THE THASRA NAGRIK CO OP CREDIT SOCIETY LIMITED,THASRA V. THE INCOME TAX OFFICER WARD-3 NADIAD, NADIAD

ITA 1538/AHD/2024

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The case involves The Thasra Nagrik Co Op Credit Society Ltd., a cooperative credit society, appealing against the Income Tax Officer's decision which disallowed a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961, for interest income earned from fixed deposits. The Assessing Officer classified this income under 'Income from other sources' rather than 'Business or profession', leading to the disallowance. The CIT(A) upheld this decision, prompting the society to appeal to the Income Tax Appellate Tribunal. The Tribunal found procedural lapses in the CIT(A)'s handling of the case, particularly the failure to consider the assessee's written submissions and the lack of proper notice to the assessee, leading to the remand of the case for a fresh decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470497 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: PIYUSH PANCHAL
• Keywords: Co-operative Credit Society
• Section: 142(1); 143(2); 56; 13; 80P

Judgement Text

"ITA No.1538/Ahd/2024 (Assessment Years: 2015-16) The Thasra Nagrik Co Op Soc. Ltd. vs. ITO Page 1 of 4 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH, AHMEDABAD BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER ITA No.1538/Ahd/2024 Assessment Years: 2015-16 The Thasra Nagrik Co Op Credit Society Ltd. Above Kishan Bhavan, Tower Road, Thasra Gujarat– 388 250. [PAN – AAAAT 8344 F] Vs. Income Tax Officer, Ward – 3, Income Tax Office, Aayakar Bhavan, Near Gitanjali Cross Road, Pij Road, Nadiad, Gujarat - 387002 (Appellants) (Respondents) Assessee by Shri Piyush Panchal, AR Revenue by Shri Rignesh Das, Sr. DR Date of Hearing 26.02.2025 Date of Pronouncement 06.03.2025 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER: The appeal filed by the Assessee against the order dated 25.06.2024 passed by the CIT(A) ADDL/JCIT(A)-2, Lucknow for the Assessment Years 2015-16. 2. The Assessee has raised the following grounds of appeal :- (1) Classification of income based on its source of investment and not based on nature of income : Where assessee is Co operative society carrying on banking business and its main source of income is Interest. It has made fixed deposit in Nationalized bank (UBI) from fund received from deposits of members, The CIT has grossly erred in fact and in law upholding interest income of Rs. 62,02,321 as not allowable u/s 80P(2)(a)(i) based on AO’s finding as income from other source ITA No.1538/Ahd/2024 (Assessment Years: 2015-16) The Thasra Nagrik Co Op Soc. Ltd. vs. ITO Page 2 of 4 without considering explanation and clarification that such interest income earned advance to members, fixed deposit is invested from borrowed fund, received from members in course of and for the purpose of providing credit facility to its members. The disallowance of deduction of Rs. 62,02,321 is prayed to be deleted. (2) Classification of income on very Purpose of assessee’s existence : The disallowance of interest earned Rs. 62,02,331 u/s 80P(2)(a)(i) from members advanced, Nationalized Bank, on base of ‘income from other source’, by AO, without referring section 56 which specifically exclude all type of interest which are earned during course of business and upheld by CIT(A) NFAC is not justifiable. (3) No specific provision which prescribes Interest income is classified under Income from other source and not from Business or profession : There is no provision which clarify that interest income earned is not classifiable under business and profession and is classifiable under income from other source. Therefore, interest income is from other source. Therefore, interest income is from Income from other source as classified by AO and upheld by CIT(A) NFAC is bad in law and fact and not justifiable. Such classification need to set a side. (4) The assessment made based partial application of Clause of provision of section 80P(2)(a)(i). The clause includes two type of income independently i.e. Banking business or providing credit facility to its members. The officer has considered only income relating to income from credit facility to its members without referring other clause and without mentioning the reason for exclusion of income of banking activity. The CIT(A) while upholding disallowance of interest income as deduction u/s 80P(2)(a)(i) of the act, has erred and not justified (5) Allowance of expense incurred for earning such income : Without prejudice to above grounds, even while passing order AO has erred, by not allowing expense incurred for earning such income in view of section 57(iii) of the Act. (6) Assessee crave the leave for addition, alteration and deletion of any ground of appeal in the interest of justice. ITA No.1538/Ahd/2024 (Assessment Years: 2015-16) The Thasra Nagrik Co Op Soc. Ltd. vs. ITO Page 3 of 4 3. The assessee is a co-operative credit society established under the Gujarat State Co operative Societies Act and engaged in the business of accepting deposits and providing credit facilities to its members. The assessee filed return of income for A.Y. 2015-16 on 22.03.2017 declaring total income of Rs. NIL after claiming deduction under chapter VI-A amounting to Rs. 8,68,325/-. The case was selected for Limited Scrutiny on the issue of “whether tax aspects related to investments/advances/loans have been considered in the return of income and whether deduction claimed on account of interest expenses is admissible”. Notice u/s 143(2) of the Income Tax Act, 1961 was issued on 18.09.2017 which was duly served upon the assessee. Subsequently notice u/s 142(1) of the Act along with detailed questionnaire was issued to the assessee on 04.10.2017. The assessee attended the proceedings and filed reply dated 07.11.2017 and 12.12.2017 The Assessing Officer observed that the assessee has earned interest income of Rs. 62,02,321/- on investment made in FDRs of Rs. 3,80,43,006 with Union Bank of India/Bank of India/KDCC bank which is in addition to advancing loans to its members and the same falls under the head ‘Income from other sources’. The Assessing Officer further observed that KDCC Bank is not a co-operative society hence investment made with this bank and interest earned thereon is not allowed as deduction u/s 80P of the Act. Therefore, the Assessing Officer made disallowance u/s 80P(2)(d) of the Act amounting to Rs. 62,02,321/-. 4. Being aggrieved by the Assessment Order, the assessee filed appeal before the CIT(A). The CIT(A) dismssed the appeal of the assessee. 5. The Ld. AR submitted that the CIT(A) passed the ex-parte order without considering the written submissions filed by the assessee which are reproduced from pages 8 to 13 of the order of the CIT(A). The Ld. AR submits that the CIT(A) proceedings are FACELESS and due to the tax consultant’s demise, the assessee could not respond each and every notices but has managed to file the written submissions. The Ld. AR submitted that since the order is ex-parte without going into the merits of the assessee’s submission, the matter may be remanded back to the file of the CIT(A) for proper adjudication of the issues on merits after giving opportunity of hearing to the assessee. ITA No.1538/Ahd/2024 (Assessment Years: 2015-16) The Thasra Nagrik Co Op Soc. Ltd. vs. ITO Page 4 of 4 6. The Ld. DR submitted that despite giving several opportunity to the assessee the assessee did not respond to the notices of the CIT(A). Hence, the Ld. DR relied upon the Assessment Order and the order of the CIT(A). 7. We have heard both the parties and perused all the relevant material available on record. From the perusal of the records, it can be seen that the CIT(A) despite mentioning the issuance of notice whether the same was properly served to the assessee online or any other mode has not mentioned in the order. The written submissions of the assessee are reproduced by the CIT(A) in the order but was not at all considered. Hence, the matter is remanded back to the file of the CIT(A) for proper adjudication of the issues contested by the assessee before the CIT(A) and decide the same after giving proper opportunity of hearing to the assessee as per principles of natural justice. 8. In the result, appeal filed by the Assessee is partly allowed for statistical purpose. Order pronounced in the open Court on this 6th March, 2025. Sd/- Sd/- (NARENDRA PRASAD SINHA) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 6th March, 2025 PBN/* Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad "