TMI Blog2020 (3) TMI 681X X X X Extracts X X X X X X X X Extracts X X X X ..... er to allow pro rata expenses in respect of interest earned from deposit held with nationalized bank to the assessee for computing the deduction u/s. 80P after examining/verification and affording adequate opportunity to the assessee. - ITA No. 153/Ahd/2019 (Assessment Year 2015-16) - - - Dated:- 31-1-2020 - Shri Amarjit Singh, Accountant Member And Shri Madhumita Roy, Judicial Member Revenue by: Shri N.K. Goyal, Sr. D.R. Assessee by: Shri Parth Shah, A.R. ORDER PER: AMARJIT SINGH, ACCOUNTANT MEMBER:- This assessee s appeal for A.Y. 2015-16, arises from order of the CIT(A)-2, Vadodara dated 23-10-2018, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. The assessee has raised following grounds of appeal:- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing the claim of ₹ 8,12,108/- on account of disallowance u/s 80P(2)(a)(i) of the Act. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in disallowing the claim of ₹ 1,90,077/- on account of disallowance u/s 80p(2)(d) of the act. 3. The fact in brie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the co-operative credit society. The threshold limit is one lakh rupees, so cooperative credit society having paid up share capital and reserve as per balance sheet is one lakh rupee or more then such co-operative credit society may be considered as cooperative bank, as per Banking Regulation Act, 1949. c) Since, the threshold limit is very much clear and there is no room for ambiguity in interpretation, the benefit of section SOP is controlled by exception of section 80P(4) of the Act. d) The provisions of Income Tax Act have nothing to do with compliance of other legal requirements mandated by the Reserve Bank of India for banking business. Hence, so far-deduction u/s. SOP is concerned the section 80P(4) has to be applied for deciding the allowability of deduction u/s. SOP of t the Act. if the .assessee proves ^that there is .nq, banking activity done by the assessee then application of section 80P(4) is attracted automatically. e) The section 80P(2)(a)(i) granting deduction of profit from banking business has limited applications for granting benefit of deduction from profit from banking activities only to small co-op credit society having paid up share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s. 80P(4) without any amendment u/s. 80P(2)(d) is sufficient to deny deduction u/s. 80P(2)(d) in respect of interest income earned from Cooperative Bank. In view of the above factual and iegal position, thus I hold that the appellant is not entitled to claim deduction u/s. 80P(2)(d) on the income earned from KDCC Bank. Thus, Ground No. 2 is dismissed. 5. We have heard both the sides and perused the material on record. The assessee responded to the show cause that the detail of interest income earned by it is as under:- i) Dena Bank - ₹ 57,31,498/- ii) Bank of Baroda - ₹ 2,91,520/- iii) KDCC Bank - ₹ 14,09,709/- iv) Interest on Advances - ₹ 70,19,387/- Total- - ₹ 1,44,52,114/- The assessee has claimed that above income is eligible for deduction u/s. 80P(2)(d) of the act. The ld. CIT(A) has already allowed the claim of deduction u/s. 80P(2)(a)(i) in respect of interest income the assessee cooperative society has de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the order of the CIT(A) in deleting the disallowance of ₹ 1,42,19,515/- under section 80P(2)(d) was sustained. We have perused the order of ITAT Ahmedabad vide ITA no. 2613/Ahd/2012 for assessment year 2009-10 against which the Revenue has preferred appeal before the Hon ble High Court of Gujarat with substantial question of law whether the Appellate Tribunal has substantially erred in upholding the order of CIT(A) in deleting the disallowance of ₹ 1,42,19,515/- u/s. 80P(2)(d) of the act. The case laws relied upon by the asssessare distinguishable on facts and are of no help to the assessee in the present case. In the case of Sabarkantha District Co-operative Milk Producers Union relied upon the by the assessee as referred above the issue involved was pertaining to disallowance of expenditure u/s. 14A of the Act. In that case, the assessing officer has disallowed 50% of the expenditure claimed by the assessee on the reason that interest expenses incurred by the asssessee on borrowed funds might have been used for the purpose of making investment for earning exempt income u/s. 80P(2)(d) of the act. In that case, before the ld. CIT(A) the assessee s submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., The Satyaprakash Co-op. Credit Society Ltd., Shri Friends Co-op. Credit Society Ltd. and Shri Shramjivi Nagrik Sahakari Mandli Ltd. has adjudicated the identical issue on similar fact and held that earning of interest income either from nationalized or co-operative bank is not entitled for deduction u/s. 80P(2)(d) of the act. The relevant part of decision of Co-ordinate Bench is reproduced as under:- 7. We have heard both the sides and perused the material on record carefully. The assessee is engaged in the business of providing credit facilities to its members. The assessing officer has noticed that in addition to the interest income earned on loan and advances to its members, the assesse has claimed deduction u/s. 80P(2)(a)(i) of the act on interest income earned from fixed deposit maintained with the commercial bank and cooperative banks. As per section 80P(2)(a)(i) of the act the interest income earned on providing credit facility to its members is deductible u/s. 80P(2)(a)(i) of the act. After perusal of the aforesaid provision of the act we observe that deduction u/s 80P(2)(a)(i) is not available on the interest earned on deposit maintained with the commercial b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perative Bank and such Co-operative Bank is essentially a Co-operative Society also and clause (d) allows deduction of income by way of interest or dividends derived by the assessee co-operative Society from its investments with any other co-operative Society. [Para 11] The sheet anchor of the contention of the assessee misses two essential points required for claiming the deduction from gross total income for a co-operative society; (i) that the character or nature of income, namely interest on investments or deposits, does not change irrespective of the fact whether it is earned or received from a Schedule Bank or Co-operative Bank, (ii) that What the Supreme Court held in the case of the assessee itself, against assessee, was that such interest income on its surplus and idle funds not immediately required for its business, is not income from business taxable under section 28 of the Act, but was taxable as 'income from other sources' under section 56, whereas for availing the exemption or 100 per cent deduction under section 80P, the income is specified in clauses (a) to (f) of sub section (2) of section 80P which should be its business or operational income. [Para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or deduction under the special provisions of chapter VIA in the form of section 80P of the Act. [Para 15] If the legislative intent is so clear, then it cannot be contended that the omission to amend clause (d) of section 80P(2) of the Act at the same time is fatal to the contention raised by the revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operatve bank, even though the Supreme Court's decision in the case of assessee itself is otherwise. [Para 16] As stated above, it is the character and nature of income which determines its taxability or exemption from taxability. It is needless to say that the provisions relating to exemption and deduction need to be strictly construed and no liberal interpretation or intendment can be inferred in such provisions. What was clearly held to be not exempt and not deductible under section 80P(2)(a) by the Supreme Court in the case of assessee, cannot be contrarily held as exempted and deductible now for these years, merely because the depository bank, with whom the investments were made by the assessee happens to be a co-operative bank. One cannot app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of section we observe such deduction is pertinent to the operational income earned by the co-operative society from the activities in which it is engaged and not the other income which accrues to the society in the form of interest from investment of surplus funds with the cooperative bank. After considering the facts and legal finding, we do not find any merit in the appeal of the assessee, therefore, the same is dismissed. However as decided in the various decision of the Co-ordinate Benches of ITAT Ahmedabad we direct the assessing officer to allow pro rata expenses in respect of interest earned from deposit held with nationalized bank to the assessee for computing the deduction u/s. 80P after examining/verification and affording adequate opportunity to the assessee. Therefore, the appeal of the assessee is partly allowed for statistical purposes. In the light of the facts/findings narrated in para no. 8 of this order after taking into consideration the decision of the Co-ordinate Bench on the similar issue on identical facts as reported supra , we do not find any merit in the appeal of the assessee, therefore, the same is dismissed. Respectfully following the deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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