SHREE MANDAL VIBHAG ADIVASI MAHILA BACHAT AND DHIRAN SAHKARI MANDALI LTD, TAPI V. INCOME TAX OFFICER, WARD-2, , BARDOLI

ITA 427/SRT/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1545 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-07-2022
• Assessment Year: 2014-2015
• Appeal Filed On: 19-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law; Co-operative Credit Society; Set aside
• Section: 56; 28; 143(3); 142(1); 80P; 143(2); 113; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A. L. SAINI, AM आयकर अपील सं./ITA No.427 & 428/SRT/2019 Assessment Years: (2014-15 & 2015-16) (Physical Court Hearing) Shree Mandal Vibhag Adivasi Mahila Bachat and Dhiran Sahkari Mandali Ltd., At : Mandal,P.O.Kikakuli, Tal.Songadh, Dist. Tapi-394601. Vs. Income Tax Officer, Ward-2 Janta Nagar Society, Bardoli, Gujarat-394601 èथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAGAS 5512 E अपीलाथȸ /Appellant Ĥ×यथȸ /Respondent Ǔनधा[ǐरती कȧ ओर से /Assessee by Shri P.M. Jagasheth, CA राजèव कȧ ओर से /Respondent by Shri Anurag Dubey, Sr. DR सुनवाई की तारीख /Date of Hearing 18/07/2022 उɮघोषणा कȧ तारȣख Date of Pronouncement 06/10/2022 आदेश / O R D E R PER DR. A. L. SAINI, AM: Captioned two appeals filed by same assessee, pertaining to Assessment Years (AY) 2014-15 and 2015-16, are directed against the separate orders passed by the Learned Commissioner of Income Tax (Appeals)-1, Surat [in short “the ld. CIT(A)”], which in turn arise out of separate assessment orders passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), dated 08.12.2016 & 30.11.2017 respectively. 2. Since, the issues involved in both the appeals are identical and similar except variance in the amount; therefore, both these appeals have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. The facts as well as grounds of appeal narrated in ITA No.427/SRT/2019 for AY 2014-15 have been taken into consideration for deciding both the assessee’s appeal en masse. Page | 2 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. 4. Grounds of appeal raised by the assessee in “lead” case in ITA No. 427/SRT/2019 for AY.2014-15, are as follows: “1.On the facts and in the circumstances of the case as well as law on the subject, the learned commissioner of the Income Tax (appeals) has erred in confirming the action of the Assessing Officer in disqualifying deduction of Rs.9,57,950/- claimed u/s 80P(2)(a)(i) of the Income Tax Act, 1961 for interest earned from the Nationalized (SBI) Bank. 2. It is therefore prayed that the above addition may please be deleted as learned members of the Tribunal may deem it proper.” 5. Succinct facts are that assessee is a credit society and governed by the Gujarat Co-Operative Societies Act. The assessee filed return of income for AY.2014-15 on 11.08.2015 declaring total income at Rs. Nil. The assessee’s case was selected for scrutiny under CASS and accordingly notice u/s 143(2) was issued on 02.08.2016 and duly served upon the assessee on 11.08.2016. Subsequently, notice u/s 142(1) of the Act dated 09.08.2016 along with detailed questionnaire was issued and duly served upon the assessee. During the scrutiny proceedings, it was observed by the Assessing Officer that the assessee has shown receipt of interest of Rs.24,53,796/- and has also claimed interest payment to the members of Rs.6,91,867/- on their deposits. In view of the above, the assessee vide show caused dated 28.11.2016 was asked to submit bifurcation of interest income and also the reason as to why interest income earned from bank is claimed as deduction u/s 80P of the Act. 6. In response, the assessee submitted the bifurcation of interest as under: S.No Description Amount (Rs) 1 Interest earned from members advances 6,02,539/- 2 Interest earned on saving bank account with SBI 4,371/- 3 Interest earned on saving bank account with Surat Dist. Co-Op.Bank Ltd. 4,331/- 4 Interest earned on FDR with SBI 13,26,116/- 5 Interest earned on FDR with Surat Dist. Co- Op. Bank Ltd. 5,16,439/- Total 24,53,796/- 7. However, the Assessing Officer noted that assessee has shown net profit of Rs.14,93,112/- for A.Y 2014-15 and the entire profit has been claimed as Page | 3 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. deduction u/s 80P of the Act. It is mentioned here that the above net profit also includes interest of Rs.4,371/- on saving account and interest on FDR of Rs.13,26,116/- with SBI both totalling to Rs.13,30,487/-. On examination of the P&L account & balance-sheet of the assessee, it was noted by Assessing Officer that the total deposits received from the members is to the tune of Rs.1,78,41,156/- whereas loans and advances given to the members is only Rs.39,68,104/-.Thus, it was noted by Assessing Officer that only approximately 22% of the funds received from the members have been used for providing credit facilities to the members. Meaning thereby the substantial part received from the members of the society remains surplus with the society and this surplus fund has been invested in the saving/fixed deposit accounts maintained with the Surat Dist. Co-Op. Bank Ltd. and SBI. 8. The Assessing Officer noted that deduction u/s 80P(2)(a)(i) of the Act in the case of assessee, is allowable only to the whole of amount of profits and gains of business attributable to providing credit facilities to its members. As discussed above only 22% of the fund received from members has been utilized in providing credit facilities to its members whereas the substantial surplus of the fund has been invested/deposited in the bank account. Also it is very important to mention that depositing or investing the fund that too the substantial surplus fund cannot be a business activity attributable to providing credit facilities to its members under any stretch of imagination. Thus, in the instant case, it is noted that interest income received from the bank on saving/fixed deposit accounts, does not constitute the operational income of the society for the simple reason that the substantial part of the amount received from the members has been deposited in bank account also. It was noted that interest income of Rs.13,30,487/- (saving + FDR) received from SBI does not qualify for deduction under any provision of sub-section 2 of Section 80P of the Act. In view of the above, it was noted by Assessing Officer that the above net interest income of Rs.13,30,487/- is income from other sources of the assessee u/s 56 of the Act. It was also noted by Assessing Officer that the substantial surplus fund of the assessee co-operative society has been deposited in Saving/FDR with the SBI and other banks. From the above facts, it is quite Page | 4 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. apparent that the net interest income earned of Rs.13,30,487/- from SBI does not qualify or any deduction either u/s 80P(2)(a)(i) or 80P(2)(d) of the Act and hence the same was added to the total income of assessee by the Assessing Officer. 9. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A), who has granted part relief to the assessee by observing as follows: “8.5 Regarding disallowances of interest income received from State Bank of India for AY 2014-15 & AY 2015-16- I have already decided this issue in the case of Suvidha co-op credit Society Appeal No. CIT(A), Surat-1/10269/2017-18 Order dated: 03.06.2019 as under:- Perused details on record and considered written and verbal submission of the AR. In this case the Ld. AO has disallowed and added back Rs.23,58,639 on account of interest income received from other than co-operative societies. The AR, however contends that the assessee co-op society has offered net interest income received from other than co-op societies, after deducting proportionate expenses from the same. The Ld AO did not consider this explanation and added back the impugned gross interest income. The Ld AO applied the ratio of decision Hon'ble High Court of Karnataka in the case of Totagars Co-op Society (83 taxmann.com 10). 2. I have considered the issue and I find that the Ld AO has mislead in applying decision of Tatagar (supra). The issue before Hon'ble High Court is of eligibility for deduction u/s 80P, whereas that is not the dispute in instant case. The assessee co-op also admits to it and states it has not claimed deduction and has offered net interest income for tax. In the present matrix of facts and circumstances, the decision of Hon'ble jurisdictional ITAT Ahmedabad in the Kabilapore People Co- op Society ITA No.806/Ahd/2015, ITA No.414/Ahd/2016 is applicable. The Hon'ble ITAT has decided that on net interest income after deduction proportionate expenses is taxable. Identical view has been taken in Gujarat State Co-op Bank Ltd 66 ITD386, where it is held that “... Co-op Society engaged in business of baking earning interest from banks other than co-op banks by deployment of funds out of reserve funds with such banks is not entitled to deduction u/s 80P(2)(a)(i), however, only the net interest should be subjected to tax......” The Hon'ble ITAT Bench, Surat in the case of Gujarat State Co-op Fruit and Vegetable Marketing Federation Ltd ITA No.2502/Ahd/2016/SRT dtd 01.11.2018 has also held that only net interest income after deducting provision-data expenses is taxable (Also see Mahua Vihag People Co-op Credit Society ITA No.2428/Ahd/SRT/dtd 26.10.2018). 3. Respectfully, following above binding decisions, only the net interest income received from other than co-op Societies is taxable, but, since assessee has already offered it to tax, no further addition is called for. The addition made by Ld AO is deleted. Page | 5 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. Taking a consistent view, I hold that net interest income received from SBI is taxable after deducting proportionate expenses which work out to net interest income for AY.2014-15 is Rs.9,57,950/- and to Rs.5,68,652/- for AY 2015-16. The Ld. AO is directed to restrict the addition to Rs.9,57,950/- for AY.2014-15 and to Rs.5,68,652/- for AY.2015-16 respectively. 11. As a result, the appeal is partly allowed.” 10. Aggrieved by the order of the ld. CIT(A), the assessee is in further appeal before us. 11. Shri P. M. Jagasheth, Ld. Counsel for the assessee, begins by pointing out that interest earned from Nationalized State Bank of India is allowable deduction u/s 80P(2)(a)(i) of the Act. The Ld. Counsel stated that the main purpose of the assessee-society as per bye-laws is to collected money from its members and to lend to its members, thus it is primarily a credit society. Therefore, FD interest income and interest on SB from Nationalized Bank and other banks are eligible for deduction under section 80P(2)(a)(i) of the Act. The Ld. Counsel for the assessee submits that Section 80P(2)(a)(i) is mainly for credit society and assessee under consideration is providing credit facilities to its members and therefore assessee- society has to lend money to its members and collect money from its members, hence it means it is a credit society. Therefore, the assessee-society is eligible for deduction u/s 80P(2)(a)(i) of the Act. To bolster his arguments, Ld. Counsel relied upon the judgment of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-Operative Ltd. vs. ITO, Ward-V, Tumkar [2015] 55 taxmann.com 447 (Kar), wherein the Hon'ble High Court held as follows:- “8. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from”. The expression "attributable to" being of wider import, the said expression is used by the legislate whenever they intended to gather receipts from sources other than the actual conduct of the business. Cooperative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest Page | 6 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9 In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security amount which was retained by the assessee - Society was a liability and it was shown in the balance the liability side Therefore, to that e -tent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the income indicated above under Section 56 of the Act. Further they made it clear that they are confirming judgment to the facts of that case. Therefore it is clear, Supreme Court was not laying down any law. 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending mor members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is li deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State co-operative Bank Ltd., [2011] 200 Taxmman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:” Therefore, Ld. Counsel contended that addition sustained by Ld. CIT(A) may be deleted. 12. On the other hand, the Ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity. 13. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of Page | 7 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. the ld. CIT(A) and other material brought on record. We note that before us, Ld. Counsel submitted bye-laws of the assessee-society which is placed at Pg-20 of the paper book, wherein the English translation from Guajarati language of sub- clause of above Credit Society is placed at Pg-20 of the paper book, wherein it is mentioned that assessee is a credit society and as per clause-6, the assessee can make investment of its surplus. The clause 6 of bye-laws is reproduced below:- “Clause-6: Investment of surplus funds: The funds of the society when is left unused for the work of the society then it shall be invested as per Section 71 of the Gujarat Co-Operative Society Act, 1962.” Thus, it is evidently clear that assessee-society is engaged in facilities to its members and the assessee-society deposits excess amount for short term in a Nationalized Bank as per section 71 of the Gujarat Co-operate Society Act, 1962. Therefore, the assessee-society claims deduction u/s 80P(2)(a)(i) of the Act. We note that assessee’s claim is covered by the order of co-ordinate Bench of ITAT Ahmedabad in the case of Mahidharpura Urban Co-Op Credit Society Ltd. vs. DCIT,Circle-2(3), Surat in ITA No.3312/AHD/2015 dated 16.03.2016, wherein the co-ordinate Bench of ITAT Ahmedabad held as follows:- “3. Brief facts of the case are that the assessee is a credit co-operative society. It provides credit facilities to its members. It has filed its return of income electronically on 21.7.2012 declaring total income at NIL. According to the AO, the assessee-society had derived interest income at Rs.2,21,43,270/-, out of which, Rs.9,76,625/- was derived from State Bank of India. The ld.AO has observed that as per provisions of section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, interest income earned out of investment/deposits with cooperative society are only eligible for deduction. The interest incomes earned from other than cooperative society are not eligible for deduction. Accordingly, the ld.AO did not grant deduction of Rs.9,76,625/-. 4. Appeal to the CIT(A) did not bring any relief to the assessee. 5. Before us, the ld.counsel for the assessee has contended that the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon’ble Karnataka High Court rendered in the case of Guttigedarara Credit Co- op. Society Ltd. Vs. ITO, (2015) 377 ITR 464. He also placed on record copy of the ITAT, Ahmedabad Bench decision passed in ITA No.2610/Ahd/2015 in the case of Shree Balaji Urban Coop. Credit Society Ltd. Vs. ITO, wherein under similar circumstances deduction was allowed to the assessee. 6. On the other hand, the ld.DR submitted that the CIT(A) has followed the decision of the Hon’ble Supreme Court in the case of M/s.The Totgars’ Cooperative Sales Society Ltd. Vs. ITO, Karnataka, 322 ITR 283. Page | 8 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. 7. We have duly considered rival contentions and gone through the record carefully. We find that similar issue has come up before the ITAT, Ahmedabad Bench in large number of cases. In ITA No.1767/Ahd/2011 in the case of Supa (Kural) Vibhag Seva Sahari Mandli Ltd. Vs. ITO, order dated 13.1.2016 the Tribunal, while allowing the claim of the assessee, has recorded the following finding: “5. With the assistance of the ld.representatives, I have gone through the record carefully. I find that the Hon’ble High Court in the case of Guttigedarara Credit Co-op. Society Ltd., ITO (60 taxmann.com page 215) (Kar) has allowed the claim of the assessee on similar issue. It is worth to note relevant observations of the judgment of the Hon’ble Karnataka High Court as under: “5. Learned counsel for the assessee assailing the impugned order contended that the interest accrued from the deposits made by the assessee in a nationalized bank out of the amounts which was used by the i assessee for providing credit facilities to its members and therefore the said interest amount is attributable to the credit facilities provided by the assessee and forms part of profits and gains of business and therefore he submits that the appellate authorities were not justified in denying the said benefit in terms of sub-section (2) of Section 80P of the Act. In support of his contentions, he relied on several judgments and pointed out that the Apex Court in the aforesaid judgment has not laid down any law. 6. Per contra, learned counsel for the Revenue strongly relied on the said judgment of the Supreme Court and submitted that the case is covered by that judgment of the Apex Court and no case for interference is made out. 7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. 8. In this regard, it is necessary to notice the relevant provision of law i.e., Section 80P(2)(a)(i):— "80P Deduction in respect of income of co- operative societies:— (1) Where, in the case of an [assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or ** ** the whole of the amount of profits and gains of business attributable to any one or more of such activities." Page | 9 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. 9. The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT[1978] 113 ITR 84 (at page 93) as under:— 'As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor- General, it has used the expression "derived from", as, for instance, in section 80J. In our view, since the expression of wider import, namely, "attributable to", has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.' 10. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 11. In this context when we look at the judgment of the Apex Court in Totgars Co- operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. 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 Page | 10 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is clear. Supreme Court was not laying down any law. 12. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to its members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh State Co-operative Bank Ltd. [2011] 336 ITR 516/200 Taxman 220 12 taxmann.com 66. 13. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial questions of law are answered in favour of the assessee and against the revenue. Hence, we pass the following order:— Appeal is allowed. The impugned order dated 19.9.2014 is set aside. Parties to bear their own costs.” 6. ITAT, Ahmedabad Bench in the case of Dhanlaxmi Credit Co-op. Society, in ITA No.2073/Ahd/2015 for the Asstt.Year 2012-13 similar issue has been considered by the Tribunal for the Asstt.Year 2012-13. The finding of the Tribunal recorded in para-5 of ITA No.2073/Ahd/2015 reads as under: “5. We have heard the rival contentions and gone through the facts and circumstances of the case as well as records available and judicial pronouncements referred therein. The only issue is in regard to the addition of various types of income such as rent, interest income from nationalized bank, commission income, other income totaling to Rs.12,72,308 and the AO after allowing deduction under section 80P(2)(c) of the Act assessed the income of the assessee society at Rs.12,22,308/-. As submitted in the statement of facts by the assessee society that its main object is to provide credit facilities to its members and the society is neither registered under Banking Regulation Act nor doing any banking activity. Surplus funds in the hands of society at times when borrower members demand was less in comparison to the deposits from members held by the assessee society. Therefore, in the interest of the members this surplus fund was given as deposit in nationalized bank to fetch some income. Similar type of issues has been dealt by Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-op. Ltd. reported in (2015) 55 Taxman.com 447 (Kar). The relevant portion from the above referred judgment is reproduced below :- Page | 11 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. “10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P (1) of the Act. I fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v/s. Andhra Pradesh State Co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue.” The assessee society’s main object is to give credit facilities to its members from the funds received from the members by way of collection of deposits from its members in the common fund and such common fund is deployed in the form of granting loan to the members of the society. As the co-op. credit society is engaged in the money lending business it has to maintain certain liquid funds as per various rules and regulations and also to meet the minimum requirement of the funds. As a measure of safety minimum liquid and convenience of fund movement the appellant society had to keep its surplus liquid funds with different banks including nationalized banks. Therefore, in view of above discussion and relying on the decision of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-op. Ltd.(supra), the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act; however, rent income at Rs.18,600, commission income at Rs.13,701, other income Rs.400 and income tax refund of Rs.13,271 totalling to Rs.45,542/- is not eligible for deduction under section 80P(2)(a)(i) of the Act. Ground Nos.1 and 2 are partly allowed.” 7. Further, it is also worth to take note of the finding recorded by the ITAT in the case of Dhanlaxmi Credit Co-op. Society Ltd., in the Asstt.Year 2008-09 in ITA No.2342/Ahd/2012 as under: “4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining “operations funds” and to meet any eventuality towards re-payment of deposit, the Co-operative Society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT “B” Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op.Credit Society Ltd. bearing ITA No.1491/Ahd/2012 (for A.Y. 2009-10) and CO No.138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below:- “19. The issue dealt with by the Hon’ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: “What is sought to be taxed under section 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? The 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 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 Page | 12 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. business income under section 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 section 56 of the Act, as rightly held by the assessing officer...” 19.1. However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon’ble Supreme Court – “(On page 286) 7....... Before the assessing officer, it was argued by the assessee(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and, consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by the assessing officer as also by the Tribunal and the High Court, hence, these civil appeals have been filed by the assessee(s).” 19.2. From the above, it emerges that— (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii) marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3. In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. “19.4. While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1.) in the case of the assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds; - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; Page | 13 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. - in the case of Totgars, the Hon'ble Supreme Court had not spelt out anything with regard to operational funds; 19.5. Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested m short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source: Balance Sheet of the assessee available on record]. In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon'ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd. (supra) cannot in any way come to the rescue of either the Ld.CIT(A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT(A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s.56 of the Act. It is ordered accordingly." 5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s.80P(2)(a)(i) was rightly granted by ld.CIT(A), however, he has wrongly held that the interest income is taxable u/s.56 of the Act so do not fall under the category of exempted income u/s.80P of the Act. The adverse portion of the view, which is against the assessee, of ld.CIT(A) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed." 8. The total interest income received by the assessee from FDRs. in nationalized bank qualify for exemption under section 80P(2)(a)(i). But, since the assessee itself has offered an amount of Rs.98,015/- for taxation, the assessee has not challenged the inclusion of this amount from its taxable income. The grounds of appeal which arose from the impugned order pertain to the amounts, over and above to this. Therefore, in view of my above discussion, I allow the claim of the assessee partly out of total interest income of Rs.2,48,563/-. The ld.AO is directed to grant exemption under section 80P(2) of Rs.1,50,548/-. The appeal of the assessee is partly allowed. 9. In the result, the appeal of the assessee is allowed.” 8. The Tribunal has placed its reliance upon the decision of the Hon'ble Karnataka High Court in the case of Guttigedarar Credit Co-op. Society Ltd. Vs ITO (supra) which has considered the decision of the Hon'ble Supreme Court in the case of The Totgars' Cooperative Sales Society Ltd. Vs. ITO. Therefore, respectfully following the order of the Co-ordinate Bench, we are of the view that the assessee is entitled for deduction of interest income derived from investment of surplus funds with banks also. We allow the appeal of the assessee and delete the disallowance. 9. In the result, the appeal of the assessee is allowed.” Page | 14 427-428/SRT/2019 AYs.14-15 & 15-16 Shree Mandal Vibhag Adivasi Mahila Bachat & Dhiran Sahkari Mandali Ltd. 14. Therefore, respectfully following the binding judicial precedent of the co- ordinate Bench of ITAT Ahmedabad Bench in the case of Mahidharpura Urban Co-operative Credit Society Limited (supra), we allow the assessee’s appeal. 15. ITA No.428/SRT/2019 (AY) 2015-16 16. Since identical and similar issue involved in the case of assessee has already been dealt with by us in assessee’s appeal, in ITA No.427/SRT/2019 for AY.2014-15, therefore out above findings shall apply mutatis mutandis to the assessee’s appeal in ITA No.428/SRT/2019 for AY.2015-16. 17. In the result, both the appeals filed by the assessee are allowed. Registry is directed to place one copy of this order in all appeals folder / case file(s). Order is pronounced in the open court on 06/10/2022 by placing the result on the Notice Board. Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER lwjr /Surat Ǒदनांक/ Date: 06/10/2022 Dkp, Outsourcing Sr.P.S/SS Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // TRUE COPY // Assistant Registrar/Sr. PS/PS ITAT, Surat