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TMI Blog2015 (3) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... is aspect on factual basis and excluded certain other incomes also. Therefore, on facts, the issue of violation of provisions of A.P. Cooperative Societies Act, 1964 does not arise at all. - Decided in favour of assessee. Activity of the assessee is not ‘banking activity’ among its Members but finance business of accepting deposits (surety bonds for accused) and investing them in FDs/advancing loans to Members - Held that:- In this case, as rightly pointed out by the Ld. CIT(A), assessee is not involved in business of banking and has only involved in providing credit facilities to the Members of the Society. Even though it has other objects, basically as per the assessee’s admission before the authorities, the receipts of interest is on the loans provided to the Members per se. Most of the deposits accepted are from Associate Members who are not generally given any loans as their deposits are for surety on the bonds given to the accused and these amounts received from such non-Members are deposited in other Cooperative Societies/ Cooperative Banks or Scheduled Banks. As can be seen from the order of the A.O. itself, he has identified the amounts of interest received from the Coo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Since, common issues are involved in these appeals, we have heard the appeals together and disposed of by this common order. We have heard the learned D.R. for the Revenue and Ld. Counsel for the assessee in detail and perused the paper book placed on record. For the sake of clarity, we consider the appeals in A.Y. 2007-2008 in detail. ITA.No.546/Hyd/2012. AY 2007-08. ITA.No.548/Hyd/2012. AY 2007-08. 2. Briefly stated, assessee is a cooperative society registered under the A.P. Mutually Aided Cooperative Societies Act (APMACSA). It is engaged in the business of providing credit facilities to its Members and accepting deposits from Associated/nominal Members. It filed its return of income on 07.09.2009 declaring income of ₹ 31,06,406 after claiming deduction under section 80P of the Act of ₹ 26,00,800. Assessee s gross receipts for the year ending March, 2007 are to the tune of ₹ 1,51,48,494. This include interest received and receivable on Loans/ FDs with Societies/Banks/Members to an extent of ₹ 1,37,32,229. Balance of receipts pertains to interest on gold loans, share-loans, sale of postal stamps, welfare stamps, other stamps and stationery. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining total income at ₹ 43,12,740 as against declared income of ₹ 31,06,406. In doing so, A.O. indirectly disallowed amount of ₹ 20,68,583 towards insurance on Mediclaim policies of Members while arriving at the profit for the purpose of taxation. 4. Before the Ld. CIT(A), assessee contended that A.O. has wrongly considered A.P. Cooperative Societies Act whereas, the assessee is registered under A.P. Mutually Aided Cooperative Societies Act (APMACSA). Ld. CIT(A) analysed the provisions and case law on the issue and came to the conclusion that assessee is engaged in providing credit facilities to its Members. He also was of the opinion that source of funds for providing such credit has not been specified in the section, therefore, since the funds are obtained as part of section 14(2) of the APMCSA, he was of the opinion that acceptance of deposits from non Members/nominal Members cannot said to disqualify the assessee from benefit of section 80P. Therefore, he directed the A.O. to allow deduction under section 80P(2)(a)(i). 4.1. Ld. CIT(A) also noted that there was a calculation error which has crept into computation of deduction under section 80P(2)(d) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 2 pertain to allowance of deduction under section 80P2)(a)(i) and in support ground No.3 was raised on the basis of the issues involved in A.Y. 2008-09 also. The concept of mutuality and violation of Banking Regulations Act which were the main discussion in A.Y. 2008-09 were raised. This issue does not arise from the order of the A.O. However, this ground is kept in mind while deciding the issues. For the time being, ground No.3 is not material in deciding the issues arising in impugned order for A.Y. 2007-08. 5.2. The main contention of the Revenue is that assessee is not carrying on the business of banking which the A.O. held in violation of the provisions of the Act. Basically, assessee was mobilizing funds for deposits and doing normal banking business and therefore, Revenue is of the opinion that deduction under section 80P(a)(i) should not be allowed to the assessee. 6. After considering the rival contentions and perusing the paper book placed on record and provisions of the Act, we do not find any merit in Revenue appeal on this issue. As far as the so-called violations of the provisions of A.P. Cooperative Societies Act, 1964 are concerned, this ground does not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with the Society, who shall pay admission fee of ₹ 50 or any other amount as decided by the Board. It also clearly indicates that such person shall not be eligible to vote, attend meetings, claim profits or loss or any other privileges provided to the shareholder unless specifically permitted. It also restricts that Board shall not induct more than 250 Members as Associate Members. Thus the bye-laws pertain to Membership clearly distinguishes the Members of the Cooperative Society and Associate Members who cannot be treated as Member, as they are having only a right to pay admission fees and take loans from society and make deposit with society, without other privileges. There are certain judgments given under Cooperative Societies Act in case of societies involved in banking business, by virtue of which distinction between Members and non-Members was not considered material and their equal treatment as far as business of banking is concerned was accepted. In this case, as rightly pointed out by the Ld. CIT(A), assessee is not involved in business of banking and has only involved in providing credit facilities to the Members of the Society. Even though it has other objects, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. Moreover, as seen from the working made out by the A.O. he has excluded incomes received from the Cooperative Banks/Societies separately. The receipts from the Members are separately considered for allowing proportionate deduction under section 80P(2)(a)(i). In case, this expenditure is not allowed, the income to that extent will go up from the income computed on the transactions with Members. The deduction under section 80P(2)(a)(i) also has to be proportionately increased. This is an academic view, but the fact is that the expenditure is an allowable expenditure, as it is spent for the benefit of the Members, in the course of society activities, as permitted by the bye-laws of the society. In view of this, we are of the opinion that the expenditure cannot be disallowed as personal in nature. Assessing Officer is directed to allow the amounts and compute the incomes accordingly on proportionate basis between the incomes on the transactions with Members and on transactions with Associated/Nominal Members and allow deduction under section 80P(a)(i) accordingly. Therefore, assessee s grounds on this issue are considered as allowed. 10. In the result, revenue appeal is dismisse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : 4.5. I have considered the submissions of the A.R. and the facts available on record. Similar issue arose in the assessee s case for A.Y. 2007-08 where I have dealt with the majority of the arguments of the Assessing Officer and have held that the assessee was eligible for deduction u/s.80P(ii)(a)(i) on the profits and gains from providing credit facilities to members (ITA.No.0235/09-10 dated 20.1.2012). While agreeing with my view for the preceding year, certain additional arguments put forth by the Assessing Officer in the assessment order for this year need to be addressed. 4.6. Sec.2(24)(viia) provides as under : (24) Income includes - (viia) the profits and gains of any business of banking (including providing credit facilities) carried on by a cooperative society with its members; There is no dispute that the profit from the business of providing credit facility to members by a cooperative society is liable to tax. The fact that sec.80P provides a deduction for such profits presupposes that such profits is liable to tax. However, sec.(24) cannot be said to undo the specific benefit granted by sec.80P. The two provisions have to be read harmoniously to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the A.O. on similar lines as that of A.Y. 2007-08. 13.1 Both assessee and Revenue are in appeal. Assessee mainly on the issue of allowance of various insurance claims and Revenue on the issue of violation of Banking Regulation Act, violation of Principles of APMECSA and also allowing deduction under section 80P(2)(d). 14. After considering the rival contentions and perusing the orders of the authorities, we are of the opinion that the A.O. misdirected herself by analysing the issue in a tangential way ignoring the basic facts of the case. As briefly stated in A.Y. 2007-08, in this year also assessee has not claimed any deduction under section 80P(a)(i) either on the incomes arrived from associate or nominal-Members or on the transactions of miscellaneous nature. What assessee has claimed deduction is proportionately on the net receipts eligible for deduction out of the gross receipts, after arriving at the profits of the society. This basic fact was ignored by the A.O. Moreover, as considered in earlier year, assessee being a Cooperative Society registered under APMECSA, 1995 analysis of the Society under A.P. Cooperative Societies Act does not arise at all. Not only that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has deposited money in RRBs/Cooperative Banks, status of which is not recognized under the Income Tax Act as cooperative bank can the interest arising out of the deposit of this RRBs/Coop Banks would quality for deduction u/s.80P(ii)(d). 17. We are unable to understand the reasoning given /contentions made in this ground by the Revenue. As already stated above, assessee has not claimed any benefit of mutuality. So contention on principle of mutuality itself is misplaced, so raising ground on that is misconceived. Not only that, Ld. CIT(A) direction is to allow deduction under section 80P(2)(d) and this direction was similar to the direction given in A.Y. 2007-08. Surprisingly, Revenue has not preferred any ground on that issue in that year as the assessee is eligible for such deduction. Why they preferred the ground in this assessment year is not understandable at all. This indicates that neither the A.O. nor the Ld. CIT, who authorised the second appeal has not applied their mind to the issue. Moreover, it is surprising that Revenue states in the ground that Having established on the record that the assessee has deposited money in RRBs/Cooperative Banks, status of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has violated the principles of the Andhra Pradesh Mutually Aided Cooperative Societies Act (APMACSA), 1995. 2. The observation of CIT(A) is misplaced with regard to deduction u/s.80P(ii)(i)(a) is even otherwise given to assessee even if it accepts deposits from non-members. 3. The assessee had received interest of ₹ 94,47,231 from Cooperative Banks and one Cooperative Society, i.e., A.P. High Court Employees Coop. Society. Out of ₹ 94,47,231/- the amount received from Cooperative Society is ₹ 63,468/- only. Since deduction u/s.80P(2)(d) is allowable only in respect of interest received from Cooperative Societies, the proportionate income was treated as income from other sources. However, the CIT(A) allowed deduction u/s.80P(2)(d) in respect of interest received from all the above institutions. Since the deduction u/s.80P(2)(d) is allowable only in respect of interest received from cooperative societies and not the cooperative banks, further appeal to ITAT, is recommended on this issue also. 22. This issues are already considered in earlier year s appeals and facts are similar. A.O. was directed by Ld.CIT(A) to allow the deduction under section 80P(2)(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society. Therefore, in the case of the assessee society, sub-section (4) is not applicable and deduction under section 80P(2)(d) is certainly eligible to assessee. In the assessment of a Cooperative Bank, the incomes may not be exempt after 01.04.2007 by virtue of sub-section (4), but assessee is not a Cooperative Bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the A.O. to the Ld. CIT in their internal correspondence is extracted as a ground. This also indicates non-application of mind either by the A.O. or by higher authority like CIT. This sorry state of affairs should come to an end and Officers should act responsibly while preferring second appeal on the orders of the senior officer like Ld. CIT(A). Revenue appeal is dismissed. ITA.No.1860/Hyd/2013 (Revenue Appeal) : AY 2010-11. 23. In this appeal the Revenue has raised the following grounds. 1. The order of CIT(A), Hyderabad is against facts of the case. 2. Whether the Ld. CIT(A) is correct in law in holding that the assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act, in view of the fact that, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal. Apart that, the claim of ₹ 64,18,509 as expenses was also disallowed. Aggrieved, assessee preferred appeal before the Ld. CIT(A) and the Ld. CIT(A) confirmed the order of A.O. Aggrieved, assessee filed the present appeal before us and has raised the following grounds: 1. The order of the A.O. is contrary to law, circumstances and facts of the case. 2. The A.O. ought not to have disallowed the medi-claim and other insurance paid of ₹ 32,52,615. 3. The appellate Commissioner ought not to have confirmed the disallowance of ₹ 32,52,615 made by the A.O. 4. The A.O. ought not to have disallowed the insurance claim of ₹ 28,87,005. 5. The appellate Commissioner ought not to have confirmed the disallowance of ₹ 28,87,005 made by the A.O. 6. The A.O. ought not to have disallowed the accident insurance of ₹ 2,78,889. 7. The appellate Commissioner ought not to have confirmed the disallowance of ₹ 2,78,89 made by the A.O. 8. The A.O. ought not to have disallowed the doctor salary of ₹ 1,40,910. 9. The appellate Commissioner ought not to have confirmed the disallowance of ₹ 1,40,910 made by the A.O. 10. An ..... X X X X Extracts X X X X X X X X Extracts X X X X
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