THE INDUPALLI PRIMARY AGRICULTURE CO OPERATIVE CREDIT SOCIETY LTD, UNDUTURU MANDALAM V. INCOME TAX OFFICER, WARD-1, GUDIWADA

ITA 88/VIZ/2024

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 2897 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 09-04-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 06-03-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA VILLURI
• Keywords: Set aside
• Section: 147; 148; 143(3)

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.88/Viz/2024 & 89/Viz/2024 (ननधधारण वर्ा / Assessment Year : 2018-19 and 2020-21) The Indupalli Primary Agriculture Cooperative Credit Society Ltd., No.KR356 DNo.5-46, Indupalli Village Indupalli Post Unguturu Mandalam Krishna [PAN : AACAT9205B] Vs. Income Tax Officer Ward-1 Gudiwada (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) अपीलधथी की ओर से/ Appellant by : Shri C.Subrahmanyam, 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 : 19.04.2024 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/250/2023-24/1059461103(1) dated 08.01.2024, arising out of order passed u/s 147 r.w.s.144 of the Income Tax Act, 1961 (in short ‘Act’) dated 07.02.2023 for the Assessment Year (A.Y.) 2018-19 2 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam and ITBA/NFAC/S/250/2023-24/1059519024(1) dated 09.01.2024 arising out of order passed u/s 143(3) of the Act dated 06.09.2022 for the A.Y.2020-21. 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.88/Viz/2024, A.Y.2018-19. 2. Brief facts of the case are that the assessee is a Primary Agriculture Cooperative Credit Society, engaged in the banking activities of lending money to the members for agriculture purpose and collecting the deposits from the members and also supplying, marketing of agricultural products and manures for the benefit of members (farmers). The assessee did not file any return of income for A.Y.2018-19. As per AIR/CIB data, the assessee had deposited total cash of Rs.1,38,60,103/- with Krishna District Cooperative Central Bank Ltd.(KDCCB) and had withdrawn cash of Rs.1,14,61,000/-. Accordingly, notice u/s 148 was issued by the Assessing Officer (AO) on 31.03.2022. In response, the assessee filed it’s return of income on 03.05.2022, declaring Nil income, but the assessee failed to verify it’s return of income in the prescribed time limit and the same was treated as invalid return of income for the year under consideration. During the assessment proceedings, the AO 3 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam considered the replies and documents furnished by the assessee. In the computation of income / ITR, the assessee had claimed deduction u/s 8P(2)(a)(i)-Banking / Credit Facilities to its members at Rs.14,79,948/- towards interest earned, but not claimed any deduction u/s 80P(2)(d) of the Act. The AO observed that the deduction of interest income of Rs.14,79,948/- was not allowable as the assessee had earned interest income from other than “co-operative society”, which is not allowable as deduction u/s 80P(2)(a)(i) of the Act. Relying on the decision of the Hon’ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd. 322 ITR 283, the AO disallowed the claim of deduction u/s 80P(2)(a)(i) on interest income amounting to Rs.14,79,948/-. 3. Aggrieved by the order passed by the AO, the assessee preferred an appeal before the CIT(A) and the Ld.CIT(A) 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 : 1. The order passed by the assessment unit NFAC u/s 143(3) r.w.s. 144B of the IT Act dt.06.09.2022 and upheld by the Learned CIT(A) vide orders passed under Sec.250 of the IT Act dt.09.01.2024 is challenged on the grounds that it is contrary to the facts of the case and provisions of law. 2. The impugned order passed under Sec 147 r.w.s. 144B of the IT Act is in violation of the provisions of law. The notices issued by the 4 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam jurisdictional assessing officer under Sec.148A(d) dt.31.03.2022 and under Sec 148 dt.31.03.2022 are invalid and contrary to the provisions of statute as envisaged under Sec.144B and Sec.151A of the Act. 3. The invalid notices issued by the assessing officer vitiate the subsequent proceedings, rendering the assessment null and void. Therefore, the orders passed under section 143(3) r.w.s. 144B of the IT Act are liable to be quashed. 4. The assessee, being a primary agricultural cooperative thrift society is entitled to claim deduction under section 80P(2)a)(i) of the IT Act for income earned on its activities. The Ld.CIT(A) erred in confirming the disallowance of the claim of Rs.14,79,948/- without due consideration of the provisions of sec.80P(2)(a)(i). 5. The interest income earned from fixed deposits, which is invested out of surplus funds, is attributable to the activities of the assessee society. The CIT(A)’s reliance on the judgement in the case of “TOTGARS Cooperative Society Ltd. 322 ITR 283” is misplaced as the facts of the present case are distinguishable. 6. The appellant prays for the quashing of the impugned orders and seeks relief in accordance with the grounds stated above and any additional grounds to be urged during the hearing of the case. 5. Ground No.2 is not pressed, hence, the ground is dismissed as not pressed. 6. Ground No.6 is general in nature, which does not require specific adjudication. 7. Grounds No.1 and 3 to 5 relate to the issue of allowance of interest on deposits earned by the cooperative society from fixed deposits in various bank accounts can be allowed as deduction u/s 80P2(a)(i) of the 5 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam Act or not. At the outset, the Ld.AR submitted that the assessee had deposited total cash of Rs.1,38,60,103/- with KDCC Bank Ltd. and claimed deduction u/s 80P(2)(a)(i) of the Act on interest income earned. The Ld.AR further submitted that the interest income earned from fixed deposits, which is invested out of surplus funds is attributable to the activities of the assessee society, hence eligible for claiming deduction u/s 80P(2)(a)(i) of the Act. The Ld.AR further submitted that the facts of the case relied on by the Ld.AO in the case of M/s Totgars Cooperative Sale Society Ltd. (supra) are distinguishable to the facts of the present case on hand, wherein, as per para 11 of the judgement, it is clearly mentioned that “this judgement is confined to the facts of the present case” and therefore it cannot be applied to assessee’s case. Taking our attention to page No.39 of the paper book, the Ld.AR submitted that on similar set of facts, the Tribunal has allowed the appeal of the assessee in the case of The Kakateeya Mutually Aided Thrift and Credit Co-operative Society Ltd. in I.T.A.No.107/Viz/2022 dated 12.07.2023 and also in the case of Rangaraya Large Sized Cooperative Society in I.T.A.No.160/Viz/2023 dated 14.09.2023. He, therefore, pleaded to set aside the orders passed by the revenue authorities and allow the deduction claimed by the assessee. 6 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam 8. Per contra, the Ld.DR relied on the decision of Hon’ble Apex Court in the case of M/s Totgars Co-operative Sale Society Ltd. (322 ITR 283) and argued that as per section 80P(2)(d) of the Act, interest income earned on investments with any other cooperative society only is eligible for deduction, but interest income arising out of the short term bank deposits needs to be taxed as income from other sources and cannot be held eligible for deduction u/s 80P(2)(a)(i) of the Act. The Ld.DR, therefore, pleaded to uphold the order passed by the Ld.CIT(A) and dismiss the appeal of the assessee. 9. I have heard both the parties and perused the material available on record. It is an admitted fact that the assessee has claimed deduction u/s 80P(2)(a)(i) of the Act. Now the question before me is to decide whether the assessee is eligible for claiming deduction u/s 80P(2)(a)(i) on interest earned on deposits held with KDCCBL or not. On similar set of facts, this Tribunal in the case of The Kakateeya Mutually Aided Thrift and Credit Coop Society Ltd. vide I.T.A.No.107/Viz/2022, CO No.07/Viz/2022 dated 30.08.2023, held in favour of the assessee, relying on the decision of Hon’ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Coooperative Rural Bank Ltd. Vs. Chief Commissioner of Income 7 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam Tax and Another [2017] 396 ITR 0371 (AP). For the sake of clarity and convenience, I extract relevant part of the order of the Tribunal as follows : “8. We have heard bo th the si des and perused the materi al available on record and the orders of th e Ld. Revenue Autho rities. It is an adm itted fa ct that the asses see has claime d dedu cti on U/s. 80P(2)(a )(i ) of the Act on the interest accrued and re ceive d b y the asses see U/s. 80P(2) (a)(i ) o f the A ct. Th e contention of the L d. A O is that as per se ction 80P(2) (d), the a ss essee i s eli gi ble to claim dedu ction U/ s. 80P( 2)(a) (i) of the Act only when it i s invest ed with any other cooperative society. The L d. A O also placed heav y reliance in the case o f M/s . Totgars Cooperative S ale Society Ltd (supr a) while disallowin g the clai m made by the asse ssee 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. To tgars Cooperative S ale Soc iety Ltd ( supra) an d found that in that c ase the soc iety is e ngaged in marketing o f the agricultural produce by its me mbers a s per section 80P(2 ) (a)(i ii ) while carryin g on the business o f banking or providin g cre dit f acilitie s to its members U/s. 80P(2)(a )(i ) o f the A ct. In that ca se, the Society retained the sale proceeds w hi ch wa s otherwise payabl e to its members from w hom the produce was bo ught whic h was inve sted in short term depos its / securitie s. It i s also found that the amount payable to its membe rs realize d from sale proceeds of the a gri c ultural produce o f its memb ers was retained by t he so ciety and was s hown as liability on the balance sheet. Therefore, the Hon’ble Apex Court has held that interest earned from retainin g the amount payable to its members shall not be cons idere d a s i ncome from other sources. However, in the insta nt case the facts are dist inguis hable an d hence in our view the ratio la id down in the case of M/s. Tot gars Coop erative Sale Soc iety Lt d ( supra) shall not be appli ed. Se ction 80P(1 ) of the Act entitles the Cooperative So cietie s to de du ct the sum s spe ci fie d in sub- section (2) from its gross total income while computing t he total income. Sub-se ction (2) o f se ction 80P, in the sub-clause (a ) allows dedu ction to cooper ative soc iety whi ch is engage d in the fo llowing activitie s: “(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 8 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam 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 e xtract below the provi si ons of se ction 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 co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative society from the letting of godowns or 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) o f the Act, th e whole of amount of profits and gain s of the busines s attribut able to one or more of such activ ities shall be allowed as a de duction. Further, se ction 80P( 2)( d) and 80P(2) (e) of the A ct also allows si milar dedu ctions. It is clea r that the de duct ions available under clau ses (a) to (e) of se ction 80P( 2) are activity based whereas clauses (d) and (e) are investment based. The distinct ion between clauses (a) and clauses (d) & (e) on the ot her hand is that the benefit under claus e (a) is restricted to only into those activ ities o f a cooperative so ciety enlisted in sub-clause (a) w he reas the benefit o f clauses ( d) & (e) are available to all cooperative societies w ithout any restriction on the activities carried on by them. In simple terms, the benefit under clause (a) will be lim ited only to th e profits & gain s o f the busine ss attributable to any one or more of such a ctivitie s. But in case, if the coo perative society ha s an inco me not attributable to any one or more of such activitie s li sted in su b-clauses ( i) to (vi i) of clause-(a), the same may go out of the purvie w of clause (a ) but still the cooperative soc iety may claim the benef it of clause (d) or (e ) as per the conditio ns laid down therein. In th e instant case, the o riginal source o f inv estments made by t he asse sse e in Nationalized Ba nks is a dmittedl y the income of the asses see der iv ed from the act ivitie s listed in sub-clause s (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 9 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam attributable to”. The Hon’ble jurisdictional High Court of Andhra Pradesh and Telanga na in the case of Vavveru Cooperative Rural Bank Ltd v s. Ch ief Com mis sioner of In come 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 di stingu ishe d the facts w hile dec iding the case. For the sake of brev ity, we ex tract the relevant pa ra 34 o f the judgmen t 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 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 Telanga na in the case of Vavveru Cooperative Rural Bank Ltd vs. Ch ief Commi ssioner o f Income Tax and Another (sup ra) hel d that the cooperative society is eli gi ble for dedu ction U/s . 80P( 2)(a) (i) of the Act on the int erest income rece ive d 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 nationalised 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. 10 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam 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 Coor di nate Bench o f H yderabad in Tirumal a Tirupati Deva sthanams Employee s Coop. Credit So ciety v s. I TO also affirmed the same view by following the decision of the Hon’ble AP High Court in the cas e of Vavveru Cooperative Rural Bank Ltd ( supra) . In the instant case also, the asses see has i nvested surplus funds out of the activitie s carrie d out as per the provisions of section 80P( 2)(a) o f the Act. We therefor e by respe ctfully foll owing the juris di ctio nal High Court are of the v i ew that interest in come s hould be allowed as dedu ction U/s . 80P( 2)(a) (i) o f the A ct and thereby the L d. CIT(A)- NFAC has r ig htly hel d by deleting the addition made b y the L d. AO and hence we find no inf i rmity in the or der o f the Ld. CI T( A)-NFA C. 13. In the result, appeal of the Revenue is di s misse d.” 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 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. 10. In the result, appeals of the assessee are allowed. 11 I.T.A. No.88/Viz/2024 & 89/Viz/2024, A.Y.2018-19 & 2020-21 The Indupalli Primary Agriculture Co-op Credit Society ltd,. Unguturu Mandalam Order pronounced in the open court on 19 th April, 2024. Sd/- (द ु व्वूरु आर.एल रेड्डी) (DUVVURU RL REDDY) न्याधयक सदस्य/JUDICIAL MEMBER Dated :19.04.2024 L.Rama, SPS आदेश की प्रतितिति अग्रेतिि/Copy of the order forwarded to:- 1. ननधधाऩरती/ The Assessee– The Indupalli Primary Agriculture ooperative Credit Society Ltd., No.KR356 DNo.5-46, Indupalli Village, Indupalli Post Unguturu Mandalam, Krishna 2. रधजस्व/The Revenue – The Income Tax Officer, Ward-2, Gudiwada, Krishna Dist. 3. The Principal Commissioner of Income Tax, Vijayawada 4. नवभधगीय प्रनतनननध, आयकर अपीलीय अनधकरण, नवशधखधपटणम / DR,ITAT, Visakhapatnam 5..गधर्ा फ़धईल / Guard file आदेशधनुसधर / BY ORDER Sr. Private Secretary ITAT, Visakhapatnam