ITO, Chandigarh V. M/s Punjab State Cooperative Agricultural Development Bank Ltd., Chandigarh

ITA 829/CHANDI/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1563 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR AMA RVEER SINGH
• Keywords: Business income
• Section: 80HHC; 56

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R. SOOD, ACCOUNTANT MEMBER ITA NO. 829/CHD/2013 ASSESSMENT YEAR: 2010-11 THE ITO, WARD 2(3), VS. M/S PUNJAB STATE COOPERATI VE AGRICULTURE CHANDIGARH DEVELOPMENT BANK LTD., CHANDIGARH PAN NO. AABAP8596L (APPELLANT) (RESPONDENT) APPELLANT BY : DR. AMARVEER SINGH RESPONDENT BY : SHRI M.R. SHARMA DATE OF HEARING : 20/07/2015 DATE OF PRONOUNCEMENT : 03/08/2015 ORDER PER T.R.SOOD, A.M. THE APPEAL BY THE REVENUE IS DIRECTED AGAINST THE O RDER DATED 22.5.2013 OF CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS:- 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS & CON TRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S SOP (2)(A) (I) CLAIMED BY THE ASSESSEEE ON INTEREST AMOUNTING TO R S. 8,05,70,728/- IGNORING THAT SUCH INTEREST WAS EARNE D OUT OF SURPLUS FUNDS AND WAS THUS LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES AND NOT BUSINESS INCOME. 2.1 THAT THE RATIO OF THE HON'BLE PUNJAB & HARYANA HIGH COURT ORDER DATED 10.05.2011 IN CASE OF M/S PUNJAB STATE CO-OPERATIVE FEDERATION OF HOUSING BUILDING SOCIETIES LIMITED IN ITA NO. 643 OF 2010 IS CLEARLY APPLICABLE IN THIS CASE. 2 3. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF RS. 5,90,719/ - BEING THE PROVISION ON ACCOUNT OF NPA DEBITED TO P & L. ACCOU NT BY THE ASSESSEE, IGNORING THAT THE ASSESSEE IS NOT ENGAGED IN THE BANKING BUSINESS AND THEREFORE, PROVISION ON SUCH A CCOUNT AND CHARGING THE SAME TO REVENUE IS NOT JUSTIFIED. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DELETING THE DISALLOWANCE OF DEDUCTION U/S 80P(2)(A)(I) OF RS. 2,21,90,337/- BEING INTEREST ON LOAN AND ADV ANCES TO EMPLOYEES IGNORING THE FACT THAT SUCH EMPLOYEES ARE NOT THE MEMBERS OF THE SOCIETY AND THUS SUCH INTEREST INCOM E WAS LIABLE TO THE ASSESSED AS INCOME FROM THE OTHER SOURCES AN D NOT AS BUSINESS INCOME. 3. GROUND NO.1 IS OF GENERAL NATURE AND DOES NOT RE QUIRE SEPARATE ADJUDICATION. 4. GROUND NOS. 2 & 2.1 : AFTER HEARING BOTH THE PAR TIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT ASSESSEE HAS RECEIVED INTEREST AMOUNTING TO RS. 8,05,70,728/- ON RESERVE FUNDS AND OTHER FUNDS WHICH CONSISTED OF FOLLOWING ITEMS:- SR. NO. AMOUNT (RS.) I) RESERVE FUND 1,11,30,71,877 II) BAD AND DOUBTFUL DEBT RESERVES 1,05,57,97,767/- III) BUILDING FUND 10,96,74,323/- IV) EDUCATION FUND 1,69,30,950/- V) COMMON GOODS FUND 11,14,66,727 VI) AGRICULTURAL CREDIT STABILIZATION FUND 65,94,53,246/- VII) EMPLOYEES BENEFIT FUND 4,59,01,921/- VIII) INVESTMENT FLUCTUATION FUND 1,50,08,100/- IX) NPA PROVISIONS 5,60,95,067/- X) BUILDING & INFRASTRUCTURE DEVELOPMENT FUND 2,95,95,000/- 3 XI) GOODS PAY MASTER REBATE FUND 4,39,42,532/- TOTAL 353,45,97,062 5. IT WAS FURTHER NOTICED THAT BASICALLY THESE FUND S LYING IN THE BALANCE SHEET WERE RESERVE AND SURPLUS ARISING OUT OF THE PROFITS OF THE EARLIER YEARS. THESE FUNDS ARE PARKED IN INVESTMENTS IN DIFFERENT AGENCIES AND INTEREST WAS EARNED THEREON. THEREFORE, INTEREST INCOME ACCORDING TO ASSESSING O FFICER WAS ATTRIBUTABLE TO SURPLUS FUNDS. ON THIS INCOME, THE ASSESSING OFFIC ER DENIED THE EXEMPTION U/S 80P(2)(A)(I). 6. ON APPEAL, THE DEDUCTION WAS ALLOWED BY LD. CIT( A) BY FOLLOWING THE EARLIER YEAR ORDERS. 7. BEFORE US LD. DR SUBMITTED THAT NO DOUBT THAT TH IS ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE IN THE EARLIER YEARS BUT THO SE DECISIONS WERE RENDERED WITHOUT NOTICING THE DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD 322 ITR 283 (SC). LATER ON, THIS DECISION HAS BEEN FOLLOWED BY HON'BLE HIGH COURT IN THE CASE OF CIT V PUNJAB STAT E COOPERATIVE FEDERATION OF HOUSING BUILDING SOCIETIES LTD IN ITA NO. 643 OF 20 10 ORDER DATED 10.5.2011 WHEREIN IN SIMILAR CIRCUMSTANCES THE ISSUE WAS DECI DED AGAINST THE ASSESSEE. EVEN THE TRIBUNAL FOLLOWED THIS DECISION IN THE CASE OF M/S PUNJAB STATE COOPERATIVE HOUSE BUILDING FEDERATION LTD V ACIT IN ITA NO. 847 /CHD/23013 & 810/CHD/2013 VIDE ORDER DATED 28.4.15. 8. ON THE OTHER HAND LD. COUNSEL OF THE ASSESSEE SU BMITTED THAT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OP ERATIVE SALE SOCIETY LTD (SUPRA) WAS NOT APPLICABLE TO THE FACTS OF THE ASSE SSEES CASE. FURTHER, THE TRIBUNAL 4 ITSELF HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE IN THE EARLIER YEARS AFTER CONSIDERING ALL THE DECISIONS. HE ALSO REFERRED TO THE DECISION OF HON'BLE ALLAHABAD HIGH COURT IN THE CASE OF GORAKPUR KSHETR IYA GRAMIN BANK V CIT 292 ITR 2005 (ALL.) WHEREIN INTEREST ON LOANS GIVEN TO EMPLOYEES WAS HELD TO BE BUSINESS INCOME. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. NO DOUBT THAT IN THE EARLIER YEAR THIS ISSUE WAS DECIDED IN FAVOUR OF TH E ASSESSEE. ORIGINALLY THIS ISSUE WAS DECIDED FOR ASSESSMENT YEARS 1998-99, 1999-200 0, 2000-01, 2001-02, 2002-03, 2003-04 & 2005-06 IN ITA NOS. 120, 563 TO 565/CHAND I/2007 & 392 TO 395/CHANDI/2008 BY CONSOLIDATED ORDER DATED 25.3.20 09. IT HAS TO BE NOTED THAT DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TO TGARS CO-OPERATIVE SALE SOCIETY LTD (SUPRA) WAS RENDERED ON FEBRUARY 8, 201 0. THEREFORE, CLEARLY WHEN THE MATTER WAS DECIDED THE BENEFIT OF DECISION OF HON'B LE SUPREME COURT WAS NOT AVAILABLE. IN THE LATER YEARS ALSO IT SEEMS THAT RE VENUE HAS NOT CITED THE DECISION OF HON'BLE SUPREME COURT. IN FACT, SIMILAR VIEW WAS T AKEN IN THE CASE OF CIT V PUNJAB STATE COOPERATIVE FEDERATION OF HOUSING BUILDING SO CIETIES LTD (SUPRA) BUT THAT DECISION WAS REVERSED BY THE HON'BLE HIGH COURT IN ITA NO. 643 OF 2010 VIDE ORDER DATED 10.5.2011. IT WAS OBSERVED AT PARAS 3 & 4 AS UNDER:- 3. WE HAVE HEARD LD. COUNSEL FOR THE REVENUE. NONE APPEARS FOR THE ASSESSEE DESPITE SERVICE. 4. PLEA ON BEHALF OF THE REVENUE IS THAT INTEREST RECEIVED BY THE ASSESSEE FROM COMMERCIAL BANKS WAS NOT COVERED BY S ECTION 80P(2)(A)(I) IT HAS NOTHING TO DO WITH THE INTERES T INCOME ON THE LOAN ADVANCED TO THE MEMBERS. RELIANCE HAS BEEN PLA CED ON THE JUDGEMENT OF HON'BLE SUPREME COURT IN THE TOTGARS C OOPERATIVE SALE SOCIETY LTD VS ITO 2010 (35) DTR 25 HOLDING TH AT INTEREST ON BANK DEPOSITS OF GOVERNMENT SECURITIES DERIVED BY A COOPERATIVE SOCIETY COULD NOT BE ATTRIBUTED TO THE ACTIVITIES O F THE SOCIETY OF PROVIDING VARIOUS FACILITIES TO ITS MEMBERS AND WAS TAXABLE UNDER 5 SECTION 56 BEING INCOME FROM OTHER SOURCES. IT APP EARS THAT SINCE THE JUDGMENT OF THE TRIBUNAL IS PRIOR TO THE JUDGEM ENT OF THE HON'BLE SUPREME COURT RELIED UPON ON BEHALF OF THE REVENUE. THE TRIBUNAL DID NOT HAVE ADVANTAGE OF THE LAW LAID DOW N THEREIN. THE MATTER IS THUS, COVERED IN FAVOUR OF THE REVENUE BY THE JUDGMENT OF HON'BLE SUPREME COURT. CONTRARY VIEW OF THE TRIBUN AL CANNOT BE SUSTAINED. 10. WE DO NOT FIND ANY FORCE IN THE SUBMISSIONS THA TTHE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD (SUPRA) IS NOT APPLICABLE TO THE PRESENT FACTS OF THE CASE. IN FA CT, THE HON'BLE SUPREME COURT HAS OBSERVED AS UNDER:- THE INTEREST INCOME ARISING TO A CO-OPERATIVE SOCI ETY CARRYING ON THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKETING OF AGRICULTURAL PRODUCE OF ITS MEMBERS, O N THE SURPLUS, WHICH IS NOT REQUIRED IMMEDIATELY FOR BUSINESS PURP OSES, FROM INVESTMENT IN SHORT-TERM DEPOSITS AND SECURITIES, H AS TO BE TAXED AS INCOME FROM OTHER SOURCES UNDER SECTION 56 OF TH E INCOME-TAX ACT, 1961. SUCH INTEREST CANNOT BE SAID TO BE ATTRI BUTABLE TO THE ACTIVITIES OF THE SOCIETY, VIZ., CARRYING ON THE BU SINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR MARKE TING OF AGRICULTURAL PRODUCE OF ITS MEMBERS. INTEREST INCOM E OF SUCH SOCIETY FROM AMOUNTS RETAINED BY IT CANNOT BE SAID TO BE ATTRI- BUTABLE EITHER TO THE ACTIVITY MENTIONED IN SECTION 80P(2)(A)(I) OR SECTION 80P(2)(A)(III) OF THE ACT. SECTION 80P(2)(A)(I) CANNOT BE PLACED ON A PAR WITH EXPLANATION (BAA) TO SECTION 80HHC , SECTION 80HHD(3) AND SECTI ON 80HHE(5). THE READING OF THE ABOVE HEAD NOTE WOULD SHOW CLEAR LY THAT DEDUCTION U/S 80P(2) IS AVAILABLE ONLY FROM THE CORE ACTIVITIES I.E. ACTIVI TY OF PROVIDING CREDIT TO ITS MEMBERS AND THE SAME IS NOT AVAILABLE ON THE DEPLOY MENT OF SURPLUS FUNDS WITH OTHER BANKS. THEREFORE, FOLLOWING THE DECISION OF H ON'BLE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOCIETY LTD (SUPRA) A S WELL AS HON'BLE HIGH COURT IN THE CASE OF CIT V PUNJAB STATE COOPERATIVE FEDERATI ON OF HOUSING BUILDING SOCIETIES LTD (SUPRA) WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 6 11. GROUND NO.3 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT ASSESSEE HAS DEBITE D PROFIT AND LOSS ACCOUNT WITH A SUM OF RS. 5,90,719/- WITH 0.25% PROVISION AGAINST NON-PERFORMING ASSETS IN TERMS OF THE GUIDELINES ISSUED BY NABARD. THE ASSESSING O FFICER NOTICED THAT GUIDELINES ISSUED BY RESERVE BANK OF INDIA OR NABARD CANNOT OV ERRIDE THE PROVISIONS OF THE INCOME-TAX ACT. HE FURTHER OBSERVED THAT PROVISION OF ANY NATURE IS NOT ALLOWABLE AND PROVISION AGAINST NPA. THE PROVISION FOR BAD DE BTS IS ALLOWABLE U/S 36(I) (VII A) IF THE ASSESSEE IS ENGAGED IN THE BUSINESS OF BA NKING. SINCE ASSESSEE WAS NOT ENGAGED IN THE BUSINESS OF BANKING THE CLAIM OF THE PROVISION WAS DISALLOWED. 12. ON APPEAL, THIS PROVISION WAS ALLOWED BY LD. CI T(A) BY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE IN THE CASE OF ACIT CHANDIGARH VS PUNJAB STATE COOP AGRICULTURAL DEV. BANK, CHANDIGARH IN IT A NO. 120, 563, 564, 565/CHD/2007 & OTHERS FOR ASSESSMENT YEARS 1998-99 TO 2003-04 AND 2005-06. 13. BEFORE US, LD. DR SUPPORTED THE ORDER OF ASSESS ING OFFICER. 14. ON THE OTHER HAND LD. COUNSEL SUBMITTED THAT TH IS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDER OF THE TRIBUNAL IN ITA NO. 914/CHD/2012. 15. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT THIS ISSUE WAS DECIDED FOR ASSESSMENT YEAR 2009-10 VIDE PARAS 7 & 8 WHICH ARE AS UNDER:- 7. GROUND NO.2, RAISED BY THE REVENUE IS ALSO COVE RED BY THE DECISION OF THE TRIBUNAL, AS INDICATED BY THE CIT(APPEALS) IN H IS IMPUGNED ORDER AND BY THE DECISION OF THE TRIBUNAL FOR THE ASSESSMENT YEA R 2008-09 DATED 19.09.2012 IN ASSESSEE'S OWN CASE. THE RELEVANT FINDINGS OF T HE CIT(APPEALS), AS CONTAINED IN PARA 4 TO 4.2 IS REPRODUCED HEREUNDER : 4. GROUND OF APPEAL NO. 3 IS AGAINST DISALL OWANCE OF RS. 7S6966/- ON ACCOUNT OF PROVISION FOR NPA MADE BY THE APPELLANT. 4.1 SIMILAR ADDITION WAS MADE IN THE CASE OF THE AP PELLANT IN A.Y. 2007-08, WHICH HAS BEEN DELETED BY MY PREDECESSOR BY FOLLOWI NG THE DECISION OF HON'BLE ITAT, CHANDIGARH IN THE APPELLANT'S OWN CASE FOR A. Y. 2006-07 (SUPRA). THE HON'BLE ITAT HAD ADJUDICATED IN PARA 5 OF ITS ORDER , CITED SUPRA, AS UNDER: - 'THE FACTS ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS. 16,75,070/- REPRESENTING THE PROVISION ON ACCOUNT O F NPAS. THE PROVISION OF NPAS WAS MADE IN THOSE CASES IN WHICH THE LOANEES STARTED MAKING DEFAULTS IN RE-PAYMENT OF LOANS. IN TERMS OF THE 7 GUIDELINES ISSUED BY NABARD FOR CREATING PROVISIONS DEPENDING UPON THE LENGTH OF DEFAULT, THE DEDUCTION OF RS. 16,75,0 70/- WAS SOUGHT TO BE JUSTIFIED. THE ASSESSING OFFICER OBSERVED THAT S UCH A CLAIM COULD ONLY BE ALLOWED IF THE ASSESSEE WAS ENGAGED IN A BU SINESS OF BANKING. SINCE, IT WAS HELD THAT ASSESSEE WAS NOT E NGAGED IN THE BANKING BUSINESS, THE CLAIM WAS DENIED. IN APPEAL, THE CIT(APPEALS) HELD THAT THOUGH THE ASSESSING OFFICER WAS JUSTIFIE D IN DISALLOWING THE SAID CLAIM BUT THE CONSEQUENTIAL INCREASE IN INCOME WOULD RESULT IN A HIGHER CLAIM OF DEDUCTION U/S 80P(2)(A) (I) OF THE ACT . AGAINST SUCH DECISION, THE REVENUE IS IN APPEAL. IN OUR CONSIDERED OPINION, THE DISALLOWANCE OF THE PROVISION FOR NPA HAS BEEN SUSTAINED BY THE CTT (APPEALS), BUT EVIDENTLY, THE INCOME RESULTING THEREOF HAS BEEN HELD TO BE ELIGIBLE FOR SOP (2) (A)(I) OF THE ACT. ON THIS ASPECT, WE FIND NO JUSTIFICATION FOR THE GR OUND RAISED BY THE REVENUE. THERE IS NOTHING BROUGHT ON RECORD TO DISR EGARD THAT THE INTEREST IRRECOVERABLE, WHICH IS EMBEDDED IN THE NP AS IS NOTHING BUT INTEREST RECEIVABLE FROM MEMBERS, THOUGH NOT REGULA RLY RECEIVED. IT IS ONLY THE DEFAULTED INTEREST INCOME, WHICH IS SOUGHT TO BE CLAIMED AS A DEDUCTION. IF THE SAID DEDUCTION IS NOT ALLOWED, TH E NATURAL COROLLARY IS THAT THE ENHANCED INCOME WOULD BECOME ELIGIBLE FOR8 0P(2(A) (I), TO WHICH THE ASSESSEE IS OTHERWISE ENTITLED. IN FACT, SIMIL AR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF H.P.STATE CO-OPERATIVE BANK LTD. (SUPRA) WHEREIN THE SAME CLAIM WAS HELD AS ELIGIBLE FOR BENEFIT U/S 80P(2)(A)(I) OF THE ACT FOR THE REASON THAT EVEN TH E INTEREST WAS ALSO EARNED FROM THE BUSINESS OF PROVI DING CREDIT FACILITIES TO ITS MEMBERS. THEREFORE, ON THIS ASPEC T, WE FIND NO JUSTIFIABLE GRIEVANCE FOR THE REVENUE AND THE REVEN UE FAIL ON THIS ASPECT. 4.1.1. HON'BLE ITAT HAS ALSO UPHELD THE ORDER OF MY PREDECESSOR IN A.Y. 2007-08 VIDE PARA 6 & 7 OF ORDER DATED 09.12.2010 I N ITA NO. 1113/CHANDI/2010. 4.2 I HAVE GONE THROUGH THE DECISION OF MY PREDECES SOR AND HON'BLE ITAT, CHANDIGARH ON THIS ISSUE AND I AM ENT IRELY IN AGREEMENT WITH THE FINDINGS GIVEN BY MY PREDECESSOR WHICH HAVE BEEN AFFIRMED BY HON'BLE ITAT. IN FACT, THE AD DITION MADE ON THIS ACCOUNT WAS DELETED BY ME IN A.Y. 2008-09. HENCE, THE ADDITION MADE ON THIS ACCOUNT IS DELETED IN THIS YE AR ALSO. GROUND OF APPEAL NO. 3 IS ALLOWED. 8. SIMILARLY, FINDINGS OF THE ORDER DATED 19.09.201 1 OF THE TRIBUNAL IN ITA NO.742/CHD/2011 ARE ALSO REPRODUCED HEREUNDER : 7. THE ISSUE RAISED BY THE REVENUE IN GROUND NO . 2 IS AGAINST THE ORDER OF THE CIT(A) IN HOLDING DISALLOWANCE OF PROV ISIONS OF NPA IS ELIGIBLE FOR DEDUCTION U/S 80(P)(2)(A)(I) OF THE AC T. WE FIND THAT THIS ISSUE HAS ALSO BEEN DELIBERATED UPON BY THE TRIBUNA L VIDE ITS ORDER DATED 9.12.2010 IN TURN RELYING UPON THE ORDER OF THE TRI BUNAL DATED 24.9.2009 (VIDE PARAS 5 & 6) WHICH IN TURN, FOLLOWED ITS OWN PRECEDENT OF ORDER DATED 25.3 2009 IN ITA NOS. 120/CHANDI/2007 AND OTHERS FOR ASSESSMENT YEAR 1998-99 TO 2005-06, AFFIRMING THE STAND OF THE CIT(A) DISMISSED THE GROUND OF APPEAL RAISE D BY THE REVENUE BY HOLDING AS UNDER:- 8 '5. THE SECOND GROUND RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE CIT(APPEALS) IN DELETING THE DISA LLOWANCE OF RS. 41, 20,183/- REPRESENTING PROVISION OF NON PERFORMING A SSETS (NPAS). ON THIS ASPECT ALSO, THE TRIBUNAL IN ITS ORDER DATE D 25.3.2009 (SUPRA) HAS ADJUDICATED THE ISSUE IN FOLLOWING WORD S: 12. THE SECOND ASPECT IS IN RELATION TO INCOME RESULTIN G ON ACCOUNT OF DISALLOWANCE OF RS. 16,75,070/- REPRESENTING PROVISION OF NON-PERFORMING ASSETS (NPAS). THE FACTS ARE THAT THE ASSESSE E CLAIMED DEDUCTION OF A SUM OF RS. 16, 75, 070/- REP RESENTING THE PROVISION ON ACCOUNT OF NPAS. THE PROVISION OF NPAS WAS MADE IN THOSE CASES IN WHICH THE LOANE ES STARTED MAKING DEFAULTS IN RE-PAYMENT OF LO ANS. IN TERMS OF THE GUIDELINES ISSUED BY NABARD FOR CREATING PROVISIONS, DEPENDING UPON THE L ENGTH OF DEFAULT, THE DEDUCTION OF RS. 16,75,070/- WAS SOUGHT TO BE JUSTIFIED. THE ASSESSING OFFICER OBSERVED THAT SUCH A CLAIM COULD ONLY BE ALLOWED IF THE ASS ESSEE WAS ENGAGED IN A BUSINESS OF BANKING. SINCE, I T WAS HELD THAT ASSESSEE WAS NOT ENGAGED IN THE BANKING BUSINESS, THE CLAIM WAS DENIED. IN APPEAL, THE CLT(APPEALS) HELD THAT THOUGH THE ASSESSING OFFICE R- WAS JUSTIFIED IN DISALLOWING THE SAID CLAIM, BUT THE CONSEQUENTIAL INCREASE IN INCOME WOULD RESULT IN A HIGHER CLAIM OF DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. AGAINST SUCH DECISION, THE R EVENUE IS IN APPEAL. 13. IN OUR CONSIDERED OPINION, THE DISALLOWANCE OF THE PROVISION FOR NPA HAS BEEN SUSTAINE D BY THE CIT (APPEALS), BUT EVIDENTLY, THE INCOME RESULTING THEREOF HAS BEEN HELD TO BE ELIGIBLE FOR 80P(2)(A)( I) OF THE ACT. ON THIS ASPECT, WE FIND NO JUSTIFICATI ON FOR THE GROUND RAISED BY THE REVENUE. THERE IS NO THING BROUGHT ON RECORD TO DISREGARD THAT THE INTEREST IRRECOVERABLE, WHICH IS EMBEDDED IN THE NPAS IS NOTHING BUT INTEREST RECEIVABLE FRO M MEMBERS, THOUGH NOT REGULARLY RECEIVED. IT IS ONLY T HE DEFAULTED INTEREST INCOME, WHICH IS SOUGHT TO BE CLAIMED AS A DEDUCTION. IF THE SAID DEDUCTION IS NOT ALLOWED, THE NATURA L COROLLARY IS THAT THE ENHANCED INCOME WOULD BECOME ELIGIB LE FOR SOP(2) (A) (I), TO WHICH THE ASSESSEE IS OTHERWISE ENTITLED. IN FACT, SIMILAR ISSUE CAME UP BEF ORE THE TRIBUNAL IN THE CASE OF H.P.STATE CO-OPERATIVE BANK LTD. (SUPRA) WHEREIN THE SAME CLAIM WAS HELD AS ELIGIBLE FOR BENEFIT U/S 80P(2)(A)(I) OF THE ACT FOR THE REASON THAT EVEN THE DEFAULTED INTEREST, WAS ALSO EAR NED FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. THEREFORE, ON THIS ASPECT, WE FIND NO JUSTIFIABLE GRIEVANCE FOR THE REVENUE AND THE REV ENUE FAIL ON THIS ASPECT. ' 6. IN VIEW OF THE AFORESAID DISCUSSION, AS THE FACT S AND CIRCUMSTANCES ARE IDENTICAL IN THE YEAR UNDER CONSI DERATION, FOLLOWING THE PRECEDENT, THE ORDER OF THE CIT(APPEA LS) ON THIS ASPECT IS ALSO HEREBY AFFIRMED. AS A RESULT, ON THIS GROUND A LSO, THE REVENUE FAILS. 9 8. THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE RAISED IN THE EARLIER YEARS AND FO11OWING THE AFORESAID PRECEDENT , WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A). THE GROUND OF APPEAL NO, 2 RAISED BY THE REVENUE IS DISMISSED. 8. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBU NAL, REFERRED TO ABOVE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 16. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE IN FA VOUR OF THE ASSESSEE. 17. GROUND NO.4 : THIS ISSUE IS ALMOST IDENTICAL T O THE ISSUE ADJUDICATED BY US THROUGH GROUND NO.2 18. BOTH THE PARTIES MADE SAME CONTENTIONS IN RESPE CT OF THESE ISSUES ALSO. IN FACT LD. COUNSEL ONLY STRESSED THAT GIVING LOANS TO EMPL OYEES WAS ONE OF THE CONDITION OF EMPLOYMENT, AND THEREFORE, THIS WAS BUSINESS INC OME OF THE ASSESSEE. 19. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND NO FORCE IN THESE CONTENTIONS BECAUSE OF OUR FINDINGS IN RESPECT OF GROUND NO.2 C ONTAINED IN ABOVE PARA NOS. 4 TO 10. WE MAY EMPHASIZE THAT HON'BLE SUPREME COURT HA S CLEARLY LAID DOWN THAT DEDUCTION IS AVAILABLE ONLY AGAINST THE CORE ACTIVI TY OF THE ASSESSEE I.E. EXTENDING OF LOANS TO THE MEMBERS OF THE SOCIETY AND GIVING LOAN S TO THE STAFF CANNOT BE SAID TO BE THE CORE ACTIVITY OF THE SOCIETY. THEREFORE, WE DECIDE THIS ISSUE AGAINST THE ASSESSEE. 20. IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/08/3015 SD/- SD/- (BHAVNESH SAINI) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 03/08/2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 10