RUGHNATHPURA SAURASHTRA NAGRIK DHIRAN SAHAKARI MANDLI LTD,SURAT vs. DCIT, CIRCLE-3(1), SURAT

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER ITA No. 550 & 551 /Srt/2019 (AY: 2008-09 and 2012-13) (Virtual hearing) Rughnathpura Saurashtra Nagrik D.C.I.T., Dhiran Sahakari Mandli Ltd., Circle-3(1), Vs. 6/2595, Rughnathpura, Surat. Surat-395004. PAN No. AAAAR 1048 Q Appellant/ assessee Respondent/ revenue

ITA No. 552/Srt/2019 (A Y: 2014-15) Rughnathpura Saurashtra Nagrik I.T.O., Dhiran Sahakari Mandli Ltd., Ward 3(1)(4), Vs. 6/2595, Rughnathpura, Surat. Surat-395004. PAN No. AAAAR 1048 Q Appellant/ assessee Respondent/ revenue

Appellant represented by None Respondent represented by Shri Vinod Kumar (Sr.DR) Date of hearing 22/11/2022 Date of pronouncement 23/11/2022 Order under Section 254(1) of Income Tax Act PER: PAWAN SINGH, JUDICIAL MEMBER: 1. These three appeals by the assessee are directed against the separate orders of the learned Commissioner of Income Tax (Appeals)-3, Surat (in short, the ld. CIT(A) all dated 12/09/2019 for the Assessment years (AY) 2008-09, 2012-13 and 2014-15 respectively. In ITA No. 550/Srt/2019 and 551/Srt/2019, the assessee has challenged the correctness of penalty

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT levied under Section 271(1)(c) of the Income Tax Act, 1961 (in short, the Act) for the A.Y. 2008-09 and 2012-13 respectively. However, in ITA No. 552/Srt/2019, the assessee has challenged the addition on the quantum assessment for A.Y. 2014-15. All the appeals relate to same assessee, therefore all the appeals were clubbed, heard together and are being decided by this consolidated order to avoid the conflicting decision. 2. In ITA No. 550/Srt/2019,for AY 2008-09 the assessee has raised following grounds of appeal: “1.That on facts, and in law, the learned CIT(A) has grievously erred in confirming the levy of penalty of Rs. 1,62,407/- u/s 271(1)(c) of the Act. 2. That on facts, in law and on evidence on record, it ought to have been held that there is no neither concealment of income nor furnishing of inaccurate particulars of income within the meaning of Section 271(1)(c) of the Act. 3. The appellant craved liberty to add, alter, amend any ground of appeal.” 3. Brief facts of the case are that the assessee is a cooperative society carrying banking business activities. The assessee filed its return of income declaring NIL income after claiming certain deductions under section 80P(2). The assessment was completed under Section 143(3) on 25/02/2016 by making total addition of Rs. 7,44,375/-. The Assessing Officer while passing the assessment order, made addition of Rs. 16,972 and Rs. 50,000/- on account of interest received from nationalised bank i.e. State Bank of India which was claimed as exempt under Section 80P(2) 2

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT of the Act. The Assessing Officer disallowed the interest by taking a view that as per provisions of Section 80P(2), the interest income earned from cooperative society is not eligible for deduction under Section 80P(2) of the Act and initiated penalty under Section 271(1)(c) of the Act. The Assessing officer also made other addition of Rs. 5,24,223/- by taking a view that the assessee has made deposit of Rs. 42,14,817/- and Rs. 16,24,837/- with nationalised bank i.e. State Bank of India and Dena Bank and earned interest of Rs. 1,54,107/- and Rs. 3,70,116/- respectively. In the return of income, the assessee has not shown such interest income of aggregating of Rs. 5,24,223/-. The Assessing Officer made addition of such interest income and initiated penalty proceedings. 4. On appeal before the ld. CIT(A) in quantum assessment, the appeal was dismissed. After dismissal of appeal, the assessee was given show cause notice under section 274 read with section 271(1)(c). The Assessing Officer recorded that despite service of show cause notice, the assessee has not availed opportunity to file its explanation. The Assessing Officer, therefore, levied penalty of Rs. 1,62,407/- being 100% of tax sought to be evaded on such additions/disallowances. On further appeal before the ld. CIT(A), penalty was upheld. The ld. CIT(A) upheld the penalty on both the additions by taking a view that it is an obligatory and duty of every person to file return of income and to disclose all his income derived from any 3

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT source under various heads of income under each head which is chargeable to income tax after making permissible deduction. The assessee had deliberately and intentionally not disclosed the true and correct income and could not furnish any explanation regarding that why the interest income was not disclosed and upheld the penalty. Further aggrieved, the assessee has filed the present appeal before this Tribunal. 5. None appeared on behalf of assessee despite service of notice of more than five occasions, therefore, we left no option except to decide the appeal on the basis of material available on record and after hearing the learned Senior Departmental Representative (Sr.DR) of the Revenue. The ld. Sr.DR for the revenue submits that the assessee was given ample opportunity to explain the facts by issuing show cause notice. The assessee failed to explain or prove the fact that the interest income earned from nationalised bank was disclosed by assessee in computation of income. Further the Assessing Officer disallowed the deduction of Rs. 16,972/- and Rs. 50,000/- under Section 80P(2) and also added interest income earned from Nationalised bank of Rs. 5,24,223/-. The interest income earned from Nationalised Bank was not offered by the assessee in its computation of income. The assessing officer detected such income and made addition thereof. It was clear case of concealed income by no

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT furnishing correct particulars. The assessee still has not come forward to explain the facts. The ld. Sr. DR for revenue prayed for dismissal of appeal. 6. We have heard the submission of ld. Sr.DR for the revenue and perused the record carefully. We find that the Assessing Officer while passing the assessment order, made disallowance of deduction of Rs. 16,972/- and Rs.50,000/- under section 80P(2) and also added interest income of Rs. 5,24,223/- earned from nationalised banks. Interest income of Rs. 5,24,223/- earned from nationalised banks was not disclosed by the assessee in its return of income. We further find that the assessee could not substantiate the fact that the interest income of Rs. 5,24,223 was offered for taxation in the computation of income. Thus, it was a clear case of concealment of particulars of income, thus, the penalty qua such interest income of Rs. 524,223/- is upheld. So far as the other addition/disallowance to the extent of Rs. 16,972 and Rs. 50,000/- are concerned, we find that the assessee has disclosed such interest income in return of income and addition was made due to change of opinion. Thus, there was no concealment on the part of Assessing Officer in claiming such deduction. Thus, the penalty qua such addition is deleted. 7. In the result, this appeal of assessee is partly allowed. 8. In ITA No. 551/Srt/2019 for A.Y. 2012-13, the assessee has raised following grounds of appeal: 5

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT “1.That on facts, and in law, the learned CIT(A) has grievously erred in confirming the levy of penalty of Rs. 1,62,407/- u/s 271(1)(c) of the Act. 2. That on facts, in law and on evidence on record, it ought to have been held that there is no neither concealment of income nor furnishing of inaccurate particulars of income within the meaning of Section 271(1)(c) of the Act. 3. The appellant craved liberty to add, alter, amend any ground of appeal.” 9. We find that the Assessing Officer while passing the assessment order, made addition of Rs. 5,14,154/- on account of interest income earned from nationalised bank. The assessing officer disallowed such interest income by taking view that such interest was not earned from coo-operative bank. And initiated and levied penalty under section 271(1)(c) @100% of tax sought to be evaded. The Assessing Officer also added the interest income of Rs. 10,90,550/- on deposit with State Bank of India, such income was not disclosed in the computation of income. The assessing officer added such interest income in the assessment order and also levied penalty @100% of tax sought to be evaded on such addition. The assessing officer levied / worked out penalty of Rs. 495,854/-. On appeal before ld CIT(A) the penalty was upheld. Considering the fact that in appeal for AY 2008- 09, we have deleted the penalty on disallowance made under Section 80P(2) of the Act, therefore, the penalty qua the addition with regard to interest income from nationalised bank is deleted. So far as penalty on the addition of interest income of Rs. 10,90,550/- is concerned, we find that 6

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT such interest income was not offered by the assessee while filing return of income, and on similar addition, we have upheld the penalty for A.Y. 2008- 09, therefore, the penalty on such addition is upheld. 10. In the result, this appeal of assessee is also partly allowed. 11. In ITA No. 552/Srt/2019 for A.Y. 2014-15, (quantum assessment) the assessee has raised following grounds of appeal:

“1.That on facts, and in law, the learned CIT(A) has grievously erred in making addition of Rs. 1,46,133/- by disallowing the claim of deduction u/s 80P(2)(a)(i) of the Act. 2. That on facts and in law, the learned CIT(A) has grievously erred in confirming the action of the AO in making addition of Rs. 5,76,613/- in respect of interest income. 3. The appellant craved liberty to add, alter, amend any ground of appeal.” 12. Brief facts of the case are that during assessment, the Assessing Officer noted that the assessee derived interest income of Rs. 3,292/- from nationalised bank i.e. State Bank of India, such interest was not eligible for deduction under Section 80P(2). The Assessing Officer after giving show cause notice and considering the reply of assessee, disallowed such interest income as not eligible for deduction under section 80P(2). 13. The Assessing Officer further noted that assessee has also shown certain income under the head “income from other sources”, which includes dividend income, Vahivati (administrative income), share transfer fees,

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT rent income, I card income, name change income, notice fee income, stationary income and election form fee aggregating to Rs.146133/-. The assessee also claimed deduction of such income under Section 80P(2). The Assessing Officer disallowed such deduction as such income as it was not earned by assessee from its banking business activities. 14. The Assessing Officer also disallowed interest income of Rs. 5,76,613/- on the deposits with State Bank of India. Before making disallowing, the Assessing Officer issued show cause notice to the assessee. In response to such show cause notice, the assessee submitted that assessee received contribution from members under S.S.Y. scheme, which is a capital receipt. Surplus fund of S.S.Y. scheme was invested in nationalised bank and cooperative banks. Books of account of S.S.Y. scheme are maintained separately. Profit of S.S.Y. scheme is not transferred to Dhiran division or any other division but reflected in the balance sheet of S.S.Y. scheme. Profit of S.S.Y. scheme is not distributed to its member. Under the Income Tax Act, only income, profit or gain is to be taxed. In their case, there is principle of mutuality, in the sense that identity of contributors to the funds and recipients from the fund is same. Scheme was made for mutual benefits of members. There is no element of income as per the definition of income under Income Tax Act. The explanation of assessee was not accepted by Assessing Officer 8

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT by taking a view that interest on such S.S.Y. fund is a revenue receipt and should have been brought to tax. Further, TDS of Rs. 57661/- was deducted from such interest. The assessing officer further held that similar addition of interest income on deposits of SSY funds, was confirmed by the Tribunal in assessees own case for A.Y. 2003—04. The Assessing Officer accordingly added the interest income earned on deposit of S.S.Y. fund with State Bank of India. 15. On appeal before the ld. CIT(A), the assessee challenged the addition of Rs. 1,46,133/- under the head income from other sources and addition of interest income of Rs. 5,76,613/- from State bank of India on deposit of S.S.Y. fund. Before the ld. CIT(A), the assessee filed their written submission. The written submission of assessee is recorded in para 5 of order of ld. CIT(A). In the submission, the assessee has submitted that the assessee has not claimed any wrong deduction in its computation of income and relied on certain case laws that such interest income was allowable for deduction. 16. The ld. CIT(A) after considering the submission of assessee held that similar interest income from S.S.Y. fund was added by Assessing Officer and the same was upheld by Tribunal in A.Y. 2003-04 in order dated 09/5/2006. Thus, the ld. CIT(A) by following the order of Tribunal, upheld the said addition. So far as other additions of Rs. 1,46,133/- is 9

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT concerned, the ld. CIT(A) held that such income was not derived from banking business activities and not allowable for deduction under Section 80P(2)(a)(i). Further aggrieved, the assessee has filed this appeal before this Tribunal. 17. We have heard the submission of ld. Sr. DR for the revenue and considered the material available on record. The ld. Sr. DR supported the orders of lower authorities. On the addition of Rs. 1,46,133/- the ld. Sr. DR for the revenue submits that such income was not derived from banking business activities of the assessee, was not eligible for deduction under Section 80P(2). So far as addition on account of interest income from S.S.Y. fund deposit is concerned, the ld. Sr.DR submits that this issue is covered against the revenue by the order of Tribunal in assessees own case for A.Y. 2003-04. 18. We have considered the submissions of ld. Sr. DR for the revenue and have also perused the orders of lower authorities carefully. We find that Rs. 1,46,133/- was made by Assessing Officer by taking a view that that such income was not part of business activities of the assesse and thus not eligible for deduction under Section 80P(2) of the Act. The ld. CIT(A) confirmed the addition with similar view. We are in agreement that such income was not derived by assessee from its banking business activities

ITA No. 550 to 552/Srt/2019, Rughnathpura Saurashtra Nagrik Dhiran Sahakari Mandli Ltd. Vs DCIT and thus not eligible for deduction under Section 80P(2). Thus, the ground No. 1 of appeal raised by the assessee is dismissed. 19. So far as other additions on account of interest income of Rs. 5,76,613/- is concerned, the ld. CIT(A) has clearly held that this issue is covered against the assessee by the order of the Tribunal in assessees own case for the A.Y. 2003-04. Thus, we do not find any merit in both the grounds of appeal. No contrary material, evidence or written submission is placed on record to take other view. In the result, both the grounds of appeal raised by assessee are dismissed 20. In the result, this appeal of assessee is dismissed. Order pronounced in the open court on 23rd November, 2022. Sd/- Sd/- (Dr. ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 23/11/2022 *Ranjan Copy to: 1. Assessee 2. Revenue 3. CIT(A) 4. CIT By order 5. DR 6. Guard File Sr.Private Secretary, ITAT, Surat