THE JASSOMAZARA COOP MULTIPUPOSE SOCIETY LIMITED,NAWANSHAHAR vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-2, JALANDHAR

In response to notice u/s 148 dated 16/03/2021, return has been filed by the assessee declaring NIL income after claiming deduction u/s 80P ( chapter VIA ) amounting to Rs.42,47,978/- , which has been disallowed by the AO, treating the said deduction as income of the assessee, under the head “income from other source”, by observing in paragraph – 5 of the order, that the assessee has earned interest income on investment made with Nationalised Bank, Scheduled Bank, Cooperative banks and assessee has also claimed the same as deduction u/s 80P(2)(a) of the Act . It is also observed by the AO in paragraph – 5 (page –7) of assessment order 6. (last sentence reproduced): “In the present case at hand, the assessee in addition to carrying on the business of banking and providing credit facilities to its members also made investment in Banks from which it earned interest income and also received Dividend income on Bank shares.

As such, on the basis of the facts put up by the assessee vide its written explanations, before the AO, in course of re assessment proceedings, before him, the AO has disallowed the claim u/s 80P(2)(d) of the Act 61, and has assessed the interest portion received from bank amounting to Rs. 42.47 lakhs, under the head Income from other sources u/s 56 of the Act 61.

The matter was carried in appeal before the first appellate authority and the Ld. CIT ( A ) NFAC, has also considered the interest income to have been earned to 516/Asr/2024 Assessment Years: 2013-14, 2017-18, 2018-19 and 2020-21 6 on FDR maintained with Nationalised banks , Schedule Banks and cooperative banks and has proceeded on the basis of the law laid down by the Hon’ble Apex court in the case of Totgars Cooperative SS Ltd vs ITO ( supra ) , holding that interest income earned from investments with bank cannot be attributed as income from its business activity. Thereafter, the Ld CIT(A) further relied on the decision of the jurisdictional High court in the case of CIT vs Punjab State Co operative Agricultural bank ltd 389 ITR 607 ( Punjab and Haryana ) , and dismissed the appeal holding as follows :

Now in course of hearing before the tribunal the Ld AR of the assessee has filed a written submission , stating that during the period under appeal the assessee society has made deposits out of its reserve funds in cooperative banks namely (a) The Nawanshahr Central Cooperative Bank Limited, and (b) The Citizen Urban Cooperative Bank Limited, which are also cooperative societies registered under the Cooperative Societies Act of the concerned states or under Multi State Cooperative Societies Act and are licensed by RBI to do business in banking , but its status remains a cooperative society.

The crux of the argument of the Ld. AR is that the interest or dividend, derived by the assessee from these two above cooperative banks against investment of surplus in fixed deposits, are deductions available to the assessee society under provisions of section 80P(2)(d) of the Act 61, because these tantamount to investments being made with any other cooperative society, because for all practical purpose cooperative banks are also cooperative societies. In support of his argument, the Ld. AR relied on the decision of the Hon’ble Supreme Court in the case of PCIT – 17, Mumbai vs Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Limited [ civil appeal no 8719 / 2022 dated 20/04/2023 ] , where however, the issue was different, where it was held that to 516/Asr/2024 Assessment Years: 2013-14, 2017-18, 2018-19 and 2020-21 8 cooperative credit society is not a bank for the purpose of section 80P(4) of the Act 61. (That is not the point of dispute in the instant case before us).

The Ld. AR also relied on the ITAT, coordinate bench decision in the case of (i)“ Urapar Cooperative Service Society ”

The Ld. DR, relied on the order of the Ld. CIT (A), and the order of the AO, and submitted that firstly, there is no bifurcation of the interest earned, available, as to how much of the total interest receipt of Rs. 86.92 lakhs, pertains to members and how much from banks, and which are the banks involved, (ii) secondly, the names of the cooperative banks now stated by the Ld AR, The Nawanshahr Central Cooperative Bank Limited, and (b) The Citizen Urban Cooperative Bank Limited, has never been placed before the AO in course of re- assessment and it does not find mention in the computation of income filed by the assessee , as reproduced in the body of the assessment order, and as such he argues that the admissibility of the same is subject to verification, (iii) the assessee in his written submission and computation filed , before the AO has claimed the entire interest received from members and bank FD as part of business receipts and has claimed deduction as per provisions of section 80P(2)(a)(i) of the Act and nowhere in the computation of income and the enclosed notes and explanation filed by the assessee there is any indication of claim of deduction u/s 80P(2)(d) of the Act 61 to 516/Asr/2024 Assessment Years: 2013-14, 2017-18, 2018-19 and 2020-21 9 and (iv) even in the reply to SCN dated 29/03/2022, the claim of the assessee is restricted to sections 80P(2)(a)(i) and u/s 80P(2)(a)(iv) .

He further submitted that before the Ld. CIT ( A ) , also, no bifurcation of interest income has been furnished with any supporting documentary evidence relating to interest actually earned from cooperative banks and in absence of any documentary evidences regarding actual investments in co-operative banks , the Ld CIT ( A ) has given a specific finding in para 7.2 and 7.3 of the appellate order , that FD is maintained in nationalised banks , Schedule banks and cooperative banks , without any bifurcation of quantum , and as such he adjudicated on the claim relating to section 80P(2)(a)(i) of the Act , as claimed by the assessee in re- assessment proceedings and has correctly followed the law laid down by the Hon’ble Apex court in the case of “ Totgars Cooperative Sale Society ( Supra ) , and has rightly held that interest income earned on bank FD will be assessed separately under the head “ Income from other source”, and he prays for upholding the order of the first appellate authority.

We have heard the rival submissions and considered the materials on record and we find the case is deficient on factual evidences , in as much the claim of the assessee before the AO was under section 80P(2)(a)(i) where vide its written submission and computation during reassessment proceedings , the assessee has claimed the interest from banks as part of business income , without any bifurcation of interest actually earned from members and from banks ( without any specification whether nationalised banks or cooperative banks ) and without furnishing any details of investment actually made in co operative banks . In absence of any whisper in the computation filed by the assessee regarding claim u/s 80P(2)(d) of the Act, the AO cannot be faulted for considering the same to be to 516/Asr/2024 Assessment Years: 2013-14, 2017-18, 2018-19 and 2020-21 10 interest earned from scheduled banks and proceeding accordingly as per the law laid down by the Hon’ble Apex court, and treating the FD interest portion as income from other sources u/s 56 of the Act 61. Moreover, in the entire body of the assessment order there is no mention or discussion regarding the quantum of investments being exclusively made with cooperative banks on the other hand the finding of the AO in the order ( para – 5 ) , indicates investment in Nationalised banks, schedule banks and cooperative banks , all together . This exclusive claim of investments in cooperative banks, came up for the first time in the written submission before the tribunal. Moreover, the said issue regarding claim u/s 80P(2)(d) has also not been properly taken up in the grounds in form 35 (in first appeal), nor has it been discussed by the Ld. CIT (A) in his order, even though we find that the same was a part of the appellate submissions. 15.1 However, and there is no finding regarding the verification of documentary evidences on this issue as rightly pointed out by the Ld. DR, and in para 7.2 and 7.3 of the appellate order, the finding of the Ld. CIT (A), also points towards earning of interest income on FDR’s maintained with nationalised banks, scheduled banks and cooperative banks (all together) which are identical findings of that of the AO. Legally, interest income on bank FD from nationalised banks, scheduled banks (which are not cooperative society) cannot be claimed as deduction u/s 80P(2)(d) of the Act 61. 15.2 We further observe that the Ld. first appellate authority , has never adjudicated on the issue of the claim of the assessee u/s 80P(2)(d) of the Act 61 , and has decided the matter considering the interest income to have been earned by the assessee from schedule banks and has relied on the Hon’ble Apex court in the case of Totgars Cooperative sale Society ( supra ) and also on the jurisdictional to 516/Asr/2024 Assessment Years: 2013-14, 2017-18, 2018-19 and 2020-21 11 High Court in the case of Punjab State Cooperative Agricultural bank Ltd ( supra ) ( Punjab and Haryana ) to dismiss the claim of deduction of the assessee. 15.3 As such in the interest of justice , we are of the opinion that factual aspect of the matter needs to be verified at the onset , before rendering proper justice , and we find that the submissions of the assessee at the appellate stage on facts are in contradiction with the factual submission and computations filed before the AO in course of reassessment proceedings (as reproduced in the assessment order ) and the case is deficient in factual evidence and has proceeded on the basis of incorrect factual representations leading to incorrect findings. 15.4 In our humble opinion, interest of justice will be best served if the matter is remanded back to the Ld. CIT (A), to consider the claim of the assessee that interest income is earned out of investments in cooperative banks only and not from any Nationalised Banks, Schedule banks, as wrongly mentioned, and the assessee claims deduction u/s 80P(2)(d) of the Act, in respect of the interest portion derived from cooperative banks only.

Since this specific claim of deduction u/s 80P(2)(d) of the Act, has remained un-adjudicated, quite likely in absence of any documentary evidences or any paper book in support of such claim, we remand the matter to the Ld. first appellate authority to adjudicate on this issue after calling for necessary particulars from the assessee and after obtaining necessary report from the AO as per provisions of law.

The assessee shall be allowed reasonable opportunity of being heard.

In the result the appeal of the assessee is allowed for statistical purpose.

Asst Year: 2017-18 : The issue in this year is also the same regarding claim of deduction u/s 80P(2)(d) of the Act 61 , in respect of interest earned on fixed deposits, by the assessee from cooperative banks ( other cooperative societies ) , but in this year also the finding of the AO in para 5.1 (iii) Page – 5 of the assessment order , the observation of the AO reads as follows “ The interest was received from the cooperative bank and other commercial bank which were not members of the assessee cooperative society “ The Ld. CIT ( A ) has followed the law laid down by the Hon’ble Apex 20. court in the case of Totgar Sale Society Ltd ( Supra ), and relied on the jurisdictional High court in the case of Punjab State Cooperative Agricultural Bank Ltd ( Supra ) to dismiss the appeal . provisions of section 80P(2)(d)

The issue is identical but again the finding of the AO in para 5.3 of the assessment order dated 28/03/2021, (conclusions drawn ) reads as follows “ It is beyond any doubt that the assessee’s claim for deduction with respect to interest income earned from different cooperative banks , commercial banks and other financial institutions is not found to be allowable deduction under any provisions of section 80P ……………………. 22.1 Now coming to the first appeal order, the decision part of CIT ( A ) order , there is again a clear finding in para 6.2 of the appellate order which reads as follows “ The core contention of the appellate as is borne out form its submissions is that it is entitled to deduction u/s 80P(2)(d) of the income tax Act 61, to the extent of the interest income of Rs.49,35,442/- earned on FDR ‘s maintained with cooperative banks, commercial banks and other financial institutions ” Thereafter, the Ld. CIT ( A ) has followed the law laid down by the Hon’ble 23. Apex court in the case of Totgar Sale Society Ltd ( Supra ), and relied on the jurisdictional High court in the case of Punjab State Cooperative Agricultural Bank Ltd ( Supra ) to dismiss the appeal .

The facts of this case needs to be brought out clearly on record for proper adjudication in the matter, and it is seen that as stated above, the findings of the department in respective years that interest is earned from ‘commercial banks” will not entitle the assessee to claim deduction u/s 80P(2)(d) of the Act, because the same is only restricted to interest earned from cooperative society.

As such , since we have already remanded the matter for Asst year 2013-14, to the Ld first appellate authority to adjudicate on this issue of claim for deduction to 516/Asr/2024 Assessment Years: 2013-14, 2017-18, 2018-19 and 2020-21 14 u/s 80P(2)(d) , after calling for necessary particulars from the assessee and after obtaining necessary report from the AO as per provisions of law, after arriving at a proper finding , we also remand these three appeals for the Asst year 2017-18, 2018-19 and 2020-21, to be decided based on actual findings, and to be adjudicated as per provisions of law.