M/s. Srinagara Credit Co-operative Society Limited, Bangalore V. Income Tax Officer, Ward- 5(2)(5), Bangalore

ITA 133/BANG/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6235 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-04-2021
• Assessment Year: 2011-2012
• Appeal Filed On: 28-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Set aside
• Section: 80P; 148; 12

Judgement Text

ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER SMC ITA NO.133/BANG/2020 ASSESSMENT YEAR: 2011-12 M/S. SRINAGARA CREDIT COOPERATIVE SOCIETY LIMITED NO.897, 1 ST FLOOR, 12 TH MAIN ROAD 4 TH CROSS, HANUMANTH NAGAR BENGALURU 560 019. PAN NO : AAAAS9196A VS. ITO WARD-5(2)(5) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI RAVI SHANKAR, A.R. RESPONDENT BY : SHRI GANESH R. GHALE, STANDING COUNSEL DATE OF HEARING : 20.04.2021 DATE OF PRONOUNCEMENT : 21.04.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 29.11.2019 PASSED BY LD. CIT(A)-5, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2011-12. THE GROUNDS OF APPEAL AND THE ADDITIONAL GROUNDS OF APPEAL URGED BY THE ASSESSEE GIVE RISE TO THE FOLLOWING ISSUES: A) VALIDITY OF RE-OPENING OF ASSESSMENT U/S 148 OF THE INCOME- TAX ACT,1961 ['THE ACT' FOR SHORT]. B) DENIAL OF EXEMPTION U/S 80P(2)(D) OF THE ACT IN RES PECT OF INTEREST INCOME EARNED FROM CO-OPERATIVE BANKS. ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE PAGE 2 OF 7 C) DENIAL OF DEDUCTION U/S 80P OF THE ACT IN RESPECT O F COMMISSION INCOME EARNED ON SALE OF E-STAMPS. 2. I HEARD THE PARTIES AND PERUSED THE RECORD. THE FACTS RELATING TO THE CASE ARE STATED IN BRIEF. THE ASSESSEE ORIG INALLY FILED ITS RETURN OF INCOME DECLARING NIL TOTAL INCOME AFTER C LAIMING DEDUCTION U/S 80P OF THE ACT. IN ASSESSMENT YEAR 2013-14 & 2 014-15, THE A.O. REJECTED THE CLAIM FOR DEDUCTION U/S 80P OF TH E ACT. CONSEQUENTLY, THE A.O RE-OPENED THE ASSESSMENT OF Y EAR UNDER CONSIDERATION BY ISSUING NOTICE U/S 148 OF THE ACT. IN THE REOPENED ASSESSMENT, THE A.O. REJECTED THE CLAIM FOR DEDUCTI ON U/S 80P OF THE ACT BY HOLDING THAT THE ASSESSEE IS DEALING WIT H NOMINAL MEMBERS AND HENCE, FAILS IN THE PRINCIPLE OF MUTUAL ITY. IN SUPPORT OF THIS PROPOSITION, THE AO PLACED HIS RELIANCE ON THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE CASE OF CI TIZEN CO- OPERATIVE SOCIETY LTD. (250 TAXMAN 78). ACCORDINGL Y, THE AO HELD THAT THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT. THE ASSESSEE HAD ALSO EARNED COMMISSION INCOME ON S ALE OF E- STAMPS AND THE A.O. HELD THAT THE SAME IS NOT ELIGI BLE FOR DEDUCTION U/S 80P OF THE ACT. THE ASSESSEE HAD ALSO EARNED I NTEREST INCOME OF RS.27.75 LAKHS FROM DEPOSITS KEPT WITH VARIOUS C O-OPERATIVE BANKS. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE INTEREST INCOME IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) O F THE ACT. IN THE ALTERNATIVE, THE ASSESSEE CLAIMED THAT THE SAME IS DEDUCTIBLE U/S 80P(2)(D) OF THE ACT. THE A.O. REJECTED THE ALTERN ATIVE CLAIM ALSO BY FOLLOWING DECISION RENDERED BY HONBLE KARNATAKA HI GH COURT IN THE CASE OF PRINCIPAL CIT VS. TOTGARS CO-OPERATIVE SALE S SOCIETY (2017) 83 TAXMANN.COM 140. ACCORDINGLY, THE A.O. BROUGHT TO TAX THE ENTIRE INCOME OF THE ASSESSEE. 3. IN THE APPELLATE PROCEEDINGS, THE LD. CIT(A) N OTICED THAT THE ASSESSEE HAS NOT TRANSACTED ITS BUSINESS WITH NOMIN AL MEMBERS ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE PAGE 3 OF 7 AND ACCORDINGLY, HELD THAT THE FACTS OF THE PRESENT CASE IS DISTINGUISHABLE FROM THE FACTS PREVAILING IN THE CA SE OF CITIZEN CO- OPERATIVE SOCIETY LTD. (SUPRA). ACCORDINGLY, THE L D. CIT(A) HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A )(I) OF THE ACT IN RESPECT OF ITS BUSINESS INCOME. HOWEVER, HE CONFIR MED THE DISALLOWANCE U/S 80P(2)(D) OF THE ACT IN RESPECT OF INTEREST INCOME AND ALSO REJECTION OF DEDUCTION U/S 80P(2)(C) IN RE SPECT OF COMMISSION INCOME EARNED ON SALE OF E-STAMPS. AGGR IEVED, THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 4. BEFORE THE TRIBUNAL, THE ASSESSEE HAS RAISED A L EGAL ISSUE CHALLENGING THE VALIDITY OF RE-OPENING OF ASSESSMEN T BESIDES CONTESTING THE DISALLOWANCE OF DEDUCTION U/S 80P(2) (C) AND 80P(2)(D) OF THE ACT. 5. I FIRST TAKE UP THE ISSUES URGED ON MERITS. WIT H REGARD TO CLAIM FOR DEDUCTION U/S 80P(2)(D) OF THE ACT, THE L D. A.R. SUBMITTED THAT THE HONBLE KARNATAKA HIGH COURT HAS PASSED AN ORDER IN THE CASE OF TOTGARS CO-OPERATIVE SALES SOCIETY LTD. (58 TAXMANN.COM 35), CONSEQUENT TO THE SETTING ASIDE OF THE ISSUE R ELATING TO DEDUCTION U/S 80P(2)(D) OF THE ACT TO ITS FILE BY H ONBLE SUPREME COURT. THE HONBLE KARNATAKA HIGH COURT HAS HELD I N THE CASE REPORTED IN 58 TAXMANN.COM 35 THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF PROPORTIONATE COST, ADMINISTRATIVE AND OTHER EXPENSES AGAINST THE INTEREST INCOME. THE LD. A.R. SUBMITTE D THAT THE ABOVE SAID DECISION OF HONBLE HIGH COURT OF KARNATAKA HA S BEEN FOLLOWED BY THE BENGALURU BENCH OF TRIBUNAL IN THE CASE OF K ARKALA CO-OP. S. BANK LTD. VS. ITO (ITA NO.1288 & 1289/BANG/2019 DATED 18.2.2021). ACCORDINGLY, HE PRAYED THAT SIMILAR DI RECTION MAY BE GIVEN IN THIS CASE ALSO. WITH REGARD TO COMMISSION EARNED ON SALE OF E-STAMPS, THE LD A.R SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(C) OF THE ACT. ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE PAGE 4 OF 7 6. THE LD D.R ADMITTED THAT THE DECISION RENDER ED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF TOTGARS CO-OPER ATIVE SALES SOCIETY LTD. (58 TAXMANN.COM 35) MAY BE APPLIED IN THE INSTANT CASE. WITH REGARD TO THE DEDUCTION CLAIMED U/S 80P (2)(C) IN RESPECT OF COMMISSION INCOME, THE LD D.R FAIRLY AGREED THAT THE ASSESSEE IS ELIGIBLE FOR THE SAID DEDUCTION IN RESPECT OF COMMI SSION INCOME. 7. I HEARD THE PARTIES AND PERUSED THE RECORD. IN THE CASE OF KARKALA CO-OP. S. BANK LTD. VS. ITO (SUPRA), THE BA NGALORE BENCH OF TRIBUNAL HAS CONSIDERED ISSUE OF ELIGIBILITY OF THE ASSESSEE TO CLAIM DEDUCTION U/S 80P(2)(D) AND IT WAS HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF EXPENSES INCURRED FOR EAR NING THE INTEREST INCOME. THE RELEVANT OBSERVATIONS MADE BY THE TRIB UNAL ARE EXTRACTED BELOW:- 7. THE NEXT COMMON ISSUE RELATES TO REJECTION OF D EDUCTION CLAIMED U/S 80P(2)(D) OF THE ACT IN RESPECT OF INTE REST INCOME EARNED FROM FIXED DEPOSITS KEPT WITH BANK. WE NOTI CED EARLIER THAT THE A.O. HAS OBSERVED IN ASSESSMENT YEAR 2015-16 TH AT THE INTEREST INCOME RECEIVED BY THE ASSESSEE FROM DEPOS ITS KEPT WITH BANKS IS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(C) & 80P(2)(D) OF THE ACT SINCE THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTIO N U/S 80P(2)(A)(I) OF THE ACT. IN AY 2016-17, THE AO ASSESSED THE IN TEREST INCOME RECEIVED ON BANK DEPOSITS UNDER THE HEAD INCOME FR OM OTHER SOURCES AND DENIED DEDUCTION CLAIMED U/S 80P(2)(D) OF THE ACT. THE LD CIT(A) CONFIRMED THE ACTION OF THE AO ON THI S ISSUE. 8. THE LD. A.R. SUBMITTED THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION ALLOWABLE U/S 57 OF THE ACT IN RESPECT OF COST OF FUNDS AND PROPORTIONATE ADMINISTRATIVE AND OTHER EXPENSES . IN SUPPORT OF THIS SUBMISSION, THE LD. A.R. PLACED RELIANCE ON THE DECISION RENDERED BY HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2015) 58 TA XMANN.COM 35 (KARN). THE LD. A.R. SUBMITTED THAT THE ASSESSEE I N THE ABOVE SAID ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE PAGE 5 OF 7 CASE HAD PUT FORTH IDENTICAL CLAIM CLAIM BEFORE HON BLE SUPREME COURT IN THE CASE REPORTED AS TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (2010) 188 TAXMANN.COM 282 AND THE HONBLE SUPREME COURT, VIDE 14 OF ITS ORDER, HAD RESTORED THE QUEST ION RAISED BY THE ASSESSEE TO THE FILE OF HONBLE HIGH COURT OF KARNA TAKA. CONSEQUENT THERETO, THE HONBLE HIGH COURT OF KARNA TAKA HAS PASSED THE ORDER IN THE CASE REPORTED IN 58 TAXMANN .COM 35 AND HELD THAT THE TRIBUNAL WAS NOT RIGHT IN COMING TO T HE CONCLUSION THAT THE INTEREST EARNED BY THE APPELLANT IS AN INC OME FROM OTHER SOURCES WITHOUT ALLOWING DEDUCTION IN RESPECT OF PR OPORTIONATE COST, ADMINISTRATIVE EXPENSES INCURRED IN RESPECT O F SUCH DEPOSITS. ACCORDINGLY, THE LD. A.R. PRAYED THAT THE A.O. MAY BE DIRECTED TO ALLOW DEDUCTION OF PROPORTIONATE COST, ADMINISTRATI VE AND OTHER EXPENSES, IF THE A.O. PROPOSES TO ASSESS THE INTERE ST INCOME EARNED FROM BANK DEPOSITS AS INCOME UNDER THE HEAD OTHER SOURCES. 9. WE HEARD LD. D.R. ON THIS ISSUE. WE FIND MERIT IN THE PRAYER OF THE ASSESSEE, SINCE IT IS SUPPORTED BY THE DECIS ION RENDERED BY HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TOTG ARS CO- OPERATIVE SALE SOCIETY LTD. VS. ITO (2015) 58 TAXMA NN.COM 35 (KARN). ACCORDINGLY, WE DIRECT THE A.O. TO ALLOW D EDUCTION OF PROPORTIONATE COST, ADMINISTRATIVE AND OTHER EXPENS ES, IF THE A.O. PROPOSES TO ASSESS THE INTEREST INCOME EARNED FROM BANK DEPOSITS AS INCOME UNDER THE HEAD OTHER SOURCES. FOLLOWING THE ABOVE SAID DECISION OF THE TRIBUNAL, WE SET ASIDE THE ORDER PASSED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO ALLOW DEDUCTIO N OF PROPORTIONATE COST, ADMINISTRATIVE AND OTHER EXPENSES, IF THE A.O . PROPOSES TO ASSESS THE INTEREST INCOME EARNED FROM BANK DEPOSIT S AS INCOME UNDER THE HEAD OTHER SOURCES. 8. THE NEXT ISSUE RELATES TO THE DEDUCTION CL AIM U/S 80P(2)(C) OF THE ACT IN RESPECT OF COMMISSION INCOME EARNED ON S ALE OF E- ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE PAGE 6 OF 7 STAMPS. I NOTICE THAT THE TAX AUTHORITIES HAVE REJ ECTED THE CLAIM ONLY ON THE GROUND THAT THE COMMISSION INCOME HAS B EEN EARNED MAINLY FROM OUTSIDERS AND NOT MAINLY FROM MEMBERS. HOWEVER, A PERUSAL OF PROVISIONS OF SEC.80P(2)(C) WOULD SHOW T HAT THERE IS NO SUCH RESTRICTION PRESCRIBED IN IT. SECTION 80P(2)( C) PRESCRIBES DEDUCTION IN THE CASE OF A CO-OPERATIVE SOCIETY ENG AGED IN ACTIVITIES OTHER THAN THOSE SPECIFIED IN CLAUSE (A) OR CLAUSE (B). IT FURTHER STATES THAT THE DEDUCTION U/S 80P(2)(C) IS ALLOWABL E TO SO MUCH OF ITS PROFITS AND GAINS ATTRIBUTABLE TO SUCH ACTIVITI ES AS DOES NOT EXCEED THE AMOUNT PRESCRIBED. THUS THE QUANTUM OF DEDUCTION IS THE AMOUNT OF PROFITS AND GAINS ATTRIBUTABLE TO THE ACTIVITIES SUBJECT TO THE MAXIMUM AMOUNT PRESCRIBED THEREIN. H ENCE, I AM OF THE VIEW THAT THE ASSESSEE WOULD BE ELIGIBLE FOR DE DUCTION U/S 80P(2)(C) OF THE ACT IN RESPECT OF COMMISSION INCOM E ON SALE OF E- STAMPS, SINCE IT IS NOT ONE OF THE ACTIVITIES MENTI ONED IN CLAUSE (A) OR (B). HOWEVER, I NOTICE THAT IT IS NECESSARY TO FIRST DETERMINE THE PROFITS AND GAINS ATTRIBUTABLE TO THE ACTIVITIES O F EARNING COMMISSION INCOME ON SALE OF E-STAMPS AND THEN COM PUTE DEDUCTION U/S 80P(2)(C) SUBJECT TO THE LIMITS PRESC RIBED IN THE SAID PROVISION. ACCORDINGLY, THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF AO. ACCORDINGLY, I SET ASIDE THE ORDER PASS ED BY LD CIT(A) ON THIS ISSUE AND RESTORE THE SAME TO THE FILE OF AO F OR EXAMINING IT AFRESH IN THE LIGHT OF DISCUSSIONS MADE SUPRA. 9. SINCE I HAVE DECIDED THE ISSUES CONTESTED ON MERITS IN FAVOUR OF THE ASSESSEE, THE LEGAL ISSUE URGED BY THE ASSES SEE WOULD BECOME ACADEMIC. HENCE I DECLINE TO ADJUDICATE THE SAME A ND LEAVE THE SAME OPEN. ITA NO.133/BANG/2020 M/S. SRINAGARA CREDIT CO-OPERATIVE SOCIETY LIMITED, BANGALORE PAGE 7 OF 7 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST APR, 2021 SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 21 ST APR, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.