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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeals)[NFAC] for Assessment Year 2017-18 dated 30.07.2024 passed u/sec.250 of the Income tax Act, 1961. The Assessee has raised the following grounds of appeal :
1. On the facts and in the circumstances of the case and in law, lower authorities have erred in treating a sum of Rs. 15,70,807/- being part of the interest received on investment with other Co- Operative Bank as ineligible amount for calming deduction under section 80P (2)(a)(i) without appreciating the fact that earning of interest is an integral part of societies business and appeal and prays for allowing such deduction.
2. On the facts and in the circumstances of the case and in law. lower authorities have erred in treating the interest received from investment as income from other sources by rejecting appellant's contention that said interest income is integral part of business activity and your appellant prays for cancellation of Assessing officer's action.
3. Without prejudice to above ground on the facts and circumstances of the case and in the law, lower authorities have erred in not allowing the deduction under section 80P(2)(d) on interest income received from other co-operative society. Your appellants pray for allowing of the same.
Without prejudice to above ground, On the facts and circumstances of the case and in the law. lower authorities have erred in treating entire interest income as interest income received from other co-operative society or bank without allowing deduction on account of interest expenses. Your appellant prays for such deduction. Your appellant prays for deletion of entire addition Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal
before or during the course of hearing in the interest of natural justice.” Submission of ld.AR :
2. Ld.AR for the Assessee submitted that Assessee is a Co- operative Credit Society duly registered under Maharashtra Co- operative Societies Act, 1960. The activities of the assessee consist of accepting deposits and giving loans to its members. As per the RBI Guidelines, excess funds are deposited in PDCC Bank, Thane Janata Sahakari Bank(TJSB). Assessee had earned interest income from PDCC Bank and TJSB. Ld.AR submitted that ITAT Pune Bench has consistently held that such interest is eligible for deduction u/sec.80P(2)(a)(i) of the Act. The Interest Income has been earned as part of business activity of the assessee; and it is intrinsically linked to the business of the assessee. Therefore, the said Interest Income is eligible for deduction. During the year, assessee has received Rs.81,610/- from Axis Bank. Ld.AR submitted that same is also eligible for deduction u/sec.80P(2)(a)(i) of the Act. However, we specifically asked ld.AR to demonstrate with documentary evidence – what is liquid fund of Axis Bank! Is it a mutual fund of Axis Bank in which assessee has invested? The ld.AR could not answer to this question.
Submission of ld.DR : 3. Ld.DR for the Revenue relied on the order of the Assessing Officer(AO) and ld.CIT(A).
Findings & Analysis : 4. We have heard both the parties and perused the records. As far as question of interest earned from PDCC Bank and TJSB are concerned, the ITAT Pune has consistently held that such interest is eligible for deduction u/sec.80P(2)(a)(i) of the Act.
4.1 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub- section (2) of section 80P or not.
While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. ……………………
The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High
Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote.
4.2 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.
The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 6.1 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee.
6.2 Therefore, the interest earned by the assessee from PDCC Bank and TJSB is eligible for deduction u/sec.80P(2)(a)(i) of the Act.
Ground No.2 : 7. As far as the question of Rs.81,610/- is concerned, in the assessment order it is vaguely referred as “Interest on liquid fund with Axis Bank”. We have specifically inquired with ld.AR and ld.DR regarding exact nature of the said amount. However, none could explain this. In these facts and circumstances of the case, we deem it appropriate to set-aside the issue of taxability of Rs.81,610/- to the Assessing Officer for denovo adjudication. The Assessing Officer shall provide opportunity of hearing to the assessee. Accordingly, Ground No.2 raised by the assessee allowed for statistical purpose.
In the result, appeal of the assessee is Partly Allowed. Order pronounced in the open Court on 28th November, 2024.