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TMI Blog2018 (4) TMI 1206X X X X Extracts X X X X X X X X Extracts X X X X ..... cer concluded that since the assessee was doing the business of banking it was not entitled to deduction u/s 80P(2) of the I.T.Act, in view of the insertion of section 80P(4) of the I.T.Act with effect from 01.04.2007. The Assessing Officer further on adhoc basis disallowedRs.60,83,552 being 5% of the total interest expenditure incurred by the assessee. Further, the Assessing Officer also denied deduction u/s 80P for the interest earned on FDs with Co-operative Bank etc. amounting to Rs. 17,06,876. 3. Aggrieved by the assessment completed by denying deduction u/s 80P(2) of the I.T.Act, the assessee preferred an appeal to the first appellate authority. The CIT(A) following the judgment of the Hon'ble Kerala High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others vs. CIT [(2016) 384 ITR 490 (Ker.)] held that the assessees is entitled to the benefit of deduction u/s 80P(2) of the I.T.Act. The CIT(A) also deleted the addition made by the Assessing Officer amounting to Rs. 60,83,552. The CIT(A) also granted deduction u/s 80P for the interest earned by the assessee on its FDs amounting to Rs. 17,06,876. 4. Aggrieved by the order of the CIT(A), the Revenue has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court in the case of M/s Chirakkal Service Co-operative Bank ft others in ITA No. 212 of 2013, that held that the authorities under the Income tax Act cannot probe into question whether the assessee cooperative society is a primary agricultural credit society', once it is registered and classified as 'primary agricultural credit society' by the competent authorities under the provisions of the Kerala Cooperative Societies Act, 1969. For these and other grounds that may be advanced at the time of hearing, the order of the learned Commissioner of Income tax (Appeals) on the above points may be set aside and that of the Assessing Officer restored." 6. The learned Departmental Representative strongly relied on the grounds and the additional grounds. 7. The learned AR submitted that the issue in question is squarely covered by the decision of the Hon'ble jurisdictional High Court in the case of The Chirakkal Service Co-operative Bank Ltd. and Others vs. CIT (supra). 8. We have heard the rival submissions and perused the material on record. On perusal of the grounds No.2, 3 and the additional grounds raised by the Revenue, we find that identical grounds were adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law, the Hon'ble High Court rendered the following findings: "15. Appellants in these different appeals are indisputably societies registered under the Kerala Cooperative societies Act 1969, for short, KCS Act and the bye-laws of each of them, as made available to this court as part of the paper books, clearly show that they have been classified as primary agricultural credit societies by the competent authority under the provisions of that Act The parliament, having defined the term 'cooperative society' for the purposes of the BR Act with reference to, among other thing the registration of a society under any State law relating to co-operative societies for the time being; it cannot but be taken that the purpose of the societies so registered under the State Law and its objects have to be understood as those which have been approved by the competent authority under such State law. This, we visualize as due reciprocative legislative exercise by the Parliament recognizing the predominance of decisions rendered under the relevant State Law. In this view of the matter, all the appellants having been classified as primary agricultural credit societies by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he above said effect and the same is on record. The Hon'ble High Court, in the case cited supra, had held that primary agricultural credit society, registered under the Kerala Cooperative Societies Act, 1969, is entitled to the benefit of deduction u/s 80P(2). Since there is a certificate issued by the Registrar of Cooperative Societies, stating that the assessee is a primary agricultural credit society, going by the judgment of the Hon'ble jurisdictional High Court, assessee is entitled to deduction u/s 80P(2). However, the Revenue's contention is that the Hon'ble Apex Court in the case of Citizens Cooperative Society Ltd. (supra) categorically decided when deposits are received from general public / nominal members or loans are disbursed to general public / nominal members, the assessee would be doing the business of banking and therefore, would not be entitled to deduction u/s 80P(2) of the Income-tax Act. In the context of the submission made by the Revenue let me examine whether the judgment of the Hon'ble Apex Court in the case of Citizens Co-operative Society Ltd. (supra) has application to the facts of the present case. 9. The Hon'ble Apex Court judgment in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly non-members as per the provisions of law referred. The Hon'ble Apex Court specifically took note of the fact that the assessee therein has carved out a category of 'nominal members' who are infact not the members in the real-sense. Therefore the deposits received from the carved out category viz nominal members who are not the members as per the provisions of the law referred to therein and without the permission of the Registrar of Societies was held to be violative of the provisions and were treated/ proceeded with as deposits from the Public. In other words, in the case before the Hon'ble Supreme Court, the finding on the principle of mutuality was arrived at interalia; on the factual finding that the assessee was receiving deposits mostly from a carved out category of member viz 'nominal member' who are not members as per the provisions of law referred,, and that most of the business of the assessee therein was with this carved out category of person and also granting loans to public and without the approval from the Registrar of the Societies. 9.3 As far as the Kerala Co-operative Societies Act which is applicable to the present cases are concerned, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative Society has to be established under the provisions of law made by the State Legislature in that regard, the expression "Member" in Section 80P(2)(a)(i) must, therefore, be construed in the context of the provisions of law enacted by the State Legislature under which the co-operative society claiming exemption has been formed. The Supreme Court has further observed that it is necessary to construe the expression "Member" in Section 80P(2)(a)(i) of the Act in the light of the definition of "Member" given under Section 2(n) of the U.P. Co-operative Societies Act, 1965. 18. The definition of "Member" given in Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 takes within its sweep even a nominal member, associate member and sympathizer member. There is no distinction made between duly registered member and nominal, associate and sympathizer member. 19. In the case of K.K.Adhikari (cited supra), Division Bench of this Court has held that the definition of a Member under Section 2(19) of the Maharashtra Co-operative Societies Act, 1960 includes a nominal member or a sympathizer member. It is further held that notwithstanding the fact that a nominal member doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Society Ltd. is not applicable to the facts of the present case. According to me, the judgment of the Hon'ble jurisdictional High Court is identical to the facts of the present cases and is squarely applicable. Therefore, I hold that the CIT(A) has correctly allowed the claim of deduction in the above cases and I uphold the orders of the CIT(A). It is ordered accordingly. 10. In the result, these appeals filed by the Revenue are dismissed." 7.1 The facts of the instant cases are identical to the facts considered by the Tribunal in the above cases. Following the order of the Tribunal in the above mentioned cases, we hold that the CIT(A) is justified in directing the Assessing Officer to grant deduction u/s. 80P(2) of the Act. 7.2 Before concluding, it has to be mentioned that the case law relied on by the Revenue in the grounds, additional grounds are not applicable to the facts of the present case. Undisputedly, the assessee is a primary agricultural credit society and is providing credit facilities to its members for agriculture and agriculture allied activities. The competent authority of Co-operative Department of Government of Kerala having been satisfied with the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eported in 203 ITR 1027 (SC). In the case of Sabarkantha Zilla Kharid Vechan Sangh Ltd. (supra), the assessee-society was effecting sales of agricultural inputs of both members as well as non members. The assessee claimed share of the gross profit out of the transactions with members as a deduction from the combined net profit. On the contrary, in the instant case, the assessee had extended credit facilities only to the members. The Revenue does not have a case that such credit facilities are extended to the outsiders. Therefore the income generated in the instant case is only out of the transaction with the members. Deduction u/s. 80P is allowed only for the said income. The assessee had claimed deduction u/s. 80P only in respect of net income which is derived by extending credit facilities to the members. For the aforesaid reasons, the judicial pronouncements relied on by the Revenue in the grounds and the additional grounds does not have application to the instant case. Therefore, we hold that CIT(A)'s order is correct and in accordance with law. It is ordered accordingly." 8.2 In view of the judgment of the Hon'ble jurisdictional High Court in the case of The Chirakkal Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was unable to produce the details of the interest expenditure claimed. The CIT(A) had deleted the disallowance after carefully examining the details and evidences that was furnished by the assessee. The CIT(A) categorically found that the adhoc disallowance of 5% of the interest expenditure cannot be sustained, since the Assessing Officer has not given a specific case that the interest expenditure claimed was bogus. The CIT(A), after examining the month-wise details of the interest paid on deposit, had categorically found the interest expenditure has been actually incurred by the assessee, and there was no warrant to make an adhoc disallowance of 5% of the interest expenditure. Since no contrary evidence / material was produced by the Revenue in the course of hearing to dispel the categorical findings of the CIT(A), we confirm the CIT(A)'s findings on the issue. It is ordered accordingly. 9.6 In the result, ground No.4 raised by the Revenue is dismissed. 10. Ground No.5 and 6 raised in the Revenue's appeal is regarding denial of deduction u/s 80P for the interest earned by the assessee amounting to Rs. 17,06,876. 10.1 The Assessing Officer had denied the benefit of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.O., the provisions of section 80P(2)(d) does not have application. The Assessing Officer has identified the interest on such FDs amounting to Rs. 17,06,876. The CIT(A), on the other hand, had given a general finding that a major source of the income of the assessee was interest earned from loans and advances given for both agricultural and non-agricultural purposes, and therefore, no portion of the interest could separately be identified as income from other sources. The interest received from investments with the co-operative society is entitled to special deduction u/s 80P(2)(d) of the I.T.Act, however, if the said interest income is not received from the FDs with cooperative society, but with the Co-operative Banks etc., the same would not be entitled to deduction u/s 80P(2)(d) of the I.T.Act. These facts have not been properly examined by the CIT(A). Therefore, in the interest of justice and equity, the issue is restored to the files of the A.O. The A.O. shall examine whether the interest of Rs. 17,06,876 received by the assessee is out of investments made by the assessee with the co-operative societies. If it is so, the same would be entitled to deduction u/s 80P(2)(d) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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