LATE INDIRA GANDHI NAGRI SAHAKARI PAT PURWATHA SANSTHA MARYADIT,AKOLA vs. ITO, WARD-2, AKOLA
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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO
IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR
BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER
S.M.C. MATTER ITA no.367/Nag./2023 (Assessment Year : 2018–19)
Late Indira Gandhi Nagri Sahakari Pat Purwatha Sanstha Maryadit Bus Stand road, Near Shanti Hospital ……………. Appellant Telhara Dist. Akola, 444 108 PAN – AAAAL9686Q v/s Income Tax Officer ……………. Respondent Ward–2, Akola Assessee by : None Revenue by : Shri Abhay Y. Marathe
Date of Hearing – 13/08/2024 Date of Order – 21/08/2024
O R D E R PER V. DURGA RAO, J.M.
The present appeal has been filed by the assessee challenging the impugned order dated 22/09/2023, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2018–19.
Before us, when the case was called for hearing, none appeared on behalf of the assessee. Even application for seeking adjournment has not been filed by the assessee. Under these circumstances, the I was of the view that the assessee’s appeal can be disposed of in the absence of the assessee
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after hearing the learned Departmental Representative and on the basis of material available on record. Accordingly, I proceed to dispose off the appeal on merit.
In its appeal, the assessee has raised following grounds:–
“1. Denial of deduction U/s 80 P (2)(a)(i) Department is blatantly applying the Totgars decision to all kind of co-op. societies including credit co-operative Society to disallow the deduction claimed u/s 80P(2)(a). Many decisions allowing deduction under similar facts ofthe society. The appellant request you to allow the deduction of Rs. 4452374/- u/s 80P(2)(a)(i). 2. Allow deduction under Section 80P(2)(d). Undisputedly Assessee Society has invested is surplus funds with Co-Operative banks and earned the interest income which can be allowable as deduction U/s 80P(2)(d). The appellant request you to allow the following Additional Grounds of Appeal. Additional Grounds of Appeal 3. On the facts of the case, the Learned Assessing Officer was not justified to assessed the interest income of Rs. 4452374/- received on the deposits with the Banks, under the head "Income from Other Sources". It is prayed that the interest income of Rs. 4452374/- received on the deposits with the Banks, be assessed under the head "Profits and Gains of the Business" as declared by the appellant in its return of income. 4. The order of the learned AO in so far as it is against the appellant is opposed to law, equity, and weight of evidence, probabilities, facts and circumstances of the case. 5. The authorities below are not justified in disallowing the deduction of 4452374/- claimed u/s. 80P(2)(a)(i) and also u/s 80(2)(d) of the Act under the facts and in the circumstances of the appellant's case. The appellant request you to allow the deduction of Rs. 4452374/- claimed u/s 80P(2)(a)(i). 6. Without prejudice to the above, the authorities below have also erred in denying the claim of the appellant u/s. 80P(2)(d) of the Act under the facts and circumstances of the Appellant's case.
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The appellant request you to allow the deduction of Rs. 3177912/- u/s 80p(2)(d) being the amount of interest received from the co-operative societies and co-operative banks. 7. Without prejudice to the above, the authorities below have erred in denying the claim of the Appellant u/s. 80P(2)(a)(i) on Rs. 1135888/- being the Interest earned of the Statutory deposits maintained by the Society against the reserve fund in terms of the provisions of the Bye Laws of the Society as well as the provisions of the Maharashtra State Co-Operative Societies Act, 1960. The appellant request you to allow the deduction of Rs. 1135888/- u/s 80P(2)(a)(i) being the Interest earned of the Statutory deposits maintained by the Society against the reserve fund equd soitto 8. The Appellant denies itself being liable for Interest u/s. 234B, under the facts and circumstances of the case. 9. The Appellant denies itself being liable for Interest u/s. 234C, under the facts and circumstances of the case. 10. The Appellant craves leave of your Honour to add, alter, amend, rectify, and delete any of the grounds urged above. 11. For the above and other grounds that may be urged at the time of hearing of the appeal, the appellant humbly prays that the appeal may be allowed, and Justice rendered.”
Facts in Brief:– The assessee is a Credit Co–operative Society registered under Maharashtra State Act, 1960, having business at Taluka base. Co– operative Societies Act, 1961, dealing with members only. The assessee being a Credit Co–operative Society dealing with members only, accepts deposits from members and advancing to members only. The assessee Society invests time to time un–utilise funds of its deposits from members with banks as per liquidity and security norms applicable as per the Co–operative Societies Maharashtra State Act, 1960. The assessee Society reported profit of ` 28,60,790, which was claimed exempt under section 80P(2)(a)(i) of the Act, as the assessee Society is providing banking/credit facility to its members. The profit from business income includes interest income of ` 44,52,374, on
Late Indira Gandhi Nagri Sahakari Pat Purwatha Sanstha Maryadit ITA no.367/Nag./2023
the deposits/investment as per statutory norms of Co–operative Societies Act. The Assessing Officer issued notice under section 142(1) of the Act seeking explanation from the assessee as to why the interest income received from Bank (non-member) should not be assessed under the head income from other sources. The assessee submitted that as per the provision of section 8OP(2)(a)(i) of the Act, deduction is available in respect of the income derived from providing the credit facilities to the members of the society and income by way of interest or dividend derived from the investment with any co-operative society or bank is eligible for claiming deduction under section 8OP(2)(a)(i) and section 80P(2)(d) of the Act. The Assessing Officer, however, E–Assessment Centre, Delhi, relying on the decision of Hon’ble Supreme Court in The Totgars’ Co–operative Sale Society Ltd. v/s ITO, [2010] 188 taxman 282 (SC), denied the deduction of section 80P(2)(a)(i) claimed by the assessee Society. Aggrieved, the assessee went in appeal before the first appellate authority.
The learned CIT(A) confirmed the order passed by the Assessing Officer by following the judgment of the Hon’ble Supreme Court cited supra.
None appeared on behalf of the assessee.
Before us, the learned Departmental Representative vehemently relied upon the order of the authorities below.
I have heard the arguments of learned Departmental Representative, perused the material available on record and gone through the orders of the authorities below. It is an admitted fact that the assessee is a Credit Co– Page | 4
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operative Society and the assessee has deposited certain funds with Bank and and has received interest income which was claimed the as deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The case of the Assessing Officer is that, interest income received by the assessee is from income from other sources not eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The Assessing Officer has come to the conclusion by following the judgment of the Hon'ble Supreme Court in The Totgars’ Co–operative Sale Society Ltd. v. ITO, [2010] 188 taxman 282 (SC). I find that similar issue came up for adjudication before the Tribunal, Nagpur Bench, wherein the very same Bench was a party to that order rendered in The Ismailia Urban Co– operative Society v/s ITO, ITA no.122/ Nag./2023, order dated 18/06/2024, wherein the Tribunal has considered this issue in detail and held that interest income earned by the assessee trust is eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The relevant portion of the order reproduced below:–
“9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered in favour of the assessee by a catena of decisions from ITAT as well as a decision of jurisdictional High Court. In this regard we may gainfully refer the Hon‟ble Jurisdictional High Court decision in the case of CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. 182 Taxman 231 wherein the following question was raised. “Whether the interest income received by a Co-operative Bank from investments made in Kisan Vikas Patra („KVP‟ for short) and Indira Vikas Patra („IVP‟ for short) out of voluntary reserves is income from banking business exempt under Section 80P(2)(a)(i) of the Income Tax Act, 1961?” After considering the issue, the Hon‟ble Jurisdictional High Court has concluded as under : “12. Therefore, in all these cases, where the surplus funds not immediately required for day-to-day banking were kept in voluntary reserves and invested in KVP/IVP, the interest income received from KVP/IVP would be income from banking business eligible for deduction under section 80P(2)(i) of the Act.
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In the result, there being no dispute that the funds in the voluntary reserves which were utilized for investment in KVP/IVP by the co-operative banks were the funds generated from the banking business, we hold that in all these cases the Tribunal was justified in holding that the interest income received by the co-operative banks from the investments in KVP/IVP made out of the funds in the voluntary reserves were eligible for deduction under section 80P(2)(a)(i) of the Act.” The above case law fully supports the assessee‟s case. Here also surplus funds not immediately required for day to day banking were kept in Bank deposits. The income earned there from thus would be income from banking business eligible for deduction u/s 80P(2)(a)(i). 10. Similarly we find that similar issue was considered by this Tribunal on similar grounds raised by the Revenue in the case of MSEB Engineers Co-Op. Credit Society Ltd., wherein the ITAT, Nagpur Bench, vide order dated 05/05/2016 held as under : “Upon hearing both the counsel and perusing the records, we find that the above issue is covered in favour of the assessee by the decision of this ITA, referred by the Ld. CIT(A) in his appellate order. The distinction mentioned in the grounds of appeal is not at all sustainable. We further find that this Tribunal again in the case of Chattisgarh Urban Sahakari Sanstha Maryadit Vs. ITO in ITA No. 371/Nag/2012 vide order dated 27.05.2015 has adjudicated similar issue as under:- “11. Upon careful consideration, we not that identical issue was the subject matter of consideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal‟s decision is as under: “4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining “operations funds” and to meet any eventuality towards repayment of deposit, the Co-operative society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT “B” Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd., bearing ITA No. 1491/Ahd/2012 (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- “19. The issue dealt with by the Hon‟ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act is interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes? The assesse(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question before us, is whether interest on such deposits/securities, which strictly speaking accrues to the Page | 6
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members‟ account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of „income from other sources‟ hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer…..” 19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon‟ble Supreme Court – “(on page 286) 7 …….. Before the assessing officer, it was argued by the assesse(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence these civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii)marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds:- - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it had not carry out any activity except in providing credit facilities to its members and Page | 7
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that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon‟ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co- operative bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source : Balance Sheet of the assessee available on record]. 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon‟ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly.” 5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s 80P(2)(a)(i) was rightly granted by ld. CIT(A), however, he has wrongly held that the interest income is taxable u/s 56 of the Act so do not fall under the category of exempted income u/s 80P of the Act. The adverse portion of the view, which is against the assessee, of ld. CIT(A) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed. 8. We find that the ratio of above case also applies to the present case. As observed in the above case law, in this case also the submissions of the assessee‟s counsel is that the assessee society is maintaining operational funds and to meet any eventuality towards repayment of deposit the cooperative society is maintaining some liquidated funds as short term deposits with banks. Hence adhering to the doctrine stair desises, we hold that the assessee should be granted benefit of deduction under section 80P(2)(a)(i). Accordingly, the interest on deposits would qualify for deduction under the said section. Accordingly, we set aside the order of authorities below and decide the issue in favour of assessee. “ 4. We further find that batch of similar appeals decided by the ITAT in favour of the assessee has also been considered by the Jurisdictional High Court. The Hon‟ble Jurisdictional High Court has duly affirmed of this Tribunal. Accordingly, in the background aforesaid discussion, we do not find infirmity in the order of Ld. CIT(A).” 11. In the background of aforesaid discussion and decisions, we find that CIT (A) has erred in upholding the assessment order. The Appellant Co-operative society is entitled for deduction u/s 80P as claimed in the return.”
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In the above decision, the Co–ordinate Bench has already considered the judgment of the Hon’ble Supreme Court in The Totgars’ Co–operative Sale Society Ltd. (supra) and held that the facts of this case are distinguishable and not applicable to the facts of the present case. I, therefore, following the decision of the Co–ordinate Bench in The Ismailia Urban Co–operative Society v/s ITO, ITA no.122/ Nag./2023, order dated 18/06/2024, set aside the impugned order passed by the learned CIT(A) and hold that the assessee is eligible to claim deduction under section 80P(2)(a)(i) of the Act. Thus, grounds no.1 to 7, are allowed.
Grounds no.8 and 9, relate to levy of interest under section 234B and 234C of the Act.
Levy of interest being consequential in nature, thus, these grounds are not required to be adjudicated separately.
Grounds no.10 and 11, being general in nature, hence, no separate adjudication is needed.
In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 21/08/2024
Sd/- V. DURGA RAO JUDICIAL MEMBER NAGPUR, DATED: 21/08/2024
Late Indira Gandhi Nagri Sahakari Pat Purwatha Sanstha Maryadit ITA no.367/Nag./2023
Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur
