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TMI Blog2015 (10) TMI 2172X X X X Extracts X X X X X X X X Extracts X X X X ..... Tushar Hemani, AR For The Respondent : Smt. Smiti Samant, Sr.DR ORDER PER Manish Borad, Accountant Member. This appeal of the assessee is arising out of the order of CIT(A) Valsad dated 14.5.2015. Assessment was framed by ITO, Ward-1, Navsari u/s 143(3) of the Income-tax Act, 1961(herein after referred to as the Act) on 31.12.2013. Assessee has raised the following grounds in this appeal:- 1. The ld. CIT(A) has erred both in law and on the facts of the case in wrongly interpreting section 80P of the Act and thereby confirming the action of learned AO of not allowing claim of deduction u/s 80P of the Act for the sum of ₹ 1,81,791/- and further erred in holding that the said income is taxable in hands of the appellant separately as income from other sources. 2. Both the lower authorities have erred in not appreciating that investments are an integral part of providing credit facilities and therefore, any income earned by carrying out the said activities qualifies for claim of deduction u/s 80P of the Act. 3. Alternatively and without prejudice to the above, both the lower authorities ought to have allowed expenditure incurred for earning such income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1,81,791/- on account of interest income because the sources of interest income are fixed deposits and securities kept with private bank which cannot be termed as income derived from its non-taxable activity. Aggrieved, the assessee went in appeal before the CIT(A) who confirmed the addition made by the AO by giving following observations :- 6. Decision I have carefully considered the facts of the case as well as the law stated by the assessing officer in the assessment order along with the written submissions made by the AR of the appellant. It is noteworthy to mention here that a similar issue also came up for adjudication before my predecessor in appellant s own case for AY 2009-10 in appeal No.CIT(A)/VLS/167/11-12 which was decided on 31.3.2010. The relevant portion of the decision taken by my predecessor on the similar issue involved in this case is given below:- I have carefully considered the observation of the AO in the assessment order as well as the contention raised by the AR of the appellant in the written submission. The short point have to be decided is whether the interest income earned by the appellant from other than Co-operative banks is all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 65,110/-. Aggrieved by the order of A.O., the matter was carried before CIT (A) who by order dated 25-02-2011 granted partial relief to the assessee by holding as under. 4. In this ground the appellant contested against the addition of ₹ 58,315/- towards interest on F.D. with schedule banks. The A.O. observed that the appellant has derived interest income on the deposits kept with other than the co-operative bank and therefore, deduction u/s. 80P(2)(d) is not available to the appellant. Thus, the interest income derived from investment/deposits with the ICICI bank is assessable as income from other source observed by the A.O. The appellant before me submitted that the a/c with ICICI bank was opened with multiple objective which include i) immediate credit outstation cheques, ii) saving of bank charges on clearance of outstation cheques, iii) maximum utilization of funds on immediate credit of outstation cheques, iv) immediate transfer of surplus funds to FDR, v) immediate encashment of FDRs as and when needed. Therefore, he Ld. AR. pleaded that the a/c with the ICICI bank was with a motive of maximum utilization of working capital/surplus funds so as to ultimately impr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities is in clear breach of law and principles of natural justice and therefore deserves to be quashed. 6. The Ld. CIT (A) has erred in law and on facts of the case in confirming action of the Ld. A.O. in levying interest u/s. 234B/C of the Act. 7. The Ld. CIT (A) has erred in law and on facts of the case in initiating penalty proceedings u/s. 271(1)(c) of the Act. 6. Before us at the outset, Ld. A.R. submitted that though assessee has raised various grounds but the only issue is with respect to deduction under section 80P. Before us, Ld. A.R. reiterated the submissions made before A.O. and Ld. CIT (A) and further submitted that assessee is a multipurpose cooperative society dealing mainly in marketing of agricultural products grown by its members. During the year assessee had earned interest on fixed deposits which were placed with ICICI bank. The interest income earned by the assessee from the deposits placed with bank was treated as income from other sources by the A.O. and accordingly the deduction under section 80 P was denied. Ld. A.R. submitted that the investments with ICICI bank were made with multiple objectives which included immediate credit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P (1) of the Act. I fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v/s. Andhra Pradesh State Co-operative Bank Ltd., [2011] 200 Taxman 220/12 taxmann.com 66. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. 8. We are of the view that the facts of the case are identical to that in the case of Tumkar Merchants Souharda Credit Co-operative Ltd. (supra) which has been decided by Hon ble Karnataka High Court and therefore considering the facts of the present case in the light of the aforesaid decision of Hon ble Karnataka High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne was dealt with by the Hon ble Supreme Court in the case of Totgars Co-op. Sale Society Ltd v. ITO (supra). The issue before the Hon ble Court for determination was whether interest income on short term bank deposits and securities would be qualified as business income u/s 80P (2)(a)(i) of the Act. 19. The issue dealt with by the Hon ble Supreme Court in the case of Totgars (supra) is extracted, for appreciation of facts, as under: What is sought to be taxed under section 56 of the Act is the interest income arising on the surplus invested in short term deposits and securities which surplus was not required for business purposes? The assessee(s) markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is-whether interest on such deposits/securities, which strictly speaking accrues to the members account, could be taxed as business income under section 28 of the Act? in our view, such interest income would c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural produce of its members; (2) in the case of present assessee, it did not carry out any activity except in providing credit facilities to its members and that the funds were of operational funds. The only fund available with the assessee was deposits from its members and, thus, there was no surplus funds as such; - in the case of Totgars, the Hon ble Supreme Court had not spelt out anything with regard to operational funds; 19.5 Considering the above facts, we find that there is force in the argument of the assessee that the assessee not a co-operative Bank, but its nature of business was coupled with banking with its members, as it accepts deposits from and lends the same to its members. To meet any eventuality, the assessee was required to maintain some liquid funds. That was why, it was submitted by the assessee that it had invested in short-term deposits. Furthermore, the assessee had maintained overdraft facility with Dena Bank and the balance as at 31.3.2009 was ₹ 13,69,955/- [source: Balance Sheet of the assessee available on record] 19.6 In overall consideration of all the aspects, we are of the considered view that the ratio laid down by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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