Shri Laxmi Co. Operative Credit Society Ltd., Vadodara V. The ITO, Ward-1(3)(3), Vadodara

ITA 120/AHD/2023

AI Insights

The case involves Shri Laxmi Co. Operative Credit Society Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre, Delhi. The primary contention was the disallowance of a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, amounting to Rs. 2,20,808, which was added back to the income of the assessee. The Assessing Officer had initially disallowed the deduction claiming that the interest income from a Nationalized Bank did not qualify under the specified section. The Tribunal considered various precedents and the specific nature of the assessee's business, which involved providing credit facilities to its members and managing funds primarily sourced from member deposits.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299916 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 11-07-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 01-03-2023
• Other Referred Cases: Punjab State Cooperative Federation of House Building Societies Ltd. vs. CIT, Guttigedarara Credit Co-operative Society Ltd. vs. ITO, Mantola Co-operative Thrift & Credit Society Ltd. vs. CIT, State Bank of India vs. CIT, Dhanlaxmi Credit Co-op. Society Ltd. vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice
• Section: 56; 80P; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I .T .A . N o . 1 2 0/ A h d /2 0 2 3 ( A s se ss m e nt Y e a r : 20 15- 1 6 ) Sh ri La x m i C o . O p e ra ti ve C r e d it So cie ty L td ., N a n a B a z a r , C h o ks hi B a za r, Di s t : B ar o d a D a bh o i , Gu j ar a t-3 91 1 1 0 V s.I T O Wa r d- 1( 3) ( 3 ) , V a d o da r a [ P A N N o. AA I A S 2 8 9 8 F ] (Appellant) .. (Respondent) Appellant by : Shri Samir Parikh, A.R. Respondent by : Shri B. P. Makwana, Sr. D.R. D a t e of H ea r i ng 12.07.2023 D a t e of P r o no u n ce me nt 19.07.2023 O R D E R The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi on 16.02.2023 for A.Y. 2015-16. 2. The grounds of appeal raised by the assessee are as under: “1. The Learned CIT (A) has erred in disallowing deduction u/s. 80P and confirmed addition amounting to Rs. 2,20,808/-. 2. Assessee is in the business of providing credit facilities to its members and is covered under section 80P and has rightly claimed deduction under section 80P(2)(a)(i) of the I.T. Act, 1961. 3. The assessee pray that deduction under section 80P(2)(a)(i) of the Act is eligible, hence addition of Rs. 2,20,808/- made by Ld. AO is unwarranted and bad in law and therefore be deleted. 4. Without prejudice to above, Assessee prays that Pro Rata Expenses for earning interest income be allowed. The Assessee prays that total expenditure incurred for the year stood at Rs. 16,09,394/-, total income for the year stood at Rs. 17,60,194/- and interest income on investment stood at Rs. 2,20,808/-. Hence pro rata expenses for earning interest income of Rs. 2,20,808/- as against total income of Rs. 17,60,194/- calculated at Rs. 2,01,80/- be allowed based on various judgements pronounced by Hon. ITAT, Ahmedabad. ITA No. 120/Ahd/2023 Shri Laxmi Co. Operative Credit Society Ltd. vs. ITO Asst.Year–2015-16 - 2 - 5. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of hearing.” 3. The assessee is a cooperative society engaged in the business of accepting deposits and providing credit facilities to its members. The assessee filed return of income on 20.02.2016 declaring total income of Rs. NIL after claiming deduction under Section 80P(2)(a)(i). The case was selected for scrutiny and notice was issued on 06.01.2017 after taking cognizance of the reply of the assessee. The Assessing Officer held that the interest income of Rs. 2,20,808/- from Nationalized Bank was not justifiable for claiming deduction under Section 80P(2)(a)(i) of the Act. 4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. A.R. submitted that the CIT(A) has not taken the cognizance of the ground related to pro-rata expenses for earning interest income. The Ld. A.R. further submitted that the assessee society has made investment out of deposits collected from members only which is a part of operational fund and not merely a surplus fund and income thereof is a part of business activities and are in the nature of operational income. Therefore, the assessee has correctly claimed deduction under Section 80P(2)(a)(i) of the Act which provides that whole of the amount of profit and gains of business attributable to activities specified under Section 80P(2)(a)(i) to (vii) is deductible under Section 80P(1). The assessee is a primary cooperative society registered under Gujarat Co. Op. Society Act, 1961 and is eligible to get deduction under Section 80P(2)(a)(i) of the Act. The Ld. A.R. further submitted that the interest income on surplus fund invested cannot be taxed under Section 56 as it did not carry out any activity except in providing credit facilities to its ITA No. 120/Ahd/2023 Shri Laxmi Co. Operative Credit Society Ltd. vs. ITO Asst.Year–2015-16 - 3 - members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and thus, there were no surplus funds as such. Income out of this operational fund is a part of business income in the nature of providing credit facilities to members of the society and deduction under Section 80P(2)(a)(i) is rightly claimed by the assessee. The Ld. A.R. relied upon the decision of Hon’ble Apex Court in the case of Punjab State Cooperative Federation of House Building Societies Ltd. vs. CIT 76 taxmann.com 99 (SC) as well as the decision of Hon’ble Karnataka High Court in case of Guttigedarara Credit Co-operative Society Ltd. vs. ITO 60 taxmann.com 215 (Karnataka). The Ld. A.R. also relied upon the decision of Hon’ble Apex Court in case of Mantola Co-operative Thrift & Credit Society Ltd. vs. CIT 70 taxmann.com 296 (SC) wherein it is held that where a cooperative society engaged in providing credit facilities to its members, deposited surplus funds in fixed deposits and earned interest thereon, said interest would be eligible for deduction under Section 80P(2)(a)(i) of the Act. The Ld. A.R. as regards to Ground 4 in respect of without prejudice submitted that pro-rata expenses for earning interest income has to be allowed. The Ld. A.R. submitted that total expenditure incurred for the year was at Rs. 16,09,394/-, total income for the year was at Rs. 17,60,194/- and interest income on investment stood at Rs. 2,20,808/- hence pro-rata expenses for earning interest income of Rs. 2,20,808/- as against total income of Rs. 17,60,194/- calculated at Rs. 2,01,890/- be allowed. The Ld. A.R. relied upon the decision of the Tribunal in case of Dhanlaxmi Credit Co-op. Society Ltd. vs. ITO (ITA No. 2426/Ahd/2013 order dated 24.01.2017). 6. The Ld. D.R. relied upon the assessment order and the order of the CIT(A). ITA No. 120/Ahd/2023 Shri Laxmi Co. Operative Credit Society Ltd. vs. ITO Asst.Year–2015-16 - 4 - 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has earned interest income from deposits held with Nationalized Banks and thus, the contention of the assessee that the assessee is eligible for deduction under Section 80P(2)(a)(i) appears to be incorrect in light of the decision of State Bank of India vs. CIT 389 ITR 578 passed by the Hon’ble Gujarat High Court. As relates to the pro-rata expenses for earning interest income the contention of the Ld. A.R. appears to be genuine and in light of the decision of the Tribunal in case of Dhanlaxmi Credit Co-op. Society Ltd. (Supra) it will be appropriate to remand back this issue thereby directing the Assessing Officer to verify the assessee’s claim of pro-rata expenses by examining the record which has to be shown for verification by the assessee. Needless to say, the assessee be given opportunity of hearing by following principle of natural justice. 8. In result, appeal of the assessee is partly allowed for statistical purpose. This Order pronounced in Open Court on 19/07/2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 19/07/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad