Andhra Pragathi Farmers Services Co-op Society, Kurnool V. Income Tax Officer, Ward-2, Nandyal

ITA 422/Hyd/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 6622 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 08-04-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 31-07-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBRAMANYAM TOTA
• Keywords: Business income; Set aside
• Section: 143(3); 80P

Judgement Text

ITA NO 422 OF 2020 ANDHRA PRAGATHI FARMERS SERVICE COOP SOCIETY KURNOOL PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD SMC BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.422/HYD/2020 ASSESSMENT YEAR: 2016-17 ANDHRA PRAGATHI FARMERS SERVICE COOPERATIVE SOCIETY, KURNOOL PAN:AABAA0240L VS. INCOME TAX OFFICER WARD 2 NANDYAL (APPELLANT) (RESPONDENT) ASSESSEE BY: SRI K.A. SAI PRASAD REVENUE BY : SRI SUBRAMANYAM TOTA,DR DATE OF HEARING: 08/04/2021 DATE OF PRONOUNCEMENT: 15/04/2021 ORDER THIS IS ASSESSEE APPEAL FOR THE A.Y 2016-17 AGAINS T THE ORDER OF THE CIT (A)-KURNOOL, DATED 10.02.2020. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, A COOPERATIVE SOCIETY, FILED ITS RETURN OF INCOME FOR THE A.Y 2016-17 ON 22.6.2016 DECLARING THE TOTAL INCOME NIL AFTER CLAIMING DEDUCTION U/S 80P(2)(A) OF THE ACT. DURING THE ASSE SSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OF FICER OBSERVED THAT THE ASSESSEE HAS EARNED INTEREST FROM SURPLUS FUNDS, WHICH ARE NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES AND WERE INVESTED IN SHORT TERM DEPOSITS AND SECURITIES AND CLAIMED IT ALSO AS A DEDUCTION U/S 80P(2)(A) OF THE ACT. HE HELD TH AT SUCH AN INTEREST IS NOT ATTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE IN CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILI TIES TO ITS MEMBERS OR MARKETING OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS ITA NO 422 OF 2020 ANDHRA PRAGATHI FARMERS SERVICE COOP SOCIETY KURNOOL PAGE 2 OF 5 AND IS THEREFORE, ASSESSABLE AS INCOME FROM OTHER S OURCES AND NOT AS ITS BUSINESS PROFIT. OBSERVING THAT THE DEDUCTIO N U/S 80P(2)(A) IS ALLOWABLE ONLY FROM ITS BUSINESS INCOME AND NOT FROM INCOME FROM OTHER SOURCES, THE ASSESSING OFFICER DISALLOWE D THE CLAIM OF DEDUCTION U/S 80P(2)(A) OF THE ACT AND BROUGHT THE INTEREST INCOME OF RS.12,42,951/- TO TAX. 3. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A) WHO CONFIRMED THE ORDER OF THE ASSESSING OF FICER BY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS COOPERATIVE SALE SOCIETY VS. ITO REPORTED IN (2010) 322 ITR 283 AND OTHER DECISIONS. AGGRIEVED, THE ASSESSE E IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUND S OF APPEAL: 1. THE LEARNED FIRST APPELLATE AUTHORITY CONFIRMIN G THE ORDER U/S 143(3) OF THE I.T. ACT IS ARBITRARY AND C ONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE. 2. THE LEARNED FIRST APPELLATE AUTHORITY IS NOT JUS TIFIED IN CONFIRMING THE ORDER DISALLOWING THE DEDUCTION CLAI MED U/S 80P(2)(A) IN RESPECT OF RS.12,42,951/- BEING TH E INTEREST RECEIVED FROM M/S. ANDHRA PRAGATHI GRAMEEN A BANK. 3. THE LEARNED FIRST APPELLATE AUTHORITY IS NOT JUS TIFIED IN TREATING THE SUM OF RS.12,42,951/- AS INCOME FROM O THER SOURCES AND THEREBY DENYING THE DEDUCTION CLAIMED U /S 80P(2)(A) OF THE I.T. ACT 4. THE APPELLANT PRAYED LEAVE TO ADD OR AMEND OR AL TER ANY OF THE GROUNDS AT THE TIME OF HEARING OF APPEAL . 4. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THIS ISSUE OF INTEREST INCOME BEING BUSINESS INCOM E OR INCOME FROM OTHER SOURCES WAS CONSIDERED BY VARIOUS BENCHE S OF THE TRIBUNAL AND ALSO THE JURISDICTIONAL HIGH COURT WHE REIN THE JURISDICTIONAL HIGH COURT HAS DISTINGUISHED THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOTGARS COOPE RATIVE SALE SOCIETY VS. ITO (SUPRA) THAT THE FACTS OF THE CASE BEFORE THEM AND ITA NO 422 OF 2020 ANDHRA PRAGATHI FARMERS SERVICE COOP SOCIETY KURNOOL PAGE 3 OF 5 HAVE HELD THAT THE INTEREST INCOME FROM FIXED DEPOS ITS MADE OUT OF SURPLUS FUNDS AVAILABLE WITH THE ASSESSEE IS ALSO A TTRIBUTABLE TO THE BUSINESS OF THE ASSESSEE AND IS ACCORDINGLY ALL OWABLE AS A DEDUCTION U/S 80P OF THE ACT. IN SUPPORT OF THIS CO NTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE PLACED RELIANCE UP ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT O F ANDHRA PRADESH & TELANGANA IN THE CASE OF VAVVERU COOP. RU RAL BANK LTD VS. CHIEF CIT, REPORTED IN (2017) 396 ITR 371. 5. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, I FIND THAT THE HON'BLE JURISDICTIONAL H IGH COURT HAS CONSIDERED THE ISSUE AT LENGTH AND HAS DISTINGUISHE D THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TOTGAR S COOPERATIVE SALE SOCIETY VS. ITO (SUPRA) WITH THAT OF THE ASSES SEE THEREIN. THE RELEVANT PARAGRAPHS ARE AS UNDER: 32. IN SIMPLE TERMS, THE POSITION CAN BE SUMMARIZED LIKE THIS. IF THERE IS A CO-OPERATIVE SOCIETY, WHICH IS CARRYING ON SEVERA L ACTIVITIES INCLUDING THOSE ACTIVITIES LISTED IN SUB- CLAUSES (I) TO (VII ) OF CLAUSE (A), THE BENEFIT UNDER CLAUSE (A) WILL BE LIMITED ONLY TO THE PROFIT S AND GAINS OF BUSINESS ATTRIBUTABLE TO ANYONE OR MORE OF SUCH ACTIVITIES. BUT, IN CASE THE SAME CO-OPERATIVE SOCIETY HAS AN INCOME NOT ATTRIBUTABLE TO ANYONE OR MORE OF THE ACTIVITIES LISTED IN SUB-CLAUSES (I) TO (VII ) OF CLAUSE (A), THE SAME MAY GO OUT OF THE PURVIEW OF CLAUSE (A), BUT STILL, THE CO-OPERATIVE SOCIETY MAY CLAIM THE BENEFIT OF CLAUSE (D) OR (E) EITHER BY INVESTING THE INCOME IN ANOTHER CO-OPERATIVE SOCIETY OR INVESTING THE INCOME IN THE CONSTRUCTION OF A GODOWN OR WAREHOUSE AND LETTING O UT THE SAME. 33. IN OTHER WORDS, THE BENEFIT CONFERRED BY CLAUSE (D) UPON ALL TYPES OF CO-OPERATIVE SOCIETIES IS RESTRICTED ONLY TO THE IN VESTMENTS MADE IN OTHER CO-OPERATIVE SOCIETIES. SUCH A RESTRICTION CANNOT B E READ INTO CLAUSE (A), AS THE TEMPORARY PARKING OF THE PROFITS AND GAINS O F BUSINESS IN NATIONALISED BANKS AND THE EARNING OF INTEREST INCO ME THEREFROM IS ONLY ONE OF THE METHODS OF MULTIPLYING THE SAME INCOME. TO ACCEPT THE STAND OF THE DEPARTMENT WOULD MEAN THAT CO-OPERATIVE SOCI ETIES CARRYING ON THE ACTIVITIES LISTED IN CLAUSES (I) TO (VII), WHIC H INVEST THEIR PROFITS AND GAINS OF BUSINESS EITHER IN OTHER CO-OPERATIVE SOCI ETIES OR IN THE CONSTRUCTION OF GODOWNS AND WAREHOUSES, MAY BENEFIT IN TERMS OF CLAUSE ITA NO 422 OF 2020 ANDHRA PRAGATHI FARMERS SERVICE COOP SOCIETY KURNOOL PAGE 4 OF 5 (D) OR (E), BUT THE VERY SAME SOCIETIES WILL NOT BE ENTITLED TO ANY BENEFIT, IF THEY INVEST THE VERY SAME FUNDS IN BANKS. SUCH AN U NDERSTANDING OF SECTION 80P(2) IS IMPERMISSIBLE FOR ONE SIMPLE R EASON. THE BENEFITS UNDER CLAUSES (D) AND (E) ARE AVAILABLE IN GENERAL TO ALL CO-OPERATIVE SOCIETIES, INCLUDING SOCIETIES ENGAGED IN THE ACTIV ITIES LISTED IN CLAUSE (A). SECTION 80P(2) IS NOT INTENDED TO PLACE ALL TY PES OF CO-OPERATIVE SOCIETIES ON THE SAME PEDESTAL. THE SECTION CONFERS DIFFERENT TYPES OF BENEFITS TO DIFFERENT TYPES OF SOCIETIES. SPECIAL T YPES OF SOCIETIES ARE CONFERRED A SPECIAL BENEFIT. 34. THE CASE BEFORE THE SUPREME COURT IN TOTGARS WA S IN RESPECT OF A CO- OPERATIVE CREDIT SOCIETY, WHICH WAS ALSO MARKETING THE AGRICULTURAL PRODUCE OF ITS MEMBERS. AS SEEN FROM THE FACTS DISC LOSED IN THE DECISION OF THE KARNATAKA HIGH COURT IN TOTGARS, FROM OUT OF WHICH THE DECISION OF THE SUPREME COURT AROSE, THE ASSESSEE WAS CARRYI NG ON THE BUSINESS OF MARKETING AGRICULTURAL PRODUCE OF THE MEMBERS OF TH E SOCIETY. IT IS ALSO FOUND FROM PARAGRAPH-3 OF THE DECISION OF THE KARNA TAKA HIGH COURT IN TOTGARS THAT THE BUSINESS ACTIVITY OTHER THAN MARKE TING OF THE AGRICULTURAL PRODUCE ACTUALLY RESULTED IN NET LOSS TO THE SOCIET Y. THEREFORE, IT APPEARS THAT THE ASSESSEE IN TOTGARS WAS CARRYING ON SOME O F THE ACTIVITIES LISTED IN CLAUSE (A) ALONG WITH OTHER ACTIVITIES. THIS IS PERHAPS THE REASON THAT THE ASSESSEE DID NOT PAY TO ITS MEMBERS THE PROCEED S OF THE SALE OF THEIR PRODUCE, BUT INVESTED THE SAME IN BANKS. AS A CONSE QUENCE, THE INVESTMENTS WERE SHOWN AS LIABILITIES, AS THEY REPR ESENTED THE MONEY BELONGING TO THE MEMBERS. THE INCOME DERIVED FROM T HE INVESTMENTS MADE BY RETAINING THE MONIES BELONGING TO THE MEMBE RS CANNOT CERTAINLY BE TERMED AS PROFITS AND GAINS OF BUSINESS. THIS IS WHY TOTGARS STRUCK A DIFFERENT NOTE. 35. BUT, AS RIGHTLY CONTENDED BY THE LEARNED SENIOR COUNSEL FOR THE PETITIONERS, THE INVESTMENT MADE BY THE PETITIONERS IN FIXED DEPOSITS IN NATIONALISED BANKS, WERE OF THEIR OWN MONIES. IF TH E PETITIONERS HAD INVESTED THOSE AMOUNTS IN FIXED DEPOSITS IN OTHER C O-OPERATIVE SOCIETIES OR IN THE CONSTRUCTION OF GODOWNS AND WAREHOUSES, T HE RESPONDENTS WOULD HAVE GRANTED THE BENEFIT OF DEDUCTION UNDER C LAUSE (D) OR (E), AS THE CASE MAY BE. 36. THE ORIGINAL SOURCE OF THE INVESTMENTS MADE BY THE PETITIONERS IN NATIONALISED BANKS IS ADMITTEDLY THE INCOME THAT TH E PETITIONERS DERIVED FROM THE ACTIVITIES LISTED IN SUB- CLAUSES (I) TO ( VII) OF CLAUSE (A). THE CHARACTER OF SUCH INCOME MAY NOT BE LOST, ESPECIALL Y WHEN THE STATUTE USES THE EXPRESSION ATTRIBUTABLE TO AND NOT ANYONE OF THE TWO EXPRESSIONS, NAMELY, DERIVED FROM OR DIRECTLY ATTRIBUTABLE TO. 37. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT T HE PETITIONERS ARE ENTITLED TO SUCCEED. HENCE, THE WRIT PETITIONS ARE ALLOWED, AND THE ORDER OF THE ASSESSING OFFICER, INSOFAR AS IT RELATES TO TREATING THE INTEREST INCOME AS SOMETHING NOT ALLOWABLE AS A DEDUCTION UN DER SECTION 80P (2) (A), IS SET ASIDE. ITA NO 422 OF 2020 ANDHRA PRAGATHI FARMERS SERVICE COOP SOCIETY KURNOOL PAGE 5 OF 5 7. THE FACTS OF THE CASE BEFORE ME ARE ALSO BEING S IMILAR. THEREFORE, RESPECTFULLY FOLLOWING THE ABOVE DECISIO N OF THE HON'BLE JURISDICTIONAL HIGH COURT THE APPEAL OF THE ASSESSE E IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH APRIL, 2021. SD/- (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 15 TH APRIL, 2021. VINODAN/SPS COPY TO: S.NO ADDRESSES 1 ANDHRA PRAGATHI FARMERS SERVICE COOPERATIVE SOCIETY , C/O KATRAPATI & ASSOCIATES, 1-1-298/2/B/3, 1 ST FLOOR ASHOK NAGAR, HYDERABAD 500020 2 INCOME TAX OFFICER WARD 2, D. NO.25/183 SANJEEVA NAGAR, NANDYAL 518501 3 CIT (A)- KURNOOL 4 PR. CIT - KURNOOL 5 DR, ITAT HYDERABAD BENCHES 6 GUARD FILE BY ORDER