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Income Tax Appellate Tribunal, “ SMC ” BENCH, AHMEDABAD
Before: MS. SUCHITRA KAMBLE & SHRI MAKARAND V. MAHADEOKAR
आयकर अपीलीय अिधकरण, अहमदाबाद "ायपीठ SMC, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ SMC ” BENCH, AHMEDABAD सु"ी सुिच"ा का"ले, "ाियक सद" एवं "ी मकरंद वसंत महादेवकर, लेखा सद" के सम"। ] ] BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं / Year : 2017-18 The Modasa Dhansura Taluka The ACIT बनाम/ Teachers Co-op.Credit HMT Circle, Himatnagar v/s. Society Ltd. Present Jurisdiction - S/43, 2nd Floor The Dy.CIT, Circle-2(1)(1) Shyam Sunder Complex Ahmedabad – 380 015 Station Road, At & PO Modasa Ta. Modasa Aravalli 383 315 (Gujarat) "थायी लेखा सं./PAN:AABAT 2852 M अपीलाथ%/ (Appellant) &' यथ%/ (Respondent) Assessee by : Shri Dhinal Shah, AR Revenue by : Shri V.K. Mangla, Sr.DR सुनवाई की तारीख/Date of Hearing : 16/10/2024 घोषणा की तारीख /Date of Pronouncement: 28/10/2024 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM:
This appeal has been filed by the assessee against the order passed by the Office of the Commissioner of Income Tax (Appeals), Addl/JCIT (A)-5, Mumbai [hereinafter referred to as “Addl.CIT(A)”], dated 13/06/2024, for the Assessment Year (AY) 2017-18. The appeal before the Addl.CIT(A) was filed against the assessment order passed by the Assistant Commissioner of Income Tax (ACIT), Circle Himatnagar [hereinafter referred to as “AO”], The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 dated 18/10/2019, under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”].
Facts of the case:
The assessee is a Co-operative Society formed by primary teachers of the Modasa Taluka in Aravalli District, Gujarat, and is engaged in providing credit facilities to its members. The Society filed its return of income for AY 2017-18 on 07/11/2017, declaring a total income of Rs.NIL after claiming a deduction of Rs.31,24,978/- under Section 80P of the Act. The case was selected for limited scrutiny, and a notice under Section 143(2) of the Act was issued on 08/08/2018. During the course of the assessment proceedings, it was observed by the AO that the assessee had derived income from interest by providing loans to its members and also from deposits with Co-Operative banks. The AO noted that the assessee earned interest of Rs.3,86,373/- from its deposits with S. K. District Central Co-operative Bank Ltd., a Co-operative Bank. The AO disallowed the deduction claimed by the assessee under Section 80P(2)(d) of the Act to the extent of Rs.3,86,373/-, stating that the interest earned from deposits with a Co-operative Bank does not qualify for deduction under Section 80P(2)(d) of the Act, as the provision allows for deductions only on interest income earned from investments with other Co- operative Societies, and not Co-operative Banks. The AO relied on the Hon’ble Supreme Court's judgement in the case of Totgar's Co-operative Sale Society Ltd. vs. ITO (322 ITR 283) [SC], which held that interest earned from investments in banks is not attributable to the Co-operative Society's primary activities and is therefore taxable as income from other sources The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 under Section 56 of the Act. The AO also referenced the Finance Act, 2006, which inserted Section 80P(4) of the Act, excluding co-operative banks from the benefits of Section 80P of the Act, except for Primary Agricultural Credit Societies and Primary Co-operative Agricultural and Rural Development Banks. Based on these findings, the AO added Rs.3,86,373/- to the total income of the assessee, resulting in an assessed income of Rs.3,86,370/- under Section 143(3) of the Act.
Aggrieved by the order of the AO, the assessee filed an appeal before the Addl.CIT(A) on 13/05/2022, which was 760 days late. In Form 35, the assessee explained that the delay was due to the misplacement of the assessment order by the clerk and the appeal was filed immediately after the order was found. The assessee, however, did not submit any Affidavit or documentary evidence to substantiate this claim. The Addl.CIT(A) issued six notices to the assessee under Section 250, asking for an explanation for the delay. However, none of these notices were complied with by the assessee. The Addl.CIT(A), in its order, held that the explanation provided by the assessee was general in nature and unsupported by evidence. The Addl.CIT(A) concluded that the delay was due to gross negligence on the part of the assessee and could not be condoned. Consequently, the appeal was dismissed without being admitted on merits.
Aggrieved by the order of the Addl.CIT(A) the assessee preferred an appeal before us with following ground of appeal: “The learned CIT(A) has erred in dismissing the appeal on the ground of delay in as much as the delay in filing the appeal was on reasonable grounds and there was no gross negligence on the part of the applicant.” The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 4 During the course of the hearing before us, the learned Authorized
5. Representative (AR) of the assessee explained the cause of delay and submitted an Affidavit from the Chairman of the society, Shri Pareshkumar Manilal Prajapati, detailing the reasons for the delay. The Affidavit emphasized the following: • The society is managed by teachers without full-time competent staff. • The society is located in a small village with limited access to professional assistance. • The delay occurred due to the misplacement of the assessment order by the clerk, and once the order was found, the appeal was filed immediately. • The notices from the CIT(A) were not responded to due to the absence of staff capable of tracking the income tax portal regularly.
The AR argued that the delay was not deliberate or due to gross negligence but rather an administrative oversight. The AR placed reliance on several judicial precedents of Co-ordinate Benches of the Tribunal where reliance was placed on the decision of the jurisdictional High Court, urging that the delay should be condoned, and the matter should be decided on merits.
The Departmental Representative (DR), considering the circumstances, did not raise any objections to the condonation of the delay.
Upon considering the affidavit and submissions made by the AR, we are of the view that the cause of delay explained by the assessee is plausible and does not indicate any gross negligence or deliberate inaction. The reasons The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 for the delay, namely the misplacement of the order and the lack of competent staff, are valid given the rural location and nature of the society’s operations. It is well settled that the expression "sufficient cause" for condonation of delay should be liberally construed to advance the cause of substantial justice, as held by the Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji (167 ITR 471) [SC]. Further, as noted by various judicial forums, delays caused by administrative lapses or lack of resources in small co-operative societies have been condoned, especially where the delay is not attributable to willful negligence. In view of the above facts, we find that the delay in filing the appeal before the Addl.CIT(A) was due to sufficient cause and is accordingly condoned. Now we decide the issue on merits.
8.1. Considering that the issue involves the disallowance of Section 80P of the Act deduction on interest income from deposits with a Co-operative Bank, the matter is covered by several judicial precedents, including those of the jurisdictional High Court. Therefore, it would be in the interest of substantial justice to condone the delay and decide the case to be adjudicated on merits.
8.2. The AR submitted that the disallowance was incorrect and that the interest income from S. K. District Central Co-operative Bank Ltd. qualifies for deduction under Section 80P(2)(d) of the Act. The AR further relied on several judicial precedents of the Co-ordinate Bench to support the claim, including: • Shrinath Co-operative Credit Society Ltd. vs. ACIT (ITA NO. 389,390 &391/Ahd/2022). The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 6 • Posun Credit Co-op Society Ltd. vs. Pr. CIT (ITA NO. 378/Ahd/2023) • The Ladol Vivth Karyakari Sahkari Mandli Ltd. vs. ACIT (ITA NO. 525 to 527/Ahd/2024).
8.3. We have carefully considered the submissions made by both the parties, the material on record, and the judicial precedents relied upon. The reliance by the AO and the DR on Totgar’s Co-operative Sale Society Ltd. vs. ITO is misplaced. In the case of Totgar’s case, the Hon’ble Supreme Court dealt with a situation, where surplus funds were invested in fixed deposits with nationalized banks, and the interest earned was held to be taxable as income from other sources. However, the facts of the present case are distinguishable, as the interest in question has been earned from deposits made with a Co-operative Bank, not a nationalized bank. The Hon’ble Supreme Court’s judgement in the case of Totgar’s does not cover cases involving interest from deposits with Co-operative Banks, and several judicial forums have made this distinction.
8.4. The issue before us has been consistently decided in favour of the assessee by the Hon’ble jurisdictional Gujarat High Court and various Co- ordinate Benches of the Tribunal. In the case of Pr. CIT vs. Ekta Co-operative Credit Society Ltd. (402 ITR 85) and in the case of CIT vs. Jafari Momin Vikas Co-operative Credit Society Ltd. (362 ITR 331), the Gujarat High Court held that co-operative banks are co-operative societies for the purposes of Section 80P(2)(d) of the Act, and therefore, interest earned from deposits with co-operative banks qualifies for deduction under this section. In the case of Shrinath Co-operative Credit Society Ltd. vs. ACIT (ITA Nos. 389, 390 & 391/Ahd/2022), the Co-ordinate Bench held that interest income earned The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 from deposits with co-operative banks qualifies for deduction under Section 80P(2)(d) of the Act, distinguishing the facts from Totgar’s case and reinforcing that Co-operative Banks are Co-operative Societies in substance. In the case of The Ladol Vivth Karyakari Sahkari Mandli Ltd. vs. ACIT (ITA Nos. 525 to 527/Ahd/2024), the Co-ordinate Bench specifically addressed the issue in para-9, referring to the Gujarat High Court’s clarification in the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. The Hon’ble Gujarat High Court confirmed that Co-operative Banks are, in essence, Co-operative Societies, and that the interest earned from such banks qualifies for deduction under Section 80P(2)(d) of the Act. The Co-ordinate Bench in that case held that interest derived from Mehsana District Central Co-operative Bank Ltd., a Co-operative Bank, was eligible for the same deduction under Section 80P(2)(d) of the Act. In the present case, the assessee has earned interest from S. K. District Central Co-operative Bank Ltd. The clarification by Hon’ble Gujarat High Court and its subsequent application by the Tribunal reinforce the assessee’s eligibility for the deduction under Section 80P(2)(d) of the Act.
8.5. Section 80P(4) of the Act, introduced by the Finance Act, 2006, excludes Co-operative Banks themselves from claiming the benefits of Section 80P of the Act. However, this exclusion applies to Co-operative Banks in their own capacity and does not affect the eligibility of Co-operative Societies, like the assessee, to claim deductions on interest earned from deposits with Co- operative Banks. This position has been upheld by Hon’ble Gujarat High Court and various benches of the Tribunal. The Modasa Dhansura Taluka Teachers Co-op.Credit Society Ltd. vs. ACIT, HMT Circle (Present Jurisdiction DCIT Circle-2(1)(1), Ahmedabad Asst. Year : 2017-18 8.6. In light of the judicial precedents, particularly the Gujarat High Court’s clarification referenced in para-9 of The Ladol Vivth Karyakari Sahkari Mandli Ltd. vs. ACIT, and the consistent treatment of Co-operative Banks as Co-operative Societies for the purpose of Section 80P(2)(d) of the Act, we hold that the interest income earned by the assessee from S. K. District Central Co-operative Bank Ltd. qualifies for deduction under Section 80P(2)(d) of the Act. Accordingly, on merits, the disallowance of Rs.3,86,373/- made by the AO is deleted.