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Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
Before: SHRI V. DURGA RAO & SHRI K.M. ROY, ACCOUNTANT, MEMBER
Date of Hearing – 05/08/2024 Date of Order – 08/08/2024
O R D E R PER V. DURGA RAO, J.M.
The present appeals have been filed by the assessee challenging the impugned orders of even date 11/03/2023, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, [“learned CIT(A)”], for the assessment year 2018–19 and 2020–21.
Since both these appeals pertain to the same assessee involving common issues arising out of identical set of facts and circumstances, except variation in figures, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of the facts of one appeal. We are, accordingly, narrating the Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 facts, as they appear in the appeal in ITA no.159/Nag./2023, for assessment year 2018–19. The findings / decisions of this appeal will mutatis mutandis apply to the other appeal as well.
./2023 Assessee’s Appeal – A.Y. 2018–19
2. In its appeal, the assessee has raised following grounds:–
“1) Based on the facts and circumstances of the case, Order passed by Learned CIT-Appeals (NFAC) Delhi is arbitrary needs to be set aside. 2) Based on the facts and circumstances of the case, Learned CIT- Appeals (NFAC) Delhi has disallowed deduction u/s 80P(2)(a)(i) of the Income Tax act'1961 in the light of provisions of sec 80P(4) of the I.T.Act 1961 which was not the subject matter of adjudication. 3) Based on the facts and circumstances of the case addition of Rs.9,26,43,041/- on account of interest received on investments being non banking income not eligible for deduction u/s 80P (2)(a)(i) of the Income Tax Act'1961 is unwarranted and against the Principal of theory of taxation and needs to be deleted. 4) Based on the facts and circumstances of the case entire income of the assessee is eligible for deduction u/s 80P(2)(a)(ia) of the Income Tax act'1961 and any addition or disallowances is eligible for deduction u/s 80P(2)(a)(i) of the Income Tax act'1961. 5) Interest u/s 234A, 234 B and 234 C of the Income Tax act '1961 being consequential in nature needs to be deleted. 6) Assessee craves leave to add, alter or amend any of the grounds of appeal.”
Facts in Brief:– The assessee is a Credit Co–operative Society engaged in the business of banking and providing credit facilities to its members. The assessee society is registered under Maharashtra Co–operative Societies Act, 1961. The society is operating through its 18 branches with total member strength of 8,085, who are either depositors or borrowers or in both capacities. The assessee society accepted all deposits from members of the society. For the year under consideration, the assessee filed its return of Page | 2
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 income on 26/09/2018, declaring gross total income of ` 3,03,47,064, and total income at ` nil after claiming deduction of ` 3,03,47,064 under section 80P(2)(a)(i) of the Income Tax Act, 1961 ("the Act"). The case was selected for scrutiny. The Assessing Officer followed the due procedure and the assessee filed all the relevant details. After considering the details, the Assessing Officer came to the conclusion that the assessee has earned interest income of ` 9,26,43,041, (interest on fixed deposits of ` 9,26,43,040) with Pusad Urban Co–operative Bank and YDCC Bank and has claimed the entire interest income as deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The Assessing Officer, after examining the case, has noted that the interest income earned by the assessee is income from other sources and not eligible for claiming deduction under section 80P(2)(a)(i) / 80P2(d) of the Act and the assessment was completed.
On appeal, the learned CIT(A) confirmed the order of the Assessing Officer. The assessee on being aggrieved is in further appeal before the Tribunal.
The learned Authorised Representative (“the learned A.R.”) submitted that the interest income earned by the assessee is eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. He submitted that the Assessing Officer, in all the preceding assessment years, has allowed the deduction claimed by the assessee. However, for the year under consideration, without there being any reason, the claim of the assessee is denied.
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 6. The learned Departmental Representative supported the order of the learned CIT(A).
We have heard the arguments of rival parties, 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–operative Society and the assessee has deposited certain funds with Pusad Urban Co–operative Bank and YDCC Bank 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). We 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, 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 Page | 4 Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 („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.
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 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 : Page | 5
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 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 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:
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 (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 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.
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 Page | 7
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 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.”
8. 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 is distinguishable and not applicable to the facts of the present case. We, therefore, respectfully following the decision of the Co–ordinate Bench in The Ismailia Urban Co– operative Society v/s ITO, Nag./2023, order dated 18/06/2024, we 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.2, 3 and 4, are allowed.
Ground no.5, relates to levy of interest under section 234A, 234B and 234C of the Act being consequential in nature, hence no separate adjudication is required.
Grounds no.1 and 6, being general in nature, hence no separate adjudication is required.
In the result, appeal filed by the assessee for the assessment year 2018–19 is partly allowed. ./2023 Assessee’s Appeal – A.Y. 2020–21
In its appeal, the assessee has raised following grounds:–
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023 “1) Based on the facts and circumstances of the case, Order passed by Learned CIT-Appeals (NFAC) Delhi is arbitrary needs to be set aside. 2) Based on the facts and circumstances of the case, Learned CIT- Appeals (NFAC) Delhi has disallowed deduction u/s 80P(2)(a)(i) of the Income Tax act'1961 in the light of provisions of sec 80P(4) of the I.T.Act 1961 which was not the subject matter of adjudication. 3) Based on the facts and circumstances of the case addition of Rs.4,68,72,348/- on account of interest received on investments being non banking income not eligible for deduction u/s 80P (2)(a)(i) of the Income Tax Act'1961 is unwarranted and against the Principal of theory of taxation and needs to be deleted. 4) Based on the facts and circumstances of the case entire income of the assessee is eligible for deduction u/s 80P(2)(a)(ia) of the Income Tax act'1961 and any addition or disallowances is eligible for deduction u/s 80P(2)(a)(i) of the Income Tax act'1961. 5) Interest u/s 234A, 234 B and 234 C of the Income Tax act '1961 being consequential in nature needs to be deleted. 6) Assessee craves leave to add, alter or amend any of the grounds of appeal.”
13. After haring both the parties and on a perusal of the material available on record, we find that identical issue has been raised by the assessee in its appeal being ITA no.159/Nag./2023, for the assessment year 2018–19, wherein, vide ground no.2 to 4, we have decided this issue in favour of the assessee and against the Revenue in Para–7 and 8, of this order. Since the issue for our adjudication being identical, except variation in figures, cconsistent with the view taken therein in assessee’s own case cited supra and respectfully following the findings given therein, we set aside the impugned order passed by the learned CIT(A) and allow the ground no.2, 3 and 4, raised by the assessee.
14. Ground no.5, relates to levy of interest under section 234A, 234B and 234C of the Act being consequential in nature, hence no separate adjudication is required. Page | 9
Bharti Maind Nagri Sahakari Pat Sanstha ITA no.159–160/Nag./2023
Grounds no.1 and 6, being general in nature, hence no separate adjudication is required.
In the result, appeal filed by the assessee for the assessment year 2020–21 is partly allowed.
To sum up, both the appeals filed by the assessee are partly allowed. Order pronounced in the open Court on 08/08/2024