Amalsad Vibhag Vividh Karyakari Sahkari Khedut Mandli Ltd., Navsari V. The Income Tax Officer, Ward-1, Navsari

ITA 2129/AHD/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1268 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 17-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Rule of consistency; Question of law
• Section: 143(3); 142(1); 56; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, AM. ITA NO.2129/AHD/2015 ASST. YEAR: 2001-12 AMALSAD VIBHAG VIVIDH KARYAKARI SAHKARI MANDLI LTD., AT & POST:AMALSAD, TAL. GANDEVI, DIST. NAVSARI. VS INCOME-TAX OFFICER, WD-1, NAVSARI. (APPELLANT) (RESPONDENT) PA NO.AAAAA1043N APPELLANT BY SHRI TUSHAR HEMANI, AR RESPONDENT BY SMT. SMITI SAMANT, SR.DR DATE OF HEARING: 21/9/2015 DATE OF PRONOUNCEMENT: 24/09/2015 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS APPEAL OF THE ASSESSEE IS ARISING OUT OF THE ORDER OF CIT(A) VALSAD DATED 14.5.2015. ASSESSMENT WAS FRAMED BY I TO, WARD-1, NAVSARI U/S 143(3) OF THE INCOME-TAX ACT, 1961(HERE IN AFTER REFERRED TO AS THE ACT) ON 31.12.2013. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL:- 1. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN WRONGLY INTERPRETING SECTION 80P OF THE ACT AND THEREBY CONFIRMING THE ACTION OF LEARNED AO OF NOT ALLOWING CLAIM OF DEDUCTION U/S 80P OF THE ACT FOR THE SUM OF RS.1,81 ,791/- AND ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 2 FURTHER ERRED IN HOLDING THAT THE SAID INCOME IS TA XABLE IN HANDS OF THE APPELLANT SEPARATELY AS INCOME FROM OTHER SO URCES. 2. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT APP RECIATING THAT INVESTMENTS ARE AN INTEGRAL PART OF PROVIDING CREDI T FACILITIES AND THEREFORE, ANY INCOME EARNED BY CARRYING OUT THE SA ID ACTIVITIES QUALIFIES FOR CLAIM OF DEDUCTION U/S 80P OF THE ACT . 3. ALTERNATIVELY AND WITHOUT PREJUDICE TO THE ABOVE , BOTH THE LOWER AUTHORITIES OUGHT TO HAVE ALLOWED EXPENDITURE INCUR RED FOR EARNING SUCH INCOME AND OUGHT TO HAVE TAXED ONLY TH E NET INCOME INSTEAD OF GROSS RECEIPT AS HAS BEEN DONE. 4. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN NOT GRANTING STANDARD DEDUCTION U/S 80P(2)( C) OF THE ACT. 5. BOTH THE LOWER AUTHORITIES HAVE PASSED THE ORDER S WITHOUT PROPERLY APPRECIATING THE FACT AND THAT THEY FURTHE R ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPLANATION A ND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF THE LOWER AUTHORITIES IS IN C LEAR BREACH OF LAW AND PRINCIPLE OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 6. THE LD. CIT(A) HAS ERRED BOTH IN LAW AND ON THE FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. AO IN LEVYING INTEREST U/S 234B/D OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEA L AT THE TIME OF OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEFLY STATED THE FACTS OF THE CASE AS CULLED O UT FROM THE RECORDS ARE THAT THE ASSESSEE IS MULTIPURPOSE CO-OP ERATIVE SOCIETY ENGAGED IN THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS, FERTILIZERS, PESTICIDES, LIVESTOCK AND OTHER ARTICLES INTENDED F OR AGRICULTURE FOR THE ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 3 PURPOSE OF SUPPLYING THEM TO ITS MEMBERS, MARKETING OF AGRICULTURAL PRODUCE OF THE MEMBERS, PROVIDING CREDIT FACILITY T O ITS MEMBERS AND ALSO DERIVES INCOME FROM INTEREST AND DIVIDEND. ASS ESSEE FILED E- RETURN OF INCOME ON 31.08.2011 DECLARING TOTAL INCO ME RS.NIL AFTER CLAIMING DEDUCTION UNDER SECTION 80P OF THE ACT. PU RSUANT TO NOTICES U/S 142(1) AND U/S 143(2) FOR COMPULSORY SCRUTINY O F THE CASE OF ASSESSEE, DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, IT WAS OBSERVED BY THE AO THAT ASSESSEE SOCIETY HAS EARNED INTEREST INCOME TO THE TUNE OF RS.1,81,791/- AND CLAIMED DED UCTION U/S 80P(2)(D) OF THE ACT, ON THIS INTEREST INCOME WHICH WAS EARNED OUT OF THE INVESTMENTS MADE WITH PRIVATE BANKS. HOWEVER, A S PER OBSERVATION OF THE AO ONLY AN INCOME BY WAY OF INTE REST OR DIVIDEND DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVEST MENTS ON ANY OTHER CO-OPERATIVE SOCIETY CAN BE CLAIMED AS DEDUCTION UN DER SECTION 80P(2)(D) OF THE ACT WHICH WAS NOT THE CASE OF THE ASSESSEE WHEREIN INTEREST WAS EARNED ON INVESTMENTS WITH PRIVATE BAN KS ON FDRS. AS SUCH THE AO REDUCED THE CLAIM OF DEDUCTION OF THE A SSESSEE UNDER SECTION 80P BY RS.1,81,791/- ON ACCOUNT OF INTEREST INCOME BECAUSE THE SOURCES OF INTEREST INCOME ARE FIXED DEPOSITS A ND SECURITIES KEPT WITH PRIVATE BANK WHICH CANNOT BE TERMED AS INCOME DERIVED FROM ITS NON-TAXABLE ACTIVITY. AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ADDITION MADE BY THE A O BY GIVING FOLLOWING OBSERVATIONS :- 6. DECISION I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS THE LAW STATED BY THE ASSESSING OFFICER IN THE ASSESSME NT ORDER ALONG ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 4 WITH THE WRITTEN SUBMISSIONS MADE BY THE AR OF THE APPELLANT. IT IS NOTEWORTHY TO MENTION HERE THAT A SIMILAR ISSUE ALS O CAME UP FOR ADJUDICATION BEFORE MY PREDECESSOR IN APPELLANTS O WN CASE FOR AY 2009-10 IN APPEAL NO.CIT(A)/VLS/167/11-12 WHICH WAS DECIDED ON 31.3.2010. THE RELEVANT PORTION OF THE DECISION TAK EN BY MY PREDECESSOR ON THE SIMILAR ISSUE INVOLVED IN THIS C ASE IS GIVEN BELOW:- I HAVE CAREFULLY CONSIDERED THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER AS WELL AS THE CONTENTION RAISED BY THE AR OF THE APPELLANT IN THE WRITTEN SUBMISSION. THE SHORT POINT HAVE TO BE DECI DED IS WHETHER THE INTEREST INCOME EARNED BY THE APPELLANT FROM OTHER THAN CO-OPERATIVE BANKS IS ALLOWABLE DEDUCTION U/S 80P(2)(D) OF THE A CT. I HAVE PERUSED THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER. THE AO HAS DISCUSSED THE ISSUE IN PARA 4.2 TO 4.4 OF THE ASSESSMENT ORDER. W HAT HE HAS OBSERVED IS THAT THE APPELLANT HAD EARNED FROM VARIOUS SOURCES INCLUDING INTEREST INCOME FROM OTHER THAN CO-OPERATIVE BANK. ACCORDING TO THE AO SUCH INTEREST INCOME IS NOT EXEMPTED U/S 80P(2)(D) OF TH E ACT. ON THE OTHER HAND THE LD. AR MADE EXHAUSTIVE SUBMISSION AS NARRA TED IN PARA 4.2 OF THIS ORDER. I HAVE CAREFULLY CONSIDERED THE SUBMISS ION OF THE LD. AR ALONG WITH THE CASE LAWS RELIED UPON BY HIM. SECTION 80P( 2)(D) OF THE ACT STIPULATES THAT THE WHOLE OF THE INTEREST OR DIVIDE NDS DERIVED BY A CO-OP. SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO-OP. SOCIETY. IT IS ALSO WELL SETTLED THAT THE WORD INVESTMENTS IS A WORD OF VE RY WIDE IMPORT. IN THE INSTANT CASE THE AO HAS DISALLOWED AND CHARGED TO T AX ON THE INTEREST INCOME DERIVED FROM OTHER THAN CO-OP. SOCIETY/BANK. THEREFORE I DONT FIND ANY ANOMALLY IN HIS OBSERVATION. HENCE, THE ACTION OF THE AO IS UPHELD. THE GROUND OF APPEAL IS DISMISSED. IN A.Y. 2010-11, THE SIMILAR ISSUE WAS ALSO DECIDED BY ME BY FOLLOWING THE ABOVE DECISION. KEEPING IN VIEW THE A BOVE AS WELL AS THE PRINCIPLE OF CONSISTENCY I ALSO FOLLOW THE DECI SION OF MY PREDECESSOR ON THE ISSUE. THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.66,750/- IS UPHELD. THEREFORE THE GROUND OF A PPEAL OF THE APPELLANT IS DISMISSED. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE THE TRI BUNAL. THE LD. AR OF THE ASSESSEE APPRAISED THE BENCH THAT SIMILAR IS SUES IN ASSESSEES CASE FOR AY 2006-07 AND 2007-08 HAVE BEE N DECIDED IN FAVOUR OF ASSESSEE BY THE CO-ORDINATE BENCH VIDE OR DER ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 5 DATED13.8.2015 IN ITA NOS. 1710/AHD/2011 FOR AY 200 6-07 & ITA NO.1711/AHD/2011 FOR AY 2007-08, THE RELEVANT PORTI ON OF THE CONSOLIDATED ORDER IS REPRODUCED BELOW :- 4. THE ASSESSEE IS A MULTIPURPOSE COOPERATIVE SOCI ETY STATED TO BE DEALING MAINLY MARKETING OF AGRICULTURE PRODUCES BY THE MEMBERS AND OTHER ALLIED ACTIVITIES. ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2006-07 ON 9-10-2006 DECLARING TOTA L INCOME OF RS. NIL AFTER CLAIMING DEDUCTION OF RS.69,03,255/- UNDE R SECTION 80P(2) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND THE REAFTER THE ASSESSMENT WAS FRAMED UNDER SEC. 143(3) VIDE ORDER DATED 8-12- 2008 AND THE TOTAL INCOME WAS DETERMINED AT RS.65,1 10/-. AGGRIEVED BY THE ORDER OF A.O., THE MATTER WAS CARRIED BEFORE CIT (A) WHO BY ORDER DATED 25-02-2011 GRANTED PARTIAL RELIEF TO TH E ASSESSEE BY HOLDING AS UNDER. 4. IN THIS GROUND THE APPELLANT CONTESTED AGAINST THE ADDITION OF RS.58,315/- TOWARDS INTEREST ON F.D. WITH SCHEDU LE BANKS. THE A.O. OBSERVED THAT THE APPELLANT HAS DERIVED INTERE ST INCOME ON THE DEPOSITS KEPT WITH OTHER THAN THE CO-OPERATIVE BANK AND THEREFORE, DEDUCTION U/S. 80P(2)(D) IS NOT AVAILABL E TO THE APPELLANT. THUS, THE INTEREST INCOME DERIVED FROM INVESTMENT/DEPOSITS WITH THE ICICI BANK IS ASSESSAB LE AS INCOME FROM OTHER SOURCE OBSERVED BY THE A.O. THE APPELLAN T BEFORE ME SUBMITTED THAT THE A/C WITH ICICI BANK WAS OPENED W ITH MULTIPLE OBJECTIVE WHICH INCLUDE I) IMMEDIATE CREDIT OUTSTAT ION CHEQUES, II) SAVING OF BANK CHARGES ON CLEARANCE OF OUTSTATI ON CHEQUES, III) MAXIMUM UTILIZATION OF FUNDS ON IMMEDIATE CREDIT OF OUTSTATION CHEQUES, IV) IMMEDIATE TRANSFER OF SURPLUS FUNDS TO FDR, V) IMMEDIATE ENCASHMENT OF FDRS AS AND WHEN NEEDED. TH EREFORE, HE LD. AR. PLEADED THAT THE A/C WITH THE ICICI BANK WAS WITH A MOTIVE OF MAXIMUM UTILIZATION OF WORKING CAPITAL/SU RPLUS FUNDS SO AS TO ULTIMATELY IMPROVE CREDIT WORTHINESS OF TH E APPELLANT AND WAS INCIDENTAL TO THE OBJECTIVE OF PROVIDING CR EDIT FACILITY TO ITS MEMBERS. I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. THERE IS NO DISPUTE THAT THE APPELLANT HAS AN A/C WITH THE ICICI BANK AND THE SURPLUS IS D EPOSITED IN FDRS WHICH EARNED INTEREST INCOME TO THE APPELLANT. THE APPELLANT DID NOT BIFURCATE THE INTEREST TOWARDS FD RS AND FROM SAVING A/C. THE PROVISION OF THE ACT IS VERY CLEAR AS POINTED BY THE A.O. THAT THE BENEFITS U/S. 80P(2)(D) IS FOR TH E INCOME FROM ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 6 THE CO-OPERATIVE BANKS. IN THIS REGARDS, THE JUDICI AL DECISIONS INCLUDING THE DECISIONS OF SC IS VERY CLEAR. THEREF ORE, THE INTEREST EARNED FROM THE FDRS IN ICICI BANK IS OUTSIDE THE S COPE OF DEDUCTION U/S. 80P(2)(D) AND NOT AVAILABLE TO THE A PPELLANT. BUT IN THE INTEREST OF JUSTICE THE APPELLANT TO FURNISH BEFORE THE A.O. THE BIFURCATION OF INTEREST INCOME FROM FDRS AND SA VING A/C AND THE A.O. IS DIRECTED TO LIMIT THE DISALLOWANCE OF T HE FDRS INTEREST. THUS, THIS GROUND IS PARTLY ALLOWED. 5. AGGRIEVED BY THE ORDER OF LD. CIT (A) ASSESSEE I S NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS. 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FAC TS OF THE CASE IN CONFIRMING THE ACTION OF LD. A.O. IN NOT AL LOWING CLAIM OF DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT ON THE INTER EST INCOME EARNED ON FIXED DEPOSITS PLACED WITH THE SCHEDULED BANKS. 2. BOTH THE LOWER AUTHORITIES HAVE ERRED IN NOT APP RECIATING THAT INVESTMENTS IS AN INTEGRAL PART OF PROVIDING C REDIT FACILITIES AND THEREFORE ANY INCOME EARNED BY CARRYING OUT THE SAID ACTIVITIES QUALIFIES FOR CLAIM OF DEDUCTION U/S. 80 P(2)(A)(I) OF THE ACT. 3. ALTERNATIVELY AND WITHOUT PREJUDICE, BOTH THE LO WER AUTHORITIES OUGHT TO HAVE ALLOWED EXPENDITURE INCUR RED FOR EARNING SUCH INTEREST INCOME AND OUGHT TO HAVE TAXE D ONLY THE NET INTEREST INCOME INSTEAD OF GROSS INTEREST RECEI PT AS HAS BEEN DONE. 4 . ALTERNATIVELY AND WITHOUT PREJUDICE TO ABOVE, DED UCTION MAY KINDLY BE GRANTED U/S. 80P(2) (C) OF THE ACT. 5. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN PASSING THE ORDERS WITHOUT PROPERLY APPRECIATING TH E FACT AND THAT HE FURTHER ERRED IN GROSSLY IGNORING VARIOUS S UBMISSIONS, EXPLANATIONS AND INFORMATION SUBMITTED BY THE APPEL LANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BE FORE PASSING THE IMPUGNED ORDER. THIS ACTION OF BOTH THE AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 7 6. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING ACTION OF THE LD. A.O. IN LEVYING INTERE ST U/S. 234B/C OF THE ACT. 7. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN INITIATING PENALTY PROCEEDINGS U/S. 271(1)(C) OF TH E ACT. 6. BEFORE US AT THE OUTSET, LD. A.R. SUBMITTED THAT THOUGH ASSESSEE HAS RAISED VARIOUS GROUNDS BUT THE ONLY ISSUE IS WI TH RESPECT TO DEDUCTION UNDER SECTION 80P. BEFORE US, LD. A.R. RE ITERATED THE SUBMISSIONS MADE BEFORE A.O. AND LD. CIT (A) AND FU RTHER SUBMITTED THAT ASSESSEE IS A MULTIPURPOSE COOPERATIVE SOCIETY DEALING MAINLY IN MARKETING OF AGRICULTURAL PRODUCTS GROWN BY ITS MEM BERS. DURING THE YEAR ASSESSEE HAD EARNED INTEREST ON FIXED DEPOSITS WHICH WERE PLACED WITH ICICI BANK. THE INTEREST INCOME EARNED BY THE ASSESSEE FROM THE DEPOSITS PLACED WITH BANK WAS TREATED AS INCOME FR OM OTHER SOURCES BY THE A.O. AND ACCORDINGLY THE DEDUCTION UNDER SEC TION 80 P WAS DENIED. LD. A.R. SUBMITTED THAT THE INVESTMENTS WIT H ICICI BANK WERE MADE WITH MULTIPLE OBJECTIVES WHICH INCLUDED IMMEDI ATE CREDIT OF OUTSTATION CHEQUES, SAVING OF BANK CHARGES ON CLEAR ANCE OF OUTSTATION CHEQUES, MAXIMUM UTILIZATION OF FUNDS ON IMMEDIATE CREDIT OF OUTSTATION CHEQUES, IMMEDIATE TRANSFER OF SURPLUS F UND TO FIXED DEPOSITS AND IMMEDIATE ENCASHMENT OF FIXED DEPOSITS AS AND WHEN NEEDED. THE KEY INTENTION BEHIND MAKING THE INVESTM ENTS WAS OPTIMUM UTILIZATION OF WORKING CAPITAL SO AS TO IMP ROVE CREDITWORTHINESS OF THE ASSESSEE AND THUS THE SAME WAS INCIDENTAL TO THE OBJECT OF PROVIDING CREDIT FACILITY TO THE MEMB ERS. HE THEREFORE, SUBMITTED THAT THE INTEREST INCOME ON INVESTMENTS W ITH ICICI BANK IS ATTRIBUTED TO THE BUSINESS OF THE ASSESSEE AND IS T HEREFORE ELIGIBLE FOR DEDUCTION UNDER SECTION 80 P. HE FURTHER SUBMITTED THAT IF THE FUNDS WHICH ARE NOT IMMEDIATELY REQUIRED TO BE LENT TO TH E MEMBERS ARE INVESTED IN BANK TO EARN INTEREST THEN SUCH INTERES T EARNED ON DEPOSITS IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS AND HEN CE, SUCH INTEREST IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 P. HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF ITO V/S. JAFRI MOMIN CO -OPERATIVE CREDIT SOCIETY ITA NO.1491/AHD/2012. HE ALSO PLACED RELIAN CE ON THE DECISION OF KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCH ANTS SOUHARDA CREDIT CO-OPERATIVE LTD., REPORTED IN [2015] 55 TAX MAN.COM 447 (KAR). HE ALSO PLACED ON RECORD THE COPY OF THE AFO RESAID DECISIONS. THE LD. A.R. IN THE ALTERNATIVE SUBMITTED THAT DEDU CTION BE GRANTED UNDER SECTION 80P(2) (C). LD. D.R. ON THE OTHER HA ND SUPPORTED THE ORDER OF A.O. AND LD. CIT (A). ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 8 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RE SPECT TO GRANTING OF DEDUCTION UNDER 80P ON THE INTEREST EARNED ON THE D EPOSITS KEPT WITH BANK. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY. IT IS ASSESSEES SUBMISSION THAT THE AMOUN TS THAT WERE NOT IMMEDIATELY REQUIRED BY THE ASSESSEE WERE DEPOSITED IN THE BANK SO AS TO EARN INTEREST. THE AFORESAID SUBMISSION OF TH E ASSESSEE HAS NOT BEEN CONTROVERTED BY REVENUE. WE FIND THAT THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. (SUPRA) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY OBSERVING AS UNDER: 10. IN THE INSTANT CASE, THE AMOUNT WHICH WAS INVE STED IN BANKS TO EARN INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBERS. IT WAS NOT THE LIABILITY. IT WAS NOT SHOWN AS LIABI LITY IN THEIR ACCOUNT. IN FACT THIS AMOUNT WHICH IS IN THE NATURE OF PROFI TS AND GAINS, WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LE NDING MONEY TO THE MEMBERS, AS THERE WERE NO TAKERS. THEREFORE, THEY HAD DEPOSITED THE MONEY IN A BANK SO AS TO EARN INTERES T. THE SAID INTEREST INCOME IS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE IT IS LIABLE TO BE DEDUCTED I N TERMS OF SECTION 80P (1) OF THE ACT. I FACT SIMILAR VIEW IS TAKEN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT V/S. A NDHRA PRADESH STATE CO-OPERATIVE BANK LTD., [2011] 200 TA XMAN 220/12 TAXMANN.COM 66. IN THAT VIEW OF THE MATTER, THE ORDER PASSED BY THE APPELLATE AUTHORITIES DENYING THE BEN EFIT OF DEDUCTION OF THE AFORESAID AMOUNT IS UNSUSTAINABLE IN LAW. ACCORDINGLY IT IS HEREBY SET ASIDE. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST T HE REVENUE. 8. WE ARE OF THE VIEW THAT THE FACTS OF THE CASE A RE IDENTICAL TO THAT IN THE CASE OF TUMKAR MERCHANTS SOUHARDA CREDI T CO-OPERATIVE LTD. (SUPRA) WHICH HAS BEEN DECIDED BY HONBLE KARN ATAKA HIGH COURT AND THEREFORE CONSIDERING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE AFORESAID DECISION OF HONBLE KARNATAKA HIGH CO URT AND IN THE ABSENCE OF ANY CONTRARY BINDING DECISION POINTED OU T BY REVENUE, WE ARE OF THE VIEW THAT THE INTEREST EARNED BY THE ASS ESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 P. WE THEREFORE SET ASID E THE ORDER OF A.O. IN THE RESULT THE GROUND OF THE ASSESSEE IS ALLOWED . ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 9 3. FROM PERUSAL OF THE ORDER OF THE CO-ORDINATE BEN CH AS REFERRED ABOVE, LD. AR WAS ABLE TO CONVINCE US THAT ASSESSEE IS IN APPEAL ON IDENTICAL GROUNDS VIS--VIS THE GROUNDS DEALT BY TH E CO-ORDINATE BENCH FOR AYS 2006-07 & 2007-08. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF LOWER AUTHORITIES AND ALSO RELIED ON THE JUDGMENT OF HON BLE SUPREME COURT IN THE CASE OF M/S THE TOTGARS CO-OPERATIVE SALE S OCIETY LTD. VS. ITO, KARNATAKA, 322 ITR 283 (SC).. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE AS WELL AS GONE THROU GH THE JUDICIAL PRONOUNCEMENTS REFERRED TO HEREIN ABOVE BY LD. AR A ND LD. DR. AS FAR AS SUBMISSIONS MADE BY LD. AR WE ARE OF THE VIE W THAT THE ISSUE INVOLVED IN APPEAL BEFORE US ARE IDENTICAL TO THE I SSUES DEALT BY THE CO-ORDINATE BENCH VIDE CONSOLIDATED ORDER DATED13.8 .2015 IN ITA NOS. 1710/AHD/2011 FOR AY 2006-07 & ITA NO.1711/AHD /2011 FOR AY 2007-08. HOWEVER, LD. DR WANTS TO TAKE SHELTER FROM THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF M/S THE TOTGAR S CO-OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA). WE FIND SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF ITO, WARD-2, PAT AN VS. M/S JAFARI MOMIN VIKAS CO-OP. CREDIT SOCIETY LTD. IN ITA NO.14 91/AHD/2012 ALONG WITH C.O. NO.138/AHD/2012 FOR AY 2009-10, WHE REIN REVENUE HAD RELIED UPON THE APEX COURTS JUDGMENT REFERRED ABOVE, BUT NOT ACCEPTED BY THE CO-ORDINATE BENCH VIDE ORDER DATED 31.10.2012 LOOKING TO THE FACTS OF THE CASE BY GIVING FOLLOWIN G OBSERVATIONS :- ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 10 17. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS O F THE EITHER PARTY, PERUSED THE RELEVANT RECORDS AND ALSO THE CA SE LAW ON WHICH THE LEARNED AR HAD RESERVATION IN ITS APPLICABLY I N THE CIRCUMSTANCES OF THE ASSESSEES CASE. 18. IT WAS THE STAND OF THE LEARNED CIT (A) THAT T HE ENTIRE INCOME WAS NOT EXEMPT AND THAT IT WAS TO BE EXAMINED AS TO WHETHER THERE WAS ANY INTEREST INCOME ON THE SHORT TERM BANK DEPO SITS AND SECURITIES INCLUDED IN THE TOTAL INCOME OF THIS SOC IETY WHICH HAS BEEN CLAIMED AS EXEMPT. ACCORDING TO THE CIT (A), A SIMI LAR ISSUE TO THAT OF THE PRESENT ONE WAS DEALT WITH BY THE HONBLE SU PREME COURT IN THE CASE OF TOTGARS CO-OP. SALE SOCIETY LTD V. ITO (SUPRA). THE ISSUE BEFORE THE HONBLE COURT FOR DETERMINATION WAS WHET HER INTEREST INCOME ON SHORT TERM BANK DEPOSITS AND SECURITIES W OULD BE QUALIFIED AS BUSINESS INCOME U/S 80P (2)(A)(I) OF THE ACT. 19. THE ISSUE DEALT WITH BY THE HONBLE SUPREME CO URT IN THE CASE OF TOTGARS (SUPRA) IS EXTRACTED, FOR APPRECIATION O F FACTS, AS UNDER: WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT TERM DEPOSITS AND SECURITIES WHICH SURPLUS WAS NOT REQUI RED FOR BUSINESS PURPOSES? THE ASSESSEE(S) MARKETS THE PRODUCE OF IT S MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. I N THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SI NCE THE FUND CREATED BY SUCH BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SEC URITIES. THE QUESTION, BEFORE US, IS-WHETHER INTEREST ON SUCH DE POSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS ACC OUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE AC T? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME IN THE CATEGORY OF INCOME FROM OTHER SOURCES, HENCE, SUCH INTEREST INCOME WOULD B E TAXABLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSES SING OFFICER 19.1 HOWEVER, IN THE PRESENT CASE, ON VERIFICATION OF THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3.2009, IT WAS OBSER VED THAT THE FIXED DEPOSITS MADE WERE TO MAINTAIN LIQUIDITY AND THAT T HERE WAS NO SURPLUS FUNDS WITH THE ASSESSEE AS ATTRIBUTED BY TH E REVENUE. HOWEVER, IN REGARD TO THE CASE BEFORE THE HONBLE S UPREME COURT ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 11 (ON PAGE 286) 7BEFORE THE ASSESSING OFFICER, I T WAS ARGUED BY THE ASSESSEE(S) THAT IT HAD INVESTED THE FUNDS O N SHORT TERM BASIS AS THE FUNDS WERE NOT REQUIRED IMMEDIATELY FOR BUSI NESS PURPOSES AND, CONSEQUENTLY, SUCH ACT OF INVESTMENT CONSTITUT ED A BUSINESS ACTIVITY BY A PRUDENT BUSINESSMAN; THEREFORE, SUCH INTEREST INCOME WAS LIABLE TO BE TAXED UNDER SECTION 28 AND NOT UND ER SECTION 56 OF THE ACT AND, CONSEQUENTLY, THE ASSESSEE(S) WAS ENTI TLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ARGUMENT WAS REJECTED BY THE ASSESSING OFFICER AS ALSO BY THE TRIBUNAL AND T HE HIGH COURT, HENCE, THESE CIVIL APPEALS HAVE BEEN FILED BY THE A SSESSEE(S). 19.2 FROM THE ABOVE, IT EMERGES THAT (A) THAT ASSESSEE (ISSUE BEFORE THE SUPREME COURT) HAD ADMITTED BEFORE THE AO THAT IT HAD INVESTED SURPLUS FUNDS, WHICH WERE NOT IMMEDIATELY REQUIRED FOR THE PURPOSE OF ITS BUSINESS, IN SHORT TERM DEPOSITS; (B) THAT THE SURPLUS FUNDS AROSE OUT OF THE AMOUNT RETAINED FROM MARKETING THE AGRICULTURAL PRODUCE OF THE MEMBERS; (C) THAT ASSESSEE CARRIED ON TWO ACTIVITIES, NAMELY , (I) ACCEPTANCE OF DEPOSIT AND LENDING BY WAY OF DEPOSIT S TO THE MEMBERS; AND (II) MARKETING THE AGRICULTURAL PRODUC E; AND (D) THAT THE SURPLUS HAD ARISEN EMPHATICALLY FROM M ARKETING OF AGRICULTURAL PRODUCES. 19.3 IN THE PRESENT CASE UNDER CONSIDERATION, THE ENTIRE FUNDS WERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THERE WER E NO SURPLUS FUNDS. 19.4 WHILE COMPARING THE STATE OF AFFAIRS OF THE PR ESENT ASSESSEE WITH THAT ASSESSEE (BEFORE THE SUPREME COURT), THE FOLLOWING CLINCHING DISSIMILARITIES EMERGE, NAMELY: (1) IN THE CASE OF THE ASSESSEE, THE ENTIRE FUNDS W ERE UTILIZED FOR THE PURPOSES OF BUSINESS AND THAT THERE WERE NO SURPLUS FUNDS; ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 12 - IN THE CASE OF TOTGARS, IT HAD SURPLUS FUNDS, AS ADMITTED BEFORE THE AO, OUT OF RETAINED AMOUNTS ON MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS; (2) IN THE CASE OF PRESENT ASSESSEE, IT DID NOT CAR RY OUT ANY ACTIVITY EXCEPT IN PROVIDING CREDIT FACILITIES TO I TS MEMBERS AND THAT THE FUNDS WERE OF OPERATIONAL FUNDS. THE ONLY FUND AVAILABLE WITH THE ASSESSEE WAS DEPOSITS FROM ITS M EMBERS AND, THUS, THERE WAS NO SURPLUS FUNDS AS SUCH; - IN THE CASE OF TOTGARS, THE HONBLE SUPREME COURT HAD NOT SPELT OUT ANYTHING WITH REGARD TO OPERATIONAL FUNDS ; 19.5 CONSIDERING THE ABOVE FACTS, WE FIND THAT THER E IS FORCE IN THE ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE NOT A CO -OPERATIVE BANK, BUT ITS NATURE OF BUSINESS WAS COUPLED WITH BANKING WITH ITS MEMBERS, AS IT ACCEPTS DEPOSITS FROM AND LENDS THE SAME TO I TS MEMBERS. TO MEET ANY EVENTUALITY, THE ASSESSEE WAS REQUIRED TO MAINTAIN SOME LIQUID FUNDS. THAT WAS WHY, IT WAS SUBMITTED BY THE ASSESSEE THAT IT HAD INVESTED IN SHORT-TERM DEPOSITS. FURTHERMORE, T HE ASSESSEE HAD MAINTAINED OVERDRAFT FACILITY WITH DENA BANK AND TH E BALANCE AS AT 31.3.2009 WAS RS.13,69,955/- [SOURCE: BALANCE SHEET OF THE ASSESSEE AVAILABLE ON RECORD] 19.6 IN OVERALL CONSIDERATION OF ALL THE ASPECTS, WE ARE OF THE CONSIDERED VIEW THAT THE RATIO LAID DOWN BY THE HON BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP SALE SOCIETY LTD (SUPRA) CANNOT IN ANY WAY COME TO THE RESCUE OF EITHER THE LD. CIT (A) OR THE REVENUE. IN VIEW OF THE ABOVE FACTS, WE ARE OF THE FIRM VIEW THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN COMING TO A CO NCLUSION THAT THE SUM OF RS.9,40,639/- WAS TO BE TAXED U/S 56 OF THE ACT. IT IS ORDERED ACCORDINGLY. 6. FROM GOING THROUGH THE ABOVE DISCUSSION IT IS AM ICABLY CLEAR THAT ASSESSEES CASE IS SQUARELY COVERED BY THE DEC ISION OF THE CO- ORDINATE BENCHES IN ASSESSEES OWN CASE FOR AYS. 20 06-07 AND 2007-08 AND FURTHER THE DECISION OF HONBLE SUPREME COURT IN THE ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 13 CASE OF TOTGARS CO-OP SALE SOCIETY LTD (SUPRA) WILL NOT APPLY ON THE ASSESSEE DUE TO DIFFERENT FACTS. THE REVENUE HAS NO T BEEN ABLE TO BRING ANY MATERIAL ON RECORD TO PROVE THAT ASSESSEE SOCIETY HAD RETAINED ANY AMOUNT OUT OF THE AGRICULTURAL SALE PR OCEEDS WHICH WERE PAYABLE TO ITS MEMBERS AND WERE HELD AS A LIABILITY IN THE BOOKS OF ASSESSEE SOCIETY FOR SHORT SPAN OF TIME AND INTERES T INCOME HAVE BEEN EARNED BY THE ASSESSEE SOCIETY ON SUCH SURPLUS FUNDS. THEREFORE, IN THE LIGHT OF ABOVE DISCUSSION AND APP LYING THE RATIO OF THE DECISION OF CO-ORDINATE BENCH, WE ARE OF THE VI EW THAT INTEREST EARNED BY THE ASSESSEE SOCIETY IS ELIGIBLE FOR DEDU CTION UNDER SECTION 80P(2)(C) OF THE ACT. THE ISSUE INVOLVED IN GROUND NOS.1 TO 5 IS DECIDED ACCORDINGLY. 7. GROUND NO.6 IS REGARDING LEVYING INTEREST U/S 23 4B/D OF THE ACT WHICH IS CONSEQUENTIAL, NEEDS NO FURTHER ADJUDICATI ON. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24/09/2015 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 24/9/2015 MAHATA/- ITA NO.2129/AHD/2015 ASST. YEAR 2011-12 14 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION: 21/9/2015 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 23/9/2015 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 24/9/2015 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: