Kothapally Farmers Co- Operative Society Limited, Medak V. Income Tax Officer, Ward-1, Sangareddy

ITA 771/Hyd/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5510 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 11-08-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 14-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMBIKA S
• Keywords: Business income; Bad and doubtful debts; Set aside
• Section: 143(3); 80P

Judgement Text

ITA NOS 770 AND 771 OF 2020 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD (THROUGH VIDEO CONFERENCING) BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NOS. 770 & 771/HYD/2020 ASSESSMENT YEARS: 2015-16 & 2016-17 KOTHAPALLY FARMERS SERVICE COOP. SOCIETY LTD, MEDAK PAN:AAAAF1299H VS. INCOME TAX OFFICER WARD 1 SANGAREDDY (APPELLANT) (RESPONDENT) ASSESSEE BY: SMT. AMBIKA S. REVENUE BY : SRI ROHIT MUJUMDAR,DR DATE OF HEARING: 11/08/2021 DATE OF PRONOUNCEMENT: 15/09/2021 ORDER PER SMT. P. MADHAVI DEVI, J.M. THESE ARE ASSESSEES APPEALS FOR THE A.YS 2015-16 & 2016-17 AGAINST THE ORDER OF THE CIT (A)-2, HYDERAB AD, DATED 4.7.2019. 2. AT THE OUTSET, IT IS NOTICED THAT THERE IS A DEL AY OF 415 DAYS IN FILING OF THESE APPEALS BEFORE THE TRIBUNAL . THE ASSESSEE HAS FILED AN APPLICATION ALONG WITH AN AFFIDAVIT FO R CONDONATION OF DELAY, WHEREIN, THE SUBMISSIONS OF THE ASSESSEE ARE AS UNDER : 1. THE TERM OF THE MANAGING COMMITTEE OF THE SOCIET Y EXPIRED ON 31.01.2018 AND THE ELECTIONS WAS SUPPOSED TO BE HEL D DURING JANUARY 2018. BUT THE ELECTIONS WERE NOT HELD INST EAD THE EXISTING MC WERE DIRECTED TO ACT AS PERSON IN CHA RGE TILL THE REGULAR MC TAKES CHARGE AFTER ELECTIONS. HENCE THE MC HEADED BY THE PRESIDENT HAS NOT TAKEN ANY STEPS TO APPROACH T HE ITA NOS 770 AND 771 OF 2020 PAGE 2 OF 6 PROFESSIONALS FOR TAKING NECESSARY ACTION FOR FILIN G FURTHER APPEALS AFTER RECEIVING THE CIT(A) ORDERS. 2. THE ELECTION TO THE SOCIETY WERE HELD DURING FE BRUARY, 2020 AND THE NEW MC HAS TAKEN CHARGE OF THE AFFAIRS OF T HE SOCIETY. BY THE TIME THE NEW MC HEADED BY THE UNDERSIGNED PR ESIDENT ACQUAINTED WITH THE AFFAIRS AND PENDING WORKS OF TH E SOCIETY, THE ONGOING PANDEMIC VIZ. COVID HAS STALLED ALL THE ACT IVITIES. 3. NOW THE UNDERSIGNED HAS APPROACHED THE AUDITORS FOR FILING NECESSARY APPEALS BEFORE THE HON'BLE ITAT AND THE A PPEAL IN FORM 36 WAS GOT PREPARED AND IS NOW BEING FILED FOR GRANTING NECESSARY RELIEF U/S 80P OF THE ACT AFTER A DELAY O F 415 DAYS. 2.1 WE FIND THAT SIMILAR DELAY WAS THERE IN FILING THE APPEALS BEFORE THE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2011-12 TO 2014-15 IN ITA NOS.766/HYD/2020 TO 769/HYD/2020, OR DER DATED 24/02/2021, A COPY OF WHICH IS AVAILABLE ON R ECORD. AFTER CONSIDERING SIMILAR GROUNDS, THE TRIBUNAL HAS CONDO NED THE DELAY OF 415 DAYS. TAKING THE SAME INTO CONSIDERATION, THE DELAY OF 415 DAYS IN FILING THE IMPUGNED APPEALS BEFORE THE TRIBUNAL ARE ALSO CONDONED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COOPERATIVE SOCIETY CARRYING ON BUSINESS OF PROCURE MENT OF SEED, FERTILIZERS AND GIVES FARM CREDITS TO THE MEMBERS O F THE SOCIETY. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE RECEIVE D AS INTEREST ON DEPOSITS WITH BANKS/INSTITUTIONS. TH E ASSESSEE WAS REQUIRED TO EXPLAIN/JUSTIFY THE CLAIM OF DEDUCTION U/S 80P OF THE ACT ON THE ABOVE INTEREST INCOME. THE ASSESSEE EXPL AINED THAT THE FIXED DEPOSITS MADE BY THE ASSESSEE COMPRISES OF TH E FOLLOWING: A)SHARE CAPITAL OF THE MEMBERS B)RESERVE FUND C)BAD DEBTS RESERVE D)10% OF THE LOAN AMOUNT TO ITS MEMBER FARMERS E) GOVERNMENT GRANT AS PER VAIDYANATHAN COMMITTEE RECOMMENDATIONS ITA NOS 770 AND 771 OF 2020 PAGE 3 OF 6 F) DEPOSITS FROM MEMBERS G) PROVISION FOR EMPLOYEES GRATUITY AND H) SUCH OTHER STATUTORY FUNDS AS MAY BE REQUIRED. 4. IT WAS ALSO EXPLAINED THAT THE ABOVE FUNDS HAVE BEEN INVESTED BY THE ASSESSEE IN THE BANKS FROM TIME TO TIME AS PER REQUIREMENT OF THE AP COOPERATIVE SOCIETIES ACT AND HENCE THE INTEREST ON FIXED DEPOSITS IS ATTRIBUTABLE TO THE BUSINESS ACTIVITIES OF THE ASSE SSEE AND HENCE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT . HOWEVER, THE AO OBSERVED THAT THE ISSUE IS COVERED BY THE DECISION OF THE HONOURABLE SUPREME COURT IN THE CASE OF TOTGARS SALES CREDIT S OCIETY IN CIVIL APPEAL NO.1622 OF 2010 (ARISING OUT OF S.L.P. (C) N O.7572 OF 2009). ACCORDINGLY, HE DISALLOWED THE INTEREST INCOME AS D EDUCTION UNDER SECTION 80P OF THE ACT. AGGRIEVED, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE CIT(A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL BY RAISING THE FOLLOWING GROUNDS OF APPEAL : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE ORDER OF THE LEARNED CIT (A)-2 HYDERABAD IS ERRONEOUS AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE ORDER OF THE LEARNED CIT (A)-2 HYDERABAD IS NOT JUSTIFIED IN CONFIRMING THE TREATMENT OF RS.77,20,164/- BEING INTEREST ON D EPOSITS FROM SCHEDULED BANKS AS INCOME FROM OTHER SOURCES WHICH WAS DECLARED AS BUSINESS INCOME BY THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE ORDER OF THE LEARNED CIT (A)-2 HYDERABAD IS NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.77,20,164/- U/S 80P OF THE A CT. 4. THE APPELLANT CRAVES LEAVE TO ALTER, AMEND OR DE LETE ANY OF THE ABOVE GROUNDS OF APPEAL AND/OR TO ADD ANY FRESH GROUND(S) OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 5. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT SIMILAR ISSUE HAD ARISEN IN THE ASSESSEES OWN CASE IN THE E ARLIER ASSESSMENT YEARS 2011-12 TO 2014-15 AND SMC BENCH OF THIS TRIB UNAL IN ITA ITA NOS 770 AND 771 OF 2020 PAGE 4 OF 6 NUMBERS 766 TO 769 OF 2020, VIDE ORDERS DY 24-2-202 1 HAS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE. A COPY OF THE SAID ORDER IS PLACED BEFORE US. 6. THE LEARNED DR, ON THE OTHER HAND, RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. 7. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS COVERED IN FAVOU R OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE AND THEREFORE THIS APPEAL ALSO HAS TO BE ALLOWED ON SIMILAR LINES . FOR THE SAKE OF READY REFERENCE, THE RELEVANT PARAS OF ITAT ORDER ARE REP RODUCED HERE UNDER: 3. THE ASSESSEE'S IDENTICAL SOLE SUBSTANTIVE GRIEVA NCE IN ALL THESE FOUR CASES CHALLENGES CORRECTNESS OF BOTH THE LOWER AUTHORITIE S' ACTION DISALLOWING ITS INTEREST INCOME(S) OF RS.28,27,602/-, RS.42,20,319/ -, RS.54,38,060/- AND RS.44,35,325/-; RESPECTIVELY AS NOT ENTITLED FOR 80 P DEDUCTION SINCE DERIVED FROM DEPOSITS MADE IN SCHEDULED BANKS. 4. IT IS VEHEMENTLY CONTENDED AT THE REVENUE'S BEHE ST THAT THE LEARNED LOWER AUTHORITIES HAVE RIGHTLY MADE IMPUGNED DISALLOWANCE SINCE THE ASSESSEE'S INTEREST INCOME HAS BEEN DERIVED FROM FIXED DEPOSIT S IN NATIONALISED BANKS THAN CO- OPERATIVE BANKS. 5. I HAVE GIVEN MY THOUGHTFUL CONSIDERATION TO THE ABOVE SOLE ISSUE OF 80P DEDUCTION. SUFFICE TO SAY, HON'BLE JURISDICTIONAL H IGH COURT'S DECISION IN VAVVERU CO-OPERATIVE RURAL BANK LTD., VS. CIT (2017 ) [396 ITR 371] (AP) HOLDS THE VERY NATURE OF INCOME AS ELIGIBLE FOR SEC TION 80P DEDUCTION AS UNDER: '32. IN SIMPLE TERMS, THE POSITION CAN BE SUMMARIZE D LIKE THIS. IF THERE IS A CO-OPERATIVE SOCIETY, WHICH IS CARRYING ON SEVERAL ACTIVITIES INCLUDING THOSE ACTIVITIES LISTED IN SUB CLAUSES (I) TO (VII) OF CL AUSE (A), THE BENEFIT UNDER CLAUSE (A) WILL BE LIMITED ONLY TO THE PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANYONE OR MORE OF SUCH ACTIVITIES. BUT, IN CASE THE SAME CO-OPERATIVE SOCIETY HAS AN INCOME NOT ATTRIBUTABLE TO ANYONE OR MORE OF THE 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 CO-OPERATIVE SOCIETY MAY CLAIM THE BENEFIT OF CLAUSE ITA NOS 770 AND 771 OF 2020 PAGE 5 OF 6 (D) OR (E) EITHER BY INVESTING THE INCOME IN ANOTHE R CO-OPERATIVE SOCIETY OR INVESTING THE INCOME IN THE CONSTRUCTION OF A GODOW N OR WAREHOUSE AND LETTING OUT THE SAME. 33. IN OTHER WORDS, THE BENEFIT CONFERRED BY CLAUSE (D) UPON ALL TYPES OF CO- OPERATIVE SOCIETIES IS RESTRICTED ONLY TO THE INVES TMENTS MADE IN OTHER CO- OPERATIVE SOCIETIES. SUCH A RESTRICTION CANNOT BE R EAD INTO CLAUSE (A), AS THE TEMPORARY PARKING OF THE PROFITS AND GAINS OF BUSIN ESS IN NATIONALISED BANKS AND THE EARNING OF INTEREST INCOME THEREFROM IS ONL Y ONE OF THE METHODS OF MULTIPLYING THE SAME INCOME. TO ACCEPT THE STAND OF THE DEPARTMENT WOULD MEAN THAT CO-OPERATIVE SOCIETIES CARRYING ON THE AC TIVITIES LISTED IN CLAUSES (I) TO (VII), WHICH INVEST THEIR PROFITS AND GAINS OF B USINESS EITHER IN OTHER CO- OPERATIVE SOCIETIES OR IN THE CONSTRUCTION OF GODOW NS AND WAREHOUSES, MAY BENEFIT IN TERMS OF CLAUSE (D) OR (E), BUT THE VERY SAME SOCIETIES WILL NOT BE ENTITLED TO ANY BENEFIT, IF THEY INVEST THE VERY SA ME FUNDS IN BANKS. SUCH AN UNDERSTANDING OF SECTION 80P(2) IS IMPERMISSIBLE FO R ONE SIMPLE REASON. THE BENEFITS UNDER CLAUSES (D) AND (E) ARE AVAILABLE IN GENERAL TO ALL CO-OPERATIVE SOCIETIES, INCLUDING SOCIETIES ENGAGED IN THE ACTIV ITIES LISTED IN CLAUSE (A). SECTION 80P(2) IS NOT INTENDED TO PLACE ALL TY PES OF CO-OPERATIVE SOCIETIES ON THE SAME PEDESTAL. THE SECTION CONFERS DIFFERENT TYPES OF BENEFITS TO DIFFERENT TYPES OF SOCIETIES. SPECIAL TYPES OF SOCI ETIES ARE CONFERRED A SPECIAL BENEFIT. 34. THE CASE BEFORE THE SUPREME COURT IN TOTGARS WA S 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 T HE 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 C OURT IN TOTGARS THAT THE BUSINESS ACTIVITY OTHER THAN MARKETING OF THE AGRIC ULTURAL PRODUCE ACTUALLY RESULTED IN NET LOSS TO THE SOCIETY. THEREFORE, IT APPEARS THAT THE ASSESSEE IN TOTGA.RS WAS CARRYING ON SOME OF THE ACTIVITIES LIS TED IN CLAUSE (A) ALONG WITH OTHER ACTIVITIES. THIS IS PERHAPS THE REASON THAT T HE 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 BELONG ING TO THE MEMBERS CANNOT CERTAINLY BE TERMED AS PROFITS AND GAINS OF BUSINESS. THIS IS WHY TOTGARS STRUCK A DIFFERENT NOTE. 35. BUT, AS RIGHTLY CONTENDED BY THE LEARNED SENIOR COUNSEL FOR THE PETITIONERS, THE INVESTMENT MADE BY THE PETITIONERS IN FIXED DEP OSITS IN NATIONALISED BANKS, WERE OF THEIR OWN MONIES. IF THE PETITIONERS HAD IN VESTED THOSE AMOUNTS IN FIXED DEPOSITS IN OTHER CO-OPERATIVE SOCIETIES OR I N 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 TH E PETITIONERS DERIVED FROM THE ACTIVITIES LISTED IN SUB CLAUSES (I) TO (VII) O F CLAUSE (A). THE CHARACTER OF SUCH INCOME MAY NOT BE LOST, ESPECIALLY WHEN THE STATUTE USES THE EXPRESSION 'ATTRIBUTABLE TO' AND NOT ANYON E OF THE TWO EXPRESSIONS, NAMELY, 'DERIVED FROM' OR 'DIRECTLY ATTRIBUTABLE TO '. ITA NOS 770 AND 771 OF 2020 PAGE 6 OF 6 37. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT T HE PETITIONERS ARE ENTITLED TO SUCCEED. HENCE, THE WRIT PETITIONS ARE ALLOWED, AND THE ORDER OF THE ASSESSING OFFICER, INSOFAR AS IT RELATES TO TREATING THE INTE REST INCOME AS SOMETHING NOT ALLOWABLE AS A DEDUCTION UNDER SECTION 80P(2) (A), IS SET ASIDE'. 5.1. I ADOPT THE FOREGOING DETAILED DISCUSSION MUTA TIS- MUTANDIS AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWAN CE THEREBY TREATING THAT THE ASSESSEE AS ELIGIBLE FOR SECTION 80P DEDUCTION. 6. THESE ASSESSEE'S APPEALS ARE ALLOWED. A COPY OF THIS COMMON ORDER BE PLACED IN THE RESPECTIVE CASE FILES. 8. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH SEPTEMBER, 2021. SD/- SD/- (LAXMI PRASAD SAHU) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 15 TH SEPTEMBER, 2021. VINODAN/SPS COPY TO: S. NO ADDRESS ES 1 KOTHAPALLY FARMERS SERVICE CO-OPERATIVE SOCIETY LIM ITED, H.NO.4-51, KOTHAPALLY, PAPANNAPET MANDAL, SANGAREDDY DIST. 2 INCOME TAX OFFICER WARD - 1 SANGAREDDY 3 CIT (A)- 2, HYDERABAD 4 PR. CIT -2, HYDERABAD 5 DR, IT AT HYDERABAD BEN CHES 6 GUARD FILE BY ORDER