ITO, Ludhiana V. The Ayali Kalan Co-Op. Agri. Multipurpose Society Ltd., Ludhiana

ITA 414/CHANDI/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51555 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 20-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Assessee Lawyers: RAKESH MARWAHA
• Keywords: Proportionate interest
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHE A CHANDIGARH BEFORE SH. D.K. SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 414 /CHD/2011 ASSESSMENT YEAR :2007-08 PAN: INCOME TAX OFFICER VS. THE AYALI KALAN CO-OP. AGRI . WARD III(4), LUDHIANA. MULTIPURPOSE SOCIETY LTD. VILL. AYALI, LUDHIANA. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. AJAY SHARMA, DR ASSESSEE BY: SH. RAKESH MARWAHA DATE OF HEARING:14.11.2011 DATE OF PRONOUNCEMENT:25.11.2011 ORDER D.K. SRIVASTAVA: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-I, LUDHIANA, DATED 27. 01.2001, FOR THE ASSESSMENT YEAR 2007-08, ON THE FOLLOWING GROUNDS: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN DIRECTING THE AO TO ALLOW PROPORTIONATE INTEREST PAID BY THE ASSESSEE- SOCIETY ON SUCH LOANS WHICH HAS BEEN UTILIZED FOR T HE PURPOSE OF EARNING INTEREST ON FIXED DEPOSITS WITH BANKS. THE SECTION 80P(2)(D) SPEAKS OF EXEMPTION OF WHOLE INCOME BY WA Y OF INTEREST OR DIVIDENDS DERIVED FROM ITS INVESTMENTS WITH ANY OTHER CO-OPERATIVE SOCIETY. IF WHOLE OF INCOME IS EXEMPT IN ACCORDANCE WITH SECTION 80P(2)(D), THEN THE WHOLE O F SUCH INCOME IS TAXABLE WHICH IS NOT IN ACCORDANCE WITH S ECTION 80P OF THE I.T.ACT. 2. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AN D THAT OF THE A.O. BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE, A PRIMARY CO-OPERATIVE AGRICULTURE CREDIT SOCIETY, FILED ITS RETURN OF INCOME ON 30.10.2007 AT NIL INCOME. THE RETURN WAS TAKEN UP F OR SCRUTINY. ASSESSMENT UNDER SECTION 143(3) OF THE INCOME-TAX ACT WAS COMP LETED ON 21.12.2009, ASSESSING THE TOTAL INCOME AT RS. 46,24,220/-. PER USAL OF THE ASSESSMENT 2 ORDER SHOWS THAT THE A.O. HAS ADDED, INTER-ALIA, A SUM OF RS.40,41,626/- BEING INTEREST INCOME EARNED ON FDRS WITH THE FOLLO WING OBSERVATIONS: THE ASSESSEE SOCIETY HAS EARNED INCOME OF INTERES T ACCRUED ON FDR MAINTAINED IN UCO BANK AND BANK OF PUNJAB AMOU NTING TO RS.40,41,626/-. THIS INCOME DOES NOT FALL IN SECTIO N 80P(2)(D). THIS INTEREST INCOME IS, THEREFORE, TREATED AS INCOME O F THE ASSESSEE ON WHICH DEDUCTION U/S 80P(2)(D) IS NOT ALLOWABLE. HOW EVER, INTEREST INCOME RECEIVED FROM FDR WITH COOPERATIVE BANKS AMO UNTING TO RS.21,33,168/- IS ELIGIBLE FOR DEDUCTION U/S 80P(2) (D). IN VIEW OF THE FACTS MENTIONED ABOVE, IT IS CONCLU DED THAT THE INTEREST INCOME EARNED BY THE ASSESSEE SOCIETY FROM ITS INVESTMENTS IN BANKS OTHER THAN THE COOPERATIVE BANK IS TAXABLE. T HEREFORE, THE AMOUNT OF TOTAL INTEREST INCOME AMOUNTING TO RS.40, 41,626/- EARNED BY THE SOCIETY FROM THE INVESTMENTS MADE IN FDRS MA INTAINED IN UCO BANK AND BANK OF PUNJAB I.E. BANKS OTHER THAN THE COOPERATIVE BANK IS TAXABLE. ACCORDINGLY, THE DEDUCTION U/S 80P CLAIMED ON TOTAL AMOUNT OF INTEREST RECEIVED/ACCRUED ON FDR, IS REST RICTED TO THE INTEREST INCOME EARNED FROM COOPERATIVE BANKS ONLY. THE DEDUCTION U/S 80P(2)(D) ON ACCOUNT OF DEPOSITS IN BANKS OTHER THAN COOPERATIVE BANK IS DISALLOWED AND ADDED BACK TO THE INCOME OF THE ASSESSEE. AN AMOUNT OF RS.40,41,626/- IS, THEREFORE, ADDED BACK TO THE INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME HAVE BEEN INITIATE D SEPARATELY. 3. AGGRIEVED BY THE AFORESAID ADDITION, THE ASSESSE E CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DE ALT WITH THE ISSUE AT PAGES 7 & 8 OF ITS APPELLATE ORDER, AS UNDER: IN THIS CASE, ASSESSEE SOCIETY HAS EARNED INTEREST INCOME ON FDRS FROM BANKS OTHER THAN COOPERATIVE BANKS AND, T HEREFORE, THE AO HAS OBSERVED THAT SAME IS NOT ELIGIBLE FOR DEDUCTIO N U/S 80P(2)(D). ACCORDINGLY, AO HAS DISALLOWED DEDUCTION OF RS.40,4 1,626/- BEING INTEREST INCOME ON FDRS WITH BANKS OTHER THAN COOPE RATIVE BANK. AO HOWEVER ALLOWED DEDUCTION OF RS.21,33168/- BEING IN TEREST INCOME ON FDRS WITH CO-OPERATIVE BANK WHICH IS LEGIBLE U/S 8 0P(2)(D). AR HOWEVER OBJECTED TO THE ABOVE ALLOWANCE OF DEDUCTIO N U/S 80P(2)(D) ON THE INTEREST INCOME ON FDRS WITH BANKS OTHER THA N COOPERATIVE BANKS. HOWEVER, IT IS SEEN THAT AO HAS DISCUSSED THIS ISSUE AT GREAT LENGTH IN THE ASSTT. ORDER AND THEREFORE, WITHOUT R EITERATING THE SAME, I AGREE WITH THE FINDINGS OF THE AO THAT ASSESSEE SOC IETY IS NOT LEGIBLE FOR DEDUCTION U/S 80P(2)(D) ON THE INTT. INCOME OF RS.40,41,626/- EARNED ON FDRS KEPT WITH THE BANKS OTHER THAN COOPE RATIVE BANKS. HOWEVER, ARS ALTERNATIVE CONTENTION THAT GROSS AMOU NT OF INTT. SHOULD NOT BE TAXED AND APPELLANT SHOULD BE ALLOWED THE IN TT. COST IN RESPECT OF THE FUNDS DEPOSITED UNDER FDRS SHOULD BE ALLOWED AS DEDUCTION. IN OTHER WORDS, IT WAS CONTENDED THAT ONLY NET INTT. I NCOME I.E. DIFFERENCE BETWEEN INTT. ( RECEIVED MINUS INTT PAID) SHOULD ON LY BE TREATED AS APPELLANTS INCOME WHEREAS AO HAS TAKEN TOTAL AMOUN T OF SUCH INTT 3 WITHOUT CONSIDERING INTT PAID BY THE APPELLANT TO E ARN SUCH INCOME. THE ARS CONTENTION TO THAT EXTENT SEEMS TO BE REAS ONABLE AND THEREFORE, AO IS DIRECTED TO ALLOW PROPORTIONATE IN TT PAID BY THE APPELLANT TO EARN THE INTT INCOME OF RS.40,41,626/- AFTER VERIFICATION. IN VIEW OF THE ABOVE AO IS DIRECTED TO RECOMPUTE TH E INCOME ACCORDINGLY. THIS GROUND OF APPEAL IS PARTLY ALLOWE D. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE DE PARTMENT IS NOW IN APPEAL BEFORE THIS TRIBUNAL. IT IS THE CASE OF THE DEPARTMENT THAT WHOLE OF THE INTEREST IS LIABLE TO TAX UNDER SECTION 80P(2)(D) O F THE INCOME-TAX ACT, 1961, AND, THEREFORE, THE LD. CIT(A), WAS NOT JUSTIFIED I N DIRECTING THE A.O. TO EXCLUDE THE INTEREST PAID BY THE ASSESSEE TO EARN T HE INTEREST ON FDRS. 5. IN REPLY, THE LD. COUNSEL FOR THE ASSESSEE SUPPO RTED THE ORDER OF THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES. SECTION 80P(2)(D ) ALLOWS DEDUCTION IN RESPECT OF THE WHOLE INCOME BY WAY OF INTEREST OR DIVIDEND DERIVED BY A COOPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY O THER COOPERATIVE SOCIEITY. IN THE PRESENT CASE, THE ASSESSEE HAS CLAIMED DEDUC TION AMOUNTING TO RS.40,41,626/- BEING INTEREST ON FDRS WITH BANKS OT HER THAN COOPERATIVE SOCIETY OR COOPERATIVE BANK. THE LD. CIT(A) HAS CON FIRMED THE AFORESAID ACTION OF THE ASSESSING OFFICER. HE HAS, HOWEVER, D IRECTED THE ASSESSING OFFICER TO TAX ONLY INCOME FROM INTEREST, I.E., INT EREST RECEIVED MINUS INTEREST PAID. 7. THE SUBJECT MATTER OF TAXATION IS INCOME AND NOT GROSS RECEIPTS. THE LD. CIT(A) IS, THEREFORE, JUSTIFIED IN DIRECTING T HE A.O. TO TAX ONLY INCOME FROM INTEREST AND NOT THE GROSS RECEIPTS OF INTERES T. HOWEVER, FURTHER DIRECTION GIVEN BY THE LD. CIT(A) THAT ENTIRE AMOUN T OF INTEREST PAID SHOULD BE DEDUCTED FROM THE INTEREST RECEIVED, IS NOT IN ORDER. THE AO SHOULD EXCLUDE ONLY THAT MUCH OF INTEREST PAID WHICH HAS D IRECT NEXUS WITH THE INTEREST RECEIVED. INTEREST PAID WITHOUT NEXUS WITH INTEREST RECEIVED IS NOT ELIGIBLE FOR EXCLUSION FROM THE AMOUNT OF INTEREST RECEIVED BY THE ASSESSEE. WE THEREFORE MODIFY THE DIRECTION GIVEN BY THE LD. CIT(A) AND DIRECT THE A.O. TO EXCLUDE ONLY THAT AMOUNT OF INTEREST PAID, WHICH HAS DIRECT NEXUS WITH THE INTEREST RECEIVED. 4 8 IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT STANDS PRO-TANTO ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25TH TH NOVEMBER, 2011. SD/- SD/- (SUSHMA CHOWLA) (D.K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 25TH TH NOVEMBER, 2011 /SKR/ COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR, INCOME-TAX DEPARTMENT, CHANDIGARH.