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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: MS. ASTHA CHANDRA & DR. DIPAK P. RIPOTE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This is an appeal filed by the Assessee against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], u/sec.250 of the Act dated 31.03.2024.The Assessee has raised following grounds of appeal :
1. The learned CIT(A) erred in confirming the disallowance of deduction u/s 80P(2)(a)(ia) of Rs.30,81,067 made by the A.O in respect of interest earned on deposits made with the nationalized bank without appreciating that the said disallowance was not justified in law and on facts.
Hariyaali Urban Co-op Credit Society Ltd., Shahada [A]
The learned CIT(A) erred in sustaining the disallowance of deduction u/s 80P(2)(a)(i) of Rs.30,81,067 in respect of interest earned from investments made with nationalized banks by holding that the said income did not form part of business income of the assessee society and hence, the deduction u/s 80P(2)(a)(i) was not allowable in respect of the above interest income.
The learned CIT(A) failed to appreciate that the assessee society was engaged in the activity of providing credit facilities to its members and therefore, the interest income received on investments made with nationalized banks constituted business income in the hands of the assessee society and hence, the deduction u/s 80P(2)(a)(i) was allowable in respect of the said income. 4. The assessee submits that the impugned issue is covered in favour of the assessee by the decision of Hon’ble Jurisdictional ITAT, Pune in case of Nirmiti Nagari Sahakari Patsanstha Ltd. v. ITO [ITA No.442/PUN/2022] vide its order dated 26.10.2022 and hence, the action of the CIT(A) is not maintainable on the facts and in law. 5. The appellant craves leave to add/ alter/ amend any of the grounds of appeal
.”
2. At the outset of hearing, no one appeared on behalf of the assessee. No adjournment application was filed.
Brief facts of the case : 3. Assessee is a Co-operative Credit Society engaged in the business of providing credit facilities to the members by accepting deposits from members. Assessee is registered under the Maharashtra Co-operatives Act, 1960, Assessee e-filed Return of Income claiming deduction u/sec.80P(2)(a)(i) of Rs.45,07,951/-. The assessee’s case was selected for scrutiny. Assessing Officer(AO) passed assessment order u/sec.143(3) on 30.10.2019.
Hariyaali Urban Co-op Credit Society Ltd., Shahada [A] In the assessment order, assessee’s claim for deduction u/sec.80P(2)(a) was rejected following decision of the Hon’ble Supreme Court in the case of Totagars Co-operative Sales Society Vs. ITO Karnataka [2010] 188 Taxman 282(SC). The AO added the amount of Rs.30,81,718/- treating as not eligible for deduction u/sec.80P of the Act. Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A). Ld.CIT(A) upheld the assessment order.
Aggrieved by the order of the Ld.CIT(A), assessee has filed appeal before the ITAT.
Findings & Analysis : 5. We have heard ld.Departmental Representative(ld.DR) for the Revenue and perused the records. It is mentioned in the assessment order that the assessee is a Credit Co-operative Society registered under Maharashtra Co-operative Societies Act. The prime function of the society is accepting deposits and advancing loans to the members. During the A.Y.17-18, the assessee has earned an interest income of Rs.30,81,067/- from Nationalized Banks i.e. Bank of Maharashtra.
Hariyaali Urban Co-op Credit Society Ltd., Shahada [A] 5.1 Assessee claimed deduction u/sec.80P(2)(a) of the Act on the interest earned from above Nationalized Bank.
The assessee had claimed deduction u/sec.80P(2) for the interest earned from various Nationalized Banks. In this case, the AO has ignored most important submission of the assessee that the Assessee is a Co-Operative Society registered under Maharashtra State Co-Operative Society Act and it is under the control of Registrar of Co-Operative Society Maharashtra State. The Assessee also submitted that there were no member who wanted to avail loan from society and surplus funds were invested to earn interest and such interest income is linked to business of the assessee and hence it is part of the Profit which is eligible for deduction u/sec.80P(2)(a)(i) of the Act. Thus, it is clear from the submission of the assessee that the assessee had claimed deduction u/sec.80P(2)(a)(i) of the Act. However, the assessee without prejudice had also claimed deduction u/sec.80P(2)(d) of the Act. In these facts, we have to understand the case of the assessee. Thus, the issue before us is whether the impugned interest earned by the Assessee is eligible for deduction u/sec.80P(2)(a)(i) of the Act or u/s 80P(2)(d) of the Act.
Hariyaali Urban Co-op Credit Society Ltd., Shahada [A] 6.1 In this case, admittedly assessee is a Co-operative Society registered under the Co-operative Societies Act, and it is engaged in providing credit facility to its members. Assessee had earned interest by depositing surplus funds which were not immediately required.
6.2 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 the Hon’ble Supreme Court in the case of Totagar 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 Hariyaali Urban Co-op Credit Society Ltd., Shahada [A] 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. 6.3 Thus, the Hon’ble High Court of Andhra Pradesh & Telangana held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/s.80P(2)(a) of the Act.
Hariyaali Urban Co-op Credit Society Ltd., Shahada [A] 6.4 No contrary decision of 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.
7 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 Officer158 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.
Hariyaali Urban Co-op Credit Society Ltd., Shahada [A] 7.1 Respectfully following the decision of the Hon’ble High Court (supra) and ITAT Pune (supra), it is held that the Interest earned by the assessee is eligible for deduction u/sec.80P(2)(a) of the Act. Accordingly, Grounds of appeal raised by the assessee are allowed.
8. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 27th June, 2024.