ACIT, New Delhi V. M/s. Jawala Co-Operative Urban Thrift & Credit Society Ltd., New Delhi

ITA 2607/DEL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7493 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV DUDEJA
• Assessee Lawyers: ASHWANI TANEJA; DR RAKESH GUPTA
• Keywords: Business income; Principle of natural justice; Non passing of speaking order
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D , NEW DELHI) BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO. 2607/DEL/2012 ASSESSMENT YEAR : 2008-09 ACIT, CIRCLE 38(1), VS. M/S. JAWALA COOPERATIVE U RBAN NEW DELHI THRIFT & CREDIT SOCIETY LTD., 218-219, DDA CYCLE MARKET, JHANDEWALAN EXTN., NEW DELHI GIR / PAN:AABAT0924C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GAURAV DUDEJA, SR. DR RESPONDENT BY : DR. RAKESH GUPTA AND SHRI ASHWANI TANEJA, ADV. ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY REVENUE AGAINST HT ORDE R OF LD. CIT(A) DATED 19.03.2012. THE REVENUE HAS TAKEN THE FOLLOW ING GROUNDS OF APPEAL: 1. THE LD CIT(A) GROSSLY ERRED IN DELETING THE ADD ITION MADE BY THE AO NOT APPRECIATING THE FACT THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P OF I.T. ACT, 1961 W.R.T. INTERE ST AND DIVIDEND EARNED BY THE ASSESSEE FROM ITS INVESTMENT OF SURPL US FUNDS IN BANKS AND FROM NON-MEMBERS AMOUNTING TO RS.62,11,528/-. THE LD. CIT(A) GROSSLY ERRED IN DELETING THE ADDITION MADE BY THE AO BY TREATING THE INTEREST AND DIVIDEND RECEIVED BY THE ASSESSEE FROM ITS INVESTMENTS OF SURPLUS FUNDS IN BANKS AND FROM OTHE R NON-MEMBERS AMOUNTING TO RS.62,L1,528/- AS INCOME FROM OTHER SO URCES AND HENCE SUCH INCOME IS NOT ELIGIBLE FOR DEDUCTION U/S 80P O F I.T.ACT,1961. 2 ITA NO.2607/DEL/2012 2. THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO E ACH OTHER. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COOPERATIVE SOCIETY REGISTERED WITH REGISTRAR OF COOPERATIVE SOCIETIES. THE OBJECTIVE OF THE SOCIETY AS RECORDED IN THE ASSESSMENT ORDER IS TO C OLLECT DEPOSITS FROM ITS MEMBERS AND GIVE (CREDIT) LOAN TO ITS MEMBERS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY AND DURING ASSESSMENT PROCEED INGS THE A.O. OBSERVED THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80P OF THE ACT AND, THEREFORE, VIDE SHOW CAUSE NOTICE DATED 14.12.2010, THE ASSESS EE WAS ASKED TO SUBSTANTIATE THE CLAIM OF DEDUCTION U/S 80P OF THE ACT. 3. IN REPLY, THE LD. A.R. OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS A COOPERATIVE SOCIETY WHICH WAS ENGAGED IN THE ACTIVI TIES OF PROVIDING CREDIT TO ITS MEMBERS AND, THEREFORE, INCOME OF THE SOCIET Y IS EXEMPT AS THE INCOME IS FROM FUNDS PLACED IN A COOPERATIVE BANK. HOWEVE R, THE A.O. OBSERVED THAT THE ASSESSEE HAD EARNED MAJOR PART OF INTEREST ON FDRS WHICH WERE PLACED WITH BOMBAY MERCANTILE BANK AND FURTHER DIVI DEND WAS RECEIVED FROM DELHI STATE COOPERATIVE BANK. THEREFORE, THE ASSESSEE WAS SHOW CAUSED AS TO WHY DEDUCTION CLAIMED BY ASSESSEE U/S 80P SHOULD NOT BE DISALLOWED. THE ASSESSEE QUOTED FROM RELEVANT PROV ISIONS OF THE ACT AND SUBMITTED THAT IT WAS ELIGIBLE FOR DEDUCTION, HOWEV ER, A.O. WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE AND RELIED UPO N THE HON'BLE SUPREME COURT RULING IN THE CASE OF TOTGAR'S CO-OPERATIVE SALE SOCIETY LTD. VITO, [2010] 322 ITR 283 AND DISALLOWED THE CLAIM OF THE ASSESSEE BY HOLDING AS UNDER:- 5. THE SUBMISSIONS FILED BY THE ASSESSEE HAVE BEEN CAREFULLY PERUSED. THE CLAUSE (D) OF SUB-SECTION (2) OF SECTION 80-P O F THE I.T. ACT READS 3 ITA NO.2607/DEL/2012 AS FOLLOWS, 'IN RESPECT OF ANY INCOME BY WAY OF INT EREST OR DIVIDENDS DERIVED BY THE CO-OPERATIVE SOCIETY FROM ITS INVEST MENTS WITH ANY OTHER CO-OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME;' 5(I). THIS PROVISION CLEARLY ESTABLISHES THAT THE I NTEREST INCOME EARNED BY A COOPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER COOPERATIVE SOCIETY ONLY IS ENTITLED FOR EXEMPTION AND ANY INTEREST RECEIVED FROM OTHER INVESTMENTS, SAY WITH SCHEDULED BANKS OR OTHER SUCH PERSONS, CANNOT BE CLAIMED TO BE EXEMPT SINCE THE SAME CANNOT BE ATTRIBUTED TO ITS BUSINESS ACTIVITY, I.E., ITS B USINESS ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS NOT THE CASE OF THE ASSESSEE THAT INVESTMENTS OF SURPLUS FUNDS WAS MAND ATED BY VIRTUE OF ANY STATUTE OR LAW, SINCE, AS PER ITS OWN SUBMISSIO N DT 23.12.2010, AR STATED THAT ASSESSEE SOCIETY IS NOT REGISTERED E ITHER WITH RBI OR UNDER ANY OTHER BANKING STATUTE AND WAS NOT STATUTO RILY LIABLE TO INVEST IN SUCH DEPOSITS. IT IS ALSO NOT THE CASE OF THE ASSESSEE THAT IT IS INTO BANKING BUSINESS OR PROVIDING BANKING FACILITI ES TO ITS MEMBERS. HENCE, THIS INTEREST INCOME RECEIVED FROM INVESTMEN TS IN BANKS CANNOT BE PRESUMED TO BE OR ATTRIBUTED AS THE INCOME OF TH E SOCIETY FROM ITS BUSINESS ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS . ASSESSEE IN ITS SUBMISSION DT 23.10.2010, HAS AFFIRMED THAT SCHEDULED BANK IN QUESTION IS NOT THE MEMBER OF THE ASSESSEE CO-OPERA TIVE SOCIETY. IN THE PRESENT CASE, THE ASSESSEE- SOCIETY INVESTED FUNDS NOT IMMEDIATELY REQUIRED FOR ITS BUSINESS PURPOSES WITH THE BOMBAY MERCANTILE CO- OPERATIVE BANK AND DELHI STATE CO-OPERATIVE BANK, H OWEVER, NOWHERE BY-LAWS OF THE ASSESSEE SOCIETY MANDATES THE PROCED URE REGARDING INVESTMENT OF SURPLUS FUNDS WITH SCHEDULED BANKS. I NTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL WITHIN THE MEAN ING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH IN TEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIV ITY OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDI T FACILITIES TO ITS MEMBERS. WHEN THE ASSESSEE-SOCIETY PROVIDES CREDIT FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME WHICH ONLY IS ELI GIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I). IN THE PRESENT CASE, TH E ISSUE IS WHETHER INCOME FROM INTEREST WHICH ACCRUES ON FUNDS NOT REQ UIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PUR POSES AND INVESTED IN SCHEDULED BANKS FOR EARNING 'PROFITS' CONSTITUTE S DEDUCIBLE INCOME OR NOT. THESE SURPLUS FUNDS CONSTITUTE THE DEPOSITS FROM ITS MEMBERS, 4 ITA NO.2607/DEL/2012 WHICH WAS INVESTED IN DEPOSITS WITH BANKS. THESE DE POSITS FROM MEMBERS CONSTITUTE A LIABILITY OF THE ASSESSEE AND THEREBY SHOWN IN THE BALANCE-SHEET ON THE LIABILITIES-SIDE. THEREFOR E, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE T O THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT. 5(II). SECTION 80P(2)(A)(I) OF THE ACT PERMITS A CO -OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR P ROVIDING CREDIT FACILITIES TO ITS MEMBERS TO CLAIM DEDUCTION OF THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO SU CH ACTIVITY, VIZ., BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. ON A PLAIN READING, IT BECOMES APPARENT THAT THE TWO ACT IVITIES ARE DISTINCT AND SEPARATE ACTIVITIES. THE FIRST ACTIVITY, VIZ., CARRYING ON THE BUSINESS OF BANKING CONNOTES A LARGER ACTIVITY THAN THE ACTI VITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE LATTER IS RES TRICTED QUA THE MEMBERS OF THE SOCIETY WHILE THE FORMER IS WIDE ENO UGH TO TAKE WITHIN ITS SWEEP AS ITS POTENTIAL CUSTOMERS BOTH MEMBERS A ND NON-MEMBERS. TO SUPPORT THIS CLAIM RELIANCE HAS BEEN PLACED ON P UNJAB AND HARYANA HIGH COURT DECISION IN THE CASE OF CIT V. P UNJAB STATE CO- OPERATIVE BANK LTD. [2008] 304 ITR 113 (P&H). THE L EGISLATURE HAS CLEARLY DIFFERENTIATED BETWEEN THE BANKING BUSINESS AND BUSINESS OF PROVIDING CREDIT FACILITIES TO THE MEMBERS. THUS, T HE SCOPE OF DEDUCTION ALLOWABLE U/S 80P(2)(A)(I) TO A CO-OPERAT IVE SOCIETY IS LIMITED TO ITS BUSINESS ACTIVITY OF PROVIDING CREDI T FACILITY (AND NOT _BANKING FACILITY) TO ITS MEMBERS, NOT TO NON-MEMBE RS, SINCE PROVIDING BANKING FACILITY TO MEMBERS & NON-MEMBERS IS NOT THE BUSINESS ACTIVITY IN THE PRESENT CASE. 5(III). ON A PLAIN READING OF THE CLAUSE (D) SUB-SE CTION (2) OF SECTION 80-P READ WITH NEWLY INSERTED SECTION 80P(4), IT CA N BE STATED THAT THE INTENTION OF THE LEGISLATURE IS TO ENCOURAGE THE ID EA OF CO-OPERATIVE SOCIETIES TO HELP ITS OWN MEMBERS AS WELL AS OTHER SUCH CO-OPERATIVE SOCIETIES TO GROW ECONOMICALLY, THROUGH CREDIT FACI LITIES AND INVESTMENTS ETC. THE INTENT AND PURPOSE OF SECTION 80P(2)(A)(I) OF THE ACT IS TO GRANT DEDUCTION TO INCOME WHICH HAS A DIR ECT AND PROXIMATE NEXUS TO THE ACTIVITY OF PROVIDING CREDIT FACILITY CARRIED ON BY A CO- OPERATIVE SOCIETY. IF BOTH THE SECTIONS 80P(2)(A)(I ) AND 80P(4) ARE 5 ITA NO.2607/DEL/2012 READ TOGETHER, THE INTENTION OF THE LEGISLATURE BEC OMES CLEAR, AND THAT IS TO PROVIDE BENEFIT OF DEDUCTION TO A CO-OPERATIV E SOCIETY WHICH ACTUALLY PROVIDES CREDIT/FINANCE TO ITS MEMBERS IN FURTHERANCE OF THE CO-OPERATIVE MOVEMENT AND NOT FOR THE PURPOSES OF B ANKING. IN OTHER WORDS, WITH AMENDMENT IN THE SECTION 80-P R.W.S 2(2 4)(VIIA) W.E.F. 01.04.2007, LEGISLATURE HAS TAKEN AWAY THE SHIELD O F TAX BENEFITS IN THE NATURE OF DEDUCTION FROM THE CO-OPERATIVE BANKS, EM PHASIZING THE INTENTION OF PROMOTING ONLY CO-OPERATIVE SOCIETIES THAT WORK ONLY FOR MEMBERS WITHOUT ANY PROFIT MOTIVE. THIS AMENDMENT H AS BEEN BROUGHT TO EMPHASIZE THE POINT THAT NOW ONLY THE INCOME ARI SING OUT OF TRANSACTIONS WITH MEMBERS CAN BE ALLOWED DEDUCTION. STRICTLY SPEAKING, NOW ONLY ACTIVITIES OF PROVIDING CREDIT F ACILITIES TO ITS MEMBERS CAN GIVE RISE TO INCOME WHICH CAN BE CLAIME D TO BE DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. 5(IV). THE ONLY EXCEPTION CARVED OUT BY THE LEGISLA TOR TO SUCH A RESTRICTION IN THIS PARTICULAR PROVISION IS BY WAY OF CLAUSE (D) OF SECTION 80P(2}, WHICH ALLOWS FOR DERIVING INCOME BY WAY OF INTEREST OR DIVIDEND FROM INVESTMENTS IN ANOTHER CO- OPERATIVE SOCIETY ONLY, AND NOT FROM OTHER NON-MEMBERS. HOWEVER, IN THE INSTANT CASE, ASSESSEE HAS DERIVED INTEREST AND DIVIDEND INCOME FROM SCHED ULED BANK AND NOT FROM CO-OPERATIVE SOCIETY. THUS, DEDUCTION ON T HE INCOME EARNED FROM BANKS CAN NOT BE ALLOWED TO THE ASSESSEE AS TH ESE BANKS ARE NEITHER THE MEMBERS OF THE ASSESSEE NOR ARE CO-OPER ATIVE SOCIETIES. THE INCOME THUS ACCRUED WILL NOT BE THE BUSINESS IN COME AS IT IS NOT EARNED FROM THE MEMBERS BUT INCOME FROM OTHER SOURC ES. 6. IN THE ABOVE CONCLUSION, SUPPORT IS DERIVED FROM THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOTGAR'S CO-OP ERATIVE SALE SOCIETY LTD. VITO, [2010] 322 ITR 0283 DATED 08.02. 2010. IN THE SAID DECISION, THE HON'BLE SUPREME COURT HAS HELD THAT T HE SCOPE OF SPECIAL DEDUCTION MUST RELATE TO THE OPERATIONAL IN COME OF THE CO- OPERATIVE SOCIETY PROVIDING CREDIT FACILITY TO ITS MEMBERS AND THE INTEREST EARNED ON INVESTMENTS IN SHORT TERM DEPOSI TS AND SECURITIES OUT OF SURPLUS FUNDS, NOT IMMEDIATELY REQUIRED FOR BUSINESS ACTIVITY, IS NOT BUSINESS INCOME BUT INCOME FROM OTHER SOURCES U /S 56 AND THE SOCIETY IS NOT ENTITLED TO SPECIAL DEDUCTION U/S 80 P ON SUCH INTEREST 6 ITA NO.2607/DEL/2012 ETC. EARNED. THE ASSESSEE'S CASE AT HAND IS SQUAREL Y COVERED BY THIS DECISION OF THE HON'BLE SUPREME COURT. 7. IN VIEW OF THE ABOVE FACTS AND OBSERVATIONS, THE INTEREST RECEIVED BY THE ASSESSEE ON FDR OF RS.47,87, 157/- EARNED FROM BOMBAY MERCANTILE CO-OPERATIVE BANK LTD. AND BANK INTEREST OF RS.18,190/-, DIVIDEND OF RS.1,24,658/- RECEIVED FROM DELHI STATE CO-OPERATIVE BANK, CLAIMED BY IT AS BUSINESS RECEIPTS, IS DISALL OWED AS SUCH AND ADDED BACK TO THE INCOME OF THE ASSESSEE AS INCOME FROM OTHER SOURCES. ACCORDINGLY, THE DEDUCTION ALLOWABLE TO TH E ASSESSEE U/S 80P WILL ALSO BE REVISED AND RESTRICTED TO THE INCOME F ROM ITS BUSINESS ACTIVITY OF PROVIDING CREDIT TO ITS MEMBERS ONLY. 4. AGGRIEVED, THE ASSESSEE FIELD APPEAL BEFORE LD. CIT(A). LD. CIT(A) AFTER RECORDING VARIOUS SUBMISSIONS OF THE ASSESSEE , HAS DELETED THE ADDITIONS BY HOLDING AND RELYING ON VARIOUS CASE LAWS, AS UND ER: I. CIT VS. PUNJAB STATE CO-OPERATIVE BANK LIMITED- THE COURT HAS DISCUSSED THE CASE OF A CO-OPERATE BANK. THE 'A' IS A CO-OPERATE SOCIETY AND HAS NOT PROVIDED ANY BANKING FACILITIES . IT IS PROVIDING CREDIT FACILITIES TO A LIMITED EXTENT. TOTGAR'S CO-OPERATIVE SALE SOCIETY LIMITED V I IT O- A.O HAS WRONGLY PLACED RELIANCE ON THE DECISION OF TOTGAR'S CO- OPERATIVE SALE SOCIETY LIMITED V/S ITA (2010) 322 (ITR 0283 DATED 08.02.2010. THE FACTS OF THE ABOVE CASE ARE DIFFERENT WHEN COMPARED TO APPELLANT'S CASE. CASE CITIED ABOVE RELATES TO A SOCIETY WHOSE BUSINESS IS 'SALES' I.E. MARKETING. A MARKETING SOCIETY'S MAIN BUSINESS IS NOT OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND SUCH SOCIETY G ETTING SHORT TERM FUND INVESTED AND GETTING INCOME FROM IT MAY BE TAX ABLE. AS PER ABOVE CASE INTEREST INCOME IS NOT FROM ITS MAIN BUSINESS WHILE IN CASE OF THE APPELLANT INTEREST INCOME IS FROM ITS MAIN BUSINESS . IN ABOVE CASE THEIR LORDSHIP WAS NOT DEALING WITH CASE RELATING T O CO-OPERATIVE BANK. ITAT, CHANDIGARH BENCHES (B) 7 ITA NO.2607/DEL/2012 PUNJAB STATE CO-OPERATIVE FEDERATION OF HOUSE BUILD ING SOCIETIES LTD V. ACIT ITA 996/CHD/2009 JANUARY 29, 2010 WITHOUT PREJUDICE TO ABOVE, ATTENTION IS INVITED TO THE LEGAL PRONOUNCEMENT. THE FUNDS KEPT IN BANK CAN BE SAID T O BE READY FOR UTILIZATION BY THE CO- OPERATIVE SOCIETY IN ITS BUS INESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS: THE TO INCOME FRO M SUCH MONIES, KEPT IN THE BANK, CAN BE SAID TO BE ATTRIBUTABLE THE BUS INESS OF PROVIDING CREDIT FACILITIES, SO AS TO FALL WITHIN THE AMBIT O F SECTION 80P (2)(A)(I) THAT IS TO SAY THAT EVEN INTEREST INCOME ON FUNDS D EPOSITED IN BANKS ARE ELIGIBLE FOR DEDUCTION U/S 80P (2)(A)(I). FACT OF THIS CASE IS SIMILAR TO THE FACTS OF THE APPELLANT'S CASE. APPELLANT HAS INVESTED SURPLUS FUNDS IN FOR AND EARNED INTEREST. THESE FUNDS WERE ALWAYS AVAILABLE TO APPELLANT FOR UTILIZATION FOR PROVIDING CREDIT F ACILITIES TO ITS MEMBERS. AGAIN A.O. HAS FAILED TO NOTICE THAT INCOM E ON FDR ON WHICH INTEREST INCOME IS ACCRUING HAVE ALL BEEN PLE DGED WITH SAME BANK AND O.D. FACILITIES OBTAINED AND ON INTEREST O .D. FACILITIES AN INTEREST OF RS.38,38,949/ - WAS PAID WHICH AMOUNT A PPEARS ON THE EXPENDITURE SIDE OF INCOME AND EXPENDITURE ACCOUNT OF THE SOCIETY. THE O.D. FACILITIES THUS OBTAINED WERE USED FOR PRO VIDING CREDIT FACILITIES TO MEMBERS ON 31.03.2008, FDR INVESTMENT WAS RS.8,12,00,000/- (SEE ASSETS SIDE) AND 00 OF RS.76, 31,557/- IS APPEARING LIABILITIES SIDE. INTEREST INCOME FROM FD R WITH BMCB WAS RS.47, 87,157/- AND INTEREST PAID ON 00 FACILITIES OBTAINED BY PLEDGING THE SAME FDR'S WAS RS.38,55,255/-. HENCE NET INCOME WAS RS.9, 31,902/- ONLY. ADDITION OF DIVIDEND INCOME A.O. HAS WRONGLY ADDED DIVIDEND INCOME OF RS.1,24,6 58/ - RECEIVED BY 'A' ON INVESTMENT ON EQUITY SHARES OF DELHI STATE C O-OPERATIVE BANK LTD ALTHOUGH DIVIDEND INCOME IS EXEMPT IN CASE OF A LL ASSESSEE. IN OUR CASE DIVIDEND INCOME IS ALSO EXEMPT IX] S 80P (2)(A )(I). IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE CASE LA W CITED BY THE APPELLANT, I AM OF THE CONSIDERED OPINION THAT ASSE SSING OFFICER IS UNJUSTIFIED IN MAKING DISALLOWANCE OF DEDUCTION VI] S 80 P BEING INTEREST AND DIVIDENDS EARNED BY THE APPELLANT ON F IXED DEPOSIT, AND INVESTMENT IN SHARES OF BOMBAY MERCANTILE BANK LIMI TED AND DELHI STATE CO-OPERATIVE BANK LIMITED BOTH TOTALING TO RS .4930005/ - BY 8 ITA NO.2607/DEL/2012 STATING THAT BOTH INCOME ARE NOT BUSINESS RECEIPTS BUT INCOME FROM OTHER SOURCES. I DELETE THE DISALLOWANCE MADE BY TH E ASSESSING OFFICER. APPEAL ON THIS GROUND IS ALLOWED. IN THE RESULT, THE APPEAL IS ALLOWED. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 6. AT THE OUTSET, LD. D.R. SUBMITTED THAT INCOME OF INTEREST AND DIVIDEND WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P2(A)(I) OF TH E I. T. ACT, 1961 AS THE SAID SECTION PROVIDES THE DEDUCTION FOR COOPERATIVE SOCI ETIES TO CLAIM DEDUCTION ON WHOLE OF THE AMOUNT OF PROFIT AND GAIN OF BUSINE SS BUT THE ASSESSEE HAS EARNED THIS INCOME FROM ITS FIXED DEPOSITS WHICH IS TAXABLE UNDER SECTION 56 OF THE ACT. IN THIS RESPECT, OUR ATTENTION WAS INV ITED TO RELEVANT PROVISIONS OF SECTION 80P. IT WAS FURTHER SUBMITTED THAT THE ASS ESSEE WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(D) ALSO AS THE FIXED DEPOSIT W AS NOT PLACED WITH A COOPERATIVE SOCIETY. IT WAS SUBMITTED THAT LD. CIT (A) HAS PASSED A NON SPEAKING ORDER AND HAS NOT GIVEN ANY FINDING AND AF TER RECORDING SUBMISSIONS OF ASSESSEE, HAD DELETED THE ADDITIONS. IT WAS SUBMITTED THAT ORDER OF LD. CIT(A) WAS VIOLATIVE OF PRINCIPLES OF NATURAL JUSTICE. REGARDING CASE LAWS RELIED UPON BY LD. CIT(A), LD. D.R. SUBMITTED THAT BEFORE LD. CIT(A), ASSESSEE HAD RELIED UPON A NUMBE R OF CASE LAWS WHICH WERE PRONOUNCED BY EITHER HON'BLE HIGH COURT OR HON BLE ITAT WHEREAS THE CASE LAW OF TOTGARS COOPERATIVE SOCIETY AS REL IED UPON BY A.O. IS BY HON'BLE SUPREME COURT OF INDIA WHICH IS A FINAL AUT HORITY AND, THEREFORE, THE ORDER OF A.O. SHOULD BE UPHELD. 7. INVITING OUR ATTENTION TO PAGE 8 OF LD. CIT(A)S ORDER, LD. D.R. SUBMITTED THAT LD. CIT(A) HAS GIVEN WRONG FINDING T HAT THE CASE OF THE 9 ITA NO.2607/DEL/2012 ASSESSEE WAS NOT SIMILAR TO CASE LAW OF TOTGARS CO OPERATIVE SOCIETY AS THE RATIO EMANATING FROM TOTGARS COOPERATIVE SOCIETY H AS BEEN RIGHTLY APPLIED BY A.O. LD. D.R. FURTHER SUBMITTED THAT ALTERNAT IVE CONTENTION OF THE ASSESSEE THAT ASSESSEE AS NOTED BY LD. CIT(A) THAT ASSESSEE HAD OBTAINED CREDIT LIMITS AGAINST FDRS AND HAD INCURRED INTERES T EXPENDITURE ON THE CREDIT LIMIT AND, THEREFORE, INCOME IF ANY HAS TO BE TAXED ON NET BASIS DOES NOT HOLD ANY GROUND AS ASSESSEES INCOME HAS TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND ONLY THOSE EXPENSES CAN BE ALLOWED AGAI NST SUCH INCOME WHICH ARE INCURRED FOR THE PURPOSE OF EARNING SUCH INTERE ST. LD. D.R. ALSO, LATER ON FILED WRITTEN SYNOPSIS NARRATING HIS ARGUMENTS. 8. LD. A.R. ON THE OTHER HAND INVITED OUR ATTENTIO N TO THE PROVISIONS OF SECTION 80P. OUR SPECIFIC ATTENTION WAS INVITED TO SUB-CLAUSE (2)(D) AND IT WAS SUBMITTED THAT ASSESSEE HAD KEPT THE FUNDS WITH BOMBAY MERCANTILE BANK WHICH ITSELF WAS A COOPERATIVE SOCIETY. THERE FORE, INTEREST EARNED BY IT FROM FIXED DEPOSITS PLACED WITH COOPERATIVE SOCIETI ES WAS EXEMPT. TO SUPPORT HIS CONTENTION, LD. A.R. INVITED OUR ATTENT ION TO PAPER BOOK PAGE 30 WHERE A COPY OF CERTIFICATE CERTIFYING THAT BOMBAY MERCANTILE COOPERATIVE BANK WAS A SCHEDULED COOPERATIVE BANK AND WAS A SOC IETY REGISTERED UNDER MAHARASHTRA STATE COOPERATIVE SOCIETIES ACT WAS PLA CED. IN SUPPORT OF HIS ARGUMENT THAT BOMBAY MERCANTILE COOPERATIVE SOCIETY WAS A SOCIETY, LD. A.R. RELIED UPON THE CASE LAW OF BOMBAY MERCANTILE BANK VS. DCIT IN I.T.A. NO. 4128 AND 4129 WHEREIN IT WAS HELD THAT T HE SAID BANK WAS A SOCIETY ELIGIBLE FOR DEDUCTION U/S 80P(2)(I) OF THE ACT. WITHOUT PREJUDICE TO THE ABOVE, IT WAS SUBMITTED THAT BESIDES ELIGIBLE U /S 80P(2)(D) ASSESSEE WAS ALSO ELIGIBLE UNDER SECTION 80P(2)(I) AS INCOME FRO M FUNDS KEPT AS SHORT TERM 10 ITA NO.2607/DEL/2012 FUNDS IS DEEMED TO HAVE ACCRUED AS PROFITS AND GAIN OF BUSINESS ATTRIBUTABLE TO THE ACTIVITIES OF ASSESSEE AND RELIANCE IN THIS RESPECT WAS PLACED ON THE CASE LAW OF DHAN LAXMI CREDIT COOPERATIVE SOCIETY L TD. VS ITO IN I.T.A. NO. 2342 WHEREIN UNDER SIMILAR CIRCUMSTANCES, THE D EDUCTION U/S 80P(2)(I) WAS ALLOWED AFTER TAKING INTO ACCOUNT THE CASE LAW OF TOTGARS SOCIETY AS DECIDED BY HON'BLE SUPREME COURT. THE LD. A.R. ALS O REFERRED TO SECTION 80P(4) AND SUBMITTED THAT BENEFIT OF SECTION 80P HA S BEEN TAKEN AWAY FROM 01.04.2007 FROM COOPERATIVE BANKS BUT THE ASSESSEE WAS NOT A COOPERATIVE BANK BUT WAS A COOPERATIVE SOCIETY AND THEREFORE, W AS ELIGIBLE FOR DEDUCTION UNDER THAT SECTION. 9. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT TOTAL INCOME EARNED BY THE ASSESSEE INCLUDED INCOME ON FIXED DEPOSITS PLACED WITH BOMBAY MERCANT ILE BANK, INTEREST INCOME FROM A SCHEDULED BANK AND DIVIDEND INCOME FR OM DELHI COOPERATIVE BANK. FROM THE CERTIFICATE AS PLACED AT PAPER BOOK PAGE 30, WE FIND THAT BOMBAY MERCANTILE COOPERATIVE BANK IS A COOPERATIVE SOCIETY REGISTERED UNDER MAHARASHTRA COOPERATIVE SOCIETIES ACT AND WE FURTHER FIND THAT THE SAID SOCIETY HAS BEEN ASSESSED U/S 143(3) AS A COOP ERATIVE SOCIETY AND ITS INCOME WAS ALLOWED TO BE EXEMPT U/S 80P(2)(I) AS HE LD BY MUMBAI TRIBUNAL IN I.T.A. NO. 4128 AND 4129 VIDE ITS ORDER DATED 30 .11.2005, FOR ASSESSMENT YEAR 1990-91 AND 1991-92 AND FURTHER BY MUMBAI TRIB UNAL VIDE ORDER DATED 07.09.2011 IN I.T.A. NO. 5292 FOR ASSESSMENT YEAR 1 997-98. THEREFORE IT IS HELD THAT FIXED DEPOSITS PLACED WITH BOMBAY MERCANT ILE BANK FALLS WITHIN THE EXEMPTION GRANTED BY SECTION 80P(2)(D) OF THE A CT. THE ASSESSEE WAS ALSO ELIGIBLE UNDER THE PROVISIONS OF SECTION 80P(2 )A(I) AS THE FUNDS PLACED 11 ITA NO.2607/DEL/2012 BY ASSESSEE IN THE FORM OF FIXED DEPOSITS CAN BE SA ID TO BE KEPT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AS THE ASSESSEE HAD AVAILED CREDIT FACILITIES ALSO AGAINST SUCH FIXED DEPOSITS WHICH W ERE AGAIN USED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. MOREOVER, UNDER S IMILAR CIRCUMSTANCES, CHANDIGARH BENCH IN I.T.A. NO. 996/2009 AS NOTED BY LD. CIT(A) HAS DECIDED IN FAVOUR OF ASSESSEE. THE DIVIDEND INCOME IS EXEMPT FOR ALL PERSONS INCLUDING ASSESSEE. THE INTEREST INCOME FR OM BANK AMOUNTING TO RS.18,190/- IS THOUGH NOT EXEMPT U/S 80(P)(2)(D) BU T IS EXEMPT U/S 80P(2)(I) OF THE ACT. THE CASE LAW OF TOTGARS COOPERATIVE S OCIETY WAS RIGHTLY DISTINGUISHED BY LD. CIT(A). THEREFORE, KEEPING IN VIEW ALL FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 10. IN VIEW OF ABOVE, APPEAL FILED BY REVENUE IS DI SMISSED. 11. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DEC., 2014. SD./- SD./- (H. S. SIDHU) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 19 TH DEC., 2014 SP COPY FORWARDED TO:- THE APPELLANT THE RESPONDENT THE CIT THE CIT (A)-, NEW DELHI. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). 12 ITA NO.2607/DEL/2012 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER