Shiva Credit Souharda Sahakari Niyamit, Belgavi V. Income Tax Officer, Ward -2(1), , Belgavi

ITA 466/PAN/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 5961 (ITAT-PANAJI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: WT(D)
• Assessment Year: 2012-2013
• Appeal Filed On: 27-12-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIJULA UNIYAL
• Keywords: Business income; Principle of natural justice; Set aside
• Section: 40(a)(ia); 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH, PANAJI BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER & SHRI ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 466/PAN/2018 Assessment Year: 2012-13 Shiva Credit Souharda Sahakari Niyamit LIG-41/A Mahantesh Nagar Belagavi [PAN: AAFTS1405A] (Appellant) Vs. Income Tax Officer, Ward-2(1), Belagavi (Respondent) Appellant by None Respondent by Rijula Uniyal, Sr. D/R Date of Hearing 28.03.2022 Date of Pronouncement 28.03.2022 ORDER Per Dr. M.L. Meena, A.M.: The captioned appeal is filed against the order of the Learned Commissioner of Income Tax (Appeals)-Hubbballi, [hereinafter the “ld. CIT(A)] dt. 28/11/2018, for the Assessment Year 2012-13, challenging therein the disallowance of claim of deduction u/s 80 P(2)(a)(i) of the Income Tax Act, 1961 (hereinafter ‘the Act’). 2. The brief facts as per the records are that the appellant/assessee is co-operative society, engaged in the business of providing credit facilities to its members. During the course of assessment proceedings, the AO has assessee the income of the assessee at Rs.1,86,26,312/- as against the returned income filed by the assessee on 27/09/2012 at Rs. NIL, by way of disallowing the assesee’s claim of deduction u/s 80P(2)(a)(i). 3. Aggrieved the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the finding of the AO by observing as under:- I.T.A. No. 466/PAN/2018 Assessment Year: 2012-13 Shiva Credit Souharda Sahakari Niyamit 2 “......... 7. Thus, income earned from persons other than its regular members would not be eligible for deduction U/s.80P(2)(a) of the Act. The income earned from business with persons other than regular members would be taxable as income from business and expenditure incurred wholly for the purpose of business would be allowed. However, despite several opportunities granted, the assessee failed to submit the details of income earned that was eligible for the claim of deduction. The AO may allow the income of the assessee that is earned from its business activity of providing credit facilities to its regular members, having equal voting rights and dividend rights, if any. The appeal of the assessee on this ground is partly allowed. .................... ................... 8.6 However, other income earned on investments / deposits, other than in SB accounts and co-operative society(s), is to be assessed as "Income from other sources”. Interest/income earned on such “investments is not from the business carried on, on the principle of mutuality by the co- operative society, but income earned from other sources and cannot be "attributable" to rendering credit facilities to its members. Income earned on deposits which were not utilised to render credit facilities to its members would not constitute business income of the assessee and therefore, not eligible for deduction under the head 80P of the I.T. Act. 8.7 The assessee was asked to produce a cash flow statement showing the sources of funds available, as on the date of investment of such profits and gains, vis a vis funds from other sources like deposits, loans, etc, and to show that there was no subsequent requirement of funds for its business activities, to justify keeping such funds invested, but it was unable to do so. The AO in his order stated that the assessee earned an interest income of Rs.33,02,928/-, through fixed deposits held with various banks. The assessee was also asked to produce the details of income earned through investments during the year. Despite giving numerous opportunities, the assessee failed to produce the details of the investments. 8.8 Respectfully following the above judgments, I, hold that the income interest earned by the assessee from investments and deposits, other than SB accounts or co-operative society(s),is liable to be taxed as income from other sources, and not eligible for deduction U/s. 80P of the IT Act. The decision to make such investments was also not for the purpose of business of the assessee, which was providing credit facilities to its members. I.T.A. No. 466/PAN/2018 Assessment Year: 2012-13 Shiva Credit Souharda Sahakari Niyamit 3 Expenditure directly linked to earning income from other sources would be allowable and not expenditure related to the earning of business income. 8.9 Therefore, while giving effect to this order, the AO will verify and allow expenditure wholly and exclusively incurred to earn income from other sources, if any, and not expenditure incurred for the purpose of business. During appellate proceedings, the assessee mentioned that income was declared on a receipt basis and the assessee was asked to submit details of accrued income, including investments and deposits, but the assessee was unable to do. The AO is asked to verify the same. The assessee had also failed to submit details of tax deducted at source on the payments of above Rs.10,000/- to non members where tax is required to be deducted at source. The appeal of the assessee on this ground is partly allowed.” 4. Further aggrieved, the assessee is in appeal before us. 5. None appeared on behalf of the assessee. However, as per the memorandum appeal numerated therein it has contended that the AO has disallowed the claim of deduction u/s 80P(2)(a)(i) of the Act, treating the assessee “co-operative society” as a “co-operative bank”. He further submitted that, the AO has also disallowed the interest paid to the members in excess of Rs.10,000/- in each instance and such disallowance aggregate to Rs.1,07,95,292/- by invoking provisions u/s 40(a)(ia) of the Act as the assessee was held to be a co-operative bank. In support of the proposition that co-operative societies are not co-operative banks and that the claim of deduction under section 80P(2)(a)(i) are to be allowed in case of co-operative banks, reliance has been placed on the decision of the Hon’ble High Court of Karnataka in the case of CIT vs. Shri Biluru Gurubasava Pattina Sahakari Sangh Niyamit, Bagalkot in ITA No. 5006/2013 dated 05/02/2014. The ld. Counsel for the assessee contented that the ld. CIT(A) has I.T.A. No. 466/PAN/2018 Assessment Year: 2012-13 Shiva Credit Souharda Sahakari Niyamit 4 passed an ex-parte order qua the assessee as the appellant/assessee could not appear for hearing due to medical reasons. 6. Having heard the ld. D/R at length and perusal of the records and the impugned order, it is an admitted fact that the ld. CIT(A) has passed an ex-parte order qua the assessee. However, the ld. CIT(A) has mentioned several dates on which the case was fixed for hearing, where the assessee failed to appear before the ld. CIT(A). It is seen that the ld. CIT(A) has mentioned the dates of fixation of hearing but he has not mentioned the date of service of notice on the assessee. In the absence of the factum of service of notice, the contentions raised by the assessee has substance and in our view, the request of the assessee is justified that he ought to have been heard by the ld. CIT(A) before any adverse inference was drawn by not only issuing notice but by way of bringing the acknowledgment of service of notice on record. 7. In view of the above discussion, we are of the considered opinion that the appeal should be set aside to the file of the ld. CIT(A) as there is violation of principles of natural justice. The assessee is directed to appear before the ld. CIT(A), take notice and thereafter co-operate in disposal of the appeal. 8. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 28.03.2022 Sd/- Sd/- (Anikesh Banerjee) (Dr. M.L. Meena) Judicial Member Accountant Member SC, Sr.P.S. I.T.A. No. 466/PAN/2018 Assessment Year: 2012-13 Shiva Credit Souharda Sahakari Niyamit 5 Copy of the order forwarded to: (1)The Appellant:- (2) The Respondent :- (3) The CIT:- (4) The CIT (Appeals):- (5) The DR, I.T.A.T.:- True Copy By Order Sr. Private Secretary ITAT