THE DEESA MERCHANTILE CO.OP. SOCIETY LTD.,DEESA V. THE PR. CIT, AHMEDABAD-3, AHMEDABAD

ITA 382/AHD/2024

AI Insights

The case revolves around the appeal by The Deesa Merchantile Co. Society Ltd. against the revision order of the Pr. CIT, which denied the deduction claimed under section 80P(2)(d) for interest income from cooperative banks. Initially, the Assessing Officer accepted the society's claim during the scrutiny assessment for the assessment year 2018-19. However, upon review, the Pr. CIT found the assessment order to be erroneous and prejudicial to the interest of the revenue, leading to a revision order. The Tribunal, referencing various judgments and precedents, particularly from the Gujarat High Court, overturned the Pr. CIT's decision, allowing the deduction and emphasizing the distinction between cooperative banks and cooperative societies in the context of tax benefits.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 470092 (ITAT-AHMEDABAD)
• Duration Of Justice: 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-11-2024
• Assessment Year: 2018-2019
• Appeal Filed On: 29-02-2024
• Other Referred Cases: Kaltary Kariyana Merchant Sahkari vs. ACIT, Surat Vankar Sahakari Sangh Ltd. vs. ACIT, State Bank of India vs. CIT, The Sardar Patel Co-operative Credit Society Ltd. v. ACIT, Totgar Co-operative Sale Society vs. PCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ADJOURNMENT APPLICATION
• Assessee Lawyers: ADJOURNMENT APPLICATION; HOLDING; HOLDING
• Keywords: Revision of order; Co-operative Credit Society
• Section: 143(3); 143(2); 263; 80P; 72

Judgement Text

"THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “B” BENCH Before: Dr. BRR Kumar, Accountant Member And Shri TR Senthil Kumar, Judicial Member The Deesa Merchantile Co. Society Ltd., Rajiv Gandhi Complex Basement, Deesa, Deesa (B.K.)-385535, Gujarat PAN: AAABT2083Q (Appellant) Vs Pr. CIT, Ahmedabad-3 Ahmedabad (Respondent) Assessee by: Adjournment Application Revenue by: Adjournment Application Date of hearing : 04-11-2024 Date of pronouncement : 05-11-2024 आदेश/ORDER PER : TR SENTHIL KUMAR, JUDICIAL MEMBER:- This appeal is filed by the assessee as against revision order dated 24-01-2024 passed by Pr. CIT Ahmedabad-3 arising out of the assessment order passed u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’) relating to the assessment year 2018-19. ITA No. 382/Ahd/2024 Assessment Year 2018-19 I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 2 2. Brief facts of the case, the assessee is a co-operative society filed its return of income for the assessment year 2018-19 on 28- 10-2018 declaring total income at Rs. nil after claiming deduction u/s. 80P(2)(d) of the Act. The return was selected for scrutiny assessment, notices u/s. 143(2) issued and detailed replies filed by the assessee and assessment order dated 13-04-2021 was passed by the Assessing Officer accepting the returned income as nil. 2.1 On verification of the case records and the assessment order, the ld. Pr. CIT found the assessee had net interest income of Rs. 1,54,34,804/- which was earned from investment in co-operative banks. Further, the assessee had also received dividend and interest on gratuity fund of Rs. 2,14,057/- from co-operative banks. After netting interest income, deduction of Rs. 1,56,48,861/- was claimed u/s. 80P(2)(d) of the Act. Further, it is found that assessee society has earned FD interest from co- operative bank, same was not shown as income from other sources. Such interest income is not eligible for deduction u/s. 80P(2)(d) of the Act. Thus, the assessment order passed by the Assessing Officer is found to be erroneous and prejudicial to the interest of revenue, thereby a show cause notice dated 27-12-2023 issued to the assessee as to why not denying the deduction claimed u/s. 80P(2)(d) of the Act. 2.2 In response, the assessee filed its reply dated 03-01-2024 as follows:- “i) The return was filed on 28/10/2018 declaring total income of Rs. NIL. IT has received co-operative bank interest of Rs 1,54,34,804/- I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 3 & co-operative society dividend of Rs 33,907/- and Gratuity fund co- op bank interest of Rs 1,80,150/- totaling Rs 1,56,48,861/- ii) During the assessment proceedings, the A.O asked for details for deduction under Chapter VIA which was submitted and explained by the assessee. iii) The A.O. had gone through the details furnished and after considering the details and judicial decisions of Hon'ble Gujarat High Court, allowed the claim of the assessee. Thus the order passed by the A.O. is neither erroneous nor prejudicial to the interest of revenue. iv) The assessee society has mainly received interest and dividend from another Co-operative Society namely Banaskantha District Central Co-op Bank Ltd. The Mehsana Urban Co-op Bank and Sarvoday Commercial Co-op Bank which is registered under co-op societies Act and assessed in the status of Co-op society and as such interest and dividend received from such banks is admissible u/s 80P(2)(d) of the Act.” 2.3 Ld. Pr. CIT considered the above submissions of the assessee and held that the deduction u/s. 80P(2)(d) does not extend to the interest income and investment made from co-operative banks vide Finance Act, 2006 deduction from income of co-operative banks as per the provisions of section 80P of the Act have been withdrawn by way of insertion of section 80P(4) of the Act w.e.f. 01-04-2007 which differentiate co-operative bank in comparison to co-operative society. The co-operative banks are functioning at par with other commercial banks which do not enjoy any tax benefit. Further, the Jurisdictional High Court in the case of Kaltary Kariyana Merchant Sahkari vs. ACIT, reported in (2022) 140 taxmann.com 602 (Guj. HC) upheld the opinion of the Assessing Officer that the interest derived from surplus funds invested by assessee in nature of FDRs in Cooperative Banks and Nationalized Bank, other than Co- I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 4 operative Societies will certainly not fall in category to be entitled to claim deductions under section 80P(2)(i) and section 80P(2)(d) and thus have escaped assessment. Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the Nationalized Banks is not being attributable to the business carried on by the Mandali and cannot he deducted under section 80P(2)(a)(i) of the Act. Thus, ld. PCIT set aside the assessment order dated 30-04-2021 and directed the Assessing Officer to pass fresh assessment order after treating the bank FD interest, interest on gratuity fund, dividend income as income from other sources denying deduction u/s. 80P(2)(d) on such interest income and dividend income. 3. Aggrieved against the revision order, the assessee is in appeal before us raising following grounds of appeal:- “(1) That on facts, and in law, the learned PCIT has grievously erred in exercising jurisdiction u/s 263 of the Act. (2) That the learned PCIT has grievously erred in law, and on facts, in holding that dividend/ interest received from Co-operative Bank is to be taxed as Income from Other Sources, and in further directing the AO to deny the claim of deduction made u/s 80P(2) (d) of the Act of Rs. 1,56,48,861/- in respect of such dividend/ interest received from Co- operative Bank. (3) That on facts and in law, the entire claim ought to be allowed as prayed for. (4) The appellant craves leave to add, alter, amend any ground of appeal.” 4. Today is the 8th time of the hearing of the appeal, none appeared on both sides but sought for adjournment on account of I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 5 personal reasons. However, the assessee filed detailed paper book and issue before us being covered matter, the adjournment requests made by both the parties are hereby rejected. 5. We have carefully perused the materials available on record. The issue before us is of deduction of interest on deposits earned by credit co-operative society from deposit with co-operative banks which is no more res-integra. As the Jurisdictional High Court in the case of Surat Vankar Sahakari Sangh Ltd. vs. ACIT reported in (2016) 72 taxmann.com 169 (Guj SC) and Gujarat State Bank of India vs. CIT reported in (2016) 72 taxman.com 64, (Gujarat High Court) has decided this issue in favour of the assessee by holding interest income received by credit co-operative society from deposits made with co-operative bank registered under Co- operative Societies Act or under the State Act shall be allowed as deduction u/s. 80P(2)(d). The Co-ordinate Bench of this Tribunal in several cases already decided this issue in favour of the assessee. The Co-ordinate Bench of this Tribunal in assessee’s own case in ITA No. 2100/Ahd/2014 relating to assessment year 2011-12 dated 17-06-2022 and in ITA No. 1108/Ahd/2011 relating to assessment year 2007-08 vide order dated 28-08-2015 allowed the claim of deduction u/s. 80P(2)(d) of the Act which are available at page nos. 52 to 55 respectively. 5.1 In the case of The Sardar Patel Co-operative Credit Society Ltd. v. ACIT in ITA no. 525 & 526/Ahd/2023 vide order dated I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 6 02.04.2024 decided the issue in favour of the assessee by holding as under :- \"7. We have considered rival contentions and perused the material on record. We have observed that the assessee is Co-operative Credit Society engaged in providing credit facility to its members. The case of the assessee was selected by Revenue for framing limited scrutiny assessment under CASS. 7.2 The assessee has also claimed deduction u/s 80P(2)(d) of Rs. 1,62,24,334/- towards interest earned from deposits made with Co- operative banks hereunder: detailed hereunder:- Sr. No. Name of Bank Interest receipt (Rs) 1 Interest income from Mehsana Urban Co-op. Bank Ltd. 1,59,13,246/- 2 Interest income from Kukarwada Nagrik Bank Ltd. 3,02,706/- 3 Interest income from Mehsana Dist. Bank 159/- 4 Interest income from Vijapur Nagarik Sahakari Bank Ltd. 31,168/- The AO has denied the deduction u/s 80P(2)(d) to the assessee by following the decision of Hon'ble Karnataka High Court in the case of PCIT v. Totgar Co-operative Sale Society(supra), while ld. CIT(A) had allowed the deduction by following the decision of ITAT, Ahmedabad Bench in the assessee's own case for assessment year 2016-17. The tribunal while allowing the claim of the assessee for assessment year 2016- 17(immediately preceding assessment year) has followed the decision(s) of Hon'ble Gujarat High Court in the case of State Bank of India v. CIT, reported in (2016) 389 ITR 578(Guj.) and Surat Vankar Sahakari Sangh Limited v. ACIT, reported in (2016) 72 taxmann.com 169(Guj). The Tribunal in ITA No 1404/Ahd/2019 in assessee's own case for assessment year 2016-17 allowed the relief to the assessee, by holding as under: \"5.1 The issue for consideration before us is whether the assessee is eligible to claim deduction on interest earned from Co-Operative Banks u/s 80P(2)(d) of the Act. The Hon'ble Gujarat High Court in the case of State Bank of India Vs. CIT (2016) 389 ITR 578 (Guj), held that that the interest income earned by a co- operative society on its investments held with a cooperative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. The Honourable Gujarat High Court made following observations in I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 7 respect of interest earned from deposits kept with a cooperative bank: Therefore, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the appellant, cannot be deducted under section 80P(2)(a) (i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d) of the Act. 5.2 In the case of Surat Vankar Sahakari Sangh Ltd. v Assistant Commissioner of Income-tax (2016) 72 taxmann.com 169 (Gujarat), the Gujarat High Court held assessee-co-operative society was eligible for deduction under section 8OP(2)(d) in respect of gross interest received from cooperative bank without adjusting interest paid to said bank. 5.3 In the case of Surendranagar District Co-op. Milk Producers Union Ltd. v Deputy Ld. CIT(A) 111 taxmann.com 69 (Rajkot Bench) the ITAT held that assessee-co-operative society could not claim benefit of section 8OP(2)(d) in respect of interest earned by it from deposits made with nationalised/private banks, however, said benefit was available in respect of interest earned on deposits made with co-operative bank. 5.4 In the case of Pr. Commissioner of Income Tax and Anr Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karm), the Karnataka High Court has held that the interest income earned by a cooperative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec. 8OP(2)(d) of the Act. 5.5 Respectfully, following the decision of Honourable High Court of Gujarat and other cases cited above in our view, interest earned by the assessee on surplus held with cooperative banks would be eligible for deduction under Sec. 8OP(2)(d) of the Act. 6. In the result, the appeal of the revenue is dismissed.\" Respectfully following the aforesaid decision of ITAT Ahmedabad Bench (which has followed the decision of jurisdictional High Court), in assessee's own case for assessment year 2016-17 which is immediately preceding year, and in order to maintain consistency we allow the claim of the assessee for deduction u/s 80P(2)(d) with respect to interest income earned from Co-operative Banks However I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 8 none of the authorities below have given a finding that these four entities from whom the interest income is earned by the assessee are Co-operative Banks which are co-operative societies duly registered under the Co-operative Societies Act or under the State Act and to this limited extent we are directing AO to verify the facts before granting relief to the assessee While allowing the claim of the assessee, we note that principles of res judicate are not applicable to the income tax proceedings, but principles of consistency is to be maintained. Reference is drawn to the decision of Hon'ble Supreme Court in the case of Radhasoami Satsang v. CIT reported in (1992) 193 ITR 321(SC). The assessee succeeds on this issue in the manner as indicated above. We order accordingly\" The Hon’ble Gujarat High Court in the case of Katlary Kariyana Merchant Sahkarı Sarafi Mandali Ltd. ACIT reported in (2022) (40 taxmann.com 602(G) HC) vide order dated 04.01 2022 has decided the issue in favour of Revenue but by order in MA dated 26.04.2024 in R/Special Civil Application No. 20585 of 2019, the aforesaid order dated 04.01 2022 was modified by Hon'ble Gujarat High Court and this issue stood decided in favour of the tax-payer. Similar view have been taken by the Benches of ITAT, Ahmedabad in the case of other tax-payers including decision of ITAT Ahmedabad SMC Bench, in the case of The Kalol Co-operative Credit and Supply Society Limited in ITA 135/Ahd/2024 and ITA No. 267/Ahd/2024 vide order dated 18.07 2024 in which one of us being Hon'ble Accountant Member was the member of SMC Bench who pronounced the said orders We thus decide this issue in favour of the assessee that interest income earned from deposits with Co operative Banks shall be allowed as deduction u/s 80P(2)(d). However, similar directions as were given by Division Benchin the appellate order in the case of Sardar Patel Co-operate Credit Society Limited ITA No. 525 & 526/Ahd/2023) are now given by us to the AO to verify that the entity from whom the interest income of Rs. 2,55,000/ is claimed to have been earned by the assessee namely The Sabarkantha District Central Co-operative Bank, Khedbrahma which is claimed to be a Co-operative societies is duly registered under the Co operative Societies Act or under the State Act and to this limited extent, we are directed AO to verify the facts before granting relief to the assessee The appeal of the assessee is allowed as indicated above. We order accordingly.” 5.2 Though ld. Pr. CIT relied upon Jurisdictional High Court judgment in the case of Kaltary Kariyana Merchant Sahkari (supra), that was being later modified by order in MA dated 26-04- 2024 and decided in favour of the assessee, the same was being followed by various benches of this tribunal. I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 9 5.3 Further, as seen from the paper book, during the assessment proceedings, the Assessing Officer called for the details of claim of deduction u/s. 80P(2)(d) and the assessee made detailed reply as follows:- I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 10 I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 11 I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 12 I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 13 Thus, ld. Pr. CIT is not correct in stating that the Assessing Officer failed to make necessary inquiry before passing the assessment order. 6. For all the above reasons, in our considered opinion, the above revision order passed by ld. Pr. CIT is not sustainable in law and the same is liable to be quashed. I.T.A No. 382/Ahd/2024 A.Y. 2018-19 Page No. The Deesa Merchantile Co-Op Society Ltd. vs. Pr. CIT 14 7. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 05-11-2024 Sd/- Sd/- (DR. BRR KUMAR ) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 05/11/2024 आदेश क\u0006 \u0007\bत ल\fप अ\u000fे\fषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील\u0012य अ\u0013धकरण, अहमदाबाद "