TMI Blog2020 (10) TMI 649X X X X Extracts X X X X X X X X Extracts X X X X ..... 2610/Bang/2019 - - - Dated:- 10-9-2020 - Shri Chandra Poojari, AM For the Asessee : Shri G. Satyanarayana, CA For the Revenue : Shri Ganesh R.Ghale, Advocate SC to Department ORDER PER CHANDRA POOJARI, AM: These two appeals filed by the assessee are directed against the different orders of the CIT(A) and pertain to the assessment years 2015-16 and 2016-17. We consider the appeal in A.Y. 2015-16. 2. The assessee has raised the following grounds of appeal: 1. The ld. CIT(A) is not justified in dismissing the appeal of the assessee without allowing sufficient and real opportunity to the appellant to explain additions/disallowances made in the impugned order and consequently, the order passed is in violation of the principles of natural justice and therefore, requires to be vacated. 2. Without prejudice to the above, the ld CIT(A) is not justified in disallowing the addition of ₹ 14,19,450/- claimed as deduction u/s. 80P(2)(a)(i) of the Act on the ground that the exemption shall not be available to co-operative banks (first part) other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied however, Ld.CIT(A) did not spell out as to how the said test fails. We are of the view that, such grievance of the assessee would be addressed by setting aside the issue of deduction u/s.80P(2)(a)(i) of the Act to Ld.AO for consideration afresh, with a direction to the Assessee to produce a certificate from RBI that it does not possess license from it for doing banking business and further that business carried on by Assessee is not akin to business of a co-operative bank. Further the first part of Sec.80P(2)(a)(i) allows deduction in respect of income derived by a co- operative Society from business of banking. Even the claim of the Assessee for deduction requires to be examined under the first part of Sec.80P(2)(a)(i) of the Act. Hon'ble Supreme Court in case of Citizen Co- operative Society Ltd. (supra) has also held that, it is also important to ascertain as to what is the nature of income which is claimed as exempt and as to how the principle of mutuality is not violated in respect of such income. An examination of (i) the memorandum of association, the articles of association, (ii) the byelaws and other documents explaining the rules and regulations of the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2018 in respect of interest income earned by the society were the Assessing Officer denied the claim of the assessee observing that interest income earned on investment of surplus funds has to be assessed as income from other sources and not from business at Page No.3 paras 4 5 held which read as under : 4. The issues that arise for consideration in this appeal by the assessee are as to whether the Revenue authorities were justified in holding that the assessee was not entitled to the benefit of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short the Act ) on interest income earned and under section 80P(2)(d) of the Act in respect of interest received from Co-operative institutions. The Assessing Officer (AO) denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head Income from Other Sources and not income from business and since interest income is not assessed as business income, the claim for deduction under section 57 of the Act cannot be allowed. In upholding the above conclusions, the CIT(A), inter alia, relied on the decision of the Hon ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upreme Court in The Totgars Co-operative Sales Society Ltd. (supra) and held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d)of the Act was not applicable to such interest income. It is thus clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon'ble Supreme Court. Therefore whether the source of funds were Assessee's own funds or out of liability was not subject matter of the decision of the Hon'ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon'ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. (supra) still holds good. Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment of the Hon'ble Apex Court rendered in the case of The Totgars Co-operative Sale Society Ltd. (supra) and of Hon'ble Karnataka high Court rendered in the case of Tumukur Merchants Souharda Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, Income Tax Act does not define member , nor has provided distinction between regular member and nominal member and therefore, its meaning and objects has to be understood in the context of definition given in the State Act. The Revenue authorities are trying to extrapolate the meaning of expression Member contrary to the spirit of the Act. It is evident from the definition of member provided in section 2(13) of the Gujarat Cooperative Societies Act that Member includes nominal, associate or sympathizer member. Therefore, in the present case, the nominal members are members as provided in the Act and that deposits received and loan advanced to the nominal cannot be treated as from non-members or from public and in the nature of banking business. That being so, then, an assessee engaged in primary agriculture activities and providing credit facilities and agriculture facilities to the farmer-members of a particular region, claim of deduction under section 80P(2) cannot be denied. It is not denied by the Revenue that the activities of the assessee society are of primary agriculture activities. Competent authority has also recognized the assessee as primary agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee should be provided adequate opportunity of hearing and co-operate in submitting the information for early disposal of the case and allow the grounds of appeal of the assessee for statistical purposes. 6. Similarly the appeals filed in ITA Nos.762, 765, 942, 1190 1191/Bang/2019 are similar and identical. Hence the decision rendered in ITA No.707/Bang/2019 at paras 4 5 above shall apply mutadis mutandis. Accordingly the disputed issue in these appeals are remitted to the file of Assessing Officer as indicated and allow the grounds of appeal of assessees. 7. In the result, appeals of the assessee in ITA Nos.707, 762, 765, 942, 1190 1191/Bang/2019 are treated as allowed for statistical purposes. 8. I have heard the rival submissions and perused the material on record. The assessee is having nominal members and having nominal members in the Co-operative Society does not disentitle the assessee for getting exemption u/s. 80P of the Act. In my opinion, the issue is covered by the above orders of the Co-ordinate Bench relied on by the Ld. AR and is required to be re-adjudicated by the Assessing Officer after considering the above decisions. Accordingly, I r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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