THRIUVANNATHAPURAM JILLA DEPOSIT COLLECTION AGENTS CO-OP SOCIETY,TRIVANDRUM V. THE ITO WARD 2(1), TRIVANDRUM

ITA 417/COCH/2023

AI Insights

The case involves the Thiruvannathapuram Jilla Deposit Collection Agents Cooperative Society appealing against the order of the Commissioner of Income-tax (Appeals) which upheld the Assessing Officer's disallowances and additions under various sections of the Income-tax Act, 1961. The main issues revolved around the disallowance of expenses under section 40(a)(ia), additions for unexplained cash credits and investments under sections 68 and 69 respectively, and the rejection of deduction under section 80P. The Tribunal found that the CIT(A)/NFAC had correctly applied the law in most respects but directed a re-examination of the additions under sections 68 and 69 due to procedural lapses during the COVID-19 pandemic.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 471660 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Appeal Filed On: 26-05-2023
• Other Referred Cases: The Mavilayi Service Co-operative Bank Ltd v. CIT, Calicut, Tuticorin Alkali Chemicals v. CIT, CIT v. Vaikundam Rubber Co. Ltd, CIT v. Cochin Shipyard Ltd, Totgars Co-operative Sales Society vs. ITO, PCIT & Anr. v. Totagars Co-operative Sales Society, PCIT v. Peroorkada Service Co-op. Bank Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIT KUMAR
• Keywords: Business income; Corroborative evidences; Unexplained cash credit; Unexplained investment; Principle of natural justice
• Section: 68; 69; 80P; 40(a)(ia)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN Before Shri Satbeer Singh Godara, Judicial Member & Shri Amarjit Singh, Accountant Member ITA No.417/Coch/2023 Asst.Year 2017-18 Thiruvannathapuram Jilla Deposit Collection Agents Cooperative Society, Central Theater Road, Attara Building, Pazhavangadi, Thiruvananthapuram-695036 Kerala PAN : AAFAT0403J v. ITO, Ward-2(1), Trivendrum (Appellant) (Respondent) Appellant by : None Respondent by : Shri Sanjit Kumar Date of Hearing : 13.08.2024 Date of Pronouncement : 05.11. 2024 O R D E R Per Bench : This assessee’s appeal in ITA No.417/Coch/2023 for assessment year 2017-18 arises out of the order of the Commissioner of Income-tax (Appeals) / NFAC vide DIN & Order No.ITBA/NFAC/S/250/2022-23/1051459380(1) dated 28.03.2023, in proceedings u/s.250 of the Income-tax Act, 1961; in short “the Act” hereinafter. Case called twice. None appears at assessee’s behest. It is accordingly proceed exparte. ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 2 2. We note with the able assistance coming from the departmental side that the CIT(A)/NFAC has confirmed the AO’s findings inter alia invoking section 40(a)(ia) disallowance, unexplained cash credits addition u/s.68 of Rs.2,87,14,321/-, section 69 unexplained investment addition of Rs.12,73,96,293/- and rejected section 80P deduction claim, vide following detailed discussion : “5.2 In Ground No.1, the appellant contested the disallowance of expenses u/s 40(a)(ia) of the Act. The AO disallowed the same as no details were filed during the assessment proceedings. In the submission dated 13.03.2020, the appellant has provided break up under the Heads Advertisement Charges, Agent Commission, Audit Fees, Rent, Salary, and prayed for dropping the disallowances. As no supporting evidence was provided during the assessment proceedings, the appellant was directed to prove its contentions with proper documentary evidence, which it failed to do in spite of affording repeated opportunities. In view of above I am unable to accept the contention of the appellant and the Ground is dismissed. 5.3 In Ground 2 the appellant challenged the addition of Rs 2,87,14,321/- u/s.68 of the Act. It was stated that the amount was received from the members only, and since the departmental audit was under way the assessee could not get the registers and documents from the Office of the Registrar of co operative Societies for gathering the required information for filing the reply and production of details. It was contended that the AO had passed the Order before the Assessee could file the reply with available evidences and he failed to consider facts and there is no consideration of assessee's situation in the interest of Natural justice and equity. 5.3.2 In the submission dated 13.03.2020 also the appellant claimed that opportunity given for explaining the point was not sufficient, without bothering to comply. The systemic non- compliance continued till date, and the appellant failed to furnish ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 3 any plausible explanation in the matter. The AO also noted in the assessment order that although the assessee was required to provide details of depositors, including their name, Permanent Account Number, address and amount of deposits, no particulars in this respect were provided for verification. 5.3.3 In view of above discussion I find no reason to interfere with the order of the AO and confirm the addition made u/s.68 of the Act. Ground No 2 is thus dismissed. 5.4 In Ground 3 the appellant challenged the addition of Rs.12,73,96,293/- u/s.69 of the Act as unexplained investment. The appellant took the same plea of the departmental audit and contended that the AO had passed the Order before the Assessee could file the reply with available evidences and he failed to consider facts and there is no consideration of assessee's situation in the interest of Natural justice and equity. 5.4.2 In the submission dated 13.03.2020 also the appellant claimed that opportunity given for explaining the point was not sufficient, without bothering to comply. The systemic non- compliance continued till date, and the appellant failed to furnish any plausible explanation in the matter. The AO also noted in the assessment order that explanation to the cash deposits during demonetisation period was called for from the assessee but no details regarding the depositors or the amount of deposit were provided, thereby concealing the particulars of source such deposit. In the absence of any proof regarding the source, it was decided to treat the entire amount of Rs.12,73,96,293/-as unexplained investment u/s.69 with bank account.. 5.4.3 In view of above discussion and non-receipt of satisfactory clarification from the appellant I find no reason to interfere with the order of the AO and confirm the addition made u/s.69 of the Act. Ground No 3 is thus dismissed. 5.5 In Ground no 4 the appellant contested disallowance made u/s.80P(2)(d) of the Act. It has been mentioned that the AO has erred in deciding that the assessee is not eligible for Section 60P(2)(d), which deals with deduction w.r.t the interest received and accrued from Co Operative Banks. A co operative society would be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income derived from its investments held with a co operative bank 5.5.2 The Hon'ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd v. CIT, Calicut in Civil Appeal No(s) ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 4 7343 to 7350 of 2019 has clearly held that income of a co- operative society from its members, irrespective of its dominant activities, is eligible to get deduction u/s 80P(2)(a)(i) but income from loans given to non-members are not qualified for any deduction. Coming to the central point of the issue I find that interest income was derived from investments made with Thiruvananthapuram District Co-operative Bank Ltd., Kerala State Co-operative Bank Ltd, State Bank of India, Treasury etc. Thus, such interest income from non-members are not qualified for deduction u/s. 80P(2)(a)(i) as per the decision of the Hon'ble Supreme Court dated 12.01.2021 in the case of The Mavilayi Service Co-operative Bank Ltd (supra). 5.5.3 The next issue is whether the AO was correct in deciding that the interest income is assessable u/s.56 as income from other sources or it should be treated as business income assessable u/s.28 as contended by the appellant. The undisputed fact is that the very origin of income is from investment of surplus or idle fund which are not immediately required to provide loan to the members of the appellant co- operative society and investments have been made by non-members to earn interest income. Thus, the interest income has neither direct or immediate nexus with the predominant activity of the appellant i.e. providing credit facility to its members nor related, in any way, to its proclaimed objectives for which the society was formed. There is no dispute that the appellant has absolute right to keep the surplus funds in short-term deposits in order to earn interest but the nature, source and circumstances under which the income is earned are miles away from the business of the assessee i.e. to provide credit facilities to its members to earn interest income. Under no stretch of imagination, the interest income of the appellant from bank deposits can be brought under the head 'business conducted by the appellant to be assessed u/s 28. The matter has been decided by the Hon'ble Supreme Court long before in the case of Tuticorin Alkali Chemicals v. CIT [1997] 93 Taxman 502 wherein it is held that keeping the surplus fund in short-term deposits in order to earn interest income, such interests will be chargeable under section 56. The Jurisdictional High Court of Kerala has held the same decision in the case of CIT v. Vaikundam Rubber Co. Ltd 241 ITR 50 and CIT v. Cochin Shipyard Ltd 108 Taxman 112. In the case of Totgars Co- operative Sales Society reported in 322 ITR 283 (SC) the case before the Supreme Court was in respect of a Co-operative Credit Society, which was also marketing the agricultural produce of its members. It was held by the Hon'ble Court that the assessee being a cooperative society is engaged in providing credit facilities to its members or marketing agricultural produce of its members, ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 5 interest earned by it by investing surplus funds that not required immediately for business purpose of providing credit facilities to its members and interest earned from such deposits would come under the category of income from other sources taxable u/s.56 of the Act and the same would not qualify for deduction u/s.80P(2)(a)(i) of the Act. The AO has rightly relied on this judgment while arriving at the decision that interest income was assessable as income from other sources. 5.5.4 Perusal of the above case laws and facts of the instant case lead me to conclude that it cannot be inferred that the interest income earned on deposit of surplus fund kept with different financial institutions would qualify as \"income from business or profession\". The appellant is admittedly not engaged in any business of depositing money with banks and other financial institutions for interest earning activity. The dominant/sole object of the appellant is promotion of economic upliftment of its members by providing credit facilities. The appellant has not brought forth any argument or material to show that its investments of surplus fund to earn interest income is, in any way, related to its objectives set forth in laws and bye-laws of the society which may qualify such interest income as business income. The earning of interest on surplus funds not incidental to its dominant objective ie. to provide credit facilities to members, itself cannot qualify as a business income. Therefore, in my considered view, interest income earned from surplus funds has been rightly considered by the AO as income from Other sources. 5.5.5 Now, the question arises as to the decision of the AO in denying benefit u/s.80P on account of such interest income. It is already held that the interest income derived from non-members is assessable u/s.56 as income from other sources and therefore, not eligible for benefit u/s.80P(2)(a)(i). But the income may be qualified for deduction in another section viz section 80P(2)(d) which read as under- (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; 5.5.5.2 From simple reading of the provision, it can be understood that 'any type of interest income from investment in any other co-operative society' will qualify for deduction. The benefit conferred by Clause (d) upon all types of Co- operative Societies is restricted only to the investments made in other Co- operative Societies. Moreover, the benefits under Clause (d) is available in general to all Co- operative Societies, including ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 6 Societies engaged in the activities listed in Clause (a). Unlike other clauses (a), (b) & (c) of sub-section (2), clause (d) has not put any restriction by differentiating any particular category of co-operative society or any particular nature of their activity. In Para 35 of the order of The Mavilayi Service Co- operative Bank Ltd (supra) also the matter has been mentioned. 5.5.5.3 Therefore, I am inclined to hold that the appellant is entitled to get deduction u/s.80P(2)(d) for being a co-operative society for the simple reason that section 80P(2)(d) specifically exempts interest earned from funds invested in other co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, it is entitled to deduction of the whole of such income u/s 80P(2)(d) of the Act. However, interest earned from investments made in any bank or any other financial institutions, not being a co-operative society, is not deductible u/s.80P(2)(d). There are divergent opinions on this issue and the dispute is whether Co-operative Societies and Co- operative banks can be placed at par. There are decisions to hold that Co-operative Banks are primarily and necessarily Co- operative Societies and if they don't have a RBI banking licence, interest income from such co-operative banks is eligible for deduction u/s.80P(2)(d). This opinion has now affirmed by the Hon'ble Supreme Court in its recent judgment dated 12.01.2021 in the case of The Mavilayi Service Co-operative Bank Ltd & Ors. v. CIT in Civil Appeal no. 7343 to 7350 of 2019 reported in 123 taxmann.com 161 (supra). It is held that- \"Section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co- operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI.\" Para 45 Thus, the Hon'ble Apex Court has placed the co-operative societies having a banking license at par with other commercial banks within single bracket while other co-operative societies those do not have a banking license in another bracket. 5.5.6 Now, the question is confined to single point as to whether the appellant has derived its interest income from the parties falling in the first bracket or in the second bracket or both. If the interest income has been earned from any co-operative society having a banking license or from any commercial banks or from any entities other than a co-operative society, such interest income shall not be eligible for deduction u/s 80P(2)(d). Otherwise, appellant is eligible to the benefit of deduction u/s.80P(2)(d) in ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 7 respect of interest income derived only from a co-operative society having no banking license irrespective of its predominant activities of providing credit facilities or banking whatsoever. 5.5.7 However, it is very difficult at this stage to quantify allowable or disallowable amount of interest as the details of the interest payer entities in the light of The Mavilayi Service Co- operative Bank Ltd (supra) are not available before me. The AO has recorded a finding that the assessee had invested its idle funds in with Thiruvananthapuram District Co-operative Bank Ltd., Kerala State Co-operative Bank Ltd, State Bank of India, Treasury etc. Therefore, the AO is directed to examine the interest income in the light of above discussion and allow deduction u/s.80P(2)(d) accordingly. The appellant is also requested to provide necessary co- operation to the AO. While doing so, the AO must keep in mind the directive of the Hon'ble Supreme court in the order dated 12.01.2021 in the case of The Mavilayi Service Co- operative Bank Ltd (supra) that- \"Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee.\" The AO is further directed that, if the said interest income or part thereof is found not eligible for deduction u/s.80P(2)(d) and chargeable to tax u/s.56 of the Act, he has to allow relatable expenses as per provision u/s.57. I order accordingly. Ground No 4 is thus allowed subject to verification by the AO as per the above discussion. 5.5.8 Substantive issues thus being decided on merit, Ground No 5, 6 and 7 become academic in nature and are not adjudicated separately.” 3. It is in this factual backdrop that we first of all deem it appropriate to deal with the assessee’s section 80P deduction wherein it has been held that both the learned lower authorities that the corresponding interest income derived from deposits made in cooperative banks could not be held as ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 8 regular business income in light of Totagars Co-operative Sales Society Ltd. Vs. ITO (2010) 322 ITR 283 (SC) and hon’ble jurisdictional High Court in the case of PCIT & Anr. v. Totagars Co-operative Sales Society reported in (2017) 395 ITR 611 (Kar.). 4. Learned departmental representative could hardly dispute that hon’ble jurisdictional high court’s latest decision in PCIT v. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker). 5. That being the case, we quote CBDT’s landmark circular No.37/2016 that the assessee’s section 40(a)(ia) disallowance herein (supra) also deserves to be deleted once it has been clarified that such an item only enhances corresponding regular business income eligible for Chapter VI deduction. 6. We are now left with the correctness of both the learned lower authority’s action making section 68 and 69 additions (supra) which represent the assessee’s cash deposits and investments in cooperative banks. Its stand all along appears ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 9 to have attributed sources thereto to regular business collections from members. 7. The Revenue vehemently submits before us that it was bounden duty of the assessee only to plead and prove all the relevant facts. Ld. DR could hardly dispute in this factual backdrop that the assessment as well as the major addition of the lower appellate proceedings had taken place during Covid- 19 pandemic outbreak period and therefore, the communication gaps at various levels and other mitigating circumstances could not be altogether ruled out. We thus deem it appropriate in this factual backdrop to restore the assessee’s instant twin remaining substantive grounds back to the CIT(A)/NFAC for his afresh appropriate adjudication as per law preferably within three effective opportunities of hearing, subject to a rider that it shall be the taxpayer’s risk and responsibility only to plead and prove all the relevant facts in consequential proceedings. Ordered accordingly. ITA No.417/Coch/2023 Thiruvannathapuram Deposit Collection Agents Coop. Society 10 8. This assessee’s appeal is partly allowed in above terms. Order pronounced in the open court on this 5th day of November, 2024. Sd/- (Amarjit Singh) Sd/- (Satbeer Singh Godara) ACCOUNTANT MEMBER JUDICIAL MEMBER Cochin ; Dated : 5th November, 2024. Satish Copy to : 1. The Appellant. 2. The Respondent. 3. The CIT(A), Concerned. 4. The CIT Concerned. 5. The DR, ITAT, Cochin. 6. Guard File. Asst. Registrar/ITAT, Cochin "