TMI Blog2022 (4) TMI 1347X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of ₹ 50,000/- against the net profit of ₹ 6,96,233/-. The alternative submission of the assessee is that the disallowance should be restricted only to 3.12% being the net profit rate to be applied on the interest income of ₹ 23,00,239/- cannot stand for as the assessee has already claimed an expenditure of ₹ 16,04,006/- against the interest income of ₹ 23,00,239/-. We, therefore, confirm the finding of the ld. CIT(A) sustaining the addition of ₹ 6,46,233/- made by the AO and dismiss the ground nos. 2 3 raised by the assessee. For rest of addition assessee had made general submissions and has not placed any material on record to claim that ld. CIT(A) erred in confirming the addition. We, on perusal of the finding of the ld. CIT(A), observe that the assessee had admitted during the course of assessment proceedings that the interest income was understated in the return of income and similarly with regard to the addition of ₹ 8,760/-, the assessee admitted before the AO that there was a difference between the closing bank balance as per bank statement and closing balance as per books of account and the said difference was reconciled an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its members as per the rules and regulations of the Society. E-return of income was filed for AY 2016-17 on 18.10.2016 by the assessee Society. Case selected for complete scrutiny through CASS followed by serving of notice u/s 143(2) 142(1) of the Act. Ld. AO noticed that the assessee has disclosed net profit of ₹ 6,96,233/- in its profit loss account. He also observed that the assessee Society received interest income on investment in term deposit with other banks totalling to ₹ 23,00,239/-. Since this amount was not earned either from the members of the Society nor from any other cooperative Society, ld. AO denied the deduction claimed by the assessee u/s 80P(2) of the Act and made the addition of ₹ 6,46,233/- after giving the benefit of deduction of ₹ 50,000/- provided u/s 80P of the Act. Disallowance was also made for the income of ₹ 29,053/- not shown in the profit loss account and the addition was also made for sum of ₹ 8,760/- for showing the income for wrongly claiming the deduction u/s 80P of the Act which actually was an investment to be shown in the balance sheet. Accordingly, income assessed at ₹ 6,84,046/-. 4. Aggrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocieties Act, 2002 does not provide for the consequences of an omission to act in accordance with Section 63 thereof, that is no valid reason why the mandate of law should not be followed. When law requires a business to be done in a particular manner, the business can be done only in that manner or not at all. 8. We are also not impressed by the submission advanced by Mr. Khaitan that the interest earned by the assessee from the investments made, to the extent of a sum of ₹ 99 lakhs during the assessment year 2003-04 and a sum of ₹ 1.12 crores during the assessment year 2004-05, should be attributable to the business of providing credit facilities to its members. Section 80P, it is true provides that, in the case of a co-operative society engaged in carrying on the business . providing credit facilities to its members . the whole of the amount of the profits and gains of business attributable to any such activity shall be deducted . But there is a caution appearing in sub-section (1) which provides that the gross total income of a co-operative society may include income from various activities. It is only an income falling under sub-section (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as stated above, assessee-society regularly invests funds not immediately required for business purposes. Interest on such investments, therefore, cannot fall within the meaning of the expression profits and gains of business . Such interest income cannot be said also to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce of its members. When the assessee-society provides credit facilities to its members, it earns interest income. As stated above, in this case, interest held as ineligible for deduction under s. 80P(2)(a)(i) is not in respect of interest received from members. In this case, we are only concerned with interest which accrues on funds not required immediately by the assessee(s) for its business purposes and which have been only invested in specified securities as investment . Further, as stated above, assessee(s) markets the agricultural produce of its members. It retains the sale proceeds in many cases. It is this retained amount which was payable to its members, from whom produce was bought, which was invested in short-term deposits/securities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital if not immediately required to be lent to the members was not contemplated. The assessee cannot claim any deduction which is not provided for by the section. Moreover the judgment in the case of Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC) is a binding authority for the preposition that interest income arising on the surplus invested in short-term deposits and securities . would come in the category of income from other sources. 11. Realising his difficulty, Mr. Khaitan submitted that the assessee was under the impression that the income arising out of investments is also attributable to the business of providing credit facilities to its members and on that basis, the assessee did not separately provide for the expenditure incurred for the purpose of earning ₹ 99 lakhs during the assessment year 2003-04 and ₹ 1.12 crores during the assessment year 2004-05, from investments. Those investments were obviously made from out of the funds deposited by the members and for such deposits, interest has been paid to those members by the assessee. The interest paid to those members on account of such deposits should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of deduction available to the assessee under Section 80P. 14. The appeal is thus disposed of. 9. On examining the facts of the case in light of the above judgment, we find that as regards the disallowance of deduction u/s 80P(2)(d) of the Act of ₹ 6,46,233/- we do not find any merit in the contentions of the ld. Counsel for the assessee for the very reason that there is no dispute at the end of the assessee that interest income of ₹ 23,00,239/- has been earned from term deposit/other deposits with scheduled banks or other banks other than cooperative banks. There is no iota of evidence which could show that the interest income of ₹ 23,00,239/- has any connection with the income from its members. The judgment of the Hon ble jurisdictional High Court referred above clearly states that such interest income which is earned from other banks and not earned from members of the Society or from deposits with any other cooperative Society no deduction is allowable u/s 80P(2) of the Act. Only any expenditure incurred to earn such income not eligible for deduction u/s 80P(2) of the Act can be claimed. In the instant case, the interest income from banks other th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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