THE LANKALAKODERU LARGE SIZE CO-OPERATIVE CREDIT SOCIETY LIMITED NO 1904, PALAKODERU V. INCOME TAX OFFICER, WARD-1, PALAKOL

ITA 86/VIZ/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2480 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-04-2024
• Assessment Year: 2020-2021
• Appeal Filed On: 04-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA VILLURI
• Keywords: Reasonable cause; Co-operative Credit Society; Set aside
• Section: 142(1); 80P; 143(2)

Judgement Text

आयकरअपीलीयअधिकरण, धिशाखापटणम “SMC” पीठ, धिशाखापटणम IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM “SMC” BENCH, VISAKHAPATNAM श्री द ु व्वूरु आर एल रेड्डी, न्याधयक सदस्य के समक्ष BEFORE SHRI DUVVURU RL REDDY, HON’BLE JUDICIAL MEMBER आयकर अपील सं./I.T.A.No.85/Viz/2024 & 86/Viz/2024 (ननधधारण वर्ा / Assessment Year : 2018-19 and 2020-21) The Lankalakoderu large size co- operative credit society ltd. No.1904, Palakoderu Mandal West Godavari Dist. [PAN : AACAT5595N] Vs. Income Tax Officer Ward-1, Income Tax Office Aayakar Bhavan Doddipatla Road Palakol (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri G.V.N.Hari, AR प्रत्यधथी की ओर से / Respondent by : Dr.Aparna Villuri, DR सुनवधई की तधरीख / Date of Hearing : 10.04.2024 घोर्णध की तधरीख/Date of Pronouncement : 08.05.2024 आदेश /O R D E R Per Shri Duvvuru RL Reddy, Judicial Member : These appeals are filed by the assessee against the orders of Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre (NFAC), Delhi vide DIN & Order No. ITBA/NFAC/S/250/2023-24/1060157942(1) dated 27.01.2024 and ITBA/NFAC/S/250/2023-24/1058978403(1) dated 21.12.2023 for the Assessment Year (A.Y.) 2018-19 and 2020-21 respectively. I.T.A.No.86/Viz/2024 was filed with the delay of 15 days. The assessee 2 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu filed a petition for condonation of delay, submitting that Sri Guduri Prasada Rao, Secretary of the assessee society and authorised signatory, suffered from severe lower back pain and was under treatment and bed rest during the period from 10.02.2024 to 28.02.2024. The secretary could not attend to any other affairs during this period and hence the appeal could not be filed within the due date. As soon as the condition improved, the Secretary took necessary steps and filed the appeal on 05.03.2024. The assessee submitted medical certificate as proof and submitted that the delay in filing the appeal was neither intentional nor deliberate and therefore pleaded to condone the delay and admit the appeal for hearing. In the instant case, the order of the Ld.CIT(A) was passed on 21.12.2023, as such, the appeal against the order ought to have been filed on or before 19.02.2024. However, the assessee filed appeal with the delay of 15 days, citing medical reasons. I have gone through the condonation petition and medical certificate filed by the assessee and find that there is a reasonable cause for filing the appeal belatedly. Hence, I condone the delay and admit the appeal for hearing in the interest of justice. 3 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu Since the grounds raised in these appeals are identical, these appeals are clubbed, heard together and a common order is being passed for the sake of convenience as under. Facts are extracted from I.T.A.No.85/Viz/2024, A.Y.2018-19. 2. Brief facts of the case are that the assessee is a large size co- operative credit society, filed it’s return of income for the A.Y.2018-19, declaring ‘Nil’ income, claiming deduction u/s 80P(2)(a) of the Act. The assessee‘s case was selected for scrutiny under CASS and statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee to file information / documents. In response, the assessee filed submissions on 09.01.2021 and 18.01.2021, which were examined by the AO and a show cause notice cum draft assessment order was issued on 21.01.2021. After considering the reply filed by the assessee dated 27.01.2021, the AO denied the deduction u/s 80P(2)(a)(i) by applying the decision of Apex Court in the case of M/s Totgars Co-op Sales Society and added it to the total income of the assessee as income from other sources, which do not qualify for deduction us/ 80P(2)(d) in respect of income received on investment made with co-operative banks. Accordingly, the AO disallowed the claim of deduction u/s 80P(2)(AA)(i) 4 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu and 80P(2)(d) and computed the income of the assessee at Rs.43,80,340/-. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) sustained the addition made by the AO and dismissed the appeal of the assessee. 4. Aggrieved by the order of the Ld.CIT(A), the assessee preferred an appeal before the Tribunal by raising the following grounds of appeal : 1. The order of the learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case. 2. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.43,80,340/- made by the assessing officer towards disallowance of deduction u/s 80P of the Act. 3. Any other ground that may be urged at the time of hearing. 5. Ground No.1 and 3 are general in nature, which do not require any specific adjudication. 6. Ground No.2 is related to disallowance of deduction claimed u/s 80P of the Act. The Ld.AR submitted that the assessee is a Primary Agricultural Cooperative Credit Society, registered with District Registrar of Co-operative Societies under Andhra Pradesh Cooperative Societies Registration Act with Regn. No.1904 dt.05.02.1957, established with the objective of carrying on banking business by providing credit facility to 5 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu it’s members, marketing of agricultural produce grown by it’s members, supply of agriculture inputs to members etc. The assessee society made deposits with District Cooperative Central Bank (DCCB) in compliance with the statutory regulation of AP Cooperative Societies Act, the interest on such investment is eligible for deduction u/s 80P(2) of the Act. The Ld.AR submitted that the assessee is not having any intention to gain any benefit from other sources. The Ld.AR further submitted that the facts relied on by the revenue authorities in the case of M/s Totgars Cooperative Sale Society Ltd. reported in 322 ITR 283 are distinguishable to the facts of the assessee’s case. The Ld.AR further submitted that as per para 11 of the judgement in the case of M/s Totgars Cooperative Sale Society Ltd. (supra), it is clearly mentioned that “this judgement is confined to the facts of the present case” and therefore it cannot be applied in the assessee’s case. Thus, the assessee is eligible for deduction u/s 80P of the Act. The Ld.AR relied on the decision of the coordinate bench of the Tribunal in the case of The Andaluru Large Size Co-operative Society vide I.T.A.No.58/Viz/2024 dated 27.03.2024 and pleaded to set aside the order passed by the Ld.CIT() and allow the deduction u/s 80P of the Act. 7. Per contra, the Ld.DR submitted that as per the provisions of section 80P(2)(d) of the Act, any income derived by way of interest or 6 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu dividends from it’s investments with any other cooperative society is eligible for deduction. The Ld.DR further submitted that in the instant case, the assessee society derived interest from funds parked with DCCB and not from a cooperative society and therefore, the deduction claimed by the assessee was rightly disallowed by the Ld.AO and upheld by the Ld.CIT(A). The Ld.DR further argued that as observed by the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society ltd. (supra), held that the income in respect of which deduction is sought must constitute the operational income and not any other income which accrues to the society. Therefore, considering the facts and circumstances of the case, the Ld.AO has rightly held that the assessee is not eligible to claim deduction u/s 80P of the Act and the Ld.CIT(A) sustained the addition made by the AO. The Ld.DR, therefore, pleaded to uphold the order of the Ld.CIT(A) and dismiss the appeal of the assessee. 8. I have heard both the parties and perused the material available on record. Now the question before me is to decide whether the assessee is eligible for deduction u/s 80P, with respect to the interest income earned on deposits parked with District Cooperative Central Bank, or not. It is an admitted fact that the assessee had claimed deduction u/s 80P of the Act. The contention of the Ld. AO and the Ld. DR is that any income by 7 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu way of interest or dividends derived by the Co-operative Society from it’s investments with any other cooperative society is only eligible for deduction u/s 80P of the Act. The Ld. Revenue Authorities have also placed relied on the decision of Hon’ble Supreme Court of India in Civil Appeal No.1622 of 2010 in the case of M/s Totgars Cooperative Sale Society Ltd., wherein it was held that “investment of surplus on hand not immediately required in Short Term deposits and securities by a co- operative society providing credit facilities to members or marketing agriculture produce to member”. However, in the instant case, the facts are distinguishable and hence, in my view, the ratio laid down in the case of M/s Totgars Cooperative Sale Society Ltd.(supra) shall not be applied to the instant case. On similar set of facts, coordinate Bench of this Tribunal in the case of The Andaluru Large Size Co-operative Society vide I.T.A.No.58/Viz/2024 dated 27.03.2024 held in favour of the assessee, relying of the decision of the coordinate bench in the case of Kakateeya Mutually Aided Thrift and Credit Co-op Society, vide I.T.A.No.107/Viz/2022, CO No.07/Viz/2022 dated 30.08.2023. For the sake of reference, relevant paragraphs of the order are extracted as under: “8. We have heard both the sides and perused the material available on record and the orders of the Ld. Revenue Authorities. It is an admitted fact 8 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu that the assessee has claimed deduction U/s. 80P(2)(a)(i) of the Act on the interest accrued and received by the assessee U/s. 80P(2)(a)(i) of the Act. The contention of the Ld. AO is that as per section 80P(2)(d), the assessee is eligible to claim deduction U/s. 80P(2)(a)(i) of the Act only when it is invested with any other cooperative society. The Ld. AO also placed heavy reliance in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) while disallowing the claim made by the assessee U/s. 80P(2)(a)(i) of the Act. We have perused the ratio laid down by the Hon’ble Apex Court in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members U/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total income while computing the total income. Sub-section (2) of section 80P, in the sub-clause (a) allows deduction to cooperative society which is engaged in the following activities: “(a) in the case of a co- operative 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 members, [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 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: 9. Further, we also extract below the provisions of section 80P2(d) and (e) of the Act for reference: “(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other cooperative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or 9 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;” 10. From the plain reading of section 80P(2)(a)(i) of the Act, the whole of amount of profits and gains of the business attributable to one or more of such activities shall be allowed as a deduction. Further, section 80P(2)(d) and 80P(2)(e) of the Act also allows similar deductions. It is clear that the deductions available under clauses (a) to (e) of section 80P(2) are activity based whereas clauses (d) and (e) are investment based. The distinction between clauses (a) and clauses (d) & (e) on the other hand is that the benefit under clause (a) is restricted to only into those activities of a cooperative society enlisted in sub-clause (a) whereas the benefit of clauses (d) & (e) are available to all cooperative societies without any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such 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 cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression “attributable to” and not any one of the expressions viz., “derived from” or “directly attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon’ble Supreme Court in the case of Totgar’s Cooperative Sale Society Ltd (supra) and distinguished the facts while deciding the case. For the sake of brevity, we extract the relevant para 34 of the judgment of the Hon’ble Andhra Pradesh and Telangana High Court herein below: “34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was 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 the 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 Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their 10 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu 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 belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.” 11. Further, the Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another (supra) held that the cooperative society is eligible for deduction U/s. 80P(2)(a)(i) of the Act on the interest income received from investment in banks. The Hon’ble High Court in paras 35 to 37 of its judgment held as under: 35. But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalized banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in 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 the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside. 12. Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon’ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectfully following the jurisdictional High Court are of the view that interest income should be allowed as deduction U/s. 80P(2)(a)(i) of the Act and thereby the Ld. CIT(A)-NFAC has rightly held by deleting the addition made by the Ld. AO and hence we find no infirmity in the order of the Ld. CIT(A)-NFAC. 13. In the result, appeal of the Revenue is dismissed.” 6. Respectfully following the decision of the Hon’ble High Court of Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd.(supra) and the ratio laid down by the Coordinate Bench of the Tribunal in the case of 11 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu Kakateeya Mutually Aided Thrift and Credit Co-op Society Limited (supra), I am inclined to quash the order passed by the Ld. CIT(A) and allow the appeal of the assessee. 7. In the result, appeal of the assessee is allowed.” 9. Since the facts of the instant case are similar to the facts in the case of The Andaluru Large Size Co-operative Society (supra), respectfully following the decision of the coordinate bench of the Tribunal, I am inclined to quash the order passed by the Ld. CIT(A) and allow the appeal of the assessee. 10. In the result, appeals of the assessee for the A.Y.2018-19 and 2020- 21 are allowed. Order pronounced in the open court on 8 th May, 2024. Sd/- (द ु व्वूरु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Dated : 08 .05.2024 L.Rama, SPS 12 I.T.A. No.85/Viz/2024 & 86/Viz/2024, A.Y.2018-19 & 2020-21 The Lankalakoderu Large Size Co-operative Credit Society Ltd, Palakoderu आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– M/s The Lankalakoderu large size co- operative credit society ltd., No.1904, Palakoderu Mandal, West Godavari Dist. 2. रधजस्व/The Revenue – The Asst. Commissioner of Income Tax, Circle-1, Income Tax Office, Aayakar Bhavan, Doddipatla Road, Palakol 3. The Principal Commissioner of Income Tax, Rajahmundry 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam