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2015 (12) TMI 94 - ITAT BANGALORE

2015 (12) TMI 94 - ITAT BANGALORE - TMI - Disallowance of deduction claimed u/s 80P(2)(a)(i) - Held that:- As decided in CIT Vs Grain Merchants Co-operative Bank Ltd., [2003 (10) TMI 21 - KARNATAKA High Court] and Tumkur Merchants Souharda Credit Co-operative Ltd., Vs ITO (2015 (2) TMI 995 - KARNATAKA HIGH COURT ) and we hold that the learned CIT(A) was not correct in denying the assessee’s claim of deduction u/s 80P(2)(a)(i) and hold the assessee is entitled to deduction under section 80P(2)(a) .....

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directed against the order of CIT(A), Mysore dated 03-02-2015 for the assessment year 2009-10. 2. The assessee is primarily an agricultural co-operative society in the business of providing credit facilities to its members. It is also engaged in the purchase of seeds, fertilizers etc., intended for agriculture for the purposes of supplying the same to its members. For the assessment year 2009-10, the net profit earned by the society from all the activities amounting to ₹ 14,34,451/- and th .....

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was claimed as exempt u/s 80P which was denied by the Court. However, in the case of assessee, the assessee is primarily agricultural credit society mainly in the business of providing credit to its members and not that of marketing of agricultural produce of its members. In the case of Totgar s, they denied the deductions mainly on the ground that it was not carrying on the business of banking or on providing credit facilities to its members and investment only out of surplus funds invested in .....

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course of business. The AO disallowed the deduction claimed u/s 80P(2)(a)(i) of the Act, relying on the decision in the case of M/s Totgar s Co-operative Sale Society Ltd Vs ITO 383 ITR 283(SC). The AO brought to tax amounting to ₹ 12,78,331/- under the head Other Sources . 3. Regarding the allowability of expenses u/s 57 of the IT Act, the AO observed that the assessee had interest free funds to the tune of ₹ 1,68,88,897/- which is free of cost and hence, no deduction is allowable. .....

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. Aggrieved, the assessee preferred an appeal before the ITAT raising the following grounds; 1. The ld.CIT(A) is not justified in holding that the income earned by the assessee on fixed deposits requires to be assessed under the head Other Sources and not as part of the business of providing credit facilities and thereby holding that the assessee is not entitled to deduction u/s 80P(2)(a)(I) of the Act as claimed by the assessee in the return of income under the facts and in the circumstances of .....

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n u/s 80P(2)(a)(i) of the Act, at ₹ 2,01,829/- being the income arrived at by the ld.AO after deducting the loss worked out from the business of providing credit facilities from the income derived by the assessee from the business of trading in agricultural implements, which computation made is opposed to law and facts of the assessee s case in as much as the assessee was entitled to claim deduction in respect of the entire profits from the business of trading in agricultural implements wi .....

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e and the levy deserves to be cancelled . The assessee has also challenged the levy of interest u/s 234A, 234B & 234C of the IT Act, 1961. 6. The learned DR supported the orders of the authorities below by relying on the decision of the Hon ble Supreme Court in the case of M/s Totgar s Co-operative Sale Society Ltd Vs ITO 383 ITR 283(SC)(Supra). 7. The learned AR on the other hand, produced copy of the decision of the Co-ordinate Bench of the Bangalore Bench Tribunal. The relevant portion of .....

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rs was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit / security. Such an amount which was retained by the assessee - Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable - either to the activity mentioned in section 80P(2)(a)(i) of the Act or under section 80P(2)(a){!ii) of the Act. .....

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bility 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. Therefore they had deposited the money in a bank so as to earn interest.,. the said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of section 80P(J) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the .....

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f the Hon ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Society Ltd.(Supra), we hold that the learned CIT(A) was not correct in denying the assessee the deduction claimed under section 80P(2)(a)(i) of the Act in respect of ₹ 26.16,800/- earned by the assessee. The judgment of the Hon ble Apex Court in the case of Totgar s Co-operative Sale Society Ltd (Supra) relied upon by the learned CIT(A) has been considered and distinguished by the Hon ble Hi .....

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o-operative Society Ltd (Supra), we hold that the assessee is entitled to deduction under section 80P(2)(a)(i) of the Act, in respect of interest income earned on fixed deposits, as well as that the said interest income forms art of the business income earned by the assessee and the same is not to be taxed under the head Other Sources . In view of the matter, the deduction claimed by the assessee under section 80P(2)(a)(i) of the Act in respect of interest of ₹ 26,16,800/- earned from inve .....

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