on netting basis only. I thus direct the Assessing Officer to finalize consequential computation on netting basis only as per law.
This assessee’s appeal is partly allowed for statistical purposes in above terms.