Bee Co-operative Society Limited, Bengaluru V. Income Tax Officer, Ward- 6(2)(4), Bengaluru

ITA 2286/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 7839 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-01-2020
• Assessment Year: 2016-2017
• Appeal Filed On: 30-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: STANDING COUNCIL
• Assessee Lawyers: MADHUKAR G HEDGE
• Keywords: Business income; Opportunity of being heard; Source of fund; Co-operative Credit Society; Set aside
• Section: 56; 28; 142(1); 80P; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.2286/BANG/2019 : ASST.YEAR 2016-2017 M/S.BEE CO-OPERATIVE CREDIT SOCIETY LIMITED T-70, BEL COLONY, JALAHALLI BENGALURU 560 013. PAN : AAAAB0981A. VS. THE INCOME TAX OFFICER WARD 6(2)(4) BENGALURU. (APPELLANT) (RESPONDENT) APPELLANT BY : SRI.MADHUKAR G HEDGE, CA RESPONDENT BY : SRI.GANESH R.GHALE, STANDING COUNCIL FOR DR DATE OF HEARING : 22.01.2020 DATE OF PRONOUNCEMENT : 27.01.2020 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A), DATED 30.08.2019. THE RELEVANT ASSESSMENT YEAR IS 2016-2017. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS:- 1. THE ORDER OF THE LEARNED CIT(A), BELGAUM IS PREJUDICIAL TO THE INTEREST OF THE APPELLANT, IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT (APPEALS)-6, BENGALURU ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE INTEREST INCOME EARNED FROM THE TERM DEPOSITS IN THE BANKS AS DEDUCTION U/S 80P(2)(A)(I) OF THE ACT ON THE GROUND THAT THE SAME CANNOT BE ATTRIBUTABLE TO BUSINESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS. 3. THE LEARNED CIT(APPEALS)-6, BENGALURU ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE INTEREST INCOME EARNED FROM CO-OPERATIVE BANKS AS DEDUCTION U/S 80P(2)(D) OF THE ACT EVEN THOUGH THE CO-OPERATIVE BANK ITA NO.2286/BANG/2019 M/S.BEE CO-OP CR.SOCIETY LTD.. 2 IS REGISTERED AS A CO-OPERATIVE SOCIETY UNDER KARNATAKA STATE CO-OPERATIVE SOCIETIES ACT, 1959. 4. THE LEARNED CIT(A)-6, BENGALURU FAILED TO CONSIDER THAT THE PETITIONER IN APPEAL IS A CO-OPERATIVE SOCIETY ENGAGED EXCLUSIVELY IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND AS SUCH INVESTS ITS SURPLUS FUNDS THAT ARE NOT IMMEDIATELY REQUIRED FOR USE IN ITS BUSINESS IN CO-OPERATIVE SOCIETIES AS WELL AS NATIONALIZED / COMMERCIAL BANKS. THEREFORE, THE ENTIRE INTEREST INCOME OF RS.37,51,425/- DERIVED BY THE APPELLANT FORMS PART OF ITS PROFITS AND GAINS ATTRIBUTABLE TO ITS BUSINESS AND CHARGEABLE U/S 28 OF THE ACT AND QUALIFIES FOR FULL DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THE CITATION OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD. RELIED UPON BY THE RESPONDENT IS NOT APPLICABLE TO THE APPELLANTS CASE SINCE TOTGARS CO-OP. SALE SOCIETY WAS ENGAGED IN NUMEROUS ACTIVITIES UNLIKE THE APPELLANT. 5. THE IMPUGNED ORDERS PASSED BY THE AUTHORITIES ARE ILLEGAL AND ARE LIABLE TO BE SET ASIDE IN VIEW OF THE JUDGMENT OF THE HONBLE HIGH COURT OF KARNATAKA IN ITA NO.29/2015 IN THE CASE OF M/S.GUTTIGEDARARA CREDIT CO-OPERATIVE SOCIETY LTD. MYSORE V. ITO, WARD 2(2), MYSORE AND ITA NO.307/2014 M/S.TUMKUR MERCHANTS SOUHARDA CREDIT CO-OP. SO. LTD. V. ITO, WARD-1, TUNKUR. 6. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL THE APPELLANT PRAYS THAT THE APPEAL MAY BE ALLOWED. 7. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA CO- OPERATIVE SOCIETIES ACT, 1959 AND RUNNING A BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND ALSO ACCEPTING ITA NO.2286/BANG/2019 M/S.BEE CO-OP CR.SOCIETY LTD.. 3 DEPOSITS FROM ITS MEMBERS. FOR THE ASSESSMENT YEAR 2016- 2017, THE ASSESSEE HAD FILED A NIL RETURN OF INCOME ON 19 TH OCTOBER, 2016 AFTER CLAIMING DEDUCTION U/S 80P(2)(A)(I) OF THE ACT AMOUNTING TO RS.1,90,07,068. THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS AND STATUTORY NOTICES U/S 143(2) AND U/S 142(1) WERE SERVED. THE A.O. ALLOWED THE CLAIM OF THE ASSESSEE U/S 80P(2)(A)(I) OF THE ACT TO THE EXTENT OF BUSINESS INCOME EARNED FROM ITS ACTIVITIES OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. HOWEVER, THE AO NOTED THAT THE ASSESSEE HAD EARNED INTEREST ON DEPOSITS WITH CO-OPERATIVE BANKS OF RS.37,51,430, WHICH WAS NOT ATTRIBUTABLE TO ITS BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. RELYING ON THE DECISION OF THE APEX COURT IN THE CASE OF TOTAGARS CO-OPERATIVE SALES SOCIETY V. ITO (2010) 188 TAXMANN 282 (SC), THE AO HELD THAT THE INTEREST ON DEPOSITS WITH CO-OPERATIVE BANKS IS TO BE BROUGHT TO TAX U/S 56 OF THE ACT AS THE ASSESSEES INCOME FROM OTHER SOURCES AND ACCORDINGLY, HE ADDED A SUM OF RS.37,51,430 TO THE TOTAL INCOME OF THE ASSESSEE. 4. AGAINST THE SAME THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A), WHO CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. THE LEARNED AR RELIED ON THE GROUNDS RAISED. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE ORDERS OF THE INCOME-TAX AUTHORITIES. 5.1 IT WAS SUBMITTED BY THE LEARNED AR OF ASSESSEE THAT THE ASSESSEE HAS EARNED SOME INTEREST INCOME FROM BANK WHICH ITA NO.2286/BANG/2019 M/S.BEE CO-OP CR.SOCIETY LTD.. 4 HAS BEEN ASSESSED BY THE AO AS INCOME FROM OTHER SOURCES AND ASSESSEE'S CLAIM FOR DEDUCTION U/S. 80P OF THE IT ACT WAS DISALLOWED BY THE A.O AND IT IS CONFIRMED BY CIT(A). HE HAS SUBMITTED THAT THE MAIN BASIS OF THE DECISION OF THE AUTHORITIES BELOW IS BY FOLLOWING THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY AS REPORTED IN 395 ITR 611 (KARN). HE ALSO SUBMITTED THAT OTHER JUDGMENT ON WHICH RELIANCE HAS BEEN PLACED BY THE AUTHORITIES BELOW IS THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT AS REPORTED IN 397 ITR 1. HE SUBMITTED THAT NONE OF THE AUTHORITIES BELOW HAS EXAMINED AND COMPARED THE FACTS OF THE PRESENT CASE WITH THE FACTS IN THE CASE OF THE CITIZEN CO- OPERATIVE SOCIETY LTD. VS. ACIT (SUPRA). REGARDING THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA), IT WAS SUBMITTED THAT IN THE FACTS OF PRESENT CASE, THIS JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IS NOT APPLICABLE AND INSTEAD OF THAT, ANOTHER JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD. VS. ITO AS REPORTED IN 230 TAXMAN 309 IS APPLICABLE. AT THIS JUNCTURE, THIS PROPOSITION WAS PUT FORWARD BY THE BENCH THAT UNDER SIMILAR FACTS, THE TRIBUNAL IS RESTORING THE MATTER BACK TO THE FILE OF CIT(A) FOR FRESH DECISION AFTER EXAMINING THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THESE TWO JUDGMENTS RENDERED IN THE CASE OF PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA] AND TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE ITA NO.2286/BANG/2019 M/S.BEE CO-OP CR.SOCIETY LTD.. 5 LTD. VS. ITO (SUPRA) WITH THE DIRECTION THAT IF THE FACTS ARE IN LINE WITH THE FACTS IN THE CASE OF PCIT AND ANOTHER V S. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA), THEN THE ISSUE SHOULD BE DECIDED AGAINST THE ASSESSEE. BUT IF THE FACTS OF THE PRESENT CASE ARE IN LINE WITH THE FACTS IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD. VS. ITO (SUPRA), THEN THE ISSUE SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. THE BENCH POINTED OUT THAT IN THE CASE OF PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA), THE AMOUNT DEPOSITED IN BANK ON WHICH INTEREST INCOME WAS EARNED WAS OUT OF THE LIABILITY OF THE ASSESSEE SOCIETY AND NOT OUT OF ITS OWN FUNDS AND FOR THIS REASON, IN THAT CASE OF PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA), THE HORI'BLE KARNATAKA HIGH COURT DECIDED THE ISSUE AGAINST THE ASSESSEE. BUT IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT COOPERATIVE LTD. VS. ITO (SUPRA), IT WAS FOUND THAT THE MONEY DEPOSITED IN BANK BY ASSESSEE WAS OUT OF ITS OWN FUNDS AND NOT OUT OF LIABILITY AND THEREFORE, THE ISSUE IN THAT CASE WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE BENCH PROPOSED THAT SINCE THE FACTS IN THE PRESENT CASE ARE NOT READILY AVAILABLE ON RECORD AND THERE IS NO FINDING OF AUTHORITIES BELOW ON THIS FACTUAL ASPECT REGARDING THE SOURCE OF FUNDS DEPOSITED ON BANK ON WHICH INTEREST. INCOME WAS EARNED, THE ISSUE SHOULD GO BACK TO THE FILE OF CIT(A)M FOR FRESH DECISION. THE BENCH ALSO PROPOSED THAT REGARDING THE JUDGMENT OF HON'BLE APEX COURT RENDERED IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT (SUPRA) ALSO, THE LD. CIT(A) SHOULD PASS A SPEAKING AND REASONED ORDER AFTER COMPARING THE FACTS OF PRESENT CASE WITH THE FACTS IN THAT CASE ITA NO.2286/BANG/2019 M/S.BEE CO-OP CR.SOCIETY LTD.. 6 IN THE LIGHT OF LAW FOR COOPERATIVE SOCIETY IN THE STATE OF KARNATAKA BECAUSE IN THAT CASE, THE STATE IS DIFFERENT AND COOPERATIVE LAW IS DIFFERENT. IN REPLY, THE LEARNED AR OF ASSESSEE AGREED WITH THIS PROPOSITION PUT FORWARD BY THE BENCH. THE LEARNED DR OF REVENUE SUPPORTED THE ORDER OF CIT(A). 6. I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IN MY OPINION THE MATTER SHOULD GO BACK TO THE FILES OF THE CIT(A) FOR FRESH CONSIDERATION. THEREFORE, I SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT HIM TO PASS A SPEAKING AND REASONED ORDER AFTER COMPARING THE FACTS OF PRESENT CASE WITH THE FACTS IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD. V S. ACIT (SUPRA). HE IS ALSO DIRECTED TO EXAMINE THE FACTS OF PRESENT CASE IN THE LIGHT OF THESE TWO JUDGMENTS OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD. VS. ITO (SUPRA) AND PCIT AND ANOTHER VS. TOTAGARS CO-OPERATIVE SALE SOCIETY (SUPRA) AND PASS NECESSARY ORDER AS PER LAW IN THE LIGHT OF ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF JANUARY, 2020 . SD/- ( CHANDRA POOJARI ) ACCOUNTANT MEMBER BANGALORE ; DATED : 27 TH JANUARY, 2020. DEVADAS G* ITA NO.2286/BANG/2019 M/S.BEE CO-OP CR.SOCIETY LTD.. 7 COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(A)-6, BENGALURU. 4. THE PR.CIT - 6, BENGALURU. 5. THE DR, ITAT, BENGALURU. 6. GUARD FILE. ASST.REGISTRAR/ITAT, BANGALORE