M/s. Narimogaru Primary Agricultural Credit Co-operative Society Limited, Puttur V. The Income Tax Officer, Ward- 1, Puttur

ITA 1399/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7128 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 11-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard
• Section: 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1399/BANG/2019 ASSESSMENT YEAR : 201617 M/S NARIMOGARU PRIMARY AGRICULTURAL CREDIT CO- OPERATIVE SOCIETY LTD., NO.1, NARIMOGARUPOST, PUTTUR TALUK, PUTTUR. PAN AACAN 4873 F VS. THE INCOME T AX OFFICER WARD-1, PUTTUR. APPELLANT RESPONDENT APPELLANT BY : SHRI PRASHANTH G.S, C.A RESPONDENT BY : SHRI PRADEEP KUMAR , CIT DATE OF HEARING : 0 1 - 0 9 - 2020 DATE OF PRONOUNCEMENT : 01 - 0 9 - 2020 ORDER PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAINST O RDER DATED 30/03/2019 PASSED BY LD.CIT (A), BANGALORE FOR ASSE SSMENT YEARS 2015-16 PAGE 2 OF 7 ITA NO. 1399/BANG/2019 2. AT THE OUTSET LD.AR SUBMITTED THAT, ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED UNDER KARNATAKA CO-OPERATIVE SOC IETIES ACT 1959 AND IS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND DISTRIBUTION OF RATION CARD. ONLY ISSUE ALLEDGED BY ASSESSEE IN PRESENT APPEAL IS REGARDING DENIAL OF D EDUCTION UNDER SECTION 80P OF THE ACT. 3. ASSESSEE DURING YEAR UNDER CONSIDERATION FILED NI L RETURN OF INCOME AFTER CLAIMING DEDUCTION OF RS.84 67,703 /- UNDER SECTION 80P OF THE ACT. THE RETURN WAS SELECTED FOR SCRUTIN Y AND DURING ASSESSMENT PROCEEDINGS, LD.AO NOTICED THAT PRINCIPL ES OF MUTUALITY WERE VIOLATED BY ASSESSEE. LD.AO THUS DENIED DEDUCT ION CLAIMED UNDER SECTION 80P OF THE ACT, BY FOLLOWING DECISION OF HONBLE SUPREME COURT IN CASE OF C ITIZEN CO-OPERATIVE SOCIETY LTD. , REPORTED IN (2017)84 TAXMAN.COM114 . LD.AO DISALLOWED ENTIRE DEDUCTION UNDER SECTION 80P BY OBSERVING AS UNDER: A) INTEREST INCOME EARNED OUT OF INVESTMENT WITH CO-OP ERATIVE BANKS WAS TREATED AS INCOME FROM OTHER SOURCES NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(D) RELYING ON HONBLE KARNATAKA HIGH COURT DECISION IN CASE OF M/STOTGARS CO- OPERATIVE SALE SOCIETY LTD DATED 16/06/2017 . B) THE PRINCIPLES OF MUTUALITY WERE VIOLATED RELYING O N THE DECISION OF HONBLE APEX COURT IN CASE OF M/S.CITIZEN CO- OPERATIVE SOCIETY LTD., HYDRABAD DATED 08/09/2017 4. AGGRIEVED BY ADDITION MADE BY LD.AO, ASSESSEE PREF ERRED APPEAL BEFORE LD.CIT(A) PAGE 3 OF 7 ITA NO. 1399/BANG/2019 5. LD.CIT(A) OBSERVED THAT, NOMINAL MEMBERS DO NOT CO NTRIBUTE TO SHARE CAPITAL AND PAYS RS.50 WORDS ADMISSION FEE WH ICH IS CREDITED TO P&L ACCOUNT. IT WAS ALSO RECORDED BY LD.CIT(A) T HAT ASSESSEE HAS 279 NOMINAL MEMBERS AND THEIR NOT REFLECTED IN BALA NCE SHEET AS MEMBERS AT ALL. LD.CIT (A) NOTED THAT, LOANS HAVE B EEN ADVANCED TO NOMINAL MEMBERS, AGAINST WHICH INTEREST HAS BEEN EA RNED BY ASSESSEE. HE ALSO NOTED THAT THE NOMINAL MEMBERS WE RE ADMITTED AT A VERY LOW FEE OF RS. 25/-AS AND WHEN REQUIRED. HE THUS UPHELD OBSERVATIONS BY LD.AO AND CONFIRMED THE ADDITION MADE THEREIN RELYING ON DECISION OF HONBLE APEX COURT IN CASE OF M/S.CITIZEN CO-OPERATIVE SOCIETY LTD . 6. AGGRIEVED BY ORDERS OF LD.CIT(A), ASSESSEE IS IN A PPEAL BEFORE US NOW. 6.1. LD.AR REFERRED TO A CHART REPRODUCED BY LD.CIT(A) AT PAGE 10 OF HIS ORDER. LD.AR SUBMITTED THAT, 6.2. LD.AR SUBMITTED THAT IT HAS NOT VIOLATED ANY OF TH E PROVISIONS OF KARNATAKA CO-OPERATIVE SOCIETIES ACT AND THAT ME MBERS INCLUDE NOMINAL AND ASSOCIATE MEMBERS. IT HAS BEEN SUBMITTE D THAT ONLY JEWEL LOANS ARE GIVEN TO NOMINAL MEMBERS WHICH IS A BOUT 10% OF TOTAL ADVANCES, AND THAT, SUCH JEWEL LOANS ARE ONLY GIVEN TO FARMERS WHO HOLD AGRICULTURAL LAND. 6.3. HE SUBMITTED THAT, RATIO OF HONBLE SUPREME COURT IN CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD., (SUPRA) , WILL NOT BE APPLICABLE TO FACTS OF PRESENT CASE. LD.AR SUBMITTED THAT, ASSESS EES FACTS ARE MORE SIMILAR WITH FACTS IN CASE OF TUMKUR MERCHANS SOUHARDA CREDIT PAGE 4 OF 7 ITA NO. 1399/BANG/2019 CO-OPERATIVE LTD. VS.ITO , REPORTED IN 230 TAXMAN 309 . HE ALSO SUBMITTED THAT, THERE HAS BEEN VARIOUS DECISIONS OF THIS TRIBUNAL , WHEREIN IDENTICAL ISSUE HAS BEEN REMANDED TO LD.AO FOR DUE VERIFICATION OF FACTS. 7. ON THE CONTRARY, LD.SR.DR SUBMITTED THAT, ISSUE MA Y BE REMANDED TO LD.AO FOR DUE VERIFICATION OF FACTS IN THE LIGHT OF DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT , AS WELL AS HONBLE APEX COURT REFERRED TO HEREIN. 8. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 8.1. GRIEVANCE OF ASSESSEE IS THAT, IN ITS CASE TEST OF MUTUALITY IS SATISFIED, HOWEVER, LD.CIT(A) DID NOT SPELL OUT AS TO HOW THE SAID TEST FAILS. WE ARE OF THE VIEW THAT, SUCH GRIEVANCE OF ASSESSEE WOULD BE ADDRESSED BY SETTING ASIDE ISSUE OF DEDUCTION U/ S.80P(2)(A)(I) OF THE ACT TO LD.AO FOR CONSIDERATION AFRESH, WITH A D IRECTION TO ASSESSEE TO PRODUCE CERTIFICATE FROM RBI, THAT IT D OES NOT POSSESS LICENSE FROM IT FOR DOING BANKING BUSINESS, AND FUR THER THAT, BUSINESS CARRIED ON BY ASSESSEE IS NOT AKIN TO BUSI NESS OF A CO- OPERATIVE BANK. FURTHER, FIRST PART OF SEC.80P(2)(A )(I) ALLOWS DEDUCTION IN RESPECT OF INCOME DERIVED BY A CO-OPER ATIVE SOCIETY FROM BUSINESS OF BANKING. EVEN CLAIM OF THE ASSESSEE FOR DEDUCTION REQUIRES TO BE EXAMINED UNDER FIRST PART OF SEC.80P(2)(A)(I) OF THE ACT. HON'BLE SUPREME COURT IN CASE OF CITIZEN CO- OPERATIVE SOCIETY LTD. ( SUPRA ) HAS HELD THAT, IT IS ALSO IMPORTANT TO ASCERTAIN AS TO WHAT IS THE NATURE OF INCOME WHI CH IS CLAIMED AS PAGE 5 OF 7 ITA NO. 1399/BANG/2019 EXEMPT, AND AS TO HOW PRINCIPLE OF MUTUALITY IS NOT VIOLATED IN RESPECT OF SUCH INCOME. 8.2. AN EXAMINATION OF (I) MEMORANDUM OF ASSOCIATION, AR TICLES OF ASSOCIATION, (II) BYELAWS AND OTHER DOCUMENTS EXPLA INING RULES AND REGULATIONS OF THE SOCIETY IS NECESSARY, SO AS TO C LEARLY UNDERSTAND THE PURPOSE AND THE NATURE OF BUSINESS DONE BY IT. AN EXAMINATION OF DIFFERENT CATEGORIES OF MEMBERS OF A SOCIETY AND WHAT ARE THE CONDITIONS ATTACHED TO THEIR BEING ADMITTED AS MEMB ERS AND THEIR RIGHTS AS CONTRIBUTORS OF FUNDS TO THE SOCIETY AND PARTICIPANTS IN SURPLUS AND THE BYELAWS OF THE SOCIETY IS NECESSARY . DEDUCTION U/S.80P2(A)(I) IS ALLOWED ONLY IN RESPECT OF INCOME ARISING OUT OF TRANSACTIONS WITH MEMBERS. THE RELEVANT LAW GOVERNI NG CO-OPERATIVE SOCIETY OF STATE PROVIDING STATUS OF DIFFERENT CATE GORIES OF MEMBERS, IN SO FAR AS AFFAIRS OF CO- OPERATIVE SOCIETY ARE C ONCERNED, IS ALSO REQUIRED TO BE EXAMINED. IT IS ONLY INCOME WHICH AR ISES FROM DEALING WITH MEMBERS AND WHICH IS EITHER IN THE NATURE OF B ANKING OR PROVIDING CREDIT FACILITIES TO MEMBERS THAT WOULD B E ALLOWED AS DEDUCTION. ALL THESE ASPECTS REQUIRES EXAMINATION. LD.AO WILL ALLOW OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND FILI NG APPROPRIATE EVIDENCE, IF DESIRED, BY THE ASSESSEE TO SUBSTANTIA TE ITS CASE, BEFORE DECIDING THE ISSUE. ACCORDINGLY, GROUNDS RAISED BY ASSESSEE STANDS ALLO WED FOR STATISTICAL PURPOSES. PAGE 6 OF 7 ITA NO. 1399/BANG/2019 IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 1 ST SEPT, 2020. SD/- SD/- (CHANDRA POOJARI) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 1 ST SEPT, 2020. /VMS/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL. BANGALORE. PAGE 7 OF 7 ITA NO. 1399/BANG/2019 DATE INITIAL 1. DRAFT DICTATED ON ON DRAGON SR.PS 2. DRAFT PLACED BEFORE AUTHOR - 0 9 - 2020 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER - 0 9 - 2020 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. - 0 9 - 2020 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS - 0 9 - 2020 SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON - 0 9 - 2020 SR.PS 7. DATE OF UPLOADING THE ORDER ON WEBSITE - 0 9 - 2020 SR.PS 8. IF NOT UPLOADED, FURNISH THE REASON - 09 - 2020 SR.PS 9. FILE SENT TO THE BENCH CLERK - 0 9 - 2020 SR.PS 10. DATE ON WHICH FILE GOES TO THE AR 11. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 12. DATE OF DISPATCH OF ORDER. 13. DRAFT DICTATION SHEETS ARE ATTACHED NO SR.PS