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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
This appeal by the assessee is directed against the order dated 10.02.2023 of Commissioner of Income Tax(Appeal), National Faceless Appeal Centre, Delhi for Assessment Year 2020-21. The assessee has raised following grounds of appeal:
“1.The Ld. Assessing Officer has erred in law and facts of the case and assessed the total income at Rs. 1,59,22,236/- as against the returned income of Nil.
2.The Ld. Assessing Officer erred in law and facts of the case and made an addition of Rs. 1,59,22,236/- on account of deduction claimed under section 80P under chapter VI-A of the Income Tax Act, Page 1 of 12
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 2 of 12 1961 as is admissible deduction to a co-operative society. The addition therefore made by the AO is totally wrong and without considering the facts of the case.
3. That the appellant craves to leave add alter or a mend any of the ground at or before hearing.”
The assesse is a credit co-operative society engaged in providing credit facilities to its members. The assesse filed its return of income for the year under consideration on 15.09.2020 declaring total income at nil after claiming deduction u/s 80P of the Act of Rs.1,59,22,236/-. During the scrutiny assessment the AO disallowed the claim of deduction u/s 80P of the Act for want of any explanation on behalf of the assesse to the show cause notices issued u/s 142(1) of the Act. On appeal the Ld. CIT(A) confirmed the disallowance made by the AO by following the judgment of Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO 188 taxmann.com 282.
3. Before us ld. Counsel for the assessee has submitted that the assessee society is established under Society Act and its members are the employees of the telephone and postal departments. The assessee society is accepting the deposits from its members and providing loans and advances to them. During the year, the assessee society has an interest income of Rs. 8,63,02,480/- which includes interest of Rs. 1,59,22,236/- as earned on the deposits made with some banks. The total interest received was claimed as deduction by the assessee society u/s 80P of the Act, however, the Assessing Officer has disallowed the interest deduction of Rs. 1,59,22,236/- by stating that it is not admissible u/s 80P of the Act as it is received from nationalized banks. In this regard, we would like to submit that assessee is a co-operative credit society, though not a co- operative Bank, but its nature of business is coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee society is required to maintain some liquid funds. That is why, generally, credit societies used Page 2 of 12
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 3 of 12 to invest in fixed deposits. Furthermore, in many cases, credit societies maintain overdraft facility with nationalized banks to augment its day-to- day business needs. Furthermore, to some extent, the deposits are also required to be kept, out of operational funds, as per extant legislative requirements. The same thing is done by the assessee society as well. Naturally, this entire activity and income arising there from is nothing but attributable to business of banking.
He has referred to the audited financial statement of Co-operative society at page 21 of paper book, the Interest earning breakup at Schedule 12 of Financials as below:
Particulars Amount Interest from Loan & Advances 6,19,45,864 Interest on Fixed Deposit IPC 2,38,21,371 Interest on savings IDBI 57,757 Interest on savings IPC 43,784 Interest on savings CBI 92,123 Interest on savings SBI 2,00,581 Interest on IT Refund 1,41,000 Total 8,63,02,480
the Ld. Counsel for the assesse submitted that assessee in totality have earned interest of Rs. 8,63,02,480/- amount out of which Rs. 6,19,45,864/- are from advances to members which is primary object and Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 4 of 12 purpose of credit cooperative society and Interest of Rs. 2,38,21,371/- from its deposits and advances lying with co-operative societies i.e. Indore premier co- operative bank societies which is ultimately having banking license under co-op society. Also the cumulative amount of deduction claimed by the assessee u/s 80P was only to the extent of Rs. 1,59,22,236/- which is less than the amount of interest earned from co- operative societies advances to its members. The interest earned form the schedule banks are only amounting to Rs. 3,94,245/- from savings accounts and most importantly assesse have no fixed deposits with any scheduled banks and the surplus is just lying with co-operative societies(Indore Premier Co-operatives Societies) whose income is also attributable to Business of Assessee Society as the object of Co-op Society providing credit is the only sole objective and not engaged in any other work. Therefore, Ld. AR submitted that the ultimate net profit of the co- operative society is within the ambit of Act us 80P(2)(a)(i) being primary object of the assessee society to carry on business of banking or providing credit facilities to its members
He has relied upon the decision of Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd. (230 Taxman 309) and submitted that the Hon’ble High Court has held Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, if deposit this amount in bank account then the interest income is attributable to the profits and gains of the business of providing credit facilities to its members and eligible for deduction u/s 80P of the Act.
He has submitted that the issue before the Hon’ble Supreme Court in case of Totagars Co-operative Society vs. ITO (supra) is restricted only on the interest income on the amount which was liability in the hands of society and therefore, the said amount was held to be not a business
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 5 of 12 income of the society. But such interest would be taxable u/s 56 of the Act and consequently not eligible for deduction u/s 80P of the Act.
He has also relied upon the decision of Hon’ble Karnataka High Court in the case of Yamakanmardi Urban Co-operative Credit Society Ltd. vs. CIT 45 taxmann.com 297 as well as the order of the Ahmedabad Bench of the Tribunal in case of Jafari Momin Vikas Co-op Credit Society Ltd. vs. ITO in ITANo.1491/Ahd/2012.
On the other hand, Ld. DR has submitted that the assesse has not responded to the show cause notice issued by the AO u/s 142(1) and therefore, in absence of any explanation the AO has completed assessment u/s 144 r.w.s. 144B of the Act. He has further submitted that ld. CIT(A) has confirmed the order of the Assessing Officer by following the judgment of Hon’ble Supreme Court in case of Totagars Co-operative Society vs. ITO (supra). He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as relevant material on record. The assessee is a credit cooperative society and claim to have engaged in the providing credit facilities to the members of the society. The assesse claimed deduction u/s 80P of the Act on the entire income of the assessee including interest income. The AO denied this claim under section 80P for want of any explanation. The relevant part of the assessment order as under:
1.Reasons for selection of the case and type of case and background facts- The assessee filed its return of income for the AY-2020-21 on 15.09.2020 video- ing acknowledgement no. 552994571150920 by showing total income of Nil. The case was selected for limited scrutiny assessment under the E-assessment Scheme, 2019 on the following reason(s):- 1 High Creditors/ liabilities 2 Investments/Advances/Loans
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 6 of 12
Deduction from Total Income under Chapter VI-A
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 7 of 12 Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 8 of 12 Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 9 of 12 Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 10 of 12
Thus, it is clear that after filing the return of income the assesse did not respond to the various notices issued by the AO and finally the AO had no option but to pass best assessment order. On appeal the Ld. CIT(A) has confirmed the disallowance made by the AO simply by following the judgment of Hon’ble Supreme Court in case of Totagars Co-operative Society vs. ITO (supra) without even considering the fact that whether entire interest income earned by the assesse from other than the members of the assessee society. As per the provisions of section 80P the business
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 11 of 12 income of the Co-operative Society is eligible for deduction u/s 80P of the Act. In case of credit Cooperative Society engaged in providing credit facilities to its members the interest income from the credit facility provided to the members would be a regular business income of the society eligible for deduction u/s 80P. Further as per the section 80P(2)(d) the interest received on the deposit with other cooperative society is also eligible for deduction u/s 80P of the Act. If the deposit is made with a Cooperative Bank then the said bank would be considered as a Cooperative Society for the purpose of section 80P(2)(d) of the Act so far as the income is eligible for deduction u/s 80P(1) of the Act. The AO has made the addition of the entire interest income has shown in profit and loss account without even considering the facts as to how much interest income received by the assessee from its members. The dispute may be regarding eligibility of deduction u/s 80P in respect of the interest income earned from the deposit made in the Schedule Banks or other than members. Therefore, the interest income received from the members against the credit facility provided by the assesse society is eligible for deduction u/s 80P(2)(a)(i). Further the interest received from its investment from other cooperative society is also eligible for deduction under section 80P(2)(d) of the Act. Since neither the AO nor the Ld. CIT(A) has examined the relevant facts regarding the amount of interest received from the members for providing credit facility being a regular business income of the assessee as well as the interest income received from other then members of the assesse society. Therefore, in the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of CIT(A) and matter is remanded to the record of the Assessing Officer for deciding the same afresh after verification of the relevant record and considering the explanation of the assessee. Needless to say before passing fresh order the assessee be given appropriate opportunity of hearing as well as considering the case laws relied upon by the assesse.
Indore Mandal Dak Tar Karamchari Sahakari Sanstha Page 12 of 12 12. In the result, appeal of assessee is allowed for statistical purposes.
Order pronounced in the open court on 22.06.2023.