ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 2(1)(1), SURAT vs. PANDESARA GREEN ENVIRONMENT WATER WELFARE COOP. SOCIETY LIMITED, SURAT

Department represented by Shri Vinod Kumar, Sr.DR Assessee represented by Shri Sapnesh Sheth, C.A. Date of Institution of Appeals 13/04/2023 Date of hearing 28/08/2023 Date of pronouncement 28/08/2023 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These three appeals by the Revenue are directed against the separate orders of National Faceless Appeal Centre, Delhi (NFAC)/learned Commissioner of Income Tax (Appeals) (in short, the ld. CIT(A) all dated 16/02/2023 for the Assessment years (AY) 2017-18, 2018-19 and 2020-21 respectively. In all these appeals, the revenue has raised certain common grounds of appeal. Facts in all these years are almost similar, except various of disallowance under Section 80P(2)(d) of the Income Tax Act, 1961 (in short, the Act) therefore, with the consent of parties, all these appeals were clubbed, heard together and are to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. being decided by this consolidated order to avoid the conflicting decision. For appreciation of facts, the appeal being for the A.Y. 2017-18 is treated as a “lead case”. In this appeal, the revenue has raised following grounds of appeal: “1. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the I.T. Act of Rs. 1,49,27,600/-.

2. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the I.T. Act without appreciating the facts that the deposit in cooperative banks lacks the degree of proximity between the members of the society with that of cooperative bank and thus offends this sacrosanct principle of mutuality. This has been established by CIT v/s Bankipur Club Ltd 226 ITR 97(SC) and CIT u/s Adarsh Hsg Coop Sty Ltd 2131 TR 677(Guj).

3. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in ignoring Hon'ble Gujarat High Court's observation in Katlary Kariyana Merchant Sahakari Sarafi Mandali in SCA No.20585 of 2019 that by virtue of amendment in section 194A(3)(v) of the Income tax act, it has also excluded the co-operative banks from the definition of "co-operative society" by the Finance Act, 2015. The High Court of Karnataka has taken note of this amendment in the case of Totagars Co-op/sale society (Supra) (2017) 395 ITR (KAR) thereby holding that the effect of the aforesaid amendment explicitly makes clear intention of legislation that co-operative banks are not specie of genus co-operative society, which would entitled to exemption or deduction under the special provisions of Chapter VI- A in the form of section 80P of the Act.

4. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the I.T. Act without appreciating the facts that the co-operative banks are entirely different species than those of co-operative societies, the income must have been earned by way of interest or dividends and the income must be derived from investment with any other co-operative society only, as held by the Hon'ble Jurisdictional Karnataka High Court in the case of Principal Commissioner of income-tax, Hubballi vs. Totagars Co- operative Sale Society. to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd.

5. On the facts and circumstances of the case and in law, the Id. CIT(A) has erred in allowing deduction u/s. 80P(2)(d) of the I.T. Act without appreciating the facts that the only interest derived from credit provided to its members is deductible under section 80P(2)(a)(i) and interest derived by depositing surplus fund with bank not being attributable to business carried on by society, cannot be deducted under section 80P(2)(a)(i). Although the case pertains to 80P(2)(a)(i) but the principle can be extended to 80P(2)(d) as well. Jurisdictional Hon'ble High Court in the case of SBI vs. CIT (2016) 72 taxman.com 64.

either before or during the course of hearing of the appeal.”

2. Brief facts of the case are that the assessee is a cooperative society registered under the provisions of Gujarat State Cooperative Societies Act. The assessee filed its return of income declaring total income at Rs. 1.49 crores and claimed deduction of entire income under Chapter VIA, thereby shown final income at Rs. NIL. The case was selected for scrutiny. The assessee has shown to have earned interest income on fixed deposit with the Sutex Cooperative Bank Limited of Rs. 1.99 crore and dividend income of Rs. 300/-. The assessee claimed deduction to the extent of Rs. 1.49 crore. The Assessing Officer while passing the assessment order made disallowance of deduction under Section 80P(2)(d) of the Act of Rs. 1.49 crore. The Assessing Officer disallowed deduction under Section 80P(2)(d) of the Act by taking a view that the cooperative banks are not the cooperative societies, to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. thus the deduction is not available to the assessee under Section 80P(2)(d) of the Act. The Assessing Officer while making disallowance, also relied upon the decision of Hon’ble Supreme Court in the case of Totagars cooperative Sale Society Ltd. Vs ITO (2010) 188 Taxman 282 (SC).

3. On appeal before the ld. CIT(A), the assessee filed its detailed written submission. The submission of assessee are recorded in para 7 of order of ld. CIT(A). The assessee in its submission submitted that they are regularly assessed to tax from inception. They are keeping their funds in cooperative banks and availing deduction of Section 80P(2)(d) of the Act which is allowed in the scrutiny assessment for A.Y. 2012-13 and 2014-15. The assessee also explained the difference in fact with the decision in Totagars cooperative Sale Society Ltd. Vs ITO (supra) vis a-vis the fact of their case and relied upon the various decisions of Ahmedabad Tribunal on same issue. The assessee also submitted that Sutex cooperative Bank is firstly set up/created as a cooperative society registered under the provisions of Cooperative Societies Act and thereafter applied for operation of banking activities from Reserve Bank of India. Copy of registration certificate of Sutex Co-operative Bank, under the provisions of State Co-operative Act, was also furnished. The assessee also explained that the Income Tax Department has considered Sutex Cooperative Bank is a Cooperative to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. society on a number of occasions and assessed them as a cooperative society. The assessee furnished the assessment order of Sutex Cooperative Bank. The assessee also relied on the number of decisions where the cooperative banks were considered as a cooperative society.

4. The ld. CIT(A) after considering the submission of the assessee held that the Assessing Officer disallowed the deduction under Section 80P(2)(d) of the Act of Rs. 1.49 crore by taking a view that Sutex Cooperative Bank is not covered by the provisions of Section 80P(2)(d) as it is not a cooperative society. The assessee filed copy of registration certificate of Sutex Cooperative bank as a society. The ld. CIT(A) further recorded that the Hon’ble Karnataka High Court delivered two decisions by taking two different views in to different cases on the same issue. On the basis of such decisions, the Hon’ble Karnataka High Court has also granted deduction for interest received from cooperative banks in its subsequent decision in CIT Vs Totagar Cooperative Sales Society (392 ITR 74 Kar). Further similar deduction was allowed in case of Pandesara Industrial Cooperative Society having PAN No. AAAAP0742R for A.Y. 2015-16. The ld. CIT(A) also held that Sutex Cooperative Bank is a cooperative society, hence the assessee is eligible for deduction of the amount received as interest from Sutex Cooperative bank under Section 80P(2)(d) of the Act. The to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. ld. CIT(A) also considered the decision of Hon’ble Supreme Court in Totagars cooperative Sale Society Ltd. Vs ITO (supra) and Totagars Cooperative Sales Society Vs PCIT (2017) 83 taxmann.com 140 and held that the Hon’ble Supreme Court has dealt with the deduction under Section 80P(2)(a)(i) of the Act and is silent on deduction under Section 80P(2)(d) of the Act. The ld. CIT(A) also held that the Hon’ble Kerala High Court in Chirackal Service Cooperative Bank Vs CIT (384 ITR 490-Ker) also held that Primary Agricultural Credit Societies registered under Cooperative Societies Act are entitled to exemption/deduction under Section 80P(2). On the basis of aforesaid observation, the ld. CIT(A) allowed full relief to the assessee thereby reversing the order of Assessing Officer. Aggrieved by the order of ld. CIT(A), the revenue has filed present appeal before this Tribunal.

5. We have heard the submissions of learned Senior Departmental Representative (ld. Sr. DR) for the revenue and the learned Authorised Representative (ld. AR) of the assessee. We find that, though, the revenue has raised multiple grounds of appeal by narrating various decisions in the grounds of appeal which includes narration of facts and law. However, in our considered view, the substantial grounds of appeal is “If the assessee is eligible for deduction under Section 80P(2)(d) of the Act of Rs. 1.49 crore on account of interest and dividend income derived from deposit with to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. Sutex Cooperative Bank Ltd.” The ld. Sr.DR for the revenue submits that as per language employed in clause (d) of Sub-Section(2) of Section 80P the word is specified as ‘Cooperative Society’ and it does not contain the reference of “cooperative bank.” Cooperative Societies and Cooperative Banks are separate and distinct. The statutory provisions have to be interpreted strictly in accordance with language employed in the statute. From careful reading of statutory provision, it is clear that the cooperative society is eligible for deduction on account of any interest or dividend derived by the cooperative society from their investment with any other cooperative society. The word “Co-operative Society” is used twice, which clearly shows the intention of legislature to allow deduction of interest from co-operative society only. The ld. Sr. DR for the revenue submits that such fact is not brought to the notice of various High Courts while giving finding that cooperative banks are primarily a cooperative society. The ld. Sr. DR for the revenue submits that the order of ld. CIT(A) may be reversed by restoring the order of Assessing Officer.

6. On the other hand, the ld. AR of the assessee supported the order of ld. CIT(A). The ld. AR of the assessee submits that the grounds of appeal raised by the Revenue are squarely covered by the various decisions referred and relied by the ld. CIT(A). Moreover, the grounds of appeal are clearly covered by the decision of Hon’ble Jurisdictional to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. High Court in Surat Vankar Sahkari Sangh Vs Asstt. CIT [2016] 72 taxmann.com 169/[2020] 421 ITR 134 (Guj.) which was followed by this Tribunal in Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd. Vs Principal Commissioner of Income Tax-2, Surat [2021] 127 taxmann.com 334 (Surat-Trib.) and gain in Shree Madhi Vibhag Khand Udyog Mandali Vs PCIT (2023) 152 taxmann.com 548(Surat-Trib). The ld. AR of the assessee submits that Sutex Cooperative Bank was initially set up as a cooperative society and thereafter obtained approval/license of Reserve Bank of India for banking activities, thus is a primarily a cooperative society. Meaning thereby, the Sutex Cooperative bank was born as cooperative society and will remain a cooperative society, it was converted in Cooperative Bank only on taking banking licence from Reserve Bank of India. Otherwise also the cooperative banks are primarily a cooperative society as has been held by the various High Courts. Since the Hon’ble Jurisdictional High Court has already taken a view that the Cooperative banks are primarily a cooperative society, thus the finding of Hon’ble Jurisdictional High Court is a binding precedent. On the submission of ld. Sr. DR for the revenue that cooperative societies and cooperative banks are separate and distinct entity and that the word “cooperative society” is used twice in clause (d) of sub-section (2) of Section 80P of the Act, and /or such language of section was not considered by the Hon’ble High to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. Court while holding that cooperative banks are cooperative societies, the ld AR for the assessee submits that such submissions are not acceptable, when the High Court has given clear findings. The ld AR for the assessee prayed to uphold the finding of ld CIT(A).

7. We have considered the rival submissions of both the parties and have gone through the orders of the lower authorities carefully. We have also deliberated on various case laws relied either by lower authorities or by parties at the time of making their submissions. We find that the Assessing Officer allowed deduction of Rs. 1.49 Crore under Section 80P(2)(d) of the Act by taking a view that the cooperative banks are not the cooperative society and such interest income and dividend is earned from Co-operative Bank. We further find that the ld. CIT(A) on considering submissions of assessee and various decisions of Tribunal and Higher Courts on the similar issue held that Sutex Cooperative Bank is primarily a cooperative society and allowed relief to the assessee. We find that on similar set off facts in similar deduction, the combination of this Bench while considering the similar submission of the parties by following the decision of Hon’ble Jurisdictional High Court in Surat Vankar Sahkari Sangh v. Asstt. CIT (supra) in Bardoli Vibhag Gram Vikas Co-operative Credit Society Ltd. Vs Pr CIT (supra) passed the following order: to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. “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 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. Pr. CIT [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] 163 Taxman 648/294 ITR 121 (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 Totagars Cooperative Sales Society (supra) held that for the purpose of section 80P(2)(d) a Co- 10 to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative 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. (supra) 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.

16. The Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co-operative Milk Producer Union Ltd. v. Dy. CIT [2019] 111 taxmann.com 69/179 ITD 690 (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.

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.

18. The ld. DR for the revenue relied on the case law in 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. (supra) wherein the assessee-co-operative society is held eligible for deduction ITA No.244 to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. 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.

19. In the result, appeal of the assessee is allowed.”

8. Considering the categorical findings of combination of this Bench, we find that the grounds of appeal raised by the Revenue is squarely covered by the decision of Tribunal in Bardoli Vibhag Gram Vikas Co- operative Credit Society Ltd. Vs Pr CIT (supra). Similar view was followed by this combination in Shree Madhi Vibhag Khand Udyog Mandli Vs PCIT (supra). Hence, in our view the grounds of appeal raised by the revenue is covered against the revenue. Thus, in view of afforesaid factual and legal discussion, we affirm the order of ld CIT(A).

9. So far as objections of ld Sr DR for the revenue is concern, that the word “Co-operative Society” is used twice in clause (d) of section 80P(2), which clearly shows the intention of legislature to allow deduction of interest from co-operative society only or such language was not considered by High Court. Though, we appreciate the forceful submissions of ld Sr DR of the revenue on this issue, while defending the order of assessing officer. However, such submissions of ld Sr DR for the revenue is not acceptable to us that Hon’ble High was not conscious of such language or such facts was not considered while to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd. giving the decision on the ratio that cooperative bank are primarily a cooperative society. In the result, the grounds of appeal raised by the revenue is dismissed.

10. In the result, the appeal of the revenue is dismissed.

11. Now we take appeal in ITA No. 245 & 246/Srt/2023 for the A.Y. 2018- 19 and 2020-21. As recorded above, the revenue has raised similar grounds of appeal as raised in appeal in ITA No. 244/Srt/2023 for A.Y. 2017-18, except variation of amount of disallowance. Considering the fact that we have dismissed the appeal of revenue in ITA No. 244/Srt/2023 for A.Y. 2017-18 by following the order of this Tribunal in Bardoli Vibhag Gram Vikas Cooperative Credit Society Ltd. Vs Pr CIT (supra) and in Shree Madhi Vibhag Khand Udyog Mandli Vs PCIT (supra) and by following the principle of consistency, the appeal of ITA No. 245 & 246/Srt/2023 for the A.Y. 2018-19 and 2020-21 are also dismissed with observations.

12. In the result, all these appeals of the revenue are dismissed. Order pronounced in the open court on 28th August, 2023. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 28/08/2023 *Ranjan ITA No.244 to 246/Srt/2023 ACIT Vs Pandesara Green Environment Water Welfare Coop Soc. Ltd.