THE FARMERS SERVICE CO-OP LTD., RANASTHALAM V. INCOME-TAX OFFICER WARD-1, SRIKAKULAM, SRIKAKULAM

ITA 310/VIZ/2023

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 4135 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 26-02-2024
• Assessment Year: 2020-2021
• Appeal Filed On: 18-12-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA VILLURI
• Assessee Lawyers: I KAMA SASTRY
• Keywords: Set aside
• Section: 143(3); 142(1); 154; 139(1); 80P

Judgement Text

आयकर अपीलȣयअͬधकरण, ͪवशाखापटणम SMC पीठ, ͪवशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM Įी दुåवूǽ आर एल रेɬडी, ÛयाǓयक सदèय के सम¢ BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER आयकर अपील सं./ I.T.A. No.310/Viz/2023 (Ǔनधा[रण वष[ / Assessment Year :2020-21) The Farmers Service Co-op. Ltd., Ranasthalam, Srikakulam-532407. PAN: AABTT 4377 L Vs. Income Tax Officer, Ward-1, Srikakulam. (अपीलाथȸ/ Appellant) (Ĥ×यथȸ/ Respondent) अपीलाथȸ कȧ ओर से/ Appellant by : Sri I Kama Sastry, AR Ĥ×याथȸ कȧ ओर से / Respondent by : Dr. Aparna Villuri, Sr. AR सुनवाई कȧ तारȣख / Date of Hearing : 27/02/2024 घोषणा कȧ तारȣख/Date of Pronouncement : 29/02/2024 O R D E R PER DUVVURU RL REDDY, Judicial Member : This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax, National Faceless Appeal Centre, Delhi [Ld. CIT(A)-NFAC] in DIN & Order No. ITBA/NFAC/S/250/2023-24/1054362544(1), dated 14/7/2023 arising out of the order passed U/s. 143(3) r.w.s 144B of the Income Tax Act, 1961 [the Act] for the AY 2020-21. 2 2. At the outset, it is noticed that there is a delay of 98 days in filing this appeal before the Tribunal. With respect to belated filing of the appeal, the assessee filed petition for condonation of delay along with the affidavit and the relevant paras of the affidavit is extracted herein below for reference: “1....... 2...... 3...... 4...... 5...... 6. The Ld. CIT( A), NFAC vide his order dated 14/7/2003 dis al l owed the cl aim for deduction under section 80P but remande d the matter b ack to the jurisdiction al AO to al l o w proportionate expenses incurred for earning the income af ter affording the assessee an opportunity of he aring an d af ter verif ying the same with documentary evidence. The CIT(A) has not decided the issue of mistake of business income in the computation sheet. 7. The Income Tax Officer, Ward-1, Srik akul am p assed an order 11/11/2023 giving effect to the directions of the Ld. CIT(A), NFAC. Though he did not al lo w the assessee’s cl ai m for deduction under section 80P he has rectified the mistake wi th respect to wrong amount taken in the computation sheet. 8. Th at on receipt of the order when we appro ached the consul tant for fil ing appeal ag ainst the order p asse d by the ITO, Ward-1, Srik akul am, we were advi sed th at an appe al can be filed onl y ag ainst the order of the CIT(A) before the Tribunal and no appeal can be fil ed ag ainst the order passed by the ITO before the Tribunal . 9. Th at in vie w of our in adve rtent bel ief that appe al has to be filed after receipt of the order of ITO th ere is a del ay of 98 days in fil ing the appe al .” 3. On perusal of the explanation given by the assessee with respect to filing of the appeal before the Tribunal beyond the prescribed time limit, we find that the assessee was prevented by a reasonable and sufficient cause to file the appeal within the 3 stipulated time. Therefore, I hereby condone the delay of 98 days in filing the appeal of the assessee before the Tribunal and proceed to adjudicate the appeal on merits. 4. Briefly stated the facts of the case are that the assessee, The Farmers Service Cooperative Limited, is a primary agricultural Credit Cooperative Society established with the object of providing loans for agricultural purpose to the farmers who are members of the assessee-society as per their needs. For the AY 2020-21 the assessee had filed the return of income U/s. 139(1) of the act declaring an income of Rs. 7,58,370/- after claiming deduction U/s. 80P(2)(a)(i) of the Act of Rs. 46,77,725/-. Subsequently, the case was selected for scrutiny under CASS by the Ld. Income Tax Officer, NFAC by issuance of notice U/s. 143(2) dated 29/06/2021. During the assessment proceedings, the assessee was asked to furnish the documentary evidence along with explanations on liabilities disclosed in the balance sheet and deductions claimed by the assessee U/s. 80P of the Act vide notices issued U/s. 142(1) from time to time. In response, the assessee has furnished the information as well as the documentary evidence as called for by the Ld. AO. Thereafter, the Ld. AO issued a show cause notice dated 25/08/2022 4 wherein the assessee was directed to show cause as to why the deduction claimed by the assessee on interest income earned from Nationalized Bank U/s. 80P should not be disallowed. In response, the assessee had filed a reply refuting Ld. AO’s proposal for making addition which is mentioned in the show cause notice and relied on the decision of the Ld. CIT(A) in the appellant’s own case for the AY 2014-05. However, the Ld. AO did not consider the submissions of the assessee and passed the assessment order U/s. 143(3) r.w.s144B of the Act wherein the Ld. AO disallowed the assessee’s claim of deduction U/s. 80P of the Act amounting to Rs. 21,96,002/- against the interest income received on deposits made with Andhra Bank and assessed the total income at Rs. 29,54,372/-. Aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A)-NFAC, the assessee submitted that on identical issue, the Ld. CIT(A)-9, Hyderabad vide his order in Order No. 10220/CIT(A)-9, Hyd/2017-18 allowed the assessee’s claim of deduction U/s. 80P(2)(a)(i) of the Act for the AY 2014-15. Before the Ld. CIT(A)-NFAC, the assessee also made various submissions along with bye-laws of the society, certification of registration, computation of income etc. However, the Ld. CIT (A)-NFAC did not consider the submissions and explanations of the assessee 5 and confirmed the disallowance made by the Ld. AO. Further, the Ld. CIT(A)-NFAC also held that the assessee is eligible to get benefit of deduction in respect of proportionate cost, administrative and other expenses which are incurred in order to earn such interest income and the accordingly directed the Ld. AO. Thereafter, the Ld. AO giving effect to the directions of the Ld. CIT(A)-NFAC as well as to rectify the mistake in computation sheet, passed rectification order U/s. 154 r.w.s 143(3) of the Act, dated 11/11/2023 and retained the total income assessed at Rs.29,54,372/- by the Ld. AO in the order passed on 16/09/2023. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before the Tribunal by raising the following grounds of appeal (Gr. No.1 is revised): “1. The Ld. CIT(A)-NFAC is not justified in confirming the dis al l owance of Rs. 21,96,002/- made by the AO U/s. 80P(2)(a)(i)”. 2. The assessee craves l eave to add to, al te r modify, del ete an y of the above grounds of appe al .” 5. The only issue involved in this appeal relates to disallowance of deduction claimed u/s 80P of the Act. At the outset, the Ld.AR submitted that the assessee society, being a cooperative society, make deposits in its regular course of business and accordingly the deposits were made in 6 the sponsor bank viz., Andhra Bank in compliance with the statutory regulation of AP Cooperative Societies Act. The assessee is not having any intention to gain any benefit from other sources. The Ld.AR further submitted that the facts relied on by the Ld. Revenue Authorities in the case of M/s. Totgars Cooperative Sale Society Ltd reported in 322 ITR 283 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 fac ts 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. He, therefore, pleaded to quash the order passed by the Ld.CIT(A)- NFAC and allow deduction u/s 80P of the Act. 6. Per contra, the Ld. DR argued that the Ld.CIT(A)-NFAC has rightly upheld the addition made by the Ld. AO as the assessee is not eligible to claim deduction u/s 80P of the Act. The Ld. DR, therefore, pleaded to uphold the order passed by the Ld. CIT(A) -NFAC and dismiss the appeal of the assessee. 7. I have heard both the parties and perused the material placed on record. Now the question before me is to decide whether the assessee is eligible for deduction u/s 80P with respect to the interest earned on 7 deposits pertaining to reserve fund with sponsor Bank ie., Andhra Bank, or not? It is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the Ld. AO is that interest accrued on Reserve Fund Deposits is not eligible for deduction U/s 80P of the Act. The Ld. Revenue Authorities relied on various case laws to state that income from interest on securities ear marked to reserve fund has been held not eligible for deduction u/s 80P. The Ld. Revenue Authorities have also placed 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., wherein it was 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 and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) shall not be applied to the instant case. On similar set of facts, coordinate Bench of this Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society held in favour of the assessee vide I.T.A.No.107/Viz/2022, CO No.07/Viz/2022 dated 30.08.2023. For the sake of reference, relevant paragraphs of the order are extracted as under : “8. We have he ard both the sides and pe rused the mate ri al av ail abl e on record and the orders of the Ld. Revenue Authorities. 8 It is an admitted f act th at the assessee has cl ai med de duction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is el igible to cl aim deduction U/s. 80P(2)(a)(i) of the Act onl y when it is invested with any o ther cooperative society. The Ld. AO al so pl aced heav y rel iance in the case of M/s. Totg ars Cooperative Sal e Society Ltd (supra) whil e dis al l owi ng the cl aim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio l aid do wn by the Hon’bl e Apex Court in the case of M/s. Totg ars Cooperative Sal e Society Ltd (supra) an d found that in that case the society is engaged in marketing of the agricul tural produce by its members as per section 80P(2)(a)(ii i) whil e carrying on the business of banking or providing credit facil ities to its members U/s. 80P(2)(a)(i) of the Act. In th at case , the Society re tained the sal e proceeds which was o therwise p ayabl e to i ts members fro m whom the produce was bought which was invested in short term deposits / securities. It is al so found that the amount p ayabl e to its me mbers re al ized fro m s al e proceeds of the agri cul tural produce of its members was re tained by the society an d was sho wn as l iabil ity on the bal ance sheet. Therefore, the Hon’bl e Apex Court h as hel d th at interes t e arned from retaining the amount p ayabl e to i ts me mbers sh al l not be considered as income from other sources. Ho wever, in the i nstant case the f acts are distinguishabl e and hence in our vie w the ratio l aid do wn in the case of M/s. Totg ars Cooperative Sal e Society Ltd (supra) sh al l not be appl ied. Section 80P(1) of the Act entitl es the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income whil e computing the total income. Sub-section (2) of section 80P, in the sub-cl ause (a) al l ows deduction to cooperative society whi ch is engaged in the foll o wing activi ties: “(a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its 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 9 members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:” 9. Further, we al so extract belo w the provisions of section 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 pl ain re ading of section 80P(2)(a)(i) of the Act, the whol e of amount of profits and gains of the business attributabl e to one or more of such activities sh al l be all o wed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act al so al lo ws simil ar deductions. It is cl ear th at the deductions av ail abl e under cl auses ( a) to (e) of section 8 0P(2) are activi ty b ased where as cl auses (d) and (e) are i nvestment base d. The distinction between cl auses (a) and cl au ses (d) & (e) on the other hand is th at the benefit under cl ause (a) is restricted to onl y into those activi ties of a cooperative society enl isted in sub-cl ause (a) whereas the benefit of cl auses (d) & (e) are av ail abl e to al l cooperative societies wi thout an y restriction on the activities carried on by them. In si mpl e terms, th e benefit under cl ause (a) wil l be l imited onl y to the profits & gains of the business attributabl e to any one or mo re of such activities. But in case, if the cooperative society h as an income not attributabl e to any one or more of such activi ties l isted in sub-cl auses (i) to (vii) of cl ause-(a), the s ame may go out of the purvie w of cl ause ( a) but still the cooperative society may cl ai m the benefit of cl ause (d) or (e) as per the conditions l aid do wn therein. In the instant case, the original source of investments made by the assessee in Nation al ized Banks is admi ttedl y the income of the assessee derived from the activi ties l isted in sub-cl auses (i) to (vii) of cl ause ( a). The ch aracter of such income must be l ast, especi al l y when the statute uses the expression “attributabl e to” and not an y one of the expressions viz., “derived from” or “directl y attributabl e to”. The Hon’bl e jurisdictio nal High Court of Andhra Pradesh and Tel ang an a in the case of Vavve ru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax an d Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’bl e Supreme Court in the case of To tg ar’s Cooperative Sal e Society Ltd (supra) and distinguished the facts whil e deciding the case. For the sake of brevity, we extract the 10 rel evant p ara 34 of the judgment of the Hon’bl e Andhra Pradesh an d Tel ang an a High Court herein bel o w: “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’bl e jurisdictional High Court of Andhra Pradesh and Tel ang an a in the case of Vavve ru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax an d Another (supra) hel d that the cooperative society is el igibl e for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment hel d 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 nationalized 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 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". 11 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 Coordin ate Bench of Hyderab ad in Tirumal a Tirup ati Dev asth an ams Empl oyees Coop. Credit Society vs. ITO al so affirmed the same vie w by fol l owing the decision of the Hon’bl e AP High Court in the case of Vavve ru Cooperative Rural Bank Ltd (supra). In the instan t case al so, the assessee has invested surplus funds out of the activi ties carrie d out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfull y foll owing the jurisdiction al High Court are of the vie w th at interest income shoul d be al lowe d as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)-NFAC has rightl y hel d by deleting the addi tion made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT( A)-NFAC. 13. In the resul t, appeal of the Revenue is dismissed.” 8. 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), I am inclined to quash the order passed by the Ld.CIT(A) and allow the appeal of the assessee. 9. In the result, appeal of the assessee is allowed. Pronounced in the open Court on the 29 th February, 2024 (दुåवूǽ आर.एल रेɬडी) (DUVVURU RL REDDY) ÛयाǓयकसदèय/JUDICIAL MEMBER Dated :29/02/2024 12 OKK - SPS आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy of the order forwarded to:- 1. Ǔनधा[ǐरती/ The Assessee – The Farmers Service Coop. Ltd., Karshak Bhavan, Ranasthalam, Srikakulam, Andhra Pradesh – 532103. 2. राजèव/The Revenue –Income Tax Officer, Ward-1, Palakonda Road, Srikakulam, Andhra Pradesh – 532103. 3. The Principal Commissioner of Income Tax, 4.आयकर आयुÈत (अपील)/ The Commissioner of Income Tax (Appeals), 5. ͪवभागीय ĤǓतǓनͬध, आयकर अपीलȣय अͬधकरण, ͪवशाखापटणम/ DR, ITAT, Visakhapatnam 6.गाड[ फ़ाईल / Guard file आदेशानुसार / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam