NAVBHARAT URBAN COOPERATIVE CREDIT SOCIETY LIMITED, THANE V. INCOME TAX OFFICER, WARD 4(3), THANE

ITA 5288/MUM/2018

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 7612 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-11-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 11-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Question of law; Co-operative Credit Society; Set aside
• Section: 56; 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “SMC” BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., Ground Floor Siddhivinayak Darsha Apartment Phandnis Marg, Parnaka Vasai, Dist. Palghar - 401201 PAN: AAAAN5201B v. CIT (A) -3 A-wing, 6th Floor Ashar I.T. Park, Road No. 16Z Waghale Industrial Estate Thane – 400064 Mumbai (Appellant) (Respondent) Assessee by : Shri Bhupendra Shah Department by : Shri Sanjay J. Sethi Date of Hearing : 20.09.2021 Date of Pronouncement : 25.11.2021 O R D E R PER C.N. PRASAD (JM) 1. These two appeals are filed by the assessee against different orders of the Learned Commissioner of Income Tax (Appeals)-3, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 12.04.2018 and 18.07.2018 for the A.Y. 2014-15 and 2015-16 respectively. 2 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., 2. The common grounds raised by the assessee in both these appeals are as under: - “1. In the facts and circumstances of the case and in law, the learned A.O. erred in disallowing deduction claimed of Rs.8,99,083/- u/s 80P(2)(a)(i) of the Act by disregarding the fact that the interest was received on term deposit from SBI. 2. In the facts and circumstances of the case and in law, the learned A.O. erred in disallowing deduction claimed of Rs. 8,83,348/- u/s. 80P(2)(a)(i) of the Act by disregarding the fact that the commission was received from MSEB. 3. In the facts and circumstances of the case and in law, the learned A.O. erred in initiating penalty u/s 271(l)(c) and interest u/s 234A, B, C & D.” 3. In so far as Ground No. 1 and 2 are concerned, Ld. Counsel for the assessee submits that the issue in these grounds is squarely covered by the decision of the Coordinate Bench of the Tribunal in assessee’s own case for the A.Y. 2012-13 in ITA.No. 6964/Mum/2017 dated 19.11.2018 and in ITA.No. 738/Mum/2019 dated 22.10.2019 for the A.Y. 2014-15, wherein the Tribunal directed the Assessing Officer to allow deduction u/s.80P(2)(a)(i) of the Act in respect of income earned from the deposits with SBI and also the commission income from MSEB. 4. Ld. DR vehemently supported the orders of the authorities below. 3 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., 5. Heard both sides, perused the orders of the Authorities below. On a perusal of the order of the Tribunal for the A.Y. 2012-13 in ITA.No. 6964/Mum/2017 dated 19.11.2018 it is observed that the issue in Ground No. 2 and 3 are already covered in favour of the assessee. The Tribunal while allowing the claim of the assessee u/s. 80P(2)(a)(i) of the Act in respect of interest income from SBI and also commission income from MSEB observed as under: - “5. We have heard learned DR and perused record. We noticed that an identical issue was considered by this Bench of the Tribunal in the case relied upon by Ld A.R and it was decided in favour of the assessee. For the sake of convenience, we extract below operative portion of the order :- 6. We noticed that the learned CIT(A) has taken support of the decision rendered by the Tribunal in the case of Shri Saidatta Cooperative Credit Society Ltd. (supra), wherein the Tribunal has decided this issue against the assessee by considering the decision rendered by Hon'ble Supreme Court in the case of Todgars Cooperative Sale Society Ltd. (supra). However, we noticed that Hon'ble Karnataka High Court has also considered the decision of Todgars Cooperative Sale Society Ltd. (supra) in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) and held that interest income is attributable to carrying on the business of the assessee and therefore it is liable to be deducted u/s. 80P(2)(a)(i) of the Act. The "SMC" Bench of the Tribunal in the case of Jaoli Taluk Sahakari Patpedhi Maryadit (supra) has followed the decision rendered by Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). For the sake of convenience, we extract below the operative portion of the order passed by the Tribunal in the above said case :- 9. I heard the parties and perused the record. In my view, the decision rendered by Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd (supra) squarely applies to the 4 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., facts of the present case. In the case before the Hon'ble Karnataka High Court also, the assessee claimed deduction u/s 80P(2)(a)(i) on the interest income earned from deposits kept with banks on the reasoning that the same shall form part of its business income. The Hon'ble High Court upheld the said view by duly considering the decision rendered by Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd (supra). For the sake of convenience, I extract below the observations made by the Hon'ble Karnataka High Court:- "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 legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A 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 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. 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 where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural 5 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., 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 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. 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. 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 Taxman 220/12 taxmann.com66. 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." 11. Respectfully following the decision rendered by Hon'ble Karnataka High Court, referred above, I set 6 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., aside the order of Ld CIT(A) on this issue and direct the AO to allow deduction u/s 80P of the Act." 7. Accordingly, by following the decision rendered by Hon'ble Karnataka High Court (referred supra), we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to allow deduction of interest income u/s. 80P(2)(a)(i) of the Act. 6. Since facts prevailing in the instance case are identical with the case relied upon by learned AR, following the same, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to allow deduction u/s. 80P(2)(a)(i) of the Act in respect of interest income referred above. 7. Next issue relates to rejection of claim for deduction u/s. 80P(2)(a)(i) of the Act on commission income of ` 10.34 lakhs earned by the assessee from Maharashtra State Electricity Board (MSEB). 8. The Assessing Officer noticed that the assessee was also engaged in the activity of collecting dues from the customers of MSEB on its behalf. In turn, it was getting commission from MSEB. During the year under consideration, the assessee received commission income of Rs.10.84 lakhs and claimed as deduction u/s 80P(2)(a)(i) of the Act. The Assessing Officer took the view that the assessee has derived commission income from a non-member and hence the same is taxable u/s. 80P(2)(c) of the Act. Accordingly, by allowing deduction of Rs.50,000/-, the Assessing Officer assessed balance amount of ` 10.34 lakhs as income of the assessee under the head “income from other sources”. The learned CIT(A) also confirmed the same. 8. The Learned AR submitted that an identical issue was considered by the Pune SMC Bench in the case of Dronagiri Nagri Sahakari Patsanstha Maryadit (ITA No. 1183/Pune/2017 dated 20.6.2018) and it was decided in favour of the assessee. 9. We heard learned DR and perused the record. We noticed that an identical issue was considered by the Pune SMC Bench in the above cited case and the same has been decided in favour of the assessee with following observations :- 10. After hearing both the learned Counsel for assessee and the learned Departmental Representative for the Revenue, it transpires that similar issue of Electricity Commission arose before the Tribunal in the case of Banganga Nagri Sahakari 7 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., Patsanstha Ltd. Vs. ITO (ITA No.1521 & 1522/PN/2015 dated 10-03-2016), wherein it was held as under:- "10. We have carefully considered the rival submissions, orders of the authorities below and case law cited. The short question before us is to determine eligibility of deduction under section 80P of the Act in respect of income earned from certain allied activities viz. (i) Locker Rent; (ii) Ambulance Rent; (iii) Commission on Collection of MSEB bills; and (iv) Health Club by cooperative credit society carrying on banking business. The alternate ground agitated by the assessee is towards ad-hoc estimation of expenses in relation to such income @ 10% of the gross receipt as against actual and proportionate expenses attributable for the purpose of carrying on such allied activities. This has resulted in higher incidence of taxation owing to denial of deduction under section 80P on such income. We find that eligibility of the assessee for deduction under section 80P of the Act in respect of locker rent income is covered by the decision of the Hon‟ble Supreme Court in the case of Mehsana District Central Co-op. Bank Ltd. (supra). Therefore, we set- aside the direction of the CIT(A) in this regard and hold that the assessee is eligible for deduction under section 80P of the Act in respect of this income. With respect to the income from running of Ambulance, while holding that the assessee is not eligible for deduction under section 80P(2)(a) or (b), we are in total agreement with the alternate plea of the assessee that the expenses attributable for the purpose operating such activity ought to have to be allowed on actual/proportionate basis. We are of the view that the action of the CIT(A) in restricting the expenses artificially @ 10% of the gross income from such activities is not sustainable in law being devoid of objectivity. The Assessing Officer is accordingly directed to allow the expenses which are attributable to the running of Ambulance and determine the income from the aforesaid activity. The surplus if any, from this activity would be entitled to relief made residuary clause of section 80P(2)(c)(ii). We also notice that the Income from MSEB commission is held to be business activity as per decision cited by the assessee in the case of Ahmednagar District Co-operative Bank Ltd. (supra) and other decisions noted above. Accordingly, 8 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., we hold that the assessee is entitled to relief under section 80P as per law....." 11. The issue of Electricity Commission arising in the present appeal is similar to the issue before the Tribunal and following the same parity of reasoning, this issue is decided in favour of assessee. Accordingly, relevant ground is allowed. 10. Following the above said decision of Pune Bench, we set aside the order passed by the learned CIT(A) and direct the Assessing Officer to allow deduction u/s. 80(P)(2)(a)(i) of the Act in respect of commission income also.” 6. Facts being identical, respectfully following the said decision, I allow the Ground Nos. 1 and 2 of the assessee. 7. Coming to Ground No. 3 which is in respect of initiating penalty u/s.271(1)(c) of the Act and levying the interest u/s. 234A, B, C and D of the Act, and this ground is only consequential and therefore the same is remitted to the file of the Assessing Officer. 8. In the result, both the appeals of the assessee are partly allowed as indicated above. Order pronounced on 25.11.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board. Sd/- (C.N. PRASAD) JUDICIAL MEMBER Mumbai / Dated 25.11.2021 Giridhar, Sr.PS 9 ITA NOs. 5288 & 5289/MUM/2018 (A.Ys: 2015-16 & 2014-15) Navbharat Urban Co-operative Credit Society Ltd., Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum