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Income Tax Appellate Tribunal, B BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against the order of NFAC for the assessment year 2017-18 dated 3.5.2024. The assessee raised following grounds of appeal:
1. The National Faceless Appeal Centre having rightly held that the assessee is a 'co-operative society' entitled for deduction of Rs. 2,13,27,670 u/s.80P of the Income-tax Act,1961, erred in enhancing assessment u/s.251 of Income-tax Act,1961by bringing interest income from Banks of Rs. 5,04,19,074 to tax. The enhancement of assessment is unwarranted, uncalled for, without jurisdiction and therefore, the said enhanced income of Rs. 5,04,19,074 liable to be deleted.
Since the case has been selected for limited scrutiny assessment under CASS to verify deduction under Chapter-VI-A and cash withdrawals, the National Faceless Appeal Centre has acted contrary to the Circular of CBDT issued in this behalf by way of enhancement of assessment by bringing interest income from Banks of Rs. 5,04,19,074 to tax.
Surabhi Souharda Credit Co-operative Society Ltd., Bangalore Page 2 of 6 3. The National Faceless Appeal Centre erred in holding interest income from Banks of Rs. 5,04,19,074 falls under "Income from other sources", although the assessee had explained that it falls under "profits and gains of business" entitled for deduction u/s.80P(2)(a)(i) of the Income- tax Act, 1961.
4. The National Faceless Appeal Centre erred in denying deduction of interest from co-operative Banks of Rs.4,99,09,541 claimed u/s.80P(2)(d) of the Income-tax Act, 1961, since interest from cooperative Banks was derived by the assessee from its investments with co-operative Banks 5. The determination of interest income of Rs. 5,04,19,074 without deduction of amount expended wholly and exclusively for the purpose of earning interest income as per sec.57(iii) of the Income-tax Act, 1961, is an error.
Each Ground of appeal is without prejudice to one another.
2. Facts of the case are that the assessee, Surabhi Souharda Credit Co-Operative Limited, is a Society registered under Karnataka Souharda Sahakari Act, 1997 (KSS Act). It had furnished the return of income for the year under consideration i.e., A Y 2017-18 on 01.08.2017 declaring total income of Rs. Nil after claiming deduction of Rs. 2,13,27,673/- under Chapter VI-A of the Act. The case was selected for limited scrutiny under CASS to verify deductions under Ch. VI-A and cash withdrawals. The notice u/s 143(2) was issued on 09.08.2018 and duly served. The ld. AO held that the assessee being a "co-operative" registered under KSS Act, 1997 does not fall under the definition of 'co-operative society' under section 2(19) of the Income-tax Act and as such it is not eligible for deduction u/s 80P. Accordingly, the AO passed order u/s. 143(3) of the Act on 10.12.2019 determining the total income at Rs. 2,13,27,673/- by disallowing deduction claimed u/s. 80P of Act. 2.1 Against the order of ld. AO, the assessee went in appeal before ld. CIT(A). Ld. CIT(A) allowed the deduction of Rs.2,13,27,673/- u/s 80B of the Income Tax Act, 1961 (in short “The Act”) or following the earlier order of the NFAC for the assessment year 2018-19 dated Surabhi Souharda Credit Co-operative Society Ltd., Bangalore Page 3 of 6 14.3.2024. However, he issued a show cause notice u/s 251(2) of the Act stating that interest earned from co-operative bank and scheduled banks, if any shall not be considered to be disallowed u/s 80P(2)(a)(i) as well as 80(2)(d) of the Act to the tune of Rs.5,04,19,074/- as below:
Sl.No. Name of co-operative/schedule Interest in Rs. bank 1. Sri Guru Raghavendra Sahakari 2,98,33,204/- Bank Niyamitha 2. Sree Charan Souharda Co- 59,61,553/- operative Bank Ltd.
Tumkur Grain Merchants Co- 1,41,14,784/- operative Bank Ltd.
Bank of India 5,09,533/- Total 5,04,19,074/- 2.2 The ld. CIT(A) after hearing to the assessee he observed that assessee was not entitled for deduction u/s 80P(2)(a)(i) & 80P(2)(d) of the Act in respect of interest earned from non-members including scheduled banks as well as co-operative banks. Against this assessee is I n appeal before us. 2.3 The primary objection of the ld. A.R. in ground Nos.1 & 2 is that the assessment has been selected for limited scrutiny to consider following only:
1. 1. Deduction u/s Chapter VIA 2. Cash withdrawals 2.4 However, AO travelled beyond the notice issued u/s 143(2) of the Act dated 9.8.2018.
3. We have heard the rival submissions and perused the materials available on record. On this issue, we find no force in the argument of ld. A.R. The deduction u/s 80P(2)(a)(i) & 80P(2)(d) of the Act falls within the Chapter VIA of the Income Tax Act, 1961 and more so, the ld. CIT(A) after giving due notice u/s 251(2) of the Act considered the issue and decided against the assessee. The assessee Surabhi Souharda Credit Co-operative Society Ltd., Bangalore Page 4 of 6 cannot have grievance on this assuming jurisdiction by ld. CIT(A) u/s 251(2) of the Act. Accordingly, this ground of appeal of the assessee is dismissed.
4. Ground Nos.3 to 5 are with regard to granting of deduction u/s 80P92)(a)(i) & 80P(2)(d) of the Act and assessing the income under head “income from other sources” without granting deduction towards earning of such other income u/s 57(iii) of the Act.
5. We have heard the rival submissions and the materials available on record on this issue. The Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (123 taxman.com 161) had held that the co-operative societies providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) of the Act. The Hon’ble Apex Court after considering the judicial pronouncements on the subject, had stated the term “member” has not been defined under the Income-tax Act. It was, therefore, stated by the Hon’ble Apex Court that the term “member” in the respective State Co-operative Societies Acts under which the societies are registered have to be taken into consideration. The Hon’ble Apex Court held that if nominal / associate member is not prohibited under the said Act, for being taken as a member, the income earned on account of providing credit facilities to such member also qualify for deduction u/s 80P(2)(a)(i) of the Act. It was further held by the Hon’ble Apex Court that section 80P(4) of the I.T. Act is to be read as a proviso. It was stated by the Hon’ble Apex Court that section 80P(4) of the Act now specifically excludes only co- operative banks which are co-operative societies engaged in the business of banking i.e. engaged in lending money to members of the public, which have a license in this behalf from the RBI. The Hon’ble Apex Court had enunciated various principles in regard to deduction u/s 80P of the Act.
Surabhi Souharda Credit Co-operative Society Ltd., Bangalore Page 5 of 6 5.1. On identical factual situation, the Bangalore Bench of the Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. v. ITO in (order dated 31.08.2021) had remanded the issue to the files of the A.O. for de novo consideration. The Tribunal directed the A.O. to follow the dictum laid down by the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra). The relevant finding of the Co-ordinate Bench of the Tribunal in the case of M/s. Ravindra Multipurpose Cooperative Society Ltd. v. ITO (supra), reads as follows:- “6. Grounds 2-4 & additional Ground No.1: In respect of associate / nominal members, Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (2021) 123 taxmann.com 161 (SC) has held that the expression “Members” is not defined in the Income-tax Act. Hence, it is necessary to construe the expression “Members” in section 80P(2)(a)(i) of the Act in the light of definition of that expression as contained in the concerned co-operative societies Act. In view of this, the facts are to be examined in the light of principles laid down by the Hon’ble Supreme Court in Mavilayi Service Cooperative Bank Ltd. (supra).
Accordingly, we remit this issue of deduction u/s 80P(2)(a)(i) of the Act to the files of Ld.AO to examine the same de novo in the light of the above judgment. Needless to say that proper opportunity of being heard is to be granted to assess in accordance with law.”