The Advocates Mutually Aidd Co-operative Society Ltd., Hyderabad V. Addl.CIT, Circle-9, Hyderabad

ITA 1859/HYD/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87362 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-01-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 30-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAKRISHNA BANDI
• Keywords: Source of fund; Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.546, 547 & 1331/HYD/2012 & ITA.NO.1860/HYD/2 013 ASSESSMENT YEARS 2007-08, 2008-09 & 2009-2010 & 201 0-11 ACIT, CIRCLE 9(1) HYDERABAD. VS. THE ADVOCATES MUTUALLY AIDED COOP SOCIETY, HYDERABAD. PAN AAAAT7853P (APPELLANT) (RESPONDENT) ITA.NO.548 & 549/HYD/2012 & ITA.NO.1859/HYD/2013 ASSESSMENT YEAR 2007-2008 & 2008-2009 & 2010-2011 THE ADVOCATES MUTUALLY AIDED COOP SOCIETY, HYDERABAD. PAN AAAAT7853P VS. ACIT, CIRCLE 9(1) HYDERABAD. (APPELLANT) (RESPONDENT) FOR REVENUE : MR. RAMAKRISHNA BANDI FOR ASSESSEE : MR. A. SRINIVAS DATE OF HEARING : 30.01.2015 DATE OF PRONOUNCEMENT : 20.02.2015 ORDER PER BENCH. THESE ARE CROSS APPEALS BY ASSESSEE AND REVENUE FO R ASSESSMENT YEARS 2007-08, 2008-09, 2009-2010 AND 20 10- 2011. SINCE, COMMON ISSUES ARE INVOLVED IN THESE AP PEALS, WE HAVE HEARD THE APPEALS TOGETHER AND DISPOSED OF BY THIS COMMON ORDER. WE HAVE HEARD THE LEARNED D.R. FOR TH E REVENUE AND LD. COUNSEL FOR THE ASSESSEE IN DETAIL AND PERUSED THE PAPER BOOK PLACED ON RECORD. FOR THE SA KE OF CLARITY, WE CONSIDER THE APPEALS IN A.Y. 2007-2008 IN DETAIL. 2 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. ITA.NO.546/HYD/2012. AY 2007-08. ITA.NO.548/HYD/2012. AY 2007-08. 2. BRIEFLY STATED, ASSESSEE IS A COOPERATIVE SOCIE TY REGISTERED UNDER THE A.P. MUTUALLY AIDED COOPERATIV E SOCIETIES ACT (APMACSA). IT IS ENGAGED IN THE BUSINESS OF PRO VIDING CREDIT FACILITIES TO ITS MEMBERS AND ACCEPTING DEPO SITS FROM ASSOCIATED/NOMINAL MEMBERS. IT FILED ITS RETURN OF INCOME ON 07.09.2009 DECLARING INCOME OF RS.31,06,406 AFTER C LAIMING DEDUCTION UNDER SECTION 80P OF THE ACT OF RS.26,00, 800. ASSESSEES GROSS RECEIPTS FOR THE YEAR ENDING MARCH , 2007 ARE TO THE TUNE OF RS.1,51,48,494. THIS INCLUDE INTERES T RECEIVED AND RECEIVABLE ON LOANS/ FDS WITH SOCIETIES/BANKS/M EMBERS TO AN EXTENT OF RS.1,37,32,229. BALANCE OF RECEIPT S PERTAINS TO INTEREST ON GOLD LOANS, SHARE-LOANS, SALE OF POSTAL STAMPS, WELFARE STAMPS, OTHER STAMPS AND STATIONERY. ASSESS EE BEING A MUTUALLY AIDED COOPERATIVE SOCIETY ADMITS MEMBERS W ITH WHOM IT HAS CERTAIN TRANSACTIONS. IT ALSO HAS TRANS ACTIONS WITH NOMINAL MEMBERS, MORE PARTICULARLY TAKING DEPOSITS OF THE BAIL AMOUNT FROM THE BAILEES AND KEEPING THEM IN DEPOSIT S ON THE ORDERS OF THE COURT WHILE GRANTING BAIL TO THE ACCU SED PERSONS. ASSESSEE WHILE FILING THE RETURN OF INCOME COMPUTED THE GROSS TOTAL INCOME AT RS.57,07,206 AND DID NOT CLAIM DEDU CTION UNDER SECTION 80P OF THE ENTIRE INCOME. SINCE, ITS RECEIPTS INCLUDE GROSS RECEIPTS FROM COOPERATIVE SOCIETIES/ BANKS/MEMBERS AND ALSO FROM GENERAL PUBLIC AND FRO M ASSOCIATED/NOMINAL MEMBERS ASSESSEE CLAIMED PROPORT IONATE DEDUCTION UNDER 80P BY TAKING ELIGIBLE RECEIPTS FRO M THE COOPERATIVE SECTOR OVER THE GROSS RECEIPTS, THEREBY , ASSESSEE CLAIMED ONLY DEDUCTION OF RS.26,00,800. WHILE CLAIM ING DEDUCTION UNDER SECTION 80P, IT HAS CLAIMED DEDUCTI ON ONLY 3 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. UNDER 80P(2)(A)(I) ON THE INCOME FROM PROVIDING CR EDIT FACILITIES TO ITS MEMBERS. EVEN THOUGH IT HAS INTEREST INCOME FROM THE DEPOSITS MADE WITH OTHER COOPERATIVE SOCIETIES/BANK S, IT DID NOT CLAIM DEDUCTION UNDER SECTION 80P(2)(D) IN RESP ECT OF INCOME BY WAY OF INTEREST/ DIVIDEND FROM OTHER COO PERATIVE SOCIETY. 3. THE A.O. WHILE COMPLETING THE ASSESSMENT WAS OF THE OPINION THAT ASSESSEE IS NOT ENTITLED FOR DEDUC TION UNDER SECTION 80P(2)(A)(I) ON THE REASON THAT ASSESSEE HA S ADMITTED NOMINAL MEMBERS IN VIOLATION OF A.P. COOPERATIVE SO CIETIES ACT /RULES, 1964 AS AMENDED ON 28.01.2002. HE HAS ELABO RATELY DISCUSSED THE RULES AND ALSO THE SO-CALLED VIOLATIO NS STATED TO HAVE BEEN COMMITTED BY THE SOCIETY. HE CAME TO CONC LUSION THAT ACTIVITY OF THE ASSESSEE IS NOT BANKING ACTIV ITY AMONG ITS MEMBERS BUT FINANCE BUSINESS OF ACCEPTING DEPOSITS (SURETY BONDS FOR ACCUSED) AND INVESTING THEM IN FDS/ADVANC ING LOANS TO MEMBERS. A.O. NOTED THAT ASSESSEE IS ENGAGED IN THE ACTIVITY OF SALE OF STAMPS ETC., TO THE OUTSIDE WORLD. AO DE NIED THE DEDUCTION UNDER SECTION 80P(2)(A)(I). HOWEVER, A.O. ALSO NOTED THAT ASSESSEE BEING A COOPERATIVE SOCIETY MADE DEPO SITS WITH OTHER COOPERATIVE INSTITUTIONS INCLUDING COOPERATIV E BANKS. AFTER ANALYSING THE INCOME ON CERTAIN PARAMETERS WH ICH HE HAS CONSIDERED, HE ALLOWED DEDUCTION OF RS.34,57,307 UN DER SECTION 80P(2)(D) THEREBY, ENHANCING THE 80P DEDUCT ION BUT AT THE SAME TIME ENHANCING THE TOTAL INCOME ALSO IN VI EW OF OTHER CALCULATIONS, DETERMINING TOTAL INCOME AT RS.43,12, 740 AS AGAINST DECLARED INCOME OF RS.31,06,406. IN DOING S O, A.O. INDIRECTLY DISALLOWED AMOUNT OF RS.20,68,583 TOWARD S INSURANCE ON MEDICLAIM POLICIES OF MEMBERS WHILE AR RIVING AT THE PROFIT FOR THE PURPOSE OF TAXATION. 4 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. 4. BEFORE THE LD. CIT(A), ASSESSEE CONTENDED THAT A.O. HAS WRONGLY CONSIDERED A.P. COOPERATIVE SOCIET IES ACT WHEREAS, THE ASSESSEE IS REGISTERED UNDER A.P. MUTU ALLY AIDED COOPERATIVE SOCIETIES ACT (APMACSA). LD. CIT(A) ANA LYSED THE PROVISIONS AND CASE LAW ON THE ISSUE AND CAME TO TH E CONCLUSION THAT ASSESSEE IS ENGAGED IN PROVIDING CR EDIT FACILITIES TO ITS MEMBERS. HE ALSO WAS OF THE OPINI ON THAT SOURCE OF FUNDS FOR PROVIDING SUCH CREDIT HAS NOT BEEN SPE CIFIED IN THE SECTION, THEREFORE, SINCE THE FUNDS ARE OBTAINED AS PART OF SECTION 14(2) OF THE APMCSA, HE WAS OF THE OPINION THAT ACCEPTANCE OF DEPOSITS FROM NON MEMBERS/NOMINAL MEM BERS CANNOT SAID TO DISQUALIFY THE ASSESSEE FROM BENEFIT OF SECTION 80P. THEREFORE, HE DIRECTED THE A.O. TO ALLOW DEDUC TION UNDER SECTION 80P(2)(A)(I). 4.1. LD. CIT(A) ALSO NOTED THAT THERE WAS A CALCUL ATION ERROR WHICH HAS CREPT INTO COMPUTATION OF DEDUCTION UNDER SECTION 80P(2)(D) AND THEREFORE, HE HAS DIRECTED TH E A.O. TO RESTRICT THE DEDUCTION TO RS.31,89,338. LD. CIT(A) ALSO GAVE A FINDING THAT SINCE ASSESSEE HAD OTHER RECEIPTS LIKE COMMISSION ON POSTAL STAMPS, LABELS, SALE OF STATIONERY ETC., WHICH IS NOT RELATED TO BUSINESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS OF THE SOCIETY, HE DIRECTED THE A.O. TO EXCLUDE AN AMOUNT OF RS.9,38,866 CONSISTING OF THE OTHER RECEIPTS WHILE CALCULATING DEDUCTION UNDER SECTION 80P(2)(A)(I). LD. CIT(A), H OWEVER, DID NOT AGREE WITH THE ASSESSEES CONTENTION OF ALLOWIN G EXPENSES OF RS.20,68,583 ON INSURANCE AND MEDICAL CLAIM POLI CIES ON ITS MEMBERS, WHICH THE A.O. HELD TO BE PURELY PERSONAL IN NATURE. HE WAS OF THE OPINION THAT THE EXPENDITURE ON INSUR ANCE POLICIES CANNOT BE SAID TO BE INCURRED FOR THE PURP OSE OF 5 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. ASSESSEES BUSINESS. THEREFORE, HE DID NOT ALLOW TH E ABOVE EXPENDITURE WHILE DECIDING THE ISSUES. 5. ASSESSEE IS AGGRIEVED ON THE DISALLOWANCE OF EXPENSES OF RS.20,68,583 ON INSURANCE AND MEDI-CLAI M POLICIES TAKEN IN THE NAME OF ITS MEMBERS WHEREAS, REVENUE IS AGGRIEVED ON THE DIRECTION OF THE LD. CIT(A) TO ALL OW DEDUCTION UNDER SECTION 80P(A)(I). REVENUE IN ITS APPEAL HAS RAISED THE FOLLOWING GROUNDS : 1. THE CIT(A) ERRED IN OVERLOOKING THE VIOLATION OF PROVISIONS OF A.P. COOPERATIVE SOCIETIES ACT, 1964 AND THE FINDING OF A.O. THAT THE ACTIVITY OF ASSESSEE I S BANKING BUSINESS AND NOT CARRYING ON THE BUSINES S OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS ME MBERS AS IT WAS MOBILIZING FUNDS FROM OUTSIDERS AND DOING NORMAL BANKING BUSINESS. 2. THE OBSERVATION OF CIT(A) IS MISPLACED WITH REGARD TO DEDUCTION U/S.80P(2)(I)(A) I S EVEN OTHERWISE GIVEN TO THE ASSESSEE EVEN IF IT ACCEPTS DEPOSITS FROM NON MEMBERS. 3. THE FACTS AND ISSUE INVOLVED IN THIS CASE IS SIMILA R FOR A.Y. 2008-09 ALSO. THE CONCEPT OF MUTUALITY AND VIOLATION OF BANKING REGULATION ACT, WHICH ARE ESSE NTIAL IN DETERMINING THE STATUS AND ACTIVITY OF ASSESSEE AND WHETHER ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) WAS DISCUSSED ELABORATELY IN THE ASSESSMENT ORDER FOR A.Y. 2008-09. THIS ISSUE FOR A .Y. 2008-09 IS ALSO IN APPEAL BEFORE ITAT. THE A.O., THOUGH NOT DISCUSSED THESE ISSUES IN THE ASSESSMENT ORDER FOR A.Y. 2007-08 IS VERY MUCH RELEVANT IN DECIDING THE ISSUE. THEREFORE, THE SAME ARE APPLICA BLE FOR THIS ASSESSMENT YEAR ALSO. 5.1. AS CAN BE SEEN FROM THE ABOVE, GROUND NOS. 1 AND 2 PERTAIN TO ALLOWANCE OF DEDUCTION UNDER SECTION 8 0P2)(A)(I) AND IN SUPPORT GROUND NO.3 WAS RAISED ON THE BASIS OF THE ISSUES INVOLVED IN A.Y. 2008-09 ALSO. THE CONCEPT O F MUTUALITY 6 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. AND VIOLATION OF BANKING REGULATIONS ACT WHICH WERE THE MAIN DISCUSSION IN A.Y. 2008-09 WERE RAISED. THIS ISSUE DOES NOT ARISE FROM THE ORDER OF THE A.O. HOWEVER, THIS GROU ND IS KEPT IN MIND WHILE DECIDING THE ISSUES. FOR THE TIME BEING, GROUND NO.3 IS NOT MATERIAL IN DECIDING THE ISSUES ARISING IN IMPUGNED ORDER FOR A.Y. 2007-08. 5.2. THE MAIN CONTENTION OF THE REVENUE IS THAT ASSESSEE IS NOT CARRYING ON THE BUSINESS OF BANKING WHICH THE A.O. HELD IN VIOLATION OF THE PROVISIONS OF THE ACT . BASICALLY, ASSESSEE WAS MOBILIZING FUNDS FOR DEPOSITS AND DOIN G NORMAL BANKING BUSINESS AND THEREFORE, REVENUE IS OF THE O PINION THAT DEDUCTION UNDER SECTION 80P(A)(I) SHOULD NOT BE ALL OWED TO THE ASSESSEE. 6. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE PAPER BOOK PLACED ON RECORD AND PROVIS IONS OF THE ACT, WE DO NOT FIND ANY MERIT IN REVENUE APPEAL ON THIS ISSUE. AS FAR AS THE SO-CALLED VIOLATIONS OF THE PROVISION S OF A.P. COOPERATIVE SOCIETIES ACT, 1964 ARE CONCERNED, THIS GROUND DOES NOT ARISE IN THE CASE OF ASSESSEE AS IT IS NOT REGISTERED UNDER THE SAID ACT, BUT UNDER APAMACS 1995. THERE I S A FINDING BY LD. CIT(A) THAT ASSESSEE WAS REGISTERED UNDER THE SAID ACT VIDE THE REGISTRATION GRANTED ON 19.11.199 7 BY THE REGISTRAR OF A.P. MUTUALLY AIDED COOPERATIVE SOCIET IES. THEREFORE, ANALYSING ASSESSEES ACTIVITIES AND DETE RMINING THE SO-CALLED VIOLATIONS BY THE A.O. IS MISDIRECTED. TH E ISSUE OF TRANSACTIONS WITH NOMINAL MEMBERS OR NON-MEMBERS IS NOT AN ISSUE AS THE ASSESSEE HAS CLEARLY CLAIMED DEDUCTION UNDER SECTION 80P ONLY TO THE EXTENT OF TRANSACTIONS WITH ITS MEMBERS. SINCE THE TRANSACTIONS ARE INTER-LINKED, A SSESSEE HAS PROPORTIONATELY CLAIMED DEDUCTION UNDER SECTION 80P (A)(I) BY 7 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. TAKING THE TRANSACTIONS WITH THE MEMBERS AND THE GR OSS RECEIPTS. LD. CIT(A) ALSO EXAMINED THIS ASPECT ON F ACTUAL BASIS AND EXCLUDED CERTAIN OTHER INCOMES ALSO. THEREFORE, ON FACTS, THE ISSUE OF VIOLATION OF PROVISIONS OF A.P. COOPER ATIVE SOCIETIES ACT, 1964 DOES NOT ARISE AT ALL. 7. WITH REFERENCE TO THE FINDING OF A.O. THAT THE ACTIVITY OF ASSESSEE IS BANKING BUSINESS AND NOT CA RRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILI TIES TO ITS MEMBERS. THIS GROUND RAISED IS ALSO MISPLACED. ASS ESSEE BY ITS BYE LAWS HAS TWO TYPES OF MEMBERS. VIDE BYE LAW 3(IV)(A) MEMBER MEANS, MEMBER/SHAREHOLDER OF THE SOCIETY. BY E-LAW 3(IV)(B) DEFINES ASSOCIATE MEMBER AND NOMINAL MEMBE R MEANS OTHER THAN SHAREHOLDER OF THE SOCIETY. THEREFORE, T HE BYE-LAWS ITSELF DISTINGUISHES BETWEEN MEMBER AND A NOMINAL MEMBER/ASSOCIATE MEMBER, THE LATER BEING NOT A SHAR EHOLDER OF THE SOCIETY. AS FAR AS THE OBJECTIVE IS CONCERNE D, THE OBJECTIVE OF THE SOCIETY IS TO MAKE ECONOMIC AND SO CIAL UPLIFTMENT AND WELFARE OF ITS MEMBERS AND THEIR FAM ILIES THROUGH THE ACTIVITIES OF THE SOCIETY IN GENERAL AN D PROMOTE AND PROTECT THE INTEREST OF THE ADVOCATES IN PARTIC ULAR, THROUGH MUTUALLY AID, THRIFT AND SELF-HELP IN ACCORDANCE WI TH THE PRINCIPLE OF COOPERATIVE, AS ENUNCIATED IN SECTION 3 OF THE ACT. THE BYE LAW 8 WHICH DEFINE MEMBERSHIP CLEARLY INDIC ATES THAT IN CASE AN APPLICANT IS ADMITTED AS A MEMBER OF THE SOCIETY, THE APPLICANT HAS TO REMIT THE VALUE OF 50 SHARES A T RS.100 EACH AND NON-REFUNDABLE ADMISSION FEES AS DECIDED B Y THE BOARD FROM TIME TO TIME. BYE LAW 8(VII) EMPOWERS TH E BOARD TO ADMIT ANY PERSON AS ASSOCIATE MEMBER OR NOMINAL-MEM BER TO AVAIL LOAN FROM THE SOCIETY OR MAKE A DEPOSIT WITH THE SOCIETY, WHO SHALL PAY ADMISSION FEE OF RS.50 OR ANY OTHER A MOUNT AS 8 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. DECIDED BY THE BOARD. IT ALSO CLEARLY INDICATES THA T SUCH PERSON SHALL NOT BE ELIGIBLE TO VOTE, ATTEND MEETINGS, CLA IM PROFITS OR LOSS OR ANY OTHER PRIVILEGES PROVIDED TO THE SHAREH OLDER UNLESS SPECIFICALLY PERMITTED. IT ALSO RESTRICTS THAT BOAR D SHALL NOT INDUCT MORE THAN 250 MEMBERS AS ASSOCIATE MEMBERS. THUS THE BYE-LAWS PERTAIN TO MEMBERSHIP CLEARLY DISTINGU ISHES THE MEMBERS OF THE COOPERATIVE SOCIETY AND ASSOCIATE ME MBERS WHO CANNOT BE TREATED AS MEMBER, AS THEY ARE HAVING ONLY A RIGHT TO PAY ADMISSION FEES AND TAKE LOANS FROM SOC IETY AND MAKE DEPOSIT WITH SOCIETY, WITHOUT OTHER PRIVILEGES . THERE ARE CERTAIN JUDGMENTS GIVEN UNDER COOPERATIVE SOCIETIES ACT IN CASE OF SOCIETIES INVOLVED IN BANKING BUSINESS, BY VIRTUE OF WHICH DISTINCTION BETWEEN MEMBERS AND NON-MEMBERS WAS NOT CONSIDERED MATERIAL AND THEIR EQUAL TREATMENT A S FAR AS BUSINESS OF BANKING IS CONCERNED WAS ACCEPTED. IN T HIS CASE, AS RIGHTLY POINTED OUT BY THE LD. CIT(A), ASSESSEE IS NOT INVOLVED IN BUSINESS OF BANKING AND HAS ONLY INVOLV ED IN PROVIDING CREDIT FACILITIES TO THE MEMBERS OF THE S OCIETY. EVEN THOUGH IT HAS OTHER OBJECTS, BASICALLY AS PER THE A SSESSEES ADMISSION BEFORE THE AUTHORITIES, THE RECEIPTS OF I NTEREST IS ON THE LOANS PROVIDED TO THE MEMBERS PER SE . MOST OF THE DEPOSITS ACCEPTED ARE FROM ASSOCIATE MEMBERS WHO ARE NOT GEN ERALLY GIVEN ANY LOANS AS THEIR DEPOSITS ARE FOR SURETY ON THE BONDS GIVEN TO THE ACCUSED AND THESE AMOUNTS RECEIVED FRO M SUCH NON-MEMBERS ARE DEPOSITED IN OTHER COOPERATIVE SOCI ETIES/ COOPERATIVE BANKS OR SCHEDULED BANKS. AS CAN BE SEE N FROM THE ORDER OF THE A.O. ITSELF, HE HAS IDENTIFIED THE AMOUNTS OF INTEREST RECEIVED FROM THE COOPERATIVE SOCIETIES/CO OPERATIVE BANKS AND DEDUCTION UNDER SECTION 80P(2)(D) WAS ALL OWED. LD. CIT(A) ALSO CORRECTED CERTAIN CALCULATION ERRORS IN RESTRICTING 9 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. DEDUCTION UNDER SECTION 80P(2)(D). THERE IS NO DISP UTE ON THE ABOVE EITHER BY ASSESSEE OR BY THE REVENUE. 7.1. ASSESSEES ACTIVITY CANNOT BE CONSIDERED AS A BANKING ACTIVITY AND AS RIGHTLY ANALYSED AND HELD B Y THE LD. CIT(A), ASSESSEE IS INVOLVED IN PROVIDING THE CREDI T FACILITIES TO ITS MEMBERS. SINCE THE ASSESSEE ONLY CLAIMED PROPOR TIONATE DEDUCTION UNDER SECTION 80P ON THE ACTIVITIES WITH ITS MEMBERS ONLY, WHILE OFFERING INCOME TO TAX ON THE ACTIVITIE S WITH NON- MEMBERS/OUTSIDE WORLD, REVENUE GROUNDS RAISED IN TH IS REGARD ARE MISCONCEIVED. WE DO NOT FIND ANY MERIT I N THE CONTENTIONS RAISED BY THE REVENUE IN GROUND NO.2. 8. WITH REFERENCE TO GROUND NO.3, ALSO SINCE ASSES SEE IS NOT INVOLVED IN BUSINESS OF BANKING AND IT IS ON LY A COOPERATIVE SOCIETY REGISTERED UNDER MUTUALLY AIDED COOPERATIVE SOCIETIES ACT, GROUND NO.3 IS ALSO HAS NO MERIT. HOWEVER, THE ISSUE OF GROUND NO.3 IS DECIDED SEPARA TELY IN A.Y. 2008-09. THEREFORE, AS FAR AS ISSUES RAISED IN A.Y. 2007-08 ARE CONCERNED, WE CONFIRM THE ORDER OF LD. CIT(A) TO TH AT EXTENT AND REJECT THE REVENUE GROUND. 9. COMING TO ASSESSEES MAIN CONTENTION ABOUT DISALLOWANCE OF AN AMOUNT OF RS.20,68,583, IT WAS S UBMITTED THAT MEDI-CLAIM AND INSURANCE CLAIM WAS PAID ON BE HALF OF THE MEMBERS FOR THEIR WELFARE. IT IS ONE OF THE OBJECTI VES OF THE SOCIETY TO CONSIDER THE WELFARE OF ITS MEMBERS. AS PART OF IT, ASSESSEE HAS TAKEN POLICIES TO PROTECT THE INTEREST S OF THE MEMBERS. THIS CANNOT BE CONSIDERED AS A PERSONAL IN NATURE. ASSESSEE BEING A COOPERATIVE SOCIETY THERE CANNOT B E ANY EXPENDITURE ON PERSONAL NATURE. THIS EXPENDITURE IS CERTAINLY FOR THE OBJECTS OF THE SOCIETY AND THEREFORE, HAS T O BE ALLOWED 10 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. AS A DEDUCTION. MOREOVER, AS SEEN FROM THE WORKING MADE OUT BY THE A.O. HE HAS EXCLUDED INCOMES RECEIVED FROM T HE COOPERATIVE BANKS/SOCIETIES SEPARATELY. THE RECEIPT S FROM THE MEMBERS ARE SEPARATELY CONSIDERED FOR ALLOWING PROP ORTIONATE DEDUCTION UNDER SECTION 80P(2)(A)(I). IN CASE, THIS EXPENDITURE IS NOT ALLOWED, THE INCOME TO THAT EXTENT WILL GO U P FROM THE INCOME COMPUTED ON THE TRANSACTIONS WITH MEMBERS. T HE DEDUCTION UNDER SECTION 80P(2)(A)(I) ALSO HAS TO BE PROPORTIONATELY INCREASED. THIS IS AN ACADEMIC VIEW , BUT THE FACT IS THAT THE EXPENDITURE IS AN ALLOWABLE EXPEND ITURE, AS IT IS SPENT FOR THE BENEFIT OF THE MEMBERS, IN THE COURSE OF SOCIETY ACTIVITIES, AS PERMITTED BY THE BYE-LAWS OF THE SOC IETY. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE EXPENDITURE CANNOT BE DISALLOWED AS PERSONAL IN NATURE. ASSESSING OFFICER IS DIRECTED TO ALLOW THE AMOUNTS AND COMPUTE THE INCOMES ACCORD INGLY ON PROPORTIONATE BASIS BETWEEN THE INCOMES ON THE TRAN SACTIONS WITH MEMBERS AND ON TRANSACTIONS WITH ASSOCIATED/NO MINAL MEMBERS AND ALLOW DEDUCTION UNDER SECTION 80P(A)(I) ACCORDINGLY. THEREFORE, ASSESSEES GROUNDS ON THIS ISSUE ARE CONSIDERED AS ALLOWED. 10. IN THE RESULT, REVENUE APPEAL IS DISMISSED AN D ASSESSEE APPEAL IS ALLOWED. ITA.NO.547/HYD/2012: AY 2008-09 ITA.NO.549/HYD/2012: AY 2008-09 11. IN THIS ASSESSMENT YEAR A.O. HAS IN FACT DEVIA TED FROM THE ORDER OF HIS PREDECESSOR IN ANALYSING THE ISSUE, BUT STILL DISALLOWED THE CLAIM OF DEDUCTION UNDER SECTI ON 80P(2)(A)(I). IN DOING SO, THE A.O. MAINLY ANALYSED THE ACTIVITIES OF THE SOCIETY AT A GLANCE, ADMISSION OF MEMBERS VI S--VIS BYE- 11 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. LAW OF THE SOCIETY, PRINCIPLES OF THE COOPERATIVE S OCIETIES AND THEN ANALYSED THE ACTIVITY UNDER BANKING REGULATION ACT, 1949 AS APPLICABLE TO COOPERATIVE SOCIETIES, ANALYSED TH E PROVISIONS OF SUCH BUSINESS AND ALSO THE CONCEPT OF MUTUALITY, ULTIMATELY HOLDING THAT ASSESSEE IS RUNNING ITS BUSINESS IN VI OLATION OF BANKING REGULATION ACT. SINCE THE FINANCE ACT, 2006 WITHDREW THE BENEFITS PERTAINING TO BANKING BUSINESS, A.O. W AS OF THE OPINION THAT INCOME DERIVED FROM THE COOPERATIVE SO CIETY INVOLVED IN BANKING BUSINESS IS NOT ELIGIBLE FOR DE DUCTION EITHER UNDER SECTION 80P(2)(A)(I) OR UNDER SECTION 80P(2)( D). A.O. RELIED ON THE CERTIFICATE GIVEN BY THE AUDITOR THAT SOCIET Y IS NOT ELIGIBLE FOR SUCH CLAIM. FURTHER, A.O. ALSO DISCUSS ED THAT SOCIETY IS NOT ELIGIBLE FOR ANY DEDUCTION UNDER SEC TION 80P AS IT IS FOR EARNING PROFITS AND HAS NOT CONFIRMED TO THE DOCTRINE OF MUTUALITY. FOR THESE REASONS, A.O. AFTER DISCUSSION ON THE ISSUE RUNNING INTO 28 PAGES (FROM PAGES 2 TO 29) CA ME TO CONCLUSION THAT CORPORATE WILL LIFTED (SIC.) AND I T FOUND THAT SOCIETY RUNS FOR THE SOLE PURPOSE AND MOTIVE TO EAR N PROFIT. IN ADDITION TO DISALLOWING THE CLAIM UNDER SECTION 80P , A.O. ALSO DISALLOWED THE EXPENDITURE ON MEDI-CLAIM, LIFE INSU RANCE PREMIUM, ACCIDENT INSURANCE UNDER SECTION 37(1) STA TING THAT EXPENSES ARE NOT RELATABLE TO ITS BUSINESS, OF CAPI TAL NATURE AND FOR PERSONAL USE AND HENCE, NOT ALLOWABLE AS BU SINESS DEDUCTION. THE THIRD ISSUE RAISED BY THE A.O. IN TH IS ORDER IS OF TREATING THE INCOME EARNED BY THE SOCIETY AS TAXABL E UNDER THE HEAD INCOME FROM OTHER SOURCES OF INCOME RECEIVE D FROM COOPERATIVE INSTITUTIONS, TO AN EXTENT OF RS.63,04, 563. THUS, AS AGAINST INCOME RETURNED AT RS.84,87,960, THE TOT AL INCOME WAS DETERMINED AT RS.1,73,66,845. 12 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. 12. LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS AND OBJECTIONS TO THE A.OS ARGUMENTS O F VIOLATION OF BANKING REGULATION ACT, HAS HOWEVER, ALLOWED THE DEDUCTION UNDER SECTION 80P BY STATING AS UNDER : 4.5. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. AND THE FACTS AVAILABLE ON RECORD. SIMILAR ISSUE AROSE IN THE ASSESSEES CASE FOR A.Y. 2007-08 WHERE I HAVE DEALT WITH THE MAJORITY OF THE ARGUMENTS OF THE ASSESSING OFFI CER AND HAVE HELD THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCT ION U/S.80P(II)(A)(I) ON THE PROFITS AND GAINS FROM PRO VIDING CREDIT FACILITIES TO MEMBERS (ITA.NO.0235/09-10 DAT ED 20.1.2012). WHILE AGREEING WITH MY VIEW FOR THE PRE CEDING YEAR, CERTAIN ADDITIONAL ARGUMENTS PUT FORTH BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR THIS YEAR NEED TO BE ADDRESSED. 4.6. SEC.2(24)(VIIA) PROVIDES AS UNDER : (24) INCOME INCLUDES (VIIA) THE PROFITS AND GAINS OF ANY BUSINESS OF BAN KING (INCLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A COOPERATIVE SOCIETY WITH ITS MEMBERS; THERE IS NO DISPUTE THAT THE PROFIT FROM THE BUSINE SS OF PROVIDING CREDIT FACILITY TO MEMBERS BY A COOPERATI VE SOCIETY IS LIABLE TO TAX. THE FACT THAT SEC.80P PRO VIDES A DEDUCTION FOR SUCH PROFITS PRESUPPOSES THAT SUCH PR OFITS IS LIABLE TO TAX. HOWEVER, SEC.(24) CANNOT BE SAID TO UNDO THE SPECIFIC BENEFIT GRANTED BY SEC.80P. THE TWO PROVIS IONS HAVE TO BE READ HARMONIOUSLY TO MEAN THAT WHILE SUC H PROFITS ARE LIABLE TO TAX, AN ASSESSEE WOULD BE ELI GIBLE FOR DEDUCTION U/S.80P IF THE CONDITIONS SPECIFIED THERE IN ARE SATISFIED. THE RELIANCE OF THE A.O. ON SEC.2(24) IS , THEREFORE, MISPLACED. 4.7. SIMILARLY, THE A.O. HAS QUOTED EXTENSIVELY FRO M THE BANKING REGULATION ACT FOR HER VIEW THAT THE ASSESS EE WAS RUNNING ITS BUSINESS IN VIOLATION OF THE BANKIN G REGULATION ACT. AS HELD IN THE ASSESSEES CASE FOR A.Y. 2007-08, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBERS AND NOT IN THE BUSINESS OF BANKING. THE PROVISIONS OF THE BANKING 13 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. REGULATION ACT, THEREFORE, DO NOT APPLY TO IT AND T HE QUESTION OF VIOLATING ITS PROVISIONS DOES NOT ARISE . 4.8. THE SUM OF RS.1,07,52,623 ON WHICH THE ASSESSE E HAD CLAIMED DEDUCTION U/S.80P INCLUDED MISCELLANEOU S RECEIPTS OF RS.13,69,777 CONSISTING OF THE FOLLOWIN G : COMMISSION ON POSTAL STAMPS 26,700 COMMISSION ON IG STAMPS 4,25,768 ADMISSION FEES 81,500 MISC. INCOME 3,32,308 PROFIT FROM SALE OF STATIONERY 4,02,496 COMMISSION ON WELFARE STAMPS 1,01,005 RECEIPTS LIKE COMMISSION ON POSTAL STAMPS, SALE OF STATIONERY ETC., HAVE NO RELATION WHATSOEVER TO THE BUSINESS OF PROVIDING CREDIT FACILITY TO THE MEMBER S OF THE SOCIETY. FURTHER, DEDUCTION U/S.80P(2)(A)(I) IS TO BE CONFINED TO THE PROFITS AND GAINS FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO MEMBERS; FOR REASONS DISCUSSED IN THE FOLLOWING PARAGRAPHS, THE INTEREST FROM BANKS, WHETHER COOPERATIVE BANKS OR SCHEDULED BANKS , CANNOT BE CLASSIFIED AS PROFIT FROM SUCH BUSINESS. DEDUCTION U/S.80(2)(A)(I) CANNOT, THEREFORE, BE ALL OWED ON SUCH INCOMES. 13. WITH REFERENCE TO ISSUE OF TREATING THE INCOME FROM OTHER COOPERATIVE BANKS AS INCOME FROM OTHER SOURCE S, RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CAS E OF THE TOTGARS COOPERATIVE SALE SOCIETY LTD., VS. ITO 322 ITR 283 (SC), LD. CIT(A) AGREED WITH THE OPINION OF THE A.O . IN TREATING THE INCOME AS OTHER SOURCES, BUT HOWEVER, DIRECTED THE A.O. TO ALLOW DEDUCTION UNDER SECTION 80P(2)(D) AS ALLOWED IN A.Y. 2007-08. WITH REFERENCE TO ACCEPTANCE OF VARIOUS IN SURANCE CLAIMS, LD. CIT(A) AGREED WITH THE ORDER OF THE A.O . ON SIMILAR LINES AS THAT OF A.Y. 2007-08. 13.1 BOTH ASSESSEE AND REVENUE ARE IN APPEAL. A SSESSEE MAINLY ON THE ISSUE OF ALLOWANCE OF VARIOUS INSURAN CE CLAIMS AND REVENUE ON THE ISSUE OF VIOLATION OF BANKING RE GULATION 14 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. ACT, VIOLATION OF PRINCIPLES OF APMECSA AND ALSO AL LOWING DEDUCTION UNDER SECTION 80P(2)(D). 14. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSING THE ORDERS OF THE AUTHORITIES, WE ARE OF T HE OPINION THAT THE A.O. MISDIRECTED HERSELF BY ANALYSING THE ISSUE IN A TANGENTIAL WAY IGNORING THE BASIC FACTS OF THE CASE . AS BRIEFLY STATED IN A.Y. 2007-08, IN THIS YEAR ALSO ASSESSEE HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 80P(A)(I) EITHE R ON THE INCOMES ARRIVED FROM ASSOCIATE OR NOMINAL-MEMBERS O R ON THE TRANSACTIONS OF MISCELLANEOUS NATURE. WHAT ASSESSEE HAS CLAIMED DEDUCTION IS PROPORTIONATELY ON THE NET REC EIPTS ELIGIBLE FOR DEDUCTION OUT OF THE GROSS RECEIPTS, A FTER ARRIVING AT THE PROFITS OF THE SOCIETY. THIS BASIC FACT WAS IGN ORED BY THE A.O. MOREOVER, AS CONSIDERED IN EARLIER YEAR, ASSES SEE BEING A COOPERATIVE SOCIETY REGISTERED UNDER APMECSA, 1995 ANALYSIS OF THE SOCIETY UNDER A.P. COOPERATIVE SOCIETIES ACT DOES NOT ARISE AT ALL. NOT ONLY THAT ASSESSEE HAS NEITHER IN VOLVED IN BANKING ACTIVITY NOR OBTAINED ANY LICENSE FOR DOING THE BANKING ACTIVITY. THEREFORE, THE ENTIRE DISCUSSION OF THE A.O. ON THE SO-CALLED VIOLATION OF BANKING REGULATION ACT A ND GUIDELINES OF THE RBI IS SUPERFLUOUS. EVEN THE PRIN CIPLES OF MUTUALITY ANALYSED BY THE A.O. DOES NOT PERTAIN TO THE ASSESSEE AT ALL. EVEN THOUGH ASSESSEE IS REGISTERED AS MUTUALLY AIDED COOPERATIVE SOCIETY, ASSESSEE NEVER CLAIMED A NY EXEMPTION OF INCOME ON THE PRINCIPLE OF MUTUALITY. THE DEDUCTION CLAIMED IS LIMITED TO THE PROPORTIONATE I NCOME ON THE CREDIT FACILITIES PROVIDED TO ITS MEMBERS AS A COOPERATIVE SOCIETY. BALANCE OF THE INCOME WAS OFFERED TO TAX A ND THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE DECLARED INCOM E OF RS.84,87,660. IN VIEW OF THESE FACTS, WE ARE UNABLE TO 15 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. UNDERSTAND WHY THE A.O. HAS TO DO LOT OF RESEARCH I N ANALYSING THE PRINCIPLES OF MUTUALITY AND COMING TO A CONCLUS ION THAT ASSESSEE IS NOT A MUTUAL SOCIETY, THAT TOO LIFTING CORPORATE VEIL WHEN THERE IS NO CLAIM AT ALL. THE ORDER OF THE A.O . CANNOT BE JUSTIFIED ON THE FACTS OF THE CASE. 15. NOW COMING TO THE GROUNDS 2 AND 3 RAISED BY TH E REVENUE, THE ISSUE IS SIMILAR TO THE ISSUES DISCUSS ED IN A.Y. 2007-08 ABOVE. AS FAR AS ASSESSEES ACTIVITIES ARE CONCERNED, SINCE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80P(2)(A)(I) ONLY ON THE INCOME OF CREDIT FACILITIES PROVIDED TO ITS MEMBERS, A.O. WAS CORRECTLY DIRECTED BY THE LD. CIT(A) TO AL LOW THE DEDUCTION. LD.CIT(A) ALSO ANALYSED OTHER MISCELLANE OUS INCOME AND DIRECTED THE A.O. TO EXCLUDE THE SAME. THEREFOR E, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDERS OF THE LD. CIT(A) IN DIRECTING THE A.O. TO ALLOW DEDUCTION UND ER SECTION 80P(2)(A)(I). HOWEVER, A.O. IS DIRECTED TO EXAMINE THE QUANTUM OF INCOME EARNED AND ALLOW THE DEDUCTION ACCORDINGL Y. WE ALSO FIND NO REASON TO INTERFERE WITH THE DIRECTIONS OF THE LD. CIT(A) IN GRANTING DEDUCTION UNDER SECTION 80P(2)(D). THE LD. CIT(A) DIRECTION IS WITH REFERENCE TO THE INCOMES EARNED F ROM THE COOPERATIVE SOCIETIES/COOPERATIVE BANKS AS COVERED BY SECTION 80P(2)(D). 16. GROUND NO.4 RAISED BY THE REVENUE IS INFRUCTUO US. GROUND NO.4 IS EXTRACTED FOR THE SAKE OF RECORD. THE PRINCIPLE OF MUTUALITY RELIED ON BY THE A.O. E MANATE TO DISTINGUISH THAT ASSESSEE HAS VIOLATED THE PRINC IPLES OF MUTUALITY, WHICH THE CIT(A) FAILS TO COMPREHEND. HA VING ESTABLISHED ON THE RECORD THAT THE ASSESSEE HAS DEP OSITED MONEY IN RRBS/COOPERATIVE BANKS, STATUS OF WHICH IS NOT RECOGNIZED UNDER THE INCOME TAX ACT AS COOPERATIVE BANK, 16 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. CAN THE INTEREST ARISING OUT OF THE DEPOSIT OF THIS RRBS/CO- OP BANKS WOULD QUALITY FOR DEDUCTION U/S.80P(II)(D) . 17. WE ARE UNABLE TO UNDERSTAND THE REASONING GIVE N /CONTENTIONS MADE IN THIS GROUND BY THE REVENUE. AS ALREADY STATED ABOVE, ASSESSEE HAS NOT CLAIMED ANY BENEFIT OF MUTUALITY. SO CONTENTION ON PRINCIPLE OF MUTUALITY ITSELF IS MISPLACED, SO RAISING GROUND ON THAT IS MISCONCEIVE D. NOT ONLY THAT, LD. CIT(A) DIRECTION IS TO ALLOW DEDUCTION UN DER SECTION 80P(2)(D) AND THIS DIRECTION WAS SIMILAR TO THE DIR ECTION GIVEN IN A.Y. 2007-08. SURPRISINGLY, REVENUE HAS NOT PREF ERRED ANY GROUND ON THAT ISSUE IN THAT YEAR AS THE ASSESSEE I S ELIGIBLE FOR SUCH DEDUCTION. WHY THEY PREFERRED THE GROUND IN TH IS ASSESSMENT YEAR IS NOT UNDERSTANDABLE AT ALL. THIS INDICATES THAT NEITHER THE A.O. NOR THE LD. CIT, WHO AUTHORIS ED THE SECOND APPEAL HAS NOT APPLIED THEIR MIND TO THE ISS UE. MOREOVER, IT IS SURPRISING THAT REVENUE STATES IN T HE GROUND THAT HAVING ESTABLISHED ON THE RECORD THAT THE ASSESSEE HAS DEPOSITED MONEY IN RRBS/COOPERATIVE BANKS, STATUS O F WHICH IS NOT RECOGNIZED UNDER THE INCOME TAX ACT AS COOPE RATIVE BANK, CAN THE INTEREST ARISING OUT OF THE DEPOSIT OF THIS RRBS/CO-OP BANKS WOULD QUALITY FOR DEDUCTION U/S.80P(2)(D). WE FAIL TO COMPREHEND THIS CONTENTION . COOPERATIVE BANKS ARE BASICALLY REGISTERED AS COOPERATIVE SOCIETIES. THESE ARE INVO LVED IN BANKING ACTIVITY BY OBTAINING NECESSARY PERMISSIONS . ONLY INCOMES OF SUCH BANKING SOCIETIES ARE NOT MADE ELIG IBLE TO CLAIM DEDUCTION UNDER 80P, CONSEQUENT TO AMENDMENTS MADE TO THE ACT. WE ARE OF THE OPINION THAT REVENUE DID NOT UNDERSTAND THE ISSUES AND SIMPLY RAISED GROUND FOR THE SAKE OF OBJECTION ON THE LD. CIT(A) ORDER. SINCE THE GRO UND ITSELF IS NOT MAINTAINABLE ON THE FACTS OF THE CASE, WE HAVE NO HESITATION IN REJECTING THE SAME. WE EARNESTLY HOPE THAT A.O./ 17 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. LD. CIT WILL APPLY THEIR MIND IN CONTESTING THE ISS UES BEFORE JUDICIAL FORUMS. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. 19. COMING TO ASSESSEES APPEAL, THE ISSUE IS ON ALLOWANCE OF INSURANCE AMOUNTS DISALLOWED BY THE A. O. UNDER SECTION 37(1). THIS ISSUE WAS ALREADY CONSIDERED IN ASSESSEES APPEAL IN A.Y. 2007-08 IN DETAIL. SINCE THIS EXPEND ITURE IS FOR THE BENEFIT OF MEMBERS AS PER OBJECTS OF SOCIETY, T HERE IS DIRECT NEXUS WITH THE INCOME EARNED FROM MEMBERS. FOR THE REASONS STATED THEREIN, WE DIRECT THE A.O. TO ALLOW EXPENSE S WHILE WORKING OUT THE PROFIT OF ASSESSEE FROM THE ACTIVIT Y OF CREDIT FACILITIES TO MEMBERS AND THEN ALLOW DEDUCTION UNDE R SECTION 80P(2)(A)(I). WITH THESE DIRECTIONS, ASSESSEES GRO UND IS CONSIDERED AS ALLOWED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. ITA.NO.1331/HYD/2012 : (REVENUE APPEAL) AY 2009-10 21. IN THIS YEAR, ASSESSEE HAS DECLARED INCOME OF RS.60,96,670 WHILE CLAIMING PROPORTIONATE DEDUCTION UNDER SECTION 80P. AS IN EARLIER YEARS, A.O. DISALLOWED T HE CLAIM UNDER SECTION 80P AND LD. CIT(A) ALLOWED THE CLAIM PROPORTIONATELY. IN DOING SO, LD. CIT(A) DID NOT AL LOW THE DISALLOWANCE OF AMOUNT OF MEDI-CLAIM, LIC AND ACCID ENT INSURANCE. ASSESSEE HAS NOT PREFERRED ANY APPEAL ON THESE DISALLOWANCES. REVENUE PREFERRED THE APPEAL. WITH R EFERENCE TO CLAIMS UNDER SECTION 80P, THE REVENUE GROUNDS ARE A S UNDER : 1. THE OBSERVATION OF THE LD. CIT(A) THAT THE ASSESSE E IS A COOPERATIVE SOCIETY DOES NOT EMANATE FROM THE ASSESSMENT ORDER AS SHE HAS FAILED TO GIVE A CLEAR FINDING 18 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. WHETHER THE ASSESSEE IS A COOPERATIVE SOCIETY THOUG H IT HAS VIOLATED THE PRINCIPLES OF THE ANDHRA PRADESH MUTUALLY AIDED COOPERATIVE SOCIETIES ACT (APMACSA), 1995. 2. THE OBSERVATION OF CIT(A) IS MISPLACED WITH REGARD TO DEDUCTION U/S.80P(II)(I)(A) IS EVEN OTHERWISE GIVEN TO ASSESSEE EVEN IF IT ACCEPTS DEPOSITS FROM NON-MEMBE RS. 3. THE ASSESSEE HAD RECEIVED INTEREST OF RS.94,47,231 FROM COOPERATIVE BANKS AND ONE COOPERATIVE SOCIETY, I.E. , A.P. HIGH COURT EMPLOYEES COOP. SOCIETY. OUT OF RS.94,47,231/- THE AMOUNT RECEIVED FROM COOPERATIVE SOCIETY IS RS.63,468/- ONLY. SINCE DEDUCTION U/S.80 P(2)(D) IS ALLOWABLE ONLY IN RESPECT OF INTEREST RECEIVED F ROM COOPERATIVE SOCIETIES, THE PROPORTIONATE INCOME WAS TREATED AS INCOME FROM OTHER SOURCES. HOWEVER, THE CIT(A) ALLOWED DEDUCTION U/S.80P(2)(D) IN RESPECT OF INTER EST RECEIVED FROM ALL THE ABOVE INSTITUTIONS. SINCE THE DEDUCTION U/S.80P(2)(D) IS ALLOWABLE ONLY IN RESPEC T OF INTEREST RECEIVED FROM COOPERATIVE SOCIETIES AND NO T THE COOPERATIVE BANKS, FURTHER APPEAL TO ITAT, IS RECOMMENDED ON THIS ISSUE ALSO. 22. THIS ISSUES ARE ALREADY CONSIDERED IN EARLIER YEARS APPEALS AND FACTS ARE SIMILAR. A.O. WAS DIRECTED BY LD.CIT(A) TO ALLOW THE DEDUCTION UNDER SECTION 80P(2)(A)(I) PROP ORTIONATELY ON THE INCOME OF CREDIT FACILITIES PROVIDED TO ITS MEMBERS. SINCE THE ISSUE IS ELABORATELY DISCUSSED IN EARLIER TWO Y EARS APPEALS, WE ARE OF THE OPINION THAT THERE IS NO NEED TO DISC USS AGAIN. SUFFICE TO SAY, THAT ASSESSEE BEING A COOPERATIVE S OCIETY INCOMES EARNED ON CREDIT FACILITIES TO MEMBERS IS E LIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I). NOT ONLY THAT , AS PER THE PROVISIONS OF SECTION 80P(2)(D) ASSESSEE IS ALSO EL IGIBLE FOR DEDUCTION IN RESPECT OF INTEREST RECEIVED FROM OTHE R COOPERATIVE SOCIETIES/COOPERATIVE BANKS. IN VIEW OF THAT, REVENUE GROUNDS ARE DISMISSED. AS NOTED IN EARLIER YEAR ALSO, REVENUE IS RAISING THE GROUNDS WITHOUT UNDERSTANDIN G THE ISSUES. 19 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. 22.1 THE GROUND NO.3 REGARDING DEDUCTION UNDE R SECTION 80P(II)(D) IS IN RESPECT OF INTEREST RECEIVED FROM COOPERATIVE SOCIETIES AND THE COOPERATIVE BANKS. WE ARE UNABLE TO UNDERSTAND WHY THE COOPERATIVE BANKS ARE NOT CONSID ERED AS COOPERATIVE SOCIETIES IN BANKING BUSINESS. THE SUB- SECTION (4) INTRODUCED BY FINANCE ACT, 2006 W.E.F. 1.4.2007 IS AS UNDER : (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY COOPERATIVE BANK OTHER THAN A PRIMA RY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY COOPERATIV E AGRICULTURAL AND RURAL DEVELOPMENT BANK. EXPLANATION FOR THE PURPOSES OF THIS SUB-SECTION, - (A) CO-OPERATIVE BANK AND PRIMARY AGRICULTURAL CREDI T SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIG NED TO THEM IN PART V OF THE BANKING REGULATION ACT, 19 49 (10 OF 1949). (B) PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK MEANS A SOCIETY HAVING ITS AREA O F OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJ ECT OF WHICH IS TO PROVIDE FOR LONG TERM CREDIT FOR AGRICU LTURAL AND RURAL DEVELOPMENT ACTIVITIES. 22.1. AS PER THIS SECTION, THE EXEMPTION PROVIDED UNDER SUB-SECTION (2) OR SUB-SECTION (3) DOES NOT APPLY T O THE INCOMES OF THE COOPERATIVE BANK OTHER THAN A PRIMARY AGRICU LTURAL COOPERATIVE SOCIETY OR A PRIMARY COOPERATIVE AGRICU LTURAL AND RURAL DEVELOPMENT BANK. HOWEVER, THE ABOVE PROVISIO N APPLICABLE IN THE CASE OF COOPERATIVE BANK IS NOT I N RESPECT OF INTEREST RECEIVED FROM COOPERATIVE BANKS BY A COOPE RATIVE CREDIT SOCIETY/COOPERATIVE SOCIETY. SECTION 80P(2)( D) IS APPLICABLE TO THE ASSESSEE SOCIETY IN RESPECT OF IN COMES BY WAY OF INTEREST OR DIVIDENDS RECEIVED BY THE COOPERATIV E SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER COOPERATIVE SOCIETY. THEREFORE, IN THE CASE OF THE ASSESSEE SOCIETY, SUB-SECTION (4 ) IS NOT 20 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. APPLICABLE AND DEDUCTION UNDER SECTION 80P(2)(D) IS CERTAINLY ELIGIBLE TO ASSESSEE. IN THE ASSESSMENT OF A COOPER ATIVE BANK, THE INCOMES MAY NOT BE EXEMPT AFTER 01.04.2007 BY V IRTUE OF SUB-SECTION (4), BUT ASSESSEE IS NOT A COOPERATIVE BANK. THEREFORE, THE REVENUE GROUND IS NOT ONLY ILLOGICAL BUT ALSO NOT SUPPORTED BY THE FACTS OF THE CASE. MOREOVER AS SEE N, THE RECOMMENDATION MADE BY THE A.O. TO THE LD. CIT IN T HEIR INTERNAL CORRESPONDENCE IS EXTRACTED AS A GROUND. T HIS ALSO INDICATES NON-APPLICATION OF MIND EITHER BY THE A.O . OR BY HIGHER AUTHORITY LIKE CIT. THIS SORRY STATE OF AFFA IRS SHOULD COME TO AN END AND OFFICERS SHOULD ACT RESPONSIBLY WHILE PREFERRING SECOND APPEAL ON THE ORDERS OF THE SENIO R OFFICER LIKE LD. CIT(A). REVENUE APPEAL IS DISMISSED. ITA.NO.1860/HYD/2013 (REVENUE APPEAL) : AY 2010-11. 23. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLL OWING GROUNDS. 1. THE ORDER OF CIT(A), HYDERABAD IS AGAINST FACTS OF THE CASE. 2. WHETHER THE LD. CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A )(I) OF THE ACT, IN VIEW OF THE FACT THAT, THE ASSESSEE IS ACCEPTING THE DEPOSITS FROM NON-MEMBERS AND EXTENDING THE CREDIT FACILITIES TO OTHER THAN MEMBE RS ALSO. 3. WHETHER THE LD. CIT(A) IS CORRECT IN LAW IN HOLDING THAT THE SOCIETY IS NOT GOVERNED BY THE BANKING REGULATI ONS AND IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF T HE ACT, IN VIEW OF THE FACT THAT THE A.O. HAS CLEARLY ESTAB LISHED THAT THE DEPOSITORS AND BORROWERS ARE QUITE DISTINC T AND THE BUSINESS IS ONLY A FINANCE BUSINESS AND NOT COOPERATIVE ACTIVITY, FROM WHICH IT CAN BE IMPLIED THAT THE ASSESSEE IS COVERED BY THE PROVISIONS OF SECTIO N 21 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. 80P(4) OF THE ACT AND NOT BY THE PROVISIONS OF SECT ION 80P(2)(A)(I). 4. ANY OTHER GROUND THAT MAY BE URGED AT THE TIME OF HEARING. 24. GROUND NOS. 1 AND 4 ARE GENERAL IN NATURE AND THEREFORE, IT NEED NOT BE ADJUDICATED. 25. GROUND NO.2 IS ALREADY DECIDED AGAINST REVENUE IN ABOVE APPEALS. SINCE ASSESSEE HAS NOT CLAIMED A NY DEDUCTION UNDER SECTION 80P(2)(A)(I) ON THE INCOMES FROM THE NON-MEMBERS AND CLAIMED ONLY TO THE EXTENT OF INCOM E FROM CREDIT FACILITIES TO THE MEMBERS, THE GROUND IS PER SE NOT MAINTAINABLE. HOWEVER, IN CASE, THERE ARE INCOMES F ROM EXTENDING CREDIT FACILITIES TO OTHER MEMBERS LIKE A SSOCIATE MEMBERS OR NON-MEMBERS, THE INCOME TO THAT EXTENT I S NOT ELIGIBLE FOR DEDUCTION. THEREFORE, A.O. IS DIRECTED TO WORK OUT THE INCOMES ACCORDINGLY AND ALLOW DEDUCTION UNDER S ECTION 80P(2)(A)(I) ON THE INCOME FROM CREDIT FACILITIES T O THE MEMBERS. 26. WITH REFERENCE TO GROUND NO.3 AS ALREADY DISCUSSED IN EARLIER YEAR, ASSESSEE SOCIETY IS NOT IN THE BUSINESS OF BANKING AND THEREFORE, BANKING REGULATI ONS DOES NOT APPLY. MOREOVER, AS ALREADY DISCUSSED, PROVISIO NS OF SECTION 80P(4) ALSO DOES NOT APPLY. THIS GROUND RAI SED IN THIS YEAR IS DIFFERENT FROM THE GROUND RAISED IN A.Y. 20 09-2010 ON ALLOWING DEDUCTION U/S 80P(2)(D). A.O. IT SEEMS IS VERY MUCH CONSCIOUS ABOUT THE PROVISIONS OF THE ACT AND SO TH E ILLOGICAL GROUND IN A.Y. 2009-2010 HAS NOT BEEN RAISED IN A.Y . 2010- 2011, FOR WHICH WE APPRECIATE THE A.O. 26. IN THE RESULT, ITA.NO.1860/HYD/2013 OF THE REVENUE IS DISMISSED. 22 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. ITA.NO.1859/HYD/2013 (ASSESSEE APPEAL) AY 2010-11 27. BRIEFLY STATED, ASSESSEE FILED ITS RETURN OF I NCOME FOR THE A.Y. 2010-2011 DECLARING AN AMOUNT OF RS.66 ,79,000 AFTER CLAIMING DEDUCTION UNDER SECTION 80P. A.O. D ISALLOWED THE DEDUCTION U/S.80P OF RS.1,95,28,003, WHICH ISSU E WAS SUBJECT MATTER OF REVENUE APPEAL. APART THAT, TH E CLAIM OF RS.64,18,509 AS EXPENSES WAS ALSO DISALLOWED. AGGRI EVED, ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT(A) CONFIRMED THE ORDER OF A.O. AGGRIEVED, ASSES SEE FILED THE PRESENT APPEAL BEFORE US AND HAS RAISED THE FOLLOWI NG GROUNDS: 1. THE ORDER OF THE A.O. IS CONTRARY TO LAW, CIRCUMST ANCES AND FACTS OF THE CASE. 2. THE A.O. OUGHT NOT TO HAVE DISALLOWED THE MEDI-CLAI M AND OTHER INSURANCE PAID OF RS.32,52,615. 3. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF RS.32,52,615 MADE BY THE A.O. 4. THE A.O. OUGHT NOT TO HAVE DISALLOWED THE INSURANCE CLAIM OF RS.28,87,005. 5. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF RS.28,87,005 MADE BY THE A.O. 6. THE A.O. OUGHT NOT TO HAVE DISALLOWED THE ACCIDENT INSURANCE OF RS.2,78,889. 7. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF RS.2,78,89 MADE BY TH E A.O. 8. THE A.O. OUGHT NOT TO HAVE DISALLOWED THE DOCTOR SALARY OF RS.1,40,910. 23 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. 9. THE APPELLATE COMMISSIONER OUGHT NOT TO HAVE CONFIRMED THE DISALLOWANCE OF RS.1,40,910 MADE BY THE A.O. 10. ANY OTHER GROUND WHICH THE A.O. MIGHT URGE EITHER BEFORE OR AT THE TIME OF HEARING. 28. GROUND NOS. 1 AND 10 ARE GENERAL IN NATURE AND THEREFORE, NEED NOT BE ADJUDICATED. 29. GROUND NOS. 2 TO 7 ARE ON DISALLOWANCE OF MEDICLAIM, LIP, ACCIDENT INSURANCE. THE FACTS ARE S IMILAR TO THAT OF A.YS. 2007-08 TO 2009-10. THESE ISSUES ARE ALREADY DECIDED BY US IN THE FOREGOING PARAS OF THIS ORDER. FOR THE REASONS STATED THEREIN, WE DIRECT THE A.O. TO ALLOW EXPENSES WHILE WORKING OUT THE PROFIT OF ASSESSEE FROM PROVI DING CREDIT FACILITIES TO THE MEMBERS AND ALLOW DEDUCTION ACCOR DINGLY UNDER SECTION 80P(2)(A)(I) . WITH THESE DIRECTIONS, ASSESSEES GROUNDS 2 TO 7 ARE CONSIDERED AS ALLOWED. 30. ASSESSEE ALSO RAISED GROUND NOS. 8 AND 9 AGAIN ST THE DISALLOWANCE OF DOCTORS SALARY RS.1,40,910. TH E FACTS ARE THAT THE A.O. DISALLOWED THE CLAIM OF RS.1,40,910 T OWARDS DOCTORS SALARY AS NO TDS WAS DEDUCTED ON THE SAID AMOUNT. SINCE, ASSESSEE HAS NOT ELABORATED NOR PRESSED THIS GROUND BEFORE THE LD. CIT(A), THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY A.O. HOWEVER, ASSESSEE RAISED GROUNDS NOS. 8 AND 9 BEFORE THE TRIBUNAL. 31. SINCE THE ISSUE PERTAINS TO DEDUCTION OF TDS O N DOCTORS SALARY TO THE TUNE OF RS.1,40,910, IN THE ABSENCE OF RELEVANT DETAILS BEFORE US, WHETHER THE PAYMENT FAL LS UNDER TDS PROVISIONS OR NOT HAS TO BE EXAMINED BY THE A.O . AND THEREFORE, WE SET ASIDE THIS ISSUE TO THE FILE OF A .O. FOR FRESH 24 ITA.NO.546 & 548/HYD/2012 THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, HYDERAB AD. ADJUDICATION, AFTER AFFORDING A REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. HOWEVER THIS EXPENDITURE IS TO BE ALLOWED AS DEDUCTION AS IT WAS SPENT FOR THE OBJECT S OF SOCIETY AS REVENUE EXPENDITURE U/S 37(1), IF NOT DISALLOWAB LE FOR VIOLATION OF TDS PROVISIONS AS CONTENDED BY AO. AC CORDINGLY, GROUNDS NO. 8 AND 9 ARE ALLOWED FOR STATISTICAL PUR POSES. 32. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. 33. TO SUM-UP, ITA.NO.546, 547, 1331/HYD/2012 AND ITA.NO.1860/HYD/2013 OF THE REVENUE ARE DISMISSED A ND ITA.NO.548, 549/HYD/2012 OF THE ASSESSEE ARE ALLOWE D AND 1859/HYD/2013 OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20.02.2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 20 TH FEBRUARY, 2015 VBP/- COPY TO 1. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 9(1), 1 ST FLOOR, B BLOCK, I.T. TOWERS, A.C. GUARDS, HYDERAB AD. 2. THE ADVOCATES MUTUALLY AIDED COOP. SOCIETY, CITY CIVIL COURT PREMISES, DIWAN DEWADI, HYDERABAD. 3. CIT(A)-VI, 6A, I.T. TOWERS, A.C. GUARDS, HYDERABAD 500 004. 4. COMMISSIONER OF INCOME TAX-VI, HYDERABAD. 7. D.R. A BENCH, ITAT, HYDERABAD.