SADHANA SAHAKARI PATPEDHI LIMITED,PALGHAR vs. CIT(A), NFAC, DELHI

PER ANIKESH BANERJEE, J.M:

Instant appeal of the assessee is preferred against the order of theNational Faceless Appeal Centre, Delhi [for brevity, ‘Ld.CIT(A)’] passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’), for Assessment Year 2017-18, date of order 08.11.2023.The impugned order was emanated from the order of the ld. Income-tax Officer, Ward 4(4), Thane (in short, ‘the A.O.’) passed under section 143(3)of the Act date of order23/12/2019.

2 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited

“1. The Hon'ble CIT-(A), NFAC has aggrieved your appellant by confirming the additions made by the learned A.O. for Rs. 2,24,44,7547- (Including Calculation error of Rs. 25.119/- by disallowing deduction claimed u/s 80P(2)(d) of The Income Tax Act, 1961.

3 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited and entitle for deduction u/s 80P(2)(d) and now it is a settle position of law after the various judgments of Hon'ble High Courts & ITAT benches.

4 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited of the Act is directed for deduction. Being aggrieved on the appeal order, the assessee filed an appeal before us.

5.1. Hon’ble Supreme Court of India

Kerala State Co-Operative Agricultural & Rural Development Bank Ltd.v.Assessing Officer, [2023] 154 taxmann.com 305 (SC)

5 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited “15.13 Further, under the provisions of the State Act, 1984, 'agricultural and rural development bank' means the Kerala Co-operative Central Land Mortgage Bank Limited, registered under section 10 of the Travancore-Cochin Co-operative Societies Act, 1951, which shall be known as Kerala State Co-operative Agricultural and Rural Development Bank Limited i.e. the appellant herein. Thus, from a conjoint reading of all the relevant statutory as alluded to hereinabove, it is quite clear that the appellant is not a co-operative bank within the meaning of sub-section (4) of section 80P of the Act. The appellant is a co-operative credit society under section 80P(2)(a)(i) of the Act whose primary object is to provide financial accommodation to its members who are all other co-operative societies and not members of the public. 15.14 Therefore, when the definition of "co-operative bank" in section 56 of BR Act, 1949 is viewed in terms of sections 2(u) of the NABARD Act, 1981, it is clear that only a state co- operative bank would be within the scope and meaning of a banking company under section 2(c) of the BR Act, 1949 on obtaining licence under section 22 of the said Act. Conclusion: In the instant case, although the appellant society is an apex co-operative society within the meaning of the State Act, 1984, it is not a co-operative bank within the meaning of section 5(b) read with section 56 of the BR Act, 1949. In the result, the appeals filed by the appellant are allowed and the order(s) of the Kerala High Court and other authorities to the contrary are set aside. Consequently, we hold that the appellant is entitled to the benefit of deduction under section 80P of the Act. The questions for consideration are answered accordingly.”

5.2. Hon’ble High Court of Bombay

Tahnee Heights CHS Ltd.v.Income-tax Officer, [2023] 147 taxmann.com 335 (Bombay)

“12. We cannot forget that the order of assessment passed in the case of the assessee was under section 143(3) of the Act. The Petitioner had specifically claimed the deduction under section 80P of the Act which was not only reflected in the return of income but also gone into

6 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited specifically as can be seen from the notice issued under section 142(1) of the Act where by the details of various deductions and exemptions along with documentary evidence had been sought for by the A.O., which finally led to the passing of the order of assessment where by while certain disallowances were made in respect to certain items, the claim of deduction under section 80P was allowed. It is settled law that if a query is raised during the assessment proceedings and the assessee submits a reply thereto, leading to the passing of the order of assessment, a reopening in the absence of any new tangible material would be nothing but a change of opinion, which would not furnish to the A.O. a basis for his 'reasons to believe' that income chargeable to tax had escaped assessment. 13. Be that as it may, we are of the opinion that the impugned notice is unsustainable on account of these jurisdictional errors committed by the A.O. Consequently, the petition is allowed. The impugned notice dated 30th March, 2021 under section 148 of the Act and the impugned order dated 10th March, 2022 are held to be unsustainable and are accordingly quashed. The writ petition is disposed of accordingly.

5.3. Hon’ble High Court of Karnataka

Principal Commissioner of Income-tax, Hubli v.Totagars Co-operative Sale Society, [2017] 78 taxmann.com 169 (Karnataka)

“10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said 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. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent. 11. The learned counsel has relied on the case of Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said case dealt with the interpretation, and the deduction, which would be applicable under Section 80P(2)(a)(i) of the I.T. Act. For, in the present case the interpretation that is required is of Section 80P(2)(d) of the

7 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited I.T. Act and not Section 80P(2)(a)(i) of the I.T. Act. Therefore, the said judgment is inapplicable to the present case. Thus, neither of the two substantial questions of law canvassed by the learned counsel for the Revenue even arise in the present case. 12. For the reasons stated above, this Court does not find any merit in the present appeal. Hence, the appeal is dismissed.”

5.4.ITAT Bangaluru

MenasiSeemeya Group Gramagala Seva Sahakari Sanga Niyamitha ITA No. 609 & 610/Bang/2014 dated 6/2/2015, holding that the

“ co-operative bank cannot be excluded from the co-operative society engaged in the business of banking for the purposes of sec.80P(2)(d)of the Act.”

5.5. ITAT-Mumbai-D Bench.

Reserve Bank Staff and Officers co-op credit society Ltd vs ITO

ITA Nos. 3114 to 3118/Mum/ 2023 date of pronouncement 22/01/2024

“013. For A.Y. 2017-18, the assessee filed its return of income at ₹nil on 7th November 2017, which was picked up for scrutiny and therefore, a show cause notice was issued to the assessee that why on interest income earned of ₹2,68,31,658/- being interest received from co-operative banks on which deduction under Section 80P is clamed should not be disallowed. After hearing the case of the assessee, the learned Assessing Officer disallowed the deduction under Section 80P(2)(a) as well as under Section 80P(2)(d) of the Act and assessed the total income at ₹258,31,619/- by order under Section 143(3) of the Act dated 26th December, 2019. The appeal preferred against the assessment order was partly allowed. However, the assessee aggrieved with the finding of the learned Assessing Officer that though the learned CIT (A) has directed that theassessee is eligible for deduction under Section 80P(2)(d) of the Act only from the co- operative societies and co-operative banks not holding the license issued by the RBI. He further held that if the interest is earned from the co-operative banks holding license issued by RBI same

8 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited should be chargeable to tax under the head income from other sources. Therefore, assessee is aggrieved and is in appeal before us. We on the merits already dealt with the issue in appeal of the assessee for A.Y. 2013-14 and therefore, directed the learned Assessing Officer to grant deduction under Section 80P(2)(d) of the Act to the assessee on the bank interest received from co-operative banks. Accordingly, the appeal of the assessee for A.Y. 2017-18 is allowed. 014. The appeals of the assessee for A.Y. 2018-19 also involved identical issue, wherein the interest income earned by the assessee from co-operative bank amounting to ₹1,39,30,075/- for A.Y. 2018-19 and ₹7,56,84,273/- for A.Y. 2020-21 are denied deduction under Section 80P(2)(d) of the Act. As we have already held that interest received by the assessee from the co-operative banks is eligible for deduction under Section 80P(2)(d) of the Act, on the same reasoning, we also allow the appeal of the assessee for A.Y. 2018-19 and 2020-21. 015.

In the result, all the five appeals filed by the assessee are allowed. Order pronounced in the open court on 22.01. 2024.”

“21. On bare appreciation of the audit report, one cannot overlook sight of the fact that the assessee has very conveniently mentioned under the head of deduction by referring to section 80? and the reply which was submitted on record at the stage of scrutiny assessment. At first instance, it gives an impression that the writ applicant assessee has derived interest from it's own members. This Court finds that the writ applicant had failed to disclose 'fully and truly' all material facts necessary for assessment, more particularly, to examine the nature of transaction vis-a-vis the deduction under section 80P(o)(/') and section 80P(2)(c/). The Court further finds that in fact it was the duty of the assessee to

9 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited make fully and truly material disclosure at the time of assessment. Mere production of the audit report without further reference of the interest derived from other than Cooperative Societies would not fall in the category of material evidence which the Assessing Officer with due diligence could have discovered and therefore, the Assessing Officer has rightly invoked proviso to section 147 of the Act having satisfied for formation of belief which has bearing on the question of escape of income of the assessee from the assessment because of his failure or omission to disclose fully and truly all material facts. 22. So far as the submission of learned advocate Mr. Divatia for the writ applican t regarding in absence of 'tangible material' reopening as regards escapement of i ncome from the assessment amounting to 'change of opinion' is concerned, this Co urt agrees with the submission of learned senior counsel Mr. M.R. Bhatl appearin g for the Department that the original assessment is on the basis of the informatio n subsequently found to be bogus or rather disclosure made at the original stage c annot be said to be 'fully and truly', which precludes the jurisdiction of AO for rea ssessment. In the given case, the assessment has been reopened within a period of 4 years and therefore, the proviso to section 147 has no application. This Court fi nds that the reasons recorded by the Assessing Officer which led to the formation of the belief contemplated by the proviso to section 147 of the Act has material be aring on the question of escapement of income of the assessee from the assessmen t because of failure of the assessee or omission to disclose the fully and truly all m aterial facts. We are of the view that though the material was available on record, at the time of first assessment, when no conscious consideration of the material is made and a mistake has been committed, it would not, in any case create an emb argo on the power of the Assessing Officer to exercise powers under amended sect ion 147 of the Income-tax Act, 1961, as there could not be "change of opinion", in the factual scenario. The only requirement is to see that the escapement of incom e which the Court finds in the given case and therefore, we hold that the notice iss ued under section 148 is a valid notice.

10 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited 7. Considering the order of the Hon’ble Gujarat High Court, the Ld.DR further relied on the order of ITAT, Rajkot Bench in the case of Lodhika Seva SahakariMandali vs The Principal CIT-1, Rajkot, ITA No.184/Rjt/2022 date of pronouncement 054/04/2024. The relevant paragraph is reproduced below: -

“5. We have given our thoughtful consideration and fully gone through the submis sion filed by the Revenue. It is appropriate to consider the jurisdictional high Cou rt judgement in the case of Katlary Kariyana Merchant SahkartSarafiMandali Ltd . Vs. ACIT (2022) 140 taxmann.com 602 (Gujarat) wherein it was held as follows:

“… 11. In this context, when we look at the facts of the case on hand, it is not in di spute that the writ applicant cooperative Society is incorporated as Cooperative S ociety under the Gujarat Cooperative Societies act, 1961 with the main object of a ccepting deposits and providing credit facilities to its members. Thus, there is no doubt that the writ applicant being society engaged in providing credit facilities is entitled to the deductions available in terms of section 80P(2)(a)(i) of the Income Tax act, 1961. The writ applicant has placed on record the original computation o f Income along with audit report. Bare perusal of the same reveals that the writ ap plicant has disclosed Gross total income of Rs.2117353 as against that the writ ap plicant has disclosed deductions under Chapter VI-A of Rs. 2117353 , thereby dec laring Net taxable income 'NIL'. Now, under head of Gross Total Income, the ded uctions (Chapter VI-A) refers to section 80P providing credit facilities to its memb ers is shown Rs. 2121935 whereby the assessee writ applicant has claimed eligibl e deductions of Rs.2121935 by pressing Allowable deductions of Rs. 2117353. The Audit report of the writ applicant further explains return of Income wherein amo unt of Rs.18,08,444:00 is shown under the head of interest derived from investmen t and Rs. 69,33,052 under the head of income derived from credit. The record of li mited scrutiny reveals that under original assessment, the AO has mainly examine d two issues viz. (a) Sales Turnover Mismatch (b) Deduction under Chapter VI-A, wherein vide letter dated 16.05.2017, the assessee- writ applicant was called upon to justify the deductions claimed under section 80P of the IT act. That theassessee - writ applicant had submitted details on 23.06.2017, wherein in unequivocal term s clarified that "No interest received from non-member". Further, it mentions: "9. We have deposit more than 30% of the deposit accepted from the members wit h the other banks according to Co Operative society Act. We accepted deposit of Rs.7,94,71,817 from the members. We have to maintain fix deposit of Rs. 2,38,41, 545 with other banks. As against we deposited Rs.2,96,63,500/-. Difference of Rs.

11 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited 58,21,955 is deposited against reserve Rs.1,04,75,974.So, we deposited less amou nt of Rs. 46,54.019 as per requirement under the Co operative Society Act. In othe r words no interest received from the surplus deposit with the banks FDR." Further, vide letter dated 13.07.2017, the assessee- writ applicant has claimed su ch FDR of Banks as part of business activity and had prayed for deductions under section 80P (2) of the Income Tax Act. 13. Similar issue arose for consideration b efore the Hon'ble High Court of Karnataka (Dharwad Bench) in the case of Princi pal Commissioner of Income Tax and ors. Vs. Totagars co-operative sale Society, reported in (2017) 395 ITR 611(KAR). The substantial questions of law which aro se for consideration as recorded in Para1 are reproduced as under: "(I) Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 1 00% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'th e Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or invest ments made by it during these years with a Co-operative Bank, M/s. Kanara Distr ict Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society L imited itself rendered on 08th February 2010, in Tot- gar's Co-operative Sale Soci ety Limited v. ITO , reported in MANU/SC/0095/2010: (2010) 322 ITR 283 SC : ( 2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total In come under Section 80P of the Act, is not applicable to the present Assessment Ye ars 2007-2008 to 2011-2012 involved in the present appeals and therefore, wheth er the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in h olding that such interest income was 100 percent deductible under section 80P(2) (d) of the Act?"

That while holding the aforesaid issues in favour of the revenue department, the C ourt followed the decision of the Hon'ble Supreme Court in the case of same asses see which was later on followed by this Court in the case of State Bank of India Vs . CIT, reported in MANU/GJ/1053/2016 : (2016) 389 ITR 578 (Guj), relevant par as are reproduced as under :

"16. In case where the co-operative society is a bank, one of its objects would be t o carry on the general business of banking. Like other banks, money would be its stock-in-trade or circulating capital and its normal business is to deal in money a nd credit. The business of such a bank does not consist only of receiving deposits and lending money to its members or such other societies as are mentioned in the

12 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited objects. When such a society lends out its monies so that they may be readily avail able to meet the demands of its depositors if and when they arise, it is a legitimate mode of carrying on its banking business. In case of a credit society like the prese nt one, the business of the society is limited to providing credit to its members and the income that is earned from providing such credit facilities to its members is d eductible under section 80P(2)(a)(i) of the Act. However, investing its surplus fun ds with the State Bank of India is no part of the business of the appellant of provid ing credit to its members and hence, it cannot be said that the interest income deri ved from depositing surplus funds with the State Bank of India is profits and gains of business attributable to the activities of the appellant society. The character of the interest is different from the income attributable to the business of the society of providing credit facilities to its members. The interest in- come derived from in vesting surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attributable to the b usiness of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of th e appellant. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. In- vesting surplus funds in a bank i s no part of the business of the assessee of providing credit facilities to its member s. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to t he business carried on by the appellant, cannot be deducted under section 80P(2)( a)(i) of the Act. If the appellant wants to avail of the benefit of deduction of such i nterest income, it is always open for it to deposit the surplus funds with a co-oper ative bank and avail of deduction under section 80P(2)(d) of the Act. 17. Section 7 1 of the Gujarat Co-operative Societies Act, 1961 permits a society to invest or de posit its fund in the State Bank of India. Therefore, while investment in the State B ank of India is permissible under section 71 of that Act, there is no statutory oblig ation cast upon the appellant to deposit funds as a part of its business. The said pr ovision also permits investment of funds in any co-operative bank or any banking company approved for this purpose by the Registrar on such conditions as the Re gistrar may from time to time impose. However, insofar as the provisions of the In come Tax Act are concerned, under section 80P(2)(d) thereof, it is only the in- co me by way of interest or dividends derived by a cooperative society from its invest ments with any other cooperative society which is required to be deducted while c omputing the total income of the assessee."

13 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited Thus, following the decision of the Hon'ble Supreme Court in the case of Totagar' s Co-operative Sale Society ltd., (2010) 322 ITR 283(SC) it was held that interest earned from investments made in any bank, not being cooperative society, is not d eductible under section 80P(2) (d) of the act. 14. This Court further finds that by virtue of amendment in section 194A(3)(v) of t he Income tax act, it has also excluded the cooperative banks from the definition o f "co-operative society" by the Finance act, 2015. The High Court of Karnataka h as taken note of this amendment in the case of Totagars Co-op/sale society (Supra ) (2017) 395 ITR (KAR) thereby holding that the effect of the aforesaid amendmen t explicitly makes clear intention of legislation that co-operative banks are not spe cie of genus co-operative society, which would entitled to exemption or deduction under the special provisions of Chapter VI-A in the form of section 80P of the Act. 15. In view of aforesaid settled legal position, and having held that the allowance of deduction of the income derived by way of interest from the investment in the f orm of FDR's with other banks was incorrect … ”

14 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited the same entity and co-operative bank originated from the co-operative society. Accordingly, the Hon’ble Court held that the interest earned from co-operative bank or co-operative society has no difference. The orders of the Co-ordinate benches of ITAT Mumbai have considered the issue and are in favour of the assessee, Reserve Bank Staff and Officers co-op credit society Ltd(supra). Here, in our considered view, we respectfully follow the order of Hon’ble Apex Court in the case of CIT vs Vegetable Products Ltd (1972) 88 ITR 192 (SC) that the Hon’ble Court has laid down a principle that “if two reasonable constructions of taxing provision are possible, that construction which favour the assessee must be adopted”. Neither of the rival parties are able to submit any contrary order of the Hon’ble Jurisdictional High on this issue.

In ground No.2, the assessee mentioned the interest from co-operative bank and the nationalized bank. But during the hearing, the Ld.AR was unable to distinguish the part of interest related to co-operative bank and related to nationalized bank. Accordingly, we remit the matter to the file of Ld.AO for verification of interest income and allow the deduction U/S 80(P)(2)(d) to interest earned from cooperative bank.

Order pronounced in the open court on 23rd day of July 2024. Sd/- sd/- (B.R. BASKARAN) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 23/07/2024 Pavanan

15 ITA No.55 /Mum/2024 Sadhana SahakariPatpedhi Limited Copy of the Order forwarded to: अपील र्थी/The Appellant , 1. प्रदिव िी/ The Respondent. 2. आयकरआयुक्त CIT 3. दवभ गीयप्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, 4. Mumbai ग र्डफ इल/Guard file. 5.

BY ORDER, //True Copy// (Asstt. Registrar), ITAT, Mumbai