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Income Tax Appellate Tribunal, “A” 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 23.01.2024 of the Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi [“CIT(A)”] pertaining to Assessment Year (“AY”) 2018-19.
The assessee has raised the following grounds:-
“1. 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.41,05,813.00 for part of the 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.
2. On the facts and in the circumstances of the' case and in law the learned Assessing Officer 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.
3. Without prejudice to above ground on the facts and circumstances of the case and in the law Learned Assessing Officer erred in not allowing the deduction under section 80P(2)(d) on interest income received from other co-operative society. Your appellants pray for allowing of the same.
4. Without prejudice to above ground, On the facts and circumstances of the case and in the law Learned Assessing Officer erred in treating entire interest income as interest income received from other co-operative society or bank without allowing deduction on account of interest/administrative expenses. Your appellant prays for such deduction our appellant craves for to add, alter, amend, modify, delete all above or any grounds of appeal before or during the course of hearing in the interest of natural justice.”
Briefly stated the assessee is a Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960 and it is engaged in the business of providing credit facilities to its members. It filed its return as an AOP on 07.10.2018 for AY 2018-19 declaring income of Rs.14,21,220/-. The return was processed on 27.01.2019 u/s 143(1)(a) of the Income Tax Act, 1961 (the “Act”). Subsequently, the case was selected for limited scrutiny under CASS and statutory notice(s) u/s 143(2)/142(1) of the Act were issued calling for various details.
During the course of assessment proceedings, the Ld. Assessing Officer (“AO”) found that the assessee claimed deduction of Rs.1,67,27,662/- u/s 80P(2)(a)(i) of the Act. On being asked to justify the claim of deduction as well as applicability of section 80P(2)(a)(i) of the Act, the assessee submitted reply/submission, copy of registration certificate, profit and loss account, balance sheet etc. The Ld. AO further found that the assessee has declared interest income of Rs.45,57,685/- in its profit and loss account on investment with PDCC bank i.e. Pune District Central Co-operative Bank and claimed deduction u/s 80P(2)(d) of the Act. Since, the assessee had made deposits with the Co-operative Bank and not with the Co-operative Society on which the said interest income was earned, the Ld. AO sought explanation which was given. Being not convinced, the Ld. AO issued show cause notice to the assessee as to why the deduction claimed be not disallowed to which the assessee objected by replying on 14.03.2021 that the assessee is engaged in the business of accepting deposits and granting credit to its members. The assessee was utilizing surplus fund in investments to earn income. This activity has direct and proximate connection to the earning of the assessee society. It was emphasized that the assessee has claimed the impugned deduction u/s 80P(2)(a)(i) of the Act in the return as income from business. This was not acceptable to the Ld. AO who, for the reasons recorded in the assessment order held that the said interest income is not allowable deduction to the assessee under any provision of section 80P of the Act and added the amount of Rs.45,57,685/- to the income of the assessee society as ‘income from other sources’ u/s 56 of the Act and completed the assessment on total income of Rs.59,78,910/- on 25.03.2021 u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Act.
The assessee’s appeal has been dismissed by the Ld. CIT(A)/NFAC by recording the following observations :
“5.3 a) During appellate proceedings there has been no response by the appellant. It is clear that the appellant has nothing to say in support of grounds raised. Therefore, the instant appeal is being decided on the basis of the materials available on record. The grounds raised by the assessee vide Ground of Appeal no. 2 and 3, the assessee has claimed that the interest income received is the integral part of the business activities of the assessee. b) However, the deduction claimed by the assessee is u/s 80P(2)(d) of the Act but it is observed that the investments made by the assessee was with PDCC Bank. It is observed from a bare perusal of section 80P(2)(d) that the said deduction is only available in respect of interest earned by investments made with co-operative societies and the section, in itself, leaves no room for any ambiguity. For ease of reference the said section is reproduced below: 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:- ---------- ---------- (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;" c) It is clear from the reading of the above section that interest earned on investments is only available with regard to investments made with co- operative societies. The judgement of the Hon'ble Karnataka High Court in the case of PCIT Vs. Totagars [2017] in supports the above contention with respect to section 80P(2)(d) deduction. The relevant paras of the above judgement are being reproduced herein:
"23. Thus, the aforesaid judgments supports the view taken by this Court that character of income depends upon the nature of activity for earning that income and though on the face of it, the same may appear to be falling in any of the specified Clauses of Section 80P(2) of the Act, but on a deeper analysis of the facts, it may become ineligible for deduction under Section 80P(2) of the Act. The case in Udaipur Sahakari (supra) was that of Section 80P(2)(e) of the Act, whereas in the present case, it is under Section 80P(2)(d) of the Act. Hence, the income by way of interest earned by deposit or investment of idle or surplus funds does not change its character irrespective of the fact whether such income of interest is earned from a schedule bank or a co-operative bank and thus, clause (d) of Section 80P(2) of the Act would not apply in the facts and circumstances of the present case. The person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P of the Act, as held by the Hon'ble Supreme Court.
In view of the aforesaid, we are of the opinion that the appeals filed by the Revenue deserve to be allowed and the appeals filed by the assessee deserve to be dismissed. d) As elucidated by the above judgment, the character of the income, whether earned by investments in cooperative/scheduled banks, does not make a difference with respect to the allowability of the deduction u/s 80P(2)(d) of the Act, as the words co-operative bank have deliberately not been included so as to signify the intention of the legislature to not allow deduction on interest received on investment made with cooperative banks/scheduled banks. e) In the present case, the assessee has clearly made the investment with the Pune District Central Cooperative Bank and has earned the interest income of Rs.45,57,685/- which has been claimed as deduction u/s 80P(2)(d) of the Act.
f) The order of the AO and the consequent grounds raised by the assessee have been perused and in light of the above discussion Hon'ble Karnataka High Court in the case of PCIT Vs Totagars [2017] in and respectfully following the judgement of the Hon'ble Karnataka High Court in the case of PCIT Vs Totagars [2017] in ITA No.1 00066/2016, I find that the addition has rightly been made by the AO as deposit of surplus fund available with the assessee with a cooperative bank is not allowable u/s 80P(2)(d) of the Act. Therefore, in these facts and circumstances, I am constrained to be in agreement with the finding of the Assessing Officer and hold that the appellant is unable to substantiate its claims and is not able to controvert the assessment order. The addition made by the Assessing Officer is therefore confirmed.” 6. Dissatisfied, the assessee is in appeal before the Tribunal challenging the decision of Ld. CIT(A)/NFAC and all the grounds relate thereto.
The Ld. AR submitted that the assessee society claimed deduction u/s 80P(2)(a)(i) of the Act for a sum of Rs.41,05,813/- (and not Rs.45,57,685/- as per the Ld. AO/CIT(A)) earned by it by way of interest which formed an integral part of its business income. He placed reliance on the decision of the Pune Tribunal in the case of Swa Ashokrao Bankar Nagari Sahakari Patsanstha Maryadit, Nashik rendered on 14.05.2024 and submitted that the impugned issue is covered in favour of the assessee in catena of cases. He submitted a copy thereof before us.
The Ld. DR supported the order of Ld. AO/CIT(A).
9. We have considered the submissions of the parties and perused the records. We have gone through the order of the Tribunal in dated 14.05.2024 in the case of ITO, Ward-1(1), Nashik Vs. Swa Ashokrao Bankar Nagari Sahakari Patsanstha Maryadit, Nashik wherein identical issue of disallowance of interest received from Co- operative Bank by a credit Co-operative Society registered under the Maharashtra Co-operative Societies Act, 1960 came up for consideration in appeal filed by the Revenue before the Tribunal pertaining to AY 2020-21. In that case the Ld. CIT(A)/NFAC had observed that the issue is no longer res-integra as it was decided by the Tribunal in Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society Vs. ITO in ITA No. 84/PAN/2018 for AY 2012-13 order dated 27.05.2022 in favour of the appellant society. He reproduced the relevant portions of the said order. Since the observations made by the Tribunal therein provides complete answer to the views expressed by the Ld. AO/CIT(A) in orders under consideration before us, we hereby quote the following from the said order.
"8. We heard the rival submissions and perused the material on record. The only issue in the present appeal is pertaining to the allowability of deduction under the provisions of section 80P(2)(d) of the Act. On perusal of provisions of section 80P(2)(d), it is clear that the income derived by a cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society. Therefore, what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society. In the present case, the reasoning given by the lower authorities for denial of exemption u/s 80P(2)(d) of the Act is that interest was received from cooperative bank has no legs to stand as a cooperative bank is also a cooperative society. This issue was considered by the Hon'ble Karnataka High Court in the case of CIT vs. Totagars Cooperative Sale Society, 392 ITR 74 (Karn) wherein the Hon'ble High Court referring to the Hon'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. (supra) held that the ratio of decision of the Hon'ble Supreme Court in the aforesaid case (supra) not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act.
Even the decision of Pune Bench of the Tribunal in the case of Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO, 120 taxmann.com 10 wherein the Tribunal after making reference to the decisions of the Hon'ble Supreme Court in the case of Totgars Cooperative Sales Society Ltd. (supra) and having noticed the divergent views of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO, 55 taxmann.com 447 and the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. vs. CIT, 50 taxmann.com 278, decision of the Hon'ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. (supra) had not been preferred to view of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co- op. Ltd. (supra). The relevant observation of the Pune Bench of the Tribunal in the case (supra) is as under:- "9. The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016, dated 9-4-2019) decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014, dated 19-8-2015) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon'ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTP 89 (Delhi) not allowing deduction u/s.QOP on interest income earned from banks. Both the Hon'ble High Courts took into consideration the ratio laid down in the case of Totgar's Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon'ble Jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra).
Insofar as the reliance of the Id. DR on the case of Pr. CIT and Another Vs. Totagars Cooperative Sales Society (2017) 395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co-operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van' section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon'ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). Moreover, so many decisions relied on by the Id. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the Id. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs.22,34,270/- earned on investments made with co-operative banks.”
10. The Tribunal in its order in Swa Ashokrao Bankar Nagari Sahakari Patsanstha Maryadit (supra) in Revenue’s appeal extracted the findings of the Tribunal in that case for AY 2013-14 in dated 23.01.2019. The relevant para 4 thereof is reproduced hereunder:
“4. We have heard both the sides and perused the relevant material on record. The only issue in this appeal is whether interest income earned from FDRs with the nationalized banks is eligible for deduction u/s 80P of the Act? The Pune Bench of the Tribunal in the case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014) has allowed deduction u/s 80P of the Act in similar circumstances vide its order dated 19-08-2015. In that case, the Pune Bench discussed the contrary views expressed by the Hon’ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann 309 (Kar.) allowing the deduction u/s. 80P on interest income and the Hon’ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks under similar circumstances. Both the Hon’ble High Courts have taken into consideration the ratio laid down in the case of Totgar’s Cooperative Sale Society Ltd. 322 ITR 283 (SC). There being no direct judgment from the Hon’ble jurisdictional High Court on the point, the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view taken in favour of the assessee by the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). In the absence of there being no change in the legal position prevailing on this issue after the passing of the order by the Pune Bench of the Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) and a host of other orders reiterating the similar view, respectfully following the precedent, we approve the impugned order in allowing deduction u/s.80P on the interest income.”
Respectfully following the decision in the case of Swa Ashokrao Bankar Nagari Sahakari Patsanstha Maryadit (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 04th June, 2024.