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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 directed against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], under section 250 of the Income tax Act, 1961 dated 11.06.2024 for A.Y.2020-21. The assessee has raised the following grounds of appeal :
1. On the facts and the circumstances of the case and in law, lower authorities erred in passing ex-parte order and erred in deciding the issue only on the basis of material available with them, this action is being violative of principal of natural justice. Your appellant prays for granting opportunity of hearing before lower authorities. Without prejudice to the above grounds of appeal
, following grounds are also taken on merit,
2. On the facts and in the circumstances of the case and in law, lower authorities have erred in rejecting deduction under section 80P(2)(a)(i) for a sum of Rs. 32,21,485 for entire book profit of appellant society without appreciating the fact that earning of interest is an integral part of society’s business and appellant prays for allowing such deduction.
3. Without prejudice to above ground, lower authorities have erred in not allowing consequential deduction of current year loss, which would have arisen after taking out the interest figure of Rs. 12,94,519 from the Profit and loss Account which has resulted into excess tax liability.
4. 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.
5. 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 cooperative society. Your appellants pray for allowing of the same.
6. 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’s written submission is reproduced as under : “1 Delay in Submitting Appeal Before Hon’ble ITAT. the above referred appeal is preferred against order u/s 250 passed by NFAC dt 11th Aug 2024 and the appeal ought to have been filed before 10th Aug 2024, whereas it has been filed on 10th Oct 2024 there by causing delay of 60 days. The delay is attributable to the fact that Reserve Bank of India has cancelled the banking license of this bank, way bank in 2012 and since them the co-operative society is managed by Administrator / Liquidator appointed by State of Maharashtra and due to administrative process the appeal is delayed. An affidavit confirming this fact is enclosed as annexure no 1 to this note. 2 Note on Merit of the case We enclose herewith the copy of ITR-V, Computation of Total Income, and Audited Financial Statement of the society as annexure no 2, perusal of the Profit and loss account attached at page no 6 of the said annexure wherein the interest is received on loan given to members Rs 33,49,472.50/- and interest received on investment, made with banks is Rs 12,94,519/- net profit of Rs 31,15,044.90/-. we also refer the computation of total income wherein entire profits is claimed as a deduction u/s 80P(2)(a)(i) which has been disallowed by the Learned Assessing Officer. Hon’ble Pune Bench of ITAT in number of cases have held that such deduction u/s 80p is allowable to the co- operative Society engage in providing credit facility to its me- and therefore it is most humbly prayed that appellants appeal may kindly be allowed. We pray before honors to allow the appeal and oblige.” Submission of ld.DR : 3. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A).
Findings &Analysis : 4. We have heard both the parties and perused the records. The assessee has filed Return of Income under section 139 of the Act on 30.12.2020 declaring total income at Rs.NIL and claiming deduction u/sec.80P(2)(a)(i) of the Act of Rs.32,21,485/-. It has been mentioned by the Assessing Officer in the assessment order that assessee had filed Copy of Registration Certificate under Maharashtra State Co-operatives Societies Act, 1960, Copy of by- laws of assessee, Copy of Statutory Audit Report of the Assessee conducted by Co-operative Department, Copy of Bank Statement. It has been mentioned in the assessment order that assessee earns interest income from Investment and from the Loan given to borrowers. It is observed that assessee was having a banking license issued by Reserve Bank of India(RBI), but Reserve Bank of India cancelled Assessee’s Banking License on 20.12.2012, therefore assessee pleaded before the Assessing Officer that during the impugned year, assessee is a Co-operative Credit Society and hence eligible for deduction u/sec.80P(2)(a) of the Act. However, the Assessing Officer in the assessment order held as under :
“In view of above, it is clear that the deduction u/s 80P is only allowed to a primary agricultural credit society or a primary agricultural and rural development bank. The assessee was registered as Co-operative Bank under the Maharastra Co-operative Societies Act 1960. From the name of the assessee, it is clear that the assessee bank is a Sahakari bank not a primary agricultural and rural development bank. The assessee claimed that the bank having cancelled the banking license and the bank goes to its original status as a Co-Operative Society carrying on the business of Providing credit facilities to member and earning income from it. Whereas on the other hand the assessee in its reply dated 11.04.2022 in para 15.1 clearly mention that the society earns interest income from Investment and from interest on loans to the borrower (Prior to liquidation of the Bank). This is clearly shows that the assessee earned interest income from loan given by the bank prior to liquidation.
Therefore, it is clearly established that the assessee earned its interest income from banking business. In view of the above discussion, it is beyond any doubt that the assessee's claim for deduction u/s 80P on net Interest Income of Rs. 32.21.485 is not found allowable. 4.6. Conclusion drawn- Hence, deduction on net interest income of Rs.32,21,485/- u/s 80P is hereby disallowed and added back under the head income from other sources for the year under consideration. Penalty proceedings u/s 270A of the Income-tax Act 1961 is hereby initiated separately for under reporting of income in consequence of misreporting of income.” 4.1 Ld.CIT(A) confirmed the said addition.
4.2 On perusal of the Balance Sheet of the assessee, following facts have been observed : Narration As on 31.03.2020 As on 31.03.2019 Fixed Deposit 15256065.00 15463075.00 Swami Samarth Cash 53608.00 53608.00 Certificate Swami Samarth Dhanrudhi 193533.00 193533.00 Scheme Reinvestment Deposites 21933605.18 22082786.18 Flexible Fixed Deposit 0.00 0.00 Cash Sequrity Deposits 133952.00 133952.00 Recurring Deposits 690316.00 690316.00 Pigmy Deposits 3351483.00 3405806.00 Saving Bank Deposit 10207876.72 10238790.94 Current Account Deposit 4462626.01 4462626.01 Pigmy Security Deposits 44319.00 44319.00 Narration As on 31.03.2020 As on 31.03.2019 Nationalized Banks 11193218.00 17611214.0 (Investment) D.C.C.Bank AKT 14716658.00 3500000.00 (Investment) 0.00 0.00 NON-SLR INVESTMENTS Other Banks (Investment) 100000.00 100000.00 0.00 0.00 Shares – M.S.C.Bank Ltd., 1000.00 1000.00 Shares – D.C.C.Bank Ltd. 1000.00 1000.00 ADVANCES 23077175.96 Hypothecation Cash Credit 2287831.66 Cash Credit Clean 2143151.00 2287123.66 Staff Benefit Loans 274311.25 2144502.00 Hire Purchase Loan 1257585.00 2810282.25 Housing Loan 1257585.00 1468751.00 Hp. Instalment Loans 6436069.56 6868256.56 4.3 On perusal of Income & Expenditure Account, assessee has received following interest : Interest on Loan : Rs.33,49,470.50 Interest on Investment : Rs.12,94,519/- Total Receipts during the year are : Rs.46,53,198.50 4.4 Assessee has claimed deduction u/sec.80P on the Net Profit. It is observed that Assessee’s Income is from Interest on Loan and Interest on Investment. There is a small amount of Miscellaneous Income of Rs.9,207/-.
4.5 Thus, total income of the assessee is from the activity of providing credit facility to its members. Therefore, Section 80P(2)(a)(i) is applicable in the case of assessee. As far as Interest Income from the Investment is concerned, it has been claimed by the assessee that said investments are mandatory for the assessee and it is part of the activity of providing credit facility.
4.6 The Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Limited Vs. CIT [2021] 431 ITR 1(SC) observed as under :
Quote “Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co- operative -societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. ” Unquote.
4.7 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.
4.8 Thus, 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
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.
Though in the assessment order, AO has stated that assessee is Co-operative Bank and hence not eligible for deduction u/sec.80P(2)(a) of the Act, however, it is an admitted position that assessee do not have any banking license issued by Reserve Bank of India for the relevant period. Therefore, as held by the Hon’ble Supreme Court(supra), in absence of Banking License, Assessee cannot be treated as a Bank. We have already mentioned the finding of the Assessing Officer that assessee duly registered under Maharashtra State Co-operatives Societies Act, 1960. Thus, it is an admitted position that Assessee is a Co-operative Society. Assessee is in the business of providing credit facility as observed from the Income & Expenditure Account. Therefore, respectfully following the decision of the Hon’ble Supreme Court(supra), the Hon’ble AP & TS High Court(supra) and ITAT Pune(supra), we hold that assessee is eligible for deduction u/sec.80P(2)(a)(i) of the Act for the Interest Income referred above. Accordingly, grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 25th November, 2024.
Sd/- Sd/- (VINAY BHAMORE) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 25th Nov, 2024/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), concerned.