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Income Tax Appellate Tribunal, “SMC” BENCH, PUNE
Before: SHRI R.K. PANDA & MS. ASTHA CHANDRA
आदेश / ORDER
PER ASTHA CHANDRA, JM :
The appeal filed by the assessee is directed against the order dated 26.09.2023 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Year (“AY”) 2018-19.
The assessee has filed this appeal with a delay of 286 days. The assessee has filed an application for condonation of delay along with a sworn affidavit stating therein the reasons for delay in filing of the appeal. On perusal of the same, we are satisfied that the delay in filing of appeal is not intentional or deliberate but has occurred for the reasons mentioned in the affidavit. After hearing both the sides, we are of the view that the delay is attributable to the sufficient cause. We, therefore condone the delay and proceed to decide the appeal.
The assessee has raised the following grounds of appeal :-
1. The Ld. AO has erred in (CIT-A erred in confirming) making the disallowance of claim of Rs.38,19,685/- u/s 80P(2)(a)(i)/80P(2)(d) of the IT Act.
2. The Ld. AO and Ld. CIT-A ought to have appreciated the fact that interest income earned form nationalized bank also qualifies for the deduction u/s 80P of the IT Act.
3. The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case.”
Briefly stated, the facts of the case are that the assessee is a Co- operative Society engaged in banking business among its members. It registered under Co-operative Societies Act. However, it does not possess any license from Reserve Bank of India. For AY 2018-19, the assessee filed its return of income electronically on 30.10.2018 declaring total income at Rs. Nil. Subsequently, the case was selected for a complete scrutiny under the E-assessment Scheme, 2019 on the following two issues-(i) Investments/Advances/Loans; and (ii) Deduction from total income under Chapter VI-A. Statutory notice(s) u/s 143(2) and 142(1) of the Income Tax Act, 1961 (the “Act”) were issued and duly served upon the assessee, in response to which the assessee furnished its reply through e-filing ITBA portal.
4.1 From the details filed during the assessment proceedings, the Ld. Assessing Officer, National e-Assessment Centre, Delhi (“AO”) observed that the assessee has earned interest income of Rs.45,81,47/- from investment/deposits made with Co-operative banks/Scheduled banks during the relevant AY 2018-19 and claimed the said interest income as deductible under the provisions of section 80P of the Act, the details of which are provided in the table below : S. No. Name of bank Interest earned (Rs.) 1 IDBI Bank 9,75,792/- 2 State Bank of India 10,83,995/- 3 Axis Bank 4,183/- 4 Vidyanand Bank 18,40,630/- 5 Laxmi Co-op Bank Ltd. 10,827/- 6 Solapur Dist. Co-op. Bank 6,66,335/- 7 Sumitra Pat Sanstha 85/- Total 45,81,847/- 4.2 The Ld. AO was of the view that the above interest income claimed as deduction u/s 80P(2)(a)(i) of the Act by the assessee is not allowable for the reason that it is only the interest derived from credit facility provided to its members which is deductible u/s 80P(2)(a)(i) of the Act and interest derived by depositing surplus funds with banks, not being attributable to business carried out by the assessee society, cannot be claimed as deduction u/s 80P(2)(a)(i) of the Act. He further observed that since, the investments/ deposits are not made in a Co-operative Society but in Co-operative banks/Scheduled banks, the deduction of interest earned on the same cannot be allowed u/s 80P(2)(d) of the Act. The assessee therefore was asked to justify its claim of deduction of interest income u/s 80P of the Act. In response thereto, the assessee furnished its reply contending the same to be allowable deduction, however, the reply of the assessee was not found tenable by the Ld. AO. The Ld. AO held that the interest income of Rs.45,81,847/- earned by the assessee is not allowable deduction either u/s 80P(2)(a)(i) or 80P(2)(d) of the Act and added the same to the returned income of Rs. Nil and completed the assessment at total income of Rs.45,81,847/- vide order dated 22.02.2021 passed u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act.
Aggrieved, the assessee carried the matter before the Ld. CIT(A)/NFAC challenging the addition of Rs.45,81,847/- on account of interest income from investments/deposits made with the seven Co- operative/Scheduled banks listed above. After considering the written submissions and various judicial precedents on the impugned issue relied upon by the assessee, the Ld. CIT(A) arrived at the conclusion that the interest earned by the assessee from other Co-operative banks/Societies is deductible u/s 80P(2)(d) of the Act, however, the interest income from investments made in other Commercial banks which are not Co-operative banks are not eligible for claim of deduction u/s 80P(2)(d) of the Act. He, accordingly directed the Ld. AO to allow deduction of Rs.7,62,162/- u/s 80P(2)(d) of the Act being interest earned from Co-operative banks and sustained the disallowance of Rs.38,19,685/- being interest earned from Commercial banks. The relevant observations and findings of the Ld. CIT(A) are reproduced below : “7. I have gone through the assessment order and written submissions submitted by the AR of the appellant. Ground no.1 is relating to disallowance of interest earned by the appellant which is a Cooperative Society which was claimed exempt u/s.80P(2)(d) of the Act. As seen from the assessment order, the appellant had received total interest of Rs.45,81,847/- from Cooperative Banks and other commercial banks (including PSU Banks), the details of which are given by the AO on page 2 of the assessment order. The total
interest received from commercial banks which are not Cooperative banks is Rs.38,19,685/- (IDBI Bank, State Bank of India, Axis Bank, Vidhyanand Bank) and the interest received from Cooperative Banks is Rs.7,62,162/- (Laxmi Cooperative Bank Rs.10,827/-+ Solapur District Cooperative bank Rs.6,66,335/- + Sumitra Path Samastha Rs.85/-). As per the provisions of Section 80P(2)(d) of the Act only the interest received from Cooperative banks is exempt from taxation. The provisions of the said section are reproduced for the sake of clarity :- "80P (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub- section (2), there shall be deducted in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee (2) The sums referred to in sub-section (1) shall be the following, namely (a) in the case of a co-operative society engaged in (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] (vi) the collective disposal of the labour73 of its members, or (vii) fishing or allied activities, that is to say, the catching, curing. processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members.] the whole of the amount of profits and gains of business attributable to any one or more of such activities [Provided that in the case of a co-operative society falling under sub clause (v or sub-cause there and bye-lass of the society restrict the voting rights to the blowing classes of as members, namely- (1) the individuals who contribute their labour or as the case may be carry on the fishing or allied activities (2) the co-operative credit societies which provide financial assistance to the society (3) the State Government] (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to – (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be or (ii) the Government or a local authority, or (iii) a Government company as defined in section 617 of the Companies Act. 1956 (1 of 1956), or a corporation established by or under a Central State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds fruits or vegetables, as the case may be, to the public). the whole of the amount of profits and gains of such business (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of or in addition to all or any of the activities so specified), so much of its profits and gains attributable to such activities as (does not exceed- (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees and (ii) in any other case. (fifty) thousand rupees Explanation-In this clause, “consumers” co-operative society" means a society for the benefit of the consumers.) (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income;" 7.1 The other issue raised by the AO is relating to the decision of Hon'ble Supreme Court in the case of Totgar Co-operative Sale Society Ltd. vs. ITO (322 ITR 283). In the said case, Hon'ble Supreme Court held that the interest earned on investments made by the assessee-society from the amounts retained by it which were payable to its members did not qualify for deduction u/s 80P(2)(d) of the Act. However, as submitted by the appellant, the facts of the appellant's case are different from those of Totgar Co- operative Sale Society Ltd. In the case of Totgar Co-operative Society, the said society was engaged in the activity of marketing agricultural produce by its members, accepting deposits from its members and many other activities such as rice mills, live stocks, medical shops, lodging, plying of goods carriage etc. In that case, the Hon'ble Karnataka High Court had held that the assessee getting interest on investments which are the funds of the members and not its own funds and which were shown as liability in the balance sheet was not eligible for deduction u/s. 8OP(2)(d) of the Act. However, the appellant is engaged in extending credit facilities to its members and the interest earned on such excess deposits over the lending with co-operative banks and societies was eligible for deduction u/s 80P(2)(d) of the Act as the interest earned is not on amounts invested which are due to its members out of sale proceeds of agricultural produce. The interest earned is attributable to carrying on business of banking and hence liable for deduction u/s 80P(2)(d) of the Act. This view has been taken by the Hon'ble Andhra Pradesh High Court in the case of CIT vs. Andra Pradesh State Cooperative Bank Ltd. (336 ITR 516). Similar view has been taken by the Hon'ble Gujarat High Court in the case of SBI vs. CIT (389 ITR 578). Similar view has been taken by ITAT PUNE BENCH 'B' in the case of Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. v. Income Tax Officer, Ward Parbhani [2020] 120 taxmann.com 10 (Pune Trib.). In this decision, Hon'ble ITAT has distinguished the facts of the case of Totgar Co-operative Sale Society Ltd. and concluded that the co- operative credit societies are eligible for deduction u/s 80P(2)(d) of the Act.”
Dissatisfied, the assessee is in appeal before the Tribunal challenging the decision of Ld. CIT(A)/NFAC and all the grounds of appeal relate thereto.
The Ld. AR submitted that the impugned issue is covered in favour of the assessee by various decisions passed by the Co-ordinate Bench of the Pune Tribunal allowing the similar claim of deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the Act. He placed reliance on the decision of the Pune Bench of the Tribunal in the case of Sharad Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 16.04.2024 wherein the Tribunal decided the impugned issue in favour of the assessee in similar set of facts.
The Ld. DR fairly conceded to the above submission of the Ld. AR.
We have heard the Ld. Representative of the parties and perused the records. We find that the impugned issue is no more res-integra by virtue of catena of decisions passed by the Co-ordinate Benches of the Tribunal and the Hon’ble High Courts. Admittedly, the facts are not in dispute. During the relevant AY 2018-19 it is noticed that the assessee has earned interest income amounting to Rs.45,81,847/- from investments/deposits made in Co-operative Societies/Co-operative banks/Scheduled banks/ Nationalized banks which it claimed as deduction u/s 80P(2)(a)(i)/ 80P(2)(d) of the Act. The Ld. CIT(A)/NFAC has allowed the claim of the assessee with respect to the interest income from investments/deposits made in Co-operative Societies and Co-operative banks amounting to Rs.7,62,162/- and disallowed the assessee’s claim of deduction with respect to the interest income from investments/deposits made in other Scheduled / Nationalized banks. The Pune Bench of the Tribunal in the case of Sharad Nagari Sahakari Patsanstha Maryadit (supra) has decided the impugned issue in favour of the assessee under the similar set of facts by holding as under : “3. Even the latter limb of interest income of Rs.96,000/- derived from investments made in nationalized/other bank(s), the Revenue could hardly dispute that case law The Vaveru Cooperative Rural Bank Ltd., vs. CCIT [2017] 396 ITR 371 (AP) that interest income(s) derived from such nationalized/other bank(s) also qualifies for sec.80P deduction and thereby declined it’s very stand. Faced with this situation, I adopt the foregoing detailed discussion mutatis mutandis to accept the assessee’s sec.80P(2)(a)(i)/80P(2)(d) deduction claim(s) in very terms. Ordered accordingly.”
Identical issue was considered and decided in favour of the assessee by the Pune Bench of the Tribunal in the case of Yogiraj Nagari Sahakari Patsanstha Maryadit Vs. ITO in dated 06.06.2024 wherein the Tribunal in turn relying on the decision of the Co- ordinate Bench in the case of The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO in dated 27.05.2022 held as under : “9. Following the decision of the Co-ordinate Bench of this Tribunal (supra), we are 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 banks qualify 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. Thus, we direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from other cooperative banks. The grounds of appeal filed by the assessee stands allowed.”
11. Respectfully following the decision(s) (supra) of the Co-ordinate Bench of the Tribunal and in the absence of any material brought on record to enable us to take a different view, we set aside the order of the Ld. CIT(A)/NFAC on the issue and allow the appeal of assessee.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 29th October, 2024.