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

ITA 1787/AHD/2019

AI Insights

The case involves Shree Sarvamangal Cooperative Credit Society Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals), Gandhinagar, concerning the assessment year 2011-12. The primary issues were the addition of interest income of Rs. 55,008 and the disallowance of deductions under section 80P(2)(a)(i) for certain interest and commission incomes. The Tribunal found that the addition of Rs. 55,008 was beyond the scope of the limited scrutiny assessment and thus set it aside. However, it upheld the disallowance of deductions for income not derived from the primary business of providing credit facilities, as per the decision of the Hon'ble jurisdictional High Court in a similar case.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 133648 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 20-03-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 01-12-2019
• Other Referred Cases: State Bank of India Employees Co-op Credit & Supply Society Ltd. Vs. CIT, Chaitanya Bansibhai Nagori Vs. Pr.CIT, Shri Narendrakumar Rameshbhai Patel vs. DCIT, Dharmin N. Thakkar vs. ITO, Spotlight Vanijya Ltd. vs. PCIT, Balvinder Kumar vs. PCIT, The Kabilpore Peoples Cooperative Credit Society Ltd. Vs ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 80P; 143(2)

Judgement Text

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरणआयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, अहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठअहमदाबाद 瀈यायपीठ अहमदाबाद 瀈यायपीठ ‘SMC’ अहमदाबाद। अहमदाबाद।अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD ] ] BEFORE SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.1787/Ahd/2019 Asstt.Year : 2016-17 Shree Sarvamangal Cooperative Credit Society Ltd. 22, Bhagwai Nagar Society Nr. Gayatri Mandir Opp: Dharam Cinema Road Mehsana 384 002 PAN : AABAS 4869 F Vs ACIT, Circle Mehsana. Mehsana. (Applicant) (Responent) Assessee by : Shri Dhrunal Bhatt, AR Revenue by : Shri B.P. Makwana, Sr.DR स ु नवाई क तार ख/D a t e o f H e a r i n g : 2 1 / 0 3 / 2 0 2 3 घोषणा क तार ख /D a t e o f P r o n o u n c e m e n t : 2 9 / 0 3 / 2 0 2 3 आदेश/O R D E R The present appeal has been filed by the assessee against order passed by the Commissioner of Income Tax(Appeals), Gandhinagar, Ahmedabad (in short referred to as ld.CIT(A)) under section 250(6) of the Income Tax Act, 1961 ("the Act" for short), dated 13.9.2019 pertaining to Asst.Year2011-12. 2. The grounds raised by the assessee are as under: 1. On the facts and circumstances of the case of the Appellant, the learned CIT(A) has erred in confirming the addition of Interest Income of Rs.55,008/-, despite of the fact that the same were not the basis of issuing notice for limited scrutiny u/s 143(2) of the Act. It is requested to delete the same. 2. On the facts and circumstances of the case of the Appellant, the learned CIT(A) has erred in not appreciating the facts that the appellant is a ITA No.1787/Ahd/2019 2 credit cooperative society and cannot be denied of the benefits of deduction u/s. 80P(2)(a)(i) of the Act on gross Interest Income of Rs.1,66,327/- being “attributable to’ business of the appellant. It is requested to delete the same. 3. On the facts and circumstances of the case of the Appellant, the learned CIT(A) has erred in limiting the deduction of expenditure incurred for earning interest income while making impugned disallowance of deduction u/s 80P(2)(a)(i) of such income on an ad-hoc basis of only 5% of such interest income as against computing allowance of expenditure on proportionate basis. The AO may be directed to allow expenditure in proportion to the income earned. 3. On the facts and circumstances of the case of the Appellant, the learned CIT(A) has erred in confirming the disallowance of deduction u/s 80P of the Act for Rs. 68,673/- on account of income derived from UGVCL on Bill Collection services without appreciating that the same are in the nature of the business activities of the appellant. It is requested to delete the same. 4. On the facts and circumstances of the case of the Appellant, the learned CIT(A) has erred in making addition of interest income derived from Axis Bank of Rs.55,008/-, despite of the fact that part of the same being Rs.33,527/- has been already included in Member's Interest Income. It is requested to delete the same. 4.1 On the facts and circumstances of the case of the Appellant, the learned CIT(A) has erred in limiting the deduction of expenditure incurred for earning interest income on an ad-hoc basis of only 5% of such interest income as against appellant's entitlement for proportionate expenditure in ratio of interest income to total income.” 3. As transpires from order of the authorities below, the assessee is a cooperative credit society engaged in providing credit facilities to its Members. During the impugned year, it had claimed deduction under section 80P(2)(a)(i) of the Act totaling to Rs.32,20,178/- out of which the AO found that an amount of Rs.1,66,327/- was not eligible for deduction for the reason that same was not derived from the business of the assessee being either in the nature of interest earned from banks/ UGVCL or in the nature of commission income. The AO followed the decision of Hon’ble jurisdictional High Court in the case of State Bank of India Employees Co-op Credit &Supply Society Ltd. Vs. CIT, 389 ITR 578 (Gujarat) for concluding that the assessee had wrongly claimed deduction under section 80P(2)(a)(i) of the Act. Further, the AO also noted that interest income earned ITA No.1787/Ahd/2019 3 from banks had been reflected short by an amount of Rs.55,008/-, and accordingly added the same to the income of the assessee, holding at the same time that the assessee was not entitled to deduction under section 80P on the same also. 4. Aggrieved assesseecarried the matter in appeal before the ld.CIT(A) who upheld the order of the AO, but at the same time, allowed the claim of deduction on account of expenses incurred for earning income whichwere denied deduction under section 80P of the Act, to be computed at the rate of 5% of such income. It is against this order of the ld.CIT(A) that the assessee has come in appeal before the Tribunal raising the above grounds. 5. The ld.counsel for the assessee, first took up the issue of addition made on account of interest income not returned to tax by the assessee amounting to Rs.55,008/- as taken up in ground no.4 before us. With respect to the same, his contention was that the assessment in the impugned case is limited scrutiny assessment for the purpose of examining; (i) whether deduction under Chapter VI-A had been correctly claimed, and (ii) whether deduction claimed on account of interest expenses was admissible. He filed a copy of notice under section 143(2) of the Act, issued to the assessee during the assessment proceedings for the impugned year dated 4.7.2017 revealing the fact that it was a limited scrutiny assessment for the aforementioned purposes. 6. Thereafter, the ld.counsel for the assessee contended that the issue of any income having been included was not the scope of limited scrutiny and therefore, the AO had travelled beyond his scope of assessment while making addition of interest income short returned by the assessee to the tune of Rs.55,008/-. He pointed out ITA No.1787/Ahd/2019 4 that in several decisions the ITAT had held that the assessment orders on issues beyond scope of scrutiny of the AO were not sustainable on such issues. In this regard, he placed before us copy of the order of the ITAT, Ahmedabad Bench in the case of Chaitanya Bansibhai Nagori Vs. Pr.CIT, ITA No.377/Ahd/2020 order dated 23.5.2022. From the said order, he pointed out, various decisions of the Tribunal which were referred to in the said order laying down such proposition as under : i) Shri Narendrakumar Rameshbhai Patel vs. DCIT in ITA No. 981/Ahd/2019 order dated 20.03.2020; ii) Dharmin N. Thakkar vs. ITO in ITA No. 1378/Ahd/2019 for A.Y. 2015-16 order dated 27.04.2022; iii) Spotlight Vanijya Ltd. vs. PCIT in ITA No.353/Kol/2020 for A.Y. 2015-16 order dated 09.04.2021; iv) Balvinder Kumar vs. PCIT [2021] 125 taxmann.com 83 (Delhi- Trib.); v) Chaitanya BansibhaiNagori Vs. Pr.CIT, ITA No.377/Ahd/2020 order dated 23.5.2022 7. The ld.DR however supported order of the authorities below. 8. I have heard the rival contentions. The fact that the present case was limited scrutiny assessment, scope of which did not include examining whether any income remained to be disclosed by the assessee, is evident from the notice under section 143(2) of the Act issued to the assessee during the assessment proceedings, revealing the purpose of limited scrutiny undertaken in the case of the assessee, which was placed before me. The ld.DR was unable to controvert the said fact. Further, I have noted that the ITAT in several decisions has held that the AO cannot travel beyond the scope of the purpose for ITA No.1787/Ahd/2019 5 which limited scrutiny assessment was initiated as stated before us by the ld.counsel for the assessee and reproduced above. The ld.DR was unable to draw my attention to any contrary view on the issue nor was able to point out any distinguishing facts. 9. In view of the same, and the facts of the present case, the addition made on account of interest earned from bank by the assessee is set aside amounting to Rs.55,008/- as the same is beyond the scope of limited scrutiny assessment. The said action could not have been made in the present limited scrutiny assessment by the AO. The addition is therefore is not sustainable in law, and directed to be deleted, and the ground no.4 of the assessee is allowed. 10. The ld.counsel for the assessee next took me to ground no.1 to 3of the appeal, pointing out that all pertained to the issue of denial of deduction under section 80P(2)(a)(i) of the Act amounting to Rs.1,66,327/-. In this regard, he first drew my attention to the incomeswhich were denied as deduction, which were listed at para 3.1 of the assessment order as under: i) Interest from IndusInd Bank Ltd. Rs.12,454/- ii) Interest from Axis Bank Ltd. Rs.17,672/- iii) Interest from UGVCL Rs.1,05,600/- iv) Interest from Dena Bank Rs.16,113/- v) Commission income (others) Rs.14,488/- 11. With respect to the denial of deduction of interest earned from the bank amounting to Rs.46,239/- (12454 + 17672 +16113), the ld.counsel for the assessee fairly agreed that the assessee was not entitled to the same inview of Hon’ble jurisdictional High Court decision in the case of State Bank of India (supra). ITA No.1787/Ahd/2019 6 12. With respect to the interest earned from UGVCL and commission income, the contention of the ld.counsel for the assessee before me was that the assessee-cooperative society was also engaged in activities of providing bills collection facilities for telephone and electricity and depositing such collection to BSNL, GEB/UGVCL; that during such process, it has to keep advance deposits with the said institutions, and which entitled them to interest income; thatfor providing collection facilities, the assessee has also earned commission income. The contention of the ld.counsel for the assessee is that both the commission income and interest has been earned from the business activities carried out by the assessee-society and is accordingly entitled to deduction under section 80P(2)(a)(i) of the Act. My attention as drawn tothe submissions in this respect before the ld.CIT(A) at para-4.5 (Page no.13) as under: “4.5 So far as commission income earned from BSNL/GEB as well as interest income Earned from GEB and UGVCL for Rs.2,32,000/- is concerned, it is observed that Appellant Society has been providing services of bill collection of telephone and electricity and depositing such collected amount to such organizations and during such process, it has to keep fixed deposit with such organizations which entitled them to receive interest income. It is also observed that for providing such facilities Appellant has been earning commission income from such organizations and this activity of Appellant is one of the businesses carried out by Society, commission income as well as interest income form part of income from business and profession eligible for deduction under Section 80P(2)(a).” He also contended that ITAT Ahmedabad Bench had allowed deduction to identical commission income earned by cooperative from providing bill collection facilities to members in the case of The Kabilpore Peoples Cooperative Credit Society Ltd. Vs ITO (ITA No. 160/A/2012 A.Y 2017-18, which was referred to before the Ld.CIT(A) also and reproduced at page 47 of the order. ITA No.1787/Ahd/2019 7 13. The ld.DR, on the other hand relied on the order of the ld.CIT(A) that since the said incomes did not qualify as income from providing credit facilities to members ,which alone is eligible to deduction u/s 80P(2)(a) of the Act, the assessee was not entitled to deduction on the same. Our attention was drawn to para 5.3 of the ld.CIT(A)’s order as under: “5.3 In view of the above facts as appraised in other cases as mentioned above, I have also carefully considered the facts of the appellant together with the submissions made by it during the course of assessment as well as appellate proceedings. The facts so perused carefully reveal that the status of the appellant is a co-operative society falling in section 80P(2)(a) of the Act being a co-operative credit society. As per the Profit & Loss account, the appellant has shown the net profit of Rs.32,20,178/- which has been claimed to be exempt u/s80P(2) of the Act. However, as held above, the interest from those banks which are not enjoying the status of a Co.Operative Society, interest on GEB deposit and other misc. commission receipts worked out at Rs.1,66,327/- would be taxed under the head "Income from other sources". Accordingly, it is held that, the A.O. was right in disallowing the sum of Rs.1,66,327/- by relying on the Totagar decision. However, so far as the allowing of the expenses u/s 57 of the Act is concerned, I have decided in other identical cases wherein such disallowed interest has been held to be confirmed 5% of the such disallowed interest. Accordingly, the disallowance of net interest worked out at Rs.1,58,011/- after deducting the expenses of Rs.8,316/-from the gross interest of Rs.1,66,327/- is worked out. Thus, the appellant would get relief of Rs.8,316/- whereas the net interest of Rs.1,58,011/- stands confirmed. Accordingly, the grounds nos.3 and 3.1 of the appeal is partly allowed.” 14. I have both the parties. I see no reason to interfere in the order of the ld.CIT(A). The ld.counsel for the assessee is seeking deduction u/s 80P(2)(a)(i) on income earned from activities of providing bills collection facilities to its members; the income amounting to Rs.1,20,058/- (Rs.1,05,600/- plus Rs.14,488/-). This fact of the income having been earned from bill collection activity is as per the admission of the assessee itself. The said clause of section 80P allows deduction only of income earned by cooperative societies from the business of providing banking or credit facilities. The ld.counsel for the assessee has been unable to demonstrate before us as to how this income qualifies for deduction under clause (a) of section 80 P(2) of the Act. Therefore, I agree with the ld.CIT(A) that the assessee is not entitled to deduction of income earned from the activities of providing bills collection services to its members ITA No.1787/Ahd/2019 8 under section 80P(2)(a)(i) of the Act and, the ld.CIT(A) I hold has rightly disallowed the same. The decision relied upon by the Ld.Counsel for the assessee in the case of Kabilpore Peoples Society(supra) , I find allowed the assesses claim to deduction on the commission income earned not u/s 80-P(2)(a) of the Act but under the residuary clause 80P(2)(c) of the Act. The assessee in the present case before me , claiming deduction of the commission income u/s 80P(2)(a) of the Act, the said decision, I hold is of no assistance to the assessee. In view of the above, I uphold the order of the ld.CIT(A) confirming the disallowance of deduction under section 80P(2)(a)(i) of the Act on interest income earned from banks and others and commission income totalling in all Rs.1,66,327/-.Ground no.1 to 3 are dismissed. 15. The ground no.4.1 raised by the assessee is against the order of the ld.CIT(A) allowing set off expenses incurred for earning of incomes to which the assessee was denied deduction under section 80P(2) of the Act at therate of 5% thereof. The contention of the ld.counsel for the assessee was that the estimation ought to have been done on reasonable basis and for such purpose, he requested the matter to be restored back. 16. I find merit in the contentions of the ld.counsel for the assessee that there has to be a reasonable basis for arriving at any estimation, and in the absence of any such basis being provided by the ld.CIT(A), I restore this issue back to the ld.CIT(A) to estimate the expenses to be allowed against the income from other sources liable to tax on a reasonable basis. Ground of appeal No.4.1 is allowed for statistical purposes. ITA No.1787/Ahd/2019 9 17. In the result, the appeal of the assessee is partly allowed for statistical purpose. Order pronounced in the Court on 29 th March, 2023 at Ahmedabad. Sd/- (ANNAPURNA GUPTA) ACCOUNTANT MEMBER Ahmedabad,dated 29/3/2023 vk*