TMI Blog2024 (2) TMI 329X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowed u/s 40(a)(ia) of the Act was quashed and necessary relief to the assessee was directed. We do not find any reason to devoid from the stand taken by the Co-ordinate Bench on the identical issue itself and therefore, respectfully relaying upon the same, we allow this appeal preferred by the assessee by directing the ld. AO to grant relief on the enhanced profit as eligible for deduction u/s 80P(2) of the Act. - Shri Chandra Poojari, Accountant Member And Smt. Madhumita Roy, Judicial Member For the Assessee : Shri Akshaya K.S., A.R. For the Revenue : Dr. Nischal, D.R. ORDER PER MADHUMITA ROY, JUDICIAL MEMBER: Both the appeals filed by the assessee are directed against different orders passed by the ld. CIT(A)/NFAC dated 30.6.2023 13.7.2023 arising out of the orders dated 12.11.2019 20.9.2022 passed by the ld. AO u/s 143(3) of the Income-tax Act, 1961 [in short 'the Act'] for the Assessment Years 2017-18 2020-21 respectively. Since both the appeals have been preferred by the same assessee and the issues are identical, these are heard analogously and are being disposed of by this common order. 2. The assessee has filed the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f granted by NFAC Deduction claimed u/s 80P(2)(a)(i) 91,63,449 Holding that the assessee is not eligible for claim of deduction u/s 80P(2)(a)(i) The claim of the appellant is fully allowed. Provision for interest expense 2,30,109 Provisional in nature Not allowed by NFAC NPA Provision 12,00,000 Provisional in nature and unascertained liability Not allowed by NFAC Provision for Employe Retirement Benefit 6,00,000 Provisional in nature and unascertained liability Not allowed by NFAC Provision for Employee Leave Encashment 9,70,000 Provisional in nature and unascertained liability Not allowed by NFAC While the NFAC fully granted the deduction claimed u/s 80P(2)(a)(i) of the Act, it did not accord approval to the assessee s claims pertaining to provisions for interest, NPA, Employee Retirement benefits, and leave encashment. 3.2 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions mad by the respective parties and also perused the relevant materials available on record. At the time of hearing, the ld. Counsel for the assessee submitted before us that the issue is squarely covered in favour of the assessee in view of the decision of the coordinate Bench of this Tribunal in case of Sharavathi Pathina Sahakara Sangha Niyamitha reported in (2022) 144 taxmann.com 170 (Bang-Trib.), wherein deduction u/s 80P(2)(a)i) of the Act on the income derived by the assessee from providing credit facilities to its members as enhanced by the sum disallowed u/s 40(a)(ia) of the Act was quashed and necessary relief to the assessee was directed. While dealing with the issue, the Hon ble Bench has been pleased to observe as follows: 4. The deduction under Section 80P is not available for Co-operative banks from A.Y. 2007-08. Section 80P was amended by the Finance Act, 2006, with effect from 1 -4-2007 introducing sub-section (4) to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The expressions cooperative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -operative societies covered by Section 80P(1) read with Boards Circular No. 319 dated 11-1-1982. It is, therefore, reiterated that Regional Rural Banks are not eligible for deduction under Section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards. Further more, the Circular No. 319 dated 11-1-1982 deeming any Regional Rural Bank to be co-operative society stands withdrawn for application with effect from assessment year 2007-08. The field officers may take note of this position and take remedial action, if required. 7. The first aspect to be seen is as to whether the Assessee can be said to be a co-operative Bank. In [2017] 84 taxmann.com 114 (SC) Citizen Cooperative Society Ltd. vs. ACIT, the Hon ble Supreme Court held that in order to do the business of a cooperative bank, it is imperative to have a licence from the Reserve Bank of India. It can therefore be said that a cooperative society which does not possess a license from RBI cannot be equated to a co-operative Bank, even though it might indulge in the business of banking. In this case the AO adopted the definition of co-operative Bank as given in the Banking Regulation Act, 1949, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income derived from the said business cannot be deducted in computing the total income of the assessee. The said income is liable for tax. A Cooperative bank as defined under the Banking Regulation Act includes the primary agricultural credit society or a primary co-operative agricultural and rural development bank. The Legislature did not want to deny the said benefits of deduction u/s. 80P to a primary agricultural credit society or a primary co-operative agricultural and rural development bank. They did not want to extend the said benefit to a Co-operative bank only which is exclusively carrying on banking business i.e. the purport of this amendment. Therefore, as the assessee is not a Cooperative bank carrying on exclusively banking business and as it does not possess a licence from Reserve Bank of India to carry on business, it is not a Co-operative bank. It is a Cooperative society which also carries on the business of lending money to its members which is covered under Section 80P(2)(a)(i) i.e. carrying on the business of banking for providing credit facilities to its members. The object of the aforesaid amendment is not to exclude the benefit extended under Section 80P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied for a banking licence to the RBI, as their byelaws also contain as one of the objects of the Society the carrying on of business of banking. This was turned down by RBI. Clearly, therefore, once section 80P(4) was out of harm's way, all the assessee's entitled to the benefit of deduction under section 80P(2)(a)(i), notwithstanding that they might also be giving loans to their members which were not related to agriculture. Also, in case it is found that there were instances of loans being given to nonmembers, profits attributable to such loans obviously could not be deducted. 11. The Hon'ble Supreme Court held that section 80P being a benevolent provision must be read liberally and reasonably and in case of any ambiguity it must be interpreted in favour of the assessee. Supreme Court observed that section 80P(2)(a)(i) which covers a co-operative society engaged in the business of banking or providing credit facilities to its members does not require that the assessee has to be a primary agricultural credit society. The Hon'ble Supreme Court noted that section 80P(2)(a)(i) does not require that the society has to give agricultural credit only. It furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act goes to enhance the profits that are eligible for deduction under Chapter VIA of the Act, the deduction under Chapter VIA should be allowed on such increased profit. This position has also been now confirmed by the CBDT in its Circular No.37/2016 dated 02.11.2016 wherein the Board has observed as follows:- 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance . 15. Further the Hon ble Karnataka in the case of CIT Vs. M/s. M.Pact Technology Services Pvt. Ltd. in ITA No.228/2013 order dated 11.7.2018 had to deal with admissibility of the following substantial question of law in an appeal by the Revenue u/s. 260A of the Act :- 5. Whether the Tribunal is correct in law in not adjudicating the main issue of applicability of provisions of section 40(a)(ia) in respect of dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee s profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40[a][ia] of the Act would qualify for deduction under section 80IB of the Act. This view was taken by the courts in the following cases: [a] Income-tax Officer-Ward 5[1] vs. Keval Construction, Tax Appeal No.443 of 2012, December 10 2012, Gujarat High Court [b] Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No.2 of 2011, September 11 2015, Bombay High Court [ii] If deduction under section 40A[3] of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. 7. Applying the same analogy, it can be held that if deduction u/s. 40[a][ia] of the Act is not allowed, the same would have been to be added to the profits of the undertaking on which the Assessee would be entitled for deduction u/s. 10A of the Act. This view is fortified by the decision of Bombay High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly stand answered against the Revenue and in favour of the assessee. 17. In view of the aforesaid decisions and the CBDT Circular No.37/2020, we hold that the revenue authorities erred in not allowing deduction u/s. 80-P(2)(a)(i) of the Act on the income derived by the Assessee from providing credit facilities to its members as enhanced by the sum disallowed u/s. 40(a)(ia) of the Act. The claim of the assessee in this regard is accepted and the AO is directed the give necessary relief to the assessee in this regard. 18. In the appeal for AY 2015-16, another issue that arises for consideration is as to whether the rent income of Rs.6,66,000 received by the Assessee from letting of Godowns is entitled to deduction u/s. 80P(2)(e) of the Act. The AO/CIT(A) did not consider the plea of the Assessee in the light of the provisions of Sec. 80P(2)(e) of the Act which provides that income derived by co-operative society from letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, is eligible for deduction but examined the said claim as one made u/s. 80P(2)(a) of the Act. We therefore deem it fit and proper to direct the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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