Solapur District Central Co-op. Bank Employees Credit Co-op. Society Ltd., V. Income-tax Officer,

ITA 1553/PUN/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1071 (ITAT-PUNE)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 18-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUHAS S KULKARNI
• Assessee Lawyers: S N DOSHI
• Keywords: Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE . . , BEFORE SHRI R.K. PANDA, AM . / ITA NO.1553/PN/2016 / ASSESSMENT YEAR : 2009-10 SOLAPUR DISTRICT CENTRAL CO - OP. BANK EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD., 103, GOLD FINCH PETH, SOLAPUR PAN :AABAS9454N . / APPELLANT V/S ITO, WARD - 2 (4), SOLAPUR . / RESPONDENT / APPELLANT BY : SHRI S.N. DOSHI & PIYUSH BAFNA / RESPONDENT BY : SHRI SUHAS S. KULKARNI / ORDER PER R.K.PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22-02-2016 OF THE CIT(A)-7, PUNE RELATING TO THE A SSESSMENT YEAR 2009-10. 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN NOT ALLOWING THE DEDUCTION OF INCOME U/S. 80P(2) (A) (I) FOR RS 3,07,571/- OVERLOOKING THE FACT THAT INCOME FROM IN SURANCE COMMISSION BUSINESS IS PART OF BANKING BUSINESS AND ELIGIBLE FOR DEDU CTION. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO GROUND NO.1, LD. CIT(A) HAS ERRED IN NO T ALLOWING THE DEDUCTION OF ENTIRE EXPENDITURE OF RS. 3,54,029/- I NCURRED WHILE CARRYING ON THE BUSINESS OF INSURANCE COMMISSION AGAINST THE INSURAN CE COMMISSION INCOME OF RS. 3,07,571/-. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO ABOVE GROUND NO.1, LD. CIT(A) HAS FURTH ER ERRED IN NOT ALLOWING THE CARRY FORWARD OF LOSS OF RS.46,158/- ARI SING OUT OF INSURANCE COMMISSION BUSINESS. / DATE OF HEARING :25.08.2016 / DATE OF PRONOUNCEMENT:26.08.2016 2 ITA NO.1553/PN/2016 4) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND WITHOUT PREJUDICE TO THE ABOVE GROUND NO.1, 2 & 3, LD. CIT(A) HAS ERRED IN NOT ALLOWING THE PROPORTIONATE EXPENSES ATTRIBUTABLE TO THE INSURANCE COMMISSION BUSINESS OUT OF THE TOTAL EXPENSES DEBITED TO T HE P & L A/C. 5) THE ABOVE GROUNDS OF APPEAL MAY KINDLY BE ALLOWED TO BE AMENDED, ALTERED AND/OR MODIFIED IN THE INTEREST OF NATURAL JUSTICE. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COOPERATIVE CREDIT SOCIETY REGISTERED UNDER THE MAHARAS HTRA STATE COOPERATIVE SOCIETIES ACT, 1960 ENGAGED IN TWO ACTIVITIES M AINLY PROVIDING CREDIT FACILITY TO ITS MEMBERS AND SUBSIDIARY ACTIVIT Y IS INSURANCE AGENCY BUSINESS. IT FILED ITS RETURN OF INCOME ON 20-09- 2009 DECLARING TOTAL INCOME OF RS.16,170/-. DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE AO ON SCRUTINY OF THE PROFIT & LOSS ACCOUNT AND COMPUTATION OF INCOME FOUND THAT THE ASSES SEE CO- OPERATIVE SOCIETY HAS RECEIVED 'INSURANCE AGENCY COMMI SSION' OF RS.3,07,871/-. BESIDE THIS, THE ASSESSEE SOCIETY IS ALSO IN R ECEIPT OF INTEREST ON LOAN FROM ITS MEMBERS, NOMINATION FEES, INTEREST ON INVESTMENT WITH CO-OPERATIVE BANK ETC. AGGREGATING TO RS.3,66,79,582/-. WHILE COMPUTING THE DEDUCTION U/S. 80P ELIGIBLE ON BOTH THE INCOME I.E. INTEREST INCOME INCLUDING NOMINATION FEES, MISCELLANEOUS RECEIPTS AND INSURANCE AGENCY COMMISSION, T HE ASSESSEE HAS ALLOCATED THE EXPENDITURE ON BOTH THE INCO ME ON PRO- RATA BASIS I.E. RS.2,87,82,708/- AND RS.2,41,518/- ON INTEREST INCOME AND INSURANCE AGENCY COMMISSION RESPECTIVELY. CON SEQUENT THERE UPON THE ASSESSEE SOCIETY ARRIVED AT TAXABLE INCO ME ON THE ABOVE HEADS OF INCOME I.E., FROM (1) INTEREST AND (2) INSUR ANCE COMMISSION AT RS.78,96,874/-(RS. 3,66,79,582/- - RS.2,87,82,708/ -) & RS.66,167/- (RS. 3,07,871/- - RS. 2,41,704/-) RESPECTIVELY W HICH WOULD BE ELIGIBLE FOR DEDUCTION UNDER CLAUSE (A) & (C) OF SECTIO N 80P(2). CONSIDERING THE SAME, THE ASSESSEE HAS AVAILED DEDU CTION 3 ITA NO.1553/PN/2016 UNDER CLAUSE (A) OF SECTION 80P(2) AT THE FULLEST EXTENT OF INCOME AS COMPUTED IN COMPUTATION OF INCOME, WHEREAS AS ON THE TAX ABLE COMMISSION INCOME OF RS.66,167/- SO ARRIVED (AFTER SET OFF OF PRO- RATA EXPENSES) THE DEDUCTION UNDER SUB- CLAUSE (II) OF CLAUSE (C) O F SECTION 80P(2) OF RS.50,000/- HAD BEEN CLAIMED, TO ARRIVE AT RETURNE D INCOME OF RS.16,167/-. ON VERIFICATION OF RECORDS AND SUBMISSION MADE BY ASSESSEE SOCIETY THE AO NOTED THAT THE CLAIM OF EXPENDIT URE ON PRO- RATA BASIS ON THE INCOME QUALIFYING FOR DEDUCTION U/S 80P(2 )(C)(II) OF THE I.T. ACT IS NOT ELIGIBLE. HE THEREFORE DISALLOWED AN AMO UNT OF RS.2,41,704/- AND ADDED THE SAME TO THE TOTAL INCOME O F THE ASSESSEE. 4. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT DURING THE YEAR THE ASSESSEE SOCIETY HAS EARNED INSURANCE COMMISSION OF RS.3,0 7,571/- ON HEALTH INSURANCE (MEDI-CLAIM POLICY) TAKEN ON THE LIFE OF E ACH & EVERY MEMBER. THIS WAS COVERED IN OBJECT NO. B-1 (G) OF BY -LAWS OF THE SOCIETY APPROVED BY DISTRICT DEPUTY REGISTRAR OF CO- OPERATIVE SOCIETY. IT WAS NOTICED THAT HEALTH OF MEMBERS WHO HAV E TAKEN LOAN IS FINE SO THAT THERE SHOULDNT BE ANY PROBLEM OF RECOVERY OF THE SAME. THIS IS DONE AS AN INCIDENTAL ACTIVITY AND NOT AS PRIME A CTIVITY AND RELATES TO RECOVERY OF LOAN IN PEACEFUL MANNER. THEREFORE, IT IS NEEDED TO BE CONSIDERED AS ACTIVITY OF MAIN BUSINESS & HENCE DE DUCTION NEED TO BE ALLOWED U/S 80P(2)(A)(I) OF IT ACT. ALTERNATIVELY, IT WAS AR AGUED THAT THE ACTUAL EXPENDITURE DIRECTLY RELATING TO EARNING OF INSURANCE COMMISSION COMES TO RS. 3,54,029/- AS AGAINST INSURANCE COMMISSION OF RS. 3,07,871/- AND THEREFORE THERE WAS A LOS S OF RS.46,158/- WHICH NEED TO BE ALLOWED TO BE CARRIED FORWARD. 4 ITA NO.1553/PN/2016 5. HOWEVER, THE CIT(A) WAS ALSO NOT SATISFIED WITH THE EXPLA NATION GIVEN BY THE ASSESSEE AND UPHELD THE ACTION OF THE AO B Y OBSERVING AS UNDER : 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND LAW APPARENT FROM THE RECORDS. THE APPELLANT IS IN RECEIP T OF INSURANCE AGENCIES COMMISSION OF RS. 3,07,871/- AND RECEIPT OF IN TEREST ON LOAN/INVESTMENT ETC. OF RS. 3,66,19,582/-. THE APPELL ANT HAS ALLOCATED EXPENDITURE ON PRO-RATA BASIS I.E. RS. 2,41,518/- FOR INSURANCE AGENCY COMMISSION AND RS. 2,87,82,708/- FOR INTEREST INCOME. T HE APPELLANT HAVE CLAIMED DEDUCTION U/S 80P(2)(A) ON TOTAL INCOME AS COMPUTED IN COMPUTATION OF INCOME. THE AO DISALLOWED EXPENDITURE PERTAINING THE INSURANCE COMMISSION OF RS. 2,41,704/- AS IT HAS BEEN DISA LLOWED AS THIS EXPENDITURE PERTAINED TO INSURANCE AGENCY COMMISSION O N WHICH NO DEDUCTION U/S. 80P(2)(A)(I) IS PERMISSIBLE. THE APPELLA NT HAS ALSO CLAIMED DEDUCTION U/S. 80P(2)(C)(II) OF RS. 50,000/-. THE APP ELLANT CONTENDED THAT INSURANCE IS DONE TO SEE THAT HEALTH OF THE MEMBERS WHO HAVE TAKEN LOAN IS FINE SO THAT THERE SHOULD NOT BE ANY PROBLEM OF REC OVERY AND TRIED TO LINK THIS ACTIVITY WITH MAIN ACTIVITY AND APPELLANT CONTENDED THAT THIS IS DONE AS INCIDENTAL ACTIVITY AND NOT AS PRIME ACTIVITY . HENCE NEEDS TO BE CONSIDERED AS ACTIVITY OF MAIN BUSINESS HENCE TO ALLOWED U/S. 80P(2)(A)(I) ON CAREFUL CONSIDERATION IT SHOWS THAT APPELLANT IS CLA IMING U/S. 80P(2)(A)(I) AND U/S.80P(2)(C)(II), SIMULTANEOUSLY, WH ICH IS CONTRADICTORY IN ITSELF. THE PROVISIONS OF SECTION 80P(2)(C) EXCLUDES ACTIVITIES PERMISSIBLE U/S. 80P(2)(A) & U/S. 80P(2)(C). THEREFORE, ACTIVITY UNDER PURVIEW OF THE SECTION U/S. 80P(2)(A) WILL NOT FALL U NDER THE AMBIT OF THIS SECTION 80P(2)(C) BECAUSE OF THIS IT EXCLUDES. THEREFOR E, IN VIEW OF THIS FACTUAL POSITION ATTEMPT OF THE APPELLANT IS CONTRADI CTORY AND ACTION OF THE AO IS CONFIRMED. THEREFORE, ADDITION OF RS.2,41,704/- IS UPHELD AND GROUNDS NO.1 OF THE APPEAL IS DISMISSED. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED A COPY OF THE ORDER OF THE TRIBUNAL IN THE CASE OF JANATA BANK SEV AKANCHI SAHAKARI CREDIT SOCIETY LTD. VIDE ITA NO.1355/PN/2007 ORD ER DATED 24-02-2012 AND SUBMITTED THAT IDENTICAL ISSUE HAS BEEN D ECIDED IN FAVOUR OF THE ASSESSEE. THE TRIBUNAL IN THE SAID DECISION HAS HELD THAT RECEIPT OF INSURANCE COMMISSION ON THE PREMIUM PAID BY ITS MEMBERS WAS A PART OF THE BANKING BUSINESS ELIGIBLE FOR DED UCTION U/S.80P(2)(A) OF THE I.T. ACT. THEREFORE, THIS BEING A COVERED MATTER 5 ITA NO.1553/PN/2016 THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE ALLOWED. 8. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HA ND WHILE SUPPORTING THE ORDER OF THE CIT(A) FILED A COPY OF THE DECIS ION OF THE TRIBUNAL IN THE CASE OF PRAJ EMPLOYEES CREDIT COOPERATIVE SOCIETY LTD. VIDE ITA NO.418/PN/2013 ORDER DATED 28-10-2015 FOR A.Y. 2008- 09 AND SUBMITTED THAT THE TRIBUNAL IN THE SAID DECISION HA S DECIDED THE ISSUE AGAINST THE ASSESSEE. 9. THE LD. COUNSEL FOR THE ASSESSEE IN HIS REJOINDER SUB MITTED THAT THE DECISION RELIED ON BY THE LD. DR IS MISPLACED. T HE FACTS IN THE SAID CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE PR ESENT CASE BEFORE THE TRIBUNAL. THEREFORE, THE SAID DECISION CANNOT B E RELIED UPON. HE SUBMITTED THAT IN THE SAID DECISION THE CLAIM OF D EDUCTION U/S.80P(2)(A)(I) WAS DENIED SINCE THE ASSESSEE SOCIETY INSTEAD OF PERFORMING HIS WORK THROUGH ITS MEMBERS HAS OUTSOURCED THE ACTIVITIES THROUGH THIRD PARTIES FOR WHICH IT HAS EARNED CO MMISSION OF 1% OF THE TRANSACTION. THEREFORE, THE TRIBUNAL HELD THAT T HE ISSUE OF INCOME ATTRIBUTABLE TO THE COLLECTIVE DISPOSAL OF LABOUR IS MIS SING SINCE NO LABOUR WAS EXERCISED BY THE MEMBERS OF THE SOC IETY AND THE WORK ASSIGNED BY PRAJ INDUSTRIES LIMITED WAS OUTSOURCED ON THE CONDITION OF EARNING 1% COMMISSION. THE ASSESSEE HAD ACTE D LIKE ANY OTHER BUSINESSMAN. THEREFORE, IT WAS HELD THAT THE AS SESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S.80P(2)(A)(VI). HE ACCORDINGLY SUBMITTED THAT IN VIEW OF THE DECISION OF THE TRIBUNAL UND ER IDENTICAL CIRCUMSTANCES THE APPEAL FILED BY THE ASSESSEE SHOULD BE ALLOWED. 10. I HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. I HAVE ALSO CONSIDERED THE VARIOU S DECISIONS 6 ITA NO.1553/PN/2016 CITED BEFORE ME. I FIND THE ASSESSEE IN THE INSTANT CASE HAS EARNED INSURANCE COMMISSION OF RS.3,07,571/- OF HEALTH INSURANCE/MED I- CLAIM TAKEN ON THE LIFE OF ITS MEMBERS. THE ASSESSEE CLAIME D PRO-RATA EXPENSES OF RS.2,41,578/- AGAINST THE SAID COMMISSION INCOME . THEREAFTER, THE ASSESSEE CLAIMED DEDUCTION OF RS.50,000/- U/S.80P(2)(C) FROM THE NET COMMISSION INCOME OF RS.66,167/- AND RETURNED INCOME OF RS.16,167/-. THE AO HELD THAT THE INCO ME FROM INSURANCE COMMISSION IS NOT A PART OF BANKING BUSINESS. TH EREFORE, HE DISALLOWED THE CLAIM OF PRO-RATA EXPENSES. AFTER ALLOWING THE DEDUCTION OF RS.50,000/- U/S.80P(2)(A) THE AO MADE ADDITION OF RS.2,41,704/- TO THE TOTAL INCOME OF THE ASSESSEE. I FIND IN APPEAL THE LD.CIT(A) UPHELD THE ACTION OF THE AO. 11. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSE SSEE THAT IN VIEW OF THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN T HE CASE OF JANATA BANK SEVAKANCHI SAHAKARI CREDIT SOCIETY LTD. (SUPRA ) THE RECEIPT OF INSURANCE COMMISSION ON THE PREMIUM PAID BY ITS MEMBERS WAS A PART OF THE BANKING BUSINESS ELIGIBLE FOR DED UCTION U/S.80P(2)(A)(I). 12. I FIND MERIT IN THE ABOVE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE. THE QUESTION BEFORE THE TRIBUNAL IN THE SAID D ECISION WAS AS TO WHETHER THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80 P(2)(A)(I) OF THE ACT ON THE RECEIPT OF INSURANCE COMMISSION AS PART OF ITS BANKING BUSINESS. THE TRIBUNAL FOLLOWING THE DECISION OF THE PUNE BEN CH OF THE TRIBUNAL IN ASSESSEES OWN CASE AS WELL AS THE DECISIO N IN THE CASE OF KARAD URBAN COOPERATIVE BANK LTD. ALLOWED THE CLA IM OF THE ASSESSEE BY OBSERVING AS UNDER : 7 ITA NO.1553/PN/2016 7. WE FIND THAT AN IDENTICAL ISSUE IN THE ABOVE CITE D DECISIONS OF PUNE BENCH OF THE TRIBUNAL IN THE CASES OF JANATA BANK SEV AKANCH SAHAKARI CREDIT SOCIETY LTD. VS. ITO (SUPRA) AND KARAD URBAN C-OP. BANK LTD. VS. ITO (SUPRA). RESPECTFULLY FOLLOWING THESE DECISIONS, W E HOLD THAT THE RECEIPT OF INSURANCE COMMISSION ON THE PREMIUM PAID BY ITS MEMBERS WAS A PART OF THE BANKING BUSINESS ELIGIBLE FOR DEDUCTI ON U/S.80P(2)(A) OF THE ACT. WE ACCORDINGLY DECIDE THE ISSUE RAISED IN GRO UND NOS. 3 & 4 IN FAVOUR OF THE ASSESSEE WITH DIRECTION TO A.O TO ALLOW T HE CLAIMED DEDUCTION. THE GROUND NOS. 3 & 4 ARE ACCORDINGLY AL LOWED. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL C ITED (SUPRA) I HOLD THAT THE RECEIPT OF INSURANCE COMMISSION ON THE PREMIUM PAID BY ITS MEMBERS WAS A PART OF THE BANKING BU SINESS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE I.T. ACT. GROUNDS RA ISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 13. SO FAR AS THE DECISION RELIED ON BY THE LD. DR IS CONC ERNED, THE SAME IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF TH E PRESENT CASE. IN THAT CASE, THE CLAIM OF DEDUCTION U/S.80P(2)(A)(VI) WAS DENIED ON THE GROUND THAT THE ASSESSEE SOCIETY, INSTEAD OF PERFORMING HIS WORK THROUGH ITS MEMBERS, HAS OUTSOURCED THE ACTIVIT IES THROUGH THIRD PARTIES FOR WHICH IT HAD EARNED COMMISSION OF 1% OF TH E TRANSACTION. THE TRIBUNAL HELD THAT THE ISSUE OF INCOME AT TRIBUTABLE TO THE COLLECTIVE DISPOSAL OF LABOUR IS MISSING. IT WAS HELD T HAT SINCE NO LABOUR WAS EXERCISED BY THE MEMBERS OF THE SOCIETY A ND THE WORK ASSIGNED BY PRAJ INDUSTRIES LIMITED WAS OUTSOURCED ON T HE CONDITION OF EARNING 1% COMMISSION, THEREFORE, THE SOCIETY HAD ACTED LIKE ANY OTHER BUSINESSMAN. THEREFORE, IT WAS HELD THAT THE ASSES SEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S.80P(2)(A)(VI). THE FACTS OF THE INS TANT CASE ARE DISTINGUISHABLE FROM THE FACTS OF THE DECISION RELIED ON BY THE LD. DR. IN VIEW OF THE ABOVE AND IN VIEW OF THE DETAILED DIS CUSSION IN THE PRECEDING PARAGRAPHS I HOLD THAT THE ASSESSEE COO PERATIVE SOCIETY IS ENTITLED TO DEDUCTION ON THE RECEIPT OF INSURANCE COMMI SSION ON 8 ITA NO.1553/PN/2016 THE PREMIUM PAID BY ITS MEMBERS AS PART OF BANKING BUSINESS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. GROUNDS RAISED BY TH E ASSESSEE ARE ACCORDINGLY ALLOWED. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26-08-2016. SD/- ( R.K. PANDA ) ACCOUNTANT MEMBER PUNE ; DATED : 26 TH AUGUST, 2016. '# $# / COPY OF THE ORDER FORWARDED TO : / BY ORDER , // TRUE COPY // // TRUE COPY // // $ % //UE &' % * / SR. PRIVATE SECRETARY *, / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT (A) - 7, PUNE 4. THE CIT-7, PUNE 5. $ %%* , * , SMC BENCH / DR, ITAT, SMC BENCH PUNE; 6. 2 / GUARD FILE.