Sthree Nidhi Credit Cooperative Federation Limited, Hyderabad V. Income Tax Officer, Ward-5(3), Hyderabad

ITA 296/Hyd/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2277 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 01-11-2018
• Assessment Year: 2013-2014
• Appeal Filed On: 12-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R S ARVINDAKSHAN
• Assessee Lawyers: SREENIVASAN KALAHASTI
• Keywords: Principle of natural justice
• Section: 143(3); 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO . 296 /HYD/ 201 8 ASSESSMENT YEAR: 20 13 - 14 STHREE NIDHI CREDIT COOPERATIVE FEDERATION, HYDERABAD. AAHAS 5032 N VS. ITO, WARD - 5(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI SREENIVASAN KALAHASTI REVENUE BY: SRI R.S. ARVINDAKSHAN DATE OF HEARING: 01.1 1 .2018 DATE OF PRONOUNCEMENT: 14 . 1 1 .2018 ORDER PER SMT. P. MADHAVI DEVI, J.M.: THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2013 - 14 AGAINST THE ORDER OF THE CIT (A) - 4, HYDERABAD DATED 15.11.2017. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE APPELLANT SUBMITS THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY IS ERRONEOUS BOTH ON FACTS AND IN LAW, IS ARBITRARY AND CONTRARY TO PRINCIPLES OF NATURAL JUSTICE. 2. T HE APPELLANT SUBMITS THAT THE APPELLANT IS A CREDIT SOCIETY OPERATED BY THE STATE GOVERNMENT FOR THE BENEFIT OF POOREST OF THE POOR WOMEN AND THE BENEFICIARIES ARE WOMEN, P REDOMINANTLY BELOW POVERTY LINE. THE OBJECT OF THE APPELLANT SOCIETY IS TO RELIEVE THESE PEOPLE FROM THE CLUTCHES OF THE PRIVATE MONEY LENDERS AND MICRO FINANCE INSTITUTIONS. THE HUGE DEMAND THAT WILL BE FALL ON THE APPELLANT, IF ITS RIGHTFUL CLAIM UNDER S ECTION 80P IS DISALLOWED, WILL ADVERSELY AFFECT AND CRIPPLE THE NOBLE OBJECTS FOR WHICH IT WAS FORMED. THE APPELLANT THEREFORE PRAYS THAT A FAIR OPPORTUNITY BE GIVEN TO THE APPELLANT TO PRESENT ITS CASE BEFORE THE HONBLE TRIBUNAL. 2 3. THE APPELLANT SUBMI TS THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED FIRST APPELLATE AUTHORITY EXCEEDED INHERENT POWERS VESTED WITH THE COMMISSIONER (APPEALS) IN DIRECTING THE DISALLOWANCE OF ENTIRE CLAIM UNDER SECTION 80P(2)(A)(I) PARTICULARLY WHEN THE SAME WA S ALLOWED BY THE ASSESSING OFFICER AFTER DULY EXAMINING THE CLAIM OF THE APPELLANT. 4. THE APPELLANT SUBMITS THAT THE LEARNED FIRST APPELLATE AUTHORITYS DECISION SEEMS TO BE BASED ON THE INFORMATION THAT THE APPELLANT HAS COLLECTED DEPOSITS FROM NON - MEMB ERS, WHICH THE APPELLANT IS UNAWARE OF AS TO WHEREFROM IT HAS COME ON RECORDS OF THE FIRST APPELLANT AUTHORITY. 5. THE APPELLANT SUBMITS THAT ASSUMING, THE INFORMATION OF THE FIRST APPELLATE AUTHORITY IS CORRECT (WHICH IS NOT) THE APPELLANT SHOULD HAVE BE EN GIVEN AN OPPORTUNITY TO REBUT THE SAME WITH PROPER FURNISHING OF SUCH INFORMATION AND EVEN OTHERWISE THE APPELLANT SUBMITS THAT THE SAID INFORMATION CANNOT BE A BASIS TO DISALLOW THE ENTIRE CLAIM. 6. THE APPELLANT SUBMITS THAT ON THE FACTS AND CIRCUMSTA NCES OF THE CASE THERE IS NO REASON FOR THE FIRST APPELLATE AUTHORITY TO DIRECT THE DISALLOWANCE OF ENTIRE CLAIM UNDER SECTION 80P. ALL THE CONDITIONS FOR THE CLAIM HAVE BEEN DULY EXAMINED BY THE ASSESSING OFFICER AND IT IS AFTER SUCH EXAMINATION THE AMO UNT OF INTEREST ON BANK DEPOSITS WAS BROUGHT TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THESE CIRCUMSTANCES, THE APPELLANT SUBMITS THAT THE APPELLATE AUTHORITY ERRED IN LAW IN PASSING SUCH AN ORDER. 7. THE APPELLANT SUBMITS THAT THE SHOW - CAUSE N OTICE ISSUED BY THE LEARNED FIRST APPELLATE AUTHORITY REFERS TO PROPORTIONATE DISALLOWANCE OF EXPENSES AND NOT ABOUT DISALLOWANCE OF ENTIRE CLAIM. THE APPELLANT SUBMITS THAT WHILE EXPENSES ARE NOT IN ANY WAY RELATED TO DISALLOWANCE OF CLAIM UNDER SECTION 80P, THE ORDER OF THE FIRST APPELLATE AUTHORITY IS ARBITRARY AND CONTRARY TO THE PROVISIONS AND PRINCIPLES OF LAW AND THEREFORE DESERVES TO BE QUASHED. 8. ON THE BASIS OF THE ABOVE GROUNDS, ANY FURTHER GROUNDS THAT MAY BE PERMITTED BY THE HONBLE TRIBUNAL TO BE RAISED IN THE COURSE OF THE APPELLATE PROCEEDINGS THE APPELLANT PRAYS; A. THAT AN OPPORTUNITY BE GIVEN FOR A FAIR HEARING B. THAT THE ORDER OF THE FIRST APPELLATE AUTHORITY BE QUASHED AS IT IS CONTRARY TO LAW AND PRINCIPLES OF NATURAL JUSTICE AND C. THAT THE ORIGINAL ASSESSMENT ORDER BE RESTORED. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COOPERATIVE BANK PROVIDING CREDIT FACILITY TO ITS MEMBERS, FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013 - 14 ON 30.09.2013 DECLARING NIL INCOME AFTER CLAIMING EXEMPTION U/S 80P OF THE INCOME TAX ACT , 1961 (THE ACT). 3 DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE A.O ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEDUCTION CLAIM U/S 80P IN RESPECT OF THE INTEREST RECEIVED ON BANK BALANCES AMOUNTING TO RS. 36,07,815/ - AND INTEREST OF RS. 7, 89,407/ - ON INVESTMENT SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMITTED ITS EXPLANATION. AFTER CONSIDERING THE SAME, THE A.O WAS OF THE OPINION THAT THE INTEREST EARNED ON FIXED DEPOSITS MADE WITH NATIONALIZED BANKS IS NOT ATTRIBUTABLE TO ACTIVITIES OF PR OVIDING CREDIT FACILITIES TO ITS MEMBERS. THEREFORE, RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS COOPERATIVE SALES SOCIETY LTD (322 ITR 283), THE A.O DISALLOWED THE INTEREST INCOME OF RS. 43,97,222/ - U/S 80P OF THE ACT A ND TREATED IT AS INCOME FROM OTHER SOURCES AND BROUGHT IT TO TAX. 3. AGGRIEVED, ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). BUT, SINCE THE ASSESSEE DID NOT APPEAR BEFORE THE CIT(A), THE APPEAL WAS DISPOSED OF EX - PARTE THE ASSESSEE. IN FACT, THE CIT(A) ISSUED A SHOW - CAUSE NOTICE FOR ENHANCEMENT OF ASSESSMENT U/S 251(2) OF THE ACT BUT, SINCE THE ASSESSEE DID NOT APPEAR NOR DID IT FILE ANY SUBMISSIONS, THE CIT(A) ENHANCED THE ASSESSMENT BY DISALLOWING THE ENTIRE CLAIM OF DEDUCTION U/S 80P(2)(I) OF THE ACT . AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. 4. LEARNED COUNSEL FOR THE ASSESSEE, SRI SREENIVASAN KALAHASTI, WHILE SUBMITTING THAT BEFORE THE CIT(A) HE WAS TO REPRESENT THE ASSESSEE, BUT DUE TO CERTAIN TRAGEDIES IN HIS FAMILY HE COULD NOT APPEA R BEFORE THE CIT(A) AND THE CIT(A) , INSTEAD OF CONFIRMING THE ASSESSMENT ORDER , HAS ENHANCED THE ASSESSMENT BY DISALLOWING THE ENTIRE CLAIM OF DEDUCTION U/S 80P(2)(I) OF THE ACT. HE SUBMITTED THAT THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS C OOPERATIVE SALES SOCIETY LTD (SUPRA) IS ONLY WITH REGARD TO THE INTEREST INCOME EARNED FROM THE DEPOSITS MADE INTO THE OTHER BANKS AND THEREFORE, THE ASSESSEE HAS NO OBJECTION IF SUCH INTEREST DISALLOWED U/S 80P(2)(A)(I) IS CONFIRMED. 4 HE FURTHER SUBMITTED THAT THE DISALLOWANCE OF ITS ENTIRE INCOME U/S 80P IS NOT CORRECT SINCE THE OBJECTIVE OF THE ASSESSEE IS TO PROVIDE CREDIT FACILITY TO ITS MEMBERS . HE PRAYED THAT THE ORIGINAL ORDER OF THE ASSESSMENT MAY BE RESTORED. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS ALSO HEARD. 6. HAVING GONE THROUGH THE MATERIAL ON RECORD AND THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS COOPERATIVE SALES SOCIETY LTD REPORTED IN 322 ITR 283 (SUPRA) , WE FIND THE SAID JUDGMENT WAS ONLY DEALING W ITH THE ALLOWABILITY OR OTHERWISE OF THE INTEREST EARNED ON FUNDS WHICH WERE PARKED WITH BANKS U/S 80P OF THE ACT . THE RELEVANT PARAS ARE REPRODUCED HEREUNDER FOR READY REFERENCE: IN THE INSTANT CASE, THE INTEREST HELD NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)( A )( I ) WAS NOT THE INTEREST RECEIVED FROM THE MEMBERS FOR PROVIDING CREDIT FACILITIES TO THEM. WHAT WAS SOUGHT TO BE TAXED UNDER SECTION 56 WAS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORT - TERM DEPOSITS AND SECURITIES W HICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES. THE ASSESSEE MARKETED THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. SINCE THE FUND CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVE STED IN SPECIFIED SECURITIES. SUCH INTEREST INCOME WOULD COME IN THE CATEGORY OF 'INCOME FROM OTHER SOURCES' AND, HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTION 56 AS RIGHTLY HELD BY THE ASSESSING OFFICER. THE HEADNOTE TO SECTION 80P INDICATES THAT THE SAID SECTION DEALS WITH DEDUCTIONS IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. SECTION 80P(1), INTER ALIA, STATES THAT WHERE THE GROSS TOTAL INCOME OF A CO - OPERATIVE SOCIETY INCLUDES ANY INCOME FROM ONE OR MORE SPECIFIED ACTIVITIES, THEN SUCH INCOME SHALL BE DEDUCTED FROM THE GROSS TOTAL INCOME IN COMPUTING THE TOTAL TAXABLE INCOME OF THE ASSESSEE - SOCIETY. AN INCOME, WHICH IS ATTRIBUTABLE TO ANY OF THE SPECIFIED ACTIVITIES IN SECTION 80P(2) WOULD BE ELIGIBLE FOR DEDUCTION. THE WORD 'INCOME' HAS BEEN DEFINED UNDER SECTION 2(24)( I ) TO INCLUDE PROFITS AND GAINS. THIS SUB - SECTION IS AN INCLUSIVE PROVISION. THE PARLIAMENT HAS INCLUDED SPECIFICALLY 'BUSINESS PROFITS' INTO THE DEFINITION OF THE WORD 'INCOME'. THEREFORE, ONE IS REQUIRED TO GIVE A PRECI SE MEANING TO THE WORDS 'PROFITS AND GAINS OF BUSINESS' MENTIONED IN SECTION 80P(2). IN THE INSTANT CASE, THE ASSESSEE - SOCIETY REGULARLY INVESTED FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES. INTEREST ON SUCH INVESTMENTS, THEREFORE, COULD NOT FALL WITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH INTEREST INCOME COULD NOT BE SAID TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME UNDER SECTION 56 . 5 THEREFORE, THE ENHANCEMENT OF THE ASSESSMENT BY THE CIT(A) ON THE BASI S OF THE SAID JUDGMENT IS FALLACIOUS . THEREFORE, WE SET - ASIDE THE ORDER OF THE CIT(A) AND CONFIRM THE ASSESSMENT ORDER. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 14 TH NOVEMBER , 2018. SD/ - SD/ - (S. RIFAUR RAHMAN) (P. MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 14 TH NOVEMBER , 2018 OKK COPY TO: - 1) STHREE NIDHI CREDIT COOPERATIVE FEDERATION LIMITED, 5 TH FLOOR, HERMITAGE COMPLEX, HILL FORT ROAD, ADARSH NAGAR, HYDERABAD. 2) THE INCOME TAX OFFICER, WARD 5(3), HYDERABAD. 3) THE CIT(A) - 4, HYDERABAD 4) THE PR. CIT - 4 , HYDERABAD 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE