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Facts
The assessee, a cooperative society, filed two appeals. The first challenged the disallowance of Section 80P(2)(a)(i) deduction on interest income from fixed deposits in cooperative/nationalized banks. The second appeal contested a penalty levied under Section 271B for failure to get its books audited under Section 44AB, despite its turnover exceeding the prescribed limit.
Held
The Tribunal, relying on previous Coordinate Bench decisions, held that interest income earned by the cooperative society from surplus funds invested in cooperative banks, societies, and nationalized banks is eligible for exemption under Section 80P(2)(a)(i)/80P(2)(d). For the Section 271B penalty, it was held that income from business or profession is necessary for Section 44AB applicability, and an internal audit is sufficient for a cooperative society, thus the penalty was not sustainable.
Key Issues
1. Whether interest income earned by a cooperative society from investments in banks/other cooperative societies is eligible for deduction under Section 80P. 2. Whether penalty under Section 271B for non-audit under Section 44AB is applicable to a cooperative society.
Sections Cited
143(3), 147, 271B, 80P(2)(a)(i), 80P(2)(d), 44AB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘G’, NEW DELHI
Before: Sh. Satbeer Singh Godara & Sh. S. Rifaur Rahman
ORDER
Per Satbeer Singh Godara, Judicial Member:
These assessee’s twin appeal in for Assessment Years 2011-12, arise against the CIT(A)-16, New Delhi’s order dated 06.08.2019 passed in case No. 10333/2018-19 in proceedings u/s 143(3) r.w.s. 147 and it’s latter appeal ITA No. 836/Del/2024 for A.Y. 2015-16, is directed against the CIT(A)/NFAC, Delhi’s DIN & Order No. ITBA/NFAC/S/250/2023-24/1059607361(1) dated 11.01.2024, in proceedings u/s 271B of the Income Tax Act, 1961 (in short “the Act”), respectively.
Heard both the parties at length. Case files perused.
The assessee’s former appeal for A.Y. 2011-12 raises it’s sole substantive grievance on merits 2 Synergy Waste Management Pvt. Ltd. that both the learned lower authorities have erred in law and on facts in disallowing it’s section 80P(2)(a)(i) deduction of Rs.1,03,68,974/-; representing it’s interest received from fixed deposit in cooperative society/cooperative/nationalized banks; as the case may be, as not “derived” from the eligible business in light of Totgar’s Co-operative Sale Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC).
Learned departmental representative vehemently supports the impugned disallowance in very terms.
We note in this factual backdrop that the tribunal’s recent decision in ITO Vs. Shri Bhairavnath Multistate Cooperative Credit Society Ltd. (2024) 164 taxmann.com 382 (Pune Trib.) has already rejected the Revenue’s very stand as under:
“5. We heard the rival submissions and perused the material on record. We find this issue is no more res integra by virtue of catena of decisions passed by the Coordinate Benches of this Tribunal. In the present case, we find that admittedly the interest income was earned from the investments out of surplus funds made with cooperative banks/socieites, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s.80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s.80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Ltd. v. ITO [IT Appeal No. 1700 (Pune) of 2017, dated 27-12-2021], wherein the Tribunal held as under:- "9. We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act, 1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of 3 Synergy Waste Management Pvt. Ltd. the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or nonmembers does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as 'income from other sources' There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Federation of Housing Building Societies Ltd. [2011] 11 taxmann.com 448 (Punjab & Haryana) , the Hon'ble Gujarat High Court in the case of State Bank of India v. CIT [2016] 72 taxmann.com 64/241 Taxman 163/389 ITR 578 (Gujarat), the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. v. CIT [2014] 50 taxmann.com 278/229 Taxman 68 (Delhi), the Hon'ble Punjab & Haryana High Court in the case of CIT v. Punjab State Cooperative Agricultural Development Bank Ltd. [2017] 77 taxmann.com 308/245 Taxman 125/389 ITR 68 (Bombay) and the Hon'ble Kolkata High Court in the case of CIT v. Southern Eastern Employees Cooperative Credit Society Ltd. [2016] 73 taxmann.com 123/390 ITR 524 (Calcutta) took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO (2015) 230 taxmann 309 (Kar.) and the Hon'ble Telangana and Hon'ble Andhra Pradesh High Court in the case of Vaveru Co- operative Rural Bank Ltd. v. CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit v. ITO (ITA Nos.559/560/PUN/2018, dated 11-122018) has taken view in favour of the assessee following the judgment of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal No. 1 & 2 stands allowed."
4 Synergy Waste Management Pvt. Ltd.
Thus, the order passed by the ld.CIT(A) is in conformity with the settled position of law by virtue of the above discussion. Therefore, we affirm the impugned order directing the Assessing Officer to allow the claim of exemption u/s.80P(2)(a)(i)/80P(2)(d) on the interest income earned on investments made out of surplus funds made with Cooperative banks, Cooperative Societies and Nationalized banks.” 5.1 We adopt the above extract reasoning mutatis mutandis to accept the assessee’s instant sole substantive grievance and direct the learned Assessing Officer to frame his consequential computation as per law. The assessee succeeds in it’s “lead” appeal ITA No. 834/Del/2024.
Next comes the assessee’s latter appeal wherein both the learned lower authorities have levied section 271B penalty on the ground that it had failed to get it’s books audited u/s 44AB of the Act once the corresponding business turnover was of Rs.2,71,51,232/- in the relevant previous year.
Learned departmental representative could hardly dispute the clinching fact that the assessee herein is a co-operative society which is to abide by the various statutory regulations from time to time. And also that case law CIT vs. Market Committee, Sirsa (2012) 25 taxmann.com 384 (P&H) and CIT Vs. District Co-operative Bank (2013) 36 taxmann.com 318 (All.) hold that income from business or profession is must and such an audit by internal Auditor is also sufficient compliance. We thus that the impugned penalty is not sustainable in law. The same is directed to be deleted therefore. This assessee’s latter appeal also succeeds.
No other ground or arguments has been pressed before us.
5 Synergy Waste Management Pvt. Ltd.
These assessee’s twin appeal in & 836/Del/2024 are allowed in above terms. A copy of this common order be placed in the respective case files. Order Pronounced in the Open Court on 20/12/2024.