THE ANDALURU LARGE SIZE CO-OPERATIVE SOCIETY ANADALURU, ANDALURU V. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, RAJAHMUNDRY

ITA 58/VIZ/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 8092 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-03-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 19-02-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA VILLURI
• Keywords: Set aside
• Section: 143(3); 142(1); 80P; 143(2)

Judgement Text

आयकर अपीलीयअधिकरण, विशाखापटणम SMC पीठ, विशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM श्री द ु व्ि ू रु आर एल रेड्डी, न्याययक सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER आयकर अपील सं./ I.T.A. No.58/Viz/2024 (निर्धारण वर्ा / Assessment Year : 2018-19) The Andaluru Large Size Co- operative Society Andaluru, D. No. 3-77, Main Road, Andaluru, West Godavari Dist, Andhra Pradesh – 534238. PAN: AACAT 1978 M Vs. The Asst. Commissioner of Income Tax, Circle-1, Rajahmundry. (अपीलधर्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधर्थी की ओर से/ Appellant by : Sri GVN Hari, AR प्रत्यधर्थी की ओर से / Respondent by : Dr. Aparna Villuri, Sr. AR स ु िवधई की तधरीख / Date of Hearing : 21/03/2024 घोर्णध की तधरीख/Date of Pronouncement : 27/03/2024 O R D E R PER DUVVURU RL REDDY, Judicial Member : This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [In short Ld. CIT(A)-NFAC] in DIN & Order No. ITBA/NFAC/S/250/2023-24/1059213791(1), dated 29/12/2023 2 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 for the AY 2018-19. 2. Briefly stated the facts of the case are that the assessee is a Primary Agricultural Cooperative Credit Society engaged in the business of providing credit facilities to its members, supply of inputs and marketing of agricultural produce grown by its members. The assessee filed its return of income for the AY 2018- 19 admitting a total income of Rs. 81,870/- after claiming deduction of Rs. 42,07,008/- U/s. 80P(2) of the Act. Thereafter, the assessee’s case was taken up for scrutiny to verify the investments / advances / loans made by the assessee and the deduction claimed under Chapter VI A of the Act. Accordingly, notices U/s. 143(2) and 142(1) of the Act were issued and served on the assessee wherein the assessee was called for to furnish certain information mentioned therein. In response, the assessee submitted its reply and on perusal of the information furnished by the assessee the Ld. AO noticed that the assessee received an interest and dividend income aggregating to Rs. 15,04,982/- from the investments made with District Cooperative Central Bank (DCCB). The Ld. AO further observed that the assessee is not eligible for deduction U/s. 80P(2)(d) of the Act since the assessee 3 made the investments with Cooperative Bank and accordingly, the Ld.AO proposed to disallow the deduction U/s. 80P to the extent of Rs. 15,04,982/- received from the DCCB. Before the Ld.AO, it was the submission of the assessee that the investments were made with DCCB as per the cooperative society’s norms and that the DCCB in turn caters to the requirements of the cooperative societies in the District. The assessee further submitted that since the transactions are between cooperative societies only and hence the income received from DCCB is eligible for deduction U/s. 80P(2) of the Act. Further, the assessee also submitted before the Ld. AO that the net interest income from the impugned investments has to be taxed and not the gross income of Rs. 15,04,982/- as the assessee has already paid interest on deposits and loans received from the members which were utilized for the impugned investments. However, the Ld. AO did not consider the submissions of the assessee and observed that as per the Act, the interest income derived from any other Cooperative Society is eligible for deduction and not from Co-operative Bank as in the case of the assessee. Thus, the Ld. AO denied the assessee’s claim of deduction U/s. 80P(2)(a)(i) of the Act and made addition of Rs.15,04,982/- on account of interest income earned from cooperative bank as chargeable income under the head ‘income 4 from other sources’. While making the addition, the Ld. AO relied on the decision of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd vs. ITO [2010] 322 ITR 283 (SC). Accordingly, the Ld.AO determined the total income at Rs. 15,86,850/- and passed the assessment order U/s. 143(3) r.w.s 143(3A) & 143(3B) of the Act, dated 30/03/2021. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A)-NFAC. Before the Ld. CIT(A)-NFAC, the assessee also made various submissions. However, the Ld. CIT (A)-NFAC did not consider the submissions and explanations of the assessee and confirmed the disallowance made by the Ld. AO. Further, the Ld. CIT(A)-NFAC also held that the assessee is eligible to get benefit of deduction in respect of proportionate cost, administrative and other expenses which are incurred in order to earn such interest income and the accordingly directed the Ld. AO. Thus, the Ld. CIT(A)-NFAC partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A)-NFAC, the assessee is in appeal before the Tribunal by raising the following grounds of appeal: “1. The order of the Ld. CIT(A) is contrary to the facts and also the law applicable to the facts of the case. 2. The Ld. CIT(A) is not justified in sustaining the addition of Rs. 15,04,982/- made by the AO towards disallowance of deduction U/s. 80P(2) of the Act in respect of the interest and dividends received from investments made with DCCB. 5 3. The Ld. CIT(A) ought to have held that the interest income and dividends are received from cooperative society and therefore eligible for deduction both U/s. 80P(2)(a) and section 80P(2)(d) of the Act. 4. Any other ground that may be urged at the time of hearing.” 3. The only issue involved in this appeal relates to disallowance of deduction claimed u/s 80P of the Act. At the outset, the Ld.AR submitted that the assessee society, being a cooperative society, makes deposits in its regular course of business and accordingly the deposits were made in District Cooperative Central Bank [in short DCCB] in compliance with the statutory regulation of AP Cooperative Societies Act. The assessee is not having any intention to gain any benefit from other sources. The Ld.AR further submitted that the facts relied on by the Ld. Revenue Authorities in the case of M/s. Totgars Cooperative Sale Society Ltd reported in 322 ITR 283 are entirely different from that of the instant case. The Ld. AR also submitted that as per Para-11 of the judgment in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) it is clearly mentioned that “this judgment is confined to the facts of the present case” and therefore it cannot be applied in the assessee’s case, hence, eligible for deduction u/s 80P of the Act. He, therefore, pleaded to quash the order passed by the Ld.CIT(A)-NFAC and allow deduction u/s 80P of the Act. 6 4. Per contra, the Ld. Departmental Representative submitted that as per the provisions of section 80P(2)(d) of the Act, any income by way of interest or dividends derived the Co-operative Society from its investments with any other cooperative society is eligible for deduction. The Ld. DR further submitted that in the present case, assessee derived interest from the funds parked with District Cooperative Central Bank and not from a Cooperative Society and therefore the deduction claimed by the assessee is rightly disallowed by the Ld. AO. The Ld. DR further argued that as observed by the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd vs. ITO [2010] 322 ITR 283 (SC) the income in respect of which deduction is sought must constitute the operational income and not the other which accrues to the society. Therefore, considering the facts and circumstances of the case, the Ld. AO has rightly held that the assessee is not eligible for deduction U/s. 80P of the Act and the Ld. CIT(A)-NFAC sustained the same. The Ld. DR therefore pleaded to uphold the orders of the Ld. Revenue Authorities. 5. I have heard both the sides and perused the material placed on record as well as the orders of the Ld. Revenue Authorities. Now the question before me is to decide whether the assessee is eligible for 7 deduction u/s 80P with respect to the interest income earned on deposits parked with District Cooperative Central Bank, or not? It is an admitted fact that the assessee has claimed deduction u/s 80P of the Act. The contention of the Ld. AO and the Ld. DR is that any income by way of interest or dividends derived the Co-operative Society from its investments with any other cooperative society is eligible for deduction. The Ld. Revenue Authorities have also placed relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No.1622 of 2010 in the case of M/s Totgars Cooperative Sale Society Ltd., wherein it was held that “investment of surplus on hand not immediately required in Short Term deposits and securities by a co-operative society providing credit facilities to members or marketing agriculture produce to member”. However, in the instant case, the facts are distinguishable and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) shall not be applied to the instant case. On similar set of facts, coordinate Bench of this Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society held in favour of the assessee vide I.T.A.No.107/Viz/2022, CO No.07/Viz/2022 dated 30.08.2023. For the sake of reference, relevant paragraphs of the order are extracted as under: “8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the 8 assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: “(a) in the case of a co-operative society engaged in— (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members, or] (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, [or] [(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,] the whole of the amount of profits and gains of business attributable to any one or more of such activities:” 9 9. Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference: “(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co- operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;” 10. From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub- clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: 10 “34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.” 11. Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under: 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” 11 12. Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon’ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional High Court are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)-NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC. 13. In the result, appeal of the Revenue is dismissed.” 6. Respectfully following the decision of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd.(supra) and the ratio laid down by the Coordinate Bench of the Tribunal in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited (supra), I am inclined to quash the order passed by the Ld. CIT(A) and allow the appeal of the assessee. 7. In the result, appeal of the assessee is allowed. Pronounced in the open Court on 27 th March, 2024. Sd/- (द ु व्ि ू रु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याययकसदस्य/JUDICIAL MEMBER Dated : 27/03/2024 OKK - SPS 12 आदेश की प्रतिलिपि अग्रेपिि/Copy of the order forwarded to:- 1. निर्धाररती/ The Assessee– The Andaluru Large Size Co-operative Society Andaluru, D. No. 3-77, Main Road, Andaluru, West Godavari Dist, Andhra Pradesh – 534238. 2. रधजस्व/The Revenue – Asst. Commissioner of Income Tax, Circle-1, O/o. ITO, Aayakar Bhavan, Veerabhadrapuram, Rajahmundry, Andhra Pradesh – 533105. 3. The Principal Commissioner of Income Tax, 4.आयकर आय ु क्त (अपील)/ The Commissioner of Income Tax (Appeals), 5. ववभधगीय प्रनतनिधर्, आयकर अपीलीय अधर्करण, ववशधखधपटणम/ DR, ITAT, Visakhapatnam 6.गधर्ा फ़धईल / Guard file आदेशधि ु सधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam