TMI Blog2022 (6) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... Co-operative Society Ltd. [ 2014 (2) TMI 28 - GUJARAT HIGH COURT] has held that exclusion clause of section 80P(4) will not apply to cases where the assessee is a primary agricultural co-operative credit society. PCIT while arriving at a conclusion to set aside the impugned assessment order for fresh consideration by the AO has relied on the decision of Totagars Co-operative Societies Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] to which ld. counsel placed on record that the said decision is not applicable to the facts of the assessee duly supported by the financial details submitted before us which are reproduced above. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. The case of the assessee was selected for limited scrutiny through CASS for examination, inter alia, correct claim of deduction made by the assessee under Chapter VIA . Statutory notices were issued which were complied by the assessee. In its written submission before the AO, assessee submitted on the claim of deduction u/s 80P that the assessee has correctly claimed deduction u/s 80P under chapter VIA. As per section 80P(2)(a)(i) business for providing credit to members is exempted for cooperative society is exempted under section 80P(2)(a)(iv) of the IT Act. Besides interest earned from co-operative society is exempted under section 80P(2)(d). 5. The ld. AO examined the issue for which case was selected and raised a detailed questionnaire u/s 142(1) of the Act to furnish justification on claim of deduction u/s 80P amounting to Rs. 32,31,376/- specifically mentioning the amount claimed u/s 80P(2)(a)(i)(ii)(iv) and 80P(2)(d). Relevant extract of the questionnaire issued u/s 142(1) of the Act is reproduced as under: ii. Issue relating to deduction under Chapter VIA:- You were asked vide notice u/s 142(1) of the I.T. Act 1961 to furnish justification of clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rusal of your compliance it is noticed that you have failed to furnish any explanation to justify that interest earned from deposits/investment in financial institution other than co-operative society/ bank are qualified for deduction u/s 80P(2)(i)(a) or your interest income is also eligible for deduction u/s 80 P(2)(d) or your interest income is not covered by the provision of section 80P (2) (d) of the I.T. Act 1961. Section 80P(2)(d) of the I.T. Act 1961 provides that the whole of interest and dividend income derived by a co-operative society from its investments in any other co-operative society is deductible under section 80P(2)(d) of the I.T. Act 1961. Thus the interest income amounting to Rs. 32,31,576/- earned on deposit from IDBI Bank, Axis Bank and Bandhan Bank is not deductible under section 80P(2)(d) of the IT Act 1961. Under these circumstances you are requested to show cause why deduction u/s 80P should not be disallowed on the ground that you have earned interest income amounting to Rs: 39.44,212/- on deposits/investments made in financial limitation other than cooperative society/Bank and interest income is not attributable either to the activity m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deduction under section 80P(2)(a)(iii) and rest of the income is deductible under section 80P(2)(a)(i) of the Act. 6. After due consideration of the submission made by the assessee and by verifying the material on record, the ld. AO observed that out of the total income of Rs. 32,31,576/-, the business income is of Rs. 26,96,495/- and the balance Rs. 5,35,081/- is on account of short term capital gain and thus he restricted the deduction u/s 80P of the Act to the amount of Rs. 26,96,495/- which relates to the business income. Relevant portion of the findings given by the ld. AO are reproduced as under: (vii) During the year under consideration the assessee has declared his business income to the tuned Rs. 32,31,576/- which was arrived after considering the income of Rs. 5,35.081/, Therefore the business income is assessed at Rs. 26,96,495/- (Rs. 32,31,576/- - Rs. 5,35,081/-) and short termed capital gain is assessed at Rs. 5,35,081/-. Penalty proceeding u/s 271(1)(c) of the Income Tax Act 1961 is initiated separately for furnishing inaccurate particulars of income to the tune of Rs.5,35,081/-. 7. Disallowance of deduction claimed u/s 80P of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is show-cause notice assessee furnished its written submission on 04.03.2021 and claimed that assessee is a primary agricultural credit society registered as Co-operative society under West Bengal State Co-operative Act having its main object of collecting deposits from its members and providing credit facilities to its members. It claimed that deduction u/s 80P(2)(a)(i) of the Act for a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members is fully deductible. No part of its income can be treated as income from other sources which stands rightly considered by the ld. AO in the assessment proceeding completed u/s 143(3) of the Act. The assessee further submitted that the decision in the case of Totagars Co-operative Societies Ltd. (supra) is not applicable to it since that is a case where the society is marketing and credit society which retained the sale proceeds of agricultural products of its members and deposited the surplus fund in short term deposits with banks and Govt. Securities. It was submitted that in the assessee s case, there is no surplus fund rather it took deposits from its members and provided credit faci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Management cost 17,91,840 Int. Received Receivable 1,44,83,006 89 Bank Commission 500 Miscellaenous 35,986 Wages 1,09,650 Service Charge 88,383 99 Provision for depreciation 2,02,584 Admission 1150 Provision for Gratuity 1,11,520 Tractor 10,600 Provision for Audit Feee 11,000 NPA 3,52,511 Provision for O.D. Int. Suspence 3,99,167 Death Subsidy (member) 1000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.S.C A/C 2,45,77,500 1,08,32,580 TOTAL 2,45,77,500 1,08,32,580 MIDR 34,15,000 48,038 TOTAL 34,15,000 48,038 9.2. Also a synopsis of various types of loans placed in the compilation is reproduced as under: SYNOPSIS OF ALL TYPES DEPOSIT A/C AS ON 31.03.2016 Disburse Principal INTEREST 1-3 YEARS 3-4 YEARS 4-6 YEARS 6 ABOVE KCC 2568367 2229764 1135339 1009996 103852 199205 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D/A CURRENT K.C.C. LOAN 1009996 103852 199205 895436 OWN FUND LOAN 3617972 617240 43328 1632080 TOTAL 4627968 721092 242533 2527516 D/A LOAN 38,45,963 CURRENT LOAN 36,70,812 TOTAL 75,16,775 STANDER 75,16,775 @ 0% 00 SUB-STANDER 46,27,968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.4. A detailed reconciliation of interest income received and receivable and the interest paid and payable by the assessee is also placed on record in the compilation which gives the details in respect of interest earned on various types of loans and also the interest expenses incurred on various types of loans and deposits. The same is also reproduced as under: Interest Received Receivable (2015-16) Int. Received on KCC Robi Loan 905 Int. Received on CC Loan 64 Int. Received on KCC Loan 280312 Int. Received on Own Fund Loan 1048839 Int. Received on Investment 10205911.89 Total Int. Received 11536031.89 Add Receivable (2015-16) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.5. He, thus, strongly submitted that on the basis of above undisputed factual details, the income of the assessee is income from profits and gains of business or profession, eligible for deduction u/s 80P(2)(a)(i) of the Act. 10. Per contra, the ld. CIT, DR made a written submission dated 01.04.2022 placed on record and justified the revisionary proceeding initiated by the ld. PCIT and the order passed thereon u/s 263 of the Act. The same is reproduced as under for ease of reference: This appeal has been preferred by the assessee against the order u/s.263 of the I. T. Act passed by the Ld. PCIT, Asansol on 09.03.2021. The only issue involved is claim of deduction of Rs.39,44,212/- u/s.80P(2)(a)(i). As per the contents of internal pages 4 and 5 of the assessment order passed u/s. 143(3) on 27.12.2018 it is true that the assessing officer had raised this issue before the assessee. However, he did not draw any adverse inference purportedly being satisfied by the explanation put forth by the assessee that such income was claimed as deduction has been income for business of banking or providing credit facilities to its members. Further, they relied upon certain case l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 263 which has been duly indicated by the Ld. PCIT in his order makes the order of the AO erroneous and prejudicial to the interest of Revenue. The appeal of the assessee may accordingly be dismissed. 11. We have heard the rival contentions, perused the material placed on record and given a thoughtful consideration to the submissions made by both parties. At the outset, we note that the issue before us is on the jurisdiction assumed by ld. PCIT for invoking revisionary proceeding and passing the order u/s 263 of the Act vis- -vis claim of deduction by the assessee u/s 80P(2)(a)(i) of the Act. Before adverting on the issue in hand, it is appropriate to delve upon the applicable law as provided u/s 80P of the Act, which is reproduced as under: 80P (1) Where, in the case of an assessee being a co-operative 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative Society Ltd. (supra) is reproduced as under: 2. Revenue has challenged the judgment of the Income Tax Appellate Tribunal (for short the Tribunal ) raising following question for our consideration:- Whether the Hon ble Tribunal is correct in allowing deduction under section 80P(2)(a)(i) to assessee s society even though same is covered under section 80P(4) r.w.s 2(24) (viia) being income from providing credit facilities carried on by a co-operative society with its member? 3. Issue pertains to interpretation of section 80P(2) and 80P(4) of the Income Tax Act, 1964 ( the Act for short). Respondent assessee is a Cooperative Credit Society and claims benefit of deduction under section 80P(1) of the Act by virtue of the provisions contained in section 80P(2)(a)(i) of the Act. As is well known under subsection( 1) of section 80P certain co-operative societies are granted deductions of the sum specified in sub-section(2) in computing the total income. As per section 80P(2)(a)(i), the sums referred in sub-section(1) would be in case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members the whole of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a conclusion to set aside the impugned assessment order for fresh consideration by the AO has relied on the decision of Hon ble Supreme Court in the case of Totagars Co-operative Societies Ltd. (supra) to which ld. counsel placed on record that the said decision is not applicable to the facts of the assessee duly supported by the financial details submitted before us which are reproduced above. We find force in the submission made by the ld. counsel which on the strength of financial details, distinguishes the facts of the case in the decision of Hon ble Supreme Court in the case of Totagars Co-operative Societies Ltd. (supra). 13.1. We further note that in the case of of Gutti Gedarara Co-operative Society Ltd. vs ITO 377 ITR 464 (Karnataka), the Hon ble High Court considered this issue in para 7 to 12 which is reproduced as under: 7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression derived from , as, for instance, in section 80J. In our view, since the expression of wider import, namely, attributable to , has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity. 10. Therefore, the word attributable to is certainly wider in import than the expression derived from . Whenever the legislature wanted to give a restricted meaning, they have used the expression derived from . The expression attributable to being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits 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, the society cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of Commissioner of Income Tax-III, Hyderabad v. Andhra Pradesh State Co-operative Bank Ltd., reported in (2011) 336 ITR 516/200 Taxman 220/12 taxmann.com 66. From the said decision, it is clear that when the amount which is deposited in the bank was not an amount due to members and it was not the liability of the society to the members then the interest earned from the deposits in the banks was held to be eligible for deduction u/s 80P(2)(a)(i) of the Act. 13.2 We also note that Assessing Officer has made an extensive enquiry by raising a separate questionnaire on the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act to which a detailed reply was furnished by the assessee, considering which the ld. AO concluded that out of total claim of Rs. 32,31,576/-, only Rs. 26,96,495/- is the business income of the assessee and the balance of Rs. 5,35,081/- is the income towards short term capital gain. He thus allowed the claim u/s 80P(2)(a)(i) to the extent of Rs. 26,96,495/-. The sole grievanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any order passed therein by the Income-tax Officer is 'erroneous in so far as it is prejudicial to the interests of the Revenue'. It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. [Emphasis supplied by us by underline] 13.5 On a perusal of the material brought on record and the order passed by the Ld. PCIT, it is perceptible that the said authority has not kept in view the requirement of section 263 of the Act in as much as the order does not reflect any kind of satisfaction based on correct and verifiable set of facts relating to claim of deduction u/s 80P of the Act. That having not been done, in our considered opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O to conduct further enquiries without a finding that the order is erroneous, the condition or requirement which must be satisfied for exercise of jurisdiction u/s 263 of the Act. In such matters, to remand the matter/issue to the AO would imply and mean that the CIT has not examined and decided whether or not the order is erroneous but has directed the AO to decide the aspect/question. The Hon'ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged inadequate investigation , it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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