TMI Blog2022 (9) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 95.2% of the profits earned from the said business activity by the CIT(Appeals) was not justified. Considering the parity of the facts involved in the present case as against those which were involved in [ 2022 (3) TMI 75 - ITAT RAIPUR] we are of the considered view that the matter in all fairness on the same terms be restored to the file of the AO for fresh adjudication. In the course of the set-aside proceedings the AO shall read-judicate the assessee s claim for deduction under Sec. 80P(2)(a)(iii) i.e. after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, and thus, restrict the it s claim for deduction u/s. 80P(2)(a)(iii) only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. Thus, the Ground of appeal No.1(iii) raised by the assessee is allowed for statistical purposes in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2012-13 as the lead matter, and the order therein passed shall apply mutatis-mutandis to the remaining cases. Before us the assessee has assailed the impugned order of the CIT(Appeals) on the following grounds of appeal : 1. For Rs. 4,00,075/-, that the ld CIT(A) has erred in sustaining the additions made by the Id AO and assessing the total income at Rs. 4,00,075/-by not allowing. deductions u/s 80P. The additions are made as under:- (i) That the ld CIT(A) has erred in sustaining the disallowance of deduction u/s. 80P(2) made by the Id AO on interest earned at Rs.6,90,268/- being interest earned on banking activities done by the assessee-society by assuming that, the assessee-society has invested its surplus funds with banks while, the real facts is that, the funds invested in FDR/ saving accounts with Co-op. banks, are (i) own funds of the assessee-society, and (ii) member's funds, more so, the relevant cost of funds and direct interest cost (i.e., Rs. 49,966/-) should be deducted from the gross interest received at Rs.6,90,268/-, thereby, the net interest income earned by the assessee-society from the banking activities carried out for its members only, would be R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise, alternatively, such dividend income received by the assessee-society, is exempt income in the hands of the assessee-society, as the 'Coop. bank' has paid the due taxes on the alleged dividend distributed to the assessee-society. (vi) The ld CIT(A) has erred in disallowing the deduction u/s8OP (2) of Rs.69,006 /-: being misc. income and Rs.820/- entry fee receipts, which is clearly eligible for the deduction u/s.8OP (2). 2. The appellant craves leave to add, urge, alter, modify and withdraw any ground/grounds before or at the time of hearing of the appeal. 3. Briefly stated, the assessee which is a primary agricultural cooperative society engaged in the business of banking, paddy procurement, sale of fertilizers, seeds, manures and pesticides as well as sale of controlled items under the Public Distribution System (PDS), had on 31.03.2013 e-filed its return of income for the assessment year 2012-13, declaring a total income of Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act. Assessment was, thereafter, framed by the Assessing Officer vide his order passed u/s.143(3) of the Act, dated 23.02.2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the submissions put forth by the Ld. AR of the assessee. 9. We have heard the ld. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the order of the Tribunal in ITA No.114/RPR/2016 Ors (supra) that have been pressed into service by the Ld. AR to drive home his contentions. As stated by the ld. AR, and rightly so, the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit Ors Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 Ors., dated 23.02.2022 had after drawing support from the judgment of the Hon ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd., ITA No.307/2014, dated 28.10.2014, on the basis of its exhaustive deliberations concluded, that interest income earned on the surplus funds which were parked as deposits by the co-operative society in the normal course of the business of providing credit facilities to its members, i.e., at a point of time when there were no takers for the said funds was duly entitled for deduction under Sec. 80P(2)(a)(i) of the Act, observing as under: 13. We shall first advert to the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee-society in addition to its business of providing credit facilities to its members was also engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds, manures and pesticides and sale of controlled items under Public Distribution System (PDS), however, it is neither the case of the revenue nor a fact discernible from the record that the funds deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i): Deduction in respect of income of cooperative societies: 80P. (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely:- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) xxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under section 80P of the Act. 9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs.7,98,705/- u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. Thus, the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations. As stated by the Ld. AR, and rightly so, as the facts and the issue involved in the present appeal i.e, allowability of the assessee s claim for deduction under Sec. 80P(2)(a)(i) on the interest on bank deposits remains the same as were there in the aforesaid case i.e, ITA No.114/RPR/2016 Ors (supra.), therefore, we respectfully follow the same. We, thus, in terms of our aforesaid observations direct the AO to allow the assessee s claim for deduction under Sec. 80P(2)(a)(i) of Rs.6,90,268/-. The Ground of appeal No.1(i) (ii) raised by the assessee is allowed in terms of our aforesaid observations. 10. We shall now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. The gross profit of Rs.16,21,218/- that was earned by the assessee from its aforesaid stream of business activity, i.e., paddy procurement business was claimed by it as a deduction u/s. 80P(2)(a)(iii) of the Act. However, as per the mandate of Sec. 80P(2)(a)(iii) the deduction therein contemplated was only available qua the marketing of the agricultural produce grown by members of the society, therefore, the Assessing Officer in the course of assessment proceedings had called upon the assessee society to produce the register maintained in respect of its paddy procurement for the year under consideration. As the register produced by the assessee society did not reveal the requisite details which were required to identify the members and non-members, therefore, the Assessing Officer in the backdrop of the said fact had restricted the assessee s claim for deduction u/s.80P(2)(a)(iii) of the Act on an adhoc basis to 35% (i.e. nearly 1/3rd of the aforesaid gross profit) of the profit that was earned by it from paddy procurement business, and had disallowed assessee s claim for deduction as regards the balance amount of profit. Assailing the restriction of the assessee s claim for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee before us. The A.O shall after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, therein, restrict the assessee s claim for deduction u/s. 80P(2)(a)(iii) of the Act only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. The Ground of appeal No.2 is allowed for statistical purposes in terms of our aforesaid observations. As in the case of the present assessee, it is the claim of the ld. AR that no part of the procurement of paddy was made by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 95.2% of the profits earned from the said business activity by the CIT(Appeals) was not justified. Considering the parity of the facts involved in the present case as against those which were involved in ITA No.114/RPR/2016 Ors., dated 23.02.2022, we are of the considered view that the matter in all fairness on the same terms be restored to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtionate expenses amounted to Rs. 3,08,338/-, therefore, its claim for deduction u/s.80P(2)(c)(i) of the Act was liable to be restricted only to the said extent. After having given a thoughtful consideration to the claim of the Ld. AR, we though principally concur with his aforesaid claim, but then, the same cannot be accepted on the very face of it and would require factual verification. Therefore, for the said limited purpose, we restore the matter to the file of the Assessing Officer for doing the needful. During the course of the set-aside proceedings, the Assessing Officer is directed to restrict the assessee s claim for deduction as regards its profit from PDS only to the extent of its net profit, i.e., after considering the proportionate expenses. Needless to say, the assessee shall in the course of set-aside proceedings furnish the requisite details/documents as would be called for by the Assessing Officer. The Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations. Considering our aforesaid observations in order passed in ITA No.114/RPR/2016 Ors, dated 23.02.2022, we on the same terms restore the matter to the file of the AO, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No.3155/Mum/2019, dated 29.11.2019 (wherein one of us, i.e, the JM was a party), had after exhaustive deliberations held as under: 6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section 80P(2)(d) in respect of interest income earned from the investments/deposits made with the co-operative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other cooperative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:- (19) Co-operative society means a cooperative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co-operative societies; We are of the considered view, that though the co-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon‟ble Apex Court in the aforesaid case was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec. 80P(2)(d) on the interest income on the investments/deposits parked with a co-operative bank. Although, in all fairness, we may herein observe that the Hon'ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative Sale Society (2017) 392 ITR 74 (Karn) and Hon ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), had observed, that the interest income earned by a co-operative society on its investments held with a co-operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act. We find that as held by the Hon'ble High Court of Bombay in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid issue in hand i.e, entitlement of a co-operative society for claim of deduction under Sec. 80P(2)(d) qua the dividend received on shares of a co-operative bank is squarely covered by the aforesaid decision of the Tribunal in ITA No.114/RPR/2016 Ors (supra.), dated 23.02.2022, therefore, principally concurring with the claim of the ld. AR we herein vacate the disallowance of the assessee s claim for deduction u/s 80P(2)(d) of the dividend received on shares of a co-operative bank, viz. Jila Sahakari Bank. Thus, the Ground of appeal No.1(v) raised in appeal by the assessee is allowed in terms of our aforesaid observations. 20. We, thus, in terms of our aforesaid observations set-aside the order of the CIT(Appeal) and allow/allow for statistical purposes the appeal of the assessee in terms of our aforesaid observations. 21. Resultantly, the appeal of the assessee in ITA No.104/RPR/2018 for the assessment year 2012-13 is allowed/allowed for statistical purposes in terms of our aforesaid observations. ITA No.(s) 105/RPR/2018, 111/RPR/2018 116/RPR/2018 A.Ys. 2012-13 22. As the facts and issues involved in the captioned appeals remains the same as were th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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