The Nakodar Primary Cooperative Agri. Dev. Bank Ltd, Nakodar V. The Income Tax Officer, Nakodar

ITA 397/ASR/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8717 (ITAT-AMRITSAR)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 24-01-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 18-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 80(P); 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR (CAMP AT JALAN DHAR ) BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A NO.397 (ASR)/2016 ASSESSMENT YEAR: 2010-11 THE NAKODAR PRIMARY CO- OPERATIVE AGRICULTURAL DEVELOPMENT BANK LTD., NURMAHAL ROAD, NAKODAR. PAN:AAAJT-0597M VS. ITO, NAKODAR. (APPELLANT) (RESPONDENT) I.T.A NO.398(ASR)/2016 ASSESSMENT YEAR: 2010-11 THE SHAHKOT PRIMARY COOPERATIVE AGRICULTURAL DEVELOPMENT BANK LTD. NURMAHAL ROAD, SHAHKOT. PAN:AAAJT-1980E VS. ITO, NAKODAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. NAVENDU KHANNA (CA) RESPONDENT BY: SMT. BALWINDER KAUR (DR.) DATE OF HEARING: 24.01.2017 DATE OF PRONOUNCEMENT: 15.03.20 17 ORDER PER T. S. KAPOOR (AM): THESE ARE TWO APPEALS FILED BY ASSESSEE AGAINST THE SEPARATE ORDERS OF LD. CIT(A), JALANDHAR BOTH DATED 02.05.2016. ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 2 2. THE FOLLOWING GROUNDS OF APPEAL HAS BEEN RAISED BY ASSESSEE IN THESE APPEALS. IN ITA NO.397(ASR)/2016 (I) THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ADDIT ION OF RS.2,98,552/- MADE BY THE AO. (II) THE LD. CIT(A) HAS WRONGLY TREATED NPA CHARGE DEBITED TO PROFIT & LOSS A/C AS INCOME AND HELD THE SAME AS NOT ELIGIBLE F OR DEDUCTION UNDER SECTION 80(P) WHEREAS THE SAME CONSTITUTES EXPENDIT URE AND NOT INCOME. (III) THE LD. CIT(A) HAS WRONGLY HELD MISCELLANEOUS INCOME AND LOAN FEES AS INCOME NOT EARNED FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO MEMBERS BY THE ASSESSEE AND DENIED THE DEDUCTION OF THE SAME UNDER SECTION 80(P). (IV) THE ORDER IS BAD IN LAW & ON FACTS. IN ITA NO.398(ASR)/2016 (I) THE LD. CIT(A) HAS WRONGLY CONFIRMED THE ADDIT ION OF RS.2,56,778/- MADE BY THE AO. (II) THE LD. CIT(A) HAS WRONGLY HELD WRITTEN BACK O F EXCESS PROVISIONS OF AUDIT FEES, MISCELLANEOUS INCOME AND LOAN FEES AS S ERVICE CHARGES RECEIVED FROM MEMBERS FOR ARRANGING LOANS & NOT THE INCOME E ARNED FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO MEMBERS BY THE ASSESSEE AND DERIVED THE DEDUCTION OF THE SAME UNDER SECTION 80( P). (III) THE APPELLANT PRAYS THAT THE ADDITION/DISALLO WANCE OF RS.2,56,778/- MADE IN RESPECT OF WRITTEN BACK OF EXCESS PROVISION OF AUDIT FEES, MISCELLANEOUS INCOME AND LOAN FEES AS SERVICE CHARG ES HE DELETED. (IV) THE ORDER IS BAD IN LAW & ON FACTS. 3. THESE APPEALS WERE HEARD TOGETHER, THEREFORE, FOR T HE SAKE OF CONVENIENCE A COMMON AND CONSOLIDATED ORDER IS BEIN G PASSED. 4. THE BRIEF FACTS OF THE CASES AS NOTED IN THE ASS ESSMENT ORDER ARE THAT ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF GIVING LOANS TO ITS MEMBERS BY OBTAINING THE FUNDS FROM TH E PUNJAB STATE CO- OPERATIVE AGRICULTURAL BANK LTD. CHANDIGARH. THE AS SESSEE FILED ITS ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 3 RETURN OF INCOME DECLARING INCOME TO BE EXEMPT U/S 80P OF I.T. ACT,1961. DURING ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R OBSERVED THAT ASSESSEE HAD CREDITED TO ITS P&L ACCOUNT, MISCELLAN EOUS INCOME, LOAN FEE AND NPA CHARGES TO THE TUNE OF RS.2,98,252/- WHICH THE ASSESSING OFFICER HELD THAT THE SAME WERE NOT RELATABLE TO TH E BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS SIMILARLY MISC. IN COME, LOAN FEE AND AUDIT FEE REVERSAL CHARGES IN ITA NO.398(ASR)/2016 WERE H ELD TO BE NOT RELATABLE TO BUSINESS, AND THEREFORE, ASSESSING OFF ICER DISALLOWED THE EXEMPTION TO THE EXTENT OF RS.2,98,252 & RS.2,56,77 8/-RESPECTIVELY FOR THESE TWO YEARS. 5. AGGRIEVED WITH THE ORDERS, THE ASSESSEE FILED AP PEALS BEFORE LD. CIT(A), WHO DISMISSED THE APPEALS OF ASSESSEE BY RE LYING ON EARLIER YEARS ORDER FOR ASST. YEAR 2008-09 AND 2009-10, WHERE THE LD. CIT(A) HAS HELD SUCH INCOMES TO BE NOT RELATING TO BUSINESS. 6. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE US. 7. AT THE OUTSET, THE LD. AR SUBMITTED THAT IN ITA NO.397(ASR)/2016, THE ASSESSING OFFICER HAD DISALLOWED A TOTAL AMOUNT OF RS.2,98,252/- OUT OF WHICH RS.2,34,562/- WAS NOT AN INCOME AND RATHER IT WAS AN EXPENDITURE IN THE FORM OF NPA CHARGE WHICH WAS DEB ITED TO P&L ACCOUNT AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO (P B-7) WHERE A COPY OF ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 4 P&L ACCOUNT SHOWING EXPENDITURE ON ACCOUNT OF NPA C HARGES WAS PLACED. THEREFORE, IT WAS ARGUED THAT AUTHORITIES BELOW HAS WRONGLY CONSIDERED THIS ITEM OF EXPENDITURE AS ITEM OF INCO ME WHEREAS THE FACTS REMAINS THAT THIS WAS AN EXPENDITURE. 8. AS REGARDS MISCELLANEOUS INCOME AND LOAN FEE CRE DITED IN THE P&L ACCOUNT, THE LD. AR SUBMITTED THAT THE MISCELLANEOU S INCOME AND LOAN FEE ARE ATTRIBUTABLE TO THE SOURCE OF PROVIDING CRE DIT FACILITIES OF ITS MEMBERS AND HAS DIRECT NEXUS WITH ITS EARNING AND W AS ALLOWABLE AS ELIGIBLE INCOME ENTITLED FOR EXEMPTION U/S 80P OF T HE ACT. RELIANCE IN THIS RESPECT WAS PLACED ON THE FOLLOWING CASE LAWS. ACIT VS. SHIVKRUPA SEHKARI PATPEDHI LTD. 2014 (MUMB AI BENCHES) VOLLORE ELECTRIC CORP. LTD. VS. CIT 227 ITR CIT (SC ). CIT VS. ANANKAPLLI CO-OPERATIVE MARKETING SOCIETY L TD. (AP) 254 ITR 616 THE RURKEE CO-OPERATIVE AGRI. MULTIPURPOSES SOCIETY LTD. VS. JCIT (OSD). THE LD. AR SUBMITTED THAT ASSESSING OFFICER HAS WRO NGLY RELIED ON THE JUDGMENT OF HONBLE ANDHRA PRADESH HIGH COURT IN TH E CASE OF CIT VS. ANAKAPLLI CO-OPERATIVE MARKETING SOCIETY LTD. 254 I TR 616, AS IN THAT CASE THE AGRICULTURAL CO-OPERATIVE SOCIETY WAS NOT ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS AND THEREFORE, IT WAS HELD THAT SERVICE CHARGES RECOVERED FROM MEMBERS FO R ARRANGING LOANS FROM BANKS WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P. ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 5 THE LD. AR FURTHER SUBMITTED THAT IN THE PRESENT C ASES, THE ASSESSEE WAS DIRECTLY ENGAGED IN THE BUSINESS OF PR OVIDING CREDIT FACILITIES TO ITS MEMBERS AND THEREFORE, THIS CASE LAW WAS NOT APPLICABLE AND IN THIS RESPECT OUR ATTENTION WAS INVITED TO TH E BYE LAWS OF THE SOCIETY, WHEREIN THE OBJECTS TO BE PERUSED BY THE S OCIETY WERE PLACED AT (PB-48). 9. AS REGARDS THE APPEAL IN ITA NO.398(ASR)/2016, T HE LD. AR SUBMITTED THAT IN THIS CASE THE DISALLOWANCE OF RS. 2,56,778/- INCLUDED MISCELLANEOUS INCOME OF RS.1,21,268/- AND LOAN FEE CHARGES OF RS.45,010/- AND REVERSAL OF EXCESS AUDIT FEE OF RS. 90,500/-. AS REGARDS THE REVERSAL OF EXCESS AUDIT FEE, THE L D. AR SUBMITTED THAT DUE TO APPOINTMENT OF OUTSIDE AUDITORS FROM TH E PRACTICING CHARTERED ACCOUNTANTS THE EXCESS AUDIT FEE PROVISIO N WAS WRITTEN BACK AND THEREFORE, THE WRITTEN BACK OF EXCESS AUDIT FEE IS IN FACT NO INCOME OF THE SOCIETY BUT IT IS A REVERSAL OF A PROVISION. 10. THE LD. DR, ON THE OTHER HAND, HEAVILY PLACED H IS RELIANCE ON THE ORDER OF AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIRST TAKE UP APPEAL IN ITA NO.397(ASR)/2016. WE FIND FROM THE P&L ACCOUNT PLAC ED AT (PB 4 TO 7) THAT NPA CHARGE IS NOT AN ITEM OF INCOME BUT IT IS AN ITEM OF EXPENDITURE ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 6 WHICH HAS BEEN BOOKED BY ASSESSEE AS EXPENDITURE AS IS APPARENT FROM THE (PB-7) WHERE A COPY OF P&L ACCOUNT IS PLACED. T HE NPA CHARGES HAS BEEN SPECIFICALLY MENTIONED UNDER THE EXPENDITURE H EAD. WE FURTHER OBSERVE FROM THE SAME P&L ACCOUNT AT PAGE 4 THAT AS SESSEE HAD DECLARED NPA INCOME AT RS.1,26,740/- AND THEREFORE, THE AUTH ORITIES BELOW HAS TAKEN WRONG FIGURES. THE NPA CHARGE IS BOTH APPEARI NG IN THE P&L ACCOUNT AS AN ITEM OF EXPENDITURE AND ALSO AS AN IT EM OF INCOME. THE NET EFFECT OF THESE ARE THAT THERE IS NET EXPENDITU RE ON ACCOUNT OF NPA CHARGES AND THEREFORE AS REGARDS THIS ITEM, WE FIND SINCE THERE WAS NO NET INCOME ON ACCOUNT OF NPA CHARGE, THEREFORE, NO DISALLOWANCE WAS WARRANTED. IF THE NPA CHARGE WAS ITS NET INCOME EVE N THEN THE DISALLOWANCE WAS NOT WARRANTED AS THE ASSESSEE HAD EXPLAINED TO THE LD. CIT(A) VIDE WRITTEN SUBMISSIONS THAT THIS CHARGE IS COLLECTED FROM THE DEFAULTERS WHO HAD DEFAULTED ON REPAYMENTS AND LD. CIT(A) HAS NOT REBUTTED THE SAME. THE CHARGING OF SOME CHARGE TO T HE DEFAULTERS IN THE CASE OF BANKING COMPANY CAN NOT BE SAID TO BE NOT R ELATING TO ITS BUSINESS. AS REGARDS MISCELLANEOUS INCOME AND LOAN FEE, THE A SSESSEE HAD SUBMITTED BEFORE LD. CIT(A) THAT LOAN FEE & MISC. I NCOME IS CHARGED TO THE MEMBERS FOR PROCESSING LOAN APPLICATIONS AND IT WAS A NORMAL BANKING RECEIPTS AND LD. CIT(A) HAD NOT REBUTTED IT . THE ASSESSEE IS ENGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBE RS WHICH FINDING HAS BEEN RECORDED BY THE AUTHORITIES BELOW IN THEIR RES PECTIVE ORDERS ALSO AND ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 7 THIS FACT IS APPARENT FROM THE OBJECT CLAUSE OF THE BYE LAWS PLACED AT (PB 47 TO 48). THEREFORE, THE PROCESSING CHARGE CHARGED TO A BORROWER IS DEFINITELY PART OF BUSINESS RECEIPTS IN THE CASE OF BANKING COMPANY. RELIANCE PLACED BY ASSESSING OFFICER ON THE CASE LA WS IN THE CASE OF CIT VS. ANAKAPLLI CO-OPERATIVE MARKETING SOCIETY LTD. ( AP) 254 ITR 616 IS MISPLACED AS IN THAT CASE THE ASSESSEE WAS NOT ENGA GED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND S ERVICE CHARGES WERE RECOVERED FROM MEMBERS FOR ARRANGING LOANS FROM BAN KS AND THEREFORE, IN THAT CASE THE CHARGES WERE HELD TO BE NOT RELATI NG TO BUSINESS OF THE ASSESSEE. THE FACTS OF THAT CASE ARE THAT ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ER FOR OBTAINING FERTILIZERS, FOOD GRAINS, CONTROLLED CLOTH, ETC. TH E ASSESSEE IN THAT CASE WAS ALSO ENGAGED IN ARRANGING LOANS THROUGH THE STA TE BANK OF INDIA WHEREAS IN THE PRESENT CASE, THE ASSESSEE ITSELF IS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS AND THEREFORE, THE LOAN FEES AND MISCELLANEOUS INCOME EARNED BY ASSESS EE IS DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF ASSESSEE AND IS ELI GIBLE FOR EXEMPTION U/S 80P(2)(A)(I) OF THE ACT. THE HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS. ANANKAPLLI CO-OPERATIVE MARKETING S OCIETY LTD.(SUPRA) , THE CASE LAW WHICH HAS BEEN RELIED ON BY ASSESSING OFFICER HAS HELD THAT IF THE SOCIETY IS ENGAGED IN THE BUSINESS OF PROVID ING CREDIT FACILITIES TO ITS MEMBERS AND IF THAT SOCIETY MAKES ANY PROFIT AND GA IN OUT OF BUSINESS ATTRIBUTABLE TO SUCH AN ACTIVITY, THEN THAT INCOME EARNED BY THE SOCIETY BY WAY OF PROFIT OR GAIN QUALIFIES FOR EXEMPTION UN DER SECTION U/S ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 8 80P(2)(A)(I) OF THE ACT. THE MISCELLANEOUS INCOME A ND LOAN FEE ARE FOR THE FACILITIES OF PROVIDING CREDIT FACILITIES TO THE ME MBERS OF THE SOCIETY AND HAS DIRECT NEXUS WITH THE EARNINGS OF THE ASSESSEE . THE HONBLE HIGH COURT IN THE CASE OF A.P CO-OPERATIVE CENTRAL LAND MORTAGE BANK LTD. VS. CIT 100 ITR 472, (AP) HAS HELD THAT THE EXPRESSION FACILITIES USED IN THE PROVISIONS IS AN INCLUSIVE TERM OF WIDE IMPORT EMBR ACING ANYTHING WHICH AIDS OR MAKES EASIER THE PERFORMANCE OF A DUTY. THE FULL BENCH OF PUNJAB & HARYANA HIGH COURT IN THE CASE BUDHEWAL C O-OPERATIVE SUGAR MILLS LTDE. VS. CIT 315 ITR 351 HAS HELD AS UNDER. . SECTION 80P HAS BEEN ENACTED WITH THE OBJECT OF PR OMOTE COOPERATIVE MOVEMENT AND IT HAS TO BE LIBERALLY CON STRUED. IT WAS ALSO HELD THAT A CORRECT WAY OF READING THE DIFFERE NT HEADS OF EXEMPTION ENUMERATED IN THE SECTION WOULD BE TO TRE AT EACH AS A SEPARATE AND DISTINCT HEAD OF EXEMPTION AND WHENEVE R A QUESTION AROSE AS TO EXEMPTION OF A PARTICULAR INCOME OF A C OOPERATIVE SOCIETY, WHAT IS TO BE SEEN IS WHETHER THE CASE FEL L WITHIN ANY OF THE SEVERAL HEADS OF INCOME, AND IF FELL WITHIN ANY OF SUCH HEADS, THE EXEMPTION SHOULD BE ALLOWED. FURTHER IT IS HELD IN CIT VS, HARYANA STATE COOP AP EX BANK LTD. (2010) 322 ITR 404 (P&H) INTEREST ON REFUND OF INCOME TAX PAID IN EXCESS WA S HELD TO BE ATTRIBUTABLE TO THE INCOME DERIVED FROM BANKING BUSINESS WITHIN THE MEANING OF SECTION 80P(2)(A)(I) FURTHER IT IS HELD IN CIT VS. RAMNATHANPURAM DISTT. CENTRAL COOP. BANKLTD. (2002) 255 ITR 423 (SC) HELD THAT INTEREST ON SECURITIES, SUBSIDIES RECEIVED FROM TH E GOVERNMENT AND DIVIDEND WERE ALLOWED TO BE TREATED AS BUSINESS INCOME OF THE ASSESSEE ELIGIBLE TO DEDUCTI ON U/S 80P(2)(A)(I). FURTHER IN THE CASE OF CIT VS. RATNAGIRI DISTT. CEN TRAL COOP, BANK LTD.(2002) 254ITR 597 (BOM.) HELD AS UNDER: INTEREST EARNED ON INDIRA VIKAS PATRA, WAS ALSO HE LD TO BE ATTRIBUTABLE TO BUSINESS ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 9 FURTHER IN THE CASE OF THE RURKREE COOPERATIVE AGRI CULTURAL MULTIPURPOSE SOCIETY LTD. VS. JCIT(OSD), PHAGWARA C IRCLE, ITAT AMRITSAR HELD THAT ADMISSION FEES RECEIVED FROM THE MEMBERS ARE ALSO ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I). IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES AND J UDICIAL PRECEDENTS, WE HOLD THE LOAN FEE AND MISCELLANEOUS INCOME EARNED BY ASSESSEE AS ELIGIBLE FOR EXEMPTION U/S 80IP OF THE ACT. AS REGARD NPA CHARGES, WE HAVE ALREADY OBSERVED TH AT IT IS NOT AN ITEM OF INCOME BUT IT IS AN ITEM OF EXPENDITURE. IN VIEW OF THE ABOVE, THE APPEAL IN ITA NO.397(ASR)/2016 IS ALLOWED. 12. NOW, WE TAKE UP IN APPEAL NO.398(ASR)/2016. T HE FACTS AND CIRCUMSTANCES OF THE APPEAL IN APPEAL NO.398(ASR)/2 016 ARE PARI MATERIA WITH THE APPEAL IN ITA NO.397(ASR)/2016 EXCEPT THE FACT THAT INSTEAD OF NPA CHARGES, THE ITEM OF INCOME INCLUDES REVERSAL O F AUDIT FEE, MISCELLANEOUS INCOME AND LOAN FEE. AS REGARDS MISCELLANEOUS INCOME AND LOAN FEE, WE H AVE ALREADY HELD THE SAME TO BE RELATABLE TO BUSINESS OF THE AS SESSEE. AS REGARDS REVERSAL OF AUDIT FEE, WE HOLD THAT SAME IS ALSO AT TRIBUTABLE TO THE BUSINESS OF ASSESSEE AS IT IS NOT AN INCOME BUT A R EVERSAL OF EXPENDITURE ALREADY BOOKED AND AGAINST WHICH A PROVISION WAS AL READY LAYING. THEREFORE, WE HOLD THAT THE AUDIT FEE REVERSAL IS A LSO ENTITLED FOR ITA NO.39 7 & 398(ASR)/2016 ASST. YEAR: 2010-11 10 EXEMPTION U/S 80P. IN VIEW OF THE ABOVE, ITA NO. 39 8(ASR)/2016 IS ALSO ALLOWED. 13. IN NUTSHELL, BOTH THE APPEALS FILED BY ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 .03. 2017. SD/- SD/- (A.D. JAIN) (T. S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:15.03.2017. /PK/ PS. COPY OF THE ORDER FORWARDED TO: (1) THE ASSESSEE: (2) THE (3) THE CIT(A), (4) THE CIT, (5) THE SR DR, I.T.A.T., TRUE COPY BY ORDER