The Kalakkodu service co-op Bank Ltd, KOllam V. The ITO, Kollam

ITA 164/COCH/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 4224 (ITAT-COCHIN)
• Duration Of Justice: 8 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Appeal Filed On: 06-10-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 68; 43B; 80P; 250; 139(1); 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before ShriGeorge George K., Judicial Memberand ShriLaxmi Prasad Sahu, Accountant Member ITA No.164/Coch/2021 (Assessment Year:2018-19 The Kalakkodu Service Co-Operative Bank Ltd. Kalakkodu P.O. Paravoor, Kollam 691302 Vs. The Income Tax Officer Ward - 4, Kollam PAN –AAAT1143Q Appellant Respondent SA No. 38/Coch/2021 (Arising out of ITA No. 164/Coch/2021) (Assessment Year:2018-19 The Kalakkodu Service Co-Operative Bank Ltd. Kalakkodu P.O. Paravoor, Kollam 691302 Vs. The Income Tax Officer Ward - 4, Kollam PAN –AAAT1143Q Applicant Respondent Appellant by: None Respondent by: Smt. J.M. Jamuna Devi, Sr. D.R. Date of Hearing: 21.06.2022 Date of Pronouncement: 23.06.2022 O R D E R Per: L.P. Sahu, A.M. This is an appeal filed by the assessee against the order passed under Section 250 of the Income Tax Act, 1961 (hereinafter “the Act”) by the NFAC, Delhi dated 31.03.2021pertains to AY 2018-19. The assessee has also filed a Stay Petition No. 38/Coch/2021 for stay of recovery of outstanding demand of Rs.1,60,290/-. ITA164/Coch/2021& SA 38/C/2021 The Kalakkodu Service Co-Operative Bank Ltd. 2 2. The assessee has raised the following grounds of appeal: - “1. The order of the Honorable CIT (A) is erroneous on the facts and in the law. That the appellant denies his liability to be assessed for the addition and accordingly denies his liability to pay tax demanded. 2. The CIT (A) has not considered the below points raised by the appellant before passing the order under section 250. "As per Circular No. 37/2016, the board has accepted the settled position that the disallowances made under section 32, 40(a)(ia), 40A(3), 438 etc. of the Act and other specific disallowances. relatedto the business activity against which the chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance". So our deduction ulsBOP will also enhanced with the disallowance of Rs.4,33,2501- and the taxable income will remain NIL. 3. The CIT(A) has not considered the fact that co-operative societies registered under Kerala Co-Operative Societies Act is outside the provisions of Employees Provident Fund Act. "Under the proviso to section 61 (1) of the Kerala Co-operative Societies Act, after the establishment of self-financing pension scheme under the Kerala State Co-operative Employees Pension Board, the provisions of Employees Provident Fund Act do not apply to the establishment, which is required to establish a Provident fund by itself. So that the pension fund will be operated by the Pension Board and Provident Fund will be managed by the Trust fund established by the Co-operative Bank. The contributions of the employees are therefore remitted in the account of Kerala Co-operative Employees Self Financing Scheme maintained in the District Bank". This decision was upheld by the Honorable Kerala High Court in Chevayur Service Co-operative Bank Ltd vs. Employees Provident Fund Organization. 4. For the above grounds the additions under appeal may kindly be deleted.” 3. The assessee has filed an adjournment application, which has been rejected and the case was heard ex-parte qua the assessee. 4. The learned D.R. relied on the orders of the lower authorities and she submitted that the learned CIT(A) has rightly dismissed the appeal of ITA164/Coch/2021& SA 38/C/2021 The Kalakkodu Service Co-Operative Bank Ltd. 3 the assessee and therefore the order of the CIT(A) be upheld. She also submitted that the assessee did not pay the employees’ contribution to PF/ESI within the due date as specified in the respective Act. The Hon'ble jurisdictional High Court has decided the issue against the assessee. Therefore the disallowance made under Section 36(i)(va) of the Act by the CPC is a correct disallowance. 5. After hearing the learned D.R. we observed from the order of the CPC issued under Section 143(1)(a) of the Act that there was a disallowance under Section 36(i)(va) of the Act of Rs.4,33,252/- for non-remittance of employees’ contribution to PF/ESI within the due date as per the respective Act. This has been upheld by the learned CIT(A). The order of the CIT(A) on this aspect is correct in view of Hon’ble jurisdictional High Court judgement in the case of Commissioner of Income Tax, Cochin vs. Merchem Ltd. Reported in (2015) 61 taxmann.com 119 (Kerala). We also observed from the order of the learned CIT(A) that Ground No. 2(C) raised by the assessee before the learned CIT(A) has not been decided by him, which reads as under: - “(C) Moreover based on the below CBDT circular any addition made to the profit of the society will also enhance the deduction u/s 80P to that extend. “As per Circular No. 37/2016,the board has accepted the settled position that the disallowances made under Section 32, 40(a)(IA), 40a(3), 43B etc. Of the Act and other specific disallowances, related to the business activity against which the chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under chapter VI-A is admissible on the profits so enhanced by the disallowance. So our deduction u/s 80P will also enhanced with the disallowance of Rs.4,33,252/- and the taxable income will remain NIL.” 6. After hearing the learned D.R. we observed that the addition made in the instant case has resulted in increase of profit of the assessee. We observed from the additions made by the CPC that it was a delay payment of PF/ESI as per the respective Act. The employees have contributed into the PF/ESI from his salary which is treated as income of the assessee under Section 2(24)(x) of the I.T. Act. 1961 and if it is remitted within the ITA164/Coch/2021& SA 38/C/2021 The Kalakkodu Service Co-Operative Bank Ltd. 4 stipulated time as per respective act. the assesse gets benefit u/s 36(1) (va) of the Income Tax Act. 1961. In the impugned case the assesse has not remitted the amount contributed by the employees as per the respective Act. However, the assesse has remitted the said amount before filing his income tax return under Section 139(1) of the Act. It shows that the PF/ESI contribution received by the assesse has been paid. It means the assesse has incurred expenditure corresponding to the income as per Section 2(24(x) of the Act. 7. The assessee is eligible for deduction under Section 80P of the Act and the lower authorities have allowed the deduction under Section 80P of the Act. Therefore Circular No. 37/2016 dated 2 nd November, 2016 issued by CBDT will be squarely applicable in the assessee’s case and according to the above circular the assessee will get deduction under Section 80P of the Act on the additions made for expenses under the Head income from business or profession. Our this view is fortified by the judgement of the Hon'ble jurisdictional High Court in the case of CIT vs. Ettumanoor Service Co-operative Bank Ltd. [2021] 132 taxmann.com 33 (Kerala) wherein it was held as under: - “7. We have perused the record and noted the arguments of the learned Counsel appearing for the parties on this point. We are of the view that the Revenue has accepted the assessment order to the extent of granting deduction of Rs. 69,323/- in the computation of total income of assessee. The Revenue has not challenged the said decision either before the Commissioner of Income-tax (Appeals) or before the Appellate Tribunal, for the first time a ground is canvassed, in this behalf, by the Department. We are of the view that the said objection cannot straightaway be considered by this Court at this juncture without the same being subjected to challenge, as provided by law, and particularly the amount of deduction granted is Rs. 69,323/-. 8. The Commissioner of Income-tax (Appeals), as noted above, confirmed the finding of disallowing 5% of the expenditure booked towards interest paid by the assessee in the subject Assessment Year. However, included the said exclusion as deduction permissible under section 80P(2) of the Income-tax Act. 9. The learned Senior Advocate argues that the 5% expenditure excluded does not merit a deduction under Chapter VI A of the Act. The exclusion has to be treated as an occasion falling under ITA164/Coch/2021& SA 38/C/2021 The Kalakkodu Service Co-Operative Bank Ltd. 5 section 68 of the IT Act. Further, the Circular, relied on by the Tribunal, has no application for it is restricted to the sections adverted to in the said circular. Therefore, the 5% now excluded by the Assessing Officer will have be treated as income from other sources and liable to tax. 10. Advocate Arun contends that the Society has accepted deposits on which interest is paid to the depositors. The Society has advanced loans to its members and has earned interest therefrom. The interest paid by the Society, to the extent of 5% is disallowed by Assessing Officer and Commissioner of Income-tax (Appeals). Once 5% is disallowed from the expenditure, in the natural flow of events and as a consequence to the deletion, the said portion comes back to the business carried on by the assessee as income and is entitled to deduction under section 80P(2)(i)(a) of the Act. In the above circumstances, the point for consideration is whether the Commissioner of Income-tax (Appeals) and the Tribunal are correct in extending the deduction availed under Chapter VI A to the 5% disallowed by the Income-tax Officer on interest paid to the depositors. 11. The Society is entitled to claim deduction under section 80P(2)(i)(a) of the IT Act. The exclusion of 5% from the expenditure disallowed is treated as a deduction permissible under 80P(2)(a)(i) of the Act. The argument of the Department is that the said disallowed portion will have to be treated as 'income earned from other sources'. The foundation for such argument is that the Circular relied by the Tribunal is inapplicable, and secondly the dis-allowance forms part of a situation contemplated by Section 68 of the Act. 12. Let us first examine the applicability of the Circular to the case on hand. Circular Dated 2-11-2016 refers to Section 32, 40(a)(ia), 40A(3), 43B, etc. The appreciation of Revenue that it is applicable only to the sections stated therein, is unacceptable and stated so without noticing the word 'etc' used in the Circular. Therefore, the objection now raised against the Tribunal that the Tribunal relied on an inapplicable Circular is incorrect and accordingly rejected. The Circular comprehensively sets out the procedure for treating such items of expenditure. 13. The assessee/Society, in view of the recent Supreme Court judgment in Mavilayi Service Co-operative Bank Ltd. case (supra), is entitled to be treated as a Society satisfying the definition of Section 2(19) of Income-tax Act read with Kerala Societies Registration Act, 1860. The primary business of assessee/Society is accepting deposits and providing benefits to the members of the Society. The income, therefore, received by the Society is from the interest it earns on the amount lent to the members. The Society, likewise, is paying interest on the deposits it has accepted. For a reason recorded and accepted by all the authorities, the 5% of the ITA164/Coch/2021& SA 38/C/2021 The Kalakkodu Service Co-Operative Bank Ltd. 6 expenditure booked against interest paid to depositors is disallowed and once disallowed portion is accepted by all the authorities, the said disallowed portion forms part of the interest earned by the Society on the amount lent by the Society to its members, vis-a-vis in other words, income earned from business carried on by the Society. Therefore, the Society is entitled to deduction under section 80P(2)(i)(a) of the Income-tax Act. Section 68 of the Act in terms is not applicable to an entry warranted consequent to the disallowed expenditure by the Assessing Authority. For the reasons stated supra, the questions raised by the Department are without merit and are answered in favour of the assessee. The Income-tax Appeal is dismissed. No order as to Costs.” Respectfully following the above judgement we allow the appeal of the assessee. 8. Since we have partly allowed the appeal of the assessee the stay petition filed by the assessee becomes infructuous. 9. In the result, the appeal filed by the assessee is partly allowed and the stay petition filed by the assessee is dismissed as infructuous. Dictated and pronounced in the open Court on 23 rd June, 2022. Sd/- Sd/- (George George K.) (Laxmi Prasad Sahu) Judicial Member Accountant Member Cochin, Dated: 23 rd June, 2022 Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -NFAC 4. The CIT- 5. The DR, ITAT, Cochin 6. Guard File By Order //True Copy// Assistant Registrar ITAT, Cochin n.p.