SHRINIDHI PATTIN SAHAKARI SANGH NIYAMIT,VIJAYAPUR vs. INCOME-TAX OFFICE, WARD-3, BIJAPUR

The brief facts of the case are that the assessee did not file return of income within the time prescribed in Rule 12 of the Income Tax Rules, 1962, on or before the 31.03.2018 and within the period of time allowed of 30 days in notice issued u/s 142(1) dated 06.02.2018. During the phase of online verification under “Operation Clean Money” the assessee had deposited cash of Rs. 19,61,000/- during the period of demonetization in its bank account maintained with BDCC Bank Sindagi Branch in old currency note Rs. 500 & Rs. 1000 notes (SBNs). As per e-filling portal of Income Tax department, the assessee has not filed ITR for AYs 2012-13 to 2018-19. The assessee did not respond the notices issued by the Income Tax department , accordingly notice u/s 133(6) was issued to the BDCC Bank calling for bank account statement. The opportunity was provided to the assessee but it did not respond. Accordingly, the AO added the entire cash deposits in old currency note during the demonetization period was added u/s 69A of the Act. A further notice u/s 133(6) was issued to Deputy Director of Registrar of Co-Operative Societies , Allpur Oni, Sindagi Road, Vijaypur calling for Bye Laws of the society, detailed address of the Directors with PAN, Audit Report for the financial year 2016- 17 as per society Act and these were provided. From the financial statements the AO noted that the assessee has earned interest on its investments of Rs. 1,31,468 and further noted that there were debit of Rs. 35,000/- towards audit fee and Pigmy Commission of Rs. 4,52,542 on which no TDS was made accordingly, the AO disallowed u/s 40(a)(ia) and added 30% of Rs. 4,87,542 (Rs. 35,000+4,52,542) into the total income of the assessee. The AO made addition of Rs. 2,77,730/- ( Rs. 1,46,262+Rs.1,31,468). The AO assessed the total income at Rs. 22,38,700/-. On appeal before the First Appellate Authority (FAA), in remand proceedings the AO admitted that there was cash balance of Rs. 3,10,000/- as on 08.11.2016 accordingly the FAA allowed to that extent of Rs. 3,10,000 and rest amount of Rs. 16,51,000/- was confirmed. He further deleted the addition made u/s 40(a)(ia). The deduction u/s 80P(2) was not allowed.

Considering the rival submissions we noted that the AO issued notice u/s. 142(1) on 08.08.2019 calling for details and documents mentioned in the notice. As there was no response one more notice u/s 142(1) dated 05.09.2019 was issued, calling for details and documents. The AO noticed that the assessee is a cooperative society mainly involved in the business of providing credit facilities to its members. The interest received from Other Societies/Banks/Co-operative Banks is to be assessed under the head income from other sources u/s. 56 of the Act., since it does not satisfy the requirement of section 80P(2)(a)(i) because it is not attributable to the business income of the assessee. The assessee is also not eligible for deduction u/s 80P(2)(d) on two counts. The interest income received is from Co-operative bank and in the light of judgment of Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. vs ITO reported in [2021] 123 taxmann.com 161 (SC). Since the assessee did not file the return of income and, therefore, as per section 80A(5) and 80AC of the Act, the assessee is not eligible for deduction u/s. 80P(2) on its income at all following the judgment of Hon’ble Kerala High Court in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT [2023] 152 taxmann.com 347 (Kerala) where it is held that without a valid return of income, deduction u/s. 80P cannot be allowed.

We further note that the assessee has received interest from other co-operative banks/commercial banks on its investments. The revenue authorities have considered the entire interest as income from other sources u/s. 56 including the interest received from co-operative bank and no expenses u/s. 57(iii) has been allowed to the assessee for earning of such income. While calculating the income, the net income should be considered as taxable income after reducing the expenditure incurred towards earning of such income. Therefore relying on the judgment of Hon’ble Jurisdictional High Court in case of Totgars’ Co-operative Sales Society Ltd. vs ITO Sirsi, reported in (2015) 58 taxmann.com 35 (Karnataka), the assessee is eligible for claim of its cost of funds on the interest income received from banks. Reliance is also placed on the judgment of Co-ordinate Bench of the Tribunal in case of The West Coast Paper Mill Employees Souharda Credit Co- op. Ltd. Accordingly, the assessee is directed to provide the details of cost of funds before the assessing officer. Therefore for allowing cost of funds, we are remitting this issue to the assessing officer for determining the cost of funds for earning entire interest income from bank (co-operative bank and scheduled bank).

Further in respect of cash deposits during the demonetization period the assessee had submitted that the amount was deposited in the members account and no new accounts were opened. The KYC norms such as PAN/Aadhar copies were submitted however these documents have not been examined by any of the authorities below in the light of section 68. A similar issue have been decided by the co-ordinate bench in order dated 24.08.2023 in the case of Merchants Credit Co-operative Society Ltd., vs ITO in which it has been held as under.

There is no doubt that the assessee has satisfied the identity of the deposits, who are members of the society and genuineness of the transactions because the amounts have been deposited in the members accounts only. If the AO had any doubts that the assessee has not satisfied the ingredients of section 68, he could have asked further details from the assessee, but the AO has not done the same, which clearly shows that the assessee has discharged its duty to satisfy the requirement of section 68. We further note that the SBNs have been deposited in the members accounts, accordingly, the assessee did not get any extra benefit as observed by the AO in his order at para No. 06 which was treated as income us 69A of the Act. In view of this, the provisions of section 68 is not applicable in the present facts of the case and the AO without discussing in detail has made addition u/s. 68 which is not proper. Therefore the addition is deleted.

Respectfully following the above judgment we direct the assessee to file details before the AO for the verification in the light of above judgment to satisfy the ingredients of section 68 of the Act.