The Karnataka State Agarbathi Manufacturers Co-operative Society , Bangalore V. Income Tax Officer Ward-7(2)(2), Bangalore

ITA 1233/BANG/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9905 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 16-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K S NAGESH
• Keywords: Business income; Opportunity of being heard

Judgement Text

ITA.1233 & 1234/BANG/2018 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'B', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NOS.1233 & 1234/BANG/2018 (ASSESSMENT YEARS : 2013-14 & 2014-15) THE KARNATAKA STATE AGARBATHI MANUFACTURERS CO-OP S OCIETY, NO.18/3, 1 ST MAIN ROAD, SAMPANGIRAMNAGAR, BENGALURU 560 027 .. APPELLANT PAN : AADAT0022B V. INCOME-TAX OFFICER, WARD 7(2)(2), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. K. S. NAGESH, CA REVENUE BY : SHRI. R. N. SIDDAPPAJI, ADDL. CIT HEARD ON : 27.11.2018 PRONOUNCED ON : 07.12.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THESE ARE TWO APPEALS FILED BY THE ASSESSEE, AGAIN ST THE SEPARATE ORDERS OF THE CIT (A)-7, BENGALURU, DT.04. 09.2017, FOR THE ASSESSMENT YEARS 2013-14 AND 2014-15 RESPECTIVELY. ITA.1233 & 1234/BANG/2018 PAGE - 2 GROUNDS OF APPEAL FOR A. Y. 2013-14 ARE AS UNDER : ITA.1233 & 1234/BANG/2018 PAGE - 3 GROUNDS OF APPEAL FOR A. Y. 2014-15 ARE AS UNDER : 1. THE HONOURABLE CIT HAS ERRED IN DENYING OUR CLAI M FOR DEDUCTION U/S.80P FOR INTEREST ON FD OF RS.8,85,695/-. ITA.1233 & 1234/BANG/2018 PAGE - 4 GROUNDS 2, 3, 4 AND 6 ARE COMMON TO BOTH THE ASSESS MENT YEARS. 02. BRIEF FACTS ARE THAT THE AO HAD TREATED THE INT EREST INCOME RECEIVED BY IT FROM THE BANK, AS INCOME FROM OTHER SOURCES AND HAS DENIED THE BENEFIT OF 80P OF AN AMOUNT OF RS.9,59,0 14/- FOR AY 2013-14 AND RS.8,85,695/- FOR AY 2014-15. FOR THE PURPOSE OF ARRIVING AT THIS FINDING THE AO RELIED UPON THE JUD GMENT OF THE HONBLE SUPREME COURT IN THE MATTER OF TOTGARS CO- OPERATIVE SALES SOCIETY LTD V ITO [322 ITR 283] AND ALSO OF THE HONBLE JURISDICTIONAL HIGH COURT IN 395 ITR 611. IN BOTH THE JUDGMENTS IT WAS HELD BY THE HONBLE COURTS THAT THE CHARACTER / NATURE OF INCOME WOULD NOT CHANGE IRRESPECTIVE OF THE FACT THAT IT I S RECEIVED OR EARNED FROM THE SCHEDULE BANK OR COOPERATIVE BANK. THE ASSESSEE FILED APPEALS BEFORE THE CIT (A). ITA.1233 & 1234/BANG/2018 PAGE - 5 03. THE CIT (A) HAS RECORDED IN PARA 6.1 THAT THE A GARBATHI INDUSTRY IS A COTTAGE INDUSTRY AND IS CLASSIFIED AS HANDICRAFTS. SINCE THE COTTAGE INDUSTRY IS ENTITLED TO CLAIM DEDUCTION U/S.80P(2)(A)(II), THEREFORE THE CLAIM OF THE ASSESSEE WAS FOUND TO BE CORRECT. HOWEVER WITH RESPECT TO THE SURPLUS FUNDS AMOUNTING TO RS.9,59,014/- AND RS.8,85,695/- FOR THE TWO ASSESSM ENT YEARS RESPECTIVELY, WHICH ARE EARNED ON ACCOUNT OF INTERE ST FROM DEPOSITS MADE IN THE BANK, THE CIT (A) HAS HELD THAT THESE A RE INCOME FALLING UNDER INCOME FROM OTHER SOURCES, BY RELYING ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN TOTGARS CO-OPERATIVE SALE S SOCIETY LTD (SUPRA), WHEREIN BOTH THE HONBLE SUPREME COURT AND JURISDICTIONAL HIGH COURT HAVE DECIDED THE ISSUE AGAINST THE ASSES SEE. NOW THE ASSESSEE IS IN APPEALS BEFORE US. 04. IT WAS SUBMITTED BY THE LD. AR THAT THE ASSESSE E IS A 100% EXEMPT INDUSTRY BEING A COTTAGE INDUSTRY AS PER SEC TION 80P(2)(A)(II) AND THEREFORE ASSESSEE BEING 100% EXE MPT UNIT U/S.80P(2)(A)(II) IS ENTITLE TO RELIEF AND PRAYED THAT INTEREST INCOME SHOULD ALSO BE TREATED ELIGIBLE FOR DEDUCTION U/S.8 0P OF THE ACT. 05. PER CONTRA, THE LD. DR RELIES UPON THE JUDGMENT OF THE HONBLE SUPREME COURT AND JURISDICTIONAL HIGH COURT IN THE MATTER OF TOTGARS CO-OPERATIVE SALES SOCIETY LTD (SUPRA). 06. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE CIT (A)S OBSERVATION IN PARA 6.1 A ND 6.2 READS AS UNDER : ITA.1233 & 1234/BANG/2018 PAGE - 6 6.1 AS REGARDS THE CLAIM OF THE APPELLANT THAT 80(2)(A) (II) IS APPLICABLE IN ITS CASE AGARBATHI INDUSTRY BEING A COTTAGE INDUSTRY, A COPY OF LETTER OF THE OFFICE OF DEVELOPMENT COMMISSIONER (HANDICRAFTS) DATED 07-07- 1999 TO THE PRESIDENT, ALL INDIA AGARBATHI MANUFACT URER ASSOCIATION WAS SUBMITTED WHICH MENTIONS THAT AGARB ATHIES HAS BEEN CLASSIFIED AS HANDICRAFTS. THUS, THE APPELLANT SUBMITTED THAT BEING CLASSIFIED AS HANDICRAFTS, AGARBATHIES I NDUSTRY IS COMING UNDER COTTAGE INDUSTRY AND HENCE, THE SOCIET Y IS ENTITLED TO CLAIM DEDUCTION U/S 80P(2)(A)(11) OF THE ACT. IN TH E RETURN OF INCOME FILED BY THE SOCIETY, THE NATURE OF BUSINESS IS SHOWN AS '0203- WHOLESALE'. THE P&L ACCOUNT FILED FOR AY 201 4-15 SHOWS TRADING (PURCHASE AND SALE) IN THE RAW MATERIALS FO R MANUFACTURE OF AGARBATHIES. IN VIEW OF THIS, THE CLAIM OF THE A PPELLANT AS REGARDS THE APPLICATION OF THE SECTION 80P (2) (A) (II) TO ITS ACTIVITIES IS FOUND TO BE CORRECT. 6.2 HOWEVER, ADMITTEDLY THE APPELLANT HAS EARNED INTEREST DURING THE YEAR ON DEPOSITS WITH BANKS FOR ITS SURPLUS FUNDS AMOUNTING TO RS 9,59,014. AS REGARDS THE TAXABILITY OF THE SAME THE APPELLANT HAS SUBMITTED THAT ' THE DEPOSITS WITH BA NKS ARE ONLY FOR COMPLIANCE OF COOPERATIVE SOCIETIES ACT AND TO MEET THE BUSINESS REQUIREMENT OF OPENING LETTER OF CREDIT BY GIVING DEPOSITS AS COLLATERAL SECURITIES.' THE SUBMISSION OF THE APPELLANT HAS BEEN CONSIDERED. THE DEDUCTION UNDER SECTION 80P(2)(A)(II) IS ADMISSIBLE TO THE SOCIETIES BEING COTTAGE INDUSTRY FOR THEIR BUSINESS INCOME. HENCE, DEDUCTION UNDER S ECTION 80P(2)(A)(II) IS APPLICABLE TO INCOME EARNED FROM B USINESS ONLY. HOWEVER, THE DEDUCTION UNDER SECTION 80P(2)(A )(II) IS NOT ADMISSIBLE TO THE INCOME ASSESSABLE UNDER THE H EAD 'OTHER SOURCES'. AS THE INTEREST EARNED ON THE DEPOSITS KE PT IN NATIONALIZED BANKS AND OTHER BANKS ARE TAXABLE UNDE R THE HEAD OTHER SOURCES, THE DEDUCTION UNDER SECTION 80P (2)(A)(II) IS NOT ADMISSIBLE IN RESPECT OF THE INTEREST EARNED ON FDS KEPT IN SCHEDULED BANKS. THE CIT (A) IN PARA 6.1 AND 6.2 HAS RECORDED THE SU BMISSION OF THE ASSESSEE AND HAS CONCLUDED THAT THE CASE OF THE ASS ESSEE FALLS WITHIN THE CATEGORY OF SECTION 80P(2)(A)(II) OF THE ACT AN D HAS FURTHER RECORDED THAT THE ACTIVITY OF THE ASSESSEE FALLS UN DER THE SAID ITA.1233 & 1234/BANG/2018 PAGE - 7 PROVISION AND HELD THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION FOR THE BUSINESS INCOME DERIVED FROM SUCH ACTIVITIES. HOWEVER WITH RESPECT TO EARNING OF THE INTEREST BY THE ASSESSEE BY DEPOSITING THE AMOUNT IN THE BANK, THE CIT (A) AFTER RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN TOTGARS CO-OPERATIVE SALES SOCIETY LTD (188 TAXMAN 282) AND THE HONBLE JURISDICTIONAL HIGH COURT IN THE SAME CASE (82 TAXMANN.COM 140) HAD DISALLOWED T HE CLAIM OF THE ASSESSEE FOR INTEREST INCOME. THE CIT (A) HAS MENTIONED IN PARA 6.2 THAT THE ASSE SSEE HAS EARNED INTERESTS FROM THE DEPOSITS IN BANKS ARE ENTITLED T O DEDUCTION BEING A COTTAGE INDUSTRY U/S.80P(2)(A)(II) OF THE ACT ONLY ON THE INCOME EARNED BY IT OUT OF THE BUSINESS CARRIED ON BY IT. FURTHER CIT (A) HAD MENTIONED THAT INCOME EARNED BY THE ASSESSEE BY WAY OF EARNING INTEREST ON DEPOSITS MADE BY IT FROM ITS SU RPLUS FUND WOULD BE AN INCOME FALLING UNDER THE HEAD INCOME FROM OT HER SOURCES. THE DECISION OF THE CIT (A) ON THIS ASPECT IS WITHO UT ANY BASIS AND HE HAS SIMPLY JUMPED TO THE CONCLUSION THAT THE INT EREST INCOME IS TAXABLE UNDER THE HEAD OTHER SOURCES. THE CIT (A) HAS NOT EVEN CONSIDERED THE REQUEST OF THE ASSESSEE THAT SOME PA RT OF THE DEPOSITS WERE MADE IN THE BANKS FOR OBTAINING THE LC FROM TH E BANK FOR IMPORT OF RAW-MATERIAL IN RELATION TO COTTAGE INDUS TRY. IN OUR CONSIDERED OPINION THE CIT (A) COULD HAVE DECIDED T HE ISSUE BY EXAMINING THE FACTUAL MATRIX AND SUBMISSIONS OF THE ASSESSEE IN THIS REGARD. THE AMOUNT OF INTEREST INCOME ON THE FDS W AS NECESSARY FOR DOING THE BUSINESS OF COTTAGE INDUSTRY, WHICH I S HAVING A DIRECT NEXUS WITH THE BUSINESS OF THE ASSESSEE, SHOULD BE CONSIDERED AS ITA.1233 & 1234/BANG/2018 PAGE - 8 BUSINESS INCOME, HOWEVER REMAINING INTEREST INCOME ACCRUED ON ACCOUNT OF SURPLUS DEPOSIT, WHICH WAS NOT REQUIRED FOR OBTAINING LC, SHOULD BE CONSIDERED AS INCOME FROM OTHER SOURC ES IS LIABLE TO BE DISALLOWED. IN THE LIGHT OF THE ABOVE, WE RESTO RE THE MATTER BACK TO THE FILE OF THE CIT (A) FOR FRESH ADJUDICATION, AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 07. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH DAY OF DECEMBER, 2018. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBE R BENGALURU DATED : 07.12.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE.