Harbhajan Singh Chadha, Moradabad V. ACIT, Central Circle- 29, New Delhi

ITA 2964/DEL/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2755 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 26-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income
• Section: 56; 28; 80HHC; 80P

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC : NEW DELHI BEFORE MS. SUCHITRA KAMBLE , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2894/DEL/2018 (ASSESSMENT YEAR: 2014 - 15 ) DELHI COOPERATIVE THRIFT & CREDIT SOCIETY LTD, 11, BHAGAT SINGH MARKET, NEW DELHI PAN: AAAD2582R VS. ITO, WARD - 53(5), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY: SHRI PRADEEP SINGH GAUTAM, SR. DR DATE OF HEARING 02/03 / 2020 DATE OF PRONOUNCEMENT 1 7 / 03 / 2020 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS APPEAL IS FILED BY THE DELHI COOPERATIVE COMMERCIAL THRIFT AND CREDIT SOCIETY LTD (ASSESSEE) AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) - 18, NEW DELHI DATED 23/02/2018 WHEREIN THE APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF INC OME TAX OFFICER, WARD - 53 (5), NEW DELHI (THE LEARNED AO) PASSED U/S 143 (3) OF THE INCOME TAX ACT FOR ASSESSMENT YEAR 2014 15 WAS CHALLENGED AND APPEAL OF THE ASSESSEE WAS DISMISSED. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE IMPUGNED ORDER PASSED AND THE ADDITION/ DISALLOWANCES MADE BY THE AO AND UPHELD BY CIT(A) IN THE CASE OF THE ASSESSEE APPELLANT ARE ILLEGAL, BAD IN LAW AND WITHOUT JURISDICTION. 2. THAT IN VIEW O F THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF THE DEDUCTION U/S 80P OF THE INCOME TAX ACT, 1961 CLAIMED BY THE APPELLANT ASSESSEE. 3. THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF THE CLAIM OF THE APPELLANT ASSESSEE U/S 80P OF THE ACT FAILING TO APPRECIATE THAT THE ASSESSEE WAS LEGALLY ENTITLED FOR THE SAID DEDUCTION. DELHI COOPERATIVE THRIFT & CREDIT SOCIETY LTD VS. ITO, ITA NO. 2894/DEL/2018 (ASSESSMENT YEAR: 2014 - 15) PAGE | 2 4. THAT IN VIEW OF THE FACTS AND C IRCUMSTANCES OF THE CASE, THE CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE IMPUGNED INTEREST INCOME FROM FDRS AND SAVINGS BANK ACCOUNTS OF THE ASSESSEE FORMS PART OF ITS OPERATIONAL INCOME BY WAY OF BEING INCIDENTAL TO IT, AND HENCE, COVERED UNDER TH E PRINCIPLE OF MUTUALITY. 5. WITHOUT PREJUDICE TO OTHER GROUNDS, IN VIEW OF THE FACT AND CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) HAS ERRED IN LAW AND ON FACTS IN DISALLOWING THE DIRECT AND INDIRECT EXPENSES RELATABLE TO THE IMPUGNED INTEREST INCOME WH ICH OUGHT TO HAVE BEEN TREATED AS ALLOWABLE EXPENDITURE AGAINST THE SAID INCOME OF INTEREST FROM FDRS AND SAVING BANK ACCOUNTS. 6. THAT THE DISALLOWANCE AND EXPLANATIONS MADE ARE UNJUST, UNLAWFUL AND BASED ON MERE SURMISES AND CONJECTURES AND THE EVIDENCE PRODUCED, MATERIAL PLACED AND AVAILABLE ON RECORD HAS NOT BEEN PROPERLY CONSIDERED AND JUDICIALLY INTERPRETED. 3. THE ASSESSEE IS A REGISTERED CO - OPERATIVE SOCIETY TO UNDERTAKE THRIFT AND CREDIT BUSINESS. IT FILED ITS RETURN OF INCOME ON 30/9/2014 DECLARIN G NIL INCOME. DURING THE ASSESSMENT PROCEEDINGS IT WAS FOUND THAT ASSESSEE IS DERIVING INTEREST INCOME FROM LOANS AND ADVANCES TO MEMBERS AND ALSO INTEREST FROM FIXED DEPOSIT RECEIPTS WITH BANS. ASSESSEE CLAIMED THE TOTAL INCOME AS FULLY DEDUCTIBLE UNDER S ECTION 80 P OF THE INCOME TAX ACT AND THEREFORE THE RETURN OF INCOME FILED BY THE ASSESSEE IS NIL . THE AO QUESTIONED THE ALLOWABILITY OF DEDUCTION UNDER SECTION 80P ON INTEREST ON FIXED DEPOSIT RECEIPTS AND INTEREST ON SAVINGS BANK ACCOUNTS AS ACCORDING TO HIM SAME IS NOT DEDUCTIBLE UNDER THAT SECTION. ASSESSEE SUBMITTED THAT LOOKING TO THE NATURE OF THE BUSINESS ACTIVITIES THE ASSESSEE IS ELIGIBLE FOR DEDUCTION OF INTEREST ON FIXED DEPOSIT RECEIPTS AND SAVINGS BANK ACCOUNT AS THE MAIN OBJECT OF THE ASSESSEE IS TO ACCEPT DEPOSITS FROM ITS MEMBERS AND PROVIDING CREDIT FACILITIES TO ITS MEMBER. THE ASSESSEE FURTHER RELIED UPON THE SEVERAL JUDICIAL PRECEDENTS. THE LEARNED ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND STATED THAT ASSESSEE HAS EARN ED INTEREST INCOME OF RS. 794284 / - FROM FIXED DEPOSITS RECEIPTS AND SAVING BANK ACCOUNTS WHICH IS NOT APPROPRIATED OR ALLOCATED AMONG ITS CONSTITUENT MEMBERS. THE ABOVE INCOME IS EARNED WITH DEPOSITS KEPT IN BANK IS CLEARLY NOT EARNED FROM MEMBERS AND THEREFORE THE INCOME IS CHARGEABLE TO TAX IN THE HANDS OF THE ASSESSEE AND SAME IS NOT DEDUCTIBLE U /S 80 P OF THE INCOME TAX ACT . CONSEQUENTLY THE ADDITION OF 794284/ WAS MAD E AND THE DELHI COOPERATIVE THRIFT & CREDIT SOCIETY LTD VS. ITO, ITA NO. 2894/DEL/2018 (ASSESSMENT YEAR: 2014 - 15) PAGE | 3 ASSESSMENT ORDER UNDER SECTION 143 ( 3 ) OF THE ACT WAS PASSED ON 0 5/12/ 2016. 4. THE ASSESSEE CHALLENGED THE SAME BEFORE THE LEARNED CIT (A) . THE CIT (A) PASSED AN ORDER ON 23/ 0 2/2018 FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF MANTOLA CO - OPERATIVE THRIFT CREDIT SOCIETIES VS. CIT DATED 27/ 0 8/2014. THU S , ASSESSEE IS AGGRIEVED AND PREFERRED THIS APPEAL BEFORE US. 5. DESPITE NOTICE , NON E APPEARED ON BEHALF OF THE ASSESSEE. THIS APPEAL IS FIXED FOR HEARING ON EARLIER SIX OCCASIONS WHEREIN ON EARLIER FOUR OCCASIONS ASSESSEE HAS SOUGHT ADJOURNMENTS. NO ADJOURNM ENT REQUEST WAS RECEIVED. THEREFORE, NOW THE ISSUE IS DECIDED ON THE MERITS OF THE CASE. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT (A) AND SUBMITTED THAT ISSUE IS DECIDED FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND THEREFORE THERE IS NO INFIRMITY IN THE SAID ORDER. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE ASSESSEE BEING A CO - OP ERATIVE SOCIETY IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE INCOME TAX ACT WITH RESPECT TO THE INCOME EARNED BY THE ASSESSEE O N BANK INTEREST ON FIXED DEPOSIT RECEIPTS AND SAVINGS BANK ACCOUNTS. THE ABOVE ISSUE IS COVERED BY THE DECISION OF THE HON BLE SUPREME COURT IN CASE OF TOTGARS CO - OPERATIVE SALE SOCIETY LTD. V. ITO [2010] 322 ITR 283 (SC) WHEREIN IT HAS BEEN CONSIDERED AND HELD THAT ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P OF THE ACT ON THE BANK INTEREST RECEIVED ON FIXED DEPOSIT RECEIPTS AND SAVINGS BANK ACCOUNTS. THE HONBLE COURT HELD AS UNDER: - 10. AT THE OUTSET, AN IMPORTANT CIRCUMSTANCE NEEDS TO BE HIGHLIGHTED. IN THE PRESENT CASE, THE INTEREST HELD NOT ELIGIBLE FOR DEDUCTION UN DER SECTION 80P(2)(A)(I) OF THE ACT IS NOT THE INTEREST RECEIVED FROM THE MEMBERS FOR PROVIDING CREDIT FACILITIES TO THEM. WHAT IS SOUGHT TO BE TAXED UNDER SECTION 56 OF THE ACT IS THE INTEREST INCOME ARISING ON THE SURPLUS INVESTED IN SHORTTERM DEPOSITS A ND SECURITIES WHICH SURPLUS WAS NOT REQUIRED FOR BUSINESS PURPOSES. DELHI COOPERATIVE THRIFT & CREDIT SOCIETY LTD VS. ITO, ITA NO. 2894/DEL/2018 (ASSESSMENT YEAR: 2014 - 15) PAGE | 4 THE ASSESSEE(S) MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT. IN THIS CASE, WE ARE CONCERNED WITH THE TAX TREATMENT OF SUCH AMOUNT. SINCE THE FUND CR EATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES. THE QUESTION, BEFORE US, IS WHETHER INTEREST ON SUCH DEPOSITS/SECURITIES, WHICH STRICTLY SPEAKING ACCRUES TO THE MEMBERS' ACCOUNT, COULD BE TAXED AS BUSINESS INCOME UNDER SECTION 28 OF THE ACT ? IN OUR VIEW, SUCH INTEREST INCOME WOULD COME IN THE CATEGORY OF 'INCOME FROM OTHER SOURCES', HENCE, SUCH INTEREST INCOME WOULD BE TAXABLE UNDER SECTION 56 OF THE ACT, AS RIGHTLY HELD BY THE ASSESSING OFFICER. IN THIS CONNECTION, WE MAY ANALYSE SECTION 80P OF THE ACT. THIS SECTION COMES IN CHAPTER VI - A, WHICH, IN TURN, DEALS WITH 'DEDUCTIONS IN RESPECT OF CERTAIN INCOMES'. 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 TOT AL 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) OF THE ACT, WOULD BE ELIGIBLE FOR DEDUCTION. THE WORD 'INCOME' HAS BEEN DEFINED UNDER SECTION 2(2 4)(I) OF THE ACT TO INCLUDE PROFITS AND GAINS. THIS SUB - SECTION IS AN INCLUSIVE PROVISION. PARLIAMENT HAS INCLUDED SPECIFICALLY 'BUSINESS PROFITS' INTO THE DEFINITION OF THE WORD 'INCOME'. THEREFORE, WE ARE REQUIRED TO GIVE A PRECISE MEANING TO THE WORDS ' PROFITS AND GAINS OF BUSINESS' MENTIONED IN SECTION 80P(2) OF THE ACT. IN THE PRESENT CASE, AS STATED ABOVE, THE ASSESSEE - SOCIETY REGULARLY INVESTS FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES. INTEREST ON SUCH INVESTMENTS, THEREFORE, CANNOT FALL W ITHIN THE MEANING OF THE EXPRESSION 'PROFITS AND GAINS OF BUSINESS'. SUCH INTEREST INCOME CANNOT BE SAID ALSO TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY, NAMELY, CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING O F THE AGRICULTURAL PRODUCE OF ITS MEMBERS. WHEN THE ASSESSEE - SOCIETY PROVIDES CREDIT FACILITIES TO ITS MEMBERS, IT EARNS INTEREST INCOME. AS STATED ABOVE, IN THIS CASE, INTEREST HELD AS INELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) IS NOT IN RESPECT OF INTEREST RECEIVED FROM MEMBERS. IN THIS CASE, WE ARE ONLY CONCERNED WITH INTEREST WHICH ACCRUES ON FUNDS NOT REQUIRED IMMEDIATELY BY THE ASSESSEE(S) FOR ITS BUSINESS PURPOSES AND WHICH HAVE BEEN ONLY INVESTED IN SPECIFIED SECURITIES AS 'INVESTMENT'. FUR THER, AS STATED ABOVE, THE ASSESSEE(S) MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS. IT RETAINS THE SALE PROCEEDS IN MANY CASES. IT IS THIS 'RETAINED AMOUNT' WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM PRODUCE WAS BOUGHT, WHICH WAS INVESTED IN SHORT - TER M DEPOSITS/SECURITIES. SUCH AN AMOUNT, WHICH WAS RETAINED BY THE ASSESSEE - SOCIETY, WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE - SHEET ON THE LIABILITIES - SIDE. THEREFORE, TO THAT EXTENT, SUCH INTEREST INCOME CANNOT BE SAID TO BE ATTRIBUTABLE EITHER TO TH E ACTIVITY DELHI COOPERATIVE THRIFT & CREDIT SOCIETY LTD VS. ITO, ITA NO. 2894/DEL/2018 (ASSESSMENT YEAR: 2014 - 15) PAGE | 5 MENTIONED IN SECTION 80P(2)(A)(I) OF THE ACT OR IN SECTION 80P(2)(A)(III) OF THE ACT. THEREFORE, LOOKING TO THE FACTS AND CIRCUMSTANCES OF THIS CASE, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER WAS RIGHT IN TAXING THE INTEREST INCOME, INDICATE D ABOVE, UNDER SECTION 56 OF THE ACT. 11. AN ALTERNATIVE SUBMISSION WAS ADVANCED BY THE ASSESSEE(S) STATING THAT, IF INTEREST INCOME IN QUESTION IS HELD TO BE COVERED BY SECTION 56 OF THE ACT, EVEN THEN, THE ASSESSEE - SOCIETY IS ENTITLED TO THE BENEFIT OF S ECTION 80P(2)(A)(I) OF THE ACT IN RESPECT OF SUCH INTEREST INCOME. WE FIND NO MERIT IN THIS SUBMISSION. SECTION 80P(2)(A)(I) OF THE ACT CANNOT BE PLACED AT PAR WITH EXPLANATION (BAA) TO SECTION 80HHC, SECTION 80HHD(3) AND SECTION 80HHE(5) OF THE ACT. EACH OF THE SAID SECTIONS HAS TO BE INTERPRETED IN THE CONTEXT OF ITS SUBJECT - MATTER. FOR EXAMPLE, SECTION 80HHC OF THE ACT, AT THE RELEVANT TIME, DEALT WITH DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. THE SCOPE OF SECTION 80HHC IS, THEREFORE, DIFFERENT FROM THE SCOPE OF SECTION 80P OF THE ACT, WHICH DEALS WITH DEDUCTION IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. EVEN EXPLANATION (BAA) TO SECTION 80HHC WAS ADDED TO RESTRICT THE DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC, THEREFORE, CANNOT BE COMPARED WITH THE WORDS USED IN SECTION 80P OF THE ACT WHICH GRANTS DEDUCTION IN RESPECT OF 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS'. A NUMBER OF JUDGMENTS WERE CI TED ON BEHALF OF THE ASSESSEE(S) IN SUPPORT OF ITS CONTENTION THAT THE SOURCE WAS IRRELEVANT WHILE CONSTRUING THE PROVISIONS OF SECTION 80P OF THE ACT. WE FIND NO MERIT BECAUSE ALL THE JUDGMENTS CITED WERE CASES RELATING TO CO - OPERATIVE BANKS AND THE ASSES SEE - SOCIETY IS NOT CARRYING ON BANKING BUSINESS. WE ARE CONFINING THIS JUDGMENT TO THE FACTS OF THE PRESENT CASE. TO SAY THAT THE SOURCE OF INCOME IS NOT RELEVANT FOR DECIDING THE APPLICABILITY OF SECTION 80P OF THE ACT WOULD NOT BE CORRECT BECAUSE WE NEED TO GIVE WEIGHTAGE TO THE WORDS 'THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS' ATTRIBUTABLE TO ONE OF THE ACTIVITIES SPECIFIED IN SECTION 80P(2)(A) OF THE ACT. AN IMPORTANT POINT NEEDS TO BE MENTIONED. THE WORDS 'THE WHOLE OF THE AMOUNT OF PROF ITS AND GAINS OF BUSINESS' EMPHASISE THAT THE INCOME IN RESPECT OF WHICH DEDUCTION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL INCOME AND NOT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THIS PARTICULAR CASE, THE EVIDENCE SHOWS THAT THE ASSESSEE - SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUIRED FOR BUSINESS PURPOSES AT THE GIVEN POINT OF TIME. THEREFORE, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE, IN OUR VIEW, SUCH INTEREST INCOME FALLS IN THE CATEGORY OF 'OTHER INCOME' WHICH HAS BEEN RIGHTLY TAXED BY THE DEPARTMENT UNDER SECTION 56 OF THE ACT. DELHI COOPERATIVE THRIFT & CREDIT SOCIETY LTD VS. ITO, ITA NO. 2894/DEL/2018 (ASSESSMENT YEAR: 2014 - 15) PAGE | 6 8. IN VIEW OF THE ABOVE DECISION OF THE HONBLE SUPREME COURT WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE ASSESSEE AND HENCE SAME IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 7 / 03 / 2020 . - SD/ - - SD/ - ( SUCHITRA KAMBLE ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 7 / 03 / 2020 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI