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TMI Blog2024 (3) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding credit facilities to its members and also engaged in purchase of articles intended for agricultural needs of the members. The case was selected for scrutiny under CASS for the reason of 'High Creditors Liability, Investment/Advances/Loans and deduction from total income under Chapter-VIA. Thereafter, the Ld. AO issued notices u/s. 143(2) and 142(1) of the Act on various dates as mentioned in the assessment order and served on the assessee. Since no response was received from the assessee, the Ld. AO issued show cause notices dated 18/8/2022; 29/8/2022; 8/9/2022 and 14/9/2022 wherein it was noted that the assessee has earned interest income from investments as well as lending loans to the members of the assessee society. The interest income earned by the assessee is not eligible for deduction since it is generated from surplus or idle funds and therefore it is proposed to be taxed as income from other sources. The variation on account of the above is Rs. 85,71,420/-. In response, the assessee filed its reply to the above show cause notice and made submissions vide reply letters dated 12/9/2022, 16/9/2022 and 19/9/2022. On perusal of the replies and submissions made by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raising the following grounds of appeal: 1. "Both in law and in Facts of the case, the order made by HON'BLE CIT(A) NATIONAL FACELESS APPEAL CENTER, DELHI is bad in law, arbitrary, contrary to the provisions of law and against the principles of natural justice. 2. HON'BLE CIT(A) NATIONAL FACELESS APPEAL CENTER, DELHI is unjust in dismissing the appeal without condoning the delay in filing the appeal though the delay was due to the circumstances beyond the control and with no comments on the grounds of appeal. The Andhra Pradesh high court held in the case of Pinjari Khasim v Chanda Saheb, 2023 SCC OnLine AP 698, decided on 28-03-2023 that ".... ordinarily the litigation should not be terminated by default either of the plaintiff or the defendant. The cause of justice does require that the adjudication be done on merits...." 3. The Assessment Unit Income Tax Department erred in law in making an addition of Rs. 27,00,393/- on account of interest on deposits with Krishna District Central cooperative bank Limited (KDCC Bank) without allowing the claim of deduction u/s 80(P)(2)(a)(i) of IT Act, 1961. 4. The Assessment Unit, Income Tax Department is unjust in stating that the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r adjournment and proceed to adjudicate the appeal on merits with the help of the Ld. Departmental Representative. 4. Before me, the Ld. Departmental Representative submitted that as per the provisions of section 80P(2)(d) of the Act, any income by way of interest or dividends derived the Co-operative Society from its investments with any other cooperative society is eligible for deduction. The Ld. DR further submitted that in the present case, assessee derived interest from the funds parked with Krishna Cooperative Central Bank Limited and not from a Cooperative Society and therefore the deduction claimed by the assessee is rightly disallowed by the Ld. AO. The Ld. DR further argued that as observed by the Hon'ble Supreme Court in the case of Totgars Cooperative Sale Society Ltd vs. ITO [2010] 322 ITR 283 (SC) the income in respect of which deduction is sought must constitute the operational income and not the other which accrues to the society. In the present case, the interest earned by the assessee is from investments made out of surplus or idle funds from Cooperative bank and hence the assessee is not eligible for deduction u/s. 80P of the Act and pleaded to uphold the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) and found that in that case the society is engaged in marketing of the agricultural produce by its members as per section 80P(2)(a)(iii) while carrying on the business of banking or providing credit facilities to its members u/s. 80P(2)(a)(i) of the Act. In that case, the Society retained the sale proceeds which was otherwise payable to its members from whom the produce was bought which was invested in short term deposits / securities. It is also found that the amount payable to its members realized from sale proceeds of the agricultural produce of its members was retained by the society and was shown as liability on the balance sheet. Therefore, the Hon'ble Apex Court has held that interest earned from retaining the amount payable to its members shall not be considered as income from other sources. However, in the instant case the facts are distinguishable and hence in our view the ratio laid down in the case of M/s. Totgars Cooperative Sale Society Ltd (supra) shall not be applied. Section 80P(1) of the Act entitles the Cooperative Societies to deduct the sums specified in sub-section (2) from its gross total inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n simple terms, the benefit under clause (a) will be limited only to the profits & gains of the business attributable to any one or more of such activities. But in case, if the cooperative society has an income not attributable to any one or more of such activities listed in sub-clauses (i) to (vii) of clause-(a), the same may go out of the purview of clause (a) but still the cooperative society may claim the benefit of clause (d) or (e) as per the conditions laid down therein. In the instant case, the original source of investments made by the assessee in Nationalized Banks is admittedly the income of the assessee derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income must be last, especially when the statute uses the expression "attributable to" and not any one of the expressions viz., "derived from" or "directly attributable to". The Hon'ble jurisdictional High Court of Andhra Pradesh and Telangana in the case of Vavveru Cooperative Rural Bank Ltd vs. Chief Commissioner of Income Tax and Another [2017] 396 ITR 0371 (AP) in para 34 has discussed about the decision of the Hon'ble Supreme Court in the case of Totgar's Cooperative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e), as the case may be. 36. The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to". 37. Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside." 12. Further, the Coordinate Bench of Hyderabad in Tirumala Tirupati Devasthanams Employees Coop. Credit Society vs. ITO also affirmed the same view by following the decision of the Hon'ble AP High Court in the case of Vavveru Cooperative Rural Bank Ltd (supra). In the instant case also, the assessee has invested surplus funds out of the activities carried out as per the provisions of section 80P(2)(a) of the Act. We therefore by respectful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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