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2016 (6) TMI 1124

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..... :- That the learned CIT(A) has grievously erred in law and on facts, in disallowing the claim of deduction u/s 80P(2)(a)(i) of the Act of ₹ 21,87,277/- for Assessment Year 2007-08, ₹ 22,26,250/- for Assessment Year 2008-09, ₹ 36,54,690/- for Assessment Year 2009-10 ₹ 41,85,500/- for Assessment Year 2011-12 in respect of interest income received from SBI. 4. Brief facts are the assessee is a Co-operative Credit Society of Supervisory Officers of State Bank of India. A survey was carried out u/s 133A of the Act on 02.08.2013 on the premises of the assessee. It was found that interest was earned on SBI FDRs and also received interest income from the loan advanced to members. Assessee was allowed deduction u/s 80P(2)(a)(i), which according to Assessing Officer the assessee was not eligible to assessee. Notice u/s 147 was issued, during the course of reassessment proceedings, the Assessing Officer observed that the assessee was not entitled to deduction u/s 80P(2)(a)(i) of the Act on ₹ 21,87,277/- (AY 2007-08) received as interest on FDs with SBI as the conditions laid down in the said section were not satisfied. Further, the FD amounts were eq .....

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..... not a member of the appellant society. Further, providing loans and advances to banks and earning interest on the same is not part of business activity of the appellant. Further, in respect of contention of the appellant that operational funds have been kept as FDs with bank is not borne by facts. During the year under consideration, the appellant had reserve funds to the tune of ₹ 3.06 crores. The FDs with the bank were for ₹ 3.15 crores which is roughly equal to the reserve fund This clearly shows that the FDs were not from operational funds but were from the surplus funds available with the appellant. Thus what has been invested is society's own funds and therefore the income by way of interest arising on deposits is a source of income apart from business activity of the appellant. As said above also, earning interest from bank deposits is not a business activity of the appellant. The hon'ble Apex Court has dealt with this issue in Totgars Co-operative Sale Society Ltd. vs. ITO 322 1TR 283 (SC) and held that interest earned on surplus funds not required for business immediately and invested in short term deposits is required to be taxed as Income from Other .....

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..... st, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. [Para 8] 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. 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(1) of the Act. (Para 10] In that view of the matter, the order passed by the .....

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..... ess for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd., on which reliance is placed, the Supreme Court was dealing with a case where the assessee-Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members 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 activ .....

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..... he deduction u/s 80P(2)(a)(i) is clearly allowable. 5.3 Ld. Counsel for the assessee further relied on the decision of this Tribunal in the case of Amalsad Vibhag Vividh Karyakari Sahkari Khedut Mandali Ltd vs. ITO in ITA Nos 1710 1711/Ahd/2011, wherein it has been held as under:- 8. We are of the view that the facts of the case are identical to that in the case of Tumkur 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 ble Karnataka High Court and in the absence of any contrary binding decision pointed out by Revenue, we are of the view that the interest earned by the assessee is eligible for deduction u/s 80P. We therefore set aside the order of the AO. In the result the ground of the assessee is allowed. 5.4 The aforesaid ITAT judgment has been followed by the ITAT, Ahmedabad Bench in the case of Maroli Bazar Vibhag Vividh Karyakari Sahkari Mandi Limited vs. ITO in ITA Nos. 3130/Ahd/2014 1834/Ahd/2013, by allowing similar claim. The ld. Counsel thus contends that the assessee s case is supported by the H .....

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