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Kolhapur Sahakari Majur and Hamal Sanstha Ltd. Versus ITO, Ward-2 (1) , Kolhapur

2016 (12) TMI 297 - ITAT PUNE

Qualification for exemption under section 80P(2)(vi) - Held that:- Since the Assessing Officer while passing the order has basically relied on the order of his predecessor for A.Y. 2005-06 and since the Ld.CIT(A) while adjudicating the issue has given an observation that the assessee has not discharged the onus cast on it by proving that the interest income is related to the business activity and the relation between FDs kept and corresponding benefit from the bank, therefore, considering the to .....

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assessee are directed against the separate orders of the CIT(A)-2, Kolhapur relating to Assessment Years 2007-08 to 2011-12 respectively. Since identical grounds have been taken by the assessee in all these appeals, therefore, these were heard together and are being disposed of by this common order. 2. First I take up ITA No.2273/PN/2016 as the lead case. Facts of the case, in brief, are that the assessee is a Cooperative Society engaged in the supply of labourers. It filed its return of income .....

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ourse of assessment proceedings he observed that the said interest income is from interest on FDs made with banks. He observed that while computing the taxable income the said interest income has neither been added back nor considered separately and consequently the assessee has claimed deduction u/s.80P(2)(a)(vi) of the I.T. Act in respect of the said interest income. The Assessing Officer, therefore, asked the assessee to explain the allowability of such interest income u/s. 80P(2)(a)(vi) of t .....

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to him, once the contract has been secured, there is no apparent necessity to keep the FDs alive. According to him when it is made with the intention of investment of idle funds lying unutilized, it cannot be said to be for satisfying urgent business needs. He observed that similar issue had also come up during A.Y. 2005-06 wherein it was held that assessee is not entitled to deduction u/s.80P(2)(a) in respect of the said interest income. Further, in the A.Y. 2004-05 where the regular assessmen .....

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2009-10, ₹ 26,30,351/- for A.Y. 2010-11 and ₹ 31,07,231/- for A.Y. 2011-12. 5. In appeal the Ld.CIT(A) dismissed the appeal filed by the assessee by observing as under : 6. In view of the facts of the case, the contention of the AO and arguments of the appellant, there are two issues which needs to be adjudicated : 1) Whether the interest income earned on the fixed deposits is assessable under the Income from Business or Profession or under the head income from other sources ? and 2 .....

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FDs kept for obtaining solvency certificates & bank guarantees and also FDs are kept out of funds not required for business purpose. 8. Though it is true that the society is required to keep deposits for obtaining solvency certificates & bank guarantees, but nothing is brought on record to show that the solvency certificates & bank guarantees obtained are qua deposits. Therefore, the fixed deposits stand not correlated with the obtaining of solvency certificates & bank guarantees .....

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business activity of the society. When appellant emphasizes that interest income is related to a business activities, it is the appellant who has to discharge its onus of proving the relation between FDs kept and corresponding benefit from the bank. However the appellant has not discharged this onus and tried to prove his claim on the basis of case-laws which are mostly applicable to co-operative banks only. 10. The appellant society in a vague manner is arguing that fixed deposits are kept for .....

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sult, the appeal stands dismissed. 6. Aggrieved with such order of the CIT(A) the assessee is in appeal before the Tribunal with the following grounds : 1. On the facts and circumstances of the case and in law the Ld. CIT(A) was not justified in confirming the addition made by the A.O. of interest earned on fixed deposits as not covered by the Provisions of S. 80P(2)(vi) of the Act. The mutual society is in the business of collective disposal of the labour and provisions of S. 80P(vi) are applic .....

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cts and circumstances of the case and in law and considering the records supported by audit reports the whole of its income was qualified for exemption under section 80P(2)(vi) of the Act. The Ld. CIT(A) was not justified in denying the benefit of exemption confirming the order of the A. O. The order of Ld. CIT(A) be set-aside and quashed. 4. The appellant craves to leave, add/amend or alter any of the above grounds of appeal. 7. I have considered the rival arguments made by both the sides, peru .....

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The proposition sought to be canvassed by the assessee is that the interest on FDs kept with the bank is liable to be assessed as business income having regard to the facts of the present case. The assessee is a Cooperative Society engaged in the supply of labour, and it is claimed that the FDs are kept with the bank for securing bank guarantees, solvency certificates, etc. in order to obtain contracts from Government bodies. As per the assessee, the Tender process to secure contracts require t .....

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e the Hon ble High Court, assessee was a contractor and in order to secure contract work, he was required to offer bank guarantee to the contractee. The assessee placed certain amount in fixed-deposit with the bank in order to obtain requisite bank guarantee and furnished the same to the contractee. On such facts, the interest income earned on the FDs was sought to be treated by the assessee as business income . The Revenue resisted the claim of the assessee but Hon ble Karnataka High Court uphe .....

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tna High Court, the proposition canvassed by the assessee is well-founded and is liable to be accepted. So, however, in so far as factual matrix in this case is concerned, we find that the CIT(A) has not dealt with the same primarily for the reason that according to him whatever may be the reason for making FDs with bank since deposit of money is an investment , the consequential interest income was liable to be assessed as income from other sources. In our view, the proposition canvassed by the .....

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and direct the Assessing Officer to allow the assessee an opportunity to demonstrate that the FDs with the bank were used for the purpose of securing contract work and if it is so found then the interest income would be assessable as business income. If the Assessing officer is not so satisfied then he shall be free to proceed as per law. Needless to mention here, the Assessing Officer shall carry out the aforesaid exercise after allowing the assessee a reasonable opportunity of being heard and .....

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