INCOME TAX OFFICER, INCOME TAX OFFICES, FIRST FLOOR, FIROZ KHIMZIBAHI COMPLEX, B R AMBEDKAR ROAD, BELAGAVI V. JAGRUTI URBAN CREDIT SOUHARD SAHAKARI NIYAMIT, HARUGERI

ITA 185/PAN/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8265 (ITAT-PANAJI)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2020-2021
• Appeal Filed On: 06-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JUDICIAL
• Keywords: Revision of order; Opportunity of being heard; Co-operative Credit Society; Set aside
• Section: 263; 2; 143(3); 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH : PANAJI [THROUGH VIRTUAL HEARING AT ITAT : PUNE] BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER I.T.A.No.185/PAN./2023 [E-APPEAL] Assessment Year 2021-2022 The Income Tax Officer, Income Tax Office, 1 st Floor, Firoz Khimzibahi Complex, B.R. Ambedkar Road, Belagavi – 590 001. Karnataka. vs. Jagruti Urban Credit Souhard Sahakari Niyamit, No.1, Harugeri, Harugeri – 591 220. Karnataka. PAN AACAJ1802G (Appellant) (Respondent) For Revenue : Shri N. Shrikanth For Assessee : -None- Date of Hearing : 12.03.2024 Date of Pronouncement : 13.03.2024 ORDER PER SATBEER SINGH GODARA, J.M. : This Revenue’s appeal I.T.A.No.185/PAN./2023, for assessment year 2021-2022, arises against the National Faceless Appeal Centre [in short the “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2023-24/1056413200(1), dated 22.09.2023, involving proceedings u/s. 143(3) of the Income Tax Act, 1961 (in short “the Act”). Case called twice. None appears at assessee’s behest. It is accordingly proceeded ex-parte. 2. The Revenue pleads the following substantive grounds in the instant appeal : 2 ITA.No.185 /PAN./2023 1. “The decision of CIT(A)/NFAC is opposed to facts of the case in allowing entire deduction u/s 80P(2)(a)(i) of the Act. 2. The CIT(A)/NFAC has allowed the appeal of the assessee placing reliance on the decision of Hon'ble Supreme Court in the case of Honble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd and others Vs CIT without appreciating the fact that the AO has disallowed the claim of deduction u/s 80P of the Act in respect of interest earned on investments and not in respect of interest earned from members. 3. The CIT(A)/ NFAC ignored the findings of the AO wherein it has been clearly mentioned that the assessee society has earned interest on investments placed with Bagalkot District Central Co-op Bank Ltd and not from members of the society. 4. The CIT(A)/NFAC has erred in not considering the decision of Hon’ble High Court of Karnataka in the case of PCIT, Hubballi V/s Totgars Co-Op sales society (2017) 83 taxmann.com 140 (Karnataka) has held that “The words 'Co-operative Banks' are missing in clause (d) of sub section (2) of section 80P. Even though a cooperative 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’. Accordingly, the disallowance of claim of deduction u/s 80P of the Act in respect of interest earned investment from Bagalkot District Central Co-op Bank Ltd should have been upheld. 3 ITA.No.185 /PAN./2023 5. The appellant requests to add, alter, and amend any other grounds of appeal during the course of appellate proceedings.” 3. It transpires during the course of hearing that the Assessing Officer had declined the assessee’s claim of sec.80P deduction representing interest income from deposit(s) made with Co-operative/Scheduled bank(s) as well as from nominal members in course of regular business activity. Mr. Shrikanth vehemently supported the Assessing Officer’s impugned action to this effect which stands reversed in the lower appellate discussion. He could hardly dispute that both these issues vis-à-vis assessee’s sec.80P deduction claim are no more res integra in light of the tribunal’s recent coordinate bench(es) order in ITA.No.80/PAN./ 2020 The Parshwanath Co-op. Credit Society Ltd., Belgaum vs. PCIT dated 05.07.2023 has already rejected the Revenue’s stand thereby holding that interest income derived from such investments as duly entitled for the impugned relief as under : “5. That now the only issue remains for adjudication in all these appeals is with regard to claim of deduction u/sec. 80P(2)(d) regarding interest income. At the outset, learned counsel for the assessees submitted that these matters are covered by the earlier decision on the same identical issue of the Pune Tribunal in the case of Lokmangal Nagri Sahakari Path Sanstha Maryadit v. PCIT in ITA No.231/PUN/2022 for A.Y. 2017-18, order dated 29.11.2022, wherein also it was the order passed u/sec.263 read with issue of deduction u/s 80P(2)(a)(i) 4 ITA.No.185 /PAN./2023 or 80P(2)(d) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). 6. The learned DR(s) conceded that the facts are absolutely identical and similar. 7. We observe that the Pune Tribunal in ITA No.231/PUN/2022 (supra) on examination of the facts held as follows: “3 ....The appellant is a cooperative society formed under the Maharashtra Co-operative Societies Act, 1960. It is engaged in the business of accepting deposits from members and providing credit facilities to its members. The original Return of Income for the assessment year 2017-18 was filed on 18.10.2017 disclosing total income of Rs.3,11,740/-. Subsequently, the assessee revised the return of income declaring Rs.Nil income after claiming deduction of Rs.6,32,86,382/- under the provisions of section 80P of the Income Tax Act, 1961 (‘the Act’). Against the said return of income, the assessment was completed by the Assessing Officer accepting the returned income vide order dated 19.11.2019 passed u/s 143(3) of the Act. 4. Subsequently, on examination of the assessment order, the ld. PCIT formed an opinion that failure the Assessing Officer to examine the taxability of interest earned on the investments made with the cooperative banks, as the same constitutes business income, rendered the assessment order erroneous. Accordingly, the ld. PCIT issued a show cause notice dated 08.03.2022 u/s 263 calling upon the appellant society to explain as to why the assessment order dated 19.11.2019 should not be treated as erroneous and prejudicial to the 5 ITA.No.185 /PAN./2023 interests of the revenue. In response to the show cause notice, the appellant filed a detailed submission stating that the interest income earned by the cooperative bank on the investments made with the other cooperative bank is eligible for deduction under the provisions of section 80P(2)(a)(i) as well as under the provisions of section 80P(2)(d) placing reliance on the following decisions : (i) Gurumauli Nagari Sahkari Pat Sanstha vs. PCIT order dated 13.01.2022 (Pune – Trib.). (ii) Tumkur Merchants Souharda Credit Cooperative Ltd. vs. ITO 230 Taxman 309 (Kar – HC). (iii) Sureshdada Jain Nagari Sahakari Patsanstha Maryadit (ITA No.713/PUN/2016). (iv) Nasik Road Nagri Sahakari Patsanstha (ITA No.1700/PUN/2017 order dated 27.12.2021). (v) ITO vs. Shri Laxmi Narayan Nagari Sahakari Pathsanstha (ITA No.2827/PUN/2016 order dated 19.09.2018). (vi) Sant Motiram Maharaj Patsanstha Ltd. vs. ITO, 120 taxmann.com 10. 5. It is further submitted that the Assessing Officer had allowed the claim of exemption after due application of mind on the issue in appeal and, therefore, the Explanation 2 to section 263 cannot be invoked. However, the ld. PCIT on due consideration of explanation filed by the appellant held that the failure of the Assessing Officer to examine the issue rendered the assessment erroneous and prejudicial to the interests of the revenue. Accordingly, ld. PCIT set aside the assessment order with a direction to examine the assessee’s claim of deduction u/s 80P(2)(a)(i) as well as interest of Rs.19,88,77,712/- u/s 80P(2)(d) after affording reasonable opportunity of being heard to the appellant. 6. Being aggrieved, the appellant is in appeal before us in the present appeal. 6 ITA.No.185 /PAN./2023 7. The ld. AR submits that the issue of eligibility of income earned on the investment made with the cooperative bank was examined by the Co-ordinate Bench of this Tribunal in the case of M/s. Jan Kalyan Nagri Sahakari Pat. Limited Sanstha in ITA No.825/PUN/2019 for A.Y. 2014-15 order dated 26.08.2022. The ld. AR submits that the issue is covered in favour of the appellant. In support of this proposition, ld. AR relied on the following judicial precedents :- (i) Nashik Road Nagari Sahkari Patsanstha Limited vs. ITO (ITA No.1700/PUN/2017 dated 27.12.2021). (ii) Rena Sahakari Sakhar Karkhana Ltd. vs. Pr.CIT (ITA No.1249/PUN/2018 dated 07.01.2022). (iii) Shri Chandraprabhu Urban Co-operative Credit Society Ltd. vs. ITO (ITA No.61 & 62/PAN/2018 dated 10.05.2022). 8. Thus, it was contended that when the issue was stands covered and decided in favour of the assessee, then it cannot be said that the assessment order is erroneous as well as prejudicial to the interests of the revenue. 9. On the other hand, ld. CIT-DR placing reliance on the order of the ld. PCIT submits that failure of the Assessing Officer to examine the taxable income earned on the investments from cooperative bank rendered assessment order erroneous and prejudicial to the interests of the revenue. Therefore, he submits that the ld. PCIT was justified in exercising the power of revision u/s 263 of the Act. 10. We heard the rival submissions and perused the material on record. The issue in the present appeal relates to the validity of assumption of jurisdiction u/s 263 by the ld. PCIT. The Parliament had conferred the power of revision on the Commissioner of Income Tax u/s 263 of the Act in case the assessment order passed is erroneous and prejudicial to the 7 ITA.No.185 /PAN./2023 interests of revenue. In order to invoke the power of revision, the above two conditions are required to be satisfied cumulatively. References in this regard can be made to the decision of the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT, 243 ITR 83 (SC) and in the case of CIT vs. Max India Ltd., 295 ITR 282 (SC). The error in the assessment order should be one that it is not debatable or plausible view. In a case where the Assessing Officer examined the claim, took one of the plausible views, the assessment order cannot be termed as an “erroneous”. In the present case, we find that admittedly the interest income was earned from the cooperative banks, the cooperative bank is also a specie of cooperative society, therefore, the interest income earned by the cooperative society from the cooperative banks qualifies for deduction u/s 80(P)(2)(d) of the Act. Such interest also qualifies for exemption u/s 80P(2)(a)(i) as held by the Co-ordinate Bench of Pune Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha Limited (supra) wherein the Tribunal held as under:- “9. We heard the rival submissions and perused the material on record. Admittedly, the appellant is a Cooperative society formed under the provisions of Maharashtra Cooperative Societies Act,1960 with the objective of accepting deposits and lending money to its members. The money which is not immediately required for the purpose of lending to the members is deposited with Bank of Baroda in the form of Fixed Deposit. The question is whether the interest so earned qualifies for exemption u/s. 80P(2)(a)(i) of the Act. The AO as well as the CIT(A) were of the opinion that the interest earned from third parties or nonmembers does not quality for exemption u/s.80P. It is an admitted position that the interest so earned should be taxed as ‘income from other sources’ There is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of 8 ITA.No.185 /PAN./2023 income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon’ble Delhi High Court in the case of Mantola Cooperative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd. 389 ITR 68 and the Hon’ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd. 390 ITR 524 took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann 309 (Kar.) and the Hon’ble Telangana and Hon’ble Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v CIT [(2017) 396 ITR took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s.80P(2)(a)(i) of the Act. The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12- 2018) has taken view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Respectfully following the decision of the Coordinate Bench, we hold that the interest income earned on the investment of surplus money with banks is also eligible for 9 ITA.No.185 /PAN./2023 exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal No. 1 & 2 stands allowed.” 11. Thus, we find that the issue which is subject matter of revision is covered in favour of the assessee by judicial precedents. Therefore, it cannot be said that the assessment order is erroneous or prejudicial to the interests of the revenue. Therefore, we are of the considered opinion that the order of revision passed by the ld. PCIT u/s 263 of the Act cannot be sustained in the eyes of law. Hence, the grounds of appeal raised by the assessee stand allowed.” 8. Respectfully following the above cited decision, we find that the issue(s) which is subject matter of revision u/sec. 263 and/or deduction u/sec. 80P(2)(a)(i)/80P(2)(d), is covered in favour of the assessee(s) by judicial precedents. Therefore, we are of the considered view that the impugned orders passed by the ld.PCIT/CIT(A) cannot be sustained in the eyes of law. Hence, the grounds of appeals raised by the assessee(s)on deduction u/sec. 80P(2)(a)(i)/80P(2)(d) of the Act stands allowed.” 4. So far as the Revenue’s attempt to come out a distinction between nominal and regular members interest income(s) is concerned, hon'ble apex court’s recent landmark decision in Mavilayi Service Co-operative Bank Ltd., vs., CIT [2021] 431 ITR 1 (SC) has further settled the issue that the same does not bar an assessee from raising sec.80P deduction once these twin memberships are in tune with the corresponding state’s cooperative law. 10 ITA.No.185 /PAN./2023 5. The Revenue further stated denying section 80P(2)(a)(i) deduction for the reason a “Souharda Society” is registered under Karnataka Souharda Sahakari Act, 1997 than an eligible assessee covered u/s.2(19) of the Act applicable in case of a credit cooperative society only. Mr. Shrikanth could hardly dispute the clinching fact that the instant issue has already been decided in assessee’s favour and against the department by hon’ble jurisdictional high court’s in Government of India, Ministry of Finance vs., Karnataka State Souharda Federal Cooperative Ltd., [2022] 134 taxmann.com 170 (Kar.); thereby holding that such cooperative societies registered under the Karnataka Souhadra Sahakari Act, 1997 very well come under the purview of a cooperative society defined u/s.2(19) of the Act. That being the case, we reject the Revenue’s sole substantive ground(s) in very terms. Ordered accordingly. 6. This Revenue’s appeal is dismissed in above terms. Order pronounced in the open Court on 13.03.2024. Sd/- Sd/- [INTURI RAMA RAO] [SATBEER SINGH GODARA] ACCOUNTANT MEMBER JUDICIAL MEMBER Pune, Dated 13 th March, 2024 VBP/- Copy to 1. The appellant 2. The respondent 3. The Pr. CIT, Panaji concerned. 4. The D.R. ITAT, Panaji Bench, Panaji 5. Guard File. //By Order// //True Copy // Sr. Private Secretary, ITAT, Pune Benches, Pune.