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Facts
The assessee, a co-operative society, claimed deduction under Section 80P(2)(a)(i) for interest income. The AO made an addition of Rs. 3,09,103/- for interest income but mistakenly computed total income at Rs. 50,51,034/-. The CIT(A) upheld the AO's order.
Held
The Tribunal noted a mistake in the computation sheet where a larger amount of interest income was taxed, which was not part of the original assessment. The Tribunal also referred to various High Court judgments regarding the eligibility of interest income for deduction under Section 80P.
Key Issues
Whether the interest income earned by the co-operative society is attributable to its business activities eligible for deduction under Section 80P(2)(a)(i) and whether the CIT(A) erred in directing a broader assessment of interest income not originally disputed.
Sections Cited
80P(2)(a)(i), 80AC, 56, 57, 234A, 234C, 234B, 234F, 251, 139(1), 9, 63
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Income Tax Appellate Tribunal, SMC-‘B’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER
PER SOUNDARARAJAN K., JUDICIAL MEMBER
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 30/03/2024 in respect of Assessment Year 2018-19.
The brief facts of the case are that the assessee is a co-operative society and engaged in the business of providing credit facilities to its members and filed their return of income and claimed the deduction u/s. 80P(2)(a)(i) of the Act. Thereafter the case was selected for scrutiny under CASS and the assessing officer had made an addition of Rs. 3,09,103/- being the interest received on savings bank and other incomes and taxed the same under the head income from other sources. In the assessment order for A.Y. 2018-19, the AO had clearly assessed the total income at Rs. 3,09,103/- but while computing the income, the assessing officer had taken the income as Rs. 50,51,034/- and computed the corresponding tax, interest and made a demand of Rs. 23,68,586/-. The assessee challenged the said order before the Ld.CIT(A) and contended that the interest income are infact attributable to the banking business of the assessee and the other income of rent received is also related to the income from house property owned by the assessee and therefore the disallowance made by the AO is not correct. The assessee also pointed out the mistake in the computation sheet and contended that in the assessment order, the total income has been determined at Rs. 3,09,103/- whereas by mistakenly in the computation sheet, the other interest income was taken as taxable and on that basis, the tax demands were made. The assessee also submitted that there is no delay in filing the return of income. Being aggrieved with the order of the Ld.CIT(A), the assessee is in appeal before this Tribunal on the following grounds: “
1. The impugned order passed by the Learned Assessing Officer is not justified in law and on facts and circumstances of the case;
2. The Learned AO has erred in law and on facts in making the addition of Rs. 50,51,030/- to the returned income of the Appellant by denying the benefit of section 80P(1)(a)(i);
3. The CIT(A)/NFAC has erred in law and on facts in upholding the order of the Learned AO.
4. The Ld CIT(A) and AO failed to appreciate that the assessee society, being registered under the Karnataka Co-Operative Societies Act, 1959 is a body corporate within the meaning of section 9 of the said Act and is also liable to get its books audited by an auditor u/s 63 of the said Act.
5. The Ld CIT(A) and AO failed to appreciate that the due date for the filing of the return of income u/s 139(1) for the appellant was September 30th, 2019 which was extended to October 31st, 2019, vide the order F.No. 225/157/2019-ITA.II dated 27/09/2019 and the Appellant had filed its return within the due dates making it eligible for deduction u/s 80P.
The Ld. CIT(A) erred in disallowance of the claim u/s. 80P(2)(i)(a) on the ground that the assessee had filed the return of income beyond the due date specified in the Act and as per section 80AC deduction was not allowable; 7. The Ld CIT(A) has erred in law and on facts in invking provisions of section 80AC to deny the claim of the Appellant u.s 80P(2)(i)(a) of the Act.
The Ld. CIT(A) has made enhancement without issue of mandatory notice u.s 251 of the Act.
Without prejudice to the above the Ld. AO and CIT(A) have erred in law and on facts in not allowing deduction u.s 57 of the Act; 10. The Assessee reserves the right to add, delete, amend, modify, any other grounds and adduce new grounds of appeal
either before or at the time of written submissions.
11. The Ld. AO have erred in law and on facts in levying interest u.s 234A, 234C, 234B and 234F of the Act. 12.The above grounds are independent and without prejudice to each other (Total tax effect: Rs. 22,73,074/-) On the basis of the above grounds and other grounds which may be urged at the time of hearing with the consent of the Honorable Tribunal, it is prayed that the order passed under section 250, to the extent it is against the Appellant, be quashed and the relief sought to be granted.”
While the matter is taken up for hearing, the Ld.AR submitted that there is a delay of 41 days in filing the appeal before this Tribunal and to that effect filed an affidavit and explained that the delay has been occurred because of the assessee, being not exposed to online procedures of completing an assessment, the receipt of the order via email was not within the knowledge of the assessee and thereafter, the appeal was prepared and filed belatedly, hence there is a delay of 41 days in filing the appeal.
We consider that the delay is only minimal and the reasons are also convincing and therefore we are condoning the delay in filing the appeal and proceeded to take the appeal on merits.
At the time of hearing, the Ld.AR submitted that the assessee filed their return of income on 18.07.2019 which is within the extended period of 31/10/2019 and therefore eligible for deduction u/s. 80P of the Act. The Ld.AR further submitted that invoking section 80AC of the Act is not correct since the return was filed in time. The Ld.AR further submitted that the AO as well as the Ld.CIT(A) had erred in making the addition of Rs. 47,33,962/- to the returned income when the assessment order has not discussed anything about the same. On the other hand, the Ld.DR relied on the orders of the lower authorities and prayed to dismiss the appeal.
We have heard the arguments of both the sides and perused the materials available on record.
In the assessment order dated 13/04/2021, the AO had disallowed the income of Rs. 3,09,103/- for the reason that the interest income received from the banks will not be eligible for deduction u/s. 80P(2)(a) of the Act. Similarly, in respect of the other incomes such as entrance fees, share fees, reserve fund interest from KCC Bank, sale of Raddi, advertisement and others, the AO disallowed the same as not attributable to the business of the assessee and also not attributable to any of the specified activities mentioned in section 80P(2) of the Act. Therefore the AO had disallowed the claim of Rs. 3,09,103/- and added back the same to the income of the assessee u/s. 56 of the Act. But while preparing the computation sheet, the AO had mistakenly taken the income of Rs 47,33,962 which was not assessed in his proceedings and computed the tax demands accordingly. The above said method adopted by the assessing officer, while preparing the computation sheet taking the said interest as taxable income, when the same was not assessed in the order is factually not correct. We also find that there is no discussion in the assessment order about the disallowance of the interest income and therefore adding the same as income while making the computation is not correct. Further the Ld.CIT(A) in his order had observed that the assessee had filed their return of income belatedly and therefore section 80AC would apply to the facts of the case but remitted the issue to the assessing officer for verifying the facts. The Ld.CIT(A) had also issued a direction to compute the correct total income for the year under consideration after due verification of the relevant details, after affording opportunity to the assessee for this simple factual verification while giving effect to this order so that the instances of the duplication of the addition also stands corrected. As seen from the above said direction given by the Ld.CIT(A), the Ld.CIT(A) had remitted the issue to the file of the AO for computing the correct total income by verifying the details. We are of the view that the computation of correct total income by adding the interest income which was not considered by the AO while making the assessment is not correct. In the assessment order, the AO had made only an addition of Rs. 3,09,103/- but nothing has been considered in the order about the other interest income received by the assessee. Therefore the normal presumption would be that the AO had accepted the claim of the assessee insofar as the interest income of Rs. 47,33,962/- is concerned. In such circumstances, the order of the Ld.CIT(A) remitting the issue to the file of the AO with the direction to consider the claim of entire deduction of Rs. 47,41,931/- is not correct. Further, the assessee had filed the appeal and challenged the assessment order in which the AO had made an addition of Rs. 3,09,103/-. Therefore we are of the opinion that the Ld.CIT(A) had erred in giving such direction to consider the entire interest income which was not in dispute. In respect of the interest income assessed by the AO, which relates to the interest received from the banks and the entrance fees, share fees, reserve fund, interest from KCC Bank, sale of Raddi, advertisement and others are concerned it is the case of the assessee that these incomes are attributable to the activities mentioned in section 80P(2) of the Act and therefore eligible for deduction.
7. Similar issue came up for consideration before the Hon’ble Jurisdictional High Court in the judgment dated 19/02/2018 in of 2018 in the case of Lalitamba Pattina Souharda Sahakari Niyamita reported in 2018 SCC OnLine Kar 955: (2019) 307 CTR 770 wherein the Hon’ble Jurisdictional High Court had considered the issue in detail and also the Division Bench judgment of the Hon’ble Jurisdictional High Court in the case of Totgar’s Co-operative Sales Society Ltd. and gave the following finding: “13. The Co-ordinate Bench of this Court in Tumkur Merchants Souharda Credit Co-operative Limited supra has categorically observed that the interest earned by the society in investing in the Banks is attributable to the activity of carrying on business in the banking or providing credit facilities to its members by a Co-operative Society and is liable to be deducted from the gross total income under Section 80P of the Act. The judgment of the Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Limited supra is also considered and distinguished. The view taken by the Andhra Pradesh High Court in the Commissioner of Income Tax-III, Hyderabad, v. Andhra Pradesh State Co-operative Bank Limited, reported in (2011) 200 Taxmann 220/12 is also considered whereby Andhra Pradesh High Court has held that the interest earned by the Co-operative Society by investing the fixed deposits in the Banks is entitled for deduction under Section 80P(2)(i) (a) of the Act. It is also pertinent to note that this judgment of the jurisdictional High Court in Tumkur Merchants Souharda Credit Cooperative Limited supra, has reached finality. As submitted by the learned counsel for the assessee, the applicability of this Tumkur Merchants Souharda Credit Co-operative Limited supra to the facts of the present case is not considered by the authorities in a right perspective. The Tribunal proceeded to hold that the Commissioner of Income Tax (Appeals) has considered the judgment of Tumkur Merchants Souharda Credit Co-operative Limited supra as well as Totgar's Co- operative Sale Society Limited supra and given the benefit of deduction under Section 8OP on the interest or dividend received in respect of income by way of deposits with the Co-operative Banks from its investment. The Tribunal proceeded to consider the deduction given under Section 80P(2)(d) of the Act as the deduction under Section 80P (2)(a)(i) of the Act or in other words deduction given under Section 80P (2)(d) of the Act would not further entitle the appellant/assessee to claim deduction under Section 80P(2)(a)(i) of the Act. These two provisions being entirely different and distinct, the Tribunal ought to have examined the applicability of Section 80P(2)(a)(i) of the Act in the facts and circumstances of the case. Deduction given under Section 80P (2)(d) of the Act would not disentitle the assessee to claim deduction under Section 80P(2)(a)(i) of the Act. Even assuming as submitted by the learned counsel for the assessee, Totgar's Co-perative Sale Society Limited. supra is applicable to the facts and circumstances of the present case, it was obligatery on the part of the Tribunal being a last fact finding authority to examine the factual aspect in respect of the proportionate costs and administration expenses to be incurred by the appellant regarding the interest earned under Section 56 of the Act and the availability of deduction under Section 57 of the Act to the assessee. This exercise also not being done by the Tribunal merely upholding the order of the Commissioner of Income Tax as well as the Assessing Officer is wholly unsustainable.”
In view of the above said direction given in the said judgment to ascertain the facts, we are also remitting the addition of Rs. 3,09,103/- to the Ld.AO to consider whether the interest income and other incomes earned by the assessee is attributable to the business carried on by the assessee and if the assessee is able to demonstrate before the AO that it is attributable to the business activities carried on by the assessee, then naturally they are entitled for deduction u/s. 80P(2)(a)(i) of the Act.
Only for this limited purpose, we are remitting the interest and other incomes received by the assessee i.e. Rs. 3,09,103/- by following the judgment of the Hon’ble Jurisdictional High Court. Further as seen from the records we are able to find that the ROI was filed by the assessee within the extended period and therefore the findings of the ld CIT(A) in this regard is not correct.
Insofar as the direction given by the Ld.CIT(A), in respect of the interest income of Rs. 47,41,931/-, we are of the opinion that this issue is not raised by the AO and the assessee also not raised the issue before the Ld.CIT(A) and therefore the finding given in respect of the said interest Ld.CIT(A) in respect of the said interest income. Further, before remitting the issue, the Ld.CIT(A) could have obtained a remand report from the AO and thereafter orders can be passed. But unfortunately, the Ld.CIT(A) had not done anything, but remitted the issue to the AO. We are also having a doubt whether the Ld.CIT(A) has power to remand the issue under the provisions of the Act and also has power to enhance the assessment without providing a reasonable opportunity to the assessee. In this case, the Ld.CIT(A) had remitted the issue and also enhanced the assessment without hearing the assessee. Therefore the order of the Ld.CIT(A) is against the provisions and not sustainable in law.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 04th December, 2024.
Sd/- Sd/- (WASEEM AHMED) (SOUNDARARAJAN K.) Accountant Member Judicial Member Bangalore, Dated, the 04th December, 2024. /MS /