THE ORGAON URBAN CO-OPERATIVE CREDIT SOCIETY LIMITED,MARCELA vs. INCOME TAX OFFICER, WARD - 2(3), PANAJI

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI – VIRTUAL COURT BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.242/PAN/2019 िनधा�रण वष� / Assessment Year : 2015-16 The Orgaon Urban Co- Vs. ITO, Ward-2(3), Panaji, operative Credit Society Goa. Limited, Deulwada, Marcela, Goa- 403107. PAN : AAAAT6227D Appellant Respondent Assessee by : Shri Madhu Gawde Revenue by : Shri N. Shrikanth Date of hearing : 16.11.2022 Date of pronouncement : 30.11.2022 आदेश / ORDER PER INTURI RAMA RAO, AM: This is an appeal filed by the assessee directed against the order of ld. Commissioner of Income Tax (Appeals)-1, Panaji [‘the CIT(A)’] dated 29.05.2019 for the assessment year 2015-16. 2. The appellant raised the following grounds of appeal :- “1) The learned CIT(A) has not appreciated appellants submission that though the appellants case was selected for limited Scrutiny under CASS of Deduction under chapter VIA and Low income and high loans / advances / investments the Learned Assessing Officer erred in examining other issues and has wrongly travelled beyond his permitted ambit in making the disallowances u/s. 40(a)(ia) and Sec. 36(1)(v). 2) The learned CIT(A) ought to have considered that the interest earned on statutory investments of Statutory Funds in the Apex Bank(Cooperative

2 ITA No.242/PAN/2019 Society) as business income and enjoys deduction u/s 80P. It is therefore prayed the erroneous additions made by the Assessing Officer under the head Income from other Sources to be deleted. 3) The Learned CIT(A) has not considered that the provisions u/s 40(a)(ia) in respect of the payment of interest exceeding Rs. 10,000/- to its members of cooperative Society on their deposits is applicable from 01/06/2015 and hence the addictions made by Assessing Officer is to be deleted. 4) The Learned CIT(A) has failed to appreciate that the contribution of Rs. 21,897/- in respect of the employees of the appellant towards the gratuity fund maintained by the LIC u/s. 36(i)(v) is clearly a allowable deduction. It is therefore prayed that the additions made by the Assessing officer be deleted. 5) The Appellant prays for leave to Add, modify, alter or delete any of the grounds of appeal at the time of hearing.” 3. Briefly, the facts of the case are as under : The appellant is a cooperative society formed under the Goa Co- operative Societies Act for the purpose of accepting deposits from its members and providing credit facilities to its members. The Return of Income for the assessment year 2015-16 was filed on 22.11.2015 declaring Rs.Nil income after claiming exemption u/s 80P of the Income Tax Act, 1961 (‘the Act’) of Rs.23,85,954/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-2(3), Panaji (‘the Assessing Officer’) vide order dated 14.12.2017 passed u/s 143(3) of the Act at a total income of Rs.35,50,110/-. While doing so, the Assessing Officer denied the claim for exemption under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act on

3 ITA No.242/PAN/2019 the ground that the appellant is a cooperative bank. The Assessing Officer also made an addition of Rs.11,21,494/- under the provisions of section 40(a)(ia) for non-deduction of tax at source u/s 194A of the Act. The Assessing Officer also made a disallowance on account of contribution made to Provident Fund (PF) of Rs.41,837/- u/s 36(1)(iv) and Rs.825/- u/s 36(1)(va) on the ground that the contribution was not made to approved fund. The Assessing Officer denied the exemption u/s 80P(2)(a)(i) by holding that the interest income earned from Goa State Cooperative Society Limited is not a cooperative society but a cooperative bank. 4. Being aggrieved by the above assessment order, an appeal was filed before the ld. CIT(A) who vide impugned order held that the appellant is not a cooperative bank but a cooperative society, however, directed the Assessing Officer to allow the deduction u/s 80P(2)(a)(i) if it is found on verification of record, the interest income is not earned from nominal members. As regard to the disallowance u/s 80P(2)(d), the ld. CIT(A) confirmed the action of the Assessing Officer.

4 ITA No.242/PAN/2019 As regards the disallowance u/s 40(a)(ia), the ld. CIT(A) directed the Assessing Officer to allow the claim on proper verification. 5. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal. 6. Ground of appeal no.1 challenges the correctness of the decision of the ld. CIT(A) denying the benefit of exemption of interest income received from other cooperative society u/s 80P(2)(d) of the Act. 7. The Assessing Officer was of the opinion that the interest income so received is not eligible for exemption u/s 80P(2)(d), as the said income was received from non-members of the society. This reasoning of the Assessing Officer as well as the ld. CIT(A) was overruled by the Co-ordinate Bench of this Tribunal in the case of The Ugar Sugar Works Kamgar & Dr. Shirgaokar Shaikshanik Trust Nokar Co-op Credit Society vs. ITO in ITA No.84/PAN/2018 for A.Y. 2012-13 order dated 27.05.2022 in favour of the appellant society. The relevant paragraphs of the said order of Co-ordinate Bench of the Tribunal (supra) is reproduced herein under :- “8. We heard the rival submissions and perused the material on record. The only issue in the present appeal is pertaining to the allowability of deduction under the provisions of section 80P(2)(d) of the Act. On perusal of provisions of section 80P(2)(d), it is clear that the income derived by a

5 ITA No.242/PAN/2019 cooperative society from its investment held with other cooperative societies shall be exempt from the total income of a cooperative society. Therefore, what is relevant for claiming of deduction u/s 80P(2)(d) is that interest income should have been derived from the investment made by the assessee cooperative society with any other cooperative society. In the present case, the reasoning given by the lower authorities for denial of exemption u/s 80P(2)(d) of the Act is that interest was received from cooperative bank has no legs to stand as a cooperative bank is also a cooperative society. This issue was considered by the Hon’ble Karnataka High Court in the case of CIT vs. Totagars Cooperative Sale Society, 392 ITR 74 (Karn) wherein the Hon’ble High Court referring to the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) held that the ratio of decision of the Hon’ble Supreme Court in the aforesaid case (supra) not to be applicable in respect of interest income on investment as same falls under the provisions of section 80P(2)(d) and not u/s 80P(2)(a)(i) of the Act. 9. Even the decision of Pune Bench of the Tribunal in the case of Sant Motiram Maharaj Sahakari Pat Sanstha Ltd. vs. ITO, 120 taxmann.com 10 wherein the Tribunal after making reference to the decisions of the Hon’ble Supreme Court in the case of Totgars Co-operative Sales Society Ltd. (supra) and having noticed the divergent views of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. vs. ITO, 55 taxmann.com 447 and the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. vs. CIT, 50 taxmann.com 278, decision of the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift Credit Society Ltd. (supra) had not been preferred to view of the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. (supra). The relevant observation of the Pune Bench of the Tribunal in the case (supra) is as under :- “9. The Pune Benches of the Tribunal in Sureshdada Jain Nagari Sahakari Patsanstha Maryadit Vs. The Pr.CIT (ITA No.713/PUN/2016, dated 9-4-2019) decided the question of availability of deduction u/s 80P on interest income by noticing that the Pune Bench in an earlier case of Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit Vs. ITO (ITA No.604/PN/2014, dated 19-8-2015) has allowed similar deduction. In the said case, the Tribunal discussed the contrary views expressed by the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 Taxman 309 (Kar.) allowing deduction u/s. 80P on interest income and that of the Hon'ble Delhi High Court in Mantola Cooperative Thrift Credit Society Ltd. Vs. CIT (2014) 110 DTR 89 (Delhi) not allowing deduction u/s.80P on interest income earned from banks. Both the Hon'ble High Courts took into consideration the ratio laid down in the case of Totgar's Cooperative Sale Society Ltd. (2010) 322 ITR 283 (SC). There being no direct judgment from the Hon'ble jurisdictional High Court on the point, the

6 ITA No.242/PAN/2019 Tribunal in Shri Laxmi Narayan Nagari Sahakari Pat Sanstha Maryadit (supra) preferred to go with the view in favour of the assessee by the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). 10. Insofar as the reliance of the ld. DR on the case of Pr. CIT and Another Vs. Totagars Cooperative Sales Society (2017) 395 ITR 611 (Kar.) is concerned, we find that the issue in that case was the eligibility of deduction u/s.80P(2)(d) of the Act on interest earned by the assessee co-operative society on investments made in co-operative banks. In that case, the assessee was engaged in the activity of marketing agricultural produce by its members; accepting deposits from its members and providing credit facility to its members; running stores, rice mills, live stocks, van section, medical shops, lodging, plying and hiring of goods and carriage etc. It was in that background of the facts that the Hon'ble High Court held that the assessee could not claim deduction u/s.80P(2)(d) of the Act. When we consider the impact of this decision, it turns out that the same is not germane to case under consideration in view of the position that the claim of the instant assessee is directly about the eligibility of deduction u/s.80P(2)(a)(i) of the Act and not u/s.80P(2)(d). Moreover, so many decisions relied on by the ld. AR amply go to prove that the view taken by the AO, cannot by any standard, be construed as not a possible view. We, therefore, hold that the ld. Pr. CIT was not justified in exercising the revisional power anent to interest income of Rs.22,34,270/- earned on investments made with co-operative banks.” 8. Respectfully following the above decision of the Co-ordinate Bench of this Tribunal (supra), I am of the considered opinion that the interest income of Rs.14,14,386/- is eligible for deduction u/s 80P(2)(d) of the Act. Accordingly, I direct the Assessing Officer to allow the same. Hence, the ground of appeal no.1 stands allowed. 9. Ground of appeal nos.2 and 3 challenges the correctness of the decision of the ld. CIT(A) confirming the additions made u/s 40(a)(ia) and section 36(1) of the Act.

7 ITA No.242/PAN/2019 10. Without going into the merits of the disallowances, suffice to say that the inflated profits on account of such disallowances, would also qualify for deduction u/s 80P(2)(a)(i) of the Act. Hence, I direct the Assessing Officer to allow the above disallowances which form part of the business income of the appellant society for exemption u/s 80P of the Act. Accordingly, ground of appeal nos.2 and 3 stands allowed. 11. In the result, the appeal filed by the assessee stands allowed. Order pronounced on this 30th day of November, 2022. Sd/- (INTURI RAMA RAO) ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 30th November, 2022. Sujeet आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A)-1, Panaji. 4. The Pr. CIT, Panaji. DR, ITAT, Panaji. 5. गाड� फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.