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Income Tax Appellate Tribunal, CHANDIGARH BENCH, ‘B’, CHANDIGARH
Before: SHRI A.D. JAIN & SHRI KRINWANT SAHAY
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 2 आदेश/Order Per Dr. Krinwant Sahay, A.M.:
The appeals in the captioned cases have been filed by the Assessee against the separate orders, each dated 12.01.2023 of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi.
Since the issues involved in both the appeals are identical and the appeals were heard together, therefore, we proceed to dispose off these appeals as under.
First, we shall deal with the appeal in for A.Y. 2014-15, wherein following grounds have been raised by the Assessee:
(A.Y. 2014-15) 1. The Assessing Officer and Ld. CIT(A) has erred in law and facts of the case to Hold that the interest income of Rs. 12,42,923-00 received from Commercial Banks as Income from Other Sources against the claim of appellant as Business Income and no expenses under the provision of section 57(iii) has been allowed that is bad in law and needs to be set aside.
2. The Assessing Officer and Ld. CIT(Appeals) has erred to disallow the interest income of Rs.
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 3 38,35,797-00 received from employees on loans advanced to them for purchase of vehicles and construction of houses and holding the same as Income from Other Sources and without allowing the expenses under section 57(iii) is bad in law and needs to be set aside.
3. The Ld. CIT(A) has erred not to consider the allocation of interest paid to bank as the amount was advanced from funds taken from banks.
4. The Assessing Officer and Ld. ClT (Appeals) has erred in law to disallow the claim of Rs. 15,69,683-00 on account of interest on Income Tax Refund and treating the same as Income from Other Sources and without allowing the expenses u/s 57(iii) is bad in law and needs to be set aside.
5. The Ld. CIT(Appeals) has erred in law not accepting the additional ground of appeal raised during the appellate proceedings holding that the ground has not been raised before the Assessing Officer.
4. Ground No.1 : Both the parties fairly conceded that this ground is squarely covered by the decision of the Hon'ble jurisdictional High Court in Assessee’s own case which has relied upon the order of the Hon'ble Supreme Court in the case of ‘Tuticorin Alkali Chemicals and Fertilizers Ltd’. vs. CIT’ 227 ITR 172 (SC).
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 4 5. The ld. CIT(A) in his order, has given his findings on this issue as under:-;- “4. That the appellant during the year under consideration has received Rs. 38,35,797/- as interest on loans advanced to its employees as a condition precedent of the service rules of the assessee. The appellant during the assessment proceedings had submitted as under: -
Regarding the treatment of interest income received by the assessee from its employees on the various loans advanced by the assessee during the year under consideration amounting to Rs.38,35,797/- it is submitted that the employees of the assessee are advanced loans for the purchase of conveyance and for the purpose of housing as a condition of their service. The service rules as approved by the Government are applicable to the employees and the amount of interest shown in Annexure-T to the balance sheet is the gross total income received by the assessee. It is out of the business funds that the assessee has advanced these loans to the employees. It is also evident from the perusal of the records that as per schedule-S to the balance sheet the assessee has paid interest to the various banks amounting to Rs. 27,19,86,767/- during the year under consideration and has also incurred expenses other than interest running into crores of rupees. The Assessing Officer while completing the assessment in the case of the assessee for the earlier years wherein the assessment order treating the said income as income from other sources has been upheld by the IT AT Chandigarh bench in the case of the assessee it is submitted that the gross total income has been taken into
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 5 consideration. The Hon'ble IT AT Chandigarh Bench while deciding the appeal filed by the department has relied upon the judgment of the Hon'ble Supreme Court In The Totgars Cooperative Sale Society Ltd vs ITO 2010 (35) DTR.”
6. In his order the ld. CIT(A) has given his finding as under:-
The reply of the Assessee on this issue has been considered. However, it is not acceptable. A perusal of the assessment records for the AY 2006-07 in the assessee’s case reveals that the issue has been considered by the Hon'ble jurisdictional High Court wherein the High Court upheld the action of the AO by relying on the decision of the Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. 227 ITR 172 (SC). Accordingly, interest income from Commercial Bank which has been set off by the assessee against interest expenditure is hereby treated as “income from other sources
Since the issue is squarely covered by the order of the Hon'ble jurisdictional High Court, accordingly, Assessee’s appeal on this ground is dismissed.
Ground No. 2 : Appeal on Ground No. 2 is against the disallowance of interest income of Rs. 38,35,797/- received from employees on loans, advances to them for purchase of vehicle and construction of house and holding the same as income from other
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 6 sources. On this issue, the ld. CIT(A) in his order has given his findings as under:- “I have carefully considered the facts of the case, assessment order of the AO and grounds of appeal, statement of facts and written submission filed by the appellant. In this regard also, I find that the issue is squarely covered by the jurisdictional High Court in Appellant's own case for AY 10-11 {supra) wherein it has been held that the deduction u/s 80P cannot be available to such interest income as it cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) or Section 80P(2)(a)(iii) of the Act. The relevant extract of the Hon'ble High Court judgment is as follows :-
"8. Adverting to question Nos. (iv) and (v) as reproduced above which have been claimed to be arising from the order of the Tribunal on the appeal of the revenue which was allowed, the issue relates to disallowance of Rs. 27,19,241/- under Section 80P(2)(a)(i) of the Act as deduction in respect of interest received from employees who are not the members of the assessee-Society. The Tribunal while accepting the appeal of the revenue and adjudicating the issue against the assessee had clearly noticed that the benefit under Section 80P(2)(a)(i) of the Act is available to the assessee where the interest is earned from the core activity of the assessee-Society and the interest earned from employees would not fall for such deduction under Section 80P(2)(a)(i) of the Act. The relevant observations of the Tribunal read thus:—
'17. After considering the rival submissions we find that the Hon'ble Supreme Court has clearly held that deduction u/s. 80P(2)(a)(i) of the" Act is available only in respect of core activities of the Society and interest earned from other banks cannot be said to be the core activity. In fact, in this regard it has been observed as under:-
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 7
"The interest income arising to a co-operative society carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members, on the surplus, which is not required immediately for business purposes, from investment in short- term deposits and securities, has to be taxed as income from other sources under Section 56 of the Income Tax Act, 1961. Such interest cannot be said to be attributable to the activities of the society, viz. carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. Interest income of such society from amounts retained by it cannot be said to be attributable either in the activity mentioned in Section 80P(2)(a)(i) or Section 80P(2)(a)(iii) of the Act.
Section 80P(2)(a)(i) cannot be placed on a par with Explanation (baa) to Section 80HHC, Section 80HHD(3) and Section 80HHE(5)."
On the basis of above observation, it can easily be said that on same analogy even the interest earned from employees cannot be said to be core activity of the society and, therefore, in our opinion, interest earned from employees is not eligible for deduction u/s. 80P(2)(a)(i), therefore, we set aside the order of Ld. CIT(A) and restore that of Assessing Officer.’
9. Nothing was demonstrated that the approach of the Tribunal was erroneous or perverse in any manner.
In view of the above, no substantial question of law arises in this appeal. Consequently, the appeal is dismissed."
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 8
Keeping in view the ratio decided by the Hon’ble jurisdictional High Court on this issue, in Assessee’s own case, Assessee’s appeal on this Ground 2 is dismissed.
10. Ground No. 3, 4 & 5 : During the proceedings before us, the Assessee submitted that the ld. CIT(A) has not decided appeal on Ground Nos 3,4 and 5. Accordingly, a request was made by the ld. Counsel that appeal on these issues may be remanded back to the CIT(A).
The ld. DR relied on the order of the CIT(A).
We have considered the findings of the ld. CIT(A) on this issue and the arguments put forth by the ld. DR. We find that on these issues, the ld. CIT(A) has not given any findings on merit as the Assessee could not file its submissions on these issues properly before the CIT(A). Therefore, keeping in view the element of natural justice, we remand the appeal, on these grounds, to the file of the CIT(A) for adjudication afresh with a direction to decide the same afresh on merit, in accordance with law, on affording due and adequate opportunity of hearing to the Assessee. The Assessee, no doubt, shall cooperate in the fresh proceedings before the CIT(A). All pleas
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 9 available under the law shall remain so available to the assessee. Ordered accordingly.
In the result, the appeal of the Assessee is partly allowed for statistical purposes.
ITA No. 156/Chd/2023 (A.Y 2015-16)
In this appeal, the Assessee has taken following grounds of appeal:
1. That the Assessing Officer and Ld. CIT (Appeals) has erred to consider the interest of Rs. 3,58,354-00 received from commercial banks as Income from Other Sources while it relates to business of the assessee and directly related to business operations of the appellant and be assessed as Business Income. Moreover no deduction against the same has been claimed.
2. That the Assessing Officer and Ld. CIT (Appeals) has erred in law to consider the interest of Rs. 35,89,078-00 earned from loans given to employees as Income from Other Sources. The society has no surplus funds, the amount to employees was advanced from borrowed funds, on which interest was paid to bank. The interest expenses paid are directly attributable to this income of interest received from employees and the interest expenses be allocated before adding this amount of income. Moreover the appellant has not claimed any deduction against this income.
136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 10
3. That the Assessing Officer and Ld. CIT (Appeals) have erred to consider the other receipts of Rs.30,65,144 as Income from Other Sources where as it is business income of the appellant. This includes Rental Income, Delayed/Defaulted period interest, processing fees etc which is directly related to construction business of the appellant and it is a Business Income and all the expenses incurred by the assessee are also attributable to the income and the same needs to be allocated on the basis of turnover.
That the Assessing Officer and Ld. CIT(Appeals) has erred on facts of the case to consider the interest on Income Tax Refund amounting to Rs. 53544-00 as Income from Other Sources while the appellant has not received any Income Tax Refund during the year under consideration.
That the Ld. CIT (Appeals) had erred in law not to allow Additional Ground of Appeal to allocate the proportionate common expenditure against other income not qualified for deduction under section 80-P of the Act on the plea that the same has not been raised before the Assessing Officer.
That the appellant craves to add, amend or delete any ground of appeal before the finalization of the appellate proceedings in the appeal.
15. Ground No. 1 & 2: The appeal on Ground No.1 is against the CIT(A)’s findings that the interest of Rs. 3,58,354/- received from the commercial banks as ‘income from other sources’ and the Ground 136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 11 No.2 is against the findings of the CIT(A) considering the interest of Rs. 35,89,078/- earned from loans given to the employees as income from other sources.
16. Both the parties fairly conceded that the issues raised vide aforesaid grounds are similar to that have raised in in the appeal of the Assessee except the amount involved. Therefore, our findings arrived at will apply mutatis mutandis to theses grounds also and accordingly, the appeal on these grounds raised by the Assessee stand dismissed.
17. Ground Nos. 3, 4 and 5: During the proceedings before us, the Assessee submitted that the ld. CIT(A) has not decided appeal on Ground Nos 3, 4 and 5. Accordingly, a request was made by the ld. Counsel that appeal on these issues may be remanded back to the CIT(A).
18. The ld. DR relied on the order of the CIT(A).
We have considered the findings of the ld. CIT(A) on this issue and the arguments put forth by the ld. DR. We find that the ld. CIT(A) has not decided issues raised in Ground Nos. 3, 4 and 5 on merit as the Assessee could not file its submissions on these issues properly before the CIT(A). Therefore, keeping in view the element of natural 136 & 156-Chd-2023 – The Punjab State Co-op. House Building Federation ltd, Chandigarh 12 justice, we remand the appeal, on these grounds, to the file of the CIT(A) for adjudication afresh with a direction to decide the same afresh on merit, in accordance with law, on affording due and adequate opportunity of hearing to the Assessee. The Assessee, no doubt, shall cooperate in the fresh proceedings before the CIT(A). All pleas available under the law shall remain so available to the assessee. Ordered accordingly.
Ground No. 6 of the appeal is general in nature.
In the result, the appeal of the Assessee is partly allowed for statistical purposes. Order pronounced on 26.08.2024.