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Facts
The assessee, a co-operative society, claimed deduction under Section 80P(2)(d) on interest earned from deposits. The Assessing Officer reopened the assessment beyond the four-year period, alleging the interest was not eligible for deduction. The assessee contested the reopening, arguing it was based on a change of opinion without new material and that the process was invalid.
Held
The Tribunal held that the reopening of assessment under Section 148 was invalid as it was done beyond the four-year period without alleging any failure on the part of the assessee to disclose material facts. The Tribunal also considered various High Court decisions, including the Karnataka High Court, which held that interest income earned by a co-operative society on its investments with a cooperative bank is eligible for deduction under Section 80P(2)(d).
Key Issues
Whether the reopening of assessment under Section 148 beyond four years was valid? Whether the interest income earned by the co-operative society on its deposits is eligible for deduction under Section 80P(2)(d)?
Sections Cited
Section 147, Section 148, Section 80P(2)(d), Section 154, Section 57
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI CHANDRA POOJARI
बनाम/ NTI Housing Assistant Commissioner Co-operative Society of Income Tax Vs. No.84, 1st Floor, Sun Circle-2(2)(1), BMTC Smile, Kumara Park West, Building, 80 Feet Road, Bengaluru – 560 020 Koramangala, Bengaluru – 560 095 PAN/GIR No. : AAAAN0134H (Appellant) .. (Respondent) Assessee by : Shri Narendra Sharma, Advocate Respondent by : Shri V. Parithivel, JCIT Date of Hearing 18/12/2023 Date of Pronouncement 28/02/2024 O R D E R
PER Ms. MADHUMITA ROY - JM:
This bunch of three appeals filed at the instance of the assessee are directed against the order dated 20.09.2023, 21.09.2023 & 19.09.2023, respectively; passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the order dated 26.12.2017 (in A.Ys. 2011-12 & 2015-16) & 02.12.2019 (in A.Y. 2017-18) passed by the ACIT, Circle-2(2)(1), Bangalore, under Section 147 / 143(3) of the Act for Assessment Year 2011- 12, 2015-16 & 2017-18 respectively.
to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 2 –
Since all these appeals are relating to identical issues that too in respect of the same appellant, these are heard analogously and are being disposed of by this common order for the sake of convenience.
ITA No. 827/Ahd/2023 for A.Y. 2011-12
The appellant has challenged the reopening of assessment under Section 148 of the Act on the ground that the same is beyond the period of 4 years on already completed assessment. Neither there was any allegation of failure on the part of the appellant to disclose fully and truly all the material facts for its assessment while recording reasons for reopening of assessment as of the basic conditions or that there is any new or fresh materials available for reopening of an already concluded assessment to be observed. In that view of the matter, the entire proceeding is invalid and void-ab-initio and liable to be quashed as the crux of the case made out by the appellant before us on the maintainability of the assessment.
The brief facts leading to the case is this that the appellant, a Co-operative Society filed its return of income for the year under consideration declaring total income at Nil and also claimed deduction under Section 80P(2)(d) of the Act to the tune of Rs.6,97,671/-. The Ld. AO completed the assessment on 17.02.2014 upon making addition of Rs.97,862/- being interest to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 3 – received from SBI and order of tax demand of Rs.41,510/- was issued to the appellant. Subsequently, a notice under Section 154 of the Act proposing rectification in relation to deduction of claim under Section 80P(2)(d) of the Act amounting to Rs.30,74,320/- restricted to Rs.6,97,671/- was served upon the appellant as it was not found eligible. Thereafter, upon considering the detailed submissions made by the appellant in respect of eligibility for the deduction under Section 80P(2)(d) of the Act supported by judicial precedents, the Ld. AO ultimately passed no order under Section 154 of the Act which was sought to be reopened by issuing notice under Section 148 of the Act dated 27.03.2017 by the Ld. AO even after elapse of the period of 4 years after the concluded assessment before us. The interest received to the tune of Rs.30,74,320/- on deposits with Karnataka Co-op Apex Bank Ltd. was found to be not allowable deduction under Section 80P(2)(d) of the Act and the assessment was finalized upon disallowing deduction amounting to Rs.30,74,320/- under Section 80P(2)(d) of the Act, which was further confirmed by the First Appellate Authority. Hence, the instant appeal before us.
The crux of the case made out by the Revenue is this that the appellant is not entitled to deduction in terms of the provision under Section 80P(2)(d) of the Act, particularly, in view of the decision passed by the Hon’ble Supreme Court in the case of Totagars Co-operative Sales Society Ltd. vs. ITO, reported in to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 4 – (2010) 322 ITR 283 (SC) and therefore reopening was rightly initiated under Section 148 of the Act.
We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.
The case of the appellant before us is this that since there is no allegation of appellant’s failure to disclose fully and truly all the material facts for original assessment, while recording reasons for reopening under Section 148 of the Act beyond the period of 4 years on a completed assessment, the same is invalid and liable to be quashed. In this regard, Ld. AR has drawn our attention to Page No.21 being the reasons so recorded 148 of the Act issued by the ITO, Ward-6(3)(2), Bangalore, the contents whereof is as follows:
"The society has claimed deduction of Rs.30,74,320/- under section 80P(2)(d) being interest earned from deposits made with Karnataka State Cooperative Apex Bank Ltd. As per the provisions of section 80P(2)(d) of the I.T.Act the society is not entitled for deduction and relevant clause to section 80P(2)(d) is reproduced as under; "in respect of any income by way of Interest or dividends derived from the Co-operative Society from the investments with any other Co- operative Society, the whole of such income" Further, the decision of the Hon'ble Supreme Court in the case of Totagar's Co-operative Sales Society Ltd. Vs ITO (322 ITR 283 (SC)) is also applicable to the facts of the case. In view of the above facts and circumstances there is an escapement of income within the meaning and purview of section 147 of the 1.T.Act, 1961. Therefore, I have reasons to believe that the income of Rs.30,74,320/- is chargeable to tax has escaped assessment within the meaning of section 147 of the income Tax Act, 1961 for the A.Y. 2011-12". to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 5 – However, bare perusal of the reason recorded for reopening of assessment under Section 148 of the Act by the ITO, Ward- 6(3)(2), Bangalore does not suggest of recording any such allegation of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment which is sine qua non to justify the initiation of proceeding under Section 148 of the Act in the case of the completed assessment as in the case in hand. We have also considered this particular fact of notice issued by the Ld. AO under Section 154 of the Act proposing rectification of the original assessment on the plea that deduction claimed under Section 80P(2)(d) of the Act amounting to Rs.30,74,320/- restricted to Rs.6,97,671/- was wrongly allowed as the assessee is not found to be eligible for deduction under the said Section and the further fact that the said proceeding was ultimately finalized by passing no order making any addition / alteration in the original assessment. In fact, the submission made by the assessee against such notice issued by the ITO under Section 154 of the Act was ultimately accepted and then only the Ld. AO found it fit and proper not to alter the addition made in the original assessment.
Thus, taking into consideration the order passed in the original assessment and also the completion of the rectification procedure under Section 154 of the Act, without rectifying the original assessment, we find that attempt to reopen the assessment to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 6 – under Section 148 of the Act without mentioning any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment in the recording of reasons, is not in terms of the provision of law. This is nothing but a mere change of opinion, particularly, in the absence of any fresh material available for reopening of a concluded assessment. Therefore, in such a completed proceeding, attempt to invoke the provision of Section 148 of the Act in the present facts and circumstances of the case is found to be arbitrary, whimsical, erroneous, invalid and, therefore, bad in law. We, thus, find no merit in the consequential assessment proceeding finalized under Section 147 of the Act and consequently the appellate order confirming the same. Thus, the entire proceeding, therefore, found to be vitiated for not having been any legs to stand upon, without any support of any statutory provision of law. The same is found to be void-ab-initio and, thus, liable to be quashed. We, thus, quash the entire proceeding initiated under Section 147 of the Act.
However, the Ld. Counsel appearing for the assessee also submitted on merit of the matter to this effect that subsequently the Jurisdictional High Court in the case of PCIT vs. Totagars Co- operative Sales Society Ltd., reported in (2017) 392 ITR 74 was pleased to hold that interest income earned by a Co-operative Society on its investments held with a Co-operative Bank would be eligible for claim of deduction under Section 80P(2)(d) of the to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 7 – Act, a copy whereof has also been filed before us. Moreso, compilation consisting of several orders passed by the Jurisdictional High Court, Gujarat High Court and different Benches of the Tribunal have also been filed by the appellant consideration whereof, establishes the case made out by the assesse claiming deduction under Section 80P(2)(d) of the Act, on the interest earned from the deposit/investment made with the Karnataka State Co-operative Apex Bank Ltd. to be allowable. On this point, we would like to reproduce the judgment passed by the ITAT, Bangalore Bench in case of The Totagars Co-operative Sales Society Ltd. vs. ACIT in ITA Nos. 376 to 379/Bang/2023 wherein the ratio laid down by the Jurisdictional High Court has been considered as under:
“9. We have perused the submissions advanced by both the sides in the light of the records placed. When we look at the decision of Hon’ble Supreme Court in case of Totgars Co-operative Sale Society's case reported in (2010) 188 Taxman 282, relied by the Ld.DR. Hon’ble Supreme Court was dealing with a case where the assessee therein, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. On these facts Hon’ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Hon’ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case. 9.1 In the instant case, the amount which was invested in banks to earn interest was not any amount due to its members. Further the claim of the assessee in u/s 80P(2)(d) was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 8 – deposited the money in a co-operative bank again which interest/dividend was earned. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220/12 taxmann.com 66. 9.2 Therefore, reliance was placed by the Ld.DR on the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO reported in (2010) 188 Taxman 282 is distinguishable on facts. The adjudication by the Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO(supra) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec.80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. 9.3 At this juncture, we refer to subsequent decision of Hon'ble Karnataka High Court in the case of PCIT Vs. Totagars cooperative Sale Society reported in (2017) 395 ITR 611, wherein Hon’ble Court held that, a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble Karnataka High Court in the case of PCIT & Anr. vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, held, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9.3 At this juncture, we respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT & Anr. Vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, hold that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9.4 It is directed that the interest earned by the assessee from commercial banks may be considered under the head ‘income from other sources’ and relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. Accordingly ground No.2 and 3 raised by the asseseee stands partly allowed for statistical purposes.”
Thus, having regard to the facts and circumstances of the case and having regard to the ratio laid down by the Jurisdictional High Court in the case of PCIT vs. Totagars Co-operative Sales Society Ltd. (supra), we find that the appellant is eligible for deduction under Section 80P(2)(d) of the Act on the interest to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 9 – earned from the deposits/investment made with the Karnataka Co- op Apex Bank Ltd. and therefore on this score also, the order impugned disallowing deduction as claimed by the appellant as narrated hereinabove is otherwise found to be not tenable in the eye of law and, therefore, quashed. The Ld. AO is directed to grant relief to the appellant as indicated above.
In the result, appeal preferred by the appellant is allowed.
The matter relates to claim of deduction under Section 80P(2)(d) of the Act amounting to Rs.1,02,22,331/- i.e. interest income earned by the appellant out of the deposit made in the Co- operative Banks out of the money of the members of the appellant society which has been denied by the Ld. AO and confirmed by the Ld. CIT(A) is liable to be quashed in view of the ratio laid down in the case of PCIT vs. Totagars Co-operative Sales Society Ltd. (supra) as already discussed by Bangalore Bench in case of The Totagars Co-operative Sales Society Ltd. vs. ACIT in to 379/Bang/2023. Thus, with the above observation, we quash the order passed by the authorities below with a direction upon the Ld. AO to grant relief in regard to the claim of deduction made by the appellant under Section 80P(2)(d) of the Act.
In the result, appeal preferred by the appellant is allowed.
ITA Nos. 827 to 829/Bang/2023 (NTI Housing Co-operative Society vs.ACIT) A.Ys.– 2011-12, 2015-16 & 2017-18 - 10 – - A.Y. 2017-18
The decision in for A.Y. 2015-16 shall also apply mutatis mutandis in ITA No. 829/Ahd/2023 for A.Y. 2017-18.
In the combined result, all three appeals preferred by the appellant are allowed
This Order pronounced on 28 /02/2024