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Facts
The assessee, a State Level Co-operative Federation, filed a nil return for AY 2018-19, claiming 100% deduction under Section 80P for interest income of Rs. 1,44,00,920/- earned from commercial banks. The Pr. CIT invoked revisional powers under Section 263, finding that the interest income, derived from a revolving fund provided by the State Government (not members' contributions), was not eligible for 80P deduction and was assessable under Section 56 as income from other sources. The original assessment order, which allowed the deduction, was deemed erroneous and prejudicial to the revenue.
Held
The Tribunal upheld the Pr. CIT's revisional order, confirming that the interest income earned by the assessee from commercial banks on funds allocated by the State Government, which were not members' contributions, was not eligible for deduction under Section 80P. The Tribunal noted that the Assessing Officer had failed to examine this critical aspect during the original assessment proceedings, rendering the order erroneous and prejudicial to the interest of the Revenue.
Key Issues
Whether interest income earned by a co-operative society from commercial banks on funds provided by the State Government is eligible for deduction under Section 80P, and whether the Pr. CIT was justified in exercising revisional powers under Section 263 due to the Assessing Officer's failure to examine this issue.
Sections Cited
263, 143(3), 143(3A), 143(3B), 80P(2)(d), 80P(2)(a)(iii), 80P(2)(a)(iv), 139(1), 56, 261, 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Dr. BRR Kumar & Ms. Suchitra Kamble
आदेश/ORDER Per Suchitra Kamble, Judicial Member:
1. This is an appeal filed against the order dated 14-03- 2024 passed by PCIT, Ahmedabad-1 for assessment year 2018-19.
The grounds of appeal are as under:- “1 The order passed by learned PCIT by exercising revisional power u/s. 263 is bad in law. The appellant craves leave to add, amend or alter the grounds of appeal at the time of hearing, if need arise.
The assessee filed return of income on 30-10-2018 for assessment year 2018-19 declaring total income of Rs. 0/-. The assessment order u/s. 143(3) r.w.s. section 143(3A) and 143(3B) of the Income Tax act, 1961 was passed on 02-04- 2021 on assessed income of Rs. 0/-. The assessee earned interest totaling to Rs. 1,44,00,920/- from banks other than co-operative society bank, which was not eligible for claiming deduction u/s. 80P(2)(d) of the Act. The Pr. CIT therefore found that the assessment order is erroneous and prejudicial to the interest of the Revenue. Accordingly, notice u/s. 263 of the Act dated 24-01-2024 was issued to assessee. The assessee submitted reply and stated that the assessee is State Level Co-operative Federation dealing in multi-commodities for the farmers through co-operative network. The return of income was filed u/s. 139(1) of the Act after claiming deduction of 100% of income u/s. 80P(2)(a)(iii) & (iv) of the Act. After taking contention of the assessee, the Pr. CIT held that the interest income earned by the assessee is not incidental to the business of the assessee, therefore, it falls within the purview of provisions to section 56 of the Act i.e. income from other sources. The interest received from the following banks are as follows: Particulars Amount (Rs.) Katak Mahindra Bank 1,27,46,033/- Central Bank of India 14,14,129/- Vijaya Bank 1,88,452/- State Bank of India 52,306/- Gujarat State Cooperative Cotton Federation Ltd., A.Y. 2018-19 Total Interest Received 1,44,00920/- The Pr. CIT held that the bare provisions of section of Section 80P(2)(a)(iii) and 80P(2)(a)(iv) provided for income received from marketing of agricultural produce grown by members of co-operative society and purchase of seeds etc. for the purpose of supplying them to its members. Thus, Pr. CIT held that, the Assessing Officer has erred in allowing deduction u/s. 80P(2) of the Act as the assessee is not permissible to claim deduction u/s. 80P(2)(a)(iii) and 80P(2)(a)(iv) on the interest income earned from the commercial banks. The Pr. CIT directed the Assessing Officer to pass fresh assessment order and set aside the order passed u/s. 143(3) r.w.s. 143(3A) and 143(3B) of the Act.
Being aggrieved by the order passed u/s. 263 of the Act by the Pr. CIT, the assessee filed appeal before us.
The ld. A.R. submitted that the assessee is a registered co-operative society and has given all the details to the Assessing Officer related to the investment amount mentioned in the balance sheet i.e. Rs. 40 lacs in non- depreciable assets (RKVY) and Rs. 565.80 lacs in the subsidy from RKVY (on lined delinting) appearing in liability side. The ld. A.R. submitted that funds would be provided to the States as ‘grant’ by the Central Government and the assessee federation which is established in 1975 is eligible for deduction u/s. 80P of the Act and can claim of interest.
Gujarat State Cooperative Cotton Federation Ltd., A.Y. 2018-19 This federation was registered under Co-operative Society in 1975 and is engaged in the activities of purchase of agricultural products from the members. In assessment year 2017-18, the assessee society has been allocated a purchase quota from the NAFED and purchased agricultural product from farmers. During the year under consideration, purchase quota has been allocated by the NAFED to purchase agricultural products from farmers at MSP price and also to carefully run the activity of the purchase from farmers, State Government of Gujarat allocated a revolving fund to the assessee. These funds has been used for working capital for operation of purchase. Once, the whole purchase process has been completed, the assessee has to pay back the fund to the Gujarat Government. During the year, the assessee has made FDR for short term period in respect of ideal fund which remained un-used and earned interest on the same as the source of this income is attributable to the main activity of the societies. The assessee has claimed the same as a deduction u/s. 80P of the Act. Thus, the Pr. CIT has not taken into consideration this aspect which was already verified by the Assessing Officer while passing assessment order. The ld. A.R. submitted that the assessee’s treatment of these FDR and its interest earned on the said FDR was accepted in the earlier year i.e. 2016-17 and 2017-18. The ld. A.R. relied upon the following decisions:
CIT vs. Nirma Chemicals Works (P.) Ltd. (2009) 182 taxman 183 (Gujarat)
Gujarat State Cooperative Cotton Federation Ltd., A.Y. 2018-19 2. CIT vs. Dhaneswar Rath Institute of Engineering & Medical Sciences (2013) 147 taxmann.com 469 (Orissa) 3. CIT vs. Kohinoor Foods Ltd. (2019) 414 ITR 249 (Del) 4. CIT vs. Escort Ltd. (2011) 198 Taxman 324 (Delhi) 5. Pr. CIT, Surat-2 vs. Shreeji Prints (P.) Ltd. (2021) 130 taxman.com 294 (SC) 6. Pr. CIT vs. Asiatic Bearing Co. (2025) 172 taxmann.com 646 (Gujarat) 7. CIT, Delhi-IV vs. M/s. Dalmia Promoters & Devels P. Ltd. Civil Appeal No. 74/2007 dated 16 Sep,2015 The ld. A.R. further submitted that the notice was issued u/s. 263 was on the basis of the decision of Hon’ble Supreme Court in case of BSES Rajdhani Power Ltd. vs. PCIT (2023) 152 taxmann.com 139 (SC).
The ld. D.R. submitted that the assessee invested in the commercial banks and earned interest income which cannot be treated as agricultural income or the income derived from the contribution of the members of the society (assessee federation). The original FDR amount can be the contribution but the interest derived from the same cannot be treated as contribution from the members of the society or the income derived u/s. 80P(2)(a)(iii) & (iv) of the Act. The Assessing Officer did not look into this aspect and has simply granted deduction u/s. 80P(2)(d) of the Act. The ld. D.R. further submitted that the case laws relied upon by the assessee/ld. A.R. are not relevant to the present case as the Gujarat State Cooperative Cotton Federation Ltd., A.Y. 2018-19 assessee is earning the income which does not have any direct connection related to the contribution of the farmers/members of society. Beside this, interest earned from the commercial banks are directly not allowable u/s. 80P(2)(a)(iii) and (iv) as per decision of Hon’ble Supreme Court in case of Totgar Co-operative Sales Society Ltd. Vs. ITO 322 ITR 283 (SC). Thus, ld. D.R. submitted that merely in the earlier assessment year, the same has been allowed does not state that mistake should be repeated in all the assessment years subsequently. There is a loss of revenue and thus, the Pr. CIT has rightly invoked section 261 of the Act.
We have heard both the parties and perused all the relevant materials on record. It is pertinent to note that the assessee federation is not denying the fact that the funds has been used as a working capital for operation of purchase. Once, the whole purchase process has been completed, the assessee has to pay back the funds to the Gujarat Government. During the year, the assessee has made FDR for short term period in respect of ideal fund which remained un-used and earned interest on the same. Thus, this fund was allocated by the State Government to the federation which is termed as a revolving fund to the assessee. The said fund was remaining ideal, it cannot be treated the fund from the members of the society but it is the fund from the Government which is a matter of fact. This aspect was never examined by the Assessing Officer at any point of time, while issuing notices u/s. 142(1) dated Gujarat State Cooperative Cotton Federation Ltd., A.Y. 2018-19 08-11-2019 and 25-11-2025. In page 51 of the paper book, the assessee has categorically admitted that these revolving funds are from farmers (which are not members per se), state government of Gujarat. Beside this, the assessee society has not kept the said fund in any other society which is a member of the assessee society but has kept it in a commercial banks and has earned the interest therefore this has to be treated as income from other sources. This aspect was earlier not verified by the Assessing Officer at the time of assessment proceedings. Thus, this is a loss for the Revenue and the assessment order passed by the A.O. is prejudice to the interest of Revenue. Thus, the Pr. CIT has rightly invoked section 263 of the Act which is a revisionary power and has given proper opportunity to the assessee to explain the same. The case laws relied upon by the ld. A.R. will not be applicable in the present assessee’s case as the said case laws are on the basis of material which was already examined by the Assessing Officer at the time of assessment proceedings. But in present assessee’s case, the examination of this issue was not done at all. Thus, the appeal of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.