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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR.
Before: SH. RAVISH SOOD & Dr. M. L. MEENA
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. RAVISH SOOD, JUDICIAL MEMBER AND Dr. M. L. MEENA, ACCOUNTANT MEMBER ITA No. 275/(Asr)/2018 Assessment Year: 2013-14
The NBI Employees Co-op Vs. Pr. CIT-2, Jalandhar. Non-Agricultural Thrift & Credit Society Ltd., 328, Defence Colony, Jalandhar. [PAN: AADAT2684F] (Appellant) (Respondent)
Appellant by : Sh. Ashray Sarna, CA. Respondent by: Shri Sunil Gautam, CIT-DR
Date of Hearing: 20.12.2021 Date of Pronouncement: 21.02.2022
ORDER Per Dr. M. L. Meena, AM: The present appeal has been filed by the Assessee against the impugned order dated 30.03.2018, passed by Ld. Commissioner of Income Tax (Appeals)-II, Jalandhar, in respect of the assessment order passed u/s.143(3), for the Assessment Year 2013-14. In the grounds of appeal, the Assessee has raised the following grounds:
“1. (i) That having regards to the facts and circumstances of the case Hon’ble CIT has erred in law and facts in passing order u/s 263 of the I.T. Act and
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without complying with the mandatory conditions u/s 263 as envisaged under the Income Tax Act, 1961.
(ii) That having regards to the facts and circumstances of the case Hon’ble CIT has erred in law and facts in invoking provisions of sec.263 of the Income-tax Act, 1961 even though order passed by Ld. AO is neither erroneous nor prejudicial to the interest of the revenue and order u/s 143(3) was passed after detailed consideration and application of mind.
That having regard to the facts and circumstances of the case, the Hon’ble CIT, is erred in law and on facts in making disallowing deduction of Rs.5,45,649/- u/s 80P(2)(a)(i) of the Act on account of interest earned from banks without considering the submissions of the assessee and without considering the fact that assessee society is in the business of banking.
That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
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 Ld. Pr. CIT has noted that for the assessment year 2013-14, the assessment order had been framed on 18.01.2016, under section 143(3) of the Income Tax Act, 1961 (hereinafter refer to as The Act’), assessing the total income at NIL by the Assessing Officer (‘The AO’ in short). On examination of the assessment order and the facts on record, he has noted certain discrepancies in the assessment order passed and ccordingly, a show cause notice was issued to the assessee under section 263 of the act, vide letter F.No.Pr.CIT-2/Jal/Judl./263/2017-18/5619 dated 09.03.2018, as follows:-
"On perusal of the order u/s 143(3) of the Income tax Act, 1961 dated 18.01.2016 for the Asstt.
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Year 2013-14, in your case and on examination of assessment record for that year, the following discrepancies were noticed:- i. The society had earned interest income of Rs.5,45,649/- during the F.Y. 2012-13 from the following banks: i. PNB, RR Jalandhar Rs.2,83,990/- ii. PNB, Kishanpura, Jalandhar Rs.43,077/- iii. PNB, Defence Colony, Jalandhar Rs.95,947/- iv. PNB, U.E. Phase-I, Jalandhar Rs.35,308/- v. PNB Adda Cholang Rs.34,050/- vi. PNB Prime Tower, Jalandhar Rs.53,277/- Total Rs.5,45,649/-
The Society has received interest income from its members at Rs.82,77,728/- that 's to say that your gross income has two components viz. interest earned from its members on loans advanced to it which is your main business activity & interest income earned from Banks. Since, interest of Rs.5,45,649/- has not been earned on investment with a co-operative society, deduction u/s 80P is not available to you in the light of the provisions of section 80P(2)(d) of the Income tax Act, 1961 & therefore, tax has to be charged on the interest income of Rs. 5,45,649/- after disallowing deduction u/s 80P of the I.T. Act, 1961 to this extent. ii. During the course of assessment proceedings, the then Assessing Officer did not examine this issue and therefore, the Assessing Officer had not made any disallowance w.r.t. deduction claimed u/s 8 OP of the Income Tax Act, 1961 and the same was required to be added to your income. iii. As per provisions of section 80P(2)(d) of the Income Tax Act, 1961, the Co¬ operative Society is provided deduction under said section in respect of income of the Co¬operative Society by way of interest from its investments with any other Co-operative Society. Hence, the referred income, being interest from saving bank account with Punjab National Bank, at Rs.5,45,649/-, was neither income from “carrying on the business of banking or providing credit facilities to its members” nor the same was “interest from any other co-operative society’’. iv. The provisions of section 80P(2)(d) of the Income Tax Act, 1961, clearly provide deduction on interest from investment with any other Co-operative Society only whereas the above referred interest income has not been earned from any Co-operative Society. In this connection, reliance is placed on the judgment of the Hon ’ble Punjab and Haryana High Court, in the case of Commissioner of Income Tax Vs M/s Punjab State Co¬operative Federation of Housing Building Societies Ltd., in ITA No. 643 of 2010, wherein the Hon’ble High Court, following the judgment of Hon’ble Supreme Court, in the case of The Totgars Co-operative Sale
4 ITA No. 275/ASR/2018
Society Ltd. Vs ITO 2010(35) DTR 25, have held that interest received by the assessee from Commercial banks was not covered by Section 80P(2)(a)(i) of the Act and was taxable under section 56, being income from other sources. Accordingly, your income, being interest from its Savings Bank account with Punjab National Bank, at Rs. 5,45,649/- is required to be assessed as “Income from Other Sources” and the same is not eligible for deduction u/s 80P of the Act. 2. Hence, in view of above discrepancy, I propose to hold the said order to be erroneous, in so far as it is prejudicial to the interest of revenue and take suitable remedial action, as per section 263 of the Income tax Act, 1961. Your reply/objections, if any, to the proposed action can be filed before the undersigned by 16.03.2018 on which date your case stands fixed for hearing at 11:00 AM in the office on the undersigned.”
After considering the reply of the assessee & facts on record, he noticed
that the reply of the assessee regarding deduction of Rs. 5,45,649/- u/s
80P(2)(a)(i) of the I.T Act, 1961 has no bearing on the facts of the case,
especially in light of the decision of jurisdictional High Court of Punjab &
Haryana in the case of CIT Vs. M/s Punjab State Cooperative Federation of
Housing Building Societies Ltd [ITA No.643 of 2010 dated 10.05.2011], in
which the Hon’ble High Court has rejected the deduction u/s 80P(2)(a)(i) of the
I.T Act, 1961 on the interest income earned by the society from commercial
banks. The Pr. CIT has also referred that the Hon’ble High Court has relied
upon the decision of Hon’ble Supreme Court in the case of The Totgars Co-
operative Sale Society Ltd. Vs I.T.O, L110 35 DTR 25 on this issue. It was
noted that the interest income earned by the society was neither from any other
co-operative society nor from the business of carrying of banking activity or
5 ITA No. 275/ASR/2018
providing credit facilities to its members.
In view of the above facts and the decision of Hon’ble High Court of
Punjab & Haryana (discussed supra), the Pr. CIT being satisfied that the
assessment order passed by the Assessing Officer, on 18.01.2016 was erroneous
in so far as it is prejudicial to the interest of the revenue as the assessment order
has not been passed in accordance with the decision of the jurisdictional High
Court (supra). He has referred to clause (d) of Explanation 2 of section 263(1)
of I.T Act, 1961, where such error by the Assessing Officer has been deemed to
be erroneous in so far as it is prejudicial to the interest of the revenue.
Accordingly, the said assessment order passed on 18.01.2016 was set aside to
the file of the assessing officer to pass fresh orders, keeping in view of the
provisions of section 80P(2)(a)(i) of the I.T Act, 1961 as discussed above and
after affording due opportunity to the assessee.
The ld. AR submitted that the Hon’ble CIT had erred in law and facts
in passing order u/s 263 of the I.T. Act, without complying with the mandatory
conditions u/s 263 as envisaged under the Income Tax Act, 1961; that having
regards to the facts and circumstances of the case Hon’ble CIT has erred in law
and facts in invoking provisions of sec.263 of the Income-tax Act, 1961 even
though order passed by Ld. AO is neither erroneous nor prejudicial to the
interest of the revenue as the order u/s 143(3) was passed after detailed
6 ITA No. 275/ASR/2018
consideration and application of mind and therefore the Hon’ble CIT, was not
justified on facts in making disallowing deduction of Rs.5,45,649/- u/s
80P(2)(a)(i) of the Act on account of interest earned from banks without
considering the submissions of the assessee and without considering the fact
that assessee society is in the business of banking. In support, he placed reliance
on the following decisions:
CIT Vs. Bangalore District Cooperative Central Bank Ltd, 233 ITR 282 2. CBDT Circular No. 18/2015 dated 2015 3. CIT Vs. Nawanshahar Central Cooperative Bank Ltd [2007]
Per contra, the Ld. CIT(DR) supported the impugned order and
contended that Pr. CIT was justified in law and on facts in passing order u/s 263
holding the assessment order erroneous and prejudicial to the interest of the
revenue in view of the Hon’ble Juridiction High Court and the Apex Court
(Supra), and directing the Assessing Officer so.
We have heard both the sides and perused the impugned orders, and the
case law cited. It is admitted fact that the assessee society is registered under
Punjab Cooperative Societies Act and receiving interest on deposits from
commercial banks. The assessee, a co-op credit society, was engaged in
providing credit facilities to its members. The assessee had surplus funds which
7 ITA No. 275/ASR/2018
it invested in deposits with Commercial Banks. The question before us is
whether the said interest earned on the said deposits was “business profits” and
eligible for deduction u/s 80P(2)(a)(i)?
The ld. AR for the assessee argued that its activity of providing credit
facilities to its members was an “eligible activity” u/s 80P(2)(a)(i) and that as
the investments were made not with the idea of investments, but for the reason
that cash should be available with the appellant as and when it was needed for
the purpose of its business.
The section. 80P(2)(a)(i) allows a deduction in the case of a co-op society
engaged in carrying on the business of providing credit facilities to its members
of the whole of the amount of profits and gains of business attributable to such
activity. In our view, the words “profits and gains of business” means “business
profits” and not “Income from other sources”. The receipt of the interest on
surplus invested in short-term deposits, not being attributable to the business of
providing credit facilities to the members or marketing of agricultural produce
of the members, is assessable as “other income” and not as “business profits”.
Thus, the words “the whole of the amount of profits and gains of business”
attributable to one of the activities specified in s. 80P (2)(a) mean that the
source of income is relevant and that the income must be “operational income”.
The appellant society has received interest income from its members at
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Rs.82,77,728/- and that gross income has two components viz. interest earned
from its members on loans advanced to them which is the main business
activity & interest income earned from Banks. Since, interest of Rs.5,45,649/-
has not been earned on investment with a co-operative society, deduction u/s
80P(2)(d) is not available to the assessee society in the light of the provisions of
section 80P(2)(d) of the Income tax Act, 1961 and therefore, tax has to be
charged by the AO on the interest income of Rs. 5,45,649/- after disallowing
deduction u/s 80P of the I.T. Act, 1961 to this extent. The case law relied upon
by the Ld. AR are distinguished on the facts and covered by the Judgement of
Hon’ble Supreme Court, in the case of The Totgars Co-operative Sale Society
Ltd. (Supra).
It is seen that during the course of assessment proceedings, the Assessing
Officer did not examine this issue and accordingly, the Assessing Officer had
not made any disallowance w.r.t. deduction claimed u/s 80P of the Income Tax
Act, 1961 which was required to be added to its income as rightly observed by
the Ld. Pr. CIT. As per provisions of section 80P(2)(d) of the Income Tax Act,
1961, the Co¬ operative Society is provided deduction under said section in
respect of income of the Co¬operative Society by way of interest from its
investments with any other Co-operative Society. Hence, the referred income,
being interest at Rs.5,45,649/-, from deposits with Punjab National Bank, was
9 ITA No. 275/ASR/2018
neither income from “carrying on the business of banking nor providing credit
facilities to its members” nor “interest from any other co-operative society.
The provisions of section 80P(2)(d) of the Income Tax Act, 1961, clearly
provide deduction on interest from investment with any other Co-operative
Society only whereas the disputed interest income has not been earned from any
Co-operative Society. In this connection, the Ld. Pr. CIT has rightly placed
reliance on the judgment of the Hon’ble Jurisdictional Punjab and Haryana
High Court, in the case M/s Punjab State Co¬operative Federation of Housing
Building Societies Ltd., (Supra) wherein the Hon’ble High Court, following the
judgment of Hon’ble Supreme Court, in the case of The Totgars Co-operative
Sale Society Ltd. Vs ITO 2010(35) DTR 25, have held that interest received by
the assessee from Commercial banks was not covered by Section 80P(2)(a)(i) of
the Act and was taxable under section 56, being income from other sources.
The Hon’ble Supreme Court, in the case of The Totgars Co-operative
Sale Society Ltd. (Supra) has observed as under:
At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under Section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. What is sought to be taxed under Section � 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes. Assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not ...9/- http://www.itatonline.org - 9 - required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities,
10 ITA No. 275/ASR/2018
which strictly speaking accrues to the members' account, could be taxed as business income under Section 28 of the Act? In our view, such interest income would come in the category of “Income from other sources”, hence, such interest income would be taxable under Section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze Section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with “Deductions in respect of certain Incomes”. The Headnote to Section 80P indicates that the said section deals with deductions in respect of income of cooperative Societies. Section 80P(1), inter alia, states that where the gross total income of a cooperative Society includes any income from one or more specified activities, then such income shall be deducted from the gross total income in computing the total taxable income of the assessee-Society. An income, which is attributable to any of the specified activities in Section 80P(2) of the Act, would be eligible for deduction. The word “income” has been defined under Section 2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive provision. The Parliament has included specifically “business profits” into the definition of the word “income”. Therefore, we are required to give a precise meaning to the words “profits and gains of business” mentioned in Section 80P(2) of the Act. In the present case, as stated above, ...10/- http://www.itatonline.org - 10 - assessee-Society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression “profits and gains of business”. Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-Society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under Section 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as “investment”. Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this “retained amount” which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. Such an amount, which was retained by the assessee-Society, was a liability and it was shown in the balance-sheet on the liability-side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or in Section 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the ...11/- http://www.itatonline.org - 11 - Assessing Officer was right in taxing the interest income, indicated above, under Section 56 of the Act.
11 ITA No. 275/ASR/2018
In the backdrop of the above discussion, the assessment order in not adding such interest to the total income, can be construed as prejudicial to the interest of revenue because such interest income is charged to Tax as income from other sources in the context of the assessee due to the non-availability of deduction u/s.80P(2)(d) on such amount. 15. We, therefore, hold that the Ld. Pr.CIT was justified in revising the assessment order. The impugned order is upheld.
Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.
Sd/- Sd/- (Ravish Sood) (Dr. M. L. Meena) Judicial Member Accountant Member Date: 21.02.2022 prabhat Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T
By Order