SRI BRAMARAMBA PATTINA SOUHARDA SHAKARI SANGHA NIYAMITHA,MASKI vs. INCOME TAX OFFICER, WARD-1, RAICHUR

Without prejudice to any of the submissions and Grounds taken, the learned AO failed to appreciate that the income assessed by him under the head, 'Income from other sources, denying the deduction u/s 80P is liable to be set-off against the resultant business loss applying section 71 of the Act.

The Appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon'ble Tribunal. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon'ble Tribunal may be Page 3 of pleased to allow the appeal in the interest of the equity and justice.”

The brief facts of the case are that the assessee is a co-operative society providing credit facilities to its members. The case of the assessee was selected under CASS for complete scrutiny. The AO issued notice u/s. 143(2) for which the assessee had filed their objections on 13/07/2021. In the said reply, the assessee had also explained the reasons for claiming deduction u/s. 80P of the Act in respect of the interest income earned by them. Subsequently, the AO had issued a notice u/s. 142(1) of the Act in which the various details were called for by the AO including the justification for claiming deduction u/s.80P(2) of the Act. The assessee filed their reply on 18/02/2022. Thereafter a show cause notice was issued on 14/03/2022 for which the assessee sought for time and therefore another show cause notice was issued on 12/09/2022 and the assessee also field their reply on 16/09/2022. To the proposal to disallow the deduction claimed u/s. 80P(2)(a)(i) of the Act, the assessee submitted that the deposits were made in the banks as short term deposits as per the provisions in the Karnataka Souharda Sahakari Act, 1997 and therefore the interest income received from such deposits could be treated as a business income and therefore eligible for deduction u/s. 80P(2)(a) of the Act. The assessee also relied on the judgment of the Hon’ble Supreme Court reported in 251 ITR 194 in the case of CIT vs. Karnataka State Co-operative Apex Bank. The assessee also relied on the Hon’ble Jurisdictional High Court judgment in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO reported in (2015) 55 taxmann.com 447 (Karnataka) wherein it was held that the interest earned by the assessee from the deposits made with the co- operative banks and scheduled banks are attributable to the business of providing credit facilities to its members and therefore eligible for deduction u/s. 80P(2)(a)(i) of the Act. The AO had not accepted the said objections and relying on the Division Bench judgment of the Hon’ble Jurisdictional High Court in the case of PCIT, Hubballi vs. The Totagars Co-operative Society reported in (2017) 395 ITR 611 had denied the deduction claimed u/s. 80P(2)(a) of the Act on the interest income earned from the deposits made

As against the said order, the present appeal has been filed by the assessee.

Even though the assessee had filed an application before this Tribunal to condone the delay of 10 days, the Registry found that as per the provisions, there is no such delay and therefore we are not adjudicating the said application.

At the time of hearing, the Ld.AR submitted that the interest income earned by the assessee is out of the statutory investments made in the fixed deposits with co-operative banks / scheduled banks and therefore they are eligible for deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AR further submitted that the assessee had done activities only with the members of the society and therefore the principle of mutuality has not been violated. The Ld.AR also relied on the judgment of the Hon’ble Supreme Court

The Ld.DR submitted that the order of the AO as well as the Ld.CIT(A) is in accordance with the principles laid down by the Division Bench of the Hon’ble Jurisdictional High Court reported in 395 ITR 611 and therefore prayed to dismiss the appeal filed by the assessee.

We have heard the arguments of both sides and perused the materials available on record.

We have perused the various notices issued by the AO as well as the replies filed by the assessee on various dates. In the reply dated 18/02/2022, the assessee had submitted that the assessee is a society registered under the Karnataka Souharda Sahakari Act, 1997 and therefore they are also to be treated as a society registered under the provisions of the Karnataka Co-operative Societies Act and therefore the interest income earned by them would be eligible for deduction u/s. 80P(2) of the Act. Subsequently, on 16/09/2022, to the show cause notice dated 12/09/2022, the assessee had explained that they had deposited the amounts based on the provisions contained in the said Act and therefore the said income is a business income and eligible for deduction u/s. 80P(2)(a)(i) of the Act. In the said objections, the assessee also relied on the judgment of the Hon’ble

Before the Ld.CIT(A), the assessee filed a reply on 22/06/2024 and again explained the fact that the assessee had to comply with the provisions of the Karnataka Souharda Sahakari Act, 1997 / Karnataka Co-operative Societies Act and therefore the assessee had deposited the said amounts in the co-operative banks. Even though the said Acts allowed the assessee to deposit in the co-operative or scheduled banks, in the present case, the assessee had deposited the amount in the co-operative banks and earned an income of Rs. 5,54,82,789/-. Again the assessee had relied on the judgment of the Hon’ble Supreme Court reported in 251 ITR 194 in the case of CIT vs. Karnataka State Co-operative Apex Bank. The assessee had also made an alternate plea that the co-operative banks are also a co-operative society registered under the provisions of the Societies Act and therefore they are entitled for deduction u/s. 80P(2) of the Act. In spite of the said submissions made by the assessee, before the AO as well as before the Ld.CIT(A), they had disallowed the deduction claimed u/s. 80P(2) on the ground that the assessee had received interest income from co-operative banks but not considered the fact that the deposits are made out of compulsion.

We have also perused the Division Bench judgment of the Hon’ble Jurisdictional High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. vs. ITO reported in (2015) 55 taxmann.com 447 (Karnataka) wherein similar issue came up for consideration and the Hon’ble Jurisdictional High Court had granted the deduction u/s. 80P(2) on the ground that the interest income were earned from the compulsory deposits made by the assessee with the co-operative banks / scheduled banks.

We have also perused the judgment of the Hon’ble Supreme Court reported in 251 ITR 194 in the case of CIT vs. Karnataka State Co-operative Apex Bank, wherein the Hon’ble Supreme Court had granted the deduction u/s. 80P(2)(a)(i) of the Act on the interest income received from the compulsory deposits made with the SBI / RBI. The above said judgment is a judgment rendered by the Constitutional Bench of the Hon’ble Supreme Court in view of the conflicting decision given by the different Benches. If we consider the principle laid down by the Constitutional Bench of the Hon’ble Supreme Court, in the present case, the assessee is entitled for deduction u/s. 80P(2)(a)(i) of the Act since the interest income was earned out of the compulsory deposits made by the assessee with the co-operative banks. By applying the Hon’ble Supreme Court judgment as well as the Division Bench judgment of the Hon’ble Jurisdictional High Court cited supra, we are in total agreement with the assessee that the interest income earned out of the statutory deposits are nothing but business income eligible for deduction u/s. 80P(2)(a)(i) of the Act. When the assessee had given a clear picture about the interest income earned from the said deposits, the authorities below had to consider the said claim based on the judgments relied on by the assessee. Therefore the order of the AO as well as the Ld.CIT(A) is not in accordance with the law and also not in accordance with the principles laid down by the above cited judgments.

Considering the said written submissions and the submissions filed by the assessee, we are of the view that the interest income earned by the assessee from the statutory deposits made with the co-operative banks are eligible for deduction u/s. 80P(2)(a)(i) of the Act. Further, the judgments cited by the assessee also supports the view taken by us. We, therefore set aside the order of the AO as well as the Ld.CIT(A) and direct the AO to grant the deduction in respect of the interest income earned from the co-operative banks on the statutory deposits made by them in accordance with the provisions of the Karnataka Souharda Sahakari Act, 1997 / Karnataka Co- operative Societies Act.

In the result, the appeal filed by the assessee is allowed.