The BBR & RDCC Employess Co-Operative Society Limited, Banghalore V. Income Tax Officer, Ward-5(2)(4), Bangalore

ITA 17/BANG/2023

AI Insights

The case involves M/s. The BBR and RDCC Bank Employees Co-operative Society Ltd., which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi, concerning the Assessment Year 2017-18. The primary issue was the denial of deductions claimed under section 80P(2)(a)(i) and section 80P(2)(d) of the Income Tax Act, 1961, for interest income received from investments in financial institutions and banks. The Assessing Officer and the Commissioner of Income Tax (Appeals) had rejected these claims based on precedents set by the Karnataka High Court in similar cases. The Tribunal, referencing a decision from its Bengaluru Bench, upheld the rejection of the deductions under section 80P but restored the matter of deducting expenses related to the interest income to the AO for re-evaluation.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299861 (ITAT-BANGALORE)
• Duration Of Justice: 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: C
• Next Hearing Date: 01-02-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 10-01-2023
• Other Referred Cases: PCIT, Hubli Vs. Totgars Co-operative Sale Society Ltd., M/s. Krishnarajapet Taluk Agri Pro Co-op Marketing Society Ltd., Vs. PCIT, Puttur Primary Co-operative Agriculture and Rural Development Bank Ltd., Vs. ITO, Karkala Co-op S Bank Ltd, Totgars Co-operative Sale Society Ltd. Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC -C” BENCH : BANGALORE BEFORE SHRI N. V. VASUDEVAN, VICE PRESIDENT ITA No.17/Bang/2023 Assessment Year : 2017-18 M/s. The BBR and RDCC Bank Employees Co-operative Society Ltd., No.6, 5 th Main Road, Chamarajpet, Bengaluru. PAN : AAAAB 1346 D Vs.ITO, Ward – 5(2)(4), Bengaluru. APPELLANTRESPONDENT Assessee by:Shri. Girish, CA Revenue by :Shri. Ganesh R. Ghale,Standing Counsel Date of hearing:02.02.2023 Date of Pronouncement:06.02.2023 O R D E R This is an appeal by the assessee against the order dated 19.07.2022 of NFAC, Delhi, relating to Assessment Year 2017-18. 2. The assessee is a Co-operative Society registered under the Karnataka Co-operative Societies Act, 1959 and is engaged in providing small credit facilities to the members of the society. The assessee received interest on investments made in financial institutions other than co- operative Societies of a sum of Rs.18,07,490/-. The assessee claimed that the aforesaid interest income is originally for a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The claim of the assessee was rejected by the AO based on the decision of the Hon’ble Karnataka High Court in the case of PCIT, Hubli Vs. Totgars Co-operative Sale Society Ltd., (2017) 83 Taxmann 140 (Karnataka). The ITA No.17/Bang/2023 Page 2 of 6 alternative claim of the assessee for deduction under section 80P(2)(d) of the Act was also rejected by the AO by relying on the decision of the Hon’ble Karnataka High Court in the case of Totgars Co-operative Sale Society Ltd., (supra). The CIT(A) confirmed the order of the AO. 3. Aggrieved by the order of the CIT(A), the assessee is in appeal before the Tribunal. 4. Learned Counsel for the assessee filed an application or adjournment on the ground that the authorized representative is on medical leave. None appeared at the time of hearing. The learned DR filed before us copy of the decision of the ITAT, Bengaluru Bench, in the case of M/s. Krishnarajapet Taluk Agri Pro Co-op Marketing Society Ltd., Vs. PCIT ITA No.514/Bang/2021 order dated 08.02.202 wherein on identical issues raised by the assessee was considered and decided by this Tribunal. 5. There is a delay of 112 days in filing appeal by the Assessee which has been explained as owing to ill health of the chief executive officer of the Assessee, who has filed his affidavit in this regard. We are of the view that there has been a reasonable and sufficient cause for the delay in filing appeal, keeping mind the reason given in the affidavit and the principle that substantive justice should not be denied on mere technicalities. The delay in filing the appeal is accordingly condoned. 6. On merits of the appeal filed by the Assessee and the grounds of appeal raised therein, We have perused the above said order by the learned DR and are of the view that the issue raised by the assessee in the grounds of appeal has already been decided by this Tribunal. Accordingly, I reject the request of the Counsel for the assessee for adjournment and proceed to decide the appeal on merits. ITA No.17/Bang/2023 Page 3 of 6 7. The Tribunal in the case of M/s. Krishnarajapet Taluk Agri Pro Co- op Marketing Society Ltd., (supra) held that the ratio laid down by the Hon’ble Karnataka High Court in the case of Totalgars Cooperative Sales Society in 395 ITR 611 (Karn) is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co- operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. The Assessee would therefore be not entitled to deduction u/s.80P(2)(a)(i) or Sec.80P(2)(d) of the Act on the interest income in question. 8. On the question of deduction of expenses earned in earning interest income, in the very same decision cited by the learned DR, the tribunal held as follows: “16. Another aspect with regard to the deduction u/s.80P(2)(d) of the Act, is with regard to what is the quantum of interest income that should be brought to tax by the AO, in case the deduction is denied to the assessee u/s.80P(2)(d) of the Act. On this aspect, the Hon’ble ITAT, Bengaluru Bench in the case of Puttur Primary Co-operative Agriculture and Rural Development Bank Ltd., Vs. ITO in ITA No.1449/Bang/2019, order dated 14.06.2021 for Assessment Year 2016-17, the tribunal held that the assessee should be allowed expenses and the entire gross interest cannot be taxed. The following were the relevant observations of the Tribunal: ITA No.17/Bang/2023 Page 4 of 6 6. The next issue relates to the deduction claimed by the assessee u/s 80P(2)(d) of the Act in respect of interest income. Identical issue has been considered by the co-ordinate bench in the case of Karkala Co-op S Bank Ltd (supra). For the sake of convenience, we extract below the relevant observations made by the co-ordinate bench:- "7. The next common issue relates to rejection of deduction claimed u/s 80P(2)(d) of the Act in respect of interest income earned from fixed deposits kept with bank. We noticed earlier that the A.O. has observed in Assessment Year 2015-16 that the interest income received by the assessee from deposits 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 deduction u/s 80P(2)(a)(i) of the Act. In AY 2016-17, the AO assessed the interest income received on bank deposits under the head "Income from 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 this 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 Hon'ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO (2015) 58 taxmann.com 35 (Karn). The Ld. A.R. submitted that the assessee in the above said 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 Hon'ble Supreme Court, vide 14 of its order, had restored the question raised by the assessee to the file of Hon'ble High Court of Karnataka. Consequent thereto, the Hon'ble High Court of Karnataka has passed the order in the case reported in 58 taxmann.com 35 and held that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of proportionate cost, administrative expenses incurred in respect of such deposits. Accordingly, the Ld. A.R. prayed that the A.O. may be directed to allow deduction ITA No.17/Bang/2023 Page 5 of 6 of proportionate cost, administrative and other expenses, if the A.O. proposes to assess the interest 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 decision rendered by Hon'ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO (2015) 58 taxmann.com 35 (Karn). Accordingly, we direct the A.O. to allow deduction of proportionate cost, administrative and other expenses, if the A.O. proposes to assess the interest income earned from bank deposits as income under the head "other sources"." 7. In the instant case, the assessee has earned both interest income and dividend income. In view of the decision rendered by the jurisdictional Hon'ble High Court of Karnataka, the assessee is entitled for deduction of proportionate cost, administrative and other expenses. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with similar directions.” 9. The conclusion on the grounds of appeal raised by the assessee on the basis of the aforesaid decision would be that the assessee would not be entitled to deduction under section 80P(2)(d) of the Act in respect of interest received from another Co-operative Bank. The assessee would also not be entitled to deduction under section 80P(2)(a)(i) of the Act. In so far as deduction under section 57 of the Act is concerned, in terms of paragraph 16 of the Tribunal’s order referred to above, the assessee will be entitled to deduction on account of expenses. The issue with regard to deduction u/s.57 of the Act is accordingly restored to the file of the AO to decide the same afresh in accordance with law after affording the assessee opportunity of being heard and in the light of the decisions referred to above. ITA No.17/Bang/2023 Page 6 of 6 10. In the result, appeal of the assessee is treated as partly allowed for statistical purposes. Pronounced in the open court on the date mentioned on the caption page. Sd/- (CHANDRA POOJARI) Sd/- (N. V. VASUDEVAN) Accountant Member Vice President Bangalore, Dated: 06.02.2023. /NS/* Copy to: 1.Appellants2.Respondent 3.CIT4.CIT(A) 5.DR 6. Guard file By order Assistant Registrar, ITAT, Bangalore.