SHREE KESHAV CO-OPERATIVE CREDIT SOCIETY LTD.,,JUNAGADH vs. THE PR. COMMR. INCOME TAX-1,, RAJKOT

The captioned appeals have been filed at the instance of the Assessee against the order of the Learned Principal Commissioner of Income Tax, Rajkot arising in the matter of assessment order passed under s.263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2012-13.

The assessee has raised the following grounds of appeal:

However, the learned AR further requested that the issue involved in the impugned appeal is covered issue and the same can be disposed of today only subject to the concurrence of the learned DR appearing on behalf of the revenue. There was no objection raised by the learned DR, if the matter is taken up for hearing today only. Upon receiving the concession of the learned DR, we decided to take up the main appeal of the assessee.

The only issue raised by the assessee is that the learned PCIT erred in holding the assessment framed by the AO under section 143(3) of the Act as erroneous insofar prejudicial to the interest of Revenue under the provisions of section 263 of the Act.

The facts in brief are that the assessee in the present case is a co-operative society and engaged in the business of providing credit facilities to its members. The assessee in the year under consideration declared interest income of Rs. 35,08,387/- from fixed deposit made with Co-operative Bank namely Rajkot Nagrik Sahakari Bank Ltd and Junagarh Jilla Sahakari Bank Ltd which was claimed as exempted under the provision of section 80P(2)(a)(i)/80P(2)(d) of the Act. The AO in the assessment framed under section 143(3) of the Act accepted the claim of the assessee.

However, the learned PCIT was of the view that assesse being credit society was eligible for deduction under section 80P(2)(i)(a) of the Act for interest income earned from credit facilities provided to its members only. However, the interest income from fixed deposit made with Co-operative bank is not allowable deduction under section 80P(2)(a)(i) of the Act. As such, the co-operative bank is not the member of the assessee and such interest income was not derived from its activity of providing credit to member and accepting deposit from its member. Rather, such interest income was arising from investment made by the assessee with the co- operative bank, hence, the same is not eligible for deduction under section 80P(2)(a)(i) of the Act . The learned Pr. CIT in this regard referred the judgment of Hon’ble Supreme court in case of Totaghar’s Co-operative Sales Society Ltd. reported in 188 taxman 282. The learned Pr. CIT further held that though the provision of section 80P(2)(d) of the Act provides that co-operative society deriving income being dividend or interest from investment made with other co-operative society will be eligible for deduction, however the benefit of provision of section 80P(2)(d) cannot be extended to the interest earned from co-operative bank as the same has been excluded from the co-operative society by insertion of section 80P(4) of the Act by the Finance Act 2006. Accordingly, the Learned Pr. CIT was of the view the AO, without proper application of law and due verification of the fact, allowed the deduction claimed by the assessee which amounts to an error committed by the AO, causing prejudice to the Revenue. Accordingly, the ld. PCIT set aside the assessment order as erroneous insofar prejudicial to the interest of the revenue.

Being aggrieved by the order of the learned PCIT, the assessee is in appeal before us.

The learned AR before us inter-alia contended that the Hon’ble Karnataka High Court in the case of PCIT vs. Totaghar’s Co-operative Sales Society Ltd. reported in 78 taxmann.com 169 after distinguishing the facts of the case observed by the Hon’ble Supreme Court cited above has held that interest income from co- operative bank is eligible for deduction under section 80P(2)(d) of the Act. The learned AR also contended that the Hon’ble High Court of Gujarat in the case of Surat Vankar Sahkari Sangh Ltd. vs. ACIT reported in 72 taxmann.com 169 has also held that interest from the co-operative bank is eligible for deduction under section 80P(2)(d) of the Act. According to the learned AR, the AO has taken one of the possible view and therefore the assessment framed under section 143(3) of the Act cannot be held as erroneous insofar prejudicial to the interest of Revenue.

On the contrary, the learned DR vehemently supported the order of the ld. PCIT.

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the different Hon’ble High Courts have taken different view with respect to the deduction of the interest income earned by the assessee from the co-operative bank. Some of the judgements are in favour of the assessee and some of them are against the assessee. It is also an admitted fact that the Hon’ble High Court of Gujarat is in favour of the assessee with respect to the interest on deposits made with the co-operative bank. The relevant extract of the judgement of Hon’ble Gujarat High Court in case of in case of CIT vs. Sabarkantha District Cooperative Milk Producers Union Ltd. in Tax Appeal No. 473 of 2014 reads as under: “Considering Section 80(P)(2)(d) of the Act when the only requirement was that the income should be received from investment in Cooperative Societies and the Cooperative Bank which in the present case has been fulfilled, it cannot be said that the learned Tribunal has committed an error in deleting the disallowance of Rs. 1,42,19,515/- under section 80(P)(2)(d) of the Act.”

In the result, the appeal filed by the assessee is allowed.