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Income Tax Appellate Tribunal, SURAT (SMC
Before: DR. A. L. SAINI
आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2016-17, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals), Surat [in short “the ld. CIT(A)”], National Faceless Appeal Centre (in short ‘the NFAC’), Delhi, dated 25.05.2023, which in turn arises out of an assessment order passed by Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 18.12.2018.
The grounds of appeal
raised by the assessee are as follows:
1. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in disallowing the expenses claimed of Rs.28,51,085/- u/s.57 of the Income Tax Act as being treating as not allowable on ground that it is not incurred on mutually and has no nexus between surplus shown and expenses incurred.
ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society 2. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in disallowing the expense of Rs.28,51,085/- by not following the decision of judicial High Court in case of CIT Vs Marickbaug Co-operative housing Society (Tax Appeal No 1847/2010 AND 1848/2010 dated 07-02-2012) and Adarsh Co- operative Housing Society Ltd.213 ITR 677 (Guj) and judicial Tribunal in case of Manekbaugh Co-op Housing Society (ITA 2133/AHD/2006 dated 05-03-2010 and Gulmarg Association (90 TTJ 184) along with Shree Yogeshwarnagar Co-op. Housing Society Ltd. V ACIT Circle-9 Abd in dated 11-09-2009.
3. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in disallowing the claim of deduction u/s 80P(2)(d) of Rs.28,61,379/- for the interest earned from the cooperative banks. The assessment thereby made with disallowance and concluded that these interest income are not eligible for deduction u/s.80P(2) (d) of the Act.
4. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in applying the various judgement which relying the decision of Totgar Co. Operative Society (322 ITR 283 SC), whereas the appellant has categorically submitted on similar ground CIT(A) has allowed the claimed u/s 80P(2)(d) in case of appellant in AY 2014-15 after deliberate discussion of all various judgements and distinguished the same in it.
5. On the facts and in the circumstances of the case as well as the law on the subject, it ought to have been held that deduction u/s 80P(2)(d) be allowed to the co-operative society in respect of interest income received from cooperative banks, irrespective of the facts whether it is held as income from other sources or under any other source of income.
6. On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in the Law to make the interpretation of section 80P(4) made by Ld. AO and further erred by applying such wrong interpretation to the case of appellant while disallowing the claim u/s. 80P(2)(d).
On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in initiating penalty proceedings u/s.271(1)(c) of the Income Tax Act, 1961.
8. It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper.
ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society 9. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
Brief facts qua the issue are that return of income was filed by the assessee on 26/08/2016, declaring total income at Rs. NIL/-. Since the case was selected for scrutiny, therefore, notice u/s 143(2) of the Income Tax Act, 1961, was issued on 04/08/2017, which was duly served upon the assessee. Thereafter, to finalize the assessment proceedings, notices u/s 142(1) of the Act was issued to the assessee on 08/10/2018, 14/11/2018 and 24/11/2018, which were duly served upon the assessee. In response, the assessee furnished the information as called for through compliance module. During the year under consideration, the assessee received income from members and income from bank deposits and saving bank account.
On perusal of computation of income furnished by the assessee, it was noticed by the assessing officer that the assessee claimed deduction of Rs.35,77,519/- against the hall maintenance income of Rs.1,43,612/-, other income of Rs.11,331/-, administration charges of Rs.2,44,521/-, Fixed Deposit interest of Rs.28,27,428/-, saving bank interest of Rs.33,936/- and dividend of Rs.15/-. During the assessment proceedings, the assessee was specifically asked to explain as how the expenses claimed in schedule OS are directly incurred to an income shown in schedule OS. However, the assessee was failed to furnish any satisfactory reply/submission/documentary evidences from which it can be noticed that the expenses directly incurred to earn the income shown in schedule OS. Accordingly, a show cause notice was issued to the assessee on 10/12/2018. The relevant portion of show cause notice is reproduced as under: “On perusal of your computation of income furnished during the assessment proceedings, it is noticed that during the year under ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society consideration, you have claimed deduction u/s 57 of the Act of Rs.35,77,519/- against the surplus of activities of Rs.35,77,519/-. You are required to justify your claim of deduction u/s 57 of the Act alongwith documentary evidences. You are also required to explain in which manner the expense of Rs.35,77,519/- was incurred for the purpose to earn the surplus of activities and income alongwith documentary evidences.”
In response to the above show cause notice, the assessee furnished its reply through e-compliance. However, the assessing officer observed that assessee has stated that to meet the expenses on account of maintenance, the housing society collected various administration charges from its members, made various deposit of its surplus funds and earned interest there on from a co-operative bank. The assessee has further stated that to made out further expenses of maintenance, let out its hall to members and earned rent income and also earned income from transfer fee for entering new members as and when such event of transfer of plot of society took place. So the entire expense of Rs.35,77,519/- is claimed against the all such income of Rs.32,60,843/- as directly attributable to the object of the society and same is claimed such deduction on the principal of mutuality. The above reply of the assessee was not acceptable to the assessing officer. Further, in its Profit &Loss account, the assessee has also claimed depreciation of Rs.7,26,434/-, and it is proved that the society is not working on mutuality and engaged in business. However, actually the assessee is not doing any business, therefore, the depreciation claimed by the assessee is also not allowable to it. Further, the assessee has not incurred any expenses to earn the saving bank interest, dividend, FD interest etc. Therefore, the explanation offered by the assessee was not acceptable to the assessing officer as the assessee has failed to prove the nexus between the surplus shown in schedule OS and expenses claimed thereon. No expenses was required to earn a saving bank interest, FD interest, therefore, the explanation furnished by the ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society assessee is the afterthought of the assessee to reduced its income. In view of the above, the deduction of Rs.35,77,519/- claimed u/s 57 of the Act was disallowed by the assessing officer.
Aggrieved by the order of Assessing Officer, the assessee carried the mater in appeal before the ld. CIT(A) who has partly allowed the appeal of assessee, observing as follows: “Grounds 1 to 2: On perusal of facts of the case and case laws quoted by the assessee, depreciation amount of Rs.7,26,434/- already disallowed and added back by the assessee is reduced from disallowed expense of Rs. 35,77,519/-. This results in disallowed expense being limited to Rs.28,51,085/-. Since, the assessee is Co-Operative Housing Society, hence, these expenses are eligible for deduction from income of the society as per the objectives of the society other than interest income from co- operative banks which do not cover u/s 80P of IT Act.”
7. Shri P. M. Jagasheth, Ld. Counsel for the assessee submitted that in respect of expenses of Rs.35,75,519/-, the ld. CIT(A) has allowed these expenses partly and disallowed these expenses up to the limit of Rs.28,51,085/- which is not acceptable and rather the ld. CIT(A) ought to have allowed the full expenses.
On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
I have heard the rival arguments made by both the sides and perused the material available on record. Admittedly, the Assessing Officer, during the assessment proceedings, disallowed the entire expense of Rs.35,77,519/- which was claimed by the assessee against all such income of Rs.32,60,843/- as directly attributable to the object of the society. On appeal, ld CIT(A) held that disallowed expenses should be limited to Rs.28,51,085/-. This way, the balance expenses
ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society were allowed treating them as incurred for the purpose of business. I find that for same nature of expenses, two standards should not be applied, that is, partly for the purpose of business and partly not for the purpose of business. There is no finding of the ld CIT(A) that part expenses were not genuine or not for the purpose of business. I note that ld CIT(A) has not refuted or discredited evidences and documents submitted by the assessee. The ld CIT(A) does not mention why he is not accepting entire expenses, as genuine expenses incurred for the purpose of business. On the contrary, the ld CIT(A) has just brushed aside these evidences without even a word on why they are not acceptable. It is a well settled Law that when an assessee has all the possible evidence in support of its claim, they cannot be brushed aside based on surmises. Based on this factual position, I delete the addition sustained by ld CIT(A).
In the result, ground No.1 and 2 raised by the assessee are allowed.
Ground Nos. 3 to 6 relate to deduction under section 80P(2)(d) of the Act.
Succinct facts qua the issue are that during the assessment proceedings, the Assessing Officer noted that as per sub-section 80P(4), the provisions of section 80P shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank; the commercial Co-op Bank like Surat Dist, Co-op Bank etc. would not be eligible. Pursuant to insertion of sub-section (4) of Section 80P, the assessee would no more be entitled for claim of deduction under Section 80P(2)(d) of the Act and interest income earned on the ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society amounts parked as investments with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. The assessee submitted its reply during the assessment proceedings, however, the assessing officer rejected the contention of the assessee and held that as the co- operative bank with which the surplus funds of the assessee were parked as investments, were neither Primary Agricultural Credit Society nor a Primary Co-operative Agricultural and Rural Development Bank, therefore, the interest income earned on such investments would not be entitled for claim of deduction under Section 80P(2)(d) of the Act. Therefore, Assessing Officer disallowed the deduction to the tune of Rs.28,61,379/-.
On appeal, the ld. CIT(A) confirmed the action of the assessing officer in respect of deduction claimed under section 80P(2)(d) for interest income received of Rs.26,48,946/-, observing as follows: “Hence, the case laws quoted by the assessee are contradicted and superseded by the above case laws. Coming back to facts of the case, assessee has earned interest income from Co-operative Banks and not Co-operative Societies. “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.” In view of the above Act and case laws quoted above, addition of AO is upheld and the grounds are noted as dismissed.”
Aggrieved by the order of ld. CIT(A), the assessee is in appeal before this Tribunal
The Ld. Counsel for the assessee argued that assessee had received interest of Rs.28,61,379/-, out of the deposits kept in Co- operative Bank, and claimed deduction under section 80P(2)(d) of the Act. The Ld. Counsel contended that the issue is squarely covered by ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society the judgment of Co-ordinate Bench of ITAT, Surat in the case of Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd. vs. PCIT, (2023) 152 taxmann.com 548 (Surat – Trib.), wherein the Tribunal has inter alia observed as follows: “7. We have considered the rival submissions of both the parties and also perused the orders of lower authorities carefully. We have also deliberated on the various case laws relied by ld representatives. The assessee before us, is a cooperative society registered under the provisions of Gujarat Co-operative Societies Act-1961. The assessee filed its return of income for AY 2018-19 on 16-10-2018. Initially return of income was processed under section 143(1) on 16-5-2019. later on It was selected for scrutiny by issuing notice under section 143(2) on 23-9-2019. The case was selected for scrutiny for examination of deduction of Chapter-VIA. We find that during the assessment order the assessing officer issued specific show cause notice for examination of deduction under Chapter VIA. The assessee filed its reply and explained the admissibility of deduction under section 80P, specifically about the deduction of Rs. 2.01 Crore claimed under section 80P(2)(d). No doubt, there is no reference about the examination of such issue, however, admittedly the issue was examined by the assessing officer. We further find that the ld PCIT revised the assessment order on the issue of deduction under section 80P(2)(d). On carful considerations of grounds of appeal
and the facts of the case, we find that on similar grounds of appeal on similar set of facts, this combination has this Tribunal allowed similar relief to that assessee, thus in our view, the grounds of appeal raised by the assessee are square covered in favour of assessee and against the revenue. For completeness of order, the relevant part of decision in Bardoli Vibhag Gram Vikas Co-op Credit Society Ltd. (supra) is extracted below: "11. We have considered the rival submission of both the parties. We have also deliberated on the written submission filed by learned AR of the assessee and various case laws relied by him during his submission. We have also gone through the various documentary evidences filed in the form of paper book (PB) by learned AR of the assessee. We have noted that during the assessment the Assessing Officer vide notice under section 143(2)/142(1) of the Act dated 31-8-2015 and 13-4-2016. The assessee filed its reply through its CA (AR) and furnished required details and after examining the issue allowed the deductions under section 80P(2)(d) as discussed in para 4 of the assessment order. The Assessing Officer passed assessment order on 18-10-2016.
12. The ld. PCIT before passing under section 263 of the Act, identified the issue regarding the claim of deduction under section 80P(2)(d) in its show cause notice dated 6-3-2019. The assessee in its reply dated 7-3-2019 clearly explained that the issue was ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society examined by Assessing Officer and that the assessment order is not erroneous. The assessee also explained that similar disallowances/issues was subject matter in the appeal filed by the revenue before Tribunal in A.Y. 2009-10, 2010-11 and 2012-13 and the assessee was allowed similar deductions.
13. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., v. PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of revision is not valid. (emphasis added by us). Further, Hon'ble Madras High Court in CIT v. Mepco Industries Ltd., (2007) 207 CTR 462 (Madras) held that when two views are possible on an issue and it is not the case of the Commissioner that the view taken by Assessing Officer is not permissible in law, Commissioner cannot invoke his jurisdiction under section 263 of the Act. (emphasis added by us) 14. As we have noted above the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous.
15. The Hon'ble Karnataka High Court in PCIT v. Totagars Co- operative Sales Society [2017] 78 taxman.com 169 (Karnataka) held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Co-operative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd., v. ACIT [2016] 72 taxmann.com 169 (Guj) held that assessee co-operative society is eligible for deduction under section 80P(2)(d) in respect of gross interest received from co- operative bank without adjusting interest paid to said bank.
The Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co-operative Milk Producer Union Ltd., v. DCIT [2019] 111 taxmann.com 69 (Rajkot Tribunal) also held the assessee co- operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co- operative bank. Thus, in view of the aforesaid legal discussion we are of the considered view that order passed by Assessing Officer is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that orders is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case.
ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society 17. Moreover, we have seen that in assessee's own case for A.Y. 2009-10, 2010-11 and 2012-13, the similar disallowance under section 80P(2)(d) was made by the assessing officer while passing assessment order under section 143(3), however, on appeal before Ld. CIT(A) , the disallowances were deleted and the order of the Ld. CIT(A) in all years were confirmed.
The ld. DR for the revenue relied on the case law in PCIT v. Totagars Co-operative Sales Society (second case)/(supra), wherein the Hon'ble Karnataka High Court held that interest earned by a Co-operative Society from surplus deposits kept with Co-operative bank, is not eligible for deduction under section 80P(2)(d). Considering the legal position that when there are conflicting decisions of non-jurisdictional High Courts, on similar issue, the decision of Jurisdictional High Court is having binding precedent. Thus, keeping in view of the decision Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd., v. ACIT (supra) wherein the assessee-co-operative society is held eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank, we conclude that the order passed by assessing officer is not erroneous. Hence, the grounds of appeal
raised by assessee are allowed."
8. Considering the aforesaid decision of this combination on similar set of facts, on similar grounds of appeal, wherein this combination has already considered all the objection as raised by ld CIT-DR for the revenue, thus, the grounds of appeal raised by the assessee are allowed in favour of the assessee and against the revenue. Thus, we hold that the order of ld PCIT dated 02/03/2023, passed under section 263 is not justified, and the same is set aside/quashed. In the result, the grounds of appeal raised by the assessee are allowed.”
16. Learned DR for the Revenue relied on the findings of the lower authorities.
17. I note that the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench, in the case of Shree Madhi Vibhag Khand Udyog Sahakari Mandli Ltd (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings of the Coordinate Bench (supra). I find no reason to differ with the said order of the Coordinate Bench (supra) therefore, respectfully following the ITA.507/SRT/2023/AY.2016-17 Shri Nehrunagar Co.Op. Housing Society binding judgment of Coordinate Bench; I delete the addition made by Assessing Officer.
18. In the result, ground nos.3 to 6 raised by the assessee are allowed.
19. Ground No. 7 raised by the Assessee relates to confirming the action of the Assessing Officer in initiating penalty proceedings u/s 271(1)(c) of the Income Tax Act, 1961, which is pre-mature in nature, hence does not require adjudication.
In the result, appeal of the assessee is allowed.
Order is pronounced on 31/10/2023 in the open court.