Bhedasgaon Nagari Sahakari Pat Sanstha Maryadit, Kolhapur V. Income-tax Officer,

ITA 420/PUN/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1711 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 08-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Section: 143(3); 56

Judgement Text

- IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH SMC , PUNE , BEFORE MS. SUSHMA CHOWLA, JM . / ITA NO. 420 /PN/201 5 / ASSESSM ENT YEAR : 20 1 2 - 1 3 BHEDASGAON NAGARI SAHAKARI PAT SANSTHA MARYADIT, TAL. SHAHUWADI, KOLHAPUR . / APPELLANT PAN: A AAAS9246F VS. THE INCOME TAX OFFICER, WARD 1 ( 2 ), KOLHAPUR . / RESPONDENT WARD 1 ( 2 ), KOLHAPUR . / RESPONDENT / APPELLAN T BY : SHRI NIKHIL PATHAK / RESPONDENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 15 . 0 6 .201 6 / DATE OF PRONOUNCEMENT: 17 . 0 6 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY T HE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - 1 & 2 , KOLHAPUR , DATED 29 . 0 1 .20 1 5 RELATING TO ASSESSMENT YEAR 20 1 2 - 1 3 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 (IN SHORT THE ACT) . ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 2 2 . THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF DEDUCTION U / S 80P IN RESPECT OF THE INTEREST INCOME OF RS.33,86,385 / - RECEIVED BY THE ASSESSEE SOCIETY ON INVESTMENTS MADE IN FIXED DEPOSITS IN STATE BANK OF INDIA, RATNAKAR BANK, I DBI BANK, BANK OF INDIA AND OB C . 2] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS NOT ELIGIBLE TO CLAIM THE DEDUCTION U / S 80P(2)(A)(I) IN RESPECT OF THE INCOME EARNED BY WAY OF INTEREST ON FIXED DEPOSITS WITH THE ABOVE REFERRED BANKS ON T HE GROUND THAT THE SAID INTEREST INCOME WAS NOT DERIVED BY THE ASSESSEE SOCIETY IN THE COURSE OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND HENCE, IT WAS NOT ELIGIBLE TO CLAIM DEDUCTION U/S. 80P. 3] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT T HE ASSESSEE WAS A CREDIT CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITY TO ITS MEMBERS AND HENCE, THE INVESTMENTS MADE IN FIXED DEPOSITS WITH ABOVE REFERRED BANKS WERE MADE IN THE COURSE OF THE ASSESSEE'S BUSINESS AND THUS, T HERE WAS NO REASON TO DENY THE DEDUCTION U / S 80P(2)(A)(I) IN RESPECT OF THE INTEREST INCOME DERIVED FROM THE ABOVE INVESTMENTS. 4] WITHOUT PREJUDICE TO THE ABOVE GROUNDS, ASSUMING WITHOUT ADMITTING THAT THE ASSESSEE IS NOT ELIGIBLE TO CLAIM THE DEDUCTI ON U/S 80P(2)(A)(I), THE ASSESSEE SUBMITS THAT THE DISALLOWANCE MAY BE RESTRICTED TO THE NET INCOME EARNED AFTER DEDUCTING PROPORTIONATE EXPENSES INCURRED TO EARN THE INTEREST INCOME OF RS.33,86,385/ - AND ONLY THE BALANCE NET INCOME OF RS.77,658/ - MAY BE D ISALLOWED. 3. THE ISSUE ARISING IN THE PRESENT APPEAL IS AGAINST THE DENIAL OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT ON INTEREST INCOME OF RS.33,86,385/ - . 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS A CO - OPERATIVE CREDIT SOCI ETY AND WAS RECEIVING DEPOSITS FROM ITS MEMBERS AND PROVIDING CREDIT FACILITIES TO ITS MEMBERS. CERTAIN DEPOSITS WERE MADE BY THE ASSESSEE SOCIETY WITH DIFFERENT BANKS, ON WHICH IT RECEIVED THE INTEREST. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE CO - O PERATIVE CREDIT SOCIETY HAD EARNED INTEREST FROM BANK DEPOSITS WITH BANKS WHICH WERE OTHER THAN THE CO - OPERATIVE SOCIETIES OR CO - OPERATIVE BANKS TOTALLING RS. 33,86,385/ - . THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN AS TO WHY THE DEDUCTION UNDER SECTION 80P(2) (A)(I) OF THE ACT IS ALLOWABLE TO IT ON THE WHOLE OF ITS INTEREST INCOME I.E. IN RESPECT OF INTEREST RECEIVED FROM ITS ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND ALSO IN ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 3 RESPECT OF INTEREST INCOME FROM DIFFERENT BANKS. THE ASSESSEE EXPLAIN ED THAT THE ISSUE IS COVERED BY THE ORDER OF TRIBUNAL IN THE CASE OF NIPHAD NAGARI SAHAKARI PAT SANSTHA LTD. IN ITA NO.1336/PN/2011, RELATING TO ASSESSMENT YEAR 2008 - 09, ORDER DATED 31.07.2013. HOWEVER, THE ASSESSING OFFICER IN TURN, RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN TOTGARS CO - OP. SALE SOCIETY LTD. VS. ITO (2010) 322 ITR 283 (SC) , HELD THAT THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. HE FURTHER OBSERVED THAT THE DEPARTMENT HAD NOT ACCEPT ED THE DECISION OF TRIBUNAL AND HAD FILED AN APPEAL BEFORE THE HONBLE BOMBAY HIGH COURT AND HENCE, THE INCOME OF INTEREST OF RS.33,86,385/ - WAS ASSESSED AS INCOME FROM OTHER SOURCES. 5. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER, AGAINST WHICH TH E ASSESSEE IS IN APPEAL. 6. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE ORDER OF TRIBUNAL IN ITO VS. M/S. KUNDALIKA NAGARI SAHAKARI PATSANSTHA MARYADIT IN ITA NO .900/PN/2014 AND ITO VS. M/S. KAMAL MAHILA NAGARI SAHAKARI PATPEDHI MARYADIT IN ITA NO.898/PN/2014 AND CROSS OBJECTIONS NO.34/PN/2015 AND 32/PN/2015, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 29.01.2016 . 7. ON PERUSAL OF RECORD, IT IS APPARENT THAT THE ASSESSEE WAS A CO - OPERATIVE CREDIT SOCIETY. IT WAS RECEIVING DEPOSITS FROM ITS MEMBERS AND WAS ALSO PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSEE WAS EARNING INTEREST ON SUCH CREDIT FACILITIES PROVIDED TO ITS MEMBERS, WHICH WAS CLAIMED AS ITS INCOME FROM BUSINESS BEING ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . THERE IS NO DISPUTE WITH REGARD TO THE CLAIM OF DEDUCTION UNDER SECTION ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 4 80P(2)(A)(I) OF THE ACT IN RESPECT OF SUCH INTEREST INCOME RECEIVED BY PROVIDING CREDIT F ACILITIES TO ITS MEMBERS. IN ADDITION, THE ASSESSEE HAD ALSO RECEIVED INCOME FROM INTEREST ON FDS WITH DIFFERENT BANKS, WHICH WERE NOT CO - OPERATIVE BANKS TOTALLING RS.33,86,385/ - . THE BREAK - UP OF INTEREST INCOME RECEIVED BY THE ASSESSEE WA S AS UNDER: - SR NO NAME OF THE BANKS / INSTITUTIONS OTHER THAN CO - OP. BANKS AMOUNT OF INTEREST RECEIVED 1 BANK OF INDIA 1209043 2 THE RATNAKAR BANK 638684 3 O.B.C. BANK 391799 4 IDBI BANK 927485 5 STATE BANK OF INDIA 219374 TOTAL 3386385 8. THE ASSESSEE CLAIMED THAT IT WAS ALSO ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT IN RESPECT OF THE SAID BANKS INTEREST INCOME. HOWEVER, THE SAME WAS DENIED TO THE ASSESSEE BY THE AUTHORITIES BELOW. 9. AN IDENTICAL ISSUE OF CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE 9. AN IDENTICAL ISSUE OF CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT IN RESPECT OF INTEREST INCOME EARNED BY A CREDIT CO - OPERATIVE SOCIETY HAD ARISEN BEFORE THE TRIBUNAL IN ITO VS. M/S. KUNDALIKA NAGARI SAHAKARI PATSANSTHA MARYADIT (SUPRA) AND THE TRIBUNAL AFTER CONSIDERING THE RATIO LAID DOWN BY TH E HONBLE SUPREME COURT IN TOTGARS CO - OP. SALE SOCIETY LTD. VS. ITO (SUPRA), HELD AS UNDER: - 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE BEFORE US IS A CREDIT CO - OPERATIVE SOCIETY, WHICH IS ACCEPTING DEPOSITS FROM ITS MEM BERS AND USING THE SAME FOR GIVING LOANS TO ITS MEMBERS. IN ADDITION, THE ASSESSEE IS ALSO MAKING INVESTMENTS WITH OTHER CO - OPERATIVE SOCIETIES, WHICH IT CLAIMS TO HAVE MADE AS PER THE MANDATE OF MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, 1960. THE ISSUE AR ISING BEFORE US IS WHETHER THE INTEREST INCOME EARNED BY THE ASSESSEE ON SUCH INVESTMENTS IS LIABLE FOR DEDUCTION UNDER SECTION 80P(2) OF THE ACT IN THE HANDS OF THE ASSESSEE. THE ASSESSING OFFICER RELYING ON THE RATIO LAID DOWN BY THE HONBLE SUPREME COU RT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) WAS OF THE VIEW THAT THE SAID INTEREST EARNED BY THE ASSESSEE WAS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE ALTERNATE PLEA OF THE ASSESSEE FOR CLAIMING THE DEDUCTION U NDER SECTION 80P(2) OF THE ACT WAS RAISED BEFORE THE CIT(A), WHO DID NOT ADJUDICATE THE SAME AS HE WAS OF THE VIEW THAT THE ASSESSEE WAS ELIGIBLE TO CLAIM THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. BEFORE US, THE THIRD CONTENTION HAS BEEN RAISED THAT IN CASE, NO DEDUCTION IS AVAILABLE TO THE ASSESSEE, THEN AT BEST ONLY THE NET INCOME ON SUCH RECEIPTS IS TO BE ADDED ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 5 IN THE HANDS OF THE ASSESSEE, FOR WHICH THE ASSESSEE HAS PLACED THE CALCULATION SHEET ON RECORD. THE CASE OF THE REVENUE ON THE OTHE R HAND, IS THAT THE DECISION OF THE HONBLE APEX COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) IS CLEARLY APPLICABLE. IN THE ALTERNATE, RELIANCE WAS PLACED ON NEWLY INSERTED SECTION 80P(4) OF THE ACT, WHICH WAS INSERTED BY THE FINANCE ACT , 2006 W.E.F. 01.04.2007 AND IT WAS POINTED OUT THAT THE SAID SECTION HAD OVERRIDING PROVISIONS AND HENCE, THE SAME WAS APPLICABLE. 17. IN ORDER TO ADJUDICATE THE ISSUE, FIRST REFERENCE IS MADE TO THE DECISION OF HONBLE SUPREME COURT IN TOTGAR CO - OPERA TIVE SALE SOCIETY LTD. VS. ITO (SUPRA). IN THE FACTS OF THE SAID CASE, THE ASSESSEE BEFORE THE HONBLE APEX COURT WAS A CO - OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO THE MEMBERS OR MARKETING AGRICULTURAL PRODUCE OF ITS MEMBERS. THE ASSESSEE HAD PAR KED ITS FUNDS IN SHORT TERM BANK DEPOSITS AND SECURITIES AND THE INTEREST EARNED ON THE SAME WAS CLAIMED AS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE REVENUE AUTHORITIES HELD THAT THE SAME WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES . THE CLAIM OF THE ASSESSEE WAS THAT IT HAD INVESTED THE FUNDS ON SHORT TERM BASIS AS THESE WERE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND CONSEQUENTLY, INTEREST RECEIVED BY THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF TH E ACT. FURTHER, THE CONTENTION OF THE ASSESSEE BEFORE THE COURT WAS THAT UNDER REGULATIONS 23 AND 28 R.W.S. 57 AND 58 OF THE KARNATAKA CO - OPERATIVE SOCIETIES ACT, 1959, A STATUTORY OBLIGATION WAS IMPOSED ON CO - OPERATIVE CREDIT SOCIETIES TO INVEST ITS SURP LUS FUNDS IN SPECIFIED SECURITIES AND IN VIEW OF THE AFORESAID STATUTORY OBLIGATIONS, THE ABOVE MENTIONED INVESTMENT WAS MADE BY THE ASSESSEE AND THE SAME WAS IN THE NATURE OF ITS BUSINESS ACTIVITY. THE SAID INTEREST INCOME WAS CLAIMED TO BE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT, IRRESPECTIVE OF THE SOURCE OR HEAD UNDER WHICH SUCH INCOME WOULD FALL. THE HONBLE APEX COURT NOTED THAT THE INTEREST INCOME ARISING ON SURPLUS INVESTMENT IN SHORT TERM DEPOSITS AND SECURITIES, WHICH SURPLU S WAS NOT REQUIRED FOR BUSINESS PURPOSE, WAS TO BE TAXED UNDER SECTION 56 OF THE ACT. THE HONBLE APEX COURT FURTHER WAS TO BE TAXED UNDER SECTION 56 OF THE ACT. THE HONBLE APEX COURT FURTHER NOTED THAT THE ASSESSEE MARKETS THE PRODUCE OF ITS MEMBERS WHOSE SALE PROCEEDS AT TIMES WERE RETAINED BY IT AND THE TAX TREATMENT OF SUCH AMOUNT WAS THE ISSUE BEFORE THEM. THE HONBLE APEX COURT HELD THAT WHERE THE INTEREST ON DEPOSITS / SECURITIES, WHERE THE FUNDS WERE NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, WAS INVESTED IN SPECIFIED SECURITIES, WOULD BE TAXABLE AS INCOME UNDER SEC TION 56 OF THE ACT. IT FURTHER HELD THAT WHERE THE ASSESSEE SOCIETY REGULARLY INVESTS ITS FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES, INTEREST ON SUCH INVESTMENT COULD NOT FALL WITHIN THE EXPRESSION OF PROFITS AND GAINS OF BUSINESS AND THE SAME COULD NOT BE HELD TO BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY I.E. CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING THE AGRICULTURAL PRODUCE OF ITS MEMBERS. THE HONBLE APEX COURT FURTHER REITERATED THAT WHERE THE ASSESSEE MARKETS THE AGRICULTURAL PRODUCE OF ITS MEMBERS AND IT RETAINS THE SALE PROCEEDS IN MANY CASES AND WHERE THE RETAINED AMOUNT WHICH WAS PAYABLE TO ITS MEMBERS, FROM WHOM THE PRODUCE WAS BOUGHT, WAS INVESTED IN SHORT TERM DEPOSITS / SECURITIES, THE SAID AMOUNT WAS LIABILITY OF THE ASSESSEE AND IT WAS SHOWN IN THE BALANCE SHEET ON THE LIABILITIES SIDE, THEREFORE, TO THAT EXTENT, THE HONBLE SUPREME COURT HELD THAT SUCH INTEREST INCOME COULD NOT BE SAID TO BE ATTRIBUTABLE EITHER TO THE ACTIVITY MENTIO NED IN 80P(2)(A)(I) OR 80P(3) OF THE ACT. IN VIEW THEREOF, THE HONBLE SUPREME COURT UPHELD THE ORDER OF ASSESSING OFFICER IN TAXING THE SAID AMOUNT UNDER SECTION 56 OF THE ACT. THE ALTERNATE PLEA OF THE ASSESSEE THAT EVEN IF THE SAID INTEREST INCOME WAS HELD TO BE COVERED UNDER SECTION 56 OF THE ACT, WAS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT, WAS REJECTED. 18. IN THE FACTS OF THE CASE BEFORE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. VS . ITO (SUPRA), THE ASSESSEE CO - OPERATIVE SOCIETY WAS ENGAGED IN THE ACTIVITY OF CARRYING ON OF BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND IT HAD EARNED INTEREST ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 6 INCOME ON ITS DEPOSITS. ANOTHER FACT NOTED BY THE HONBLE HIGH COURT OF KARNAT AKA WAS THAT THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN INTEREST WAS NOT THE AMOUNT DUE TO ANY MEMBERS AND IT WAS NOT THE LIABILITY OF THE ASSESSEE. IN FACT, THE SAID AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS, WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS AS THERE WERE NO TAKERS AND THE ASSESSEE IN SUCH CIRCUMSTANCES, DEPOSITED THE MONEY IN BANK SO AS TO EARN INTEREST. THE HONBLE HIGH COURT OF KARNATAKA IN SUCH CIRCUMSTANCES HELD THAT THE INTEREST INCOME WAS ATTRIBUTABLE TO CARRYING ON OF BUSINESS OF BANKING AND THEREFORE, IT WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT, THEY TOOK NOTE OF INSERTION OF SECTION 80P(4) OF THE ACT, WHICH WAS APPLIED BY THE ASSESSING OFFICER TO DENY THE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE HONBLE HIGH COURT OF KARNATAKA REFERRED TO THE JUDGMENT OF HONBLE APEX COURT IN TOTGAR CO - OPERATIVE SALE SOCIETY LTD. VS. ITO (SUPRA) AND POINTED OUT THAT IN THE FACTS OF THE SAID CASE, THE AMOUNT WHICH WAS RE TAINED BY THE ASSESSEE WAS A LIABILITY AND IT WAS SHOWN IN THE BALANCE SHEET ON LIABILITIES SIDE. WHERE THE INTEREST INCOME WAS EARNED ON SUCH FUNDS, THEN THE SAME WAS HELD BY THE HONBLE APEX COURT TO BE TREATED UNDER SECTION 56 OF THE ACT. HOWEVER, THE DISTINCTION WAS DRAWN BY THE HONBLE HIGH COURT OF KARNATAKA IN PARA 10 AND IT WAS POINTED OUT THAT IN THE CASE BEFORE THEM, THE AMOUNT WHICH WAS INVESTED IN BANKS TO EARN THE INTEREST WAS NOT AN AMOUNT DUE TO ANY MEMBER, IT WAS NOT THE LIABILITY AND IT W AS NOT SHOWN AS LIABILITY IN THEIR ACCOUNTS. IN FACT, THE AMOUNT WAS IN THE NATURE OF PROFITS AND GAINS WHICH WAS NOT IMMEDIATELY REQUIRED BY THE ASSESSEE FOR LENDING MONEY TO THE MEMBERS AS THERE WERE NO TAKERS AND HENCE, WAS DEPOSITED IN THE BANKS SO AS TO EARN INTEREST, SUCH INTEREST INCOME EARNED BY THE ASSESSEE WAS HELD TO BE ATTRIBUTABLE TO CARRYING ON THE BUSINESS AND THEREFORE, SAME WAS LIABLE TO BE DEDUCTED IN TERMS OF SECTION 80P(1) OF THE ACT. 19. ANOTHER DECISION REFERRED TO BY THE LEARNED A UTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS GUTTIGEDARARA CREDIT CO - OPERATIVE SOCIETY LTD. VS. ITO FOR THE ASSESSEE IS GUTTIGEDARARA CREDIT CO - OPERATIVE SOCIETY LTD. VS. ITO (SUPRA), WHEREIN THE ASSESSEE WAS A CO - OPERATIVE SOCIETY ENGAGED IN THE ACTIVITY OF CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASSESSING OFFICER IN VIEW OF INSERTION OF SECTION 80P(4) OF THE ACT, HAD DECLINED TO EXTEND THE BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THE INTEREST INCOME EARNED ON SHORT TERM DEPOSITS AND FROM SAVING BANKS ACCOUNT WAS HELD LIABL E TO INCOME TAX. THE HONBLE HIGH COURT HELD THAT WHERE THE ASSESSEE SOCIETY WAS PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND WAS NOT CARRYING ON ANY OTHER BUSINESS, THEN THE SURPLUS FUNDS WHICH IT HAD EARNED AS PROFITS OF ITS BUSINESS WHEN TEMPORARILY NOT REQUIRED WERE INVESTED IN BANKS TO EARN INTEREST WAS ATTRIBUTABLE TO CARRYING ON THE BUSINESS OF BANKING AND THEREFORE, LIABLE TO BE DEDUCTED UNDER SECTION 80P(1) OF THE ACT. 20. FURTHER, THE PUNE BENCH OF TRIBUNAL IN ITO VS. NIPHAD NAGARI SAHAKARI PATSANSTHA LTD. (SUPRA) HAD LAID DOWN THE SIMILAR PROPOSITION AS BY THE HONBLE HIGH COURT OF KARNATAKA. 21. THE ISSUE ARISING BEFORE US IS WHETHER THE INTEREST EARNED BY THE ASSESSEE ON ITS INVESTMENTS IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) OF TH E ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS MADE SEVERAL PROPOSITIONS BEFORE US. THE FIRST AND FOREMOST PROPOSITION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IS THAT THE INTEREST INCOME IS ELIGIBLE FOR THE DED UCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. HOWEVER, WITHOUT PREJUDICE TO THE SAME, THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE MADE AN ALTERNATE PROPOSITION THAT IN CASE THE INTEREST EARNED BY THE ASSESSEE IS HELD TO BE ASSESSABLE AS INCOME FROM OTHER SOURCES, THEN THE PROPORTIONATE EXPENDITURE RELATABLE TO SUCH INVESTMENTS IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE AND THEN ONLY BALANCE INTEREST INCOME IS TO BE TAXED AS INCOME FROM OTHER SOURCES. ANOTHER PROPOSITION RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THAT WHERE THE INVESTMENTS ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 7 WERE MADE WITH OTHER CO - OPERATIVE SOCIETIES, THEN THE ASSESSEE WAS ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT AND NO AMOUNT WAS ASSESSED IN THE HANDS OF THE ASSESSEE EXCEPT THE DIVIDEND RECEIVED FROM UTI MUTUAL FUNDS AND SUNDARAM FINANCE OF RS.87,087/ - AND RS.88,519/ - . THE ASSESSEE HAS PLACED ON RECORD ITS BALANCE SHEET ALONG WITH PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION AT PAGES 22 TO 31 O F THE PAPER BOOK WITH ITS ENGLISH TRANSACTION. THE PERUSAL OF THE BALANCE SHEET AS ON 31.03.2010 REFLECTS THE ASSETS IN THE FORM OF BANK BALANCE, CASH, INVESTMENTS AND OTHER DEPOSITS ALONG WITH THE LOAN ADVANCED TO MEMBERS, PROPERTY HELD BY THE ASSESSEE A ND INTEREST RECEIVABLE ON INVESTMENTS AND OUTSTANDING LOAN. ON THE LIABILITIES SIDE, THE ASSESSEE HAS DECLARED SHARE CAPITAL, SHARE CAPITAL FUND OF THE ASSESSEE SOCIETY, THE DEPOSITS RECEIVED FROM ITS MEMBERS AND OTHER DEPOSITS AND THEREAFTER, PROVISION O F RS.41,62,699/ - . THE BREAK - UP OF THE INVESTMENT OF RS.5.55 CRORES IS PROVIDED BY THE ASSESSEE AT PAGE 56 OF THE PAPER BOOK. THE BREAK - UP OF THE INVESTMENT IS IN DIFFERENT FDS WITH CO - OPERATIVE SOCIETIES TOTALLING TO RS.5.47 CRORES AND THE OTHER INVESTME NT IN UTI MUTUAL FUNDS, SUNDARAM FINANCE, GRATUITY FUND AND SHARES TOTALLING RS.7,48,216/ - , TOTALLING RS.5.55 CRORES. THE ASSESSEE HAS FURTHER FURNISHED THE BREAK - UP OF FDS WITH DIFFERENT CO - OPERATIVE BANKS AT PAGES 57 TO 68 OF THE PAPER BOOK WITH SAMPLE COPIES OF FDS AT PAGES 69 TO 75 OF THE PAPER BOOK. THE CLAIM OF THE ASSESSEE BEFORE US IS THAT IT WAS ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OUT OF LOAN RECEIVED FROM ITS MEMBERS ITSELF. THE SURPLUS AMOUNT WHICH WAS ON ACC OUNT OF AMOUNT RECEIVED FROM ITS MEMBERS ONLY, WHICH HAD NOT BEEN ADVANCED TO ANY OF THE MEMBERS WAS INVESTED IN THE BANKS, AGAINST WHICH THE SAID INVESTMENT WAS MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE, WHICH IN TURN, WERE AMOUNTS ADVANCED BY THE MEMBERS ITSELF. THE SAID PARKING OF FUNDS WITH THE CO - OPERATIVE BANKS WAS CLAIMED BY THE ASSESSEE TO BE IN THE NATURE OF ITS BUSINESS ACTIVITY AS IT WAS THE REQUIREMENT OF MAHARASHTRA CO - OPERATIVE SOCIETIES ACT, 1960, THAT 20 TO 30% OF TOTAL DEPOSITS ARE TO BE PARKED IN THE SOCIETIES ACT, 1960, THAT 20 TO 30% OF TOTAL DEPOSITS ARE TO BE PARKED IN THE INVESTMENTS WITH CO - OPERATIVE BANKS. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE AMOUNT INVESTED BY THE ASSESSEE WAS OUT OF ANY LIABILITIES DUE BY THE ASSESSEE. IN THE ABSENCE OF THE SAME AND FOLLOWING THE SAME PARITY OF REASON ING LAID DOWN BY THE HONBLE HIGH COURT OF KARNATAKA IN TUMKUR MERCHANTS SOUHARDA CREDIT CO - OPERATIVE LTD. VS. ITO (SUPRA) AND THE FACTS OF THE PRESENT CASE BEING AT VARIANCE TO THE FACTS BEFORE THE HONBLE SUPREME COURT IN TOTGARS CO - OPERATIVE SALE SOCIE TY LTD. VS. ITO (SUPRA), WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. IN THE ALTERNATE, WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT AT BEST THE INCOME WHICH CAN BE ASSESSED IN THE HANDS OF ASSES SEE IS THE NET INCOME AND NOT THE GROSS INCOME AS PROPORTIONATE EXPENDITURE INCURRED IS TO BE ALLOWED IN THE HANDS OF THE ASSESSEE. HOWEVER, WE ARE NOT ADJUDICATING THIS ISSUE SINCE WE HAVE ALREADY HELD THE ASSESSEE TO BE ELIGIBLE FOR CLAIM OF DEDUCTION U NDER SECTION 80P(2)(A)(I) OF THE ACT. IN VIEW THEREOF, WE ALSO DO NOT ADJUDICATE THE SECOND ALTERNATE PLEA RAISED BY THE ASSESSEE THAT IT IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(D) OF THE ACT. HOWEVER, THE ASSESSEE IS NOT ENTITLED TO T HE DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT RELATING TO DIVIDEND RECEIVED FROM UTI MUTUAL FUNDS AND SUNDARAM FINANCE OF RS.87,087/ - AND RS.88,519/ - , WHICH ARE TO BE INCLUDED AS INCOME FROM OTHER SOURCES, ON WHICH THE ASSESSEE IS ENTITLED TO PROPORTI ONATE EXPENDITURE. SIMILARLY, THE PROFIT OF RS.25,786/ - FROM OTHER ACTIVITIES AND SERVICES IS NOT ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. ACCORDINGLY, WE PARTLY UPHOLD THE ORDER OF CIT(A). IN VIEW THEREOF, THE GROUNDS O F APPEAL RAISED BY THE REVENUE ARE PARTLY ALLOWED. 1 0 . THE ISSUE ARISING IN THE PRESENT APPEAL IS SQUARELY COVERED BY THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN ITO VS. M/S. KUNDALIKA NAGARI ITA NO. 420 /PN/20 1 5 BHEDASGAON NAGARI SAH. PAT SANSTHA MARYADIT 8 SAHAKARI PATSANSTHA MARYADIT (SUPRA) AND SINCE THE FACTS O F THE PRESENT CASE ARE IDENTICAL TO THE FACTS IN ITO VS. M/S. KUNDALIKA NAGARI SAHAKARI PATSANSTHA MARYADIT (SUPRA), WHICH IN TURN, ARE AT VARIANCE TO THE FACTS BEFORE THE HONBLE SUPREME COURT IN TOTGARS CO - OP. SALE SOCIETY LTD. VS. ITO (SUPRA), I HOLD TH AT THE AS SESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 17 TH DAY OF JUNE , 201 6 . SD/ - (SUSHMA CHOWLA) / JUDICIAL MEMBER / ; / PUNE ; DATED : 17 TH JUNE , 201 6 . G CVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 1&2 , KOLHAPUR ; 4. / THE CIT - I / II, KOLHAPUR / CIT (CENTRAL), PUNE ; 5. 6. , , , - / DR SMC , ITAT, PUNE; / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE