The Sunam Primary Cooperative Agricultural Development Bank Ltd., Sunam V. ACIT, Circle, Sangrur

ITA 509/CHANDI/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1215 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 23-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANKUR ALYA
• Keywords: Business income; Question of law
• Section: 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE MS.DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.509/CHD/2018 (ASSESSMENT YEAR : 2014-15) THE SUNAM PRIMARY COOPERATIVE VS. THE A.C.I.T., INCOME AGRICULTURAL DEVELOPMENT CIRCLE SANGRUR. BANK LTD., SUNAM. PAN: AAAAT2624C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.R. SHARMA, ADV. RESPONDENT BY : SHRI ANKUR ALYA, JCIT DR DATE OF HEARING : 07.08.2018 DATE OF PRONOUNCEMENT : 07.09.2018 ORDER PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEAL S), PATIALA DATED 2.1.2018 RELATING TO ASSESSMENT YEAR 2014-15. 2. THE SOLE ISSUE IN THE PRESENT APPEAL PERTAINS TO DEDUCTION CLAIMED UNDER 80P OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) ON ACCOUNT OF INCOME EARNED BY ASS ESSEE AS A COOPERATIVE SOCIETY. 3. BRIEFLY STATED THAT ASSESSEE IS A REGISTERED COO PERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND PROV IDING CREDIT FACILITIES TO ITS MEMBERS, WHO ARE GENERALLY SMALL AND MARGINAL FARMERS. FOR THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE CLAIMED THE ENTIRE PROFITS AND GAINS EARN ED BY IT AS ITA NO.509/CHD/2018 A.Y.2014-15 2 DEDUCTIBLE UNDER THE PROVISIONS OF SECTION 80P (2) (A)(I) OF THE ACT, ATTRIBUTING THE SAME TO ITS PRIMARY ACTIVI TY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE ASS ESSING OFFICER DENIED THE SAID CLAIM OF DEDUCTION ON THE F OLLOWING INCOME OF THE ASSESSEE, HOLDING THAT THEY WERE NOT DERIVED FROM THE BUSINESS OF PROVIDING CREDIT FACILITY TO T HE MEMBERS OF THE SOCIETY AND HENCE WERE NOT ELIGIBLE FOR DEDU CTION UNDER SECTION 80P (2) (A)(I) OF THE ACT: 1) PENAL INTEREST RS.5,93,487/ - 2) INTEREST RECEIVED ON PERSONAL LOANS ADVANCED TO EMPLOYEES RS.11,40,610/- 3) INTEREST FROM PNB SWEEP A/C RS.1,37,935/- 4) MISCELLANEOUS INCOME RS.6,04,606/- TOTAL (1+2+3+4) RS.24,76,648/- 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(APPEALS), WHO ALLOWED THE ASSESSEES CLAIM OF DEDUCTION ON PENAL INTEREST EARNED, FINDING THAT TH E SAME WAS CHARGED FROM THE MEMBER WHO HAD DEFAULTED ON TH E TERMS OF CREDIT, AND THUS HOLDING THAT IT WAS ATTRI BUTABLE TO THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO THE MEMBERS. THE REMAINING CLAIM WAS DENIED BY THE LD.CIT(APPEALS), UPHOLDING THE ORDER OF ASSESSING OFFICER THAT SINCE THEY WERE NOT DIRECTLY ATTRIBUTABLE TO THE BUSINESS OF THE AS SESSEE SOCIETY OF EXTENDING CREDIT FACILITIES TO ITS MEMBE RS, THE SAID INCOMES DID NOT QUALIFY FOR DEDUCTION U/S 80P(2)(A) (IA) OF THE ACT. ACCORDING THE LD.CIT(APPEALS) DENIED THE ASSES SEES CLAIM OF DEDUCTION UNDER 80P(2)(A)(I) OF THE ACT ON INTEREST ITA NO.509/CHD/2018 A.Y.2014-15 3 EARNED FROM PNB, INTEREST EARNED ON PERSONAL LOANS ADVANCED TO EMPLOYEES AND MISCELLANEOUS INCOME. 5. AGGRIEVED BY THE SAME ASSESSEE HAS COME IN APPEA L BEFORE US RAISING THE FOLLOWING EFFECTIVE GROUNDS: 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHE LD BY THE CIT(A) DISALLOWING RS.1140610/- BEING THE AMOUNT OF GROSS INTEREST RECEIVED ON THE LOANS ADVANCED TO THE EMPLOYEES OF THE APPELLANT AS PER THE SERVICE RULES AND ASSESSING THE SAME UNDER SECTION 56 WITHOUT ALLOWING EXPENSES U/S 57 IS BAD IN LAW, AGAINST THE JUDICIAL DECISIONS AND NEEDS TO BE SET ASIDE. 3. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE CIT(A) DISALLOWING RS.604606/- BEING THE AMOUNT OF GROSS MISC INCOME RECEIVED FROM THE MEMBERS ON THE LOANS ADVANCED BY THE APPELLANT BEING ATTRIBUTABLE TO ITS BUSINESS AND ASSESSING THE SAME UNDER SECTION 56 WITHOUT ALLOWING EXPENSES U/S 57 IS BAD IN LAW, AND IS AGAINST THE JUDICIAL DECISIONS AND NEEDS TO BE SET ASIDE. 4. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE CIT(A) DISALLOWING RS.137935/- BEING THE AMOUNT OF GROSS INTEREST RECEIVED ON THE DEPOSIT WITH THE PUNJAB NA TIONAL BANK AND ASSESSING THE SAME UNDER SECTION 56 WITHOUT ALLOWING EXPENSES U/S 57 IS BAD IN LAW, AGAINST THE JUDICIAL DECISIONS AND NEEDS TO BE SET ASIDE. 5. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHEL D BY THE CIT(A) NOT ALLOWING DEDUCTION OF RS.50000/- UNDER T HE PROVISION OF SECTION OF SECTION 80P(2)(C) OF THE AC T IS BAD IN LAW, AGAINST THE JUDICIAL DECISIONS AND NEEDS TO BE SET ASIDE. 6. DURING THE COURSE OF HEARING BEFORE US, LD. COUN SEL FOR THE ASSESSEE CONTENDED THAT IT WAS NOT CHALLENGING THE DISALLOWANCE OF DEDUCTION U/S 80P(2)(A)(IA) OF THE ACT, ON THE AFORESAID INCOMES, BUT WAS AGGRIEVED BY THE ACTION OF THE CIT(A) IN CHARGING THE GROSS INCOME TO TAX AS INCOM E FROM OTHER SOURCES U/S 56 OF THE ACT, WITHOUT ALLOWING D EDUCTION OF EXPENSES INCURRED ON EARNING THE SAID INCOMES AS PER THE PROVISION OF SECTION 57 OF THE ACT. IT WAS PLEADED THAT THE SOLE PRAYER BEFORE US, RAISED BY THE ASSESSE E, IN GROUND ITA NO.509/CHD/2018 A.Y.2014-15 4 NO.2, 3, & 4 ABOVE, WAS THAT THE DISALLOWANCE OF TH E DEDUCTION BE RESTRICTED TO THE NET INCOME EARNED, A S AGAINST THE GROSS INCOME DISALLOWED BY THE LOWER AUTHORITIE S. LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF THE PUNJAB STATE COOPERATIVE FEDERATION OF HOUSE BUILDING SOCIETY LT D., CHANDIGARH VS. CIT, CHANDIGARH AND ANOTHER IN ITA NO.40/2016(O&M) DATED 07.12.2016, POINTING OUT THER EFROM THAT THE ASSESSEE IN THE SAID CASE WAS ALSO A COOPE RATIVE SOCIETY AND ONE OF THE QUESTIONS OF LAW FRAMED BEF ORE THE HIGH COURT WAS WHETHER THE TRIBUNAL WAS RIGHT IN HO LDING THAT INCOME, EARNED BY WAY OF INTEREST, WAS CHARG EABLE TO TAX U/S 56 OF THE ACT WITHOUT ALLOWING DEDUCTION U /S 57 OF THE ACT. THE RELEVANT QUESTION OF LAW NO.(V) READS AS UNDER: (V) WHETHER IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE INCOME BY WAY OF INTEREST ON DEPOSITS HELD WITH SCHEDULED BANKS WAS CHARGEABLE TO TAX U/S 56 UNDER THE HEAD INCOME FROM OTHER SOURCES WITHOUT ALLOWING ANY DEDUCTION IN RESPECT OF COST OF FUNDS AND PROPORTIONATE ADMINISTRATIVE AND OTHER EXPENSES U/S 57? 7. OUR ATTENTION WAS DRAWN TO THE ORDER OF THE HON BLE HIGH COURT IN THIS REGARD POINTING OUT THEREFROM TH AT FINDING MERIT IN THE SAME THE MATTER HAD BEEN RESTORED BACK TO THE ITAT TO CONSIDER THIS CLAIM OF THE ASSESSEE. THE RE LEVANT FINDINGS OF THE HONBLE HIGH COURT AT PARA 7 OF ITS ORDER AS UNDER: ITA NO.509/CHD/2018 A.Y.2014-15 5 7. RE: QUESTIONS (IV) AND (V) THE APPELLANT DOES NOT APPEAR TO HAVE CLAIMED THE DEDUCTION UNDER SECTION 57 OF THE INCOME TAX ACT (IN SHORT THE ACT) IN VIEW OF THE CONTENTION BEFORE THE AUTHORITIES THAT THE GROSS INTEREST INCO ME OUGHT TO BE CONSIDERED AS BUSINESS INCOME. IT WAS TREATED BY THE AUTHORITIES AS INCOME FROM OTHER SOURCES, THE ENDS OF JUSTICE WOULD BE MET BY PERMITTING THE APPELLANT TO RAISE THIS CONTENTION BEFORE THE TRIBUNAL. IT IS ONLY FOR THIS LIMITED PURPOSE THAT THE APPEAL ON THIS QUESTION IS REMITTE D TO THE TRIBUNAL. IT IS OPEN TO THE TRIBUNAL TO CONSIDER THE ISSUE ITSELF OR TO REMIT IT FURTHER. 8. IT WAS ALSO STATED THAT EVEN THE HON'BLE SUPREM E COURT, WHILE DEALING WITH IDENTICAL ISSUES OF DISAL LOWANCE OF DEDUCTION U/S 80P OF THE ACT, ON INTEREST EARNED BY COOPERATIVE SOCIETY FROM BANKS AND OTHERS, IN THE C ASE OF M/S TOTGARS COOPERATIVE SALE SOCIETY LIMITED VS INC OME TAX OFFICER, IN CIVIL APPEAL NO. 1622 OF 2010, HAD LEFT THE ISSUE OF ALLOWING DEDUCTION OF EXPENSES INCURRED ON EARNI NG THE SAID INCOME UNANSWERED, REMITTING THE SAME TO THE H ONBLE HIGH COURT TO BE DECIDED IN ACCORDANCE WITH THE LAW . OUR ATTENTION WAS INVITED TO THE RELEVANT FINDINGS OF T HE HONBLE SUPREME COURT IN THIS REGARD AT PAGE 14 OF ITS ORDE R AS UNDER: IN THIS MATTER, ONE QUESTION ADVANCED BY THE ASSES SEE(S) BEFORE THE AUTHORITIES BELOW HAS REMAINED UN-ANSWER ED. THAT QUESTION IS AS FOLLOWS: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE TRIBUNAL WAS RIGHT IN LAW IN HOLDING THAT THE INCOM E BY WAY OF INTEREST ON DEPOSITS HELD WITH SCHEDULED BANKS, BONDS AND O THER SECURITIES WAS CHARGEABLE TO TAX UNDER SECTION 56 U NDER THE HEAD INCOME FROM OTHER SOURCES WITHOUT ALLOWING ANY DEDUCTION IN RESPECT OF COST OF FUNDS AND PROPORTIONATE ADMIN ISTRATIVE AND OTHER EXPENSES UNDER SECTION 57? THE ABOVE QUESTION REQUIRES AN ANSWER. IT INVOLVES INTERPRETATION OF SECTION 56 AND SECTION 57 OF THE ACT. IT ALSO IN VOLVES ITA NO.509/CHD/2018 A.Y.2014-15 6 APPLICABILITY OF THE SAID SECTIONS TO THE FACTS OF THE PRESENT CASE. WE, ACCORDINGLY, REMIT THE SAID QUESTION TO THE HIG H COURT FOR CONSIDERATION IN ACCORDANCE WITH LAW. 9. COPIES OF BOTH THE ORDERS WERE PLACED BEFORE US. THE LD. COUNSEL FOR ASSESSEE FURTHER STATED THAT IT HAD NOT BEEN GRANTED DEDUCTION UNDER SECTION 80P(2)(C) OF THE AC T, WHICH ALLOWS THE DEDUCTION OF RS.50,000 ON THE INCOME EAR NED BY THE COOPERATIVE SOCIETIES AND PRAYED FOR THE ALLOWA NCE OF THE SAME. 10. THE LD. DR, FAIRLY AGREED THAT THE MATTER COULD BE RESTORED BACK TO THE AO TO BE CONSIDERED IN THE LIG HT OF THE JUDGEMENTS CITED BY THE LD.COUNSEL FOR THE ASSESSEE . 11. IN VIEW OF THE ABOVE, WE HOLD THAT THE INTEREST OF JUSTICE WOULD BE MET BY RESTORING TO THE AO THE ISSUE OF TA XING THE GROSS OR NET INCOME EARNED BY THE ASSESSEE FROM THE IMPUGNED SOURCES AS UNDER: INTEREST EARNED ON PERSONAL LOANS ADVANCED TO EMPLOYEES RS.1140610 INTEREST FROM PNB ON SWEEP A/C RS.137935 MISCELLANEOUS INCOME RS.604606 12. WE DIRECT THE AO TO DECIDE THE ISSUE IN ACCORDA NCE WITH LAW APPLICABLE TO THE FACTS OF THE CASE. FURTHER TH E CONTENTION RAISED BY THE ASSESSEE REGARDING ALLOWAN CE OF DEDUCTION UNDER SECTION 80P (2)(C) OF THE ACT IS AL SO RESTORED TO THE AO TO BE DECIDED IN ACCORDANCE WITH THE LAW APPLICABLE TO THE FACTS OF THE CASE. ALL THE GROUNDS RAISED BY THE ASSESSEE, THEREFORE A RE ALLOWED FOR STATISTICAL PURPOSES. ITA NO.509/CHD/2018 A.Y.2014-15 7 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 7 TH SEPTEMBER, 2018 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH