M/s. Prathamika Krushi Pattina Sahakara Niyamita, Hagaribommanahalli V. The Principal Commissioner Of Income Tax, Kalaburgi

ITA 1725/BANG/2019

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 8083 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 04-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Revision of order; Opportunity of being heard; Question of law; Prejudicial to interest; Set aside
• Section: 56; 263; 143(3); 80P; 194A; 73; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “C”, BANGALORE Before Shri Chandra Poojari, AM & Shri George George K, JM ITA No.1725/Bang/2019 : Asst.Year 2014-2015 M/s.Prathamika Krushi Pattina Sahakari Niyamita Harihara Hospet Road Old Town, Near Court Hagaribommanahalli-582 212 PAN : AAAAR8959G. v. The Principal Commissioner of Income-tax, Kalburgi. (Appellant) (Respondent) Appellant by : Sri.Siva Prasad Reddy, ITP Respondent by : Sri.Pradeep Kumar, CIT-DR Date of Hearing : 17.11.2021 Date of Pronouncement : 22.11.2021 O R D E R Per George George K, JM: This appeal at the instance of the assessee is directed against CIT’s order dated 30.03.2019 passed u/s 263 of the I.T.Act. The relevant assessment year is 2014-2015. 2. There is a delay of 73 days in filing this appeal before the Tribunal. The assessee has filed a petition for condonation of delay and also an Affidavit of the Chief Executive Officer of the assessee stating therein the reasons for belated filing of this appeal. On perusal of the reasons stated for belated filing of the appeal, we noticed that no latches can be attributed to the assessee and there is sufficient cause in filing this appeal belatedly. Accordingly, we condone the delay in filing this appeal and proceed to dispose of this appeal on merits. ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 2 3. The grounds raised read as follows: “1. The impugned order u/s 263, dated 13.03.2019 is opposed to the facts of the case and the law, as it is passed in haste violating the principles of natural justice and ignoring the submissions / the material on record and therefore, it is liable to be set-aside. Revision u/s 263 2.1 The learned CIT failed to appreciate that the learned AO allowed the deduction u/s 80P(2)(a)(i) based on the decision of the Hon’ble jurisdictional High Court in respect of interest income from the Co-operative Bank and as such, the order was not `erroneous’ for the purpose of section 263 of the Act. 2.2 The learned CIT failed to appreciate that it is incumbent on his part to point out a specific `error’ in the assessment order to assume jurisdiction u/s 263 and it cannot be exercised to direct the AO to conduct enquiry, that too on issues which stood clarified. 2.3 The learned CIT failed to appreciate that the assessment order is neither erroneous not prejudicial to the interest of the Revenue to justify the revision u/s 263 of the Act. 3. The grounds are taken without prejudice to one another and the appellant craves leave to add or delete or modify or revise any ground at the time of hearing before the Hon’ble ITAT. For these and other grounds that may be urged at the time of hearing, it is prayed that the Hon’ble ITAT may be pleased to allow the appeal in the interest of the equity and justice.” 3. The brief facts of the case are as follows: The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. For the assessment year 2014-2015, the return of income was filed declaring total income at `NIL’ after claiming deduction of Rs.17,39,677 u/s 80P of the I.T.Act. The assessment u/s ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 3 143(3) of the I.T.Act was completed vide order dated 30.11.2016 assessing the total income at Rs.1,12,030. 4. The CIT issued show cause notice u/s 263 of the I.T.Act on 27.09.2018 to revise the assessment order dated 30.11.2016 passed u/s 143(3) of the I.T.Act. According to the CIT, the A.O. without inquiry granted deduction u/s 80P(2) of the I.T.Act thereby rendering the assessment order 30.11.2016 as erroneous and prejudicial to the interest of the revenue. The assessee filed detailed objections vide its letter dated 29.11.2018 (reproduced in para 4 of the impugned order). The CIT, however, rejected the assessee’s objection and passed the impugned order dated 30.03.2019 u/s 263 of the I.T.Act. The CIT set aside the assessment order and directed the A.O. to pass fresh assessment order in compliance with certain directions given by him. The relevant finding of the CIT reads as follow:- “5.0 I have carefully considered the facts of the case and perused the contentions/submissions made by the assessee. On verification of the order of the Assessing Officer passed on 30.11.2016, the AO did not examine the above issues in detail and allowed the deduction u/s 80P(2)(a)(i) without giving valid findings/bringing facts on record, on the above issues. The interest earned on the surplus funds of the society invested with various banks including co-operative banks u/s 80P(2)(a)(i), without referring to the facts of the case in light of the various Judicial decisions on the subject matter, had rendered the assessment order erroneous as well as prejudicial to interest of revenue. Similarly, the deduction u/s 80P(2)(d) for interest incomes earned on surplus money, required detailed examination of the facts, whether the funds placed with banks/societies are surplus funds or not and the banks or societies with which the investments made are eligible to be called as co-op banks/Banks,. so as to decide the eligibility for said deduction u/s 80P(2)(d), In light of the Judicial issues on the subject matter. Thus, the order passed by the AO [ITO, Ward-2, Hospet], u/s 143(3) dated: 30.11.2016, had rendered the assessment order as erroneous ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 4 in as much as prejudicial to the interest of the revenue. Accordingly, the assessment order is hereby set-aside with a direction to the AO, to pass a fresh assessment order in accordance with law and after giving necessary opportunity of being heard to the assessee in order to examine the following issues, for allowing deduction u/s 80P(2)(a)(i) and 80P(2)(d). (a) Whether the banks/co-op banks with which deposits kept are the members of the assessee society or not for examining the concept of mutuality. (b) Whether is there any obligation on assessee to invest its surplus funds with the banks (c) Whether the interest earned from deposits/investments in to other societies/bar had constituted to be business income. (d) Whether the FDs made with the banks/co-op banks are out of reserve and surplus fund available with the co- operative society. (e) Whether the banks are co-societies or Banks in nature, for allowing deduction u/s 80P(2)(d). (f) Obtain the details of nominal members and regular members and obtain complete particulars of registration certificate and verify the details of banking business if any . 6.0 In view of the above discussed facts that have been brought on record and circumstances of the case, I hold that the order passed by the Assessing Officer u/s 143(3) dated 30.11.2016 is not only erroneous but also prejudicial to the interest of revenue and accordingly the order passed by the AO ITO, Ward-2, Hospet, u/s 143(3) on 30.11. 2016, is hereby set-aside with a direction to the AO, to pass a fresh assessment order In accordance with law and after giving necessary opportunity of being heard to the assessee.” 5. The assessee being aggrieved, has filed this appeal before the Tribunal. The learned AR has filed a paper book enclosing therein the written submission, case laws relied on, copy of certificate of registration under Karnataka Co- operative Societies Act and the Rules. The learned AR submitted that the issue involved is covered in favour of the assessee by the judgment of the Hon’ble Apex Court in the ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 5 case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. Reported in (2021) 431 ITR 1 (SC). The submission of the assessee on the issues raised by the Pr.CIT in para 6 are as under:- Sl No. Issue raised by the PCIT Submissions (a) Whether the banks / co- operative banks with which deposits kept are members of the assessee society or not for examining the concept of mutuality. The assessee-society is under the statutory obligation u/s 57(2) of the Karnataka Co-operative Societies Act (the Societies Act) to transfer 25% of its profits to the Reserve Fund. As per Rule 23(2) read with Rule 22 and section 58 of the said Act, the society is required to deposit the reserve funds in the modes specified under the said Act. One of the modes specified is deposit / investment in district central co- operative bank. The deposits in the Bellary District Central Co- operative (BDCC) Bank are made in compliance of the said Act. (Reference is invited to the assessee-submissions made before the learned PCIT and reproduced in para 5.0 of page 5 of his order u/s 263 – The said provisions of the Societies Act are enclosed herewith for ready reference) (b) Whether is there any obligation on assessee to invest its surplus funds with the banks. Yes, as above submitted. (c) Whether the interest earned from deposits / investments in to other societies / banks had constituted to be business income. The issue is settled by the Hon’ble Supreme Court in the above mentioned case holding that the interest income is entitled to the deduction u/s 80P(2)(a)(i) itself as it forms part of the business income in the case of a co-operative society extending credit facilities to its members. (d) Whether the FDs made with the banks / co-op banks are out of reserve and surplus fund available with the co- This issue becomes mere academic as the assessee-society is entitled to the deduction u/s 80P(2)(a)(i) itself. The investment ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 6 operative society. is mandatory in view of the statutory provisions mentioned above. (e) Whether the banks are co- operative societies or banks in nature, for allowing deduction u/s 80P(2)(d). As the deduction is available in the main clause itself, i.e., 80P(2)(a)(i) as the interest income forms part of the business income, the query becomes redundant. (f) Obtain the details of nominal members and regular members and obtain complete particulars of registration certificate and verify the details of banking business if any. The law under the Societies Act (the state law) permits enrolment of nominal members – section 18.However the assessee-society has not enrolled any nominal members. (Reference is invited to the written submissions of the assessee made before the learned PCIT and reproduced in paras 4.0 of pages 4 to 8 of the order u/s 263). 6. The learned Departmental Representative supported the order of the CIT. 7. We have heard rival submission and perused the material on record. On perusal of the assessment order passed u/s 143(3) of the I.T.Act dated 30.11.2016, it is clear that there is no discussion by the A.O. and deduction u/s 80P of the I.T.Act has been granted without much inquiry. The assessment order completed without making necessary inquiry rendered the assessment erroneous and prejudicial to the interest of revenue. Therefore, the CIT has correctly invoked the provisions of section 263 of the I.T.Act and we uphold the same. 7.1 As regards whether the assessee is entitled to deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the I.T.Act, the recent order of the Tribunal in the case of M/s.Vasavamba Co-operative ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 7 Society Ltd. v. The Pr.CIT in ITA No.453/Bang/2020 (order dated 13.08.2021), after considering the judicial pronouncements on the issue held that interest income earned out of investments made from surplus funds would be taxable under the head `income from other sources’ and would not be eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. It was further held by the Tribunal insofar as deduction u/s 80P(2)(d) of the I.T.Act is concenred, only those interest received from investments with co-operative societies alone would be entitled to deduction. The relevant finding of the Tribunal reads as follows:- “9. The Hon’ble Supreme Court in the case of the The Totgars Co-operative Sale Society Ltd. Vs. ITO 322 ITR 283 (SC) held that Income from utilisation of surplus funds was taxable under the head income from other sources, and therefore not eligible for deduction u/s 80P. The Hon’ble Karnataka High Court in case of Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO (230 Taxman 309), was dealing with a case where deduction u/s.80P(2)(a)(i) of the Act was claimed on interest from the deposits made in a nationalized bank out of the amounts which was used by the assessee for providing credit facilities to its members. The Assessee claimed that the said interest amount is attributable to the business of providing credit facilities by the assessee and forms part of profits and gains of business. The Hon’ble Karnataka High Court after considering SC judgment in case of Totgars(supra) held that since the word income is qualified by the expression “attributable” to the business of Banking is used in Sec.80P(2)(a)(i) of the Act, it has to receive a wider meaning and should be interpreted as covering receipts from sources other than the actual conduct of business. The Court held a Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 8 The Hon’ble Court also distinguished the decision of the Hon’ble Supreme Court in the case of Totgars (supra) by observing that the Supreme Court was dealing with a case where the assessee- Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short- term deposit/security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Court also observed that even the Hon’ble Supreme made it clear that they are confining the said judgment to the facts of that case. The Court therefore concluded that Hon’ble Supreme Court was not laying down any law. Similar view taken in Guttigedarara Credit Co- operative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka). In the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 392 ITR 0074 (Karn) in the context of deduction u/s.80P(2)(d) of the Act, it was held that Sec.80P(2)(d) of the Act allows deduction in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income. The Hon’ble Court held that that the aforesaid Supreme Court's decision in the case of Totgars (supra), was not applicable to deduction u/s.80P(2)(d) of the Act, because the said decision was rendered with regard to deduction under Section 80P(2)(a)(i) of the Act and not under Section 80P(2)(d) of the Act. 10. However, the Hon’ble Karnataka High Court in the case of PRINCIPAL COMMISSIONER OF INCOME TAX AND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY 395 ITR 0611 (Karn) took a different view and held that interest income earned on deposits whether with any other bank will be in the nature of income from other sources and not income from business and therefore the deduction u/s.80P(2)(d) of the Act cannot be allowed to the Assessee. The Hon’ble Court followed decision of Hon’ble Gujarat High Court in the case of SBI Vs. CIT 389 ITR 578(Guj.) in which the Hon’ble Gujarat High Court dissented from the view taken by the Hon’ble Karnataka High Court in the case of Tumkur Merchants case (supra) The Hon’ble Court had to deal with the following substantial question of law: "(I)Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 9 respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Co-operative Bank, M/s. Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Co-operative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995- 1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act?" 11. The Hon’ble Court held that such interest income is not income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. What Section 80P(2)(d) of the Act, which was though not specifically argued and canvassed before the Hon'ble Supreme Court, envisages is that such interest or dividend earned by an assessee co-operative society should be out of the investments with any other co-operative society. The words 'Co-operative Banks' are missing in clause (d) of subsection (2) of Section 80P of the Act. Even though a co- operative bank may have the corporate body or skeleton of a co-operative society but its business is entirely different and that is the banking business, which is governed and regulated by the provisions of the Banking Regulation Act, 1949. Only the Primary Agricultural Credit Societies with their limited work of providing credit facility to its members continued to be governed by the ambit and scope of deduction under Section 80P of the Act. (Paragraph 13 of the Judgment). 2. The banking business, even though run by a Co- operative bank is sought to be excluded from the beneficial provisions of exemption or deduction under Section 80P of the Act. The purpose of bringing on the statute book sub- section (4) in Section 80P of the Act was to exclude the applicability of Section 80P of the Act altogether to any co- ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 10 operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in Section 80P(4) are significant. They are: "The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society .....". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative Society from a Co-operative Bank. This exclusion by Section 80P(4) of the Act even though without any amendment in Section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent assessee for deduction under Section 80P(2)(d) of the Act. The only exception is that of a primary agricultural credit society. (Paragraph-14 of the judgment) 3. The amendment of Section 194A(3)(v) of the Act excluding the Co-operative Banks from the definition of "Co- operative Society" by Finance Act, 2015 and requiring them to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Co- operative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon’ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon’ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that "the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases..............". No other binding precedent was discussed in the said judgment. Of course, the Bench has observed that a Co- operative Bank is a specie of the genus co- operative Society, with which we agree, but as far as applicability of ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 11 Section 80P(2) of the Act is concerned, the applicability of the Supreme Court's decision cannot be restricted only if the income was to fall under Section 80P(2)(a) of the Act and not under Section 80P(2)(d) of the Act.(Paragraph-18 of the Judgment) 6. The Court finally concluded that it would not make a difference, whether the interest income is earned from investments/deposits made in a Scheduled Bank or in a Co- operative Bank. Therefore, the said decision of the Co- ordinate Bench is distinguishable and cannot be applied in the present appeals, in view of the binding precedent from the Hon'ble Supreme Court.” (Paragraph 19 of the Judgment) 12. The Hon’ble Karantaka High Court in the aforesaid decision also placed reliance on a decision of the Hon’ble Gujarat High Court in the case of STATE BANK OF INDIA (SBI) vs. COMMISSIONER OF INCOME TAX 389 ITR 0578 (Guj) did not agree with the view taken by the Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision of the Supreme Court in Totgars Co-operative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. The Hon’ble Gujarat High Court held that in the case of Totgars Co-operative Sale Society (supra) decided by Hon’ble Supreme Court, the court was dealing with two kinds of activities: interest income earned from the amount retained from the amount payable to the members from whom produce was bought and which was invested in short-term deposits/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon’ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon’ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon’ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 12 society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) of the Act. (Paragraph-13 of the Judgment) 13. It can thus be seen 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. 14. The CIT was therefore justified in exercising his powers of revision u/s.263 of the Act and directing the AO to tax interest income in question as it is neither of the nature specified in Sec.80P(2)(a)(i) or 80P(2)(d) of the Act. 15. The argument of the learned counsel for the Assessee has been that the AO has applied his mind and allowed the deduction and therefore the jurisdiction u/s.263 of the Act cannot be exercised. On this argument, the learned DR pointed out that the jurisdiction u/s.263 of the Act was exercised by the CIT not for the reason that the AO failed to make proper enquiries before concluding the Assessment but on the ground that his decision was contrary to decision of Hon’ble Jurisdictional High Court and therefore this argument of the learned counsel for the Assessee cannot be accepted. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 16. The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon’ble Karnataka High ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 13 Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Co-operative Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 17. We however find that the Assessee has raised the following grounds of appeal in its appeal, viz., “5. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made out of Reserve Fund in compliance with rule 23(2) of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the Income Tax Officer rightly allowed deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961. 6. Without prejudice to the above, the learned Principal Commissioner ought to have taken note of the submissions made by the appellant that interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with section 58 of the Karnataka Co-operative Societies Act, 1959 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the deduction under section 80- P(2)(a)(i) of the Income Tax Act, 1961 in respect thereof was rightly allowed by the Income Tax Officer. 7. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissions of the appellant to the effect that the interest received by it amounting to Rs. 1,32,726 from deposits with Mysore & Chamarajanagar District Central Co-operative Bank made in compliance with rule 28 of the Karnataka Co-operative Societies Rules, 1960 constituted its income from the business of providing credit facilities to the members and accordingly, ought to have held that the appellant was eligible for deduction thereof under section 80-P(2)(a)(i) of the Income Tax Act, 1961.” 18. The issue raised by the Assessee in the aforesaid grounds require examination because if there are statutory compulsions that the money should be invested in a particular manner to run business of the Assessee then the interest income arising from such investments have business nexus and should be considered as income derived from the business of providing credit facility to the members. This aspect requires examination by the AO as it has not been raised before the CIT. We therefore modify the order of the CIT by remanding the issue raised in ground No.5 to 7 alone to the AO for examination afresh. In other respects we confirm the order of the CIT.” ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 14 7.2 In the instant case, it was contended that majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with co- operative societies is to be allowed as deduction. 7.3 Moreover, the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra) had settled various issues for claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The gist of the judgment of the Hon’ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, if there is ambiguity, in favour of the assessee (para 45 of the judgment). (ii) The co-operative societies extending credit facilities are entitled to deduction u/s 80P(2)(a)(i) and if there are loans to non-members, only profits attributable to the transactions with the non-members alone is liable to be excluded from the deduction. That is to say that the ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 15 transactions with non-members per se would not disentitle a co-operative society from claiming the deduction under the section. If the state Act (the Co- operative Law) provides for enrollment of 'nominal members', the loans given to such nominal members would qualify for the purpose of deduction u/s 80P(2)(a)(i). (Para 30 to 46 of the Judgment) (iii) Under clause (d) of section 80P(2), the interest or dividend income derived by a co-operative society from investments with other co-operative society is also eligible for the deduction whole of such income. (Para 35 of the Judgment) (iv) The restrictive clause in sub-section (4) of section 80P applies only a co-operative bank and not to co- operative societies or to co-operative societies extending credit facilities to its members. Further, only a bank having obtained the license under the Banking Regulation Act, 1949, shall be covered under the said restrictive clause u/s 80P(4). The Hon'ble Court has also elaborately explained the correct meaning & scope of the Proviso under the said sub-section (4) of section 80P declaring that the proviso carves out an exception to the exclusion in sub-section (4). 7.4 In the light of the above judgment of the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra), the matter needs to be examined afresh by the A.O. de hors the observations of the CIT. The ITA No.1725/Bang/2019 M/s.Prathamika Krushi Pattina Sahakara Niyamita. 16 A.O. is directed to follow the dictum laid down by the Hon’ble Apex Court in framing the fresh assessment. It is ordered accordingly. 8. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced on this 22 nd day of November, 2021. Sd/- (Chandra Poojari) Sd/- (George George K) ACCOUNTANT MEMBER JUDICIAL MEMBER Bangalore; Dated : 22 nd November, 2021. Devadas G* Copy to : 1. The Appellant. 2. The Respondent. 3. The Pr.CIT Kalaburagi. 4. The Pr.CIT. 5. The DR, ITAT, Bengaluru. 6. Guard File. Asst.Registrar/ITAT, Bangalore