SHREE MAHAVEER I. DHAMANI VIKAS SOCIETY LTD. INAMDHAMANI,SANGLI V. ITO W 1 SANGLI, SANGLI

ITA 2809/PUN/2024

AI Insights

The case involves Shree Mahaveer Dhamani Vikas Society Limited, a Primary Agricultural Co-operative Credit Society, which appealed against the order of the Commissioner of Income Tax (Appeals) that confirmed the disallowance of a deduction claim on interest income earned from deposits with Sangli District Central Co-operative Bank. The Assessing Officer had initially disallowed the deduction, categorizing the interest income as 'income from other sources' and not eligible for deduction under section 80P(2)(a)(i) or section 80P(2)(d) of the Income Tax Act, 1961. The Tribunal examined various judicial precedents and statutory provisions, ultimately deciding in favor of the assessee by allowing the deduction.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 29495 (ITAT-PUNE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2021-2022
• Other Referred Cases: Pr.CIT Vs. Totagars Co-operative Sale Society, Vavveru Co-operative Rural Bank Ltd., Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer, Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MISS INDIRA R ADAKIL
• Keywords: Set aside; Principle of natural justice; Co-operative Credit Society
• Section: 143(3); 56; 80P; 10

Judgement Text

" आयकर अपीलीय अिधकरण ”एस एम सी” Ɋायपीठ पुणेमŐ। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “SMC” :: PUNE BEFORE DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.2809/PUN/2024 िनधाᭅरण वषᭅ / Assessment Year: 2021-22 Shree Mahaveer Dhamani Vikas Society Limited, At Post Inamdhamani, Tal Miraj, DistSangli, Sangli – 416416. PAN: AAWAS2530G V s The Income Tax Officer, Ward-1, Sangli. Appellant/ Assessee Respondent / Revenue Assessee by None Revenue by Miss Indira R Adakil – Addl.CIT(DR) Date of hearing 30/01/2025 Date of pronouncement 10/02/2025 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This is an appeal filed by the assessee against the order of ld.Commissioner of Income Tax(Appeals)[NFAC] for ITA No.2809/PUN/2024 [A] 2 Assessment Year 2021-22 dated 11.11.2024 passed u/sec.250 of the Income tax Act, 1961 emanating from Assessment Order under section 143(3) of the Act, dated 13.12.2022. The Assessee has raised the following grounds of appeal : “1. On the facts and the circumstances of the case and in law, the Learned CPC and NFAC, erred in taxing the amount of Rs.4,36,926/- by treating the same as income from other sources and, hence not eligible for deduction u/s 80P(2)(a)(i) or even under section 80P(2)(d) without properly appreciating the submissions filed and the provisions of the I.T. Act, 1961 and in defiance of the case of law cited of high courts and jurisdictional ITAT benches on identical facts. 2. The reasons assigned for taxing the amount of Rs.4,36,926/- as income from other sources are wrong, insufficient and contrary to the provisions of law and facts on record and, hence, the addition made be deleted in full. ITA No.2809/PUN/2024 [A] 3 3. Your appellant craves for leave to add, alter, amend, modify, delete all the above or any ground of appeal before or during the course of hearing in the interest of natural justice.” Submission of ld.AR : 2. At the outset of hearing, no one appeared on behalf of the assessee. No adjournment letter was filed. Submission of ld.DR: 3. The ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A). Findings & Analysis : 4. We have heard ld.DR for the Revenue and perused the records. Assessee is a Primary Agricultural Co-operative Credit Society. Assessee had filed Return of Income electronically declaring total income of Rs.1,89,560/- after claiming deduction under section 80P(2)(a)(i) of Rs.36,08,160/-. The Assessee’s case ITA No.2809/PUN/2024 [A] 4 was selected for scrutiny. The Assessing Officer(AO) passed assessment order after considering Assessee’s submission. 4.1 The relevant paragraph of the assessment order is reproduced here as under : “The assesse is a primary agricultural co-operative credit society registered under section 10 of Bombay Act VII of 1925. The main object/business of the society is providing credit facilities to its members. The society obtains loans from Sangli District Central Co- operative Bank and gives loans to its regular members. The assessee furnished the details/documents vide its reply dated 01.11.2022 and 29.11.2022. The assessee has furnished registration certificate, bye laws, copy of balance sheet, P&L along with computation of income for the AY 2021-22, bank statement, form 26AS, details of Fixed deposits made by the assessee and other details. It is noticed from the details / information submitted by the assessee that during the previous year under consideration, the assessee has earned an interest income from loan to its members of Rs.62,00,608/- and also earned interest income from its deposits with banks viz., ITA No.2809/PUN/2024 [A] 5 M/s. Sangli District Central Co-operative Bank of Rs.4,36,926/-. The assessee has claimed the entire interest income as deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Income-tax Act, 1961. On verification, it is further noticed that the aforesaid deposits/investments in co- operative banks are out of the surplus funds of the society. Any interest income arising from deposit /investment of funds in banks is in the nature of 'income from other sources' taxable u/s 56 of the Income-tax Act and cannot be categorized as the income from the 'profits and gains of business' of the assessee. Since the deduction u/s 80P is available only for the profits and gains of the business of the assessee (providing credit facilities to the members), the said deduction is not available to the interest income earned from the deposit made with other Co-operative Bank, which are in the nature of 'other income' or 'income from other sources. As per ITR, Interest income received from bank deposit of Rs.4,36,926/- earned by the assessee-society is not eligible for deduction u/s 80P(2)(a)(i)).” 4.2 The Assessing Officer disallowed Assessee’s claim for deduction 80P(2)(a)(i) of the Act, for interest earned from Sangli District Central Co-operative Bank, relying on Hon’ble Karnataka High Court’s decision in Pr.CIT Vs. Totagars Co-operative Sale ITA No.2809/PUN/2024 [A] 6 Society. Aggrieved by the assessment order, assessee filed appeal before the ld.CIT(A). The ld.CIT(A) confirmed the addition. 4.3 Aggrieved by the order of the ld.CIT(A), the assessee has filed appeal before this Tribunal. It is an admitted fact that Assessee is a Primary Agricultural Co-operative Credit Society. Assessee had claimed deduction under section 80P of Rs.36,08,160/- for the year under consideration, out of that Assessing Officer has disallowed an amount of Rs.4,36,926/- which is the interest earned from Sangli District Central Co- operative Bank. Thus, according to the Assessing Officer, Assessee is eligible for deduction under section 80P of the Act, except the interest earned on deposits kept with Sangli District Central Co-operative Bank.Thus, the only issue for consideration is whether interest of Rs.4,36,926/- earned from Sangli District ITA No.2809/PUN/2024 [A] 7 Central Co-operative Bank is eligible for deduction under section 80P(2)(a)(i) of the Act or not! 4.4 Thus, the issue before us is whether assessee is eligible for deduction under section 80P(2)(a) of the Act, on the interest earned from Co-operative Banks or not! 4.4.1 This issue has been dealt in various decision of ITAT Pune in favour of assessee. 5. The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one ITA No.2809/PUN/2024 [A] 8 of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not. 9. While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. …………………… 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 ITA No.2809/PUN/2024 [A] 9 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. 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. 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 ITA No.2809/PUN/2024 [A] 10 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.”Unquote. 5.1 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business and Profession by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act. 5.2 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) is binding precedents for us. 6. The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : ITA No.2809/PUN/2024 [A] 11 Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote 6.1 The Hon’ble ITAT Pune Bench in the case of Yashwant Nagari Sahakari Patsanstha Maryadit Vs. ITO in ITA No.644/PUN/2024 dated 04.06.2024 held that the assessee was eligible for deduction u/sec.80P(2)(a) of the Act on the Interest earned by assessee. 7. Respectfully following the judicial precedent, we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act ITA No.2809/PUN/2024 [A] 12 on the interest amount of Rs.4,36,926/-. Accordingly, Grounds of appeal raised by the Assessee are allowed. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 10th February, 2025. Sd/- Sd/- (VINAY BHAMORE) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; ᳰदनांक / Dated : 10th Feb, 2025/ SGR* आदेशकᳱᮧितिलिपअᮕेिषत / Copy of the Order forwarded to : 1. अपीलाथᱮ / The Appellant. 2. ᮧ᭜यथᱮ / The Respondent. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. 5. िवभागीयᮧितिनिध, आयकर अपीलीय अिधकरण, “एस एम सी” बᱶच, पुणे / DR, ITAT, “SMC” Bench, Pune. 6. गाडᭅफ़ाइल / Guard File. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे/ITAT, Pune. "