CIDCO EMPLOYEES CO-OP. CREDIT SOCIETY LTD, NAVI MUMBAI V. WARD 28(1)(3), NAVI MUMBAI

ITA 700/MUM/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 0401 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-08-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-06-2024
• Assessment Year: misc
• Appeal Filed On: 15-02-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Question of law; TDS
• Section: 37; 143(3); 234B; 80(P); 80P; 250; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI ANIKESH BANERJEE, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 700/Mum/2024 (A.Y. 2020-21) CIDCO Employees Co-Op. Credit Society, Ground Floor, CIDCO Bhavan, CBD Belapur, Navi Mumbai – 400 614 PAN:AAAAC2203N ..... Appellant Vs. ITO Ward 28(1) (3)/ NFAC Delhi ..... Respondent Appellant by : Shri Bhupendra Shah, Ld. AR Respondent by : Shri H. M. Bhatt, Ld. DR Date of hearing : 12/06/2024 Date of pronouncement : 07/08/2024 ORDER PER GAGAN GOYAL, A.M: This appeal by assessee is directed against the order of National Faceless Appeal Centre (for short “NFAC”) dated 18.12.2023 u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’) for A.Y. 2020-21. The assessee has raised the following grounds of appeal: - 1(a). On the facts and in circumstances of the cases and in law, the Id. CIT (A)-NFAC erred in passing the order u/s. 250 of the Income Tax Act, 1961 and upholding the order of the Id. assessing officer. 2 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society 1(b). The Id. CIT(A)-NFAC had erred in upholding the view of the Ld. assessing officer and hence disallowing the whole amount of profits and gains of Rs. 67,11,597/- which had been claimed under section 80P of the Act, and the reason assigned are wrong and contrary to the facts and circumstances of the case. 1(c). In the facts and circumstances of the case and in law, the learned CIT [A] NFAC erred in confirming all the additions and dismissed all the grounds of the appellant. 2. The Id. AO erred in charging interest u/s. 234B and 234C of the Act. 3. The Id. AO erred in initiating penalty proceedings under section 271(1) (c) of the Act. [B] General:- • The appellant reserve rights to add alter or delete any portion of this appeal before its conclusion. • This appeal is filed within due date. • A detailed paper book will be filed at the time of hearing. Additional Grounds With reference to the above-mentioned subject, kindly note that additional grounds of appeal are being filed before Your Honour due to the fact that the same were inadvertently left out at the time of filing of Form 36 in our case. The said grounds are reproduced as under. 1) In the facts and circumstances of case and in law the learned Faceless Assessing Officer has erred in making additions amounting to Rs. 59,200/-on account of non-deduction at TDS on professional fees paid by ignoring the fact that we were liable to deduct TDS only on the payments amounting Rs. 58,000/- of which, we have deducted and paid TDS on payments amounting to Rs. 45,000/- 2) In the facts and circumstances of case and in law the learned Faceless Assessing Officer has erred in making additions amounting to Rs. 3,87,709/- by disregarding the fact that the same have already been disallowed in the audit report while filing the return of income. 3) In the facts and circumstances of case and in law the learned Faceless Assessing Officer his erred in disallowing a sum of Rs. 21,30,000/- as provision for bad and doubtful expenses as the provision was created as per the circular issued by the Maharashtra Government against investment in Co-operative Banks who had defaulted the guidelines 3 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society by RBI. The same amount was claimed as deduction as there was minute chance of recovery of the same 4) to the facts and circumstances of case and in law the learned Faceless Assessing Officer has erred in making additions amounting to Rs. 4,81,264/- on account of non-deduction of TDS on audit fees paid by disregarding the fact that such TDS has already been paid on the same. 5) In the facts and circumstances of case and in law the learned Faceless Assessing Officer has erred in disallowing an amount of Rs. 81,682/- by stating that the same were not deposited with a Recognized Provident Fund Account. 6) In the facts and circumstances of case and in law the learned Faceless Assessing Officer has erred in disallowing an amount of Rs. 6, 50,000/- on account compensation of canteen services by disregarding the fact that TDS for the same was deducted and paid Your honour, the learned tax officer has added Rs 83, 57,040/- to the income which was purely received as reimbursement towards payment made to contractors which is shown under other expenses We further submit that the Ld. Commissioner of Income Tax (A) has confirmed all the grounds of appeal in our case. We, therefore, respectfully request Your Honours to admit the aforesaid additional grounds of appeal in our case and oblige 2. The Brief Facts of the Case are that the Assessee is a Cooperative Credit Society registered under the Maharashtra State of Co-operative Societies Act, which filed its return of income on 15.01.2021 declaring net taxable income at Rupees10,25,520/- after claiming deduction under section 80(P) for Rs. 60,61,597.The return of the Assessee was selected for Complete Scrutiny under the e-assessment scheme, 2019 (faceless assessment scheme 13/08/2020)processed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Ld. Assessing Officer on 08.09.2022,in its assessment order the Ld. Assessing Officer observed the following: - i) That the interest income derived by the society does not form part of the operational income during its normal course of business. The Ld. Assessing Officer further held that interest income of Rs. 1, 61, 11,437/- earned from 4 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society investment made in a cooperative bank and commercial bank is not eligible for deduction under section 80P. Resultantly the deduction claims of the Assessee for Rs. 60, 61,597/- was denied and added back to the Assessee’s taxable income. ii) The Ld. Assessing Officer on the issue of payment on account of professional fees of Rs. 59,200/- claimed by the Assessee in the P&L Account held that since the Assessee had not, vide its replies, given any response to the request for details regarding TDS compliance, it would be construed that the Assessee had not complied with the TDS Provisions and resultantly an addition of Rs. 59,200/- was made under section 40(a) (ia) of the Act. iii) The Ld. Assessment Officer asked the Assessee to substantiate its claim of Rs. 3, 87,709/- under “other expenses” which had been disallowed by the audit report under the head “Personal Expenses”. The Assessee had not replied or submitted any evidence in its favour and hence the Ld. Assessing Officer disallowed the same under Section 37 of the Act which resulted in an addition of Rs. 3,87,709/-. iv) The Ld. Assessing Officer disallowed the claim of bad and doubtful expenses of Rs. 21, 30,000/- as the Assessee could not substantiate the same. The Ld. Assessing Officer further held that the claim for bad and doubtful debt is applicable to scheduled banks, non-scheduled banks, co- operative banks, public finance institutions etc., NBFCs, etc. Cooperative Societies where it was held were not covered under section 36(1) (via) of the Act and resultantly an addition of Rs. 21, 30,000/- was made. 5 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society v) The Ld. Assessing Officer on the issue of Audit Fees paid Rs. 4, 81,264/- claimed by the Assessee in the P&L Account held that since the Assessee had not, vide its replies, given any response to the request for details regarding TDS compliance, hence the same was added back to the taxable income and resultantly an addition of Rs. 4, 81,264/- was made. vi) The Ld. Assessing Officer on the issue of Form 3CD filed by the Assessee, it is mentioned that the Assessee had not paid the amount of Rs 81,682/- which was deducted from its employees into the Central Government Account. The Assessee kept silent on the same when questioned by the Ld. Assessing Officer and resultantly an addition of Rs.81, 682/- was made. vii) The Ld. Assessing Officer disallowed the Assessee’s claimed expense of Rs. 83, 57,040/- on account of reimbursement towards CIDCO Canteen as the Assessee failed to justify its claim in response to the notice under section 142(1). Resultantly an addition of Rs. 83, 57,040/- was made. Thus, a total addition of Rs. 1, 85, 84,012/- was done by the Ld. Assessing Officer. 3. The Assessee being aggrieved by the AO order dated 08.09.2022 under section 143(3) of the Act preferred an appeal the Ld. CIT (A) and subsequently the appeal was migrated to the National Faceless Appeal Centre, Delhi (NFAC) upon the publishing of the Faceless Appeal Scheme 2021 in the Official Gazette. Before the Ld. CIT (A) the Assessee challenged the Ld. Assessing Officer’s disallowance of deduction under section 80P (2) (a) (i) of the Act. The Ld. CIT (Appeal) vide his order under section 250 of the act dated 13.10.2022 upheld the Ld. Assessing Officer’s observation that the Assessee has to be treated as a Society and not a bank. Further, the Ld. CIT (A) held that the Assessee was an urban based society 6 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society and not a society dealing with primary agricultural credit or rural development and hence not entitled to the deduction available under Section 80P of the Act. Thus, the Ld. CIT (Appeals) dismissed the Assessee’s Appeal. 4. We have carefully gone through the order passed under section 143(3) read with section 144B of the Act, the order of the Ld. CIT Appeal passed under section 250 of the Act, and submissions of the Assessee along with grounds taken before us. For the sake of convenience and better understanding of the matter before us, Section 80P has been reproduced herein below: - 80-P. Deduction in respect of income of cooperative societies— (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following namely: — (a) In the case of a cooperative 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 member, 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 7 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society 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: Provided that in the case of a cooperative society falling under sub-clause (vi), or sub-clause (vii), the rules and byelaws of the society restrict the voting rights to the following classes of its members, namely: — (1) The individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities. (2) The cooperative credit societies which provide financial assistance to the society. (3) The State Government. (b) in the case of a cooperative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to— (i) a federal cooperative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) The Government or a local authority; or (iii) a Government company as defined in Section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a cooperative society engaged in activities other than those specified in clause (a) or clause (b), either independently of, or in addition to, all or any of the activities so specified, so much of its profits and gains attributable to such activities as does not exceed, — (i) Where such cooperative society is a consumers’ cooperative society, [one hundred thousand rupees]; and (ii) In any other case, [fifty thousand rupees]. 8 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society Explanation. —in this clause, “consumers’ cooperative society” means a society for the benefit of the consumers. (d) in respect of any income by way of interest or dividends derived by the cooperative society from its investments with any other cooperative society, the whole of such income. (e) in respect of any income derived by the cooperative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income. (f) in the case of a cooperative society, not being a housing society or an urban consumers, society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under Section 22. Explanation. —for the purposes of this section an “urban consumers’ cooperative society” means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment. (3) In a case where the assessee is entitled also to the deduction under Section 80-HH, or Section 80-HHA, or Section 80-HHB or Section 80-HHC or Section 80-HHD or Section 80-I[or Section 80-IA] or Section 80-J or Section 80-JJ, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under Section 80-HH, Section 80-HHA, Section 80-HHB, Section 80-HHC, Section 80-HHD, Section 80-I, Section 80-IA, Section 80-J and Section 80-JJ. [(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co- operative agricultural and rural development bank. Explanation. —for the purposes of this sub-section, — 9 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society (a) “Co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949). (b) “Primary co-operative agricultural and rural development bank” means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.] 5. In view of the above provisions, we observe that the Assessee in the present case is entitled to a deduction under Section 80P (2) (a) (i) of the Act as the Assessee has, as per the balance sheet and its annexures filed before the Ld. AO on 13.08.2021, received an interest of Rs. 25, 84,257/- on FDRs in nationalized Banks and received an interest of Rs. 1, 35, 27,180/- from other Co-operative Banks. Thus, the total interest received is Rs. 1, 61, 11,437/-. We observe that Section 80P(2)(a)(i) of the Act deals with transactions of a Cooperative Society, in the present case the Assessee invests the amount contributed by its members in nationalized banks and realizes interest upon the same and hence the deduction falls within the ambit of Section 80P(2)(a)(i) of the Act. As far as deposits with cooperative banks, the income arising to the Assessee is squarely covered by Section 80P (2)(d) of the Act, thus the interest of Rs. 1,35,27,180/- earned by the Assessee from other Co-operative Banks is allowed as a deduction. 6. We have gone through the order of AO, wherein vide para 10, the AO himself considered the income of the assessee as ‘business income’, hence squarely covered by the provisions of section 80P (2) (a) (i) of the Act. Once it is established that the whole activity of the assessee is falling in section 80P (2) (a) (i) of the Act, in our opinion, there is no need to segregate the income of the assessee between section 80P (2) (a) (i) of the Act and section 80P (2) (d) of the 10 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society Act. Section 80P (2) (d) of the Act comes into picture where the revenue claims that interest earnings of the assessee are not the part of its business operations, hence the same falls under the head ‘Income from other sources’. Even in that case, the law is absolutely established that the assessee can claim benefit u/s. 80P (2) (d) of the Act. The matter before us neither the assessee nor the revenue has challenged the nature of interest earnings made by the assessee rather the revenue itself treated the same as ‘business income’. In view of the above in our opinion, the claim of the assessee either in section 80P (2) (a) (i) of the Act alone or along with section 80P (2) (d) of the Act on interest earning from cooperative banks are eligible for deduction. 7. The Bombay High Court in the case of Quepem Urban Co-operative Credit Society Ltd. v. Asstt. CIT [Tax Appeal Nos. 22 to 24 of 2015, dated 17-1-2015] has held, “That in terms of section 80P the meaning of the words co-operative bank is the meaning assigned to it in Chapter V of the Banking Regulation Act, 1949. A co-operative bank is defined in section 5(cci) of the said Act to mean a State Co-operative Bank, a Central Co- operative Bank and a Primary Co-operative Bank. Further section 5(ccv) defines a Primary Co- operative Bank to mean a co-operative society which cumulatively satisfies the following three conditions: (1) Its principal business or primary object should be banking business of Banking; (2) Its paid-up share capital and reserves should not be less than rupees one lakh. (3) Its byelaws do not permit admission of any other co-operative society as its member. [Para 6] 11 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society It is clearly held by the High Court in the case of Quepem Urban Co-operative Credit Society Ltd. (supra) that unless and until the said three conditions are cumulatively satisfied, the question of holding that such society is a co-operative bank would not arise at all. In the instant case, it is not disputed that the third condition that the byelaws should not permit admission of any other co-operative society as its member is not at all satisfied. In any event, the fact-finding authorities after examining the material on record have concurrently came to the conclusion that the assessee is not bank but co-operative society and as such it is entitled for exemption in terms of section 80P(2)(a)(i). The findings of fact arrived at by the authorities below cannot be interfered by the High Court unless there is perversity in such findings. The revenue has not pointed out any material which has not been considered or there is any misreading of the evidence whilst coming to such conclusion. [Para 7] Taking note of the observations made in the case of Quepem Urban Co-operative Credit Society Ltd. (supra) to the effect that merely giving credit facilities to the members would not be a co-operative bank but continued to be a co-operative society and as there is no material on record that the assessee was giving any such credit facilities to the non- members, the observations made in the case of Quepem Urban Co-operative Credit Society Ltd. (supra) would be squarely applicable to the facts of the instant case. As such, the proposed substantial question of law to that effect would not survive and does not require any further consideration. Hence, there is no substantial question of law arising for consideration in the instant appeal for consideration. [Para 8]” In view of this ground no. 1 alongwith sub grounds raised by the assessee are allowed. 8. The Assessee in its First additional ground states that it was liable to pay TDS on payments amounting to Rs. 58,000/- and further paid TDS on payments amounting to Rs. 45,000/-. Technically when an assessee is a defaulter on deduction of TDS, the same is liable for disallowance and the same is to be added 12 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society back to the income of the assessee under the head ‘businesses. In this case as the whole income from business earned by the assessee is eligible for deduction u/s. 80P (2) (a) (i) of the Act, it will not make any difference in the ultimate tax liability of the assessee, although same can be a matter of TDS default which can be proceeded separately. In view of the above, additional ground no. 1 raised by the assessee is allowed with the above remarks. 9. As far as additional ground no. 2 is concerned, wherein the assessee has claimed that the amount of Rs. 3,87,709/- has already been disallowed Suo-Moto by the assessee in its computation still the AO added back the same to the income of the assessee. Hence, the same will be treated as double addition. We have gone through the paper book submitted by the assessee and deem it fit to restore the matter back to the file of the Jurisdictional Assessing Officer for verification of the claim of the assessee with reference to computation of income and Profit & Loss account of the assessee after giving a proper opportunity of being heard and the assessee is directed to appear before the AO without fail with necessary documents and explanations to substantiate the claim. In these terms, additional ground no. 2 of the assessee is allowed for statistical purposes. 10. As far as additional ground no. 3 is concerned, wherein the assessee has claimed that the amount of Rs. 21.30 Lacs as bad and doubtful in terms of circular issued by the State Govt. of Maharashtra against investment in Co-operative Banks who had defaulted on the guidelines of R.B.I. On this issue we have gone through the paper book submitted by the assessee in the light of the directions of the State Govt. On this issue also we restore the matter back to the file of the Jurisdictional Assessing Officer for verification of the claim of the assessee with 13 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society reference to the circular of the State Govt. along with the assessee’s investments. Simultaneously, the assessee is also directed to appear before the AO for explain its case with reference to the State Govt.’s circular vis-à-vis investments in defaulter co-operative banks and their position in terms of dishonoring their financial commitments towards the assessee’s deposit/ FDR etc. It is further directed that if the assessee can substantiate that due amounts were not paid in time by the defaulter co-operative banks same should be allowed to the assessee without any hitch u/s. 36(1)(vii) of the Act for interest portion and u/s. 37 of the Act for principal amount of investment. In these terms, additional ground no. 3 of the assessee is allowed for statistical purposes. 11. The Assessee in its fourth additional ground states that it was liable to pay TDS on payments amounting to Rs. 4,81,264/- on audit fees paid to the auditor and further deducted and paid TDS on total payments made amounting to Rs. 4,81,264/-. Here the claim of the assessee is that he had made full compliance on total payment, however the same has not been considered by the AO. Technically when an assessee is a defaulter on deduction of TDS, the same is liable for disallowance and the same is to be added back to the income of the assessee under the head ‘businesses. In this case as the whole income from business earned by the assessee is eligible for deduction u/s. 80P (2) (a) (i) of the Act, it will not make any difference in the ultimate tax liability of the assessee, although same can be a matter of TDS default which can be proceeded separately. Still, we restore the matter back to the Jurisdictional AO for verification of the claim made by the assessee. In view of the above, additional ground no. 1 raised by the assessee is allowed with the above remarks. 14 ITA No. 700/Mum/2024 CIDCO Employees Co-Op. Credit Society 12. We have gone through the additional Ground Nos. 5 & 6 and feel that the same should be restored back to the file of Jurisdictional AO for verification after giving the assessee a proper opportunity of being heard. The assessee is directed to substantiate its claim with relevant documents and explanations before the AO. In view of the above, additional ground no. 5 & 6 raised by the assessee are allowed for statistical purposes. 13. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 7 th day of August, 2024. Sd/- (ANIKESH BANERJEE) Sd/- (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, दिन ांक/Dated: 07/08/2024 Dhananjay, Sr. PS Copy of the Order forwarded to: 1. अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकर आयुक्त CIT 4. दवभ गीय प्रदिदनदि, आय.अपी.अदि., मुबांई/DR, ITAT, Mumbai 5. ग र्ड फ इल/Guard file. BY ORDER, //True Copy// (Asstt. Registrar) ITAT, Mumbai