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Amalsad Vibhag Vividh Karyakari Sahkari Mandli Ltd. Versus Income-tax Officer, Wd-1, Navsari

2015 (10) TMI 2172 - ITAT AHMEDABAD

Claim of deduction u/s 80P - interest earned on the deposits kept with bank - Held that:- Assessee’s case is squarely covered by the decision of the Coordinate Benches in assessee’s own case for AYs. 2006-07 and 2007-08 and further the decision of Hon’ble Supreme Court in the case of Totgars Co-op Sale Society Ltd (2010 (2) TMI 3 - SUPREME COURT) will not apply on the assessee due to different facts.

The Revenue has not been able to bring any material on record to prove that assessee .....

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Yadav, JM, & Manish Borad, AM. For The Appellant : Shri Tushar Hemani, AR For The Respondent : Smt. Smiti Samant, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of the assessee is arising out of the order of CIT(A)-Valsad dated 14.5.2015. Assessment was framed by ITO, Ward-1, Navsari u/s 143(3) of the Income-tax Act, 1961(herein after referred to as the Act) on 31.12.2013. Assessee has raised the following grounds in this appeal:- 1. The ld. CIT(A) has erred both in law and on .....

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carrying out the said activities qualifies for claim of deduction u/s 80P of the Act. 3. Alternatively and without prejudice to the above, both the lower authorities ought to have allowed expenditure incurred for earning such income and ought to have taxed only the net income instead of gross receipt as has been done. 4. The ld. CIT(A) has erred both in law and on the facts of the case in not granting standard deduction u/s 80P(2)(c) of the Act. 5. Both the lower authorities have passed the orde .....

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ing interest u/s 234B/D of the Act. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 2. Briefly stated the facts of the case as culled out from the records are that the assessee is multipurpose co-operative society engaged in the purchase of agricultural implements, seeds, fertilizers, pesticides, livestock and other articles intended for agriculture for the purpose of supplying .....

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rest income to the tune of ₹ 1,81,791/- and claimed deduction u/s 80P(2)(d) of the Act, on this interest income which was earned out of the investments made with Private banks. However, as per observation of the AO only an income by way of interest or dividend derived by the co-operative society from its investments on any other co-operative society can be claimed as deduction under section 80P(2)(d) of the Act which was not the case of the assessee wherein interest was earned on investmen .....

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sidered the facts of the case as well as the law stated by the assessing officer in the assessment order along with the written submissions made by the AR of the appellant. It is noteworthy to mention here that a similar issue also came up for adjudication before my predecessor in appellant s own case for AY 2009-10 in appeal No.CIT(A)/VLS/167/11-12 which was decided on 31.3.2010. The relevant portion of the decision taken by my predecessor on the similar issue involved in this case is given bel .....

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ed is that the appellant had earned from various sources including interest income from other than Co-operative bank. According to the AO such interest income is not exempted u/s 80P(2)(d) of the Act. On the other hand the ld. AR made exhaustive submission as narrated in para 4.2 of this order. I have carefully considered the submission of the ld. AR along with the case laws relied upon by him. Section 80P(2)(d) of the Act stipulates that the whole of the interest or dividends derived by a co-op .....

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in view the above as well as the principle of consistency I also follow the decision of my predecessor on the issue. The addition made by the assessing officer of ₹ 66,750/- is upheld. Therefore the ground of appeal of the appellant is dismissed. Aggrieved, assessee is now in appeal before the Tribunal. The ld. AR of the assessee appraised the Bench that similar issues in assessee s case for AY 2006-07 and 2007-08 have been decided in favour of assessee by the co-ordinate Bench vide order .....

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on 80P(2) of the Act. The case was selected for scrutiny and thereafter the assessment was framed under Sec. 143(3) vide order dated 8-12-2008 and the total income was determined at ₹ 65,110/-. Aggrieved by the order of A.O., the matter was carried before CIT (A) who by order dated 25-02-2011 granted partial relief to the assessee by holding as under. 4. In this ground the appellant contested against the addition of ₹ 58,315/- towards interest on F.D. with schedule banks. The A.O. ob .....

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charges on clearance of outstation cheques, iii) maximum utilization of funds on immediate credit of outstation cheques, iv) immediate transfer of surplus funds to FDR, v) immediate encashment of FDRs as and when needed. Therefore, he Ld. AR. pleaded that the a/c with the ICICI bank was with a motive of maximum utilization of working capital/surplus funds so as to ultimately improve credit worthiness of the appellant and was incidental to the objective of providing credit facility to its member .....

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decisions of SC is very clear. Therefore, the interest earned from the FDRs in ICICI bank is outside the scope of deduction u/s. 80P(2)(d) and not available to the appellant. But in the interest of justice the appellant to furnish before the A.O. the bifurcation of interest income from FDRs and saving a/c and the A.O. is directed to limit the disallowance of the FDRs interest. Thus, this ground is partly allowed. 5. Aggrieved by the order of Ld. CIT (A) assessee is now in appeal before us and h .....

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deduction u/s. 80P(2)(a)(i) of the Act. 3. Alternatively and without prejudice, both the lower authorities ought to have allowed expenditure incurred for earning such interest income and ought to have taxed only the net interest income instead of gross interest receipt as has been done. 4. Alternatively and without prejudice to above, deduction may kindly be granted u/s. 80P(2) (c) of the Act. 5. Both the lower authorities have erred in law and on facts in passing the orders without properly app .....

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e Act. 7. The Ld. CIT (A) has erred in law and on facts of the case in initiating penalty proceedings u/s. 271(1)(c) of the Act. 6. Before us at the outset, Ld. A.R. submitted that though assessee has raised various grounds but the only issue is with respect to deduction under section 80P. Before us, Ld. A.R. reiterated the submissions made before A.O. and Ld. CIT (A) and further submitted that assessee is a multipurpose cooperative society dealing mainly in marketing of agricultural products gr .....

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ation cheques, maximum utilization of funds on immediate credit of outstation cheques, immediate transfer of surplus fund to fixed deposits and immediate encashment of fixed deposits as and when needed. The key intention behind making the investments was optimum utilization of working capital so as to improve creditworthiness of the assessee and thus the same was incidental to the object of providing credit facility to the members. He therefore, submitted that the interest income on investments .....

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e Credit Society ITA No.1491/Ahd/2012. He also placed reliance on the decision of Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd., reported in [2015] 55 Taxman.com 447 (Kar). He also placed on record the copy of the aforesaid decisions. The Ld. A.R. in the alternative submitted that deduction be granted under section 80P(2) (c). Ld. D.R. on the other hand supported the order of A.O. and Ld. CIT (A). 7. We have heard the rival submissions and perused the mat .....

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e case of Tumkur Merchants Souharda Credit Co-operative Ltd. (supra) had decided the issue in favour of the assessee by observing as under: 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers .....

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fit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. 8. We are of the view that the facts of the case are identical to that in the case of Tumkar Merchants Souharda Credit Co-operative Ltd. (supra) which has been decided by Hon ble Karnataka High Court and therefore considering the facts of the present case in the light of the aforesaid decision of Hon b .....

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inate Bench for AYs 2006-07 & 2007-08. 4. On the other hand, the ld. DR relied on the orders of lower authorities and also relied on the judgment of Hon ble Supreme Court in the case of M/s The Totgar s Co-operative Sale Society Ltd. vs. ITO, Karnataka, 322 ITR 283 (SC).. 5. We have heard the rival contentions and gone through the facts and circumstances of the case as well as gone through the judicial pronouncements referred to herein above by ld. AR and ld. DR. As far as submissions made b .....

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s. M/s Jafari Momin Vikas Co-op. Credit Society Ltd. in ITA No.1491/Ahd/2012 along with C.O. No.138/Ahd/2012 for AY 2009-10, wherein Revenue had relied upon the apex court s judgment referred above, but not accepted by the co-ordinate Bench vide order dated 31.10.2012 looking to the facts of the case by giving following observations :- 17. We have carefully considered the submissions of the either party, perused the relevant records and also the case law on which the learned AR had reservation i .....

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y Ltd v. ITO (supra). The issue before the Hon ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act. 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 the interest income arising on the surplus invested in short term deposits and securities wh .....

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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 asses .....

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d 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 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 .....

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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 the 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 mem .....

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e 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 ₹ 13,69,955/- [source: Balance .....

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