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Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI RAVISH SOOD & SHRI JAMLAPPA D BATTULL
आदेश / ORDER PER BENCH: The captioned sixteen appeals filed by the aforementioned assessee’s are directed against the respective orders passed by the CIT(Appeals)-1, Raipur, which in turn arises from the respective orders passed by the A.O under Sec. 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) for assessment year 2011-12. As common issues are involved in the aforementioned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order.
We shall take up the appeal in ITA No.114/RPR/2016 for the assessment year 2011-12 as the lead matter, and the order therein passed shall mutatis-mutandis apply to the remaining cases. Before us the assessee has assailed the impugned order on the following grounds of appeal: “1. Banking Business : 1.1. That under the facts and the law, the Ld. CIT(Appeals) erred in rejecting the deduct claimed by the appellant u/s.80P(2)(a)(i) pertaining to its banking business amounting to Rs.7,98,705/- as rejected by the ld. AO.
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Prayed that Rs.7,98,705/- is income from banking business & deduction be allowed. 1.2. Without prejudice to above, the Ld. CIT(Appeals) further erred in not deducting the interest paid amounted to Rs.2,58,520/- from the aforesaid sum of Rs7,98,705/-. Prayed without prejudice to Ground No.1, interest paid to its members on their deposit at Rs.2,58,520/-. 2.Paddy Procurement Business: - 2.1 Under the facts and laws, the Ld. CIT(Appeals) further erred in confirming the disallowance @35% out of income in paddy procurement business made by the Ld. AO claimed by the appellant u/s.80P(2)(a)(iii) out of Rs.16,21,218/- observing that paddy is also procured from other the members. Prayed that paddy has been procured from members of appellant society & therefore, provision of section 80P(2)(a)(iii) is applicable, disallowance of Rs.5,67,426/- (instead Rs.12,24,880 taken while computing income) being 35% of Rs.16,21,218/- be deleted. 3. PDS Business: - That the Ld. CIT(Appeals) further erred in confirming the addition of Rs.8,38,228/- which is gross profit in PDS a/c. made by the Ld. AO. Prayed that in PDS account, after considering proportionate expense of Rs.5,29,891/-, there is profit of Rs.3,08,338/-. Prayed that addition of Rs.8,38,228/- is unjustified & be deleted. 4. Dividend Income: - That the Ld. CIT(Appeals) further erred in confirming the rejection of claim of the exemption of dividend received from Jila Sahakari Kendriya Bank Ltd., Raipur at Rs.1,16,224/- u/s. 80P(2)(d). Prayed that dividend is exempted and the addition of Rs.1,16,224/- be deleted.”
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Briefly stated, the assessee being a Cooperative Society which is engaged in the business of banking, paddy procurement, sale of fertilizers, seeds, manures and pesticides as well as sale of controlled items under Public Distribution System (PDS), had on 31.03.2013 filed its return of income for the assessment year 2011-12, declaring a total income of Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. Assessment was, thereafter, framed by the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 30.03.2014 wherein after, inter alia, disallowing the assessee’s muti-facet claim for deduction of 29,78,037/- u/s. 80P of the Act, as under:
Sl. No. Particulars Amount in Rs. 1. Disallowance of the assessee’s claim for Rs.7,98,705/- deduction of interest income u/s. 80P(2)(a)(i) of the Act. 2. Disallowance of the assessee’s claim for Rs.12,24,880/- deduction of profit from paddy procurement business u/s. 80P(2)(a)(iii) of the Act. 3. Disallowance of the assessee’s claim for Rs.8,38,228/- deduction of profit from PDS u/s.80P(2)(c)(i) of the Act. 4. Disallowance of assessee’s claim for Rs.1,16,224/- deduction of dividend income u/s.80P(2)(d) of the Act.
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and also, scaling down its claim for deduction of expenses, to the extent, the same was related to the amount which qualified for deduction u/s.80P of the Act, the Assessing Officer vide his order u/s. 143(3) of the Act, dated 30.03.2014 assessed the total income of the assessee society at Rs.20,80,789/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). However, the CIT(Appeals) not finding favour with the contentions advanced by the assessee upheld the assessment framed by the Assessing Officer.
Assessee being aggrieved with the order of the CIT(Appeals) has carried the matter in appeal before us.
At the very outset of the hearing of the appeal, the Ld. Authorized Representative (for short ‘AR’) for the assessee assailed the disallowance of the assessee’s claim for deduction of interest income of Rs. 7,98,705/- u/s. 80P(2)(a)(i) of the Act. It was submitted by the Ld. AR that as the assessee-society had parked its surplus funds as deposits with various co-operative banks, therefore, the same being an inextricable part of its business of providing credit to its members i.e. borrowing, raising or taking up money, and
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lending/advancing money for the purpose of agriculture, purchase of seeds, urea etc. to its members, thus, was duly eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our attention was drawn by the Ld. AR to the financial statements of assessee-society which revealed the receipt of interest income of Rs.7,98,705/- from its deposits with Jila Sahakari Kendriya Bank, i.e, a co-operative bank. Backed by the aforesaid facts, it was claimed by the Ld. AR that as the interest income received by assessee-society on the surplus amount which was parked as deposits with the aforesaid co-operative bank was inextricably interlinked, or in fact interwoven with its business of providing credit to its members, therefore, the same was rightly claimed as a deduction u/s. 80P(2)(a)(i) of the Act. In order to buttress his aforesaid claim the Ld. AR had pressed into service the judgment of the Hon’ble Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. Vs. CIT, Calicut, (2021) 431 ITR 1 (SC). It was submitted by the Ld. AR that the Hon’ble Apex Court in its aforesaid judgment, had observed, that where the assessee was registered as a primary agricultural credit society, it would stand entitled for benefit of deduction u/s. 80P(2)(a)(i) of the Act; notwithstanding that it was also giving loans to its members which
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were not related to agriculture. Our attention was specifically drawn by the Ld. AR to Para 45 of the aforesaid judgment, wherein, the Hon’ble Apex Court had observed that as Section 80P of the Act was a benevolent provision that was enacted by the parliament to encourage and promote the co-operative sector in general, therefore, the same in case of any ambiguity must be read liberally and reasonably i.e. in favour of the assessee. Drawing force from the aforesaid judicial pronouncement, it was claimed by the Ld. AR that the provisions of section 80P(2)(a)(i) of the Act was to be liberally construed and thus, the interest income received by the assessee society from its surplus money deposited with the co-operative bank be held as eligible for claim of deduction under the said statutory provision. On a specific query by the bench as regards the entitlement of the assessee society for claim of deduction of the interest on its deposits with the banks u/s.80P (2)(a)(i) of the Act in the backdrop of the judgment of the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka (2010) 188 taxmann.com 282 (SC), it was submitted by the ld. AR that the facts therein involved were distinguishable as against those involved in the case of the present assessee before us.
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In order to support his aforesaid contention the Ld. AR had relied on the judgment of the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. Vs. ITO, Tumkur, ITA No.307/2014, dated 28.10.2014. It was claimed by the Ld. AR that the Hon’ble High Court in its aforesaid order had after referring to the judgment of the Hon’ble Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra), had observed, that in the case of a co-operative society which is engaged in the business of providing credit facilities to its members, the interest income so derived on the capital which was not immediately required, and was deposited in bank so as to earn interest income would be attributable to the profit and gains of its business of providing credit facilities to its members and thus, would be eligible for deduction u/s. 80P of the Act. It was submitted by the Ld. AR that the Hon’ble High Court while distinguishing the facts involved in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra), had observed, that unlike as in the case of the assessee before them, in the aforesaid case before the Hon’ble Apex Court, the society, therein involved was apart from providing credit facilities to its members, was also in the business of marketing of the agricultural produce grown by its members. It was
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submitted by the Ld. AR that the Hon’ble Apex Court, had observed, that to the extent the sale consideration that was received by the assessee before them from marketing the agricultural produce of its member was retained by the society and invested in short-term deposits/security, the interest income earned therefrom, being a part of the liability of the assessee society towards its members was to be held as ineligible for claim of deduction u/s. 80P(2)(a)(i) of the Act. Backed by his aforesaid contentions, it was submitted by the Ld. AR, that as the facts involved in the case of present assessee before us are distinguishable as against those as were there in the case before the Hon’ble Apex Court, therefore, the view therein taken would not be applicable to the case of the assessee before us. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) had observed, that as in the case of the assessee before them the amount which was invested by the society with the bank to earn interest was not in the nature of a liability towards any of its members, therefore, the surplus money which was lying with the assessee for which there were no takers for the time being was deposited with the bank so as to earn interest, and the
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same being attributable to its business of banking was thus entitled for deduction u/s. 80P(2)(a)(i) of the Act. On the basis of his aforesaid contentions, it was submitted by the Ld. AR that as the surplus money deposited by the assessee with the bank i.e. Jila Sahakari Kendriya Bank, i.e, a co-operative bank, was “attributable” to its business of providing credit facilities to its members, and not in the nature of an amount that was payable by it to its members that was retained and invested in the form of short term deposit/security, therefore, the interest income therein earned was clearly attributable to its activity of providing credit facilities to its members and eligible for deduction u/s.80P(2)(a)(i) of the Act.
Adverting to the disallowance of 35% of the assessee’s claim for deduction u/s 80P(2)(a)(iii) of its income of Rs. 16,21,218/- qua the Paddy Procurement business, it was submitted by the Ld. AR that the said disallowance was excessive, considering the fact that the assessee had mainly procured paddy from its members only. Elaborating on the facts leading to part disallowance of its aforesaid claim for deduction u/s 80P(2)(a)(iii), it was submitted by the Ld. AR that the assessee as an ‘agent’ of Chhattisgarh Marketing Federation (CMF) had facilitated the procurement of paddy from the
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agriculturists, and for the said service was paid a fixed commission as per the rates prescribed by the Government. It was submitted by the Ld. AR that the gross profit of Rs.16,21,218/- that was earned by the assessee from its aforesaid stream of business activity, i.e., paddy procurement business was claimed by it as a deduction u/s. 80P(2)(a)(iii) of the Act. However, as the aforesaid deduction was available eligible only qua marketing of the agricultural produce grown by members of the society, therefore, the Assessing Officer in the course of assessment proceedings had called upon the assessee society to produce the register maintained in respect of paddy procurement for the year under consideration. It was submitted by the Ld. AR that as the register produced by the assessee society did not reveal the requisite details which were required to identify the members and non-members, therefore, the Assessing Officer in the backdrop of the said facts had restricted the assessee’s claim for deduction u/s. 80P(2)(a)(iii) of the Act on an ad-hoc basis to 35% of the profit that was earned by it from the paddy procurement business and had disallowed its claim for deduction as regards the balance amount of profit. Backed by the aforesaid facts, it was submitted by the Ld. AR, that though as per the policy of the
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Government the assessee-society is obligated to purchase paddy from each and every farmer, whether member or non-member, i.e whosoever approaches the society, but transactions with the non- members during the year under consideration were very minimal and by no means exceeded 25% of the total transactions. In order to buttress his aforesaid claim the Ld. AR had taken us through the compilation of paddy purchase by the assessee-society, Page 1 to 55 of additional documentary evidence that was placed on our record, and requested that as the same would have a material bearing on the adjudication of the issue in hand, therefore, the same in all fairness be admitted.
Adverting to the disallowance of the assessee’s claim for deduction of the profit earned from the PDS business, it was submitted by the Ld. AR that both the lower authorities had erred in adding/sustaining the addition of Rs. 8,38,228/- on the said count. Elaborating on his aforesaid contention, it was averred by the Ld. AR that even if the aforesaid disallowance of the assessee’s claim for deduction u/s 80P(2)(c)(i) of its profit from PDS business was to be sustained, the profit after considering/attributing the proportionate expenses of the said business activity worked out at an amount of
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Rs.3,08,338/-. It was, thus, claimed by the Ld. AR that the disallowance of its claim for deduction u/s. 80P(2)(c)(i) of the Act may be scaled down in the backdrop of the aforesaid factual premises.
As regards the disallowance of assessee’s claim for deduction of the dividend income of Rs. 1,16,224/- that was earned on the shares of Jila Sahakari Kendriya Bank, i.e, a co-operative Bank u/s. 80P(2)(d) of the Act, it was submitted by the Ld. AR that both the lower authorities had failed to appreciate the facts of the case in the backdrop of the settled position of law. Elaborating on his aforesaid contention, it was submitted by the Ld. AR that as the dividend income was earned by the assessee society on the shares of a co- operative bank, therefore, the same was duly eligible for deduction u/s.80P(2)(d) of the Act. In order to fortify his aforesaid contention the ld. A.R had relied on the order of the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No.3155/Mum/2019 dated 29.11.2019.
Backed by his aforesaid contentions, it was submitted by the Ld. AR that the restriction of the assessee’s multi-facet claim for deduction u/s. 80P of the Act by lower the authorities being based
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on incorrect appreciation of the settled position of law and, misconceived facts, was thus liable to be set-aside.
Per Contra, the Ld. Departmental Representative (for short ‘DR’) relied on the orders of the lower authorities. It was submitted by the Ld. DR, that as the assessee’s claim for deduction u/s.80P of the Act as regards its multiple activities did not fall within four corners of Section 80P of the Act, therefore, both the lower authorities had rightly restricted/declined its claim for deduction on the basis of their well-reasoned observations.
We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his aforesaid contentions.
We shall first advert to the assessee’s grievance that the lower authorities had erred in declining its claim for deduction u/s. 80P(2)(a)(i) of the Act, i.e, as regards the interest income that was earned on the surplus funds which were deposited by it with Jila Sahakari Kendriya Bank, i.e, a co-operative bank. After deliberating
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at length on the issue in hand, we find that the aforesaid claim of the assessee hinges around the aspect that as to whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for the said funds, was eligible for deduction u/s. 80P(2)(a)(i) of the Act. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, which reads as under :
“80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case of a co-operative society engaged in— (i). carrying on the business of banking or providing credit facilities to its members, or (ii) to (iii)…………………………………………………………………………” (Emphasis by underlining supplied by us)
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On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of “income from carrying on the business of banking or providing credit facilities to its members”, and thus, would fall within the realm of the deduction contemplated in Section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee-society in addition to its business of providing credit facilities to its members was also
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engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds, manures and pesticides and sale of controlled items under Public Distribution System (PDS), however, it is neither the case of the revenue nor a fact discernible from the record that the funds deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short- term deposit/security with the bank. If that would have been so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members, therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit
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facilities to its members. At this stage, we may herein observe, that the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka, 322 ITR 283 (SC), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was thereafter retained and invested as a short-term deposit/security with the bank, then, the interest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to its members. As is discernible from the aforesaid judicial pronouncement of the Hon’ble Supreme Court, we find the Hon’ble Apex Court had clarified beyond doubt that they have confined the judgment to the facts of the case before them, and the same was not to be considered as laying down of any law. Be that as it may, the aforesaid judgment of the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) in ITA No.307/2014, dated 28.10.2014,
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wherein the Hon’ble High Court had after exhaustive deliberations held as under : “6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs.1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): “Deduction in respect of income of cooperative societies: 80P. (1) Where, in the case of an assessee being a co- operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:— (a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) xxx (iii) xxx (iv) xxx (v) xxx (vi) xxx (vii) xxx the whole of the amount of profits and gains of business attributable to any one or more of such activities.” 7. The word ‘attributable used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ as supposed to derive from its use in various other provisions of the statute in the case of
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CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX, GUJARAT-II reported in ITR Vol.113 (1978) Page 842 at Page 93 as under: As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the Legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression "derived from", as for instance in s. 80J. In our view since the expression of wider import, namely, "attributable to” has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 8. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A cooperative society which is carrying on the business providing credit facilities to its members, earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit
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facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. 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 under section 80P(2)(a)(iii) of the Act. Therefore, in the facts of the said case, the Apex Court held the assessing Officer was right in taxing the interest income indicated above under section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore, it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore, it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME TAX III HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD. Reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:
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Appeal is allowed. The impugned order is hereby set aside. Parties to bear their own cost.” In the backdrop of the aforesaid observations of the Hon’ble High Court, we are of a considered view, that as in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs. 7,98,705/- u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. Thus, the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations.
We shall now advert to assessee’s claim that both the lower authorities had erred in scaling down its claim for deduction of the income earned from paddy procurement business u/s 80P(2)(a)(iii) to 35% of its claim.
25 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
Before adverting any further, we shall first deal with the request of the assessee for admission of compilation of paddy purchase by the assessee-society, Page 1 to 55 of additional documentary evidence that has been placed on our record. It is the claim of the assessee that as the said document which would have a material bearing on adjudication of the Ground of appeal No. 2, therefore, the same in all fairness be admitted. After giving a thoughtful consideration, we herein admit the compilation of paddy purchase by the assessee-society as had been furnished before us as additional documentary evidence.
Admittedly, the assessee as an ‘agent’ of Chhattisgarh Marketing Federation (CMF) had facilitated the procurement of paddy from the agriculturists, and for the said service was paid a fixed commission as per the rates prescribed by the Government. The gross profit of Rs.16,21,218/- that was earned by the assessee from its aforesaid stream of business activity, i.e., paddy procurement business was claimed by it as a deduction u/s. 80P(2)(a)(iii) of the Act. However, as per the mandate of Sec. 80P(2)(a)(iii) the deduction therein contemplated was only available qua the marketing of the
26 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
agricultural produce grown by members of the society, therefore, the Assessing Officer in the course of assessment proceedings had called upon the assessee society to produce the register maintained in respect of its paddy procurement for the year under consideration. As the register produced by the assessee society did not reveal the requisite details which were required to identify the members and non-members, therefore, the Assessing Officer in the backdrop of the said fact had restricted the assessee’s claim for deduction u/s.80P(2)(a)(iii) of the Act on an ad-hoc basis to 35% (i.e. nearly 1/3rd of the aforesaid gross profit) of the profit that was earned by it from paddy procurement business, and had disallowed assessee’s claim for deduction as regards the balance amount of profit. Assailing the restriction of the assessee’s claim for deduction u/s 80P(2)(a)(iii) to 35% of its income of Rs. 16,21,218/-, it is the claim of the ld. A.R before us that the same is highly exorbitant, for the reason, that the assessee had mainly procured paddy from its members only. It was submitted by the Ld. AR that though as per the policy of the Government the assessee-society is obligated to purchase paddy from each and every farmer, whether member or non-member, i.e whosoever approaches it, but transactions with the
27 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
non-members during the year under consideration was minimal and by no means exceeded 25% of the total transactions. In order to buttress his aforesaid claim the Ld. AR had taken us through the compilation of paddy purchase by the assessee-society, Page 1 to 55 of additional documentary evidence that was placed on our record. By drawing support from compilation of paddy purchase from its members, i.e. Page 1A to 255 of the additional documentary evidences filed before us, it was submitted by the ld. A.R that only a small fraction of the paddy procurement was carried out by the assessee society from non-members. In the backdrop of his aforesaid contentions, the Ld. AR had claimed that the restriction of its claim for deduction u/s 80P(2)(a)(iii) to 35% of the profit from paddy procurement business so made by the Assessing Officer was not only on the higher side, but in fact exorbitant and unrealistic.
After giving a thoughtful consideration to the aforesaid issue, we find substantial force in the claim of the Ld. AR that now when only a small fraction of the procurement of paddy was made by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 35% of the profits earned from theee
28 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
said business activity was not justified. Be that as it may, we are of the considered view that as the compilation of the paddy procurement by the assessee-society has been filed before us as additional documentary evidence, and the same was not there before the lower authorities, therefore, the matter in all fairness requires to be re-visited by the Assessing Officer. We, thus, in terms of the aforesaid observation set-aside the matter to the file of the Assessing Officer, with a direction to re-adjudicate the same after considering the additional documentary evidence that had been filed by the asssessee before us. The A.O shall after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, therein, restrict the assessee’s claim for deduction u/s. 80P(2)(a)(iii) of the Act only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. The Ground of appeal No.2 is allowed for statistical purposes in terms of our aforesaid observations.
We shall now advert to the claim of the assessee that the CIT (Appeals) had erred in confirming the addition of Rs.8,38,228/-, i.e.,
29 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
the gross profit earned by the assessee-society from its public distribution activity during the year under consideration, viz. distributing essential commodities to the ration card holders through fair price shop. Observing, that as the claim of deduction u/s.80P(2)(c)(i) of the Act was available only in the case of a consumer co-operative society, the Assessing Officer had declined the assessee’s claim for deduction of its profit earned from PDS activities under the said statutory provision.
Before us, it is the claim of the assessee that as the profit from PDS activities after considering the proportionate expenses amounted to Rs. 3,08,338/-, therefore, its claim for deduction u/s.80P(2)(c)(i) of the Act was liable to be restricted only to the said extent. After having given a thoughtful consideration to the claim of the Ld. AR, we though principally concur with his aforesaid claim, but then, the same cannot be accepted on the very face of it and would require factual verification. Therefore, for the said limited purpose, we restore the matter to the file of the Assessing Officer for doing the needful. During the course of the set-aside proceedings, the Assessing Officer is directed to restrict the assessee’s claim for deduction as regards its profit from PDS only to the extent of its net
30 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
profit, i.e., after considering the proportionate expenses. Needless to say, the assessee shall in the course of set-aside proceedings furnish the requisite details/documents as would be called for by the Assessing Officer. The Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations.
Now, we shall advert to the claim of the Ld. AR that the CIT(Appeals) had erred in confirming the rejection of the assessee’s claim for deduction of Rs. 1,16,224/- u/s. 80P(2)(d) of the Act, i.e, deduction of the dividend income received on the shares of Jila Sahakari Kendriya Bank, Raipur, i.e a co-operative bank.
On a perusal of the assessment order, we find that the Asessing Officer holding a conviction that as the aforementioned bank viz. Jila Sahakari Kendriya Bank (supra.) was not a co- operative society, therefore, the dividend income of Rs, 1,16,224/- received by the assessee on the shares of the said bank was not eligible for deduction u/s.80P(2)(d) of the Act. In order to fortify his aforesaid conviction, the Assessing Officer had drawn support from sub-section (4) of Section 80P of the Act, as per which, the entitlement of deduction u/s.80P of the Act is no more available to
31 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
co-operative banks w.e.f AY 2007-08. Backed by his aforesaid observation the Assessing Officer had declined the assesee’s claim for deduction u/s.80P(2)(d) of the Act.
After having given a thoughtful consideration to the aforesaid issue in hand, we are unable to concur with the view taken by the lower authorities. In our considered view, as a Co-operative bank falls within the realm of the definition of “Co-operative Society” as contemplated in Section 2(19) of the Act, therefore, the view taken by the lower authorities that dividend income received by the assessee from Jila Sahakari Kendriya Bank, Raipur, i.e a Co-operative Bank, would not eligible for deduction u/s. 80P(2)(d) of the Act cannot be sustained. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No.3155/Mum/2019, dated 29.11.2019 (wherein one of us, i.e, the JM was a party), had after exhaustive deliberations held as under:
“6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in
32 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub- section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not co-operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act. 7. After necessary deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us. “80P(2)(d) (1). Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2). The sums referred to in sub-section (1) shall be the following, namely :- (a)............................................................................................ (b)............................................................................................ (c)............................................................................................ (d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income;” On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other co-operative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co- operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in
33 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:- “(19) “Co-operative society” means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies;” We are of the considered view, that though the co-operative banks pursuant to the insertion of subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a co-operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that have been relied upon by the ld. A.R. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases: (i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum) (ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017 (iii) MarvwanjeeCama Park Cooperative Housing Society Ltd. Vs. ITO-Range- 20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017. (iv). KaliandasUdyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai We further find that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had held, that the interest income earned by the assessee on its investments with a co-operative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find
34 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the co-operative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a co-operative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments/deposits parked with a co- operative bank. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co- operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), where there is a conflict between the decisions of non-jurisdictional High Court‟s, then a view which is in favour of the assessee is to be preferred as against that taken against him. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon‟ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon’ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a cooperative society on its investments held with a co- operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec.
35 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we „set aside‟ his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016. 10. Resultantly, the appeal filed by the assessee is allowed.”
Backed by our aforesaid observations, we not being able to persuade ourselves to subscribe to the view taken by the lower authorities, therein vacate the disallowance of the assessee’s claim for deduction of Rs.1,16,224/- u/s. 80P(2)(d) of the Act. The Ground of appeal No.4 is allowed in terms of the aforesaid observations.
We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeal) and allow/allow for statistical purposes the appeal of the assessee in terms of our aforesaid observations.
Resultantly, the appeal of the assessee in ITA No.114/RPR/2016 for the assessment year 2011-12 is allowed/allowed for statistical purposes in terms of our aforesaid observations.
ITA Nos. 115 to 117/RPR/2016, ITA Nos.303 & 305/RPR/2016, ITA Nos.119 to 121/RPR/2016, ITA Nos.144 & 238/RPR/2016 & ITA Nos.242 to 246/RPR/2016 A.Y.2011-12
36 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
As the facts and issues involved in the captioned appeals remains the same as were there before us in the appeal of Gramin Sewa Sahakari Samiti Maryadit in ITA No. 114/Rpr/2016 for assessment year 2011-12, therefore, our order therein passed while disposing off the said appeal shall apply mutatis-mutandis for disposing off the captioned appeals, i.e, in ITA Nos. 115 to 117/RPR/2016; ITA Nos. 303 & 305/RPR/2016, ITA Nos.119 to 121/RPR/2016, ITA Nos.144 & 238/RPR/2016 & ITA Nos.242 to 246/RPR/2016 all for assessment year 2011-12.
In the combined result, all the captioned appeals (16 appeals) of the aforementioned assessee’s are allowed/allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in open Court on 23rd day of February, 2022.
Sd/- Sd/- JAMLAPPA D BATTULL RAVISH SOOD ACCOUNTANT MEMBER JUDICIAL MEMBER रायपुर/ RAIPUR ; �दनांक / Dated : 23rd February, 2022 ***SB
37 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
आदेश क� ��त�ल�प अ�े�षत / Copy of the Order forwarded to :- 1. अपीलाथ� / The Appellant. 2. ��यथ� / The Respondent. 3. The Concerned CIT(Appeals), Raipur (C.G) 4. The Concerned CIT, Raipur (C.G) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण,रायपुरब�च, रायपुर / DR, ITAT, Raipur Bench, Raipur. 6. गाड� फ़ाइल / Guard File. आदेशानुसार / BY ORDER, // True Copy // �नजी स�चव / Private Secretary आयकर अपील�य अ�धकरण, रायपुर / ITAT, Raipur.
38 Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. The ITO, Ward 1(3), Raipur ITA No.114/RPR/2016 & Ors
Date 1 Draft dictated on 08.02.2022 Sr.PS/PS 2 Draft placed before author 16.02.2022 Sr.PS/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.PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr.PS/PS 7 Date of uploading of order Sr.PS/PS 8 File sent to Bench Clerk 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