Shree Shetlavir Co. Op Credit Society Ltd., Mehsana V. The ACIT, Circle Patan, Patan

ITA 1696/AHD/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7712 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 12-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital expenditure
• Section: 56; 143(3); 64; 72; 22

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 No. 1696/AHD/2019 िनधाᭅरण वषᭅ/Asstt. Years: 2016-17 Shree Shitlavir Co-op. Credit Society Ltd., At. & Post Dagavadiya, Tal. Vijapur, Dist.Mehsana-382870 PAN: AAGTS0216A Vs. A.C.I.T., Circle, Patan. आयकर अपील सं./ITA No.1698/AHD/2019 िनधाᭅरण वषᭅ/Asstt. Years: 2016-17 Shri Nilkanth Co-op. Credit Society Ltd. Dagavadiya, Ta. Vijalpur, Mehsana-382870. PAN: AAAJS2855B Vs. A.C.I.T., Circle, Patan. (Applicant) (Respondent) Assessee by : Shri Sulabh Padshah, C.A Revenue by : Shri Kamlesh Makwana, Sr.D.R सुनवाई कᳱ तारीख/Date of Hearing : 12/11/2021 घोषणा कᳱ तारीख /Date of Pronouncement: 25/11/2021 ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 2 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned two appeals have been filed at the instance of the different Assessee against the separate orders of the Learned Commissioner of Income Tax(Appeals)-Gandhi-Nagar 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 Year 2016-17. First, we take up ITA No. 1696/AHD/2019, an appeal by the assessee. 2. The only interconnected issue raised by the assessee is that the learned CIT- A erred in confirming the order of the AO in part by disallowing the deduction of Rs. 11,97,716.00 claimed under the provisions of section 80P(2)(a)(i) of the Act. 3. The AO during the assessment proceedings found that the assessee has shown interest income amounting to ₹ 14,15,454.00 which was received from the non-members. The impugned income of interest was earned by the assessee from the co-operative banks as well as from the nationalized bank. As per the AO the impugned income is not eligible for deduction under section 80P(2)(a)(i) of the Act which was so claimed by the assessee. Accordingly, the AO disallowed the same and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to the learned CIT (A) who found that the above amount of interest income was inclusive of the interest of ₹ 64,320.00 and 1,53,418.00 which was received from co-operative banks and the same was eligible for deduction under section 80P(2)(d) of the Act. Thus, the ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 3 learned CIT (A) allowed the same as deduction under section 80P(2)(d) the of the Act. 5. Likewise the learned CIT (A) was also pleased to allow the deduction of ₹50,000 being basic deduction provided under section 80P(2)(c) of the Act which is available to a co-operative society. 5.1 The learned CIT (A) for the balance amount of interest held that such interest is not eligible for deduction under section 80P(2)(a)(i) of the Act in view of the judgment of Hon’ble Gujarat High Court in the case of State Bank of India versus CIT reported in 72 Taxmann.com 64. Thus, the learned CIT (A) treated the balance amount of interest of Rs. 11,37,830.00 as income from other sources under the provisions of section 56 of the Act but he was pleased to allow the deduction of ₹ 59,886.00 being 5% of such interest income on account of the expenses incurred in the earning of such interest income under the provisions of section 57 of the Act. 6. Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us. 7. The learned AR before us filed a paper book running from pages 1 to 22 and contended that the amount of interest income from non-members is eligible for deduction under section 80P(2)(a)(i) of the Act in view of the judgment of Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT reported in 123 taxmann.com 161. 7.1 The ld. AR without prejudice to the above also submitted that if the impugned amount of interest income is treated as taxable under the provisions of section 56 of the Act, then the assessee should be allowed the pro rata expenses against such income instead of 5% allowed by the learned CIT (A) in an ad hoc manner. As per the learned counsel for the assessee the pro rata expenses against such income ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 4 works out at ₹ 10,63,192.00 only which needs to be allowed under the provisions of section 57 of the Act. The learned counsel in support of his contention relied on the order of this tribunal in the case of cooperative Kherava Co.op. society Ltd versus ITO in ITA No. 2704/AHD/2015. 8. On the other hand the learned DR vehemently supported the order of the authorities below. 9. We have heard the rival contentions of both the parties and perused the materials available on record including the case law cited by the learned AR for the assessee. The provisions of section 80P(2)(a)(i) of the Act provides 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 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. 9.1 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. ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 5 9.2 In view of the above, there remains no ambiguity that income received by the assessee on the money deposited with the bank is not eligible for deduction under section 80P(2)(a)(i) of the Act. 9.3 Now coming to the case law cited by the learned AR for the assessee, in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT by the Hon'ble Supreme Court of India wherein, 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: “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.” 9.4 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. 9.5 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 on the deposits ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 6 from the bank as discussed above. The income on the deposits from the bank 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 bank 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 on the deposits from the bank, 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 relevant provisions of section 57 of the Act read 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; 9.6 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. There is no concept of proportionate expenses envisaged under the provisions of section 57 of the Act as discussed above. The provisions require to deduct only those expenses which have been incurred wholly and exclusively for the purpose of earning such income. Thus in such facts and circumstances we are of the view the expenses which have been incurred directly by the assessee in the earning of such income should only be eligible for deduction under section 57 of the Act. To put it differently, the expenses such as electricity, rental, audits, printing and stationery which cannot be said to have been incurred wholly and exclusively for the purpose of earning the interest income. Thus, we are not in agreement with the contention of the learned AR for the assessee. But it is also equally important to note that there is no mechanism provided under the provisions of section 57 of the Act for making the disallowance on ad hoc manner as done by the ld. CIT-A. Thus, we direct the AO to work out the interest income on the deposits from the bank after 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 ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 7 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. 9.7 As for as the case law relied upon by the assessee i.e. ITA No. 2704/AHD/2015 (supra), we note that there was no issue of proportionate expenses before the Tribunal. Rather, we find that the AO in his order has only taken net of interest income while taxing the interest income from other sources. However, the facts in the case on hand are different as long as the issue of proportionate expenses was raised before the Tribunal. Thus any remarks given by the tribunal the case of ITA 2407/AHD/2015 will not bind us in deciding the issue on hand as argued by the learned counsel for the assessee. 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 partly allowed for the statistical purposes. 9.8 In the result, the appeal filed by the assessee is partly allowed for the statistical purposes. Coming to ITA 1698/Ahd/2019 for A.Y. 2016-17. 10. 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. 1696/AHD/2019 for the assessment year 2016-17. Therefore, the findings given in ITA No. 1696/AHD/2019 shall also be applicable for the year under consideration i.e. AY 2016-17. The appeal of the assessee for the assessment 2016-17 has been decided by us vide paragraph No.9 of this order in favour of the revenue and against assessee. The learned AR and the DR also agreed that whatever will be the findings for in the above mentioned case shall also be applied for the year under ITA nos.1696 & 1698 /AHD/2019 A.Y. 2016-17 8 consideration i.e. AY 2016-17. Hence, the ground of appeal filed by the assessee is partly allowed for the statistical purposes. 11. In the combined result both the appeals of the assessee are partly allowed for the statistical purposes. Order pronounced in the Court on 25/11/2021 at Ahmedabad. Sd/- Sd/- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 25/11/2021 Manish