HALDIA IOC EMPLOYEES WELFARE CO-OPERATIVE CREDIT SOCIETY,HALDIA vs. ACIT, CIRCLE - 27(2), HALDIA, HALDIA

Appellant by : Shri Manoj Dutt, CA Respondent by : Smt. Ranu Biswas, Sr. DR सुनवाईक�तार�ख/ Date of Hearing : 23/09/2019 घोषणाक�तार�ख/Date of Pronouncement : 22/11/2019 आदेश / O R D E R Per Shri S. S. Godara: This assessee’s appeal for assessment year 2014-15 arises against the Commissioner of Income Tax (A) - 7, Kolkata dated 24.04.2017 passed in Case No.185/CIT(A)-7/Kol/Circle-27(2)/16-17 involving proceedings u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’). Heard both the parties. Case file perused.

2.1 The individual grounds of appeal are dealt as under: Ground Nos. 3, 4, 5 & 6: 10% disallowance out of loading and unloading charges, printing & stationery and sales promotion and 20% disallowance out of business promotion. 2.2 The A.O has stated the following in support of the addition - On perusal of the relevant P/L Account of Servo Division and other details, it is found that the assessee Co-operative Society, Servo Division debited i) Loading & Unloading Charges of Rs.2,11,564/-, ii) Printing & Stationery Charges of Rs.1,46,049/-, iii) Business Promotion of Rs.20,96,023/- and iv) Sales Promotion of Rs.73,698/-. The A.R of the assessee was requested to produce all bills & vouchers in respect of these expenses. But he submitted some documents from which it is found that those expenses was paid sometimes to its employees and staffs, its car drivers through self-made vouchers and also to other persons. The A/R of the assessee could not submit bills/vouchers containing complete postal address of the payees. In absence of verifiable bills vouchers genuineness of these transactions cannot be ascertained and identities of the payees have not been proved. Under this circumstance to protect the probable leakage of revenue I hereby disallow 10% of i) Loading & Unloading Charges i.e. Rs.21,156/-, 10% of ii) Printing & Stationery Charges i.e. Rs.14,604/-, 20% of iii) Business Promotion i.e. Rs.4,19,204/- and 10% of iv) Sales Promotion i.e. Rs.7,369/-. 2.3 The A/R of the appellant has made the following submission - 2) The Ld. A.O. disallowed 10% of loading and unloading charges of Servo Division of Rs. 21,156/- on assumption basis (Out of Total expenditure of loading & unloading charges of Rs.2,11,5460/-. The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy of ledger and documents enclosed for your perusal.(Page 5) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITR1, SC] where it was held by the Apex Court that the expression Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business. 3) The Ld. A.O. disallowed 10% of Printing & Stationery Charges of Servo division of Rs.14,604/- on assumption basis (Out of total printing & Stationery expenditure of Rs. 1,46,049/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy of ledger and documents enclosed for your perusal. (Page-6) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI,SC] where it was held by the Apex Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business, 4) The Ld. A.O. disallowed 20% of Business Promotion of Servo division of Rs.4,19,204/- on assumption basis (Out of total Business Promotion expenses of Rs. 20,96,023/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy of ledger and documents enclosed for your perusal. (Page-7) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI, SC] where it was held by the Apex -Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business. 5) The Ld. A.O. disallowed 10% of Haldia IOC Employees Welfare Co-Operative Credit Society Sales Promotion of Servo Division Rs.7,369/- on assumption basis (Out of total Sales promotion expenses of Rs. 73,698/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis 'at all. Copy of ledger and documents enclosed for your perusal, (Page-B) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI, SC] where it was held by the Apex Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business 2.4 Findings of the CIT(A): I have perused the assessment order and the submission of the A/R of the appellant as far as loading and unloading charges, printing & stationery expenses, business promotion expenses and sales promotion expenses are concerned. Most of the payments have been made through cheques and appeared to be genuine. Therefore, disallowances are deleted, However, with respect to business promotion expenses it is seen that most of the expenditures have been made in cash and the AR has not produced all the bills & vouchers during the course of appellate proceedings also. The decision of Hon’ble Supreme Court in 288 IRT 1 is on totally different fact and therefore does not help the assessee. In the instant case the assessee has not been able to establish commercial expediency. Therefore, disallowance is being up-held. Therefore, ground nos. 3, 4 & 6 are allowed and ground No. 5 is dismissed.”

3. We have given our thoughtful consideration to both the parties’ rival contentions against and in support of the impugned estimated business promotion expenses disallowances. It emerges that neither the assessee has proved any nexus between the impugned expenses in the nature of loading and unloading charges and printing and stationery sales promotion by placing all supportive details in entirety nor the lower authorities have found any specific defect in the expenses in issue. Faced with this position, we deem it appropriate in larger interest of justice that a lumpsum disallowance of Rs.1,00,000/- out of Rs.4,19,204/- would be just and proper with the rider that the same shall not be treated as precedent in other assessment year. The assessee’s instant first substantive ground is partly accepted in above terms. Necessary computation to follow as per law.

4. Next comes the later issue of section 80P(2)(a)(i) deduction disallowance of Rs.3,23,80,202/- made in assessment order and affirmed in the lower appellate proceedings. The CIT(A)’s detailed discussion qua this instant issue reads as under:

“4.6 Findings of the CIT(A) I have perused the submission of the appellant and various case laws on this issue.

Haldia IOC Employees Welfare Co-Operative Credit Society (i) Section 80P(4) is reproduced below: 80P(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank For the purposes of this sub-section – (a)”Co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. From the definition u/s 80P(4) it is clear that if it was intended that Co-operative society is not a Cooperative bank then there was no need to Primary Agricultural Credit Society (PACS) or Primary Co-operative Agricultural and Rural Development Bank (PCARDB) since the appellant is not a PACS, therefore, it would be covered under definition of Co-operative Bank and would therefore be covered by 80P(4). (ii) Following definition contained in the Banking Regulation Act. are also useful - (cci) "Co,-operative creditsociety" means a state co-operative bank, a central co-operative bank and a primary co-operative bank; (ccii) "co-operative credit society" means a co-operative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank; [(cciia) "co-operative society" means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies, or any other Central or State law relating to co-operative societies for the time being in force; [(cciiia) "multi-State co-operative bank" means a multi-State co-operative society which is a primary co-operative bank; [(cciiib) "multi-State co-operative society" means a multi-State co-operative society registered as such under any Central Act for the time being in force relating to the Multitate co-operative societies but does not include a national co-operative society and a fed era I co-operative ; l (cciv) "primary agricultural credit society" means a co-operative society,- (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccv) 'primary co-operative bank" means a co-operative society, other than a primary agricultural credit society. (1) the primary object or principal business of which is the transaction of banking business; From this definition of PACS it can be seen that under clause (ccii) Co-operative Credit Society includes Co-operative Land Mortgage Bank. Therefore, even in the Banking Regulation Act Co-operative Bank and Co-operative Credit Society are not mutually exclusive. Similarly clause (ccv) a Primary Co-operative Bank has been meant to be a Co-operative Society.- Haldia IOC Employees Welfare Co-Operative Credit Society In view of the above definition it is clear that the legislature only wants to exclude PACS and PCARDB. Other Credit Societies would be covered under-section 80P(4). (iii) Further, Section 5A of Banking regulation Act, 1949 overrides Bye laws of the co op credit society whose principal business of a primary credit society is thetransaction of banking business and when its paid up capital and reserves attain the level of Rs. 1 lakh, a primary credit society automatically becomes a primary co-operative bank. (iv) Further, vide para 8 in the case of [Salgaon Sanmitra Sahakari Pathpedhi Ltd. v. Additional Commissioner' of Income-tax, Ward-17(3),Mumbai. – [12, Taxmann.com 246 (2011)] the assessee society was classified as “Co-operative Bank” under section 12(1) of the Maharashtra Co-operative Society Act, 1960 as per the registration certificate issued by the Assistant Registrar, Co-operative Society, Mumbai. Once the urban Co-operative credit society and Pal-pedhis are classified as Bank then they are not eligible for benefit provided under section 80P of the Income Tax Act, 1961, from Assessment Year 2007-08 by virtue of Section 80P(4) read with section 2(24)(viia) both of Income Tax Act, 1961. (v) In Citizen Co-op. Society Ltd. VS. Addl. CIT- the, assessee co-operative society was providing members only. It was found that certain activities carried on by assessee were not as per requirements of principles of co-operative society and that assessee was also engaged in activity of bill discounting and providing accommodation cheques by taking cash from members. In view of aforesaid facts, assessee was held not entitled to deduction under section 80P. Further it was held that assessee society being a co-operative bank providing banking facilities to members was not eligible to claim the deduction under section 80P(2)(i)(a) after introduction of sub-section (4) to section 80P[2012] 24 taxmann.com 347 (HYD) vi) Kekri Sahakari Bhumi Vikas Bank Ltd. VS. Income-tax Officer-In view of amendment to section 80P vide Finance Act, 2006 with effect from 1.4.2007, from assessment year 2007-08 onwards, an assessee would be eligible for relief there under if it falls within two categories of co-operative banks allowed by economic activity generating the income, financing forms part of banking, or at least as far as the specified entitles, being co-operative societies, are concerned. In view of above discussion I am of the opinion that the appellant is not entitled to deduction u/s 80P(2)(a)(i), in view of it being covered u/s 80P(4), therefore, I agree with the A.O. that the appellant is not eligible for the deduction, even though on a different reasoning. Therefore, the appeal of the appellant on this ground is dismissed.”

5. Learned Authorized Representative vehemently contends during the course of hearing that both the lower authorities have erred in law and on facts in disallowing u/s 80P(2)(a)(i) deduction claim in the nature of interest income. He quotes the tribunal’s order in assessee’s case dated 09.10.07 deciding the issue in its favour as upheld by hon’ble jurisdictional high court’s judgment in ITA No.416 of 2008 dated 18.08.2008. We sought to know about the nature of assessee’s interest income. Our attention was invited to page 2 para 4 of assessment order dated 30.12.2016 indicating the same to have been derived from surplus funds invested in term deposits in different banks mainly in the State Bank of India. We find in this factual backdrop that the assessee’s impugned deduction claim deserves to be rejected as per this tribunal’s latest decision in ACIT vs. Central Bank of India Employees Co-operative Society Ltd.

Haldia IOC Employees Welfare Co-Operative Credit Society dated 30.11.2018 taking into consideration their lordships’ decision as under:

“2. The Revenue’s sole substantive grievance pleaded in the instant appeal challenges the CIT(A)’s order accepting assessee’s section 80P(2)(a)(i) deduction claim of ₹2,20,70,040/- in the nature of interest income earned from investment in fixed deposits with various banks.

4. The assessee preferred its appeal. The CIT(A) has reversed the Assessing Officer’s action disallowing assessee’s deduction claimed mainly on the ground that this issue is already covered in its favour in earlier years as per tribunal’s order. His findings in para 4.1 of the lower appellate order are very very much unspeaking. He accepts assessee’s written submissions filed during the course of lower appellate proceedings reading as below:- “3 Submission: The AR of the appellant made the submissions as under: 3.1 Grounds No. 1 and 2: The appellant is a Co-op. Society engaged in providing credit facilities to its members and the said fact has been mentioned by the Assessing Officer in his Assessment Order. The management of the appellant Co-op. Society decided for quite a long time to keep a part of its working capital invested in Fixed Deposits with the parent bank (Viz., Central Bank of India) to ensure two Objectives: (a) Absolute security of repayment of members' deposits and (b) Any time conversion of the deposits into liquid funds for utilization in its business. A part of these investments were again pledged with the bank to avail of a credit limit which provided the working capital to the appellant. The loan funds were obtained through overdraft account so that the cost of borrowing remains co-related to the period of utilization of funds only. This arrangement of investment of funds in bank time deposits, obtaining loan against the same and utilization of borrowed funds as working capital, has been continued by the appellant for several number of years in the past and in scrutiny assessments, excepting for the preceding five Assessment Years 2009-10, 2010-11,2011-12, 2012-13 and 2013-14 this arrangement had never been disputed by the Assessing Officer in the matter of determining the business activities of the appellant and consequently in relation to the appellant's claim of Deduction u/s 80P. However, in respect of all the above-mentioned 5(five) Assessment Years, the actions of the Assessing Officer were held to be unjustified and the appellant's contention for its eligibility to Deduction u/s 80P in respect of its entire income from interest, was accepted. Further, the appellant had also kept invested certain statutory funds with Banks in accordance with the relevant provisions of the Multi-State Co-operative Societies Act, 2002. The appellant was formed, and has been operating from long ago for the main purpose of providing credit facilities to its members. This is the main activity pursued by the appellant co-op Society and this is sufficiently evident from the Profit and Loss Account of the appellant as well as the Asset & liabilities disclosed in the appellant's Balance Sheet. Apart from the main activity of providing credit facilities to its members, the appellant also obtains deposits from members to inculcate thrift and savings habits amongst them. The credit to members is provided out of the deposits obtained from the members. The funds obtained as deposits are invested in bank time deposits against which overdraft facilities are obtained and credit facilities are provided to the members. All these activities are closely integrated, interrelated and synergized to carry on the business of providing credit facilities to the members. To take a view that the business of providing credit is only the last step in these chain of activities, will not be reasonable, logical or justified. In the Assessment Year 2014-15 (under Appeal), the Assessing Officer held that the interest income from investments made in time deposits with banks amounting to RS.22070040 was allegedly not eligible for deduction u/s 80P(2)(a)(i) on the ground that these funds had allegedly not been used for the purposes of the appellant's business of providing credit facilities to its members. The Assessing Officer just followed his predecessor's Assessment Orders passed for the immediate five preceding Assessment Years 2009-10 to A.Y. 2013-14. As done earlier for the above-referred five Assessment Years, the Assessing Officer relied on the Supreme Court decision in the case of Totgars' Co-operative Sale Society Ltd. V. ITO, Karnataka [2010] 188 Taxman 282 (SC). The facts of the above-referred case had been that. a part of the funds not immediately required for business, was invested as short-term deposits and interest income on such short term investments were held as non- business income and consequently not eligible for deduction u/s. 80P(2)(a). The facts of the Haldia IOC Employees Welfare Co-Operative Credit Society appellant's present appeal are completely different. Here the funds invested are used for the purposes of business by (a) earning income to be utilised for providing Credit facilities to the members, (b) availing of credit limits which are essential for providing the working capital to the appellant for grant of credit to its members, (c) maintaining the liquidity option and (d) keeping the income option alive. The Assessing Officer considered the Interest income of Rs.22070040 earned from fixed deposits and Savings Bank Account as alleged Income from Other sources and on that basis he denied the deduction u/s 80P(2)(a) in respect thereof. The appellant submits that the above- referred Supreme Court decision relied upon by the Assessing Officer, was distinguishable from the appellant's case as under: (i) The activities of the concerned co-operative societies were to provide credit facilities to its members and to market their agricultural produce, while in the case of the appellant the main objects were to create funds to be lent to the appellant's members and also to provide the members the facilities for the exercise of Thrifts and Savings. (ii) The concerned co-operative society had been in the business of marketing the agricultural produce of its members and the said society used to retain the sale proceeds from such business, in many cases. The "retained amounts" which were payable to the society's members from whom the produce had been bought, not being required immediately for the society's business, were invested in the short-term deposits/securities. In the appellant's case the primary objects were to create fund to be lent to the members as well as to provide facilities for the exercise of Thrifts and Savings. The appellant had to arrange for creation of the necessary funds through - (a) members' contributions to Thrift Fund, (b) members' payments to guarantee fund at the time availing of loan facilities, (c) interest receivable from the members in relation to loans taken by them, (d) interest receivable from the deposits made with the bank out of the contributions/payments received from the members, etc. (iii) While in the case of the concerned co-operative society the interest had been received in relation to the investments made out of the sale proceeds arising out of the business, in the appellant’s case interest was earned from deposits and payments received from the members, for creation of funds to be lent out to the members as well as to reward the members by paying interest on their respective balances in thrift fund and guarantee fund. From the above-mentioned specific differences it may kindly be appreciated that while in the above-referred Supreme Court case, the interest had been earned from deposits made by utilizing the idle fund, in the case of the appellant the interest was earned from the deposits that had been made for facilitating the business of the appellant. Hence, it is submitted that the interest earned on deposits by the appellant had direct nexus to its business of providing loan facilities to its members as well as for encouraging the members towards thrifts and savings. Accordingly, it is submitted that the interest earned on deposits by the appellant should be considered as having arisen from business activities and therefore, deduction u/s 80(2)(a)(i) may kindly be directed to be allowed. It may be noted that in respect of all the preceding five Assessment Years in which the Assessing Officer had denied deduction u/s 80P in relation to the Interest earned on Deposits with Banks, appellant got relief through the respective Appellate Orders passed by the CIT(Appeals)-XIX, Kolkata and the CIT (Appeals)-9, Kolkata for A.Y-2013-14 dated 30.09.2016 (copy of last order enclosed). The departmental appeal for A. Yrs. 2009-10 to 2012-13 before ITAT, Kolkata was decided in favour of assessee in & 1808 to 1809/Kol/14 & ITA 1126/Kol/15 dated 09.11.2016 (copy enclosed). It is further submitted that the Assessing Officer did not appreciate that as per the provisions of the Multi- State Co-operative Societies Act, 2002 the appellant had been required to make investments in respect of specified percentage of its business profit of the year and a substantial portion of the investments represented the statutory funds aggregating to Rs.58957203 [statutory reserve fund of Rs.48481947 and reserve fund (unforeseen loss) of Rs.10475256]. It may kindly be appreciated that these investments having been made for complying with the statutory requirements, had direct nexus with the business carried on by the appellant and thus the interest earned therefrom should necessarily be treated as arising from business carried on by the appellant. Reference may kindly be made to the Supreme Court decision in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194(SC) wherein it was held that any income derived from funds placed in accordance with the statutory requirements, would be considered as income arising from business and thus deduction u/s 80P(2)(a)(i) would be available in respect thereof. In fact, during the assessment proceeding, this particular Supreme Court decision was brought to the attention of the Assessing Officer . Without prejudice to the above claim of considering the interest income earned on deposits as part of business income, the Interest income from WB Co-operative Bank Ltd. of Rs. 30,25,211 had qualified for deduction u/s. 80P(2)(d) as the relevant interest was earned from another cooperative society. The Assessing Officer disallowed this claim without showing any specific reason. The appellant submits that the finding of the Assessing Officer are all wrong on facts and law. WB Co-op. Bank Ltd. is a co-operative society having license to carry on banking business from RBI. It is a scheduled bank and that schedule is mentioned in Banking Regulation Act, 1949 only, which have no relationship with the Income-tax Act or any Co-operative Societies Act. The appellant co-op. society is again a member/shareholder of WB Co-op. Bank Ltd. and owns shares worth Rs. 1100 of that Bank as duly reflected in its Balance Sheet. The appellant submits that Haldia IOC Employees Welfare Co-Operative Credit Society deduction u/s. 80P(2)(d) is available for interest income from W.B. Cooperative Bank Ltd. The deduction has been allowed in the assessee's cases in the past five A.Yrs. by CIT(A) and ITAT. The Assessing Officer did not allow benefit of deduction u/s. 80P(2)(a)(i) on the Miscellaneous Receipts of Rs.2472 stating that the receipts under this head had allegedly nothing to do with business of providing credit facilities to the appellant's members. The appellant submits that the items comprised in the receipt, were directly related to, inextricably connected with and were attributable to the business activities of the appellant co-op. society. In the past appeals the CIT(A) and ITAT allowed the deduction on this type of receipts. The appellant submits that even if it would be assumed that the Interest income from Investments allegedly did not qualify for deduction u/s 80P(2)(a) and/or 80P(2)(d) as it was allegedly not a business income or for any other reason, then the interest cost which the assessee had incurred for earning such Interest income, was required to be deducted from the said interest income from Deposits. The time deposits with bank were made by utilizing the funds received by the appellant by way of its members' deposits carrying interest and therefore the interest earning had to be set-off with interest expense. In this regard reference may kindly be made to the above-mentioned Supreme Court" decision referred to by the Assessing Officer wherein the Supreme Court remitted to the Karnataka High Court, the issue of deducibility of cost of funds and appropriate administrative expenses u/s 57. The appellant submits, without prejudice to the submissions made in regard to Grounds Nos.1and 2 above, that in the event of considering the Interest income of Rs.22070040 as allegedly not a part of Business Income, simultaneously with the exclusion of the said sum of Rs.22070040 from the appellant's F.: Business Income, the Assessing Officer should also have excluded the expenses towards Interest paid on Deposits aggregating to Rs.21073824, out of the head 'Business Income' since the said expenses of interest had direct nexus with the earning of the Interest on deposits. Hence, it is submitted that if it is held that the Interest income of Rs.22070040 would not be eligible for deduction u/s 80P(2)(a)(i), necessary direction may kindly be given to the Assessing Officer to reduce the Interest expenses of RS.21073824 from the Interest income of Rs.22070040 for determining the income/loss arising from such earning of Interest allegedly assessable under the head "Income from Other sources".

Haldia IOC Employees Welfare Co-Operative Credit Society

5. Aggrieved by the orders of AO, the Assessee preferred appeal before CIT(A). The CIT(A) held that interest income had to be assessed under the head income from business and that the Assessee was entitled to deduction u/s.80P(2)(a)(i) of the Act on the interest income in question. In doing so, he followed his own order in Assessee’s own case in AY 2012-13 wherein he had allowed similar claim of the Assessee. 6. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal. At the time of hearing it was brought to our notice that this tribunal in Assessee’s own case adjudicated identical issue in I.T.ANos.158 & 1808 to 1809/Kol/14 & ITA 1126/Kol/15 for Assessment Years : 2009-10 to 2012-13 by order dated 9.11.2016. The tribunal held on identical issue on identical facts as follows: “11. We have given a very careful consideration to the rival submissions. Since the revenue has laid much emphasis on the decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Society 322 ITR 283 (SC), we deem it necessary to deal with this contention. 12. This tribunal had an occasion to deal with similar objections in the case of another co-operative society similar to the Assessee in the present appeals. In for Assessment Year: 2009-10 in the case of Rupnarayanpur Samabay Krishiunnayan Samity Ltd. Vs. A.C.I.T., Circle-1, Hooghly, the Assessee was an is an agricultural credit society duly registered under the West Bengal Cooperative Societies Act, 1983. In the course of proceedings before CIT(A), the CIT(A) noticed that the assessee had claimed deduction u/s 80P(2(a) (i) of the Act on interest income arising from Savings Bank A/C. and Recurring Deposit(RD) Account which was made by the Assessee from and out of the RD Account made by its members with the Assessee. The Revenue took the view that as per the decision rendered by the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd vs ITO 322 ITR 283 (SC) interest earned on deposits had to be regarded as income under the head ‘Income from other sources’ and therefore deduction u/s 80P(2)(a)(i) of the Act ought not to have allowed to the assessee as only the whole of the amount of profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members is allowed as deduction under the said provision. On further appeal by the Assessee before the Tribunal, the Tribunal held as follows: “6. At the time of hearing of this appeal the ld. Counsel for the assessee filed before me a copy of the decision rendered by ITAT, Kolkata Bench in the case of S.E., S.E.C. & E.Co. Railways Employees’Co-operative Credit Society ltd. Vs ACIT in ITA No.1693/Kol/2012 order dated 30.10.2014. In the aforesaid case the identical question as to whether interest income had to be regarded as income from business or income from other sources had come up for consideration. The Assessee in the aforesaid decision accepted loans and deposits from its members and utilized the same towards providing loans and credit facilities to its members. However excess funds were utilized in making deposits in banks and investments. The Tribunal relying upon the decision rendered by the Hon’ble Calcutta High Court in the case of CIT vs South Eastern railway Employees Co-operative Credit Society in G.A.No.1838 of 2010 dated 22.07.2010 came to the conclusion that interest income has to be regarded as income from business of banking and is entitled for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal had also distinguished the decision rendered by the Hon’ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd vs ITO (supra). The following observations of the Hon’ble Tribunal read as under :- “7.1. We further find that the issue involved is covered in favour of the assessee by catena of decisions of the Tribunal in assessee’s own case. These decisions are also affirmed by the Hon’ble Jurisdictional High Court in its order for A.Yr.2005-06. In this order the Hon’ble Jurisdictional High Court has considered all the relevant orders and has decided the issue in favour of the assessee. We may gainfully reproduce the operative order of the Jurisdictional High Court which is as under :- “We have gone through the impugned judgment and order of the Learned Tribunal. It appears that the point involved .is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the I.T. Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97 show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. It is submitted by Mr.Bhowmick that there has been challenge of the decision in relation to assessment Haldia IOC Employees Welfare Co-Operative Credit Society 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of the decision of the Tribunal in relation to the assessment years 1998- 99 to 2002-03 and also 2003-04 to 2004-05 the matter would have been different. The revenue did not take any step whatsoever. Therefore, we presume the revenue has accepted the subsequent view of the Tribunal and the same now hold the field right now.” 7.2. Considering the above we find that this issue is squarely covered in favour of the assessee by the decision of the Hon’ble Jurisdictional High Court in assessee’s own case. In this regard we would like to place reliance upon the decision of the Hon’ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to take a different view, any deviation is not permitted. 7.3. Now we come to the case laws relied upon by the ld. CIT(A). As regards the decision of the Hon’ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) we find that the said decision is not applicable in the facts of the case. We find that the Hon’ble Apex Court in the said decision in para 11 has itself mentioned that “We are confining the judgment to the facts of the present case”. The facts of the case were that assessee’s business was to provide credit facilities to its members and to market their agricultural produce. In many cases assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purposes, it invested same in specified securities and earned interest income. In these circumstances the Hon’ble Apex Court had held that interest earned would come in category of ‘Income from other sources’ taxable u/s 56 of the Act and would not qualify for deduction as business income u/s 80P(2)(a)(i). From the above it is amply evident in the present case the assessee has not retained any amount due to its members and instead of paying the same had invested the same and earned interest. Thus this case law is not applicable on the facts of the present case. 7.4. As regards the decision of Hon’ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi Bikash Co-op. Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In that case the question was the treatment of interest earned on provident fund and rental income as attributable to banking business and this qualifying for deduction u/s 80P(2)(a)(i) of the Act. 7.5. In the background of the aforesaid discussion and precedent we hold that the issue is squarely covered in favour of the assessee by the decision of the Tribunal and the Jurisdictional High Court in assessee’s own case. The decision relied upon by the ld. CIT(A) are not applicable in the facts of the case. The principle of consistency as conveyed by the Hon’ble Apex Court mandates that the Revenue does not take a different stand. Accordingly we set aside the orders of the authorities below and decide the issue in faovur of the assessee.” 6.1. Respectfully following the above decision and taking down the fact that interest income in the present case is identical to the interest income received by the assessee in the decision referred to above. I hold that the assessee is entitled to deduction u/s 80P(2)(a)(i) of the Act in respect of the interest income.”

13. The aforesaid view has also been followed by the Tribunal in I.T.A.Nos.737-742/Kol/2011for Assessment Year: 1996-97 to 2001-02 in the case of A.C.I.T., Circle-56, -vs.-The West Bengal State Co-operative Bank Ltd.

before us, cannot be sustained.”

7. It is not disputed before us by the parties that the facts and circumstances under which the appeal was decided by the Tribunal in the earlier AYs was identical to the facts and circumstances in the present AY. We are therefore of the view that the decision rendered by the tribunal will be applicable to the present AY also. Respectfully following the decision of the Tribunal in Assessee’s own case, we uphold the order of the CIT(A) and dismiss the appeal by the revenue.

8. In the result, appeal by the revenue is dismissed.” Mr. Banerjee accordingly prayed for rejection of the instant appeal.

6. We have given our thoughtful consideration to rival contentions. The sole dispute between the parties is about the correctness of assessee’s sec. 80P(2)(a)(i) deduction claim of ₹2,20,70,040/- pertaining to interest income from fixed deposits and other investments made in Central Bank of India as well as West Bengal State Co-operative. It appears at the time instance that this taxpayer’s case is squarely covered by this tribunal’s earlier year in its favour (supra). Relevant factual backdrop however speaks otherwise. It is sufficiently clear by now that the above co-ordinate bench followed yet another tribunal’s order declining Revenue’s stand on sec. 80P(2)(a)(i) issue as per hon'ble jurisdictional high court’s decision in CIT vs. South Eastern Railway Employees Co-operative Credit Society in ITAT No.135 of 2010 GA No.1838 of 2010 dated 22.07.2010. The Revenue had filed said appeal against the tribunal’s order holding the concerned assessee’s Haldia IOC Employees Welfare Co-Operative Credit Society interest income arising from investments in banks to be eligible for sec. 80P(2)(a)(i) deduction. Their lordships’ detailed discussion in the said case qua in the instant issue as follows:- “It appears in this matter the Revenue wants us to admit the appeal on the points as formulated hereinbelow; - i) Whether on the facts and circumstances of the case, the interest earned by the assessee to the tune of Rs.l,18,07,64S/- out of its investment in banks is not the activity that arose from the activity of providing loan and credit facilities to its members as the society is not engaged in the business of banking and is therefore not qualifying for deduction u/S.80P(2a)(a)(i) of the Act, the learned Tribunal is correct in law in holding that interest earned on such investment is within the purview of section 80P of the Act? We have gone through the impugned judgment and order of the Learned Tribunal. It appears that the point involved is whether interest earned out of the investment earned by the assessee cooperative can be treated to be the income arising out of business activity or from other sources in order to apply the provision of Section 80P(2)(a)(i) of the LT. Act. It is an undisputed factual position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97- Then again in relation to the assessment years 2003-04 and 2004- 05 a similar point arose. The Learned Tribunal in relation to the assessment years 1998-99 to 2002-03 by order dated 10.11.2006 in to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years 2003-04 and 2004-05 has deleted the disallowance made in those assessment years and it was held that the interest earned by the assessee cooperative society from its short term and fixed deposits with the banks and other institutions were disallowed on the ground that this income was not business profit of the assessee society but was income from other sources. The Ld. tribunal has also has held that income from investment in banks and other financial institutions is the business income of the assessee society and it is eligible to get deduction under Section 80P(2)(a)(i). The Tribunal has overruled the decisions rendered against the assessee in relation to assessment years 1995-96 and 1996-97 on the same issue in relation to subsequent years. It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2)(a)(i) on interest on investment amounting to RS.1,18,07,645/- in this assessment year also. Since the Tribunal found that this decision of the Tribunal was followed by CIT (A) there is no reason to take a different view. Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter. Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. It is submitted by Mr. Bhowmick that there has been challenge of the decision in relation to assessment years 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of the decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and also 2003-04 to 2004-05 the matter would have been different. The revenue did not take any step whatsoever. Therefore, we presume the revenue has accepted the subsequent view of the Tribunal and the same now hold the field right now. The appeal is dismissed accordingly.”

7. We find that this issue does not set at rest as per the above extracted judgment. Their lordship’s subsequent decision in the very assessee’s case for assessment years 2003-04 and 2004-05 came to be decided on 15.07.2016 reported as (2017) 390 ITR 524 (Cal). The Revenue’s substantial question of law admitted therein was as to whether the said assessee’s interest income arising from investment in banks and other financial institutions quantify for sec. 80P(2)(a)(i) deduction or not. The tribunal had admittedly held the same to be eligible for deduction. Hon'ble jurisdictional high court’s answers Revenue’s substantial question of law as follows:- “7. We have not been impressed by the first submission advanced by Mr.Saraf. If the Multi-State Co-operative Societies At, 2002 does not provide for the consequences of an omission to act in accordance with section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner the business can be done only in that manner or not at all.

8. We are also not impressed by the submission advanced by Mr. Khaitan that the interest earned by the assessee from the investments made, to the extent of a sum of Rs.99 lakhs during the assessment year 2003- 004 and a sum of Rs.1.12 crores during the assessment year 2004-05, should be attributable to the business of providing credit facilities to it members Section 80P, it is true provides that “in the case of a co-operative society engaged n carrying on the business... providing credit facilities to its members .... the whole of the Haldia IOC Employees Welfare Co-Operative Credit Society amount of the profits and gain of business ‘attributable’ to any such activity ‘shall be deducted’. But there is a caution appearing in sub-section (1) which provides that the gross total income of a co-operative society may include income from various activities. It is only an income falling under sub-section (2), which is deductible. The Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd. v. ITO reported in [2012] 322 ITR 283 (SC) took the following view in para. 10 of the report (page 289): ‘At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes The assessee(s) markets the produce of its members whose sale proceed at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the member’ account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of ‘income from other sources’, hence such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with ‘Deductions in respect of certain income’. The headnote to section 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-society. An income, which is attributable to any of the specified activities in section 80P(2) of the Act, would be eligible for deduction. The word ‘income’ has been defined under section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. Parliament has included specifically ‘business profits’ into the definition of the words ‘income’. Therefore, we are required to give a precise meaning to the words ‘profits and gains of business’ mentioned in section 80P(2) of the Act. In the present case, as stated above, the assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression ‘profits and gains of business’. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its embers or marketing of the agricultural produce of its member. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as ‘investment’. Further, as stated above, the assessee(s) markets the agricultural produce of its member. It retains the sale proceeds in many cases. It is this ‘retained amount’ which was payable to its members, from whom produce was brought, which was retained by the assessee-society, was a liability and it was shown in the balance-sheet on the liability side. Therefore, to that extent such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii). Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act.

Haldia IOC Employees Welfare Co-Operative Credit Society Realising his difficulty, MR. Khaitan submitted that the assessee was under the impressions that the income arising out of investments is also attributable to the business of providing credit facilities to its members and on that basis, the assessee did not separately provide for the expenditure incurred for the purpose of earning Rs.99 lakhs during the assessment year 2003-04 and Rs.1.12 crores during the assessment year 2004-05, form investments. Those investments were obviously made from out of the funds deposited by the members and for such deposits, interest has been paid to those members by the assessee. The interest paid to those members on account of such deposits should, therefore, have been separately accounted for, which exercise was not undertaken. The result thereof was that the expenditure was artifically enhanced and the income arising out of the business of providing credit facilities to its members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of Rs.99 laksh and Rs.1.12crores respectively. The expenditure incurred for earning those two amounts of income is the amount of interest paid for that money to the members which has to be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, The Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under section 63 as an income attributable to the business. Mr. Saraf submitted that this is a new case made out by the assessee before the High Court. This was never the plea before any of the authorities. He is no doubt correct in his submission. But court cannot refuse to give a person what is due to him. As a matter of fact, only that is a good judgment which renders every person his due. Whether the assessee claimed the amount or did not claim the amount, is not of much importance. What is of importance is whether the benefit is allowable in law? If an answer to that question is in the affirmative, then that benefit has to be allowed. In that view of the mater, the question raised for decision is answered in the affirmative and in favour of the Revenue to the extent as indicated above. The appeal is allowed. The matter is, however, remained to the Assessing Officer (a) to work-out the interest earned under sections 63 and 64 of the Multi-Stat Co-operative Societies Act, 20002 and to allow benefit under section 80P and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs.99 lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from the expenses of eligible business. Consequent increased amount of profits of eligible business as discussed above shall be the amount of deduction available to the assessee under section 80P.”

9. This leaves us with the equally significant aspect of computation of the impugned sec. 80P(2)(a)(i) deduction. There is hardly any dispute about the assessee having derived its interest income from investments made in a nationalised and State co-operative bank (supra). We quote jurisdictional high court’s above stated latter judgment first of all make it clear that the Assessing Officer needs to re-do the entire computation afresh. He shall treat assessee’s interest income if any, earned from investments made from deposits sec. 64 r.w.s. 63 of the Multi-State Co-operative Societies Act, 2002 to be very much attributable to the business of providing credit facility to its members. This shall follow the necessary netting exercise of the impugned interest income vis-à-vis the corresponding interest expenditure as well for arriving at the impugned disallowance. Needles to say, the assessee shall be afforded adequate opportunity of hearing in consequential proceedings.”

Order is pronounced in the open court on 22.11.2019.