Vegetable & Fruit Merchant Credit Co.Op. Mandli Ltd., Vadodara V. The Income tax Officer,Ward-3(1)(3), Baroda

ITA 2958/AHD/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7873 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 11-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P B PARMAR
• Keywords: Business income; Source of fund
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH BEFORE: SHRI AMARJIT SINGH, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER VEGETABLE & FRUIT MERCHANT CREDIT CO - OP. MANDLI LTD. KOTHI FALIYA NAKA, BESIDES JABRESHWAR MAHADEV TEMPLE, JUNI KACHHIYA WAAD, VADODARA - 390001 PAN: AAAV2775J (APPELLANT) VS THE IT O , W ARD - 3(1)(3) , RACE COURSE, BARODA (RESPONDENT) REVENUE BY : S H RI KEYUR PATEL , SR. D . R. ASSESSEE BY: S H RI P.B. PARMAR , A.R. DATE OF HEARING : 23 - 07 - 2 018 DATE OF PRONOUNCEMENT : 17 - 09 - 2 018 / ORDER P ER : AMARJIT SINGH, ACCOUNTANT MEMBER : - THIS ASSESSEE S APPEAL FOR A.Y. 2013 - 14 , ARIS ES FROM ORDER OF THE CIT(A) - 3, VADODARA, DATED 23 - 08 - 2016 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. THE A SSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1.00 ON THE FACTS AND CIRCUMSTANCES OF YOUR APPELLANT'S CASE AS WELL AS IN LAW, THE ID. CIT(A) ERRED IN DISMISSING THE APPEAL ON WRONG PLEA THAT INTEREST EARNED ON DEPOSITS WITH BANK OF BARODA AND FROM SA VING BANK ACCOUNT IS NOT BUSINESS INCOME AND HENCE NOT ELIGIBLE FOR DEDUCTION U/S 80 P OF THE ACT. 1.01 YOUR APPELLANT FURTHER SUBMITS THAT OUT OF FUNDS RECEIVED FROM ITS MEMBERS I.E. OPERATIONAL FUNDS, IT HAD BEEN INVESTING IN THE FORM OF FIXED DEPOSITS WI TH BANK OF BARODA, A NATIONALIZED BANK. ACCORDINGLY, THERE WAS A DIRECT AND PROXIMATE CONNECTION WITH THE I T A NO . 2958 / A HD/20 16 A SSESSMENT YEAR 2013 - 14 I.T.A NO. 2958 /AHD/20 16 A.Y. 2013 - 14 PAGE NO VEGETALE & FRUIT MERCHANT CREDIT CO - OP. MANDLI LTD. VS. IT O 2 SOURCE OF FUNDS USED IN KEEPING FIXED DEPOSITS SINCE YOUR APPELLANT WAS ENGAGED ONLY IN A SINGLE ACTIVITY OF ACCEPTING DEPOSITS FROM AND LENDING THE S AME TO ITS MEMBERS. 1.02 YOUR APPELLANT FURTHER SUBMITS THAT IT WAS DIRECTED TO PARK SURPLUS FUNDS WITH NATIONALIZED BANKS VIDE GUJARAT GOVERNMENT'S NOTIFICATION NO. GHKH - 21 - 99 - NSB - 1099 - 143 - CM(36) DATED 12.03.1999. ACCORDINGLY, IT HAD PASSED BOARD'S RESO LUTION DATED 23.03.2009 BEFORE MAKING SUCH INVESTMENTS IN FIXED DEPOSITS WITH BANK OF BARODA TO COMPLY WITH THE DIRECTIONS GIVEN BY THE GUJARAT GOVERNMENT. YOUR APPELLANT FURTHER SUBMITS THAT THE STATE GOVERNMENT HAD STARTED ISSUING SUCH NOTIFICATION KEEPI NG IN VIEW THE BAD CONDITIONS OF VARIOUS CO - OPERATIVE BANKS AND CO OPERATIVE SOCIETIES IN THE STATE. YOUR APPELLANT FURTHER SUBMITS THAT INTEREST EARNED ON FIXED DEPOSITS AND SAVING ACCOUNT WITH NATIONALIZED BANK IS NOTHING BUT ATTRIBUTABLE TO ACTIVITY OF ACCEPTING DEPOSITS FROM AND LENDING THE SAME TO ITS MEMBERS WHICH THE ID. CIT(A) FAILED TO APPRECIATE. 3. THE BRIEF FACT OF THE ACT IS THAT ASSESSE HAS FILED RETURN OF INCOME DECLARING INCOME AT RS. NIL . SUBSEQUENTLY, THE CASE WAS SELECTED UNDER SCRUTI NY BY ISS UING OF NOTICE U/S. 143(2) ON 03.09. 2014 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS EARNED INTEREST INCOME TOTALING TO RS 23,25,349 ON SURPLUS FUNDS DEPOSITED WITH NATIONALIZED BANK . HE HAS FU RTHER NOTICED THAT ASSESSEE HAS CLAIMED DEDUCTION UNDER CHAPTER VIA OF THE ACT U/S. 80P(2)(A)(I) IN RESPECT OF AFORESAID INTEREST INCOME DERIVED FROM INVESTMENT IN FIXED DEPOSIT WITH COMMERCIAL BANKS. THE ASSESSING OFFICER OBSERVED THAT EXEMPTION U/S. 80P (2)(A)(I) IS AVAILABLE ON INCOME WHICH IS ATTRIBUTABLE TO BUSINESS OPERATION OF THE ASSESSEE CO - OPERATIVE SOCIETY AND THE INTEREST EARNED ON THE FUND INVESTED WITH THE COMMERCIAL BANK IS NOT OPERATIONAL INCOME FROM PROVIDING CREDIT FACILITIES TO ITS MEMBER S. CONSEQUENTLY, HE HAS TREATED THE INTEREST INCOME OF RS RS 23,25,349 AS INCOME FROM OTHER SOURCES U/S. 56 OF THE ACT AND DISALLOWED THE CLAIM OF DEDUCTION U/S. 80P ON THE AFORESAID INTEREST INCOME. 4. AGGRIEVED ASSESSEE FILED APPEAL BEFORE THE LD. CIT( A). THE LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE AFTER PLACING RELIANCE ON THE DECISION OF JURISDICTIONAL HON BLE HIGH COURT OF GUJARAT IN THE CASE OF SBI VS. CIT (2016) 72 TAXMANN.COM 64 . 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIA L ON RECORD CAREFULLY. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES I.T.A NO. 2958 /AHD/20 16 A.Y. 2013 - 14 PAGE NO VEGETALE & FRUIT MERCHANT CREDIT CO - OP. MANDLI LTD. VS. IT O 3 TO ITS MEMBERS. THE ASSESSING OFFICER HAS NOTICED THAT IN ADDITION TO THE INTEREST INCOME EARNED ON LOAN AND ADVANCES TO ITS MEMBERS, THE ASSESSE HAS CLAIMED DE DUCTION U/S. 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME EARNED FROM FIXED DEPOSIT MAINTAINED WITH THE COMMERCIAL BANK. AS PER SECTION 80P(2)(A)(I) OF THE ACT THE INTEREST INCOME EARNED ON PROVIDING CREDIT FACILITY TO ITS MEMBERS IS DEDUCTIBLE U/S. 80P(2)( A)(I) OF THE ACT. AFTER PERUSAL OF THE AFORESAID PROVISION OF THE ACT WE OBSERVE THAT DEDUCTION U/S 80P(2)(A)(I) IS NOT AVAILABLE ON THE INTEREST EARNED ON DEPOSIT MAINTAINED WITH THE COMMERCIAL BANK. WE FIND THAT THE HON BLE JURISDICTIONAL HIGH COURT HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE REVENUE VIDE STATE BANK OF INDIA VS. CIT (2016) 72 TAXMANN.COM 64 (GUJARAT) WHEREIN IT IS HELD THAT INTEREST INCOME ON DEPOSIT PLACED WITH THE COMMERCIAL BANKS IS NOT EXEMPT U/S. 80P(2)(A)(I) OF THE ACT. IN VIE W OF THE ABOVE FACTS AND LEGAL FINDINGS WE ARE INCLINED WITH THE DECISION OF THE LD. CIT(A) THAT INVESTING SURPLUS FUNDS IN A COMMERCIAL BANK IS NO PART OF THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS WHICH IS NOT DEDUCTIBLE UNDER SECTION 80P (2)(A)(I) OF THE ACT. HOWEVER AS DECIDED IN THE VARIOUS DECISION OF THE CO - ORDINATE BENCHES OF ITAT AHMEDABAD WE DIRECT THE ASSESSING OFFICER TO ALLOW PRO RATA EXPENSES IN RESPECT OF INTEREST EARNED FROM DEPOSIT HELD WITH NATIONALIZED BANK TO THE ASSESSEE FOR COMPUTING THE DEDUCTION U/S. 80P AFTER EXAMINING/VERIFICATION AND AFFORDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN C OURT ON 17 - 09 - 201 8 SD/ - SD/ - ( MADHUMITA ROY ) ( AMARJIT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DAT ED 17 /09 /2018 I.T.A NO. 2958 /AHD/20 16 A.Y. 2013 - 14 PAGE NO VEGETALE & FRUIT MERCHANT CREDIT CO - OP. MANDLI LTD. VS. IT O 4 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,