MEASAGE THE BAINS COOPERATIVE THRIFT AND CREDIT SOCIETY LIMITED, HOSHIARPUR V. DEPUTY COMMISSIONER OF INCOME TAX HOSHIARPUR CIRCLE, HOSHIARPUR

ITA 677/ASR/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 7520 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 10-11-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Revision of order; Difference of opinion; Prejudicial to interest; Change of opinion
• Section: 56; 263; 143(3); 142(1); 80(P); 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 677/Asr/2019 Assessment Year: 2015-16 M/s The Bains Coop. Thrift and Credit Society Ltd., Mahilpur, Distt. Hoshiarpur [PAN: AAATT 7569H] Vs. Dy. Commissioner of Income Tax, Hoshiarpur Circle, Hoshiapur (Appellant) (Respondent) Appellant by : Sh. Surinder Mahajan, CA Respondent by: Sh. Rahul Dhawan, CIT- DR Date of Hearing: 22.06.2022 Date of Pronouncement: 14.07.2022 ORDER Per Anikesh Banerjee, JM: The instant appeal was filed by the assessee against the order passed by the Ld. Pr. Commissioner of Income Tax-1, Jalandhar [in brevity the PCIT], bearing Case No. Pr.CIT-1/Jal/263/2019-20/2054 dated 12.09.2019 u/s 263 of the Income Tax Act, 1961 [in brevity the Act], in respect of Assessment Year 2015-16. 2. Brief fact of the case is that the appellant is a Cooperative Society registered under the Punjab Cooperative Societies Act, 1861. The appellant filed return declaring gross total income at Rs. 69,88,117/- and claimed deduction u/s 80P of ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 2 the Act of Rs.67,04,047/-, and therefore the net taxable income was shown to be Rs.2,84,070/-. The case was selected for complete scrutiny under CASS. The assessee claimed deduction u/s 80P(2) at Rs.67,04,047/-. Accordingly, the assessment was completed and the deduction u/s 80P(2) of the Act was allowed u/s 263. The proceeding was initiated for setting aside the order of the Ld. AO in the ground that the amount was invested to the nominal member and in the Schedule Bank not in the Cooperative Bank. The Ld. PCIT relied on the order of the Totagarh Cooperative Sales Society v. ITO 322 ITR 283 (SC) and disallowed the deduction of 80P(2) and return back the order to Ld. AO for reassessment. Aggrieved, the assessee filed an appeal before us against the order of the PCIT. 3. The assessee has raised the following grounds of appeal: “1. That order u/s 263 of the Act, passed by Learned Commissioner of Income Tax, Jalandhar-l (‘Ld. CIT’), is illegal & without jurisdiction. 2. That Learned Commissioner of Income Tax, Jalandhar-l (‘Ld. CIT’) has grossly erred in holding that assessment order passed by the Assessing Officer (‘AO’) was erroneous and prejudicial to the interest of revenue. Action of the Learned Commissioner of Income Tax, Jalandhar-l (‘Ld. CIT’) in invoking provisions of section 263 of the Act is illegal & bad in law 3. The proceedings u/s 263 of the Act were initiated by Pr. Commissioner of Income Tax-1 by holding that assessee has indulged in banking business and as such not entitled to deduction claimed u/s 80P(2) of the Act. Order u/s 263 of the Act has been passed by holding that order passed by the Assessing Office 1- is erroneous and prejudicial to interest of revenue since activities of the appellant are in violation of the cooperative society Act and the principle of mutuality is missing in the case. Initiating proceedings on one issue and passing order on an another ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 3 issue for which no show cause notice has been issued, makes the order illegal and bad in law. 4. That order passed u/s 263 of the Act by Pr. Commissioner of Income Tax-1 holding order passed by the Assessing Officer to be erroneous and prejudicial to interest of revenue since interest on funds with HDFC Bank is not exempt-u/s 80P(2) of the Act is illegal and bad in law since there was no such show cause notice to the assessee. 5. That various written submissions filed during proceedings u/s 263 of the Act and various case laws relied upon by the assessee have been ignored and brushed aside arbitrarily, which makes the order passed u/s 263 of the Act illegal and bad in law. 6. That the order of the Learned Commissioner of Income Tax, Jalandhar-1 (‘Ld. CIT’) u/s 263 is arbitrary, unjust, is based on assumptions & presumptions since no error existed or prejudice was caused to revenue, therefore, the order of the Learned Commissioner of Income Tax, Jalandhar- l (‘Ld. CIT’) passed u/s 263 of the Act deserves to be quashed. 7. That on the facts & circumstances of the case, Learned Commissioner of Income Tax, Jalandhar- l (‘Ld. CIT’) has grossly erred in setting aside the assessment framed with the directions to pass fresh order after considering all aspects of the matter and after carrying out proper enquiries. Non issuance of specific directions for assessment to be framed clearly proves that it is a case of only change of opinion and the assessment framed is neither erroneous nor prejudicial to the interest of the revenue. 8. That the appellant requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed off.” 4. The Ld. counsel of the assessee vehemently argued and placed the submission which is containing from page nos. 12 to 29 which is kept in the record. As per the Ld. counsel, the assessee was allowed deduction u/s 80P(2) of the Act for assessment year 2014-15 so the assessee is also eligible for deduction for assessment year 2015-16. The Ld. counsel further mentioned that the Ld. AO ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 4 made the proper scrutiny and verification related to deduction under chapter VIAS r.w.s. 80P, the extract of the assessment order para 2.1 is reproduced as below: “2.1 One of the reasons for selection of case in scrutiny was verification of large deduction claimed under Chapter-VIA of the Act. As per the return of income the assessee had claimed deduction u/s SOP of the Act at Rs.66,55,094/- being income from business as a Cooperative Credit Society/Trust and dividend for other Cooperative Societies and Rs.49,953/- on the income from other activities. In the notice u/s 142(1) of the Act issued on 24.11.2017, the assessee was asked, vide question no. l to justify its claim for deduction u/s BOP of the Act or to show cause AS TO WHY the deduction u/s SOP should not be disallowed in view of findings in the assessee's case as par the assessment framed for the A.Y. 2013-14. !n response, vide reply dated 01.12.2017 and in discussion during the course of hearing, the Ld. AR submitted that First "That the society claimed deduction u/s 80P(2) of the Act, as the society is purely a co-operative society registered under the Punjab Co-operative Societies Act, 1961 and fulfills all the requirements of Section 80P(2} of the I T Act. The assessment for A.Y. 2013-14 was completed by A.O.(Sh. Dinesh Gupta DCIT) by disallowing deduction u/s 80P without any material or evidence on record. Your kind attention is invited to the Assessment Order for the Asstt. Year 2014-15 passed by the same Assessing Officer (Sh Dinesh Gupta DCIT) vide his order dated 23.12.2016 u/s 143(3) of the I T Act 1961 in which after considering the submission of the assessee the Learned AO allowed deduction u/s 80P(2) of the Act and passed the Assessment Order by accepting the returned income of the assessee. That the society provides credit facilities to its members only. It does not advance loans/credits to nominal members and non members. The society is getting rental income from shops, study centre, post office and utensils.” Second, "there are 567 regular members, 384 nominal members and only 51 non-members, R/o Village Dolron, Haveli and Mahilpur, Tehsil Garhshankar Distt. Hoshiarpur. The society cannot accept membership other than the area prescribed in the Memorandum of Association. He relied on the following judgments of the Coordinate Benches: (i) “The Bains Cooperative Thrift v. Asstt. CIT in ITA No. 384/Asr/2018 for A.Y. 2013-14 dated 22.09.2021 (ii) The Bains Cooperative Thrift v. Dy. CIT in ITA No. 259/Asr/2019 for A.Y. 2014-15 dated 21.02.2022 (iii) Jaswinder Singh v. CIT in the ITAT Chandigarh (2012) 150 TTJ 0033 (UO) ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 5 (iv) B & A Plantation & Industries Ltd. & Anr. v. CIT & Ors. High Court of Gauhati (2007) 290 ITR 0395 (v) CIT v. Sohana Woollen Mills High Court of Punjab & Haryana (2008) 296 ITR 0238 (vi) CIT v. Sat Pal Aggarwal High Court of Punjab & Haryana (2007) 293 ITR 0090” 5. The Ld. CIT-DR vehemently argued and relied on the order of the Totagarh Cooperative Sales Society and Majinlies Cooperative Society of the Hon’ble Supreme Court and mentioned that the provisions of section 80P(4) only the interest from the investment in Cooperative Bank is accepted. The interests from other Schedule Bank are not accepted during the assessment. He relied on the order of Pr. CIT. The Ld CIT-DR relied on the order of the Ld. PCIT page 16 paragraph 5.3 which is extracted as follows:- “5.3. Thus in view of the above judgment of the Hon'ble Supreme Court it is apparent that the order of the assessing officer in case of M/s Bains Cooperative Thirft & Credit Society Ltd, A.Y. 2015-16 dated 21.12.2017 holding that the assessee is entitled to benefits of Section 80P of the Act is erroneous and prejudicial to interest of the revenue. 6. Further, as discussed above the assessee was not subjected to the regulation under the Reserve Bank of India Act and Banking Regulation Act as the assessee was not having license under the Banking Regulation Act for doing the business of banking. • The assessee has received interest from the Scheduled Banks and other commercial banks which were not member of the assessee cooperative society. As per the income and expenditure statement the interest that assessee has received from HDFC Bank is Rs. 17696/-. • The case of CIT Vs Andhra State Co-operative Bank Ltd (supra) is of no help as in that case, the society was engaged in the banking business (Co-operative Bank) and was also governed by the regulation under RBI Act, Banking Regulation & ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 6 Societies Act. The assessee is not a license holder for doing the banking business. The facts suggest that assessee is not engaged in the banking business. • The assessee's claim that it was carrying on banking business on a limited basis is factually incorrect. • The assessee is a co- operative society registered under the Punjab Cooperative Societies Act and it is not registered under the Banking Regulation Act, 1949. Although, one of the objects of the society also mentions the banking and credit business, but the facts of the case shows that the society was not engaged in the banking business. A society cannot open saving A/c, current A/c neither it can do business with cheque, DDs, pay orders and others. • The interest income arose on the surplus fund invested in deposit with bank which was not required for the business purpose of the assessee. • The co-operative society is not a co-operative bank. The profit and gains of a co- operative society from its business activity with its members only shall be entitled for deduction u/s SOP. No other income which is not attributable to its business activity with its members shall be entitled for such deduction. • The fact of case of Totgar's Co-operative Sale Society Ltd, are similar to the assessee's case. The Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. vs ITO reported in 322 ITR 283 {SC} held as under The words 'the whole of the amount of profits and gains of business' in section SOP (2) of the income Tax Act, 1961, emphasize that the income in respect of which deduction is sought by a co- operative society must constitute the operational income and not the other income which accrues to the society. • The interest income arising to a co-operative society carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members, on the surplus, which is not required immediately for business purposes, from investment in short-term deposits and securities, has to be taxed as income from other sources under section 56 of the Income Tax Act, 1961. • Such interest cannot be said to be attributable to the activities of the society, viz., carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. Interest income of such society from amounts retained by it cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act. ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 7 • The Supreme Court held further, that the question whether interest on deposits was chargeable to tax without allowing any deduction in respect of cost of funds and proportionate administrative charges and other expenses under section 57 was a question of law involving the applicability of sections 56 and 57 to this case, which was raised by the assessee before the authorities but had remained unanswered and had to be answered and remitted the matter to the High Court for consideration of that question. • The decision of Hon'ble' ITAT in the case of Mantola Cooperative Thrift and credit Society also covers all the aspects and grounds raised by the assessee. It has been held that the fact of case of Totgar's Co-operative Sale Society Ltd. are similar to the assessee's case, interest income on surplus fund is to be taxed under the head other sources and benefit of section SOP is not available on such interest income. It has also been held that the benefit of Section 80P is only admissible to the extent of business activity with members. Thus the assessee is not entitled to deduction under section 80P(2)(d) in respect of investment made in HDFC Bank. 7. In view of the above discussion and the judgment of the Hon'ble Supreme Court, the order of the assessing officer in case of M/s Bains Cooperative Thirft & Credit Society Ltd, A.Y. 2015-16 dated 21.12.2017 is erroneous and prejudicial to revenue Considering all these facts, the order passed by the A.O. is held to be erroneous and prejudicial to the interest of the revenue. 8. In view of the above facts and discussions, I am satisfied that the assessment order passed by the Assessing Officer on 21.12.2017 is erroneous in so far as it is prejudicial to the interests of the revenue. Therefore, the said order passed on 21.12.2017 is set aside to this extent to the file of the assessing officer to pass fresh order after making necessary enquiries/investigations in the light of the discussions made above and after giving due opportunity to the assessee of being heard.” 6. In view of the above discussions, we can safely conclude that the respectful observation of the case Mavilayi Service Coop Bank Ltd Vs. CIT, [2021] 123 taxmann.com 161 (SC) limited object of section 80P(4) is to exclude co-operative ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 8 banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co- operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative society shall carry on banking business in India, unless it is a co-operative bank and holds a license issued in that behalf by the RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. As a matter of fact, some primary agricultural credit societies applied for a banking license to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking. This was turned down by the RBI in a letter dated 25.10.2013. A number of judgments have held that a proviso cannot be used to cut down the language of the main enactment where such language is clear, or to exclude by implication what the main enactment clearly states. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 9 Ltd, 397 ITR 1 (SC), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. The observation of the order of the assessing authority, it is clear that the particular issue related investment in cooperative bank nationalised bank was not discussed in the order shift even the ld. assessing officer did not apply his mind to differentiate the nature of investment of the assessee. The earning of interest from this investment will be in question for attraction of tax or allowable deduction under section 80(P) of the Act for treating this income as business. The ld. CIT-DR correctly pointed out that the learned assessing officer only discussed about the member not about the nature of investment made to the bank. The investment in the scheduled bank under banking regulation and earning interest from there is not allowable deduction undersection 80(P) of the Act. Incorrect assumption of fact & incorrect application of law will separately the requirement of order being erroneous, In the case of Malabar Industrial Company Ltd 243 ITR 83 (SC). The assessment order is itself erroneous & prejudicial to the interest of revenue. The ld PCIT was justified in revising the order of assessment. Accordingly, the impugned order pass by learned PCIT is upheld. ITA No. 677/Asr/2019 The Bains Coop. Thrift and Credit Society Ltd. v. DCIT 10 7. In the result, the appeal of the assessee, ITA No. 677/Asr/2019 is dismissed. Order pronounced in the open court on 14.07.2022 Sd/- Sd/- (Dr. M. L. Meena) (Anikesh Banerjee) Accountant Member Judicial Member *GP/Sr. PS* Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(A), (4) The CIT concerned (5) The Sr. DR, I.T.A.T (6) The Guard File True Copy By Order