Chanasma Becharaji Taluka Ni Prathmik Shalana Shikshako Ni Nana Dhirnar Sahakari Mandali Ltd. , V. The Income Tax Officer, Ward-1, Patan

ITA 2388/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8549 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 13-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 25-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Depreciation
• Section: 143(3); 263

Judgement Text

, CH CHCH CH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] LOZJH IZNHI DQEKJ DSFM;K] YS[KK LNL; ,OA EGKOHN IZL KN] U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA U;KF;D LNL; DS LE{KA BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO. 2388/AHD/2014 ( / ASSESSMENT YEAR : 2010-11) CHANASMA BECHARAJI TALUKA NI PRATHMIK SHALANA SHIKSHAKO NI DHIRNAR SAHAKARI MANDALI LTD. OP.DENA BANK, NAVO SUTHARVAS, CHANASMA, PATAN - 384225 / VS. INCOME TAX OFFICER, WARD -1 PATAN. ./ ./ PAN/GIR NO. : AAAAC 0431 E ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SUNIL TALATI, A.R. / RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. / DATE OF HEARING 28/07/2017 !'# / DATE OF PRONOUNCEMENT 15/09/2017 $% / O R D E R PER SHRI MAHAVIR PRASAD, JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-GANDHINAGAR, AH MEDABAD, DATED 13/06/2014, IN THE MATTER OF ASSESSMENT UNDER SECTI ON 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER), FOR T HE ASSESSMENT YEAR (AY) 2010-11, ON THE FOLLOWING GROUNDS: I. THE CIT(A) HAS ERRED IN DIRECTING THE AO TO TAX THE WHOLE INTEREST INCOME RECEIVED BY THE APPELLANT FROM FIXED DEPOSIT OF SARDAR ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 2 - SAROVAR NIGAM LIMITED OF RS.2,88,815/- UNDER THE HE AD: INCOME FROM OTHER SOURCES U/S.56 OF THE INCOME TAX ACT, 19 61. II. WITHOUT PREJUDICE TO ABOVE IT IS SUBMITTED THAT EVE N IF SUCH INTEREST INCOME OF RS.2,88,815/- IS TAXABLE U/S.56 OF THE AC T, THE EXPENDITURE INCURRED FOR EARNING SUCH INCOME MUST BE ALLOWED U/ S.57 OF THE ACT AND PRO-RATA INTEREST INCOME RECEIVED FROM FIXED DE POSIT OF SARDAR SAROVAR NIGAM LIMITED ONLY CAN BE TAXED. IT IS SUBM ITTED THAT THE SAME BE ALLOWED NOW. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERI ALS ON RECORD ARE AS UNDER:- THE APPELLANT HAD FILED RETURN OF INCOME DECLARIN G TOTAL INCOME AT RS. NIL AFTER CLAIMING DEDUCTION OF RS.13,14,930/- U/S.80P(2)(A)(I) OF THE ACT. THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT AT THE INCOME OF RS.13,93,850/- AFTER DISALLOWING DEDUCTION U/S.80P( 2)(A)(I) AND DEPRECIATION OF RS.78,923/- BY CPC, BANGALORE. THE AO ON VERIFICATION OF THE ACCOUNTS AND DETAILS SUBMITTED BY THE APPELL ANT NOTICED THAT THE APPELLANT IS A CO-OPERATIVE SOCIETY SET UP BY PRIMA RY SCHOOL TEACHERS OF TALUKA FOR THE PURPOSE OF PROVIDING FINANCIAL SERVI CES BY GIVING LOAN AND ACCEPTING DEPOSITS FROM ITS MEMBERS. THE SOCIETY HA S CLAIMED DEDUCTION OF RS.13,14,930/- U/S.80P(2)(A)(I) OF THE ACT. THE AO AFTER CONSIDERING THE REPLY MADE BEFORE HIM BY THE APPELLANT HELD AS UNDER: '3.5 IN SUPPORT OF HIS CLAIM, ASSESSEE HAS RELIED U PON THE DECISION OF 1TAT, AHMEDABAD IN THE CASE OF JAFARI MOMIN VIKAS C O-OP CREDIT SOCIETY LTD. V/S CIT AND DECISION OF ITAT AHMEDABAD , IN THE CASE DEDIYASAN INDUSTRIAL CO-OP CREDIT SO. LTD., MEHSANA ALSO ALONG WITH ITS SUBMISSION, ASSESSEE HAS FURNISHED COPIES OF BA N APPLICATIONS. 3.6 AT THE OUTSET IT WILL BE RELEVANT TO PERUSE PRO VISIONS OF THE ACT IN THIS MATTER. ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 3 - 8GP(])- 'WHERE, IN THE CASE OF AN ASSESSEE BEING A CO-OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB- SECTION(2), THESE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB-SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE.' 80P(2)(A)(I) - IN THE CASE OF A CO-OPERATIVE SOCIET Y ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACI LITIES TO ITS MEMBER.' THE WHOLE OF THE AMOUNTS OF PROFITS AND GAINS OF BU SINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES.' PROVISIONS OF SECTION 80P(4) INSERTED BY FINANCE AC T 2006 W.E.F. 1.4.2007 READ AS UNDER: THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN R ELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CR EDIT SOCIETY OR A PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPM ENT BANK.' 3.7 CAREFUL READING OF THIS PROVISION MAKES IT CLEA R THAT ONLY PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANK ARE ENTITLED FOR THE DEDUCTI ON U/S.80P(2)(A)(I) OF THE ACT. NOW THE ISSUE THAT NEEDS CAREFUL EXAMIN ATION IS WHETHER THE PRESENT ASSESSEE I.E. CHANASRNA BECHARAJI TALUKA NI PRATHMIK SHALAONA SHIKSHAKO NI NANA DHIRNARI SAHAKARI MANDAII LTD IS A PRIMARY AGRICULTURAL CREDIT SOCIETY OR NOT. EXPLANATION TO SECTION 80P(4) STATES THAT 'FOR THE PURPOSE OF THE SUB SECTION- CO-OPERAT IVE BANK AND PRIMARY AGRICULTURAL CREDIT SOCIETY SHALL HAVE THE MEANINGS RESPECTIVELY ASSIGNED FOR THEM IN PART V OF THE BAN KING REGULATION ACT 1949.' IN BANKING REGULATION ACT, 1949, PART V THE DEFINITION OF PRIMARY AGRICULTURAL CREDIT SOCIETY IS GIVEN AS THA T SOCIETY- 1). THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHI CH IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULT URAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES (INCLUDING THE MARKETING OF CORPS); AND 2). THE BYE-LOWS OF WHICH DO NOT PERMIT ADMISSION O F ANY OTHER CO- OPERATIVE SOCIETY AS A MEMBER. ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 4 - 3.8 IN THE PRESENT CASE, VERIFICATION OF THE 'AUDIT REPORT' OF THE SOCIETY DOES NOT REFLECT THAT SOCIETY IS MEANT TO PROVIDE L OANS TO MEMBERS FOR AGRICULTURE PURPOSE. BUSINESS OF THE SOCIETY AS PER AUDIT REPORT IS PROVIDING CREDIT FACILITIES TO MEMBERS. PERUSAL OF LOAN APPLICATIONS FURNISHED WITH THE SUBMISSION SHOWS THAT THE LOANS WERE GRANTED FOR THE PURPOSE OTHER THAN AGRICULTURE I.E. FOR SOCIAL AND HOUSING PURPOSE. DECISION OF JAFRI MOMIN VIKAS CO-OP CREDIT SOCIETY LTD RELIED UPON BY ASSESSEE HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. I N THE SAME CASE IN DIFFERENT YEAR I.E. FOR AY 2009-10 ALSO ON SIMILAR FACTS, THE ISSUE IS BEING DISPUTED IN APPEAL BY DEPARTMENT, HENCE THE I SSUE IS RIOT FINALLY SETTLED. FACTS IN THE CASE OF DEDIYASAN INDUSTRIAL CO-OP CREDIT SO. LTD, MEHSANA DECISION RELIED UPON, ARE DIFFERENT FROM TH E PRESENT CASE. 3.9 IN VIEW OF THE AFORESAID, IT IS AMPLY CLEAR THA T THE ASSESSEE IS A 'PRIMARY CREDIT SOCIETY' AND NOT A PRIMARY AGRICULT URE CREDIT SOCIETY. HENCE DEDUCTION U/S.80.P OF THE ACT CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE. ACCORDINGLY, AN AMOUNT OF RS.13,14,930/- CLAIMED AS DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT IS DISALLO WED AND ADDED TO THE TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION.' 2.2 AGGRIEVED WITH THE DISALLOWANCE OF RS.13,14,930 /- CLAIMED U/S.80P(2)(A)(I) OF THE ACT, APPELLANT HAS COME IN APPEAL AND DURING THE COURSE OF APPELLATE PROCEEDINGS, SUBMITTED AS UNDER : 1) THE FIRST AND SECOND GROUND OF APPEAL FILED BY THE ASSESSEE IS WITH REGARD TO THE REJECTION OF DEDUCTION CLAIMED O F RS.13,14,930/- U/S.80P(2)(A)(I) OF THE IT ACT, 1961. THE LEARNED A O HAD REJECTED THE CLAIM OF DEDUCTION BY STATING ON PAGE 2, PARA 3.2, THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO- OPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY OR A PRI MARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' . UNDER SE CTION 80P(2)(A) IN CASE OF COOPERATIVE SOCIETY PROVIDING CREDIT FACILI TIES TO ITS MEMBERS, THE WHOLE OF THE AMOUNT OF PROFIT & GAINS FROM SUCH BUSINESS ARE DEDUCTIBLE. HOWEVER, THE SUB SECTION (4) OF SEC. 80 P WAS INSERTED BY FINANCE ACT, 2006, FROM A.Y.2007-08 DEDUCTION UNDER SEC.80P WILL NOT BE AVAILABLE TO ANY CO-OPERATIVE BANK, ONLY PRIMARY AGRICULTURE CREDIT SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTURE AND RUR AL DEVELOPMENT BANK WITH PRINCIPAL OBJECT OF PROVIDING LONG TERM FOR AG RICULTURE AND RURAL ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 5 - DEVELOPMENT ACTIVITIES WILL CONTINUE TO AVAIL THE B ENEFIT OF DEDUCTION UNDER SECTION 80P.' IN THIS CONNECTION THE APPELLANT HAS TO STATE THAT THE REJECTION OF CLAIMED BY THE LD. A.O. IS COMPLETELY INCORRECT AND WRONG AS PER THE PROVISIONS OF THE I.T. ACT, 1961. AS PER THE AMENDM ENT BY THE FINANCE ACT, 2006, INSERTED THE SUB SEC. (4) OF SEC. 80P, T HE INTENTION OF THE LEGISLATURE IS TO DENY THE DEDUCTION AVAILABLE U/S 80P(2)(A)(I) TO A CO- OPERATIVE BANK ONLY AND THUS IT SHALL NOT BE APPLIC ABLE TO THE CO- OPERATIVE SOCIETIES UNDER THE ACT. THE APPELLANT HA S A STATUS OF CO. OPERATIVE-SOCIETY AS PER ITS CONSTITUTION AND THE O BJECTIVES OF THE SOCIETIES ARE TO HELP THE MEMBERS ONLY BY WAY OF FI NANCE IN NEED AND UNDERTAKE OTHER ACTIVITIES FOR THEIR PROMOTION AND DEVELOPMENT. ALSO THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED UNDER REGISTRAR OF CO.OP. SOCIETY, MEHSANA, GUJARAT STATE. THE COPIES OF REGISTRATION CERTIFICATE OF SOCIETY AND THE BYE LAWS STATING THE OBJECTIVES OF THE SOCIETY ARE ENCLOSED HEREWITH AS PER PAGE NO.L TO 2 8, WHICH CLEARLY INDICATE THAT THE APPELLANT DOES NOT FALL INTO CRIT ERIA LAID DOWN BY THE AMENDMENT IN THE FINANCE 2006 TO RESTRICT THE DEDUC TION BY INSERTION OF SEC.80P(4) BY THE AMENDMENT IN THE FINANCE 2006. IT IS RESPECTFULLY SUBMITTED THAT THE ABOVE MATTER IS ALREADY COVERED AND DECIDED IN FAVOR OF ASSESSEE BY HON'BLE CIT IN ITS OWN CASE IN APPEAL NO.CIT(A)/GNR/LI9/2011-12 FOR A.Y.2009-10. THE COPI ES OF WHICH ARE ENCLOSED HEREWITH VIDE PAGE NO.29 TO 44. AGAINST OR DER OF CIT, REVENUE MADE AN APPEAL BEFORE ITAT ON 13/06/2012 BU T SAME IS DISMISSED BY THE ITAT BY STATING ON PAGE NO.2 &3 'C IT(A) HAS RECORDED A FINDING THAT THE ASSESSEE HAS BEEN CLAIM ING TO BE ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) FOR PAST MANY YEARS AND IN EARLIER YEARS HAS ALSO BEEN ALLOWED THE DEDUCTION AND FACTS OF THE AS SESSEE HAVE NOT CHANGED DURING THE YEAR.' THE COPY OF THE HON'BLE I TAT ORDER IS ALSO ENCLOSE HEREWITH VIDE PAGE NO. 45 TO 47. FURTHER THE ENTIRE INCOME EARNED AND CLAIM BY THE C O. OPERATIVE SOCIETY U/S 80P(2)(A)(I) OF THE I.T. ACT, 1961 BELO NGS TO ACTIVITIES UNDERTAKEN FOR MEMBERS OF THE SOCIETIES ONLY. THE M AIN PURPOSE OF THE SOCIETY IS TO UNDERTAKE THE VARIOUS ACTIVITIES TO H ELP THE MEMBERS FOR THEIR PROMOTION AND DEVELOPMENT. THEREFORE, THE WHO LE INCOME EARNED BY THE SOCIETY SHOULD BE ELIGIBLE FOR THE DEDUCTION U/S.80P(2)(A)(I) OF THE' I.T. ACT, 1961. THE APPELLANT ALSO HAS TO STAT E THAT THE ALL THE ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 6 - INCOMES SHOWN IN P&L A/C OF THE YEAR UNDER CONSIDER ATION ARE RELATING TO ACTIVITIES UNDERTAKEN FOR MEMBERS ONLY, THE COPI ES OF THE P&L A/C & BALANCE SHEET ARE ALSO ENCLOSED HEREWITH VIDE PAGE NO.48 TO .71 FOR YOUR KIND VERIFICATION. IN THE CASE OF THE DELHI GO. OP. URBAN T&C SOCIETY LTD., THE REPLY GIVEN BY THE CBDT VIDE LETTER REF. NO. 133/06/2007- TPL DATED 9 TH MAY, 2007, CLEARLY INDICATES THAT THE SUB SECTION(4 ) OF SEC.80P PROVIDES THAT THE DEDUCTION UNDER THE SAID SECTION SHALL NOT BE AVAILABLE TO ANY COOPERATIVE BANK OTHER THAN A PRIMARY AGRICULTURE C REDIT SOCIETY, OR A PRIMARY CO-OPERATIVE AGRICULTURE AND RURAL DEVELOPM ENT BANK AND FOR THE PURPOSE OF THE SAID SUB SECTION, THE CO-OPERATI VE BANK SHALL HAVE THE MEANING ASSIGNED TO IT IN PART-V OF THE BANKING REGULATION ACT, 1949. THE CBDT ALSO STATED THAT IN PART-V OF THE BA NKING REGULATION ACT, 'CO-OPERATIVE BANK' MEANS STATE CO-OPERATIVE B ANK, A CENTRAL CO- OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. THE COPY OF THE SAME IS ALSO ENCLOSED HEREWITH AS PER PAGE NO.72 FO R YOUR KIND VERIFICATION. THE APPELLANT RELIES ON THE ORDER OF THE HON'BLE CIT(A), GANDHINAGAR IN THE CASE OF MEHSANA TALUKA PRATHMIC SHIKSHAK NANA DHIRNAR SAHAKARI MANDALI LTD., WHEREIN THE HON'BLE CIT(A) CLEARLY STATED THAT ON PAGE 9 OF THE ORDER THAT 'ONLY THOSE CREDIT SOCIETIES WHICH ARE ALLOWED TO TAKE DEPOSITS OF MONEY FROM PUBLIC A ND DO OTHER BANKING ACTIVITIES AS DEFINED IN THE SEC.5 OF BANKING REGUL ATION ACT WOULD QUALITY TO BE A COOPERATIVE BANK. NOW, I AGREED THA T TAKING DEPOSITS FROM PUBLIC CANNOT EQUIVALENT TO TAKING DEPOSITS FR OM MEMBERS OF THE SOCIETY ONLY WHICH HAS GOT A MUCH RESTRICTED MEANIN G AND, THE RELATIONSHIP BETWEEN A SOCIETY AND A PUBLIC HAS TO BE UNDERSTOOD IN A MUCH LARGER SENSE.' THE COPY OF THE SAME IS ALSO EN CLOSED HEREWITH VIDE PAGE NO. 73 TO 85. THE APPELLANT ALSO RELIES ON THE ORDER GIVEN BY THE HONBLE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS . JAFARI MOMIN VIKASH CO-OP. CREDIT SOCIETY LTD, WHERE IN THE HON BLE HIGH COURT HAS CLEARLY STATED ON PAGE 5 & 6 OF THE ORDER SUB SECT ION (4) OF SECTION 80P WILL NOT APPLY TO AN ASSESSEE WHICH IS NOT A CO -OPERATIVE BANK AND ASSESSEE IS ADMITTEDLY NOT A CREDIT CO-OPERATIVE BA NK BUT A CREDIT CO- OPERATIVE SOCIETY THE COPY OF ORDER PASSED BY THE HONBLE GUJARAT HIGH COURT IS ALSO ENCLOSED HEREWITH VIDE PAGE NO.8 6 TO 90. FURTHER THE APPELLANT RELIES ON FOLLOWING DECISIONS , WHEREIN THE CONSISTENT VIEW HAVE BEEN TAKEN BY THE HONBLE APEX COURT AND OTHER AUTHORITIES ON THE SAME ISSUE: ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 7 - (I) M/S. THE TOTGARS' CO. OPERATIVE SALE SOCIETY LTD V/ S I.T.O., KARNATAKA [CIVIL APPEAL NO.1622 OF 2010 (S.C.)] [RE FER PAGE NO.91 TO 104] (II) MEHSANA DISTRICT CENTRAL CO-OPERATIVE BANK LTD. V/S I.T.O. [119 TAXMAN 785 (S.C.)] (REFER PAGE NO. 105 & 106] (III) ACIT VS. THE STATE TRANSPORT EMPLOYEES CO-OP. CREDI T AND THRIFT SOCIETY LTD. [ITA NO. 2673/AHD/2012] [REFER PAGE NO. 107 TO 115] (IV) I.T.O. VS. VARDHAMAN NAGARI SAHAKARI PATS ANSTHA LTD. [ITA NO.1142/PN/2O11 ] [REFER PAGE NO. 116 TO 121 ].' 3. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE LEARNED CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. NOW APPELLANTS APPEAL IS BEFORE US. 5. WE HAVE GONE THROUGH THE RELEVANT RECORD AND IMP UGNED ORDER. ON THE OTHER HAND LEARNED DR CITED A JUDGMENT OF GUJARAT HIGH COURT [2016] 389 ITR 578 (GUJ), STATE BANK OF INDIA VS. C OMMISSIONER OF INCOME TAX , IN THIS CASE, HONBLE HIGH COURT HAS HELD THAT: THE ASSESSEE HAD CLAIMED DEDUCTION UNDER SECTION 8 0P AND NOT SPECIFICALLY UNDER SECTION 80P(2)(A)(I). THE ASSESS EE HAD ALSO NOT SHOWN ANY BIFURCATION OF THE INCOME DERIVED FROM PROVIDIN G CREDIT FACILITIES TO ITS MEMBERS AND THE INTEREST EARNED BY DEPOSITING S URPLUS FUNDS WITH THE BANK. IN RESPONSE TO THE NOTICE UNDER SECTION 263, THE ASSESSEE HAD CONTENDED THAT THE REASON FOR TREATING THE INTEREST INCOME RECEIVED FROM DEPOSITS AS BUSINESS INCOME WAS THAT THE FUNDS OF T HE BUSINESS WERE KEPT IN INTEREST EARNING ACCOUNT WITH FACILITY TO WITHDR AW THE FUND AS AND WHEN NECESSARY TO EARN INTEREST FOR AND ON BEHALF O F ITS MEMBERS AND THAT IT WAS ONE OF ITS ACTIVITIES AS PROVIDED IN SE CTION 80P(2)(A) AND THAT THE GAINS OF BUSINESS ATTRIBUTABLE TO SUCH ACTIVITY WERE EXEMPTED FROM TAXABLE INCOME. THE CONTENTION OF THE ASSESSEE THAT THE COMMISSIONER ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 8 - HAD NOT HELD THAT THE INTEREST DERIVED FROM THE DEP OSITS IN THE BANK WAS INCOME FROM OTHER SOURCES DID NOT MERIT CONSIDERATI ON FOR THE REASON THAT IT WAS FOR THE ASSESSING OFFICER, PURSUANT TO THE ORDER UNDER SECTION 263 TO EXAMINE THE NATURE OF THE INCOME AND TAX IT ACCORDINGLY. HAVING REGARD TO THE STAND ADOPTED BY THE ASSESSEE IN RESP ONSE TO THE NOTICE UNDER SECTION 263, IT COULD NOT BE SAID THAT THE CO MMISSIONER HAD TRAVELLED BEYOND THE SCOPE OF THE NOTICE UNDER SECT ION 263, INASMUCH AS, HE HAD ONLY DEALT WITH THE CONTENTION RAISED BY THE ASSESSEE. THE APPELLATE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE I NVOCATION OF POWERS UNDER SECTION 263 OF THE ACT BY THE COMMISSIONER AN D THAT THE ORDER DID NOT SUFFER FROM ANY LEGAL INFIRMITY. THE ASSESSEE DID NOT CARRY ON ANY BANKING BUSINESS AND ITS OBJECTS DID NOT CONTEMPLATE INVESTMENT OF SURPLUS FUNDS RECEIVE D FROM ITS MEMBERS. THE BUSINESS OF A CREDIT SOCIETY LIKE THAT OF THE A SSESSEE WAS LIMITED TO PROVIDING CREDIT TO ITS MEMBERS AND THE INCOME THAT WAS EARNED BY PROVIDING SUCH CREDIT FACILITIES TO ITS MEMBERS WAS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I). THE CHARACTER OF INTEREST WAS DIFFERENT FROM THE INCOME ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE -SOCIETY PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE INTEREST INCO ME DERIVED FROM INVESTING SURPLUS FUNDS WITH THE BANK MUST BE CLOSE LY LINKED WITH THE BUSINESS OF PROVIDING CREDIT FACILITIES FOR IT TO B E HELD ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE. THEREFORE, THE PROFITS AN D GAINS COULD BE SAID TO BE DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF PROV IDING CREDIT FACILITIES TO ITS MEMBERS IF THERE WAS A DIRECT AND PROXIMATE CON NECTION BETWEEN THE PROFITS AND GAINS AND THE BUSINESS OF THE ASSESSEE. THERE WAS NO OBLIGATION ON THE ASSESSEE TO INVEST ITS SURPLUS FU NDS WITH THE BANK. INVESTING SURPLUS FUNDS IN A BANK WAS NO PART OF TH E BUSINESS OF THE ASSESSEE PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND HENCE IT COULD NOT BE SAID THAT THE INTEREST DERIVED FROM DEPOSITING I TS SURPLUS FUNDS WITH THE BANK WAS PROFITS AND GAINS OF BUSINESS ATTRIBUT ABLE TO THE ACTIVITIES OF THE ASSESSEE. IT WAS ONLY THE INTEREST INCOME DE RIVED FROM THE CREDIT PROVIDED TO ITS MEMBERS WHICH WAS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) AND THE INTEREST INCOME DERIVED BY DEP OSITING THE SURPLUS FUNDS WITH THE BANK NOT BEING ATTRIBUTABLE TO THE B USINESS CARRIED ON BY THE ASSESSEE COULD NOT BE DEDUCTED UNDER SECTION 80 P(2)(A)(I). THERE WAS NO INFIRMITY IN THE ORDERS OF THE APPELLATE TRI BUNAL WARRANTING INTERFERENCE AND THE ASSESSEES APPEAL WAS DISMISSE D BY THE HONBLE HIGH COURT. ITA NO. 2388/AH D/2014 CHANASMA BECHARAJI TALUKA NI VS. ITO ASST.YEAR 2010-11 - 9 - 5. CONSIDERING THE BINDING DECISIONS OF THE HONBLE HIGH COURT IN THE CASE OF SBI (SUPRA) THE INTEREST INCOME EARNED ON SURPLUS FUND AS DEALT BY THE CIT(A) (SUPRA) IS HEREBY UPHELD TO BE TAXED UNDER THE HEAD INCOME FROM OTHER SOURCES. HOWEVER, WE FIND THAT THE HONBLE HIGH COURT IS SI LENT ON THE ISSUE OF ALLOWABILITY OF PROPORTIONATE EXPENSES FRO M THE INTEREST INCOME, THEREFORE, RESPECTFULLY FOLLOWING THE RATIO LAID DO WN BY THE KARNATAKA HIGH COURT (SUPRA) WE DIRECT THE AO TO CONSIDER THE SAME AFRESH IN THE LIGHT OF THE DECISION OF HONBLE HIGH COURT OF KARN ATAKA (SUPRA). 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 15/09/2017 SD/- SD/- IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K IZNHI DQEKJ DSFM;K EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN EGKOHJ IZLKN YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; (PRADIP KUMAR KEDIA) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 15/09/2017 PRITI YADAV, SR.PS !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT(A)-GANDHINAGAR, AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD 6. .34 5 / GUARD FILE. % & / BY ORDER, , / //TRUE COPY // '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD