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Income Tax Appellate Tribunal, DELHI BENCH “SMC” NEW DELHI
Before: SHRI S.V. MEHROTRA :
This appeal, preferred by the assessee, is directed against the order dated 22-11-2013, passed by the ld. CIT(A), Muzaffarnagar in appeal no. 146/12-13/MZR/1515, relating to A.Y. 2010-11.
2. The assessee, a society, registered under Co-operative Societies Act, 1965, in the relevant assessment year, was engaged in marketing of sugar
2 ITA 1299/D/14 cane grown by its members and purchase of fertilizers, agriculture implements, pesticides, seeds and other articles intended for agriculture purpose or supply to its member as loan. It had filed its return at nil income. The AO noticed that assessee had earned interest from various bank accounts. He show caused the assessee as to why the interest earned be not brought to tax in view of judgment of Hon’ble Supreme Court in the case of M/s Totgar’s Cooperative Society Vs. ITO
The assessee explained that in the case of M/s Totgar’s Cooperative Society (supra), the Hon'ble Supreme Court has held that the interest earned by the cooperative society by investing surplus funds in short term deposits and Government securities fell under the head "Income from other sources" and these were taxable under sec. 56. Accordingly, the interest income did not qualify for deduction under s 80P(2)(a)(i).
The assessee further pointed out that the Hon’ble Supreme Court had only laid down the principle and restored the matter to the file of Hon’ble High Court for considering the allowability of expenditure u/s 57. The assessee further pointed out that under the bye laws it was to provide loan to its members and to arrange funds and finance for activities of the society. For this purpose the surplus funds were parted with the bank to earn interest income.
5. The assessee’s further contention was as under:
3 ITA 1299/D/14 “Details of intt. Earned: 1. Dividend Rs. 24,600/- 2. From left over balances in SB A/c Rs.3,13,160/- 3. Intt on FDR Rs. 1,80,994/- Total: Rs. 5,18,754/-
Dividend is exempt u/s 80P(2)(d). Intt on left over balances in SB A/cs is related to the activity of providing credit facilities as per objects of the assessee society. Apropos FDR, it was made for Rs 50,00,000/- in which the rate of interest comes approximately 3.61% in proportionate to the interest income on FDR i.e. Rs 1,80,994/-. The calculation reveals that the investment in FDR has been for 3 to 4 months assuming the rate of interest 9 to 10% p.a. …… . The interest earned on FDR with the Bank is incidental and has proximate connection to the business of the assessee society of providing credit facilities to its members. While deciding taxability one has to see what is the intention and circumstances behind investing surplus funds. The investment of Rs. 50,00,000/- in FDR has been withdrawn within 3 to 4 months, that shows that the intention of the assessee behind investing surplus funds was not for the purpose of investment but to part the surplus funds with the bank which was not immediate required.”
The assessee also submitted that even if the interest on FDR of Rs. 1,80,994/- was taxable u/s 56, the interest paid on amount of PF of Rs. 4,03,677/- was allowable u/s 57. The AO, however, did not accept the 4 ITA 1299/D/14 assessee’s contention and treated the interest income of Rs. 1,80,994/- as income from other sources, inter alia, observing as under:
“In the instant case the assessee is a cooperative society. During the relevant assessment years in question, it had surplus funds which it has invested in short-term deposits with 'the Bank in the farm of FDRs, As submitted by the assessee, that the society has invested Rs 50,00,000/- in FDR’s as the same were not required for the business purpose at the given point of time, Hence it is evident from the above that the interest income so earned does not form part of the operational income of the society as is relied in the case of M/s Totgar Cooperative Society. The income of Rs 1,80,994/- is treated as income from other sources in view or the aforesaid decision and accordingly deduction u/s 80(p) the Income Tax Act is not allowable on the above income.”
7. He also did not accept the assessee’s contention regarding the allowability of expenses of Rs. 4,03,677/- against the interest income of Rs. 1,80,994/-, inter alia, observing that payment of interest on the amount of PF of employees was retained by the assessee society under the PF Trust fund rules 1979. He pointed out that assessee had not proved that the amount of PF retained by it under PF Trust Act, 1979 had been invested in FDRs and consequently interest had been earned. Thus, the AO held that assessee failed to establish the nexus between the interest income and the interest payment to employees under P.F. Trust Fund. He, accordingly, made addition of Rs. 1,80,994/- disallowing the deduction claimed u/s 80P(2)(a).
5 ITA 1299/D/14 8. Before Ld. CIT(A), the assessee had filed application under Rule 46A, inter alia, on the ground that income tax had been imposed upon the assessee at Rs. 65,530/- because of the misconception about the true facts without any fault of the assessee, possibly due to the inadvertence of its advocates. The assessee furnished following evidences before the learned CIT(A): (i) Copy of working statement regarding amount of Reserve Fund & PF (ii) Copy of Resolutions of AGM of the assessee society regarding Reserve Fund
9. The assessee’s contention was that consideration of this evidence is necessary in order to establish that the amount of PF retained by it under PF Trust Rules, 1979 had been invested in FDRs aggregating to Rs. 50,00,000/-. Thus, the main contention of assessee was that additional evidence adduced before ld. CIT(A) was necessary to be considered in order to establish the nexus between the interest received and interest payment. However, ld. CIT(A) did not admit the additional evidence
10. I have considered the submissions of both the parties and have perused the record of the case. The assessee’s contention is that FDRs had been made out of loan in respect of PF amounting to Rs. 53,04,893/-. The assessee’s detailed submissions have been reproduced at pages 5 to 9 of ld. CIT(A)’s order which can properly be examined only after consideration of the additional evidence produced before ld. CIT(A). Considering the fact that the assessee’s plea has not properly been addressed on factual aspects, it is necessary that the additional evidence filed by the assessee before ld.
6 ITA 1299/D/14 CIT(A) be admitted and then after proper appreciation of all the facts the issue be adjudicated. Accordingly, I set aside the order of ld. CIT(A) and restore the matter back to the file of AO to adjudicate the issue afresh after taking into account the additional evidence filed by the assessee in accordance with law, after affording reasonable opportunity of being heard to the assessee.
In the result, assessee’s appeal stands allowed for statistical purposes only.
Order pronounced in open court on 08/10/2015.
Sd/- (S.V. MEHROTRA) ACCOUNTANT MEMBER Dated: 08/10/2015. *MP* Copy of order to: 1. Assessee 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, New Delhi.
7 ITA 1299/D/14 -+ Date Initial
Draft dictated on -10.2015 PS
Draft placed before author .10.2015 PS
3. Draft proposed & placed before the second JM/AM member
4. Draft discussed/approved by Second Member. JM/AM
Approved Draft comes to the Sr.PS/PS PS/PS
6. Kept for pronouncement on PS
File sent to the Bench Clerk PS
Date on which file goes to the AR
Date on which file goes to the Head Clerk.
Date of dispatch of Order.