ADITYA URBAN CO-OP CREDIT SOCITETY LIMITED BULDANA,BULDHANA V. ITO WARD-1, KHAMGAON, KHAMGAON

ITA 612/NAG/2024

AI Insights

The case involves Aditya Urban Co-operative Credit Society Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the Assessing Officer's decision denying deduction under section 80P for interest income earned on bank FDRs. The Tribunal examined whether the interest income, amounting to Rs. 10,14,028, earned from investments in a Co-operative Bank, was eligible for deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act. The Tribunal referenced a similar case, The Ismailia Urban Co-operative Society v/s ITO, and other precedents, concluding that the interest income was part of the society's business activities and thus eligible for deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 24494 (ITAT-NAGPUR)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Other Referred Cases: The Ismailia Urban Co-operative Society v/s ITO, ITA no.122/Nag./2023, CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. 182 Taxman 231, MSEB Engineers Co-Op. Credit Society Ltd., Chattisgarh Urban Sahakari Sanstha Maryadit Vs. ITO, Dhanlaxmi Credit Cooperative Society Ltd, The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY Y. MARATHE
• Assessee Lawyers: ABHAY AGRAWAL; A CATENA OF DECISIONS
• Keywords: Set aside; Business income
• Section: 148; 142(1); 143(2); 56; 80P; 28

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGARAO, JUDICIAL MEMBER SMC MATTER ITA no.612/Nag./2024 (Assessment Year : 2015–16) Aditya Urban Co–operative Credit Society Limited Buldana Maa Bhagwati Apartment Dhad Road, Buldhana 443 001 PAN – AABAA6988K ……………. Appellant v/s Income Tax Officer Ward–1, Khamgaon ……………. Respondent Assessee by : Shri Abhay Agrawal Revenue by : Shri Abhay Y. Marathe Date of Hearing – 03/02/2025 Date of Order – 25/02/2025 O R D E R Captioned appeal by the assessee is emanating from the impugned order dated 28/10/2024, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2015–16. 2. The assessee has raised following grounds:– “1. Whether on the facts and circumstances, notice issued u/s 148 by jurisdictional Assessing Officer (JAO) is bad in law, being contrary to provision of section 151A and scheme framed thereunder. 2. The learned CIT(A) erred in upholding the action of learned AO in making an addition of Rs. 10,14,028 to the total income of the assessee under the head Other Income u/s 56. 2 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 3. The learned CIT(A) erred in upholding the action of learned AO in denying deduction u/s 80P(2)(a)(i) in respect of interest of Rs.10,14,028 earned on bank FDR without appreciating that, the funds invested were operational funds/ working capital and assessee was required to maintain liquid funds to meet its time and demand deposits repayment responsibility, as per applicable statutory regulatory guidelines. 4. Without prejudice, the assessee was also eligible for claim of deduction in respect of interest of Rs. 10,14,028 under section 80P(2)(d) of the Act. 5. The assessee craves leave to add, alter or withdraw any of the grounds of appeal.” 3. Facts in Brief:– The assessee is co-operative society registered under Maharashtra Co-Operative Society Act and mainly engaged in business of providing credit facilities to its members. The activities are totally controlled and monitor by registrar of co-operative society. The objects of the society is to accept deposits from its members and give advances the same in the form of loans to its members or to invest the amount of deposits accepted from its members, as required. According to the assessee, the income of assessee Co- Operative society is eligible for exemption under section 80P(2)(a)(i) of the Income Tax Act, 1961 (\"the Act\"). During the year under consideration, the society was solely engaged in providing credit facilities to its members and accepted deposits from the members. The society registered as Credit Resource society. The case was reopened and statutory notices u/s 143(2) and 142(1) were issued. In response, the assessee filed reply and written submissions from time to time. The Assessing Officer, however, observed that, the source of income of Co-operative society is from interest on Loan advanced to its members and interest earned on bank FDR. The Assessing Officer further observed that income from interest earned on bank FDR of ` 10,14,028, was not attributable to specified business activity of the assessee 3 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 and denied deduction under section 80P on aforesaid interest income. Being aggrieved, the assessee filed appeal before the first appellate authority. 4. Before the learned CIT(A), the assessee submitted that the action of the Assessing Officer in denying deduction under section 80P of the Act on the aforesaid interest on FDR is bad in law for the reason that the assessee is engaged in providing credit facilities to its members and in the course of business, the assessee is required to maintain liquid funds to meet its time and demand deposits repayment to its members as and when required. The was further submitted that the assessee has also invested a part of its funds with other co–operative banks to maintain sufficient liquidity. However, the learned CIT(A) decided the issue against the assessee by dismissing the claim of deduction under section 80P of the Act. The findings of the learned CIT(A) are as under:– “(xiii) In the light of the above discussions, it is held that once the surplus fund is removed from the arena of mutuality, and placed at the disposal of a Co-operative bank, where there is no restriction in its utilization by non- member general public, the privity of mutuality is lost. As such, the amount of interest earned being Rs. 10,14,028/- has its genesis from the transaction of the bank with the general public. This amount is not generated on account of transactions by and within the members of Cooperative Society - the present appellant. The Cooperative Bank has earned a higher interest and passed on a portion of such interest earned from general public to the appellant assessee. Since the interest incomeRs. 10,14,028/- is not earned by applying privity of mutuality, it is outside the purview of deduction u/s 80P of the IT Act, from both 80P(2)(a) (i) as well as 80P(2)(d). This amount cannot be permitted as deduction. The Action of AO is upheld and the grounds of appeal1 to 4 of appellant are hereby dismissed. 6. The ground no. 5 of the appellant is with respected levy of interest u/s. 234A, 234B, & 234C which is mandatory as per the provisions of the IT Act. However, AO is directed to verify the same once again and mandatory levy may be made. Hence, this ground of appeal of the appellant is Dismissed. 7. As a result appeal of the appellant is Dismissed.” 4 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 Being aggrieved the assessee is in further appeal before the Tribunal. 5. During the course of hearing, both the parties agree before me that the issue in hand is covered by the decision of the Co–ordinate Bench of the Tribunal (the very same Bench was a party to that order), rendered in The Ismailia Urban Co–operative Society v/s ITO, ITA no.122/Nag./2023, order dated 18/06/2024, wherein the Tribunal has considered this issue in detail and held that interest income earned by the assessee trust is eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The relevant portion of the order reproduced below:– “9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered in favour of the assessee by a catena of decisions from ITAT as well as a decision of jurisdictional High Court. In this regard we may gainfully refer the Hon‟ble Jurisdictional High Court decision in the case of CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. 182 Taxman 231 wherein the following question was raised. “Whether the interest income received by a Co-operative Bank from investments made in Kisan Vikas Patra („KVP‟ for short) and Indira Vikas Patra („IVP‟ for short) out of voluntary reserves is income from banking business exempt under Section 80P(2)(a)(i) of the Income Tax Act, 1961?” After considering the issue, the Hon‟ble Jurisdictional High Court has concluded as under : “12. Therefore, in all these cases, where the surplus funds not immediately required for day-to-day banking were kept in voluntary reserves and invested in KVP/IVP, the interest income received from KVP/IVP would be income from banking business eligible for deduction under section 80P(2)(i) of the Act. 13. In the result, there being no dispute that the funds in the voluntary reserves which were utilized for investment in KVP/IVP by the co-operative banks were the funds generated from the banking business, we hold that in all these cases the Tribunal was justified in holding that the interest income received by the co-operative banks from the investments in KVP/IVP made out of the funds in the voluntary reserves were eligible for deduction under section 80P(2)(a)(i) of the Act.” The above case law fully supports the assessee‟s case. Here also surplus funds not immediately required for day to day banking were kept in Bank deposits. The income earned there from thus would be income from banking business eligible for deduction u/s 80P(2)(a)(i). 5 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 10. Similarly we find that similar issue was considered by this Tribunal on similar grounds raised by the Revenue in the case of MSEB Engineers Co-Op. Credit Society Ltd., wherein the ITAT, Nagpur Bench, vide order dated 05/05/2016 held as under : “Upon hearing both the counsel and perusing the records, we find that the above issue is covered in favour of the assessee by the decision of this ITA, referred by the Ld. CIT(A) in his appellate order. The distinction mentioned in the grounds of appeal is not at all sustainable. We further find that this Tribunal again in the case of Chattisgarh Urban Sahakari Sanstha Maryadit Vs. ITO in ITA No. 371/Nag/2012 vide order dated 27.05.2015 has adjudicated similar issue as under:- “11. Upon careful consideration, we not that identical issue was the subject matter of consideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal‟s decision is as under: “4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining “operations funds” and to meet any eventuality towards repayment of deposit, the Co-operative society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT “B” Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd., bearing ITA No. 1491/Ahd/2012 (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- “19. The issue dealt with by the Hon‟ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act is interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes? The assesse(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 required immediately for business purposes, it was invested in specified securities. The question before us, is whether interest on such deposits/securities, 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…..” 19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon‟ble Supreme Court – 6 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 “(on page 286) 7 …….. Before the assessing officer, it was argued by the assesse(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence these civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii)marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds:- - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it had not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon‟ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co- operative bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it 7 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source : Balance Sheet of the assessee available on record]. 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon‟ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly.” 5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s 80P(2)(a)(i) was rightly granted by ld. CIT(A), however, he has wrongly held that the interest income is taxable u/s 56 of the Act so do not fall under the category of exempted income u/s 80P of the Act. The adverse portion of the view, which is against the assessee, of ld. CIT(A) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed. 8. We find that the ratio of above case also applies to the present case. As observed in the above case law, in this case also the submissions of the assessee‟s counsel is that the assessee society is maintaining operational funds and to meet any eventuality towards repayment of deposit the cooperative society is maintaining some liquidated funds as short term deposits with banks. Hence adhering to the doctrine stair desises, we hold that the assessee should be granted benefit of deduction under section 80P(2)(a)(i). Accordingly, the interest on deposits would qualify for deduction under the said section. Accordingly, we set aside the order of authorities below and decide the issue in favour of assessee. “ 4. We further find that batch of similar appeals decided by the ITAT in favour of the assessee has also been considered by the Jurisdictional High Court. The Hon‟ble Jurisdictional High Court has duly affirmed of this Tribunal. Accordingly, in the background aforesaid discussion, we do not find infirmity in the order of Ld. CIT(A).” 11. In the background of aforesaid discussion and decisions, we find that CIT (A) has erred in upholding the assessment order. The Appellant Co-operative society is entitled for deduction u/s 80P as claimed in the return.” 6. In the above decision, the Co–ordinate Bench has already considered the judgment of the Hon’ble Supreme Court in The Totgars’ Co–operative Sale Society Ltd. (supra) and held that the facts of this case is distinguishable and not applicable to the facts of the present case. The interest income of ` 10,14,028, earned by the assessee Co–operative Society from their 8 Aditya Urban Co–operative Credit Society Limited ITA no.612/Nag./2024 investments made with Co–operative Bank is an income derived by it from its business activities which is assessable under the head “Income From Business” and not under the head ”Income From Other Sources”. I, therefore, respectfully following the decision of the Co–ordinate Bench in The Ismailia Urban Co–operative Society v/s ITO, ITA no.122/Nag./2023, order dated 18/06/2024, set aside the impugned order passed by the learned CIT(A) and allow the deduction claimed at ` 10,14,028, under section 8P(2)(a)(i) / 80P(2)(d) of the Act. Thus, all the grounds raised by the assessee are allowed. 7. In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 25/02/2025 NAGPUR, DATED: 25/02/2025 Sd/- V. DURGA RAO JUDICIAL MEMBER Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "