2022 (9) TMI 1597 - AT - Income Tax

Deduction u/s 80P - interest earned by the assessee from deposit with co-operative bank and nationalized bank - HELD THAT - As decided in Krishak Sahkari Ganna Samiti Ltd. 2002 (10) TMI 89 - ALLAHABAD HIGH COURT has held that the investment by co-operative society in the form of Government securities, equivalent to 25% of its profit, was the requirement of keeping the same as statutory reserve therefore, has held that such earning of interest was attributable to the activity carried on by the assessee. We find that assessees had earned interest from fixed deposits from bank and co-operative societies. Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Limited 2010 (2) TMI 3 - SUPREME COURT , after acceptance of additional documents had set aside the issue before this Tribunal for re-adjudication. We find that the arguments of the assessees are that the assessees had placed the funds in the form of fixed deposits with nationalized banks and Co-operative banks in view of the specific requirements of U.P. Co-operative Societies Act. Interest earned by a Co-operative Society on deposits, which are statutorily required to be kept in the form of bank deposits or Government securities, are attributable to the business of an assessee. Here in the present cases, we do not find the figures regarding the interest which the assessees may have earned on fixed deposits attributable to the making of statutory reserves. We further find that bye laws of the assessee has to be gone through which, though are available in the paper book, but require examination by the AO as these were filed before Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Limited Supra as additional evidences. Therefore, we deem it appropriate to remit the issue of deduction u/s 80P for read judication by the Assessing Officer, who, in the light of judgment of Hon'ble Supreme Court and keeping in view the judgments relied on by the assessee and keeping in view the additional documents, as filed before Hon'ble Supreme Court, will adjudicate the issue afresh. Ground No. 1 taken by the Revenue in all the appeals is allowed for statistical purposes.

Summary

Issues Involved:
1. Deduction under Section 80P(2) of the Income Tax Act.
2. Deposit of provident fund.

Detailed Analysis:

1. Deduction under Section 80P(2) of the Income Tax Act:

The appeals were filed by the Revenue against the orders of the CIT(A), which had allowed deductions under Section 80P(2) to cooperative societies engaged in sugarcane procurement and related activities. The Tribunal initially dismissed these appeals, but the Hon'ble Allahabad High Court reversed the Tribunal's orders, favoring the Revenue by relying on the Supreme Court's judgment in the Totgars Co-operative Sale Society Limited case. The assessees then appealed to the Supreme Court, which set aside the High Court's decision and remitted the matter back to the Tribunal for fresh adjudication, allowing the assessees to submit additional documents.

The assessees argued that their activities, as per their bye-laws, were non-profit and aimed at the welfare of cane growers. They contended that the funds deposited in cooperative and nationalized banks were in compliance with statutory requirements under the U.P. Co-operative Societies Act, and the interest earned from these deposits should be considered attributable to their business activities, thus qualifying for deduction under Section 80P(2). They cited the Allahabad High Court's judgment in CIT vs. Krishak Sahkari Ganna Samiti Ltd., which held that interest earned on statutory reserves is attributable to the business of the cooperative society.

The Tribunal noted that the Supreme Court had remitted the matter due to a lack of clarity on facts and the exemption clause under Section 80P(2). The Tribunal acknowledged the statutory requirements under Section 58 of the U.P. Co-operative Societies Act, which mandates the distribution of net profits into various funds, including reserve funds and cooperative education funds. The Tribunal also referred to the Allahabad High Court's judgment, which supported the assessees' claim that interest earned on statutory investments is attributable to their business activities.

Given the Supreme Court's directions and the additional documents submitted, the Tribunal found it necessary to remit the issue back to the Assessing Officer for fresh adjudication. The Assessing Officer was instructed to consider the judgments cited by the assessees and the additional documents filed before the Supreme Court. The Tribunal emphasized that the Assessing Officer should examine the bye-laws of the assessees and determine the eligibility for deduction under Section 80P(2) afresh, providing the assessees with sufficient opportunity to be heard.

2. Deposit of Provident Fund:

The Tribunal did not specifically address the issue of the deposit of the provident fund in detail, as the primary focus was on the deduction under Section 80P(2). The initial appeals by the Department had included this issue, but it was not pursued further before the High Court or Supreme Court. Therefore, the Tribunal's order primarily revolves around the adjudication of the deduction under Section 80P(2).

Conclusion:

The Tribunal, following the Supreme Court's directions, remitted the issue of deduction under Section 80P(2) back to the Assessing Officer for fresh adjudication. The Assessing Officer is to consider the additional documents and judgments cited by the assessees and provide a fresh decision on the matter, ensuring the assessees are given a fair opportunity to present their case. The ground taken by the Revenue in all appeals was allowed for statistical purposes, and the order was pronounced in the open court on 01/09/2022.