Shree Chhani Leuva Patidar Co. Op. Credit Society Ltd, Vadodara V. The ITO, Ward-1(2)(5), Vadodara

ITA 1309/AHD/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7484 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 06-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 56; 143(3); 64; 72

Judgement Text

आयकर अपीलीय अिधकरण, अहमदाबाद ᭠यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’ SMC’’ BENCH, AHMEDABAD (CONDUCTED THROUGH VIRTUAL COURT AT AHMEDABAD) BEFORE SHRI RAJPAL YADAV, VICE PRESIDENT And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos. 1308 & 1309/AHD/2019 िनधाᭅरण वषᭅ/Asstt. Years: 2014-15 & 2015-16 Shree Chhani Leuva Patidar Co-op. Credit Society Ltd., Nr. Bus Station, Chhani, Vadodara-391740. PAN: AABAS0020J Vs. I.T.O, Ward-1(2)(5), Vadodara. (Applicant) (Respondent) Assessee by : Shri None Revenue by : Shri Urjit Shah, Sr.D.R सुनवाई कᳱ तारीख/Date of Hearing : 09/11/2021 घोषणा कᳱ तारीख /Date of Pronouncement: 29/11/2021 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned two appeals have been filed at the instance of the Assessee for the different assessment years against the separate orders of the Learned Commissioner of Income Tax (Appeals)-5, Vadodara, of even date 06/05/2019 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Years 2014-15 & 2015-16. ITA nos.1308 & 1309 /AHD/2019 A.Ys. 2014-15 & 2015-16 2 First we take up ITA No. 1308/AHD/2019 for A.Y. 2014-15 2. The only issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by sustaining the addition of ₹ 4,65,000.00 by disallowing the deduction claimed under section 80P(2)(a)(i) of the Act. 3. The facts in brief are that the assessee in the present case is a co-operative society and engaged in the activity of providing credit facilities to the members. In the year under consideration, the assessee has shown gross amount of interest of Rs. 10,50,786.00 which is inclusive of the interest from non-members of Rs. 6,85,971.00. As per the AO such amount of interest income of Rs. 6,85,971.00 is not eligible for deduction under section 80P(2)(a)(i) of the Act. But the assessee has claimed deduction under section 80P(2)(a)(i) of the Act for Rs. 4,65,000.00 which was including the amount of interest income from non-members. As per the AO, the impugned amount of interest of Rs. 6,85,971.00 was not arising to the assessee from the activities of financing to the members. Thus the AO disallowed the deduction claimed by the assessee for Rs. 4,65,000.00 under section 80P(2)(a)(i) of the Act. 4. Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO. 5. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 6. The learned DR vehemently supported the order of the authorities below. 7. We have heard the ld. DR and perused the materials available on record. The provisions of section 80P(2)(a)(i) of the Act provides for the deduction to a co- operative society engaged in the business of banking or providing credit facilities to its members. The provisions of the section are without any ambiguity. In other ITA nos.1308 & 1309 /AHD/2019 A.Ys. 2014-15 & 2015-16 3 words, the income from the activity of financing from the members is only eligible for deduction under section 80P(2)(a)(i) of the Act. If there is any income arising to the co-operative society from the non-members that will not be subject to deduction under section 80P(2)(a)(i) of the Act. In holding so we draw support and guidance from the judgment of the Hon’ble Gujarat High Court in the case of State Bank of India versus CIT reported in 72 Taxmann.com 64 wherein it was held as under: The Income Tax Appellate Tribunal was also justified in holding that interest income of Rs.16,14,579/- and Rs.32,83,410/-respectively on deposits placed with State Bank of India was not exempt under section 80P(2)(a)(i) of the Income Tax Act, 1961. 8. In view of the above, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i) of the Act. Thus, there remains no ambiguity that income received by the assessee from non-members is not eligible for deduction under section 80P(2)(a)(i) of the Act. 9. In the recent judgment, in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT reported in 123 taxmann.com 161, the Hon'ble Supreme Court of India observed that the primary agricultural credit societies were held to be entitled to the benefit of the deduction contained in Section 80P(2)(a)(i) of the Act, notwithstanding the fact that the society may also be giving loans to its members which are not related to agriculture. However, if it is found that there are instances of loans being given to the non-members, profits attributable to such loans obviously were not liable to be deducted. The essence of this decision is that absolute denial of deduction under Section 80P(2)(a)(i) of the Act to the assessee's (cooperative societies) engaged in the providing credit facilities to the non-members along with its members is not warranted under the Act and only that part of profit and gains that is attributable and/or pertains to the non-members shall not be allowed as deduction under Section 80P(2)(a)(i) of the Act. The pertinent observation of the Hon'ble Court is reproduced as under: ITA nos.1308 & 1309 /AHD/2019 A.Ys. 2014-15 & 2015-16 4 “Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non- members, profits attributable to such loans obviously cannot be deducted.” 9.1 Thus, the profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. In view of the above, we do not find any merits in the argument advanced by the learned counsel for the assessee. 9.2 The next aspect arises how to determine the income which is not eligible for deduction under section 80P(2)(a)(i) of the Act. It is for the reason that the assessee is not maintaining any separate books of accounts qua the income from non- members as discussed above. The income on the deposits from the non-members has been treated as income from other sources but the gross income cannot be excluded from the deduction available to the assessee under the provisions of section 80P(2)(a)(i) of the Act. It is the net interest income on the deposits from the non-members which needs to be excluded from the amount of deduction claimed under section 80P(2)(a)(i) of the Act and the same should be brought to tax under the head income from other sources under the provisions of section 56 of the Act. To determine, the net income from the non-members, amount of expenses incurred in generating such interest income should be allowed as deduction from the gross income of interest in pursuance to the provisions of section 57 of the Act. The provisions of section 57 of the Act reads as under: (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income; 9.3 The above provisions require to deduct the expenses from the income which have been incurred wholly and exclusively for the purpose of earning such income. Thus we direct the AO to work out the interest income from the non-members after ITA nos.1308 & 1309 /AHD/2019 A.Ys. 2014-15 & 2015-16 5 deducting the corresponding expenses incurred by the assessee in generating the interest income. To our understanding such expenses have to be brought on record by the assessee based on cogent materials. Furthermore, if the assessee has made deposits in the banks out of the money borrowed from the members, then the corresponding interest cost borne by the assessee should be allowed as deduction. 9.4 Thus, we hold that there is no infirmity in the order of the learned CIT (A), requiring any interference. Hence, we uphold the same. Hence, the ground of appeal of the assessee is dismissed in terms of above direction. 10. In the result, the appeal filed by the assessee is allowed for the statistical purposes. Coming to ITA 1309/AHD/2019 for A.Y. 2015-16 11. At the outset, we note that the issues raised by the assessee in this ground of appeal is identical to the issues raised by the assessee in ITA No. 1308/AHD/2019 for the assessment year 2014-15. Therefore, the findings given in ITA No. 1308/AHD/2019 shall also be applicable for the year under consideration i.e. AY 2015-16. The appeal of the assessee for the assessment year 2014-15 has been decided by us vide paragraph No.9 to 9.7 of this order in favour of the revenue and against assessee. The DR also agreed that whatever will be the findings for the assessment year 2014-15 shall also be applied for the year under consideration i.e. AY 2015-16. Hence, the ground of appeal filed by the Assessee is dismissed in terms ITA nos.1308 & 1309 /AHD/2019 A.Ys. 2014-15 & 2015-16 6 of the direction given in ITA No. 1308/AHD/2019. 12. In the result, the appeal filed by the assessee is allowed for the statistical purposes. 13. In the combined result both the appeals of the assessee are allowed for the statistical purposes. Order pronounced in the Court on 29/11/2021 at Ahmedabad. Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 29/11/2021 Manish