INCOME TAX OFFICER, WRD-1, BHIMAVARAM V. YENDANGANDHI LARGE SIZED CO-OPERATIVE SOCIETY LTD, VISAKHAPATNAM

ITA 243/VIZ/2022

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5552 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 09-10-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 13-12-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Set aside
• Section: 56; 143(3); 234B; 143(1); 80P; 143(2)

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य एिं श्री एस बालाकृ ष्णन, लेखा सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER & SHRI S BALAKRISHNAN, HON’BLE ACCOUNTANT MEMBER आयकर अपील सं./I.T.A.No.243/Viz/2022 (निर्धारण वर्ा / Assessment Year : 2018-19) Income Tax Officer Ward-1 Bhimavaram Vs. M/s Yendagandhi Large Sized Co-operative Society Ltd. D.No.4-13, K.K.Road Yendagandi, West Godavari Dist [PAN : AACAT0967G] (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) Cross Objection No.01/Viz/2023 (Arising out of I.T.A.No.243/Viz/2022) (निर्धारण वर्ा / Assessment Year : 2018-19) M/s Yendagandhi Large Sized Co- operative Society Ltd. D.No.4-13, K.K.Road Yendagandi, West Godavari Dist [PAN : AACAT0967G] Income Tax Officer Ward-1 Bhimavaram (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) Assessee by : Shri G.V.N.Hari, AR Revenue by : Shri Madhukar Aves, DR सुिवधई की तधरीख / Date of Hearing : 10.10.2023 घोर्णध की तधरीख/Date of Pronouncement : 22.11.2023 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : This appeal is filed by the revenue against the order of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless 2 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. Appeal Centre (NFAC), Delhi vide DIN & Order No.ITBA/NFAC/S/250/2021-22/1046341784(1) dated 17.10.2022, arising out of assessment order passed u/s 143(3) of the Income Tax Act, 1961 (in short ‘Act’) dated 17.10.2022 for the Assessment Year (A.Y.) 2018-19 and the cross objections filed by the assessee in support of the order of the Ld.CIT(A). 2. Brief facts of the case are that the assessee, a Primary Agricultural Co-operative Credit Society engaged in the business of providing credit facilities, supply of agricultural inputs and consumer goods to it’s members filed it’s return of income for the A.Y.2018-19 on 18.08.2018, admitting “Nil” income, after claiming deduction of Rs.2,91,39,357/- u/s 80P(2) of the Act. The return was processed u/s 143(1) and vide intimation dated 12.07.2019 the total income was computed at Rs.3,70,370/-. The increase in income was on account of disallowance of deduction claimed u/s 80P in respect of dividend of Rs.3,70,365/-. The assessee’s case was selected for scrutiny under CASS to verify the investments / advances / loans made by the assessee and the deductions claimed under Chapter VI A of the Act and a notice u/s 143(2) was issued. In response, the assessee furnished details of it’s receipts and the deduction claimed u/s 80P(2) of the Act as under : 3 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. Head of Income Gross Receipts (Rs.) Net Income (Rs.) Deduction claimed (Rs.) Credit facilities to members 4,07,38,473 2,87,52,592 2,87,52,592 Agricultural inputs 53,40,280 4,229 4229 Consumer goods 1,31,93,265 7,171 7171 Dividends 3,70,365 3,70,365 2,91,39,357 2,91,39,357 The Assessing Officer(AO) noticed that a part of the above income aggregating to Rs.2,59,54,906/- admitted to have been received from extending credit facilities to members was interest income received from the following : i) Interest on term deposits with District Central Cooperative Bank – Rs.2,54,61,500 ii) Interest on FD with AP Cooperative bank - Rs.40,096 iii) Interest on FD with Andhra Bank - Rs.3,23,815 iv) Interest on SB Account - Rs.1,29,495 The AO was of the view that the investments with the above said banks were made from surplus funds which is not attributable to the activity of the assessee in providing credit facilities to it’s members. Therefore, the AO issued a show cause letter dated 01.02.2021 and a draft assessment order proposing to disallow the deduction to the extent 4 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. of interest income received from institutions other than cooperative societies. Further, it was also proposed to disallow the deduction u/s 80P of the Act towards dividend income of Rs.3,70,365/-. The AO proposed to bring to tax the interest income and the dividend income under the head income from other sources u/s 56 of the Act. In response to the show cause letter and the draft assessment order, the assessee furnished it’s objections vide letter dated 01.02.2021, submitting that the District Central Cooperative Bank Ltd. is also formed under the State Cooperative Societies Registration Act and all the primary agricultural cooperative credit societies like the assessee only are the members of the DCCB. The assessee further submitted that as per the Cooperative Societies Rules the assessee is required to make investment with DCCB and such investment constitutes the capital fund of the DCCB and that the DCCB advances the same to various primary cooperative credit societies as per their requirements, hence, the interest income received from DCCB on share capital is eligible for deduction u/s 80P of the Act. The assessee also submitted that the interest income received from other banks is also eligible for deduction u/s 80P of the Act. The AO completed the assessment vide order dated 16.02.2021 u/s 143(3) of the Act by disallowing to the extent of Rs.2,59,54,906/-, the deduction claimed u/s 5 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. 80P(2) of the Act towards interest income received from District Central Cooperative Bank, Andhra Bank, AP Cooperative bank and interest received on savings account and disallowance of dividend income of Rs.3,70,365/-, aggregating to 2,63,25,271/- and the tax payable was computed at Rs.1,22,77,993/- including the interests of Rs.31,82,165/- u/s 234B and Rs.4852/- u/s 234C of the Act. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A), relying on the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut & Ors dated 12.01.2021, allowed the appeal of the assessee. 4. Aggrieved by the order of the Ld.CIT(A), revenue preferred an appeal before the Tribunal by raising the following grounds of appeal : 1. The learned Commissioner of Income Tax (Appeals) is not justified in deleting the addition of Rs.2,59,54,906/- made by the AO on account of disallowance of deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act. 2. The learned Commissioner of Income Tax (Appeals) is not justified in deleting the addition of Rs.3,70,365/- made by the AO on account of disallowance of deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act. 3. The learned Commissioner of Income Tax (Appeals) ought to have appreciated the fact that the facts of the case relied upon by him while adjudicating the appeal in the present case i.e. The 6 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. Mavilayi Service Co-operative Bank Ltd. Vs.Ors Vs. CIT, Calicut [SC] dated 12.01.2021 are distinguishable from the facts of the present case. 4. Any other ground that may be urged at the time of hearing of the Appeal. 5. The appellant craves leave to add or delete or amend or substitute any ground of appeal before and / or at the time of hearing of appeal. 5. Ground No.4 and 5 are general in nature, which do not require specific adjudication. 6. Ground No.1 to 3 are related to disallowance of deduction claimed u/s 80P(2)(a)(i) of the Act. The Ld.DR submitted that the Ld.CIT(A) is not justified in deleting the addition of Rs.2,59,54,906/- and Rs.3,70,365/- made by the AO on account of disallowance of deduction claimed by the assessee u/s 80P(2)(a)(i). The Ld.CIT(A) relied on the decision of Hon’ble Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut & Ors. dated 12.01.2021, the facts of which are distinguishable from the facts of the present case. Thus, the order passed by the Ld.CIT(A) dated 17.10.2022 is erroneous and prejudicial to the interest of the revenue. The Ld.DR further contended that the AO is justified in making addition of Rs.2,59,54,906/- and Rs.3,70,365/- towards disallowance of deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act by relying on the decision of Hon’ble Supreme 7 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. Court in the case of Totgars Co-operative Sale Society Ltd. Vs. Income Tax Officer (2010) 311 ITR 283 (SC) dated 08.02.2010, holding that interest income earned by the assessee society from fixed deposits pertaining to reserve fund kept with nationalized (schedule) banks / cooperative banks is not eligible for deduction u/s 80(P)(2)(a) and 80P(2)(d) of the Act. He, therefore, pleaded to quash the order passed by the Ld.CIT(A) and uphold the addition made by the AO. 7. Per contra, the Ld.AR filed paper book before us and contended that the Ld.CIT(A) is justified in deleting the addition made by the AO since the assessee society, being a cooperative society, make deposits in its regular course of business and accordingly the deposits were made in DCC bank as usual, but not with any intention to gain any benefit from other sources. The Ld.AR further submitted that the facts relied on by the revenue authorities in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) are entirely different from that of the instant case. The Ld. AR also submitted that as per Para-11 of the judgment in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) it is clearly mentioned that “this judgment is confined to the facts of the present case” and therefore it cannot be applied in the assessee’s case, hence, eligible for deduction u/s 80P of the Act. 8 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. He, therefore, pleaded to quash the order passed by the Ld.CIT(A) and allow deduction u/s 80P of the Act. 8. We have heard both the parties and perused the material placed on record. Now the question before us is to decide whether the revenue is correct in disallowing deduction claimed by the assessee u/s 80P on interest earned on deposits pertaining to reserve fund with DCC Bank which is a cooperative bank and other nationalised banks, or not. It is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction u/s 80P. He relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No.1622 of 2010 in the case of M/s Totgars Cooperative Sale Society Ltd., which held that “investment of surplus on hand not immediately required in Short Term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member”. However, in the instant case, the facts are distinguishable. The coordinate bench of the Tribunal, on similar set of facts dismissed the appeal of the revenue in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd. in I.T.A.No.107/Viz/2022 dated 30.08.2023 and the same ratio was 9 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. followed by the coordinate bench of the Tribunal in the case of Rangaraya Large Sized Cooperative Society in I.T.A.No.160/Viz/2023 dated 14.09.2023. For the sake of clarity and convenience, we extract relevant part of the order of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Ltd.(supra) as follows : “8. We have heard bo th the si des and perused the materi al available on record and the orders of th e Ld. Revenue Autho rities. It is an adm itted fa ct that the asses see has claime d dedu cti on U/s. 80P(2)(a )(i ) of the Act on the interest accrued and re ceive d b y the asses see U/s. 80P(2) (a)(i ) o f the A ct. Th e contention of the L d. A O is that as per se ction 80P(2) (d), the a ss essee i s eli gi ble to clai m dedu ction U/ s. 80P( 2)(a) (i) of the Act only when it i s invest ed with any other cooperative society. The L d. A O also placed heav y reliance in the case o f M/s . Totgars Cooperative S ale Society Ltd (supr a) while disallowin g the clai m made by the asse ssee U/ s. 80P(2 )(a) ( i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. To tgars Cooperative S ale Soc iety Ltd ( supra) an d found that in that c ase the soc iety is e ngaged in marketing o f the agricultural produce by its me mbers a s per section 80P(2 ) (a)(i ii ) while carryin g on the business o f banking or providin g cre dit f acilitie s to its members U/s. 80P(2)(a )(i ) o f the A ct. In that ca se, the Society retained the sale proceeds w hi ch wa s otherwise payabl e to its members from w hom the produce was bo ught whic h was inve sted in short term depos its / securitie s. It i s also found that the amount payable to its membe rs realize d from sale proceeds of the a gri c ultural produce o f its memb ers was retained by t he so ciety and was s hown as liability on the balance sheet. Therefore, the Hon’ble Apex C ourt has held that interest earned from retainin g the amount payable to its members shall not be cons idere d a s i ncome from other sources. However, in the insta nt case the facts are dist inguis hable an d hence in our view the ratio la id down in the case of M/s. Tot gars Coop erative Sale Soc iety Lt d ( supra) shall not be appli ed. Se ction 80P(1 ) of the Act entitles the Cooperative So cietie s to de du ct the sum s spe ci fie d in sub- section (2) from its gros s total income while computing t he total income. Sub-se ction (2) o f se ction 80P, in the sub-clause (a ) allows dedu ction to cooper ative soc iety whi ch is engage d in the fo llowing activitie s: “(a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its 10 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. members, or (ii) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] [(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:” 9. Further, we also e xtract below the provi si ons of se ction 80P2( d) and (e) of the Act for reference: “(d) in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;” 10. From the plain reading of section 80P(2 )(a)( i) o f the Act, th e whole of amount of profits and gain s of the busines s attribut able to one or more of such activ ities shall be allowed as a de duction. Further, se ction 80P( 2)( d) and 80P(2) (e) of the A ct also allows si milar dedu ctions. It is clea r that the de duct ions available under clau ses (a) to (e) of se ction 80P( 2) are activity based whereas clauses (d) and (e) are investment based. The distinct ion between clauses (a) and clauses (d) & (e) on the ot her hand is that the benefit under claus e (a) is restricted to only into those activ ities o f a cooperative so ciety enlisted in sub-clause (a) w he reas the benefit o f clauses ( d) & (e) are available to all cooperative societies w ithout any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be lim ited only to th e profits & gain s o f the busine ss attributable to any one or more of such a ctivitie s. But in case, if the coo perative society ha s an inco me not attributable to any one or more of such activitie s li sted in su b-clauses ( i) to (vi i) of clause-(a), the same may go out of the purvie w of clause (a ) but still the cooperative soc iety may claim the benef it of clause (d) or (e ) as per the conditio ns laid down therein. In th e instant case, the o riginal source o f inv estments made by t he asse sse e in Nationalized Ba nks is a dmittedl y the income of the asses see der iv ed from the act ivitie s listed in sub-clause s (i ) to 11 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. (vii ) of clause (a ). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble juri sdict i onal High Court o f Andhra Pradesh and Telanga na in the case of Vavveru Cooperative Rural Bank Ltd v s. Ch ief Com mis sioner of In come Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and di stingu ishe d the facts w hile dec iding the case. For the sake of brev ity, we ex tract the relevant pa ra 34 o f the judgmen t of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.” 11. Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telanga na in the case of Vavveru Cooperative Rural Bank Ltd vs. Ch ief Commi ssioner o f Income Tax and Another (sup ra) hel d that the cooperative society is eli gi ble for dedu ction U/s . 80P( 2)(a) (i) of the Act on the int erest income rece ive d from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under: 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and 12 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” 12. Further, the Coor di nate Bench o f H yderabad in Tirumal a Tirupati Deva sthanams Employee s Coop. Credit So ciety v s. I TO also affirmed the same view by following the decision of the Hon’ble AP High Court in the cas e of Vavveru Cooperative Rural Bank Ltd ( supra) . In the instant case also, the asses see has i nvested surplus funds out of the activitie s carrie d out as per the provisions of section 80P( 2)(a) o f the Act. We therefor e by respe ctfully foll owing the juris di ctio nal High Court are of the v i ew that interest in come s hould be allowed as dedu ction U/s . 80P( 2)(a) (i) o f the A ct and thereby the L d. CIT(A)- NFAC has r ig htly hel d by deleting the addition made b y the L d. AO and hence we find no inf i rmity in the or der o f the Ld. CI T( A)-NFA C. 13. In the result, appeal of the Revenue is di s misse d.” Respectfully following the decision of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd.(supra) and the ratio laid down by the coordinate bench of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited (supra), we are inclined to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the revenue. Hence, all the grounds raised by the revenue are dismissed. 13 I.T.A. No.243/Viz/2022 & CO No.01/Viz/2023, A.Y.2018-19 Yendagandhi Large Sized Co-operative Society Ltd., West Godavari Dist. 12. The assessee filed cross objections in support of the order of the Ld.CIT(A). Since the grounds raised by the revenue are dismissed, the cross objections filed by the assessee becomes infructuous, hence, dismissed. 13. In the result, appeal of the revenue as well as the cross objections filed by the assessee are dismissed. Order pronounced in the open court on 22 nd November, 2023. Sd/- Sd/- (एस बालाकृ ष्णन) (द ु व्वूरु आर.एल रेड्डी) (S.BALAKRISHNAN) (DUVVURU RL REDDY) लेखा सदस्य/ACCOUNTANT MEMBER न्याधयक सदस्य/JUDICIAL MEMBER Dated : 22.11.2023 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. निर्धाऩरती/ The Assessee– M/s Yendagandhi Large Sized Co-operative Society Ltd., D.No.4-13, K.K.Road, Yendagandi, West Godavari Dist 2. रधजस्व/The Revenue – The Income Tax Officer, Ward-1, J.P.Road, Bhimavaram 3. The Principal Commissioner of Income Tax, Rajahmundry 4. नवभधगीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam