THE VENGINISSERY SERVICE CO-OPERATIVE BANK LTD,THRISSUR V. INCOME TAX OFFICER, WARD-2(1), THRISSUR, THRISSUR

ITA 443/COCH/2024

AI Insights

The case involves The Venginissery Service Co-operative Bank Ltd., which appealed against the orders of the National Faceless Assessment Centre and the National Faceless Appeal Centre, which had partly disallowed deductions claimed under section 80P(2)(a)(i) of the Income-tax Act, 1961 on interest and miscellaneous incomes. The primary legal contention was whether these incomes were part of the business activities of the co-operative society, thus qualifying for deductions under the said section. The Tribunal found that the lower authorities had not adequately examined the nature of these incomes in relation to the bank's business of providing credit facilities to its members and remanded the matter back for a detailed examination.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 23470 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Other Referred Cases: Totgars' Co-operative Sale Society Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIPIN K.
• Keywords: Business income
• Section: 143(3); 80P

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN (VIRTUAL HEARING AT BANGALORE) BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI KESHAV DUBEY, JUDICIAL MEMBER ITA Nos.443 & 444/COCH/2024 Assessment years : 2018-19 & 2020-21 The Venginissery Service Co-operative Bank Ltd., No. R 528, Paralam P.O., Thrissur – 680 575. PAN: AADAT 1496R Vs. The Income Tax Officer, Ward 2(1), Thrissur. APPELLANT RESPONDENT Appellant by : Shri Vipin K., CA Respondent by : Shri Sanjit Kumar Das, CIT(DR)(ITAT) Date of hearing : 03.12.2024 Date of Pronouncement : 03.01.2025 O R D E R Per Prashant Maharishi, Vice President 1. ITA No.443/COCH/2024 is filed by The Venginissery Service Co- operative Bank Ltd. (the assessee/appellant) for the assessment year 2018-19 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 27.03.2024 wherein the appeal filed by the assessee against the assessment order passed u/s 143(3) of the Income-tax Act, 1961 (the Act) dated 15.4.2021 by the ITA Nos.443 & 444/COCH/2024 Page 2 of 8 National Faceless Assessment Centre, Delhi (NaFAC) [ld. AO] was partly allowed. 2. The assessee is before us raising the following grounds of appeal wherein it is contended that the interest earned by the co-operative society like assessee from Kerala Bank is eligible for deduction u/s. 80P(2)(a)(i) of the Act and further miscellaneous income is also eligible for deduction under that section :- “ 1. Assessee is in the business of providing credit facilities to its member. During the course of this business, assessee is required to maintain bank account with Kerala Bank and with other banks for ensuring effective disbursement and collection of loan. Any interest earned on these accounts are in connection with the business of providing credit facilities to its members and therefore eligible for deduction under section 80P (2) (a) (i) of the Income-tax Act, 1961. 2. Miscellaneous income are earned during the course of providing credit facilities to its members and hence eligible for deduction under section 80P (2) (a) (i) of the Income-tax Act, 1961. 3. The appellant craves to add, amend, modify, or alter any grounds of appeal at the time or before the hearing of appeal.” 3. The brief facts of the case show that assessee is primary agricultural credit co-operative society registered under the Kerala Co-operative Societies Act, filed its return of income on 31.10.2018 declaring total income at Rs.Nil after claiming deduction u/s. 80P of the Act of Rs.6,54,95,436. The case of assessee was picked up for scrutiny for verification of deduction u/s. 80P of the Act. It was found that assessee has claimed deduction u/s. 80P(2)(a)(i) of the Act on sales, trading ITA Nos.443 & 444/COCH/2024 Page 3 of 8 income, interest income, miscellaneous income and interest income on investment amounting to Rs.20,25,93,075. 4. The ld. AO examined the claim and thereafter held that interest income on investment of Rs.3,26,93,644 earned by the assessee society is to be treated as income from other sources and not the business income and therefore not eligible for deduction u/s 80P of the Act. Similarly, he also held that miscellaneous income of Rs.3,13,58,039 also does not qualify as business income and therefore deduction cannot be granted u/s. 80P(2)(a)(i) of the Act. Thereafter, assessment order was passed u/s. 143(3) of the Act wherein interest income on investment and miscellaneous income of Rs.3.27 crores and Rs.3.13 crores respectively is considered chargeable to tax under income from other sources. Accordingly total gross income of assessee from business was computed at Rs.14,43,752 and income from other sources was computed at Rs.6,40,51,683 resulted into gross assessed income of Rs.6,54,95,436, therefrom deduction u/s 80P(2)(a)(i) of the Act was granted related to business income of co-operative society of Rs.14,43,752 and total income was assessed at Rs.6,40,51,680 by order dated 15.4.2021. 5. Thus, in the assessment order the ld. AO considered the interest income and miscellaneous income as income from other sources and as deduction u/s. 80P(2)(a)(i) of the Act is available on profits & gains of business, resultantly did not allow deduction u/s. 80P(2)(a)(i) of the Act on interest income and miscellaneous income. ITA Nos.443 & 444/COCH/2024 Page 4 of 8 6. The assessee preferred appeal before the ld. CIT(A). The ld. CIT(A) following the decision of Hon’ble Supreme Court in the case of Totgars’ Co-operative Sale Society Ltd. held that interest income earned by assessee is not business income. However, AO was directed to allow deduction u/s. u/s. 80P(2)(d) of the Act on the interest income subject to verification. With respect to miscellaneous income, the ld. CIT(A) held that as assessee failed to demonstrate before the ld. lower authorities by producing relevant information that miscellaneous income is arising out of business of providing credit facilities to its members, it cannot be allowed deduction. Therefore, denial of deduction u/s. 80P(2)(a)(i) of the Act on miscellaneous income was confirmed. 7. The assessee is aggrieved with the order of the ld. CIT(A) and is in appeal before us. 8. We have heard the ld. AR who pressed that assessee should be granted deduction u/s. 80P(2)(a)(i) of the Act with respect to interest income and miscellaneous income as both are attributable to the business of credit to the members and therefore deduction u/s. 80P(2)(a)(i) of the Act should be allowed on both incomes. 9. The ld. DR vehemently supported the order of ld. lower authorities and submitted that with respect to the interest income on investment, same was denied by the ld. CIT(A) u/s. 80P(2)(a)(i) of the Act but has allowed the claim of assessee u/s. u/s. 80P(2)(d) of the Act after verification. Therefore, there is no grievance. With respect to miscellaneous income, it was submitted that assessee has failed to substantiate before the ld. AO ITA Nos.443 & 444/COCH/2024 Page 5 of 8 that miscellaneous income is part of the income from business of the assessee. Thus, there is no infirmity in the order of the ld. CIT(A). 10. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The facts itself show that assessee is a primary agricultural credit society and registered under the Kerala Co- operative Societies Act. The assessee has earned interest income from its investment of Rs.3.24 crores and miscellaneous income of Rs.3.14 crores. On both these incomes, assessee has claimed deduction u/s. 80P(2)(a)(i) of the Act. 11. In the case of a co-operative society engaged in the business of providing credit facilities to its members, it is entitled to deduction of the whole of the profits & gains of the business attributable to the activity of providing credit facilities. Therefore, each income is required to be tested whether it is attributable to the activities of providing credit facilities to its members. If any income found to be attributable to the provision of credit facilities to its members, then only the deduction can be claimed u/s. 80P(2)(a)(i) of the Act. It is the claim of assessee that interest income earned from other bank is part of business activity of assessee and therefore it is attributable to such business hence deductible u/s. 80P(2)(a)(i) of the Act. With respect to miscellaneous income, assessee has contested before the ld. CIT(A) that this income is income received from the members on the credit facilities extended to them and therefore it is attributable to the business of providing credit facilities to its members. The ld. CIT(A) in the absence of any details furnished by ITA Nos.443 & 444/COCH/2024 Page 6 of 8 the assessee, denied deduction u/s. 80P(2)(a)(i) of the Act on miscellaneous income. Even on interest income though the ld. CIT(A) rejected the claim of assessee of deduction u/s. 80P(2)(a)(i) of the Act, but in fact directed the ld. AO to allow the claim of assessee after verification u/s. u/s. 80P(2)(d) of the Act. It would be pertinent to note that if the income of assessee is from interest income, but is attributable to the activity of providing credit facilities, then assessee is also eligible for deduction u/s. 80P(2)(a)(i) of the Act. However, necessary details were not produced before the ld. lower authorities by assessee, we restore the whole issue back to the file of the ld. AO, with a direction to the assessee to substantiate and prove that interest income earned by assessee and miscellaneous income earned is attributable to the profits & gains of business of the activities of providing credit facilities to its members by the assessee co-operative society and therefore it is eligible for deduction u/s. 80P(2)(a)(i) of the Act. The ld. AO may verify the same and give a clear finding whether the above income is eligible for deduction u/s. 80P(2)(a)(i) of the Act or not, after giving proper opportunity of hearing to the assessee. If he concludes that interest income is eligible for deduction u/s. 80P(2)(a)(i) of the Act, consequently direction of the ld. CIT(A) for granting deduction u/s. u/s. 80P(2)(d) of the Act may be ignored to avoid double deduction. However, with respect to miscellaneous income, if such income is found to be attributable to business activity of credit facilities, then deduction u/s. 80P(2)(a)(i) of the Act would be allowable. ITA Nos.443 & 444/COCH/2024 Page 7 of 8 12. In view of the above facts, appeal of the assessee with respect to ground nos. 1 & 2 of the appeal are allowed with the above directions. 13. Thus, ITA No.443/COCH/2024 is allowed for statistical purposes. 14. ITA No.444/COCH/2024 involves identical facts wherein assessee has claimed deduction u/s. 80P(2)(a)(i) of the Act on miscellaneous income of Rs.1,49,64,248 and interest income of Rs.3,15,66,895. Out of interest income, interest from Kerala State Rubber Manufacturing Federation and Kerala State Co-operative Consumer’s Federation was allowed as deduction by the ld. AO, therefore on the balance interest income of Rs.2,65,83,817 deduction was directed to be allowed u/s. u/s. 80P(2)(d) of the Act but not u/s. 80P(2)(a)(i) of the Act. Consequent assessment order was passed on 26.9.2022 wherein deduction u/s. 80P of the Act was not allowed on miscellaneous income of Rs.1,49,64,248 and interest income of Rs.2,65,83,817. 15. Before the ld. CIT(A), assessee was allowed deduction u/s. u/s. 80P(2)(d) of the Act on interest income and further deduction u/s. u/s. 80P(2)(a)(i) of the Act was disallowed on miscellaneous income of Rs.1,49,64,248. Therefore, both these appeals are identical to the appeal of assessee for AY 2018-19 and the arguments of the parties was also the same. 16. On hearing the partis, as decided in ITA No.443/Coch/2024 for AY 2018-19, we direct the assessee to furnish information and the ld. AO similarly to examine whether the interest income and miscellaneous ITA Nos.443 & 444/COCH/2024 Page 8 of 8 income is attributable to the business of co-operative society or not and then to allow, the claim of assessee in accordance with law. 17. Thus, for AY 2020-21, the appeal is allowed as above. 18. In the result, both the appeals by the assessee are allowed for statistical purposes. Pronounced in the open court on this 03rd day of January, 2025. Sd/- Sd/- ( KESHAV DUBEY ) ( PRASHANT MAHARISHI ) JUDICIAL MEMBER VICE PRESIDENT Bangalore, Dated, the 03rd January, 2025. /Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. Pr. CIT 4. CIT(A) 5. DR, ITAT By order Assistant Registrar ITAT, Cochin. "