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Income Tax Appellate Tribunal, PUNE BENCHES “A” : PUNE
Before: SHRI RAMA KANTA PANDA & SHRI SATBEER SINGH GODARA
“NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2023-
14.03.2024, involving proceedings 24/1062645737(1), dated u/s.143(3) of the Income Tax Act, 1961 (in short “the Act”).
2 ITA.No.942/PUN./2024 Heard both the parties. Case file perused.
It emerges during the course of hearing with the able assistance coming from both the sides that the assessee’s sole substantive grievance pleaded herein challenges correctness of both the lower authorities action disallowing it’s sec.80P(2)(a)(i) deduction in respect of interest income of Rs.1,61,60,407/- derived from various co-operative banks in light of State Bank of India vs. CIT [2016] 389 ITR 578 (Guj.) and Totagars Cooperative Sale Society vs. ITO 188 Taxman 282 (SC). The NFAC’s lower appellate discussion to this effect reads as under :
“5.6. It is seen from the assessment order that the AO had duly considered all the relevant contentions of the assessee and had thereafter, made the impugned addition to the income of the appellant/assessee. The appellant during these proceedings has only submitted a singular reliance on a decision of ITAT, Pune in the case of Rena SahakariSakharkarkhana Ltd. Vs PCIT 2, Aurangabad as also on a decision of the appellate authority in the case of Kunabi Vikas Sahakari Pathsanstha Ltd.
3 ITA.No.942/PUN./2024 5.7. It is necessary herein to refer to the Supreme Court decision on the very issue on which the addition made by the AO. The relevant part of the judgment of Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society v. Income Tax Officer, Karnataka wherein it held as under:
"The Parliament has included specifically "business profits into the definition of the word "income". Therefore, we are required to give a precise meaning to the words "profits and gains of business" mentioned in Section 80P(2) of the Act. In the present case, as stated above, assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression
"profits and gains of business". Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-
Society provides credit facilities to its members, it earns
4 ITA.No.942/PUN./2024 interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as "investment". Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this "retained amount which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side.
Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or in Section 80P(2)(a)(ii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that theAssessing Officer
5 ITA.No.942/PUN./2024 was right in taxing the interest income, indicated above, under Section 56 of the Act."
5.8. It is evident from the above that the deduction claimed under section 80P(2)(a)(i) of the Act is not allowable if the funds are not invested for business purpose or with a co- operative society in order to further the object of availing such a deduction. Further, in light of the Supreme Court decision which directly concerns the issue at hand, the reliance of the appellant on the decision of ITAT Pune which seeks to differentiate the case of the Supreme Court holds no binding force.
5.9. Furthermore, the fact pattern of the decisions rendered by the ITAT, Pune and the appellate authority in the other cases relied on by the appellant is differentiable from the facts of the instant case and therefore, hold no relevance in deciding the issue at hand.
5.10. Considering the above, I find that the judgment of the Hon'ble Supreme Court is applicable in the instant case and the disallowance made by the AO, requires no interference.
6 ITA.No.942/PUN./2024 5.11. However, in Form 35, appellant has made claim that the interest income from the Co- operative banks during the AY- 2020-21 is of Rs. 1,13,77,017/- (instead of Rs. 1,61,60,407/- as ascertained by the AO.). Regarding this, the AO is directed to verify the actual interest received by the appellant from co- operative banks during the Previous Year (i.e. 2019-20) and restrict the disallowance of deduction claimed by the appellant to that extent.
In the result, with the above direction to AO; the appeal is dismissed for statistical purpose.”
Mr. Murkunde placed strong reliance on the NFAC’s above extracted lower appellate reasoning that the assessee’s impugned interest income has been rightly denied sec.80P(2)(a)(i) deduction claim. We notice in this factual backdrop that this tribunal’s recent coordinate bench’s order ITA.No.1249/PUN./2018 dated 07.01.2022 in The Rena Sahakari Sakhar Karkhana Ltd. vs. PCIT’s case has rejected the Revenue’s identical arguments as follows :
7 ITA.No.942/PUN./2024 “3. After culmination of the assessment proceedings, the Pr.
CIT called for the assessment records of the assessee. It was observed by the Pr. CIT that the assessee had during the year shown interest income from FDs with Co-operative Banks amounting to Rs.75,38,534/-, against which it had claimed deduction under Sec.80P(2)(d) of the Act. It was observed by the Pr. CIT, that the A.O while framing the assessment had allowed the aforesaid claim of deduction raised by the assessee.
Observing, that as co-operative banks were commercial banks and not a co-operative society, therefore, the Pr.CIT was of the view that the assessee was not eligible for claim of deduction under Sec.80P(2)(d). In the backdrop of his aforesaid conviction, the Pr. CIT was of the view that the assessment order passed by the A.O under Sec.143(3), dated 07.03.2016, therein allowing the assesses claim for deduction under Sec. 80P(2)(d), had therein rendered his order as erroneous, insofar it was prejudicial to the interest of the revenue. Accordingly, the Pr.CIT not finding favour with the reply of the assessee, wherein the latter had tried to impress upon him that it was duly eligible for claim of deduction under Sec.80P(2)(d) of the Act, therein “set
8 ITA.No.942/PUN./2024 aside” the order of the A.O with a direction to redecide the issue afresh and reframe the assessment.
4. The assessee being aggrieved with the order of the Pr.CIT has carried the matter in appeal before us. As the present appeal involved a delay of 52 days, therefore, the ld. A.R took us through the reasons leading to the same. It was submitted by the ld. A.R that as the then counsel of the assessee society who was looking after its tax matters, viz. Shr. Ravikiran Pandurang Todkar, Chartered Accountant was taken unwell due to kidney failure and had undergone kidney transplant, therefore, due to his unavailability the appeal could not be filed within the stipulated time period. Our attention was drawn towards the „affidavit‟ of the assessee society wherein the aforesaid facts were deposed. On the basis of the aforesaid facts, it was submitted by the ld. A.R that the delay involved in filing of the present appeal in all fairness may be condoned. Per contra, the ld. D.R did not object to the seeking of condonation of the delay in filing of the appeal by the assessee society. After giving a thoughtful consideration, we are of the considered view, that as there were justifiable reasons leading to delay on 9 ITA.No.942/PUN./2024 the part of the assessee in filing of the present appeal before us, therefore, the same merits to be condoned.
On merits, it was submitted by the ld. A.R, that as the A.O while framing the assessment had after making necessary verifications taken a plausible view, therefore, the Pr. CIT had exceeded his jurisdiction by seeking to review the order passed by him in the garb of the revisional powers vested with him under Sec.263 of the Act. It was submitted by the ld. A.R, that the issue as regards the eligibility of the assessee for claim of deduction under Sec.80P(2)(d) on interest income derived from investments/deposits lying with co-operative banks was squarely covered by the various orders of the coordinate benches of the Tribunal viz., (i). M/s Solitaire CHS Ltd. vs. Pr. dated 29.11.2019 ( ITAT “G”
Bench, Mumbai); Kaliandas Udyog Bhavan Premises Co-op Society Ltd. Vs. ITO-21(2)(1), Mumbai, (ITAT Mumbai); and (iii). Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT, Circle-3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune). On the basis of his aforesaid contentions, it was averred by the ld. A.R that as the Pr. CIT had exceeded his
10 ITA.No.942/PUN./2024 jurisdiction and had not only sought to review the plausible view that was taken by the A.O after necessary deliberations which was in conformity with the order of the jurisdictional bench of the Tribunal, therefore, his order may be vacated and that of the A.O be restored.
6. Per contra, the ld. Departmental Representative (for short “D.R‟) relied on the order passed by the Pr. CIT under Sec.263 of the Act. It was submitted by the ld. D.R, that as the assessee was not eligible for claim of deduction under Sec.80P on the interest income received on the investments/deposits lying with the co-operative banks, therefore, the Pr. CIT finding the assessment order passed by the A.O under Sec.143(3), dated 07.03.2016 as erroneous, insofar it was prejudicial to the interest of the revenue, had rightly „set aside‟ his assessment with a direction to re-adjudicate the issue therein involved. Our attention was also drawn by the ld. D.R to his written submissions and certain judicial pronouncements in support of his aforesaid contention.
We have heard the ld. authorised representatives for both the parties, perused the orders of the lower authorities and the 11 ITA.No.942/PUN./2024 material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether or not the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order. In our considered view, the issue involved in the present appeal hinges around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007.
On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with the co- operative bank, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not cooperative
12 ITA.No.942/PUN./2024 societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act.
After necessary deliberations, we are unable to persuade ourselves to concur with the view taken by the Pr. CIT. Before proceeding any further, we may herein cull out the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us.
“80P(2)(d) (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)..........................................................................................
13 ITA.No.942/PUN./2024 (b)..........................................................................................
(c)..........................................................................................
(d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other co-operative society, the whole of such income;”
On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co- operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec.80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section
(4) to Sec. 80P of the Act, vide the Finance Act, 2006 with effect from 01.04.2007, the provisions of Sec. 80P would
14 ITA.No.942/PUN./2024 no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardize the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „co-operative society‟ had been defined under Sec. 2(19) of the Act, as under:-
“(19) “Co-operative society” means a cooperative society registered under the Co-operative Societies
Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;”
15 ITA.No.942/PUN./2024 We are of the considered view, that though the co- operative banks pursuant to the insertion of sub-section (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act.
In so far the judicial pronouncements that have been relied upon by the ld. A.R are concerned, we find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases:
16 ITA.No.942/PUN./2024 (i). M/s Solitaire CHS Ltd. vs. Pr. CIT, dated 29.11.2019 ( ITAT “G” Bench, Mumbai); (ii). Majalgaon Sahakari Sakhar Karkhana Ltd. Vs. ACIT, Circle-3, Aurangabad, ITA No, 308/Pun/2018 (ITAT Pune) (iiii). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai
We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs.
Totagars Cooperative Sale Society (2017) 392 ITR 74
(Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated
28.12.2006 also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be 17 ITA.No.942/PUN./2024 entitled for claim of deduction under Sec. 80P(4) of the Act.
Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs.
Totagars co-operative Sale Society (2017) 395 ITR 611
(Karn), as had been relied upon by the ld. D.R before us, had held, that a co-operative society would not be entitled to claim deduction under Sec. 80P(2)(d); but then, the Hon'ble High Court in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale
Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT
(2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. Backed by the aforesaid conflicting judicial pronouncements, we may herein observe, that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs.
Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of non-
18 ITA.No.942/PUN./2024 jurisdictional High Court‟s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High
Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr.
Commissioner of Income Tax and Anr. Vs. Totagars
Cooperative Sale Society (2017) 392 ITR 74 (Karn) and that of the Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co- operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act.
Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and allowed the assessee’s claim for deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 of the Act for 19 ITA.No.942/PUN./2024 dislodging the same. Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263 of the Act, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we set-aside his order and restore the order passed by the A.O under Sec. 143(3), dated 07.03.2016.”
We adopt the above detailed reasoning mutantis mutandis to treat the assessee’s impugned interest income derived from cooperative banks as eligible for sec.80P(2)(a)(i) deduction. It’s sole substantive grievance is accepted in very terms. Both the learned lower authorities action to this extent stands reversed. Ordered accordingly.
5. This assessee’s appeal is allowed in above terms.
Order pronounced in the open Court on 28.08.2023.