M/s Sumangala Credit Co-op. Society Ltd., Bantawal V. Income Tax Officer, Ward-2(3), Mangaluru., Mangaluru

ITA 383/BANG/2023

AI Insights

The case involves Sumangala Credit Co-operative Society appealing against the order of the CIT(A)/NFAC which disallowed certain deductions under section 80P(2)(d) of the Income-tax Act, 1961 for the assessment year 2017-18. The primary contention was regarding the eligibility of deductions for interest income earned from investments in cooperative banks and commercial banks. The Tribunal referenced several precedents, including decisions from the Supreme Court and High Courts, to determine the applicability of section 80P(2)(d) to the interest income in question. The Tribunal also addressed the issue of provision made for interest payable on deposits, which was treated as an unascertained liability by the lower authorities but was allowed by the Tribunal based on the mercantile system of accounting followed by the assessee.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129383 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 06-09-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 14-05-2023
• Other Referred Cases: Totagars Co-operative Sale Society vs. ITO, PCIT vs. Totagars Cooperative Sale Society, State Bank Of India vs. CIT, CIT vs. Andhra Pradesh State Co-operative Bank Ltd.
• Laws Referred To: Income-tax Act, 1961, Karnataka Co-operative Societies Act, 1959
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISCHAL
• Section: 56

Judgement Text

ITA No.383/Bang/2023 Sumangala Credit Co-Operative Society, Bantwal IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ITA No.383/Bang/2023 Assessment Year: 2017-18 Sumangala Credit Co-operative Society Bye Pass Panemangalore Bantwal Karnataka 574 231 PAN NO : AABAS2732B Vs. ITO Ward-2(3) Mangaluru APPELLANT RESPONDENT Appellant by : Shri Ravish Rao, A.R. Respondent by : Dr. Nischal, D.R. Date of Hearing : 07.09.2023 Date of Pronouncement : 07.09.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against order of CIT(A)/NFAC dated 17.3.2023 for the assessment year 2017-18. 2. The first ground for our consideration is with regard to allowability of deduction u/s 80P(2)(d) of the Income-tax Act,1961 ['the Act' for short]. 3. Facts of the case are that the assessee is a registered Co- operative Society under Karnataka Co-operative Societies Act, 1959. In the assessment year under consideration, assessee has earned interest from its investment as follows:- Interest from Co-operative Societies - Rs.31,56,192/- Interest from Co-operative Bank i.e. SCDCC Bank - Rs.13,58,198/- Total - Rs.45,14,390/- ITA No.383/Bang/2023 Sumangala Credit Co-Operative Society, Bantwal Page 2 of 6 3.1 The ld. A.O. has not granted deduction u/s 80P(2)(d) of the Act on Rs.13,58,198/- on the reason that deduction u/s 80P(2)(d) of the Act to be allowed only on the interest earned from investment with Co-operative Society is eligible for the same and this income of Rs.13,58,198/- earned by assessee is on investment of idle funds, which are immediately not required for lending to its members in District Central Co-operative Bank and Scheduled banks. This interest income on investment is not entitled for deduction u/s 80P(2)(d) of the Act. For that purpose, he relied on the judgement of Hon’ble Karnataka High Court in the case of Totagars Co-operative Sale Society in ITA No.100066/2016 dated 16.6.2017, wherein held that interest received from Co-operative Bank and Urban banks are to be assessed income u/s 56 of the Act. Thus, after considering the cost of funds at Rs.10,58,493/-, out of total interest received from SCDCC bank at Rs.13,58,198/- taxed a sum of Rs.3,00,705/- as income from other sources. Against this assessee is in appeal before us. 4. We have heard the rival submissions and perused the materials available on record. With regard to deduction u/s 80P(2)(d) of the Act, the issue is covered in favour of the assessee by order of the Tribunal in the case of Totagars Co-operative Sale Society Ltd. in ITA Nos.376 to 379/Bang/2023 for the assessment years 2015-16 to 2018-19 vide order dated 18.7.2023 wherein held as under: “9. We have perused the submissions advanced by both the sides in the light of the records placed. When we look at the decision of Hon’ble Supreme Court in case of Totgars Co- operative Sale Society's case reported in (2010) 188 Taxman 282, relied by the Ld. DR. Hon’ble Supreme Court was dealing with a case where the assessee therein, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein was a liability ITA No.383/Bang/2023 Sumangala Credit Co-Operative Society, Bantwal Page 3 of 6 and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. On these facts Hon’ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Hon’ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case. 9.1 In the instant case, the amount which was invested in banks to earn interest was not any amount due to its members. Further the claim of the assessee in u/s 80P(2)(d) was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a co-operative bank again which interest/dividend was earned.. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220/12 taxmann.com 66. 9.2 Therefore, reliance was placed by the Ld. DR on the decision of Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO reported in (2010) 188 Taxman 282 is distinguishable on facts. The adjudication by the Hon’ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO(supra) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec.80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. 9.3 At this juncture, we refer to subsequent decision of Hon'ble Karnataka High Court in the case of PCIT Vs. Totagars cooperative Sale Society reported in (2017) 395 ITR 611, wherein Hon’ble Court held that, a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble Karnataka High Court in the case of PCIT & Anr. vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, held, that the interest income earned by a co-operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. ITA No.383/Bang/2023 Sumangala Credit Co-Operative Society, Bantwal Page 4 of 6 9.3 At this juncture, we respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT & Anr. Vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon’ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, hold that the interest income earned by a cooperative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. 9.4 It is directed that the interest earned by the assessee from commercial banks may be considered under the head ‘income from other sources’ and relief may be granted as available to the assessee u/s 57 of the Act in accordance with law. Accordingly ground No.2 and 3 raised by the assessee stands partly allowed for statistical purposes.” 10. Ground No.4-6 raised by the assessee is without prejudice to the ground and alternative claim, as we have considered the claim of the assessee by allowing the deduction u/s 80P(2)(d) of the Act. This issue need not be adjudicated and is left open to the assessee for arguing in appropriate circumstances.” 4.1 In view of the above, interest earned by the assessee from Commercial banks be considered under the head “income from other sources” and relief is to be granted u/s 57 of the Act in accordance with law. However, the claim of assessee u/s 80P(2)(d) of the Act to be allowed as per para 9.1 of the order cited (supra) in the case of Totagars Co-operative Sale Society. This ground of appeal of the assessee is allowed for statistical purposes. 5. Next ground is with regard to non-granting of deduction towards provision made on interest payable on deposit at Rs.36,56,860/-. 5.1 Facts of the issue are that th assessee in the assessment year under consideration made provisions for interest of Rs.1,77,20,374/- and out of this, assessee deducted the earlier year provision as on 31.3.2016 at Rs.1,40,63,514/-. Thus, the assessee debited an amount of Rs.36,56,860/- under the head provisions and claimed it as a deduction. However, the ld. AO while framing the assessment order made additions of Rs.36,56,860/- to the returned income. The ITA No.383/Bang/2023 Sumangala Credit Co-Operative Society, Bantwal Page 5 of 6 same has been confirmed by the ld. CIT(A) on the reason that it was unascertained liability. 6. We have heard the rival submissions and perused the materials available on record. Admittedly, in the assessment year under consideration, the assessee made gross provisions of Rs.1,77,20,374/-. Out of this, assessee deducted earlier assessment year provisions up to 31.3.2016 of Rs.1,40,63,514/-. Thus, additional provision charged to P&L account was Rs.36,56,860/-. This provision cannot be treated as unascertained liability as the provision has been made on the basis of regular method of accounting consistently followed by the assessee. In the present case, it is not disputed that assessee has been following mercantile system of accounting and interest accrued on deposit but not due as on date of 31.3.2017 to be provided in the books of accounts of the assessee and there was no question of mutuality, which cannot be applied herein and the interest accrued, which has been provided by the assessee in the books of accounts by following the mercantile accounting system of book keeping, the claim of assessee cannot be denied. Accordingly, we allow the claim of the assessee. 7. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 7 th Sept, 2023 Sd/- (Madhumita Roy) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 7 th Sept, 2023. VG/SPS ITA No.383/Bang/2023 Sumangala Credit Co-Operative Society, Bantwal Page 6 of 6 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.