M/S. Adhyapak Cooperative Society Limited, Kanpur V. Deputy Commissioner of Income Tax, Range-2, Kanpur

ITA 196/LKW/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7328 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 12-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHINAV MEHROTRA S HRI JAI
• Keywords: Set aside
• Section: 80P; 64; 56; 63

Judgement Text

I.T.A. NO.196/LKW/2018 ASSESSMENT YEAR:2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH SMC, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.196/LKW/2018 ASSESSMENT YEAR:2009-10 M/S ADHYAPAK CO-OPERATIVE SOCIETY LTD., 87/346-A, ACHARYA NAGAR, KANPUR. PAN:AABAA7586K VS. DY.C.I.T., RANGE-2, KANPUR. (APPELLANT) (RESPONDENT) O R D E R THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LEARNED CIT(A)-I, KANPUR DATED 02/12/2017 PERTAININ G TO ASSESSMENT YEAR 2009-10. IN THIS APPEAL THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT THE LD. COMMISSIONER OF INCOME TAX APPEALS HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT APPRECIATIN G THAT, THE ASSESSEE BEING A SOCIETY, THE ENTIRE INCOME WAS EXE MPT ON THE PRINCIPLES OF MUTUALITY. 2. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURT HER ERRED IN LAW AS WELL AS ON FACTS IN NOT APPRECIATIN G THE WRITTEN SUBMISSIONS AND JUDICIAL PRONOUNCEMENTS FILED DURIN G THE COURSE OF THE APPELLATE PROCEEDINGS. APPELLANT BY SHRI ABHINAV MEHROTRA, ADVOCATE RESPONDENT BY S HRI JAI NATH VERMA, D.R. DATE OF HEARING 23/10/2019 DATE OF PRONOUNCEMENT 04 / 11 /201 9 I.T.A. NO.196/LKW/2018 ASSESSMENT YEAR:2009-10 2 3. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURT HER ERRED IN LAW AS WELL AS ON FACTS IN FOLLOWING SUPRE ME COURT JUDGMENT TOTGARS COOPERATIVE SOCIETY LTD. WHOSE FAC TS OF THE CASE WERE TOTALLY DIFFERENT AND THE RATIO OF THE JU DGMENT WAS NOT APPLICABLE TO THE FACTS OF THE CASE WHILE DISAL LOWING DEDUCTION U/S. 80P(2)(D). 4. THAT THE LD. COMMISSIONER OF INCOME TAX APPEALS HAS ERRED IN LAW AS WELL AS ON FACTS IN NOT APPRECIATIN G THAT BUSINESS FUNDS AND SURPLUS FUNDS HAD BEEN UTILIZED FOR THE I NVESTMENT IN THE BANK FDRS AND THUS THE ENTIRE INTEREST INCOME F ROM BANK SO EARNED CANNOT BE SAID TO BE AN INCOME FROM OTHER SOURCES AND SUCH INCOME WAS ELIGIBLE FOR DEDUCTION U/S. 80P (2)(D) OF THE ACT ON PROPORTIONATE BASIS. , 5. THAT THE LD. COMMISSIONER OF INCOME TAX HAS FURT HER ERRED IN LAW AS WELL AS ON FACTS IN NOT APPRECIATIN G INFLOW AND OUT FLOW OF THE FUNDS FOR PURCHASING THE FDRS AS DE MONSTRATED IN THE WRITTEN SUBMISSIONS SUPPORTED BY THE AUDITED BALANCE SHEET. 6. THAT THE LEARNED CIT(A) HAS FURTHER ERRED IN LAW AND WELL AS ON FACTS IN NOT APPRECIATING THAT ENTIRE INCOME FROM FDRS CANNOT OUT OF THE SURPLUS FUNDS AND THE BORROWED FU NDS FROM THE MEMBERS WERE STAND INVESTED. 2. AT THE OUTSET, LEARNED A. R. SUBMITTED THAT THE ASSESSEE IS A CO- OPERATIVE SOCIETY AND IS ENGAGED INTO BANKING BUSIN ESS AND DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED DEDUC TION U/S 80P OF THE ACT. LEARNED A. R. SUBMITTED THAT THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAD EARNED I NTEREST INCOME ON ITS DEPOSITS WITH BANKS. LEARNED A. R. SUBMITTED THAT THE ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE INCOME EARNED ON BANK DEPOSITS BE NOT TREATED AS DISTINCT INCOME AS COMPARED TO THE INTER EST INCOME EARNED FROM ADVANCES TO ITS MEMBERS. LEARNED A. R. SUBMITTED T HAT IN VIEW OF THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TO TGARS CO-OPERATIVE SOCIETY LIMITED VS. INCOME TAX OFFICER, THE INTERES T INCOME FROM BANK WAS I.T.A. NO.196/LKW/2018 ASSESSMENT YEAR:2009-10 3 EXCLUDED FROM THE ELIGIBLE DEDUCTION U/S 80P OF THE ACT AND WAS TAXED U/S 56 OF THE ACT. IT WAS SUBMITTED THAT THE ASSESSEE WAS STATUTORILY REQUIRED TO MAINTAIN CERTAIN DEPOSITS WITH THE BANKS AS PER LAW OF U.P. CO-OPERATIVE SOCIETY AND OUR ATTENTION WAS INVITED TO A JUDGMENT OF LUCKNOW BENCH OF THE TRIBUNAL IN THE CASE OF ORDINANCE FACTORY KANPU R VS. ACIT IN I.T.A. NO.218/LKW/2017, WHERE VIDE ORDER DATED 04/05/2018 THE HON'BLE TRIBUNAL HAD REMITTED BACK THE ISSUE TO THE ASSESSING OFFICE R FOR VERIFICATION OF AMOUNT TO BE STATUTORILY REQUIRED TO BE KEPT IN BAN K IN THE FORM OF FDR AND IT WAS PRAYED THAT THE PRESENT CASE CAN ALSO BE SEN T BACK TO THE ASSESSING OFFICER WITH THE SIMILAR DIRECTION. 3. LEARNED D. R., ON THE OTHER HAND, HEAVILY RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 4. I HAVE HEARD THE RIVAL PARTIES AND HAVE GONE TH ROUGH THE MATERIAL PLACED ON RECORD. I FIND THAT THE ASSESSEE HAD EAR NED AN INCOME OF RS.3,05,230/- AS INTEREST FROM FD IN A BANK WHICH T HE ASSESSING OFFICER HAS HELD TO BE TAXABLE U/S 56 OF THE ACT AS IN HIS OPIN ION THE AMOUNT WAS NOT ELIGIBLE FOR EXEMPTION U/S 80P OF THE ACT. LEARNED A. R. HAS ARGUED THAT SOME AMOUNT OF FD WERE MANDATORILY REQUIRED TO BE K EPT IN FDR WITH BANK AS PER THE LAW OF THE U.P. CO-OPERATIVE SOCIETY AND THEREFORE, THE INTEREST ON SUCH DEPOSIT CANNOT BE TAXED U/S 56 OF THE ACT. I FIND THAT THE LUCKNOW TRIBUNAL IN THE CASE OF ORDINANCE FACTORY KANPUR VS . ACIT (SUPRA), VIDE ORDER DATED 04/05/2018 HAD REMITTED BACK THE ISSUE TO THE ASSESSING OFFICER BY HOLDING AS UNDER: 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THROUGH THE MATERIAL PLACED ON RECORD. WE FIND THA T THE SOCIETY IS GOVERNED BY THE UTTAR PRADESH CO-OPERATI VE SOCIETIES RULES, 1968. CHAPTER-XIV RELATES TO REST RICTIONS ON BORROWINGS WHEREIN CLAUSE 178 TO 186 HAVE BEEN MENT IONED. I.T.A. NO.196/LKW/2018 ASSESSMENT YEAR:2009-10 4 AS PER CLAUSE 185, THE SOCIETY IS TO MAINTAIN LIQUI D ASSETS TO THE EXTENT OF 25% OF THE SAVINGS BANK ACCOUNT AND F IXED DEPOSITS. AS PER THE CALCULATION SHEET FILED BY TH E ASSESSEE, THE LIQUID FUNDS REQUIREMENT WAS TO THE TUNE OF RS. 14 CRORE AGAINST WHICH THE ACTUAL LIQUID ASSETS AS ON 31/03/ 2013 WAS RS.9.97 CRORE. WE FURTHER FIND THAT HON'BLE CALCUT TA HIGH COURT IN THE CASE OF CIT VS. SOUTH EASTERN RAILWAY EMPLOYEES CO-OP. CREDIT SOCIETY LTD. [2017] 390 ITR 524 (CAL) AFTER CONSIDERING THE JUDGMENT OF HON'BLE SUPREME COURT I N THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. VS. INCOME TAX OFFICER [2010] 322 ITR 283 (SC) HAS HELD THAT I NTEREST EARNED FROM OUT OF THE INVESTMENTS MADE U/S 64 READ WITH SECTION 63 OF MULTI-STATE CO-OPERATIVE SOCIETIES AC T, IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FA CILITIES TO THE MEMBERS. CLAUSE 63 OF MULTI-STATE CO-OPERATIVE SOC IETIES ACT 2002, AS MENTIONED IN THE ABOVE CASE LAW, STATE S THAT A CO-OPERATIVE SOCIETY IS REQUIRED TO TRANSFER ANNUA LLY AN AMOUNT NOT LESS THAN 35% OF ITS PROFITS TO THE RESE RVE FUND AND SECTION 64 PROVIDES FOR INVESTMENT OF SUCH FUND S. HON'BLE HIGH COURT HAS NOTED THAT THE OBLIGATION ON THE PART OF THE ASSESSEE WAS STATUTORILY IMPOSED AND HAS TO BE PERFORMED BY THE ASSESSEE AND IN THE ABSENCE OF WHI CH IT IS NOT POSSIBLE FOR THE ASSESSEE TO CARRY ON ITS BUSIN ESS AND THEREFORE, IT HAS HELD THAT SUCH INCOME ARISING FRO M SUCH FUNDS CANNOT BE ATTRIBUTED TO THE INCOME FROM OTHER SOURCES. 4.1 IN THE PRESENT CASE, WE FIND THAT AS PER UTTAR PRADESH CO-OPERATIVE SOCIETIES RULES THE ASSESSEE IS MANDAT ORILY REQUIRED TO KEEP 25% OF ITS SAVINGS AND FIXED DEPOS IT IN THE FORM OF LIQUID FUNDS AND THEREFORE, THESE DEPOSITS HAVE TO BE STATUTORILY MAINTAINED BY THE ASSESSEE. HOWEVER, S INCE THE ASSESSEE HAD FILED THE DETAILS OF SAVINGS BANK AND FIXED DEPOSITS AS ON 31/03/2013 ALONG WITH THE CALCULATIO N EQUIVALENT TO 25% AND ACTUAL LIQUID ASSETS AS ON 31 /03/2013 AND WHICH REQUIRES FACTUAL VERIFICATION THEREFORE, WE SET ASIDE THE MATTER TO THE OFFICE OF THE ASSESSING OFFICER W HO SHOULD READJUDICATE THE ISSUE AFTER CONSIDERING THE JUDGME NT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. SOUTH EASTERN RAILWAY EMPLOYEES CO-OP. CREDIT SOCIETY LTD . DECIDED BY HON'BLE COURT ON 15/07/2016. I.T.A. NO.196/LKW/2018 ASSESSMENT YEAR:2009-10 5 4.1 FOLLOWING THE ABOVE JUDICIAL PRECEDENT, I REMIT THE PRESENT ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRE CTIONS. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 04/11 /2019) SD/. ( T. S. KAPOOR ) ACCOUNTANT MEMBER DATED:04/11/2019 *SINGH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW