The Prantij Taluka Primary Teachers Sahakari Sharafi Mandali.Ltd., Sabarkantha V. The ITO,S.K.Range Ward-2, Himatnagar

ITA 479/AHD/2019

AI Insights

The case revolves around the dispute concerning the classification of interest income received by the assessee, a cooperative society, from deposits made with SSNNL. The original assessment for the Assessment Year 2013-14 classified this interest as income from other sources, which was not deductible under Section 80P(2)(a)(i). The assessee contested this classification, arguing that the funds used for the deposit were operational, not surplus, and thus the income should be considered business income eligible for deduction. The CIT(A) upheld the Assessing Officer's decision, leading to the appeal before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal, agreeing with the lower authorities' classification of the income.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 129419 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2023
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 22-08-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 21-03-2019
• Other Referred Cases: Totgar's Co-op Sale Society Limited vs. ITO, Jafari Momin Vikas Co-op Credit Society Limited, ACIT vs. Peoples Co-op Credit Society Limited, PCIT vs. Ekta Co-operative Credit Society Limited, CIT vs. Jafari Momin Vikas Co-operative Credit Society Limited, Mavilayi Service Co-operative Bank Limited and Others vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Difference of opinion; Change of opinion
• Section: 56; 143(3); 80P

Judgement Text

ITA No.479/Ahd/2019 Assessment Year: 2013-14 Page 1 of 5 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER ITA No.479/Ahd/2019 Assessment Year: 2013-14 The Prantij Taluka Primary Teachers Sahakari Sharafi Mandali Limited, At & Post: Prantij Taluka, Prantij, Dist. Sabarkantha. [PAN – AAJFP 7313 A] Vs. Income Tax Officer, S.K. Range, Ward-2, Himmatnagar. (Appellant) (Respondent) Assessee by Shri Dhinal Shah & Shri Bhadresh Gandhakwala, ARs Revenue by Shri Santosh Kumar, Sr. DR Da te o f He a r in g 23.08.2023 Da te o f P ro n o u n ce m e n t 15.11.2023 O R D E R This appeal is filed by the Assessee against the order dated 31.05.2018 passed by the CIT(A)-2, Ahmedabad for the Assessment Year 2013-14. 2. The grounds of appeal raised by the assessee are as under :- “1. The reassessment is bad in law in as much as there is no escapement of income since the SC decision in case of Totgar’s Co-op Sale Society Limited vs. ITO 322 ITR 283 is not applicable on the facts of the assessee’s case. 2 The reassessment is also bad in law in as much as the interest of Rs.15,32,285/- from SSNNL is considered as business income and was allowed as deduction while passing the order under Section 143(3) and now to hold a contrary view is nothing but change of opinion. 3 The Ld. CIT(A) has erred in confirming that the interest of Rs.15,32,285 from SSNNL is income from other sources and therefore it is not eligible for deduction under Section 80P(2)(a)(i) by placing reliance on SC decision in case of Totgar Co-op Sale Society Limited vs. ITO 322 ITR 283 in as much as the interest from SSNNL is a business income since the investment is made out of operational funds and not out of surplus funds and that the Totgar Co-op Sale Society Limited case is not applicable on the facts of the case. ITA No.479/Ahd/2019 Assessment Year: 2013-14 Page 2 of 5 4 The learned AO has erred in not following CIT(A) order for AY 2009- 10 in which the interest from SSNNL is treated as business income and is allowed as deduction under Section 80P(2)(a)(i) by following ITAT order in case of Jafari Momin Vikas Co-op Credit Society Limited which has distinguished Totagr case and that no revenue appeal is filed before the ITAT.” 3. The assessee is a Co-operative Society providing credit facilities to its members. The original assessment for A.Y. 2013-14 was completed under Section 143(3) of the Income Tax Act, 1961 on 23.04.2015 determining total income at Rs.11,250/-. The Assessing Officer observed that the assessee received interest from Sardar Sarovar Narmada Nigam Limited (SSNNL) of Rs.15,32,285/-. The interest income is in the nature of income from other sources. As per Section 56 of the Act which is not attributable to the activities of the assessee society and the same was considered a non-deductible under Section 80P of the Act. The assessee filed its reply which was considered by the Assessing Officer and, thereafter, made addition of Rs.15,43,535/-. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee. 5. The Ld. AR submitted that the assessee is a Credit Co-operative Soceity. The business is to accept the deposits from the members and lend to the members. The member’s deposits are accepted and are utilized for the purpose of giving advances to members. The Ld. AR submitted that the portion of the said deposits were invested in the deposits with Sardar Sarovar Narmada Nigam Ltd. (SSNNL). As per the RBI guidelines, the society is required to maintain statutory liquidity ratio (SLR). The Society cannot lend entire deposits accepted. If any member of the society request for the withdrawal of the deposit, the society cannot reject the same and therefore the assessee has to maintain SLR. The assessee has made advances to the members and the balance amount is invested in deposits with SSNNL, therefore, funds used for making investments in SSNNL deposit are operational funds and not the surplus funds as per the contentions of the Ld. AR. Thus, the interest earned on deposits with SSNNL is out of operational funds which is a business income eligible for deduction under ITA No.479/Ahd/2019 Assessment Year: 2013-14 Page 3 of 5 Section 80P(2)(a)(i) of the Act. The Ld. AR submitted that there is no distinction between Co-operative Society engaged in carrying on banking business and a Co-operative Society engaged in business of providing credit facilities. The Ld. AR submitted that though the credit has been given to the members the same cannot be denied to the assessee the benefit of Section 80P(2)(a)(i) of the Act. The Ld. AR submitted that in assessee’s own case for A.Y. 2009-10 the Tribunal has granted the relief distinguishing the Supreme Court decision in case of Totagar’s Co-op Sale Society Limited vs. ITO, 322 ITR 283 (SC). The Tribunal’s decision in assessee’s case is in respect of ITA No.413/Ahd/2013, order dated 31.01.2014. The Ld. AR submitted that the Assessing Officer reopened the assessment by following the Hon’ble Apex Court decision in case of Totagar’s Co-op Sale Society Limited (supra) ignoring the Tribunal’s decision in assessee’s own case for A.Y. 2009-10. The Revenue did not prefer any appeal to the High Court and, therefore, there is no escapement of income and thus reassessment itself is bad in law. The Ld. AR relied upon the decision of Ahmedabad Tribunal Special Bench in case of ACIT vs. Peoples Co-op Credit Society Limited (2019) 107 taxmann.com 53 wherein it was held that income of co-operative societies are applicable for deduction under Section 80P(2)(a)(i). The Ld. AR relied upon Hon’ble Gujarat High Court in the case of PCIT vs. Ekta Co-operative Credit Society Limited 402 ITR 85 (Guj) and CIT vs. Jafari Momin Vikas Co-operative Credit Society Limited, 362 ITR 311 (Guj). The Ld. AR further relied upon the decision of Hon’ble Apex Court in case of Mavilayi Service Co-operative Bank Limited and Others vs. CIT, 431 ITR 1. The Ld. AR submitted that the decision relied upon by the CIT(A) in case of State Bank of India, 389 ITR 578 (Guj) passed by the Hon’ble Gujarat High Court differs as there was investment out of surplus funds whereas in the present assessee’s case the investment is out of operational funds. The Ld. AR submitted that the Assessing Officer has not accepted the contentions of the assessee and held that the investment is out of the surplus fund without bringing any material on record and it is just on presumption. Therefore, Hon’ble Gujarat High Court’s decision in the case of State Bank of India (supra) will not be applicable in the present case. The Ld. AR furnished statement of working of operational funds at the time of hearing stating therein that the investment is out of operational funds and that the working of the operational funds should be considered. The investment in SSNNL is out of ITA No.479/Ahd/2019 Assessment Year: 2013-14 Page 4 of 5 operational funds as per the working of the operational funds. The Ld. AR submitted that if the credit facility is given to the members then the entire income is eligible for deduction under Section 80P(2)(a)(i) of the Act. However, in some cases, if the credit facility is given to non-members, the income from credit facility of the non-members is not eligible for deduction under Section 80P(2)(a)(i) of the Act. The entire credit facility is given to the members and, therefore, it is eligible for deduction under Section 80P(2)(a)(i) of the Act. Thus, when the credit facility is given to the members, the entire income is eligible for deduction under Section 80P(2)(a)(i) of the Act. 6. The Ld. DR submitted that the assessee has given credit to its members but the investment is in non-co-operative members and, therefore, the Assessing Officer has rightly made the addition. The Ld. DR relied upon the Assessment Order and the Order of the CIT(A). The Ld. DR further submitted that the investment is not from the operational fund but that of surplus fund only. Thus, the Ld. DR submitted that the CIT(A) was right in confirming the addition. 7. Heard both the parties and perused all the relevant material available on record. There is a delay of 230 days in filing the present appeal which was explained by the assessee through affidavit. The delay appears to be genuine, hence the delay is condoned. It is pertinent to note that the assessee received interest from SSNNL which is not a Co-operative Society or Co-operative Bank registered under the Co-operative Societies Act. The interest earned on investments in SSNNL deposit claimed by the assessee is out of operational funds. The Ld. AR cited that in the A.Y. 2009-10 the Tribunal in assessee’s own case allowed this component vide order dated 31.01.2014 in ITA No.413/Ahd/ 2013. From the perusal of the Assessment Order for A.Y. 2009-10, order of the CIT(A) as well as order of ITAT for the A.Y. 2009-10, it can be seen that the component of interest earned from SSNNL has not been specifically spelt out in any of the orders. Thus, the aspect of not being Co-operative Society or Co- operative Bank registered under Co-operative Societies Act has not been dealt by any of the authorities including the Tribunal at that particular stage. The decision of Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Limited (supra) has considered the investment and the income derived from the interest ITA No.479/Ahd/2019 Assessment Year: 2013-14 Page 5 of 5 income in respect of Co-operative Banks as well as other Banks but not that of the interest earned from Government bonds or any other financial bonds. Thus, in entirety of the decision of Hon’ble Apex Court will not be applicable in the present case. As the interest earned on SSNNL bond cannot be the income which is directly in consonance with the credit facilities or advances to its members and thus, the threshold of members and its purview will not be applicable to SSNNL. The contention of the Ld. AR that the facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted as per the decision of Hon’ble Apex Court. If the contention of the Ld. AR is taken into account, then the very purpose of eligibility of deduction under Section 80P(2)(a)(i) of the Act will fail as here SSNNL is not a member of any of the Society or that of registered under Co-operative Societies Act and thus this income was rightly disallowed by the Assessing Officer as well as by the CIT(A) and hence the appeal of the assessee is dismissed. 8. In the result, appeal of the assessee is dismissed. Order pronounced in the open Court on this 15 th November, 2023. Sd/- (SUCHITRA KAMBLE) Judicial Member Ahmedabad, the 15 th November, 2023 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad