THE GREEN CITY NAGRI SAHAKARI PAT SANSTHA MARYADIT,NAGPUR V. ITO WARD 2(2), NAGPUR

ITA 124/NAG/2024

AI Insights

The case revolves around the eligibility of The Green City Nagri Sahakari Pat Sanstha Maryadit, a cooperative society, to claim deductions under section 80P of the Income Tax Act, 1961 for interest income earned from fixed deposits with a nationalized bank. The Assessing Officer initially disallowed the deduction, categorizing the interest income under 'income from other sources'. The CIT(A) upheld this decision. However, the Tribunal, referencing similar cases and judicial precedents, reversed the CIT(A)'s decision, allowing the deduction and setting aside the impugned order.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 24177 (ITAT-NAGPUR)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 30-09-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 01-03-2024
• Other Referred Cases: Subordinate Engineers Association MSEB Co.op. Credit Society Ltd Vs ITO, Ward-2(2), Kolhapur, Jankalyan Nagari Sahakari Patsanstha Ltd Vs ITO, Ward-1, Satara Pune Bench, Ismailia Urban Co-operative Society v/s ITO, CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd, MSEB Engineers Co-Op. Credit Society Ltd, Chattisgarh Urban Sahakari Sanstha Maryadit Vs. ITO, The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY Y. MARATHE
• Assessee Lawyers: OBSERVING; A CATENA OF DECISIONS
• Keywords: Set aside; Business income; Opportunity of being heard; Proportionate interest; Principle of natural justice
• Section: 143(3); 142(1); 143(2); 250; 56; 80P; 28

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI K.M. ROY, ACCOUNTANT, MEMBER ITA no.124/Nag./2024 (Assessment Year : 2017–18) The Green City Nagri Sahakari Pat Sanstha Maryadit 152, Sindhu Nagar Society, Main Road Jaripatka, Nagpur 440 014 AABAT9093J ……………. Appellant v/s Income Tax Officer Ward–2(2), Nagpur ……………. Respondent Assessee by : None Revenue by : Shri Abhay Y. Marathe Date of Hearing – 30/09/2024 Date of Order – 22/10/2024 O R D E R PER V. DURGA RAO, J.M. The present appeal has been filed by the assessee challenging the impugned order dated 31/01/2023, passed by the learned Commissioner of Income Tax (Appeals), [“learned CIT(A)”], for the assessment year 2017–18. 2. The assessee has raised following grounds:– “1. The order passed U/s 154, 250 & 143(3) under the Income Tax Act, 1961 is illegal, invalid and bad in law. 2. That the learned Commissioner of Income Tax (Appeals) (NFAC) has erred in law and not justified in proceeding with confirming the addition made by learned AO without going into the provisions of law of section u/s 8OP(2)(a)(i) of the Income Tax Act, 1961 and passed the order. Therefore, the order passed is unjustified, unwarranted, and excessive. 3. That the Ld. CIT(A) (NFAC) erred in law for disallowing for interest earned U/s 8OP(2)(a)(i) in the regular course of business activities from fixed 2 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 deposits at Rs.18,98,518/- against the overdraft facility without going into the provisions of law and facts of the case, therefore the order passed is unjustified, unwarranted and excessive 4. That the learned Commissioner of Income Tax (Appeals) (NFAC) has erred in law and has wrongly interpreted the deduction u/s 8OP(2)(a)(i) with section 8OP(2)(d) and wrongly disallowed the interest on fixed deposits from Union Bank of India of Rs.18,98,518/- under the head income from other sources as interest received by the assessee society from the nationalize bank and not from co-operative society as per section 8OP(2)(d) and taxed in the hands of the assessee society instead of income declared under the head of business income originally in the return of income during the regular course of business activity of providing banking or credit facilities to its member as co-operative society and claimed the deduction 80P(2)(a)(i) of the Income Tax Act, 1961. 5. a) Whether the disallowance of the interest on fixed deposits during the regular course of business activity of providing banking or credit facilities to its member as co-operative society under the head income from other sources as interest received by the assessee society from the nationalize bank and not from co- operative society is justified? b) Whether provisions of section 80P(2)(a)(i) are not applicable to the co- operative society providing banking or credit facilities to its member and accordingly deduction U/s 80P is not allowable deduction under the Act? 6. The CIT(A) (NFAC) erred in law for disallowing the deduction claimed U/s 80P of the Income Tax Act, 1961 without following the judicial pronouncements awarded by the Honorable High Courts and ITAT. The honorable ITAT, Pune took a view that such interest income is attributable to the activities of the society therefore eligible for exemption U/s 80P(2)(a)(i) in this regards, hence disallowance made and order passed are illegal, invalid and bad in law. i) Subordinate Engineers Association MSEB Co.op. Credit Society Ltd Vs ITO, Ward-2(2), Kolhapur, dated 16.05.2023, Pune Bench ii) Jankalyan Nagari Sahakari Patsanstha Ltd Vs ITO, Ward-1, Satara Pune Bench Dt.29.05.2023. 7. In view of the facts and circumstances of the case and in law, the learned CIT(A), NFAC is not justified in upholding the disallowance of deduction claimed U/s 80P(2)(a)(i) of the Income Tax Act, 1961. Therefore, it is the humble request from the assessee society accept the appeal and allow the deduction. 8. That the learned CIT(A) (NFAC) has erred in law and the act was not justified in proceeding with confirming the addition made by the learned assessing officer without going into the detailed explanation along with relevant documents furnished during the course of assessment and appeal proceedings and without giving the sufficient opportunity of being heard in the present matter against the principles of natural justice thereby rendering the order void ab-initio. 3 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 9. That interest charged U/s. 234A, 234B, 234C and 234D of the Act may kindly be deleted. 10. The appellant, therefore, pray that the appeal may be allowed and orders may be passed rendering justice to the appellant. 11. The appellant craves leave to add, amend, or modify any grounds of appeal with due permission.” 3. Facts in Brief:– The assessee, for the year under consideration, filed its return of income on 28/07/2017, showing total income of ` nil. The assessee is a Co–operative Society and accepts deposits and lends them to Members and mobilize funds to cover interest expenditure on deposit from Members. The case was selected for limited scrutiny for the reason to verify deductions claimed under Chapter–VIA of Act. Notices under section 143(2) and 142(1) with questionnaire were issued. The assessee is a Co–operative Society and has shown gross total income of ` 27,05,375, and claimed deduction of ` 27,05,375. During the assessment proceedings, the Assessing Officer noted that assessee earned interest income of ` 18,98,518, from nationalized banks i.e., Union Bank of India and had claimed deduction under section 80P of the Income Tax Act, 1961 (\"the Act\"), but the same is not allowable under section 80P(2)(d) of the Act. The Assessing Officer issued a show cause notice to assessee which was replied vide letter dated 29/11/2019 (as per page 2 of assessment order). The Assessing Officer held that as per section 80P(2)(d) of the Act, the deduction is allowable on interest derived by Co–operative Society from Investment / Dividend with a Cooperative Society. Hence, the deduction claimed of ` 18,98,518, under section 80P of the Act was disallowed as interest was earned from a Nationalised bank and not from Co– operative Society. 4 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 4. The learned CIT(A) dismissed the appeal of the assessee by observing as under:– “a) Appellant invested funds in FDR's as short term deposits with Nationalized Bank i.e. Union Bank of India and earned interest of Rs. 18,98,518/- and claimed deduction u/s 80P of Rs. 18,98,518/-. As per Section 80P(2)(d) the deduction is allowed on interest income or Dividends earned by a Cooperative Society (like Appellant) from its investments made in any other Cooperative Society (like Cooperative Banks as held in judgements of Hon'ble High Court and Hon'ble ITAT's) to the extent of whole of such income. b) Thus, it is clear that Interest Income from FDR's/Deposits received from Nationalized Banks cannot be allowed as a deduction u/s 80P(2)(d) of Act. It is allowable only in respect of Interest Income earned from deposits with Coop. Society or Coop. Bank. c) Appellant has claimed deduction u/s 80P of Rs.27,05,375/-. Out of this deduction u/s 80P(2)(d) of Rs.18,98,518/- has been disallowed by the AO and balance deduction of Rs.8,06,857/- has been allowed by the AO u/s 80P(2)(a)(1) of Act. Appellant has claimed relief u/s 57 of Act as income has been assessed as income from other sources. However, AO has not given the working of proportionate interest expenses against the Short Term Deposits with Union Bank of India and has not explained as to how the claim u/s 57 of Act is allowable in Appellants case. In view of these facts the Appellant claim of allowing deduction u/s 57 of Act is not allowed. AO should rectify the order made in computation sheet of order u/s.143(3) after verification and after checking the claim of appellant on this issue.” 5. We have heard the rival arguments, perused the material available on record and gone through the orders of the authorities below. It is an admitted fact that the assessee is a Credit Co–operative Society and has made some short term deposits with Nationalized Bank i.e, Union Bank of India and and has received interest income which was claimed the as deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The case of the Assessing Officer is that, interest income received by the assessee is from Nationalized Bank and hence it falls under the income from other sources not eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. We find that similar issue came up for adjudication before the Tribunal, Nagpur Bench, wherein the very 5 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 same Bench was a party to that order rendered in The Ismailia Urban Co– operative Society v/s ITO, ITA no.122/ Nag./2023, order dated 18/06/2024, wherein the Tribunal has considered this issue in detail and held that interest income earned by the assessee trust is eligible for deduction under section 80P(2)(a)(i) / 80P2(d) of the Act. The relevant portion of the order reproduced below:– “9. Upon hearing both the counsel and perusing the record, we find that the issue involved is covered in favour of the assessee by a catena of decisions from ITAT as well as a decision of jurisdictional High Court. In this regard we may gainfully refer the Hon‟ble Jurisdictional High Court decision in the case of CIT vs. Solapur Nagri Audyogik Sahakari Bank Ltd. 182 Taxman 231 wherein the following question was raised. “Whether the interest income received by a Co-operative Bank from investments made in Kisan Vikas Patra („KVP‟ for short) and Indira Vikas Patra („IVP‟ for short) out of voluntary reserves is income from banking business exempt under Section 80P(2)(a)(i) of the Income Tax Act, 1961?” After considering the issue, the Hon‟ble Jurisdictional High Court has concluded as under : “12. Therefore, in all these cases, where the surplus funds not immediately required for day-to-day banking were kept in voluntary reserves and invested in KVP/IVP, the interest income received from KVP/IVP would be income from banking business eligible for deduction under section 80P(2)(i) of the Act. 13. In the result, there being no dispute that the funds in the voluntary reserves which were utilized for investment in KVP/IVP by the co-operative banks were the funds generated from the banking business, we hold that in all these cases the Tribunal was justified in holding that the interest income received by the co-operative banks from the investments in KVP/IVP made out of the funds in the voluntary reserves were eligible for deduction under section 80P(2)(a)(i) of the Act.” The above case law fully supports the assessee‟s case. Here also surplus funds not immediately required for day to day banking were kept in Bank deposits. The income earned there from thus would be income from banking business eligible for deduction u/s 80P(2)(a)(i). 10. Similarly we find that similar issue was considered by this Tribunal on similar grounds raised by the Revenue in the case of MSEB Engineers Co-Op. Credit Society Ltd., wherein the ITAT, Nagpur Bench, vide order dated 05/05/2016 held as under : “Upon hearing both the counsel and perusing the records, we find that the above issue is covered in favour of the assessee by the decision of this ITA, referred by the Ld. CIT(A) in his appellate order. The distinction mentioned in 6 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 the grounds of appeal is not at all sustainable. We further find that this Tribunal again in the case of Chattisgarh Urban Sahakari Sanstha Maryadit Vs. ITO in ITA No. 371/Nag/2012 vide order dated 27.05.2015 has adjudicated similar issue as under:- “11. Upon careful consideration, we not that identical issue was the subject matter of consideration by ITAT, Ahmedabad Bench decision in the case of Dhanlaxmi Credit Cooperative Society Ltd (supra), in which one of us, learned Judicial Member, was a party. The concluding portion of the Tribunal‟s decision is as under: “4. With this brief background, we have heard both the sides. It was explained that the Co-operative Society is maintaining “operations funds” and to meet any eventuality towards repayment of deposit, the Co-operative society is maintaining some liquidated funds as a short term deposit with the banks. This issue was thoroughly discussed by the ITAT “B” Bench Ahmedabad in the case of The Income Tax Officer vs. M/s.Jafari Momin Vikas Co-op Credit Society Ltd., bearing ITA No. 1491/Ahd/2012 (for A.Y. 2009-10) and CO No. 138/Ahd/2012 (by Assessee) order dated 31/10/2012. The relevant portion is reproduced below :- “19. The issue dealt with by the Hon‟ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts as under : What is sought to be taxed under section 56 of the Act is interest income arising on the surplus invested in short term deposits and securities, which surplus was not required for business purposes? The assesse(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question before us, is whether interest on such deposits/securities, which strictly speaking accrues to the members‟ account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of „income from other sources‟ hence, such interest income would be taxable under section 56 of the Act, as rightly held by the assessing officer…..” 19.1 However, in the present case, on verification of the balance sheet of the assessee as on 31.3.2009, it was observed that the fixed deposits made were to maintain liquidity and that there was no surplus funds with the assessee as attributed by the Revenue. However, in regard to the case before the Hon‟ble Supreme Court – “(on page 286) 7 …….. Before the assessing officer, it was argued by the assesse(s) that it had invested the funds on short term basis as the funds were not required immediately for business purposes and consequently, such act of investment constituted a business activity by a prudent businessman; therefore, such interest income was liable to be taxed under section 28 and not under section 56 of the Act and, consequently, the assessee(s) was entitled to deduction under section 80P(2)(a)(i) of the Act. The argument was rejected by 7 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 the assessing officer as also by the Tribunal and the High Court, hence these civil appeals have been filed by the assessee(s). 19.2 From the above, it emerges that (a) that assessee (issue before the Supreme Court) had admitted before the AO that it had invested surplus funds, which were not immediately required for the purpose of its business, in short term deposits; (b) that the surplus funds arose out of the amount retained from marketing the agricultural produce of the members; (c) that assessee carried on two activities, namely, (i) acceptance of deposit and lending by way of deposits to the members; and (ii)marketing the agricultural produce; and (d) that the surplus had arisen emphatically from marketing of agricultural produces. 19.3 In the present case under consideration, the entire funds were utilized for the purposes of business and there were no surplus funds. 19.4 While comparing the state of affairs of the present assessee with that assessee (before the Supreme Court), the following clinching dissimilarities emerge, namely: (1) in the case of assessee, the entire funds were utilized for the purposes of business and that there were no surplus funds:- - in the case of Totgars, it had surplus funds, as admitted before the AO, out of retained amounts on marketing of agricultural produce of its members; (2) in the case of present assessee, it had not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon‟ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co- operative bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was Rs.13,69,955/- [source : Balance Sheet of the assessee available on record]. 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by the Hon‟ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (supra) 8 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 cannot in any way come to the rescue of either the Ld. CIT (A) or the Revenue. In view of the above facts, we are of the firm view that the learned CIT (A) was not justified in coming to a conclusion that the sum of Rs.9,40,639/- was to be taxed u/s 56 of the Act. It is ordered accordingly.” 5. Respectfully following the above decision of the Co-ordinate Bench, we hereby hold that the benefit of deduction u/s 80P(2)(a)(i) was rightly granted by ld. CIT(A), however, he has wrongly held that the interest income is taxable u/s 56 of the Act so do not fall under the category of exempted income u/s 80P of the Act. The adverse portion of the view, which is against the assessee, of ld. CIT(A) is hereby reversed following the decision of the Tribunal cited supra, resultantly ground is allowed. 8. We find that the ratio of above case also applies to the present case. As observed in the above case law, in this case also the submissions of the assessee‟s counsel is that the assessee society is maintaining operational funds and to meet any eventuality towards repayment of deposit the cooperative society is maintaining some liquidated funds as short term deposits with banks. Hence adhering to the doctrine stair desises, we hold that the assessee should be granted benefit of deduction under section 80P(2)(a)(i). Accordingly, the interest on deposits would qualify for deduction under the said section. Accordingly, we set aside the order of authorities below and decide the issue in favour of assessee. “ 4. We further find that batch of similar appeals decided by the ITAT in favour of the assessee has also been considered by the Jurisdictional High Court. The Hon‟ble Jurisdictional High Court has duly affirmed of this Tribunal. Accordingly, in the background aforesaid discussion, we do not find infirmity in the order of Ld. CIT(A).” 11. In the background of aforesaid discussion and decisions, we find that CIT (A) has erred in upholding the assessment order. The Appellant Co-operative society is entitled for deduction u/s 80P as claimed in the return.” 6. Consistent with the view taken as aforesaid, we, therefore, respectfully following the decision of the Co–ordinate Bench in The Ismailia Urban Co– operative Society v/s ITO, ITA no.122/Nag./2023, order dated 18/06/2024, set aside the impugned order passed by the learned CIT(A) and hold that the assessee is eligible to claim deduction under section 80P(2)(a)(i) of the Act. Thus, grounds no.1 to 8, are allowed. 7. Grounds no.9 to 11, are being general in nature hence no separate adjudication is required. 9 The Green City Nagri Sahakari Pat Sanstha Maryadit ITA no.124/Nag./2024 8. In the result, appeal filed by the assessee is allowed. Order pronounced in the open Court on 22/10/2024 Sd/- K.M. ROY ACCOUNTANT MEMBER Sd/- V. DURGA RAO JUDICIAL MEMBER NAGPUR, DATED: 22/10/2024 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Nagpur; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Sr. Private Secretary ITAT, Nagpur "