Orissa State Co-Operative Handicrafts Corporation Ltd., Bhubaneswar V. DCIT, Circle-4(1), Bhubaneswar

ITA 66/CTK/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3796 (ITAT-CUTTACK)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 27-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K PRADHAN
• Assessee Lawyers: BISWA RANJAN PATNAIK
• Keywords: Business income; Revenue expenditure
• Section: 43B; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK SMC BENCH, CUTTACK BEFORE SHRI N.S SAINI, ACCOUNTANT MEMBER ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 ORISSA STATE CO - OPERATIVE HANDICRAFTS CORPORATION LIMITED, D - 2/3, INDUSTRIAL ESTATE, RASULGARH. VS. DCIT, CIRCLE 4(1), BHUBANESWAR PAN/GIR NO. AAAAO 0096 K (APPELLANT ) .. ( RESPONDENT ) ASSESSEE BY : SHRI BISWA RANJAN PATNAIK, AR REVENUE BY : SHRI D.K.PRADHAN, DR DATE OF HEARING : 24 /05/ 2017 DATE OF PRONOUNCEMENT : 31 /05 / 2017 O R D E R THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) 2, BHUBANESWAR , DATED 30.11.2016 , FOR THE ASSESSMENT YEAR 2012 - 13 . 2. THE ISSUE INVOLVED IN GROUND NOS.1,2,3,4 & 5 OF THE APEPAL IS THAT THE LD CIT(A) ERRED IN NOT ALLOWING DEDUCTION U/S . 80P OF THE ACT ON THE FOLLOWING INCOME OF THE ASSESSEE: I) INTEREST ON FIXED WITH BANK OF BARODA : RS.7,05,927/ - II) INTEREST ON S.B.A/C. WITH BOB : RS.2,70,706/ - III) INTEREST ON F.D. WITH OSCB : RS.8,03,082/ - RS: 17,79,725/ - 2 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 3. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CREATED CERTAIN RESERVE FUNDS FROM YEAR TO YEAR AND PARKED ITS SURPLUS INCOME IN THE FORM OF FIXED DEPOSITS IN DIFFERENT BANKS RESULTING IN SUBSTANTIAL INTEREST INCOME. SINCE THE FUNDS CREATED BY SUCH RETENTION WAS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES, IT WAS INVESTED IN SPECIFIED SECURITIES . THEREFORE, SUCH INTEREST INCOME IS ACTUALLY TO BE CONSIDERED AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM BUSINESS AS TREATED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. HE OBSERVED THAT THE INCOME WHICH IS ATTRIBUTABLE TO ANY OF THE SPECIFIED ACT IVITIES U/S.80P(2) IS ELIGIBLE FOR DEDUCTION. IN THE INSTANT CASE, THE ASSESSEE SOCIETY INVESTED FUNDS NOT IMMEDIATELY REQUIRED FOR BUSINESS PURPOSES AND, THEREFORE, INTEREST ON SUCH INVESTMENTS, CANNOT FALL WITHIN THE MEANING OF THE EXPRESSION PROFIT AN D GAINS OF BUSINESS AND CANNOT BE ATTRIBUTABLE TO THE ACTIVITIES OF THE SOCIETY. THE HONBLE APEX COURT IN THE CASE OF TOTGARS CO - OPERATIVE SALES SOCIETY LTD VS ITO, 322 ITR 283 HAS HELD THAT THE INTEREST INCOME EARNED BY THE CO - OPERATIVES FROM THE FUND CREATED BY RETENTION WHICH IS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURPOSES FELL UNDER THE HEAD INCOME FROM OTHER SOURCES IS TAXABLE UNDER SECTION 56 OF THE I.T.ACT, 1961. THEREFORE, THE ASSESSING OFFICER DISALLOWED DEDUCTION U/S. 80P OF THE ASSESSEE OF INTEREST INCOME OF RS.7,14,513/ - WHICH WAS ENH ANCED IN APPEAL BY THE CIT(A) TO RS.17, 79,725/ - . 3 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 4. SIMILARLY, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS EARNED RENTAL INCOME DURING THE YEAR UNDER APPEAL BY LETTING OUT OF SHOPS AND OFFICE PREMIS ES. HE OBSERVED THAT AS PER SECTION 80P(2)(E) THE WHOLE OF THE INCOME DERIVED BY CO - OPERATIVE SOCIETY FROM THE LETTING OF GODOWNS OR WAREHOUSES FOR STORAGE, PROCESSING OR FACILITATING THE MARKETING OF COMMODITIES IS DEDUCTIBLE THE TERM GODOWN AND WARE HO USES IS VERY IMPORTANT AND HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. AHMEDABAD MASKATI CLOTH DEALERS CO - OPERATIVE WAREHOUSE SOCIETY LTD., (1986) 162 ITR 142 HELD THAT THERE MUST BE A GODOWN OR WAREHOUSE WHICH SHOULD BE LET OUT FOR THE PURPOSE AS SP ECIFIED IN THE CLAUSE (E) TO SECTION 80P(2) OF THE INCOME TAX ACT, 1961. IF THE GODOWN OR WAREHOUSE IS LET OUT FOR THE PURPOSE OF OTHER THAN STORAGE, PROCESSING OR FACILITATING THE MARKETING COMMODITIES, THE INCOME DERIVED THERE FROM BY A CO - OPERATIVE SOC IETY WOULD NOT BE DEDUCTIBLE U/S. 80P. LATER, THE HONBLE SUPREME COURT IN THE CASE OF UDAIPUR SAHAKARI UPBHOKTA THOK BHANDAR LTD VS CIT, 182 TAXMAN 287 (SC) HAS HELD THAT DEDUCTION IS AVAILABLE IN RESPECT OF INCOME DERIVED FROM THE LETTING OUT OF GODOWNS AND WAREHOUSES ONLY WHERE THE PURPOSE OF LETTING IS STORAGE, PROCESSING OR FACILITATING MARKETING OF COMMODITIES. HE OBSERVED THAT IN THE CASE OF THE ASSE SSEE THE RENTAL INCOME EARNED FROM LETTING OUT SHOPS AND OFFICE PREMISES AND, THEREFORE, IS NOT ELIG IBLE FOR DEDUCTION U/S. 80P(2) OF THE ACT AND HENCE, DISALLOWED DEDUCTION OF RS.15,52,966/ - , WHICH WAS ENHANCED IN APPEAL BY THE CIT(A) TO RS.17,79,725/ - . 4 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 5. ON APPEAL THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY ENHANCING THE DISALLOWANCE UNDER THE HEAD INTEREST INCOME AND RENTAL INCOME BY RELYING ON THE FOLLOWING JUDICIAL DECISIONS: I) PUNJAB STATE CO - OPERATIVE MILK PRODUCERS FEDERATION LTD VS CIT, (2012 20 TAXMANN.COM 834 (P&H) II) MANTOLA CO - OPERATIVE THRIFT & CREDIT SOCIETY LTD VS CIT, (2014) 50 TAXMANN.COM 278 (DELHI) III) STATE BANK OF INDIA VS CIT, (2016) 72 TAXMANN.COM 64 (GUJ) IV) BIHAR RAJYA SAHKARI BHOOMI VIKAS CO - OPERATIVE BANK LTD VS CIT, (2010) 186 TAXMANN 54 (PAT) V) KOTTAYAM CO - OPERATIVE LAND MORTGAGE BANK LTD VS CIT, 40 TAXM AN 259(KER) VI) SINDHI SAHITI MULTIPURPOSE & TRANSPORT CO - OPERATIVE SOCIETY LTD VS CIT, 214 ITR 232 (MP) 6. LD A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. HE COULD NOT POINT OUT ANY SPECIFIC ERROR IN THE ORDER OF THE CIT(A). HE SUBM ITTED THAT SPECIAL LEAVE PETITION HAS BEEN GRANTED BY THE HONBLE SUPREME COURT AGAINST THE ORDER OF HONBLE P&H HIGH COURT IN THE CASE OF PUNJAB STATE C O - OPERATIVE FEDERATION OF HOUSE B UILDING SOCIETY LTD VS CIT, (2016) 76 TAXMANN.COM 99 (SC) , WHEREIN, IT WAS HELD THAT INTEREST EARNED BY CO - OPERATIVE SOCIETY BY INVESTING SURPLUS FUNDS IN SHORT TERM DEPOSIT OR INTEREST EARNED BY GIVING LOANS TO EMPLOYEES FOR HOUSING AND CONVEYANCE WOULD NOT BE ENTITLED TO SECTION 80P(2)(A) . FURTHER, HE SUBMITTED THAT S PECIAL LEAVE PETITION HAS BEEN GRANTED AGAINST THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MANTOLA CO - OPERATIVE THRIFT & CREDIT SOCIETY LTD VS CIT ( 2016) 70 TAXMANN.COM 296 (SC), WHEREIN, IT WAS HELD TH A T THE 5 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 CO - OPERATIVE SOCIETY ENGAGED IN PRO VIDING CREDIT FACILITIES TO ITS MEMBERS, DEPOSITED SURPLUS FUNDS IN FIXED DEPOSITS AND EARNED INTEREST THEREON, SAID INTEREST WOULD BE ASSESSABLE AS INCOME FROM OTHER SOURCES AND, THUS, NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. THUS, THE ASSESSEE BY OWN SUBMISSION ADMITS THAT THE DECISION OF ABOVE HONBLE HIGH COURTS ARE AGAINST THE ASSESSEE AND THERE IS NO DECISION OF HONBLE SUPREME COURT REVERSING THE SAME. 6.1 HE ALSO RELIED ON THE DECISION OF HONBLE DELHI H IGH C OURT IN THE CASE OF SN AM P ROGETTI S.P.A. VS ACIT (1981 ) 132 ITR 70 (DEL) ), WHEREIN, IT WAS HELD THAT IF THE INTEREST INCOME WAS DERIVED FROM BUSINESS ACTIVITY THEN THE MERE FACT THAT IT IS TAXED U NDER A DIFFERENT SECTION WILL MAKE NO DIFFERENCE. THE APPROACH TO THE PROBLEM HAS, THEREFORE, TO BE DISASSOCIATED FROM THE SECTION UNDER WHICH THE TAX IS IMPOSED ON THE FORM OF INCOME. 6.2 IN THE CASE OF THE ASSESSEE, IT IS NOT IN DISPUTE THAT INTEREST INCOME IS EARNED FROM FIX ED DEPOSIT WITH BANK AND NOT FROM ANY BUSINESS ACTIVITY. HENCE, THE SAID DECISION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 6.3 HE FURTHER RELIED ON THE DECISION OF HONBLE A.P. HIGH COURT IN THE CASE OF CIT VS. A.P. INDUSTRIAL INFRASTRUCTURE CORPORATION LTD, 175 ITR 361 (AP), WHEREIN, IT WAS HELD THAT RECEIVING AND DISBURSING FUNDS INCLUDING THE GOVERNMENT FUNDS, PENDING DISBURSEMENT OF SUCH FUNDS WAS PLACED IN BANK DEPOSITS AND INTEREST THEREON WAS HELD TO BE BUSINESS INCOME. IN THE CASE OF THE ASSESSEE, IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NOT RECEIVED ANY 6 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 FUNDS FOR DISBURSEMENT FROM GOVERNMENT WHICH WAS KEPT IN THE BANK IN THE INTERVAL BETWEEN RECEIPT AND DISBURSEMENT . THEREFORE, THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE A SSESSEES CASE. 6.4 THE LD A.R. FURTHER RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS TIRUPATI WOOLLEN MILLS LTD., 193 ITR 252 (CAL) WHEREIN IT WAS HELD THAT THE TRIBUNAL HAD FOUND THAT THE INTEREST AROSE FROM UTILIZATION OF COMMERCIAL ASSET. THE FUNDS UTILIZED IN MAKING FIXED DEPOSIT WITH BANKS WERE BUSINESS FUNDS LYING TEMPORARILY SURPLUS WITH THE ASSESSEE. IT WAS THEREFORE ASSESSABLE AS BUSINESS INCOME AN D REVENUE EXPENDITURE COULD BE DEDUCTED FROM IT. IN THE CASE OF THE ASSESSEE, IT IS NOT THE CASE OF THE ASSESSEE THAT INTEREST INCOME WAS EARNED OUT OF UTILIZATION OF BUSINESS FUNDS LYING TEMPORARILY SURPLUS WITH THE ASSESSEE. THEREFORE, THIS CASE IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 6.5 FOR THE REASON GIVEN ABOVE, I FIND NO GOOD REASON TO INTERFERE WITH THE ORDER OF THE CIT(A), WHICH IS HEREBY CONFIRMED AND GROUNDS OF APPEAL OF THE ASSESSEE ARE DISMISSED. 7 . IN GROUND NO.6 OF THE APPEAL, THE GRIEVANCE OF THE ASSESSEE IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.12,33,626/ - MADE BY THE ASSESSING OFFICER U/S.2(24)(X) OF THE I.T.ACT, 1961. 9. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS NOT DEPOSITED THE EMPLOYEES CONTRIBUTION TO PF BY THE DUE DATE AS STIPULATED UNDER THE RELEVANT ACT. AS PER THE ASSESSMENT ORDER, THE 7 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 ASSESSING OFFICER IN HIS ORDER STATED THAT THE EMPLOYEES CONTRIBUTION TO PF HAVE BEEN DEPOSITED AS UNDER: HEAD OFFICE MONTH EPF SHARE OF THE EMPLOYEES DUE DATE OF DEPOSITS ACTUAL DATE OF DEPOSITED/CREDITED NO OF DAYS DELAYED APRIL,2011 96,063 15.05.2011 25.05.2011 10 DAYS MAY, 2011 90,605 15.06.2011 22.06.2011 07 DAYS JUNE, 2011 1,00,329 15.07.2011 22.07.2011 07 DAYS JULY, 2011 98,313 15.08.2011 24.08.2011 09 DAYS AUGUST,2011 97,592 15.09.2011 24.09.2011 09 DAYS SEPT., 2011 97,751 15.10.2011 25.10.2011 10 DAYS OCT., 2011 1,17,935 15.11.2011 26.11.2011 11 DAYS NOV., 2011 1,18,954 15.12.2011 23.12.2011 08 DAYS JAN, 2012 1,18,058 15.02.2012 22.02.2012 07 DAYS FEB., 2012 1,14,050 15.03.2012 27.03.2012 12 DAYS MARCH, 2012 1,09,650 15.04.2012 10.05.2012 25 DAYS. TOTAL 11,65,300 BRANCH OFFICE MONTH EPF SHARE OF THE EMPLOYER DUE DATE OF DEPOSIT ACTUAL DATE OF DEPOSIT NO. OF DAY DELAYED APRIL, 2011 5,535 15.5.2011 30.5.2011 15 MAY, 2011 5743 15.6.2011 30.6.2011 15 JUNE, 2011 5455 15.7.2011 3.8.2011 19 JULY, 2011 5728 15.8.2011 24.8.2011 09 AUGUST, 11 5728 15.9.2011 22.9.2011 07 SEPT, 11 5702 15.10.2011 27.10.2011 12 OCT, 11 6887 15.11.2011 30.11.11 15 NOV, 11 6887 15.12.2011 12.1.2012 28 JAN 2012 6887 15.2.2012 2.3.2012 16 FEB 2012 6887 15.3.2012 26.3.2012 11 MARCH,12 6887 15.4.2012 7.6.2012 53 THEREFORE, HE DISALLOWED DEDUCTION FOR THE SAME. 10. ON APPEAL, THE CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICER OF RS.12,33,626/ - BEING EMPLOYEES CONTRIBUTION TO PF U/S.2(24)(X) R.W.S. 36(1)(VA) ON THE GROUND THAT THE EMPLOYEES CONTRIBUT ION WAS NOT 8 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 DEPOSITED WITHIN THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACT BUT WAS DEPOSITED BEFORE FILING THE RETURN OF INCOME U/S.139(1) OF THE ACT. 11. BEFORE ME, LD A.R. OF THE ASSESSEE SUBMITTED THAT THE EMPLOYEES CONTRIBUTION WAS DEPOSITED BEFORE T HE DUE DATE PRESCRIBED U/S.139(1) OF THE I.T.ACT, 1961 AND, THEREFORE, THE DEDUCTION SHOULD BE ALLOWED. 12. LD D.R. RELIED ON ORDERS OF THE LOWER AUTHORITIES. 13. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. A PERUSAL OF ASSESSMENT ORDER, IT IS REVEALED THAT THE EMPLOYEES CONTRIBUTION TO PROVIDENT FUND HAS BEEN DEPOSITED BY THE ASSESSEE BEFORE THE DUE DATE PRESCRIBED U/S.139(1) OF THE ACT. I FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GHATGE PATIL TRANSPORTS LTD., (2014), 368 ITR 749 HAS HELD THAT EMPLOYEES CONTRIBUTION TO PF AND ESI IS ALLOWABLE IF THE SAME IS DEPOSITED BEFORE THE DUE DATE OF FILING OF RETURN OF INCOME U/S.2(24)(X) R.W.S. 36( 1)(VA) AND 43B OF THE ACT. THE HONBLE DELHI HIGH COURT IN CIT VS. AIMIL LIMITED [2010] 321 ITR 508 ( DEL ) HAS HELD THAT THE EMPLOYEES CONTRIBUTION TOWARDS EPF AND ESI ETC. DEPOSITED AFTER THE DUE DATE BUT BEFORE THE TIME ALLOWED FOR FILING THE RETURN U/S. 139(1) WILL NOT CALL FOR ANY DISALLOWANCE U/S.36(1)(VA). THEREFORE, I SET ASIDE THE ORDERS OF LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF OF RS12,33,626/ - AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 9 ITA NO.66/CTK/2017 ASSESSMENT YEAR : 2012 - 2013 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 /05/2017 IN THE PRESENCE OF PARTIES. SD/ - ( N.S SAINI) A CCOUNTANT MEMBER CUTTACK; DATED 31 /05/2017 B.K.PARIDA, SPS COPY OF THE ORDER FORWARDED TO : BY ORDER, SR.PRIVATE SECRETARY ITAT, CUTTACK 1. THE APPELLANT : ORISSA STATE CO - OPERATIVE HANDICRAFTS CORPORATION LIMITED, D - 2/3, INDUSTRIAL ESTATE, RASULGARH 2. THE RESPONDENT. DCIT, CIRCLE 4(1), BHUBANESWAR 3. THE CIT(A) - 2, BHUBANESWAR 4. PR.CIT - 2, BHUBANESWAR 5. DR, ITAT, CUTTACK 6. GUARD FILE. //TRUE COPY//