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Income Tax Appellate Tribunal, “SMC” BENCH, PANAJI
Before: SHRI PARTHA SARATHI CHAUDHURY, JM
IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, PANAJI (VIRTUAL HEARING HELD AT I.T.A.T. PUNE BENCHES, PUNE) BEFORE SHRI PARTHA SARATHI CHAUDHURY, JM ITA No. 22/PAN/2019 : A.Y. 2013-14 Shree Ganesh Multipurpose Co-op. Society Ltd. Kalkhambh, Belagavi PAN: AAKAS 4617 A : Appellant Vs. The I.T.O. Ward ,1(3), Bagalkot Respondent
Appellant by : Shri P.V. Vaidya (through virtual) Respondent by : Smt. Nilima, Sr. DR (through virtual)
Date of Hearing : 28-11-2022 Date of Pronouncement : 02-12-2022
ORDER This appeal preferred by the assessee emanates from order of the ld. CIT(A) Hubballi dated 26-11-2018 for assessment year 2013-14 on the following grounds of appeal. “1. The Learned ClT (A) Hubballi, erred in restricting the deduction claimed U/s. 80P(2)(a)(i) only towards business income earned from interest on loans to regular members. The reasons advanced for the same are not as per law and facts of the case. Hence, it is prayed that the deduction claimed by the appellant of Rs. 12,02,996 u/s. 80P(2)(a)(i) be allowed. 2. The Learned CIT(A) Hubballi erred in applying the ratio of decision of the Supreme Court in the case of Citizen Co-Op. Credit Society Ltd. The judgment of the said case is distinguishable with regard to the facts of the appellant's case and the provisions of Karnataka Cooperative Societies Act 1959 under which the appellant is registered. Therefore CIT (A) Hubballi should have refrained from holding that the appellant is eligible for deduction u/s 80P(2)(a)(i) only towards business income earned from interest on loans to regular members. 3. Learned CIT (A) Hubballi ought to have taken into consideration the fact that till 06/09/2014 there was no restriction on admission of associate members and nominal members and that the Karnataka Cooperative Societies Act 1959 and the bye laws of the appellant permit admission of associate and nominal members. As such the appellant has done business only with the members as envisaged in section 80P(2)(a)(i) for the impugned year and therefore is eligible for the deduction u/s 80P(2)(a)(i) as claimed in the Return of Income. 4. The Learned CIT(A) Hubballi ought to have taken into consideration the fact that both regular as well as associate member contribute to the Capital and are eligible to participate in the surplus of the appellant in the form of dividend. Therefore, the CIT (A) ought to have held that the appellant is engaged in carrying on business with members only.
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(b) The Learned CIT (A) Hubballi ought to have appreciated the fact that the principle of mutuality does exist in the appellant's case which distinguishes its case with that of Citizen Co-Op. Credit Society Ltd. 5. The Learned CIT (A) Hubballi erred in treating the income earned on investments as "income from other sources". The said investments were made by the appellant during ordinary course of carrying on its business and forms part of its working capital therefore it is an integral part of the main activity of assessee's business of providing credit facility to its members. Hence it is prayed that the said interest income be treated as Income from business thereby eligible for deduction u/s 80P(2)(a)(i). 6. For these and other such grounds that may be urged at the time of hearing, the appellant prays that the appeal may be allowed.” 2. The brief facts in this case are that the assessee is an Association of Persons (AOP) Co-operative Society engaged in the business of providing credit facilities to its members. The assessment was completed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) dated 26-06-2015 for A.Y. 2013-14 by the ld. A.O assessing total income at Rs. 12,02,996/- as against the returned income at Rs. NIL, disallowing the assessee’s claim for deduction u/s 80P(2)(a)(i) of the Act. The ld. A.O vide para 17 and 18 held that as per provisions of section 80P(4) r.w.s. sec. 2(24)(viia) of the Act and Part V of the Banking Regulation Act and as per the facts of the assessee’s case, the assessee-co- operative credit society is a Primary Co-operative Bank and therefore, not eligible for deduction u/s 80P in view of sec. 80P(4) of the Act. The ld. CIT(A) after considering the submissions of the assessee and the assessment order at para 7 of his order held that the assessee-society earned interest from loans given to Associate and Nominal Members at Rs. 12,11,546/- out of total interest received from loans at Rs. 22,31,737/-. He further held that the assessee is entitled to claim deduction u/s 80P(2)(a)(i) of the Act only on its income from members earned on the principle of mutuality wherein all members are having equal rights to vote and share in the profits. Therefore, the assessee was entitled to claim deduction u/s 80P(2)(a)(i) of the Act on income from regular members and not from income earned from others.
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Having heard the parties, I have considered the submissions placed on record along with relevant orders of ld. A.O as well as ld. CIT(A). The ld. A.O has held the assessee-society to be a Co-operative Bank and hence not eligible for deduction u/s 80P(2)(a)(i) of the Act. The ld. CIT(A) has slightly made the order better where he opines that the claim of deduction u/s 80P(2)(a)(i) of the Act is allowable to the assessee-society in respect of income earned from Members. However, the assessee is not entitled for such deduction in respect of income earned from non-members and others. Before me, the ld. A.R submitted that the assessee is registered under Karnataka Co-operative Societies Act. However, by perusing para 3 of the assessment order, the ld. A.O has reported that the assessee-co-operative society is registered under Karnataka Souhard Act. On the clarity regarding the status of the assessee and which is the governing Statutes under which the assessee is registered is not clearly brought out as per the facts recorded in the respective orders of the ld. A.O as well as ld. CIT(A). In order to determine the issue for claim of deduction u/s 80P(2)(a)(I) of the Act, the business module of the assessee has to be understood in consonance with the statutes under which it is actually registered. Once the modus of transaction and course of business are ascertained then only the issue of determination regarding claim of deduction under the relevant provision will come into picture. Furthermore, I find from the order of the ld. CIT(A) at para 7 where he states that the interest earned from nominal members are at Rs. 12,11,546/- out of total interest received from loans at Rs. 22,31,737/-, there is no clear bifurcation as to what exactly is the amount of interest received from nominal members and what exactly is the amount of interest received from regular members. The powers of ld. CIT(A) being co- terminus with that of the ld. A.O he should have brought out categorically the specific interest earned from various categories of members after conducting
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independent inquiry. This is again important to understand to what extent the deduction u/s 80P(2)(a)(i) of the Act has to be allowed as per the observations of the revenue authorities. I am of the considered view therefore, in this case detailed factual verification is required in the areas as examined by me as aforestated and accordingly in the interest of justice I set aside the order of the ld. CIT(A) and remand the matter back to his file for re-adjudication as per law while complying with principles of natural justice in accordance with the directions stated hereinabove. Grounds of appeal are allowed for statistical purposes. 4. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 02nd day of December 2022. Sd/- PARTHA SARATHI CHAUDHURY JUDICIAL MEMBER
Pune; Dated : 02nd December, 2022 Ankam Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT (Appeals)- Hubballi 4. The Pr. CIT Belgaum 5. DR, ITAT, “SMC” Bench, Panaji 6. Guard File. //सत्यापित प्रपत// True Copy// BY ORDER,
Sr. Private Secretary ITAT, Pune /// TRUE COPY ///
ITA 22/PAN/2019 Shree Ganesh Multi purpose Co-op. Society Ltd. A.Y. 2013-14 Date 1 Draft dictated on 29-11-2022 Sr.PS 2 Draft placed before author 01-12-2022 Sr.PS 3 Draft proposed and placed JM/AM before the second Member 4 Draft discussed/approved by AM/JM second Member 5 Approved draft comes to the Sr. Sr.PS/PS PS/PS 6 Kept for pronouncement on 02-12-2022 Sr.PS/PS 7 Date of uploading of order 02-12-2022 Sr.PS/PS 8 File sent to Bench Clerk 02-12-2022 Sr.PS/PS 9 Date on which the file goes to the Head Clerk 10 Date on which file goes to the A.R 11 Date of dispatch of order