M/s PanditpurSamabay Krishi Unnayan Samity Ltd, Kolkata V. ITO, Ward-41(1), Nadia

ITA 4/KOL/2022

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5200 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 03-01-2022
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Question of law
• Section: 56; 63; 28; 143(3); 142(1); 80P; 251; 143(2); 64

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘SMC’ BENCH, KOLKATA [Virtual Court] (Before Sri Manish Borad, Accountant Member& Sri Sonjoy Sarma, Judicial Member) I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd.............Appellant [PAN: AACAP 6931 G] Vs. ITO, Ward-41(1), Nadia.........................................................Respondent Appearances by: Sh. S.M. Surana, Adv., appeared on behalf of the Assessee. Sh. Surendra Kumar Mishra, Addl. CIT, appeared on behalf of the Revenue. Date of concluding the hearing : February 17 th , 2022 Date of pronouncing the order : April 5 th , 2022 ORDER Per Manish Borad, Accountant Member: This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2016-17is directed against the order of ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC)[in short ld. “CIT(A)”] dated 24.12.2021 vide Appeal No.CIT(A), Kolkata-12/10384/2018- 19 which is arising out of the assessment order framed u/s 143(3) of the Income Tax Act, 1961 (in short the “Act”) dated 06.12.2018 by ITO, Ward- 41(1), Nadia. 2. The assessee is in appeal before the Tribunal raising the following grounds: “1. For that the additions made on the issues beyond the reasons for scrutiny were not in accordance with law and as such are liable to be deleted. 2. For that the ld. CIT(A) erred in confirming the disallowance of deduction u/s 80P(2)(d) on account of interest income of Rs.6,46,233/- as taxable under other sources when the same was claimed and was allowable u/s 80P(2)(a)(i). 3. For that alternatively, but not admitting, the ld. CIT(A) should have restricted the disallowance only to the profit element @3.12% from the alleged non- attributable business of Rs.23,00,239/- i.e. Rs.71,767/- only. I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 2 of 8 4. For that the ld. CIT(A) erred in confirming the addition of interest income of Rs.29,053/- which was allowable u/s 80P(2)(a)(i). 5. For that the ld. CIT(A) erred in confirming the addition of Rs.8,760/- as alleged undisclosed investment which was duly reconciled and allowable u/s 80P. 6. For that the additions confirmed by the CIT(A) was not in accordance with law and is liable to be deleted.” 3. Brief facts of the case as per the records are that the assessee is a cooperative Society engaged in retail business of agricultural products and runs the business of micro finance within its members as per the rules and regulations of the Society. E-return of income was filed for AY 2016-17 on 18.10.2016 by the assessee Society. Case selected for complete scrutiny through CASS followed by serving of notice u/s 143(2) & 142(1) of the Act. Ld. AO noticed that the assessee has disclosed net profit of Rs.6,96,233/- in its profit & loss account. He also observed that the assessee Society received interest income on investment in term deposit with other banks totalling to Rs.23,00,239/-. Since this amount was not earned either from the members of the Society nor from any other cooperative Society, ld. AO denied the deduction claimed by the assessee u/s 80P(2) of the Act and made the addition of Rs.6,46,233/- after giving the benefit of deduction of Rs.50,000/- provided u/s 80P of the Act. Disallowance was also made for the income of Rs.29,053/- not shown in the profit & loss account and the addition was also made for sum of Rs.8,760/- for showing the income for wrongly claiming the deduction u/s 80P of the Act which actually was an investment to be shown in the balance sheet. Accordingly, income assessed at Rs.6,84,046/-. 4. Aggrieved, the assessee preferred appeal before the ld. CIT(A) but failed to succeed on any of the grounds. 5. Aggrieved, the assessee preferred appeal before the Tribunal. Ld. Counsel for the assessee submitted that the assessee deserves to be allowed the benefit of deduction u/s 80P(2)(a)(i) of the Act as the alleged income has been earned from the business of providing credit facilities to its members. Alternatively, it was submitted that the Disallowance should be restricted only to the extent of net profit rate i.e. 3.12% of the alleged interest income I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 3 of 8 of Rs.23,00,239/- and addition of Rs.71,767/- may only be made. As far as the other additions of Rs.23,00,239/- is concerned, it was submitted that the same is allowable as deduction u/s 80P(2)(a)(i) of the Act and the addition of Rs.8,760/- needs to be deleted as the alleged undisclosed investment was duly reconciled. Reliance placed on the judgment of the Hon’ble jurisdictional High Court in the case of CIT-X, Kolkata vs. South Eastern Railway Employees’ Cooperative Credit Society Ltd. in Income Tax Appeal No. 484 of 2007 order dated 15.07.2016. 6. Per contra, the ld. D/R vehemently argued supporting the order of both the lower authorities. 7. We have heard rival contentions and perused the records placed before us. The assessee has raised three grounds alleging that the ld. CIT(A) erred in not providing the benefit of deduction u/s 80P(2)(a)(i) of the Act of Rs.6,46,233/-, Rs.29,053/- & Rs.8,760/-. The assessee has also placed reliance on the judgment of the Hon’ble jurisdictional High Court in the case of South Eastern Railway Employees’ Cooperative Credit Society Ltd. (supra). The following question of law was formulated by the Hon’ble Court: “Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal by allowing deduction on income earned by the assessee from investment in banks and other financial institutions has rendered the provisions of Section 80P(2)(a)(i) nugatory as the said section of the Act allows deduction to a cooperative Society engaged in carrying on business of banking or providing credit facilities to its members?” 8. We, further, find that the Hon’ble Court decided the issue observing as follows: “7. We have not been impressed by the first submission advanced by Mr. Saraf. If the Multi State Cooperative Societies Act, 2002 does not provide for the consequences of an omission to act in accordance with Section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner, the business can be done only in that manner or not at all. 8. We are also not impressed by the submission advanced by Mr. Khaitan that the interest earned by the assessee from the investments made, to the extent of a sum of Rs. 99 lakhs during the assessment year 2003-04 and a sum of Rs. 1.12 crores during the assessment year 2004-05, should be attributable to the business of providing credit facilities to its members. Section 80P, it is true provides that, "in the case of a co-operative society engaged in carrying on the business ......................... providing credit facilities to its members ......................... the I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 4 of 8 whole of the amount of the profits and gains of business "attributable" to any such activity "shall be deducted". But there is a caution appearing in sub-section (1) which provides that the gross total income of a co-operative society may include income from various activities. It is only an income falling under sub-section (2), which is deductible. The Supreme Court in the case of Totgars Co-operative Sale Society Limited v. ITO (2010) 322 ITR 283 took the following view in para 10 of the report. '10. At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under s. 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 s. 56 of the Act is the interest income arising on the surplus invested in short-term deposits and securities which surplus was not required for business purposes. 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 created 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 s. 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 s. 56 of the Act, as rightly held by the AO. In this connection, we may analyze s.80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain income". The headnote to s. 80P indicates that the said section deals with deductions in respect of income of co-operative societies. Sec. 80P(1), inter alia, states that where the gross total income of a cooperative 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 s. 80P(2) of the Act, would be eligible for deduction. The word "income" has been defined under s.2(24)(i) of the Act 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, we are required to give a precise meaning to the words "profits and gains of business" mentioned in s.80P(2) of the Act. In the present case, as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within 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 of 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 s. 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". Further, as stated above, 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-term 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 liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in s. 80P(2)(a)(iii) of the Act. Therefore, looking to the facts and circumstances of this case, we are of the view that the AO was right in taxing the interest income, indicated above, under s. 56 of the Act.' 9. We are prepared to agree with Mr. Khaitan to the extent that the interest earned from out of the investments made under Section 64 read with Section 63 of the I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 5 of 8 Multi-State Co-operative Societies Act, 2002 is attributable to the business of providing credit facilities to its members. But we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgments cited by Mr. Khaitan. 10. We are unable to agree with the views of Patna High Court in the case of Bihar State Housing Co-operative Federation Ltd. (supra). The Division Bench in that case relied on the judgment of the Apex Court in the case of CIT v. Karnataka State Co-operative Apex Bank [2001] 251 ITR 194/118 Taxman 321. That was a case of a co-operative bank. A co-operative bank and a co-operative society do not stand on the same footing. The whole of the income of co-operative bank is deductible whereas in the case of a society the income attributable to any one or more of the activities laid down in Subsection (2) is deductible. The Division Bench did not give any independent reasoning. The Division Bench proceeded on the basis that the view taken by them was supported by the Judgment in the case of Karnataka State Co-operative Apex Bank (supra) which, with respect, was not a correct impression. The other judgement cited by Mr. Khaitan in the case of Guttigedarara Credit Co-operative Society Ltd. (supra) is not applicable because the caution appearing in sub-section (1) of Section 80P, that only an income referred to in sub-section (2) was deductible, was not taken into account. The sub- section (2) provides for only the income attributable to the business of advancing credit facilities to its members. Income arising from any other source including investment of capital "if not immediately required to be lent to the members" was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in the case of Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC) is a binding authority for the preposition that "interest income arising on the surplus invested in short-term deposits and securities ......................... would come in the category of income from other sources." 11. Realising his difficulty, Mr. Khaitan submitted that the assessee was under the impression that the income arising out of investments is also attributable to the business of providing credit facilities to its members and on that basis, the assessee did not separately provide for the expenditure incurred for the purpose of earning Rs. 99 lakhs during the assessment year 2003-04 and Rs. 1.12 crores during the assessment year 2004-05, from investments. Those investments were obviously made from out of the funds deposited by the members and for such deposits, interest has been paid to those members by the assessee. The interest paid to those members on account of such deposits should, therefore, have been separately accounted for, which exercise was not undertaken. The result thereof was that the expenditure was artificially enhanced and the income arising out of the business of providing credit facilities to its members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of Rs. 99 lakhs and Rs. 1.12 crores respectively. The expenditure incurred for earning those two amounts of income is the amount of interest paid for that money to the members which has to be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, the Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under Section 63 as an income attributable to the business. 12. Mr. Saraf submitted that this is a new case made out by the assessee before the High Court. This was never the plea before any of the authorities. He is no doubt correct in his submission. But Court cannot refuse to give a person what is due to him. As a matter of fact, only that is a good judgment which renders every I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 6 of 8 person his due. Whether the assessee claimed the amount or did not claim the amount, is not of much importance. What is of importance is whether the benefit is allowable in law? If an answer to that question is in the affirmative, then that benefit has be allowed. 13. In that view of the matter, the question raised for decision is answered in the affirmative and in favour of the revenue to the extent as indicated above. The appeal is allowed. The matter is, however, remanded to the Assessing Officer (a) to work out the interest earned under Sections 63 and 64 of the Multi-State Co- operative Societies Act, 2002 and to allow benefit under Section 80P and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs. 99 lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from the expenses of eligible business. Consequent increased amount of profits of eligible business as discussed above shall be the amount of deduction available to the assessee under Section 80P. 14. The appeal is thus disposed of.” 9. On examining the facts of the case in light of the above judgment, we find that as regards the disallowance of deduction u/s 80P(2)(d) of the Act of Rs.6,46,233/- we do not find any merit in the contentions of the ld. Counsel for the assessee for the very reason that there is no dispute at the end of the assessee that interest income of Rs.23,00,239/- has been earned from term deposit/other deposits with scheduled banks or other banks other than cooperative banks. There is no iota of evidence which could show that the interest income of Rs.23,00,239/- has any connection with the income from its members. The judgment of the Hon’ble jurisdictional High Court referred above clearly states that such interest income which is earned from other banks and not earned from members of the Society or from deposits with any other cooperative Society no deduction is allowable u/s 80P(2) of the Act. Only any expenditure incurred to earn such income not eligible for deduction u/s 80P(2) of the Act can be claimed. In the instant case, the interest income from banks other than cooperative banks/cooperative Societies/members is Rs.23,00,239/-. The net profit shown in the profit & loss account is only Rs.6,96,233/-. Though details of profit & loss account have not been placed on record but even otherwise against the interest income from banks, deduction of Rs.16,04,006/- has already been claimed by the assessee, there hardly remains any case for the assessee to claim any other benefit. The ld. AO has already allowed deduction of Rs. 50,000/- against the net profit of Rs.6,96,233/-. The alternative submission of the assessee is that the disallowance should be restricted only to 3.12% being I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 7 of 8 the net profit rate to be applied on the interest income of Rs.23,00,239/- cannot stand for as the assessee has already claimed an expenditure of Rs.16,04,006/- against the interest income of Rs.23,00,239/-. We, therefore, confirm the finding of the ld. CIT(A) sustaining the addition of Rs.6,46,233/- made by the AO and dismiss the ground nos. 2 & 3 raised by the assessee. 10. After perusing ground nos. 4 & 5 pertaining to addition of Rs.29,053/- & Rs.8,760/-. Ld. Counsel for the assessee had made general submissions and has not placed any material on record to claim that ld. CIT(A) erred in confirming the addition. We, on perusal of the finding of the ld. CIT(A), observe that the assessee had admitted during the course of assessment proceedings that the interest income amounting to Rs.29,053/- was understated in the return of income and similarly with regard to the addition of Rs.8,760/-, the assessee admitted before the AO that there was a difference between the closing bank balance as per bank statement and closing balance as per books of account and the said difference was reconciled and shown in the accounts of the next year. This finding of the ld. CIT(A) remained uncontroverted by the ld. Counsel for the assessee. We, therefore, confirm the finding of the ld. CIT(A) sustaining the addition of Rs.29,053/- & Rs.8,760/- made by the AO. Thus, ground nos. 4 & 5 of the assessee are dismissed. 11. Ground nos. 1 & 6 are general in nature which needs no adjudication. 12. In the result, the appeal of the assessee is dismissed. Kolkata, the 5 th April, 2022. Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 05.04.2022 Bidhan (P.S.) I.T.A. No.: 04/Kol/2022 Assessment Year: 2016-17 M/s. Panditpur Samabay Krishi Unnayan Samity Ltd. Page 8 of 8 Copy of the order forwarded to: 1. M/s. Panditpur Samabay Krishi Unnayan Samity Ltd., Dhubalia, Krishnanagar, Nadia-741 140. 2. ITO, Ward-41(1), Nadia. 3. CIT(A)-National Faceless Appeal Centre (NFAC). 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. True copy By order Assistant Registrar ITAT, Kolkata Benches Kolkata