INCOME TAX OFFICER, WARD-4(1), THANE, THANE vs. JEEVAN VIKAS NAGRI SAHAKARI PATPEDI MARYADIT, VASAI

Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) held that the AO is not correct in making addition by reallocating the expenses thereby making addition towards income from other sources and that the AO is not correct in modifying the business income claimed as deduction under section 80P(2)(d). However with regard to deduction claimed under section 80P(2)(d) the CIT(A) held that the interest income earned by the assessee from Co-operative Bank is not eligible for deduction under section 80P(2)(d) and accordingly held that the deduction claimed by the assessee in the return of income amounting to Rs. 2,78,60,607/- should not be allowed. The CIT(A) also deleted the addition made under section 69A towards cash deposited during demonetization period. Accordingly, the CIT(A) gave partial relief to the assessee. Both the revenue and the assessee are in appeal against the order of the CIT(A) raising the following grounds – -AY-2017-18-Assessee “Being aggrieved by the order of the learned Commissioner of Income Tax (Appeals), NFAC, Delhi [hereinafter referred to as Ld. CIT (A)], the Appellants submit the following grounds for your sympathetic consideration; which it is prayed may be considered without prejudice to each other. On the facts and in the circumstances of the case and in law,

On the facts and in the circumstances of the case, with regard to the addition of Rs.60,61,500/- u/s.69A, the Ld.CIT(A) erred in fact by completely ignoring the fact brought out by the AO in the Assessment order in so much that the assessee was not a specified entity to accept SBNs as per the prevailing RBI guidelines [RBI Amended Notification No.S.O.3408(E)(F.No.10/03/2016-FY.1 DATED 08/11/2016) during the demonetization period.

The order of the CIT(A) may be vacated & and that of Assessing Officer may be restored.”

The ld. AR submitted that the assessee is entitled for claiming deduction under section 80P(2)(d) and in this regard he submitted that the Co-ordinate bench have been consistently holding that the assessee is entitled for deduction under section 80P(2)(d) towards interest income earned from deposits with Co-operative Bank.

With regard to the deposit of SBN during demonetization period, the ld. AR submitted that as soon as the demonetization was announced the assessee received on 08.11.2016 and 10.11.2016 deposits in SBN from its members. The ld. AR further submitted that the SBN accepted from the members are deposited into the Bank A/c of the assessee. The ld. AR also submitted that once the RBI issued clarification on 10.11.2016 that Co-operative Credit Societies are not eligible for accepting demonetized currency the assessee seized the service of accepting SBN from its members. The ld. AR brought to our attention that all the above said details have been furnished before the AO and therefore, the CIT has correctly deleted the addition stating that the source of the cash deposits in SBN is explained by the assessee.

The ld. DR on the other hand submitted that Co-operative Banks are not Co- operative Societies and therefore, the interest income earned from deposits with Co-operative Banks are not entitled for deduction under section 80P(2)(d).

On the issue of allocation of expenses done by the AO which was deleted by the CIT(A), the ld DR argued that the when common expenses are incurred towards administration, the AO has rightly allocated the same on the basis of income earned by the assessee from different sources. With regard to deletion of addition made under section 69A, the ld DR submitted that the CIT(A) has allowed the claim of the assessee stating that the source has been explained and has ignored the that as per RBI Notification, assessee is not a specified entity and therefore prohibited from accepting SBN.

We heard the parties and perused the material on record. There are three issues arising from these cross appeals of the assessee and the revenue viz., - (i) Denial of deduction under section 80P(2)(d) – Assessee's appeal (ii) Deleting the addition arising out of expenses reallocation by the CIT(A) – Revenue's appeal (iii) Deleting the addition made under section 69A by the CIT(A) – Revenue's appeal

With regard to assessee's appeal on the denial of deduction under section 80P(2)(d) we notice that the Co-ordinate Bench has been consistently holding that the assessee is entitled for deduction under section 80P(2)(d) towards interest income earned from deposits with Co-operative Banks. We place reliance on the decision of the Co-operative Bank in the case of Pathare Prabhu Co–operative Housing Society Ltd. Vs ITO [2023] 153 taxmann.com 714 (Mumbai - Trib.) where it is held that – 8. We have considered the submissions of both sides and perused the material available on record. The only dispute raised by the assessee is against the disallowance of deduction under section 80P(2)(d) of the Act in respect of interest income received from the Co-operative Banks. The assessee is a registered Co- operative Housing Society and during the assessment year 2018- 19 earned interest income of Rs. 50,39,861 from the investments made in various Co-operative Banks. 9. Before proceeding further, it is relevant to note the provisions of section 80P of the Act under which the assessee has claimed the deduction in the present case. As per the provisions of section 80P(1) of the Act, the income referred to in sub-section (2) to section 80P shall be allowed as a deduction to an assessee being a Co- operative Society. Further, section 80P(2)(d) of the Act, reads as under: "80P. Deduction in respect of income of co-operative societies. (1) ** ** ** (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) to (c) ** ** ** (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;" 10. Thus, for the purpose of provisions of section 80P(2)(d) of the Act, two conditions are required to be cumulatively satisfied- (i) income by way of interest or dividend is earned by the Co-operative Society from the investments, and (ii) such investments should be with any other Co-operative Society. Further, the term „co- operative society? is defined under section 2(19) of the Act as under: "(19) "co-operative society" means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies ;"

In the present case, there is no dispute that the assessee is a Co-Operative Housing Society. Thus, if any income as referred to in sub-section (2) to section 80P of the Act is included in the gross total income of the assessee, the same shall be allowed as a deduction. It is pertinent to note that since the assessee is registered under the Maharashtra Co-operative Societies Act, 1960, it is required to invest or deposit its funds in one of the modes provided in section 70 of the aforesaid Act, which includes investment or deposit of funds in the District Central Cooperative Bank or the State Co-operative Bank. Accordingly, the assessee kept the deposits in Co-operative Banks registered under the Maharashtra Co-operative Societies Act and earned interest, which was claimed as a deduction under section 80P(2)(d) of the Act. The AO denied the deduction under section 80P(2)(d) of the Act on the basis that the Co-operative Bank is covered under the provisions of section 80P(4) of the Act. We find that the Hon?ble Supreme Court in Mavilayi Service Co- operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75/431 ITR 1 while analysing the provisions of section 80P(4) of the Act held that section 80P(4) is a proviso to the main provision contained in section 80P(1) and (2) and excludes only Co-operative Banks, which are Co-operative Societies and also possesses a licence from RBI to do banking business. The Hon'ble Supreme Court further held that the limited object of section 80P(4) is to exclude Co-operative Banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, we are of the considered view that section 80P(4) of the Act is of relevance only in a case where the assessee, who is a Co-operative Bank, claims a deduction under section 80P of the Act which is not the facts of the present case. Therefore, we find no merits in the aforesaid reasoning adopted by the AO and upheld by the learned CIT(A) in denying deduction under section 80P(2)(d) of the Act to the assessee.

As regards the claim of deduction under section 80P(2)(d) of the Act, it is also pertinent to note that all Co-operative Banks are Co-operative Societies but vice versa is not true. We find that the coordinate benches of the Tribunal have consistently taken a view in favour of the assessee and held that even the interest earned from the Co-operative Banks is allowable as a deduction under section 80P(2)(d) of the Act. In Kaliandas Udyag Bhavan Premises Co-op Society Ltd. v. ITO [2018] 94 taxmann.com 15 (Mum.)/[ITA No. 6547/Mum./2017, dated 25-4- 2018], while dealing with the provisions of section 80P(2)(d) vis-à-vis section 80P(4) of the Act, the coordinate bench of the Tribunal observed as under: "7. ……Thus, from a perusal of the aforesaid sec. 80P(2)(d) it can safely be gathered that income by way of interest income derived by an assessee co- operative society from its investments held with any other cooperative society, shall be deducted in computing the total income of the assessee. We may herein observe, that what is relevant for claim of deduction under sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other cooperative society. We though are in agreement with the observations of the lower authorities that with the insertion of sub-section (4) of sec. 80P, vide the Finance Act, 2006, with effect from 1-4- 2007, the provisions of sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, but however, are unable to subscribe to their view that the same shall also jeopardise the claim of deduction of a co-operative society under sec. 80P(2) (d) in respect of the interest income on their investments parked with a co- operative bank. We have given a thoughtful consideration to the issue before us and are of the considered view that as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. sec. 80P(2)(d) would be duly available. We may herein observe that the term 'co-operative society' had been defined under sec. 2(19) of the Act, as under:- '(19) "Co-operative society" means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co- operative societies;' NEETU We are of the considered view, that though the co- operative bank pursuant to the insertion of Sub-section (4) of sec. 80P would no more be entitled for claim of deduction under sec. 80P of the Act, but however, as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being enforced in any state for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a cooperative bank, would be entitled for claim of deduction under sec.80P(2)(d) of the Act."

We find that the learned CIT(A) has placed reliance upon the decision of the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sales Society [2017] 83 taxmann.com 140/395 ITR 611, wherein it was held that interest earned by the assessee, a Co-operative Society, from surplus deposits kept with a Co- operative Bank, was not eligible for deduction under section 80P(2)(d) of the Act. We find that in an earlier decision the Hon'ble Karnataka High Court in Pr. CIT v. Totagars Co-operative Sale Society [2017] 78 taxmann.com 169/392 ITR 74 held that according to section 80P(2)(d) of the Act, the amount of interest earned from a Co-operative Society Bank would be deductable from the gross income of the Co- operative Society in order to assess its total income. Thus, there are divergent views of the same Hon'ble High Court on the issue of eligibility of deduction under section 80P(2)(d) of the Act in respect of interest earned from Co-operative Bank. No decision of the Hon'ble jurisdictional High Court was brought to our notice on this aspect. We have to, with our highest respect to both the views of the Hon'ble High Court, adopt an objective criterion for deciding as to which decision of the Hon'ble High Court should be followed by us. We find guidance from the judgment of the Hon'ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192. In the aforesaid decision, the Hon'ble Supreme Court has laid down a principle that "if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopted".

Therefore, in view of the above, we uphold the plea of the assessee and direct the AO to grant the deduction under section 80P(2)(d) of the Act to the assessee in respect of interest income earned from investment with Co-operative Banks. Accordingly, we set aside the impugned order passed by the learned CIT(A) for the assessment year 2018-19. As a result, grounds raised

The alternate plea of the assessee that the interest income from deposits with cooperative banks should have been allowed under section 80P(2)(a) has become academic in view of our decision with respect to allowability of deduction under section 80P(2)(d). In result the appeal of the assessee is allowed.

Now coming to issue of allocation of expenses we notice from the perusal of records that the assessee has identified certain specific expenses incurred towards earning commission and interest income from MSEB and Bajaj insurance. We also notice that the AO has made the estimation while reallocating the expenses, without actually examining the issue by calling for relevant details from the assessee. The only reason as held by the AO was that by allocating more expenses against commission and interest income, the assessee has claimed higher deduction under section 80P(2)(d) which also according to AO is not allowable. Therefore in our considered view, the AO is not correct in estimating the allocation of expenses, with examining any facts is not correct. Accordingly we are not inclined to interfere with the decision of the CIT(A) in this regard. This ground of the revenue is dismissed.

On the issue of CIT(A) deleting the addition made by the AO, towards deposit of SBN on 08.11.2016 and 10.11.2016, we notice that the reason for AO to make such addition is that the assessee being a cooperative society was not allowed to accept SBN during demonetization period. The AO has further held that the assessee could not furnish satisfactory reply on the nature and source of cash deposited in SBN. The assessee submitted that the clarification that the cooperative societies are not allowed to collect SBN was issued by RBI only on 10.11.2016 and that the assessee has stopped receiving the SBN immediately. In this regard it is relevant to note that AO himself has admitted the fact the SBN deposits are only from the members of the assessee and that the assessee has submitted the details of such deposit before the AO. However the AO still proceeds to make addition under section 69A, which in our opinion is not correct. It is a settled position that when the source for cash deposits during demonetization period is established, no addition under section 69A could be made Further on the contention that the assessee ought not to have accepted the SBN as per the RBI notification, in our considered view, the same cannot be the ground for making addition under the Act as unexplained money since in assessee's case the nature and source towards deposits of SBN has been clearly established by the assessee. Considering facts peculiar to this case we see merit in the finding of the CIT(A) that AO is not correct in making the addition when the nature and source are clearly established by the assessee. Accordingly we see no infirmity in CIT(A) deleting the addition made by the AO under section 69A of the Act. The ground raised

For assessment year the AO disallowed the entire claim made by the assessee to the tune of Rs.6,45,32,992 the break up of which is as under – (i) Deduction claimed u/s 80P(2)(a) - Rs. 2,94,38,661/- (ii) Deduction claimed u/s 80P(2)(d) - Rs. 3,50,44,331/- (iii) Deduction claimed u/s.80P(2)(c) – Rs.50,000/-

The CIT(A) allowed the deductions claimed under section 80P(2)(a) and 80P(2)(c) by placing reliance on the decision of the Hon'ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd (2021 123 taxmann.com 161 (SC). The CIT(A) denied the deduction under section 80P(2)(d) stating that the interest income earned from deposits with cooperative banks are not eligible for deduction under the said section. The assessee and the revenue are in appeal against the order of the CIT(A) raising the following grounds – ITA No. 917/Mum/2024-AY-2018-19-Assessee

We heard the parties and perused the materials on record. The assessee in the appeal is contending the denial of deduction under section 80P(2)(d). We have while adjudicating the same issue for AY 2017-18 have already held that the assessee is entitled for deduction under section 80P(2)(d) the interest income earned from deposits with cooperative banks. Considering that the facts for AY 2018-19 being similar, our decision for AY 2017-18 is mutatis mutandis applicable for AY 2018-19 also. Accordingly we direct the AO to allow the deduction under section 80P(2)(d) to the assessee towards the interest income earned from deposits with cooperative banks.

The alternate plea of the assessee that the interest income from deposits with cooperative banks should have been allowed under section 80P(2)(a) has become academic in view of our decision with respect to allowability of deduction under section 80P(2)(d). In result the appeal of the assessee is allowed.

With regard to revenue's appeal, it is contended that the CIT(A) has simply placed reliance on the decision of the Hon'ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd(supra) without factually examining whether the ratio laid down in the said case is applicable to the assessee. In this regard we notice that the AO while disallowing the claim has observed that –

In the result, the appeal of the assessee for AY 2017-18 and AY 2018-19 are allowed. The appeal of the revenue for AY 2017-18 is dismissed and for AY 2018- 19 is allowed for statistical purposes.