VIVEKANAND NAGRI SAHAKARI PAT SANSTHA MARYADIT,PULGAON vs. INCOME TAX OFFICER, WARD-2, WARDHA

Since the assessee being same in all the years under consideration, therefore, as a matter of convenience these appeals were heard together and are being disposed off by way of this consolidated order.

In the present appeal, the only issue that we need to adjudicate is, whether or not the learned CIT(A) was justified in confirming the addition of ` 5,84,367, made by the Assessing Officer for non–deduction of TDS under section 40(a)(ia) of the Income Tax Act, 1961 ("the Act").

Facts in Brief:– The assessee is a Co–operative Society runs its activities on the basis of concept of mutuality, wherein it accepts deposits only from its members and gives loans only to its members. The assessee filed its return of income electronically on 05/10/2016, declaring total income of ` 54,600. During the course of assessment proceedings, the Assessing Officer issued notice dated 25/07/2018, asking it to furnish a list of all persons other than ordinary / resident members to whom interest exceeding ` 10,000, has been paid during the relevant financial year, specify the amounts and give the total amount of such interest. The assessee furnished a list containing 95 Nominal Members having interest more than ` 10,000, aggregating to ` 19,47,890. The Assessing Officer further asked the assessee to deduct TDS under section 194A of the Act, which was not done by the assessee. The assessee was aware about the provisions of TDS as it is evident from audit report in Form No 3CD that the assessee has deducted tax at source on payment of commission or brokerage and-Fees for professional or technical services but it failed to deduct tax at source on interest payment to nominal members. Hence, the Assessing Officer disallowed ` 5,84,367, i.e., 30% of ` 19,47,890 was made under section 40(a)(ia) of the Act. From the Vivekanand Nagri Sahakari Pat Sanstha Maryadit ITA no.113/Nag./2023 ITA no.114/Nag./2023 ITA no.115/Nag./2023 judgement in the case of Pinarayi Service Co-operative Bank Ltd., it can be inferred that where assessee was not fulfilling its primary objective of providing credit facilities to its members above to that extent it is liable to make TDS u/s 194A. Aggrieved, the assessee carried the matter before the first appellate authority.

The learned CIT(A) confirmed the addition of ` 5,84,367, made by the Assessing Officer holding that from the judgment in the case of Pinarayi Service Co–operative Bank Ltd., it can be inferred that where the assessee was not fulfilling its primary objective of providing credit facilities to its members, to that extent, the assessee was liable to make TDS under section 194A of the Act. Hence, the learned CIT(A) held that the Assessing Officer has rightly disallowed ` 5,84,367 (30% of ` 19,47,890) under section 40(a)(ia) of the Act. The assessee is now in appeal before the Tribunal.

We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. We find that the Assessing Officer has made disallowance ` 5,84,367, under section 40(a)(ia) of the Act on the ground that the payment made to Members but no TDS have been deducted which was confirmed by the Assessing Officer. For better appreciation of facts, Exception (v) of section 194A of the Act is reproduced below:–

From a plain reading of the above provisions, it can be seen that there is no requirement to deduct tax at source with regard to the interest paid to Members. Nothing has been brought by the learned Departmental Representative to controvert the submissions of the learned Counsel for the assessee and has simply relied upon the orders of the authorities below. Consequently, we set aside the impugned order passed by the learned CIT(A) and allow the ground of appeal raised by the is allowed.

In the result, appeal filed by the assessee for the A.Y. 2016–17 is allowed. ./2023 Assessee’s Appeal : A.Y. 2017–18

The only issue involved in this appeal is, the learned CIT(A) erred in confirming the addition on account of interest received from Nationalized Bank amounting to ` 84,050, made by the Assessing Officer by wrongly invoking section 80P(2)(d) of the Act.

The assessee being a Co–operative Society, filed its return of income declaring a total income of ` 50,400, after claiming deduction of ` 55,21,000, under section 80P of the Act. Subsequently, the case was selected for scrutiny through CASS and statutory notices were issued and served upon the assessee. The Assessing Officer, while going through the Profit & Loss A/c and other financial documents filed, noticed that the assessee had earned a total Page | 4

The learned CIT(A) confirmed the order passed by the Assessing Officer by relying upon the observations of the Tribunal and High Court and held that it is clear that assessee's claim is not covered under various provisions of section 80P of the Act as the learned CIT(A) was of the view that there is definitely an element of profit in earning interest from deposit FDRs in Banks Co–operative Society, while earning interest on surplus funds available to such Co–operative Societies and if such interest income is held deductible, then slowly, the Co–operative Societies would shift towards earning more and more interest, rather than serving its members, who are in dire need of help for agricultural or other Co–operative activity credit. This is not the essence of deduction under section 80P of the Act or the legislative intent. In view of the Page | 5

We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. The only issue in the present case is, allowability of exemption under the provisions of section 80P in respect of interest income earned by a Co–operative Society from the Bank of Maharashtra. In this regard, we are of the considered opinion that even the interest income earned by co–operative 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. Consequently, we hold that interest income earned by the Co–operative Society from the Bank is eligible for exemption under section 80P of the Act and hence, we direct the Assessing Officer to allow deduction under section 80P(2)(a)(i) in respect of interest income earned by the Co–operative Society from the Bank. Thus, ground of appeal raised by the assessee stands allowed.

In the result, appeal filed by the assessee for A.Y. 2017–18 is allowed. ./2023 Assessee’s Appeal : A.Y. 2018–19

Since the facts and circumstances of the issue involved in this appeal are identical to the issue decided by us in assessee’s appeal being ITA Page | 6

In the result, appeal filed by the assessee for A.Y. 2018–19 is allowed.

To sum up, all the appeals filed by the assessee are allowed. Order pronounced in the open Court on 15/05/2024