TMI Blog2020 (8) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... iple of lifting the corporate veil cannot have any application in the context of the provisions contained in section 80P(2)(a)(z) of the Act - U.P. Co-operative Cane Union Federation Ltd v. CIT [ 1997 (1) TMI 7 - SUPREME COURT] . Assessee is eligible for deduction u/s.80P(2)(a)(i). AO has disallowed two additions i.e. provision for bad doubtful debts and provision for gratuity - These two additions are resulting to enhancement of profit of the assessee society which are specific disallowances related to the business of the assessee. Circular issued on 02.11.2016, whereas the case of the assessee is pertaining to A.Y.2009-2010 2010-2011. The Circular is clarificatory in nature. Therefore, it would be presumed that the benefit of Circular will apply to the assessee. It is also clear that the additions made by the AO is covered by this Circular. The above mentioned additions are eligible for deduction under Chapter-VIA and under section 80P of the Act. In support of our above view, we also rely on the decision of the coordinate bench of the Tribunal in the case of Ozone Pharmaceutical [ 2019 (4) TMI 1302 - ITAT DELHI] wherein the assessee has got deduction under Chapter VIA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the fact that the provisions are made as per the statute. 3. That the learned assessing officer has erred in law and on facts of the case by disallowing the provision for gratuity amounting to ₹ 51,952 to which the Ld. CIT(Appeals) has wrongly confirmed the same addition and without considering the fact that the provisions are made as per the statute. 4. That the Ld. CIT(Appeals) has confirmed the addition on account of provision for bad-debts, provision for interest and provision for gratuity without appreciation of fact that all these are infructuous when section 80P comes into effect. 5. That the appellant may add, alter, delete or modify any of the grounds at the time of hearing of the matter with the leave of the Hon'ble ITAT. 5. Brief facts of the case are that the assessee Kendrapara Credit Co-operative Society Limited registered under the Odisha Cooperative Society Registration Act, 1962 bearing Registration No.158KE, dated 19.08.2000. The society derives income from doing banking business. From the information available before the AO, the AO noticed that the total profit of the assessee society for the assessment year 2009-2010 was S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit of ₹ 18,16,784. But in Schedule BP of the return of income, profit after adjustment of depreciation has been arrived at ₹ 18,00,560/-. and claimed deduction of ₹ 18,00,560/- u/s.80P of the Act. However, in Annexure-I, Part-Bto audit report u/s.44AB, the audited has stated net profit before tax at ₹ 18,16,784/-. As evident, the Statutory Audit (Cooperative Audit) has been completed on 31.03.2010* The audit u/s.44AB has been made on 17.11.2015. The return of income has been filed on 10.03.2016, after expiry of 30 days from the date of receipt of notice u/s.148 of the Act. (Initiated proceeding u/s.271B of the Act.) 5.2. The Statutory Auditor has at Para No.l of Part-II(A) has reported in',the field of cooperative movement in the district, the Kendrapara Coop. Society came into existence on 19.08.2000 with its main objectives of tapping deposit and financing to the customers of the area of operation with a view to augmenting the economic conditions by undertaking such other activities as well as to promote to achieve the goal. The society has also expanded its area of activities in the sphere of investment in various diversified scheme for gener ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for bad debts and he also did not submit the details of the amount of ₹ 10 lakhs before the CIT(A) as well as the AO. He further submitted that the provision for gratuity amounting to ₹ 1,47,351/- has also not been deposited in the approved gratuity fund. In this regard, no any evidences were submitted by the assessee before the AO as well as the CIT(A), therefore, in both the counts the order of the CIT(A) should be restored. 11. After hearing both the sides and perusing the material available on record and the orders of authorities below, first before deciding the entire issue, it would be appropriate to discuss the observations of the CIT(A) regarding deduction as to whether the assessee is eligible for deduction u/s.80P(2) of the Act or not. This issue has already been dealt by the CIT(A) in his order which reads as under :- After perusing the aforementioned comments of the creditor, the bye laws of the society and the books of account of the assessee, the AO concluded that the benefit of section 80P(2) will be denied to the assessee as its case was falling under section 80P(4) of the I.T. Act, 1961. The AO held that the assessee enjoys the status ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituted under the law for the time being in force except a Co-operative society registered under the Co-operative Societies Act. Hence, the bye-laws of the assessee specifically prohibite any other co-operative society from becoming a member. Coming now to the first condition that a Co-operative society needs to satisfy, as per the provisions of the Banking Regulation Act, 1949 it is seen that a Co-operative bank is not debarred from extending its banking facilities to the general public. In other words a Co-operative society as understood in terms of section 80P(4) can accept deposits, make loans and carrying out all banking operations even in respect of persons who are not members of the Co-operative society. This is in sharp contrast to the provisions of section 80P (2) where the benefit of the deduction can be availed only by a Co-operative society engaged in the business of banking or providing credit facilities to its members. This is a crucial distinction that sets apart a Co-operative society from a Co-operative Bank. However, in the assessment order U/S.143(3)/147 for A.Y.- 2010-11 dt. 30.03.2016, the ITO, Kendrapara Ward has not given any finding in this regard and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative Bank. As has been established in the preceding paragraphs, the assessee is not engaged in the business of 'banking' as understood within the scope of the Banking Regulation Act, 1949. Further, the assessee does not possess a banking license from the RBI which is essential for an entity to engage in banking activities. Hence, with these observations, it is held that the assessee. Society is not a primary Co-operative bank and that, therefore, it would be eligible for the deductions envisaged u/s. 80P (2) of the I.T. Act, 1961. 12. From the above discussion by the CIT(A), it is also pertinent to mention here that the assessee is not carrying on banking business activity but as per clause 5 specifically restricts the scope in the banking activities, the members of the society as narrated above. It is clear that the assessee is accepting deposits of money from its members and advancing money to members. In view of this the assessee is eligible for deduction u/s.80P(2) of the Act. 13. We noticed from the order of AO that the AO, at the outset, of the order has mentioned that the assessee is engaged in banking business and has disallowed the claim of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,- (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.-In this clause, consumers' co-operative society means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-operative societ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to its members, under section 80P(2)(a)(f) of the Act - Madras Auto Rickshaw Drivers' Co-op. Society v. C/T[2001] 117 Taxman 370 (SC). The facility of selling goods on credit to members is an activity of business of selling of goods, of which the credit facility is only an incidence; it will not amount to providing credit facilities in the nature of the business of banking so as to amount to carrying on the business of banking or providing credit facility to its members CIT v. Co-operative Supply Commission Shop Ltd [1993] 204 ITR 713 (Raj.). Considered in the context and collocation of words, the words 'providing credit facilities to its members' mean providing credit by way of loans and not selling goods on credit - Kerala Co-op. Consumers' Federation Ltd v. CIT[1988] 170 ITR 455 (Ker.). Investment in Government securities of the reserve fund made by co-operative societies in compliance with statutory directives cannot be treated as investment of the stock-in-trade or circulating capital. The income derived from such investment cannot qualify for deduction as income from banking activity - Madhya Pradesh Co-op. Bank Ltd. v. Addl CIT'[1996] 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to enhancement of profit of the assessee society which are specific disallowances related to the business of the assessee. 18. The CBDT has issued Circular No.37/2016, which reads as under :- CIRCULAR NO. 37/2016 F.No.279 /Misc/140/2015/ITJ Government of India Ministry of Finance, Department of Revenue Central Board of Direct Taxes New Delhi, Dated 2nd November 2016 Subject: Chapter VI-A deduction on enhanced profits- Reg . Chapter VI-A of the Income-tax Act, 1961 ( the Act ), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia) , 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A. 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious However, the courts have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Circular issued on 02.11.2016, whereas the case of the assessee is pertaining to A.Y.2009-2010 2010-2011. The Circular is clarificatory in nature. Therefore, it would be presumed that the benefit of Circular will apply to the assessee. It is also clear that the additions made by the AO is covered by this Circular. The above mentioned additions are eligible for deduction under Chapter-VIA and under section 80P of the Act. In support of our above view, we also rely on the decision of the coordinate bench of the Tribunal in the case of Ozone Pharmaceutical Ltd., ITA Nos.2935-2937/Del/2015, order dated 15.04.2019, wherein the assessee has got deduction under Chapter VIA if the profit from business has been increased by the AO by making certain disallowance. Accordingly, we allow the appeal of the assessee. 20. Since, the grounds taken by the assessee in appeal for the assessment year 2010-2011 in ITA No.134/CTK/2019 are same to the appeal decided by us for assessment year 2009-2010 in ITA No.133/CTK/2019, therefore, our view made in the above appeal shall be applied mutatis mutandis to the appeal of the assessee for assessment year 2010-2011. Thus, ITA No.134/CTK/2019 is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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