BARDOLI JANTA COOPERATIVE CREDIT SOCIETY LTD.,,BARDOLI vs. PR.CIT-2, SURAT, 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.302/SRT/2019 (AY 2014-15) (Hearing in Virtual Court) Bardoli Janta Cooperative Credit The Principal Commissioner of Society Ltd., Income Tax-2, Surat. Vs 94, Mudit Palace, Nr. Janta Society, Station Road, Bardoli, Surat – 394 601. PAN: AAAAB 1355 J Email Id; srshethtax@gmail.com Appellant/ Assessee Respondent/ Revenue

Assessee by Shri Sapnesh Sheth – CA Revenue by Shri H.P.Meena– CIT-DR 24/12/2021 Date of hearing 17/01/2022 Date of pronouncement Order under section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal by the Assessee is directed against order of ld.Principal Commissioner of Income Tax-2, Surat passed under section 263 of the Act on 27.03.2019 for the A.Y. 2014-15. The assessee raised following grounds of appeal: “1. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-tax has erred in passing revisionary order u/s 263 of the I.T.Act setting aside the order of ld. Assessing officer passed u/s 143(30 of the Act dated 30.06.2016 for the year under consideration although said order is neither erroneous nor prejudicial to the interest of revenue as regards claim of deduction of interest income from co-operative bank u/s 80(P)(2)(d) of the Act. 2. On the facts and circumstances of the case as well as law on the subject, the learned Pr. Commissioner of Income-tax has erred in holding that assessee is not eligible to

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., claim deduction under section 80(P)(2)(d) of .I.T Act on interest income of rs.48,01,477/- from cooperative bank. 3. On the facts and circumstances of the case as well as law on the subject, even otherwise also revisionary order u/s 263 of the act cannot be passed as the assessment order is subject matter of appeal before ld.Commissioner of Income tax (Appeals).” 2. Brief facts of the case are that the assessee is a Co-operative Society, engaged in the business of providing credit facility to its members. The assessment for the Assessment Year 2014-15 was completed under section 143(3) of the Act on 1306.2016. The AO while passing the assessment order examined the various issues and made addition of Rs.66,72,837/- on account of interest earned from Nationalised Bank. The assessment order was revised by the learned Principal Commissioner of Income Tax (PCIT) by exercising his power under section 263 of Income Tax Act (Act). Before revising assessment order, the ld PCIT issued show cause notice under section 263 dated 06.03.2019 by taking view that assessment order passed by the assessing officer (AO) is erroneous and in so far as prejudicial to the interest of the revenue. In the show cause notice, the ld. PCIT recorded that assessee has shown interest of Rs.56,000/- from Dakshin Gujarat Vij Company Limited (DGVCL) on security deposit and interest of Rs.48,01,477/- earned on deposit with Surat District Co- operative Bank -. The assessee claimed deduction of both the interest income in its computation of income. The interest earned by the assessee on fixed

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., deposit with other institution (DGVCL and from Surat District Co-operative Bank) are not eligible for deduction under section 80(P)(2)(d) of the Act. 3. The show cause notice issued by ld PCIT under section 263 was replied by assessee vide its reply dated 18.03.2019. The contents of reply filed by assessee are reproduced by ld PCIT on page no. 3 to 7 of his order. In the reply, the assessee stated that assessee is a Co-operative Society registered under Gujarat State Co-operative Society Act. The Surat District Co-operative Bank is also a Co-operative Society registered under Gujarat Co-operative Society Act. The assessee also relied on the case laws of Mumbai Tribunal in Lands End Co-operative Housing Society Vs ITO (ITA No. 3566/Mum/2014), wherein in was held that the assessee is entitled for deduction of interest earned on deposit with Co-operative Banks. And it was explained that decision of Hon’ble Supreme Court in Totagars Co-operative Sale Society Vs ITO (322 ITR 282 SC) held that interest earned on short term deposit not immediately required in the business of assessee is assessable under the head “income from other sources” and no deduction under section 80P(2)(a)(i) is allowable, thus the decision is rendered on the provisions of section 80P(2)(a). 4. The reply of the assessee is not accepted by the PCIT. The ld PCIT held that the decision of Hon’ble Karnataka High Court (83 taxmann.com 140) is squarely applicable in case of assessee, wherein it was held that the word “Co-

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., operative Bank” are missing in Clause (d) of Sub-section (2) of Section 80P of the Act. The Co-operative bank may have a corporate body of a Co-operative Society, but its business is entirely different i.e. Bank business which is governed and regulated by Banking Regulation Act. On the basis of the decision of Hon’ble Karnataka High Court in CIT vs. Totagars Co-operative sale society (supra) ld PCIT held that Cooperative Bank and Cooperative Society are two different entities. So, interest earned by society by investment of the surplus with any institution other than Co-operative Society is required to be disallowed and added. The interest income earned on deposit with Surat Cooperative Bank and DGVCL was liable to be added back to the head income from other sources. The ld. PCIT held that the assessment order passed by the AO on 30.06.2016 is erroneous in so far as prejudicial to the interest of the revenue. The assessment order was set-aside by ld PCIT and the AO was directed to pass the assessment order afresh after giving adequate opportunity to the assessee. Aggrieved by the order of ld. PCIT, the assessee has filed present appeal before this Tribunal. 5. We have heard the submission of the ld. Authorised Representative (ld.AR) of the assessee and ld. Commissioner of Income –Tax (CIT-DR) for the Revenue and have gone through the orders of authorities below. At the outset of hearing, the ld.AR of the assessee submits that the grounds of appeal raised by

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., the assessee is squarely covered by the decision of this Tribunal in Bardoli Vibhag Gram Vikas Co-operative Credit Society Ltd. Vs PCIT reported viz; [2021] 127 taxmann.com 334 [Surat Tribunal] wherein on similar set of facts, this Tribunal while relying upon the decision of jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd., Vs PCIT reported viz; (72 taxmann.com 169)/421 ITR 134 (Guj) held that Co-operative Banks are primarily co- operative society and interest earned out of investment deposit with co- operative bank are eligible for deduction under section 80P(2)(d). The ld.AR for the assessee submits that the facts of his case are identical to the Bardoli Vibhag Gram Vikas Co-operative Credit Society Ltd., (supra). 6. At the time of hearing, the ld.AR of the assessee was confronted with the facts that ld. PCIT before revising the assessment order also identified the issue deduction of interest income of Rs.56,000/- earned from deposit with DGVCL on security deposit. On confronting this fact, the ld.AR of the assessee fairly agreed that the component of this interest income is not covered for eligible deduction under section 80P(2)(d) of the act. 7. The ld.AR of the assessee in his other alternative submissions submits that the AO during the assessment, thoroughly examined the issue of deductions of interest income earned by the assessee, which is disenable from para 5 of the assessment order. The AO issued necessary questionnaire by issuing notice

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., under section 142(1) and examined the issue of eligible deduction under section 80(P)(2)(d) of the Act. The assessee filed its reply dated 28.06.2016. The AO after making full inquiry made disallowance of Rs.66,72,834/- on account of interest income earned on deposit with nationalised bank. The AO while passing the assessment order has taken a reasonable, plausible and legally sustainable view which cannot be treated as erroneous; therefore, the twin condition for revising the order under section 263 of the Act is not fulfilled in the present case. 8. On the other hand, the ld.CIT-DR for the Revenue supported the order of ld. PCIT. The ld.CIT-DR submits that Co-operative bank and Co-operative society are two different entities. So, the interest income earned by assessee society from the deposit with Co-operative bank is not eligible for deduction under section 80(9)(2)(d) of the Act. 9. We have considered the submission of both the parties and estimated the order of Lower Authorities carefully. We notice that in the show cause notice, the ld. PCIT identified interest income; (i) interest income earned on deposit with DGVCL and (ii) interest earned from Surat Cooperative Bank. During the hearing of submission, the ld.AR of the assessee fairly conceded that the interest earned on such deposit with DGVCL may not be eligible for

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., deduction under section 80P(2)(d) of the Act. Therefore, the order of ld PCIT is upheld to that extent. 10. So far as other interest of Rs.48,01,477/- earned on deposit with Surat District Co-operative bank, is concerned, we find that deduction claimed qua this interest income is eligible for deduction under section 80P(2)(d) of the Act in view of the decision of this Bench in Bardoli Vibhag Gram Vikas Co.Op. Credit Society Ltd., wherein this combination has passed the following order: “11. We have considered the rival submission of both the parties. We have also deliberated on the written submission filed by learned AR of the assessee and various case laws relied by him during his submission. We have also gone through the various documentary evidences filed in the form of paper book (PB) by learned AR of the assessee. We have noted that during the assessment the Assessing Officer vide notice under section 143(2)/142(1) of the Act dated 31.08.2015 and 13.04.2016. The assessee filed its reply through its CA (AR) and furnished required details and after examining the issue allowed the deductions under section 80P(2)(d) as discussed in para 4 of the assessment order. The Assessing Officer passed assessment order on 18.10.2016. 12. The ld. PCIT before passing under section 263 of the Act, identified the issue regarding the claim of deduction under section 80P(2)(d) in its show cause notice dated 06.03.2019. The assessee in its reply dated 7.03.2019 clearly explained that the issue was examined by Assessing Officer and that the assessment order is not erroneous. The assessee also explained that similar disallowances /issues was subject matter in the appeal filed by the revenue before Tribunal in A.Y. 2009-10, 2010-11 and 2012-13 and the assessee was allowed similar deductions. 13. The Hon'ble Jurisdictional High Court in Aryan Arcade Ltd., vs PCIT (2019) 412 ITR 277 (Gujarat) held that merely because Commissioner held a different belief that would not permit him to take the order in revision, it if further held that when Assessing Officer made full enquiry, he made up his mind, the notice of 7

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., revision is not valid. (emphasis added by us). Further, Hon'ble Madras High Court in CIT Vs Mepco Industries Ltd., (2007) 207 CTR 462 (Madras) held that when two views are possible on an issue and it is not the case of the Commissioner that the view taken by Assessing Officer is not permissible in law, Commissioner cannot invoke his jurisdiction under section 263 of the Act. (emphasis added by us) 14. As we have noted above the assessing officer has made enquiries on the allowability of deduction under section 80(P)(2)(d) and passed the assessment order, thus, the Assessing Officer has taken a reasonable and possible view which cannot be held as erroneous. 15. The Hon'ble Karnataka High Court in PCIT Vs. Totagars Cooperative Sales Society [2017] 78 taxman.com 169 (Karnataka) held that for the purpose of section 80P(2)(d) a Co-operative Bank should be considered by a Co-operative Society and interest earned by Co-operative Society from Cooperative Bank would necessarily be deductible under section 80P(1) of the Act. Further, the Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd., vs. ACIT [2016] 72 taxmann.com 169 (Guj) held that assessee co-operative society is eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank. 16. The Co-ordinate Bench of Rajkot Tribunal in Surendarnagar District Co- operative Milk Producer Union Ltd., vs. DCIT [2019] 111 taxmann.com 69 (Rajkot Tribunal) also held the assessee co-operative society could not claim benefit under section 80P(2)(d) in respect of interest earned by it from deposits made with nationalized/private banks, however, the said benefit was available in respect of interest earned and on deposits made with co-operative bank. Thus, in view of the aforesaid legal discussion we are of the considered view that order passed by Assessing Officer is not erroneous, though it may be prejudicial to the interest of the Revenue. Therefore, the twin conditions that orders is erroneous and so far as prejudicial to the interest of revenue, as prescribed under section 263 is not fulfilled in the present case. 17. Moreover, we have seen that in assessee’s own case for A.Y. 2009-10, 2010- 11 and 2012-13, the similar disallowance under section 80P(2)(d) was made by 8

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., the assessing officer while passing assessment order under section 143(3), however, on appeal before Ld. CIT(A) , the disallowances were deleted and the order of the Ld. CIT(A) in all years were confirmed. 18. The ld. DR for the revenue relied on the case law in PCIT Vs. Totagars Co- operative Sales Society (second case)/(supra), wherein the Hon'ble Karnataka High Court held that interest earned by a Co-operative Society from surplus deposits kept with Co-operative bank, is not eligible for deduction under section 80P(2)(d). Considering the legal position that when there are conflicting decisions of non-jurisdictional High Courts, on similar issue, the decision of Jurisdictional High Court is having binding precedent. Thus, keeping in view of the decision Hon'ble Jurisdictional High Court in Surat Vankar Sahakari Sangh Ltd., vs. ACIT (supra) wherein the assessee-co-operative society is held eligible for deduction under section 80P(2)(d) in respect of gross interest received from co-operative bank without adjusting interest paid to said bank, we conclude that the order passed by assessing officer is not erroneous. Hence, the grounds of appeal raised by assessee are allowed.” 11. In view of the aforesaid discussion, we find that the assessment order qua the deduction under section 80(9)(2)(d) of the Act on account of interest earned from Surat Co-operative bank of Rs.48,01,477/- is not erroneous. Since the order is not erroneous, though, it may be prejudicial to the interest of the Revenue. Thus, the twin condition as provided in section 263 of the act is not fulfilled qua the income component of interest income earned on deposit with Surat Cooperative Bank; therefore, the order passed by the ld PCIT is set-aside to that extent. In the result, the grounds of appeal raised by the assessee are partly allowed on the primary submissions of the ld AR for the assessee.

ITA No’s.302/SRT/2019 (AY 2014-15) Bardoli Janta Cooperative Credit Society Ltd., 12. Now, adverting to the alternative submissions of the assessee that the AO examined the issue during assessment proceedings. No doubt that the issue was examined by the AO, however, the order passed by him qua the component of interest income earned on deposit with DGVCL is not legally sustainable order and is erroneous and in so far as prejudicial to the interest of revenue. 13. In the result, appeal of the assessee is partly allowed. Order announced on 17 January, 2022 in open court and result was placed on the notice board.

Sd/- Sd/- (Dr ARJUN LAL SAINI) (PAWAN SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Surat, Dated: 17/01/2022 /SGR* Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR 6. Guard File By order / / TRUE COPY / / Sr.Pvt. Secretary, ITAT, Surat