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TMI Blog2019 (11) TMI 1185X X X X Extracts X X X X X X X X Extracts X X X X ..... hat impugned disallowance has to be computed on netting basis and both the lower authorities have not taken into consideration the same in their respective orders. We therefore direct the AO to compute the impugned disallowance on netting basis as per law within three effective opportunities of hearing. X X X X Extracts X X X X X X X X Extracts X X X X ..... osed for your perusal.(Page 5) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITR1, SC] where it was held by the Apex Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business. 3) The Ld. A.O. disallowed 10% of Printing & Stationery Charges of Servo division of ₹ 14,604/- on assumption basis (Out of total printing & Stationery expenditure of ₹ 1,46,049/-) The above expenditure was revenue in nature and in relation to the business of the assessee and relating to that Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy of ledger and documents enclosed for your perusal. (Page-6) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI,SC] where it was held by the Apex Court that the expression "Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman incurs for the purpose of the business, 4) The Ld. A.O. disallowed 20% of Business Promotion of Servo division of ₹ 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration to both the parties' rival contentions against and in support of the impugned estimated business promotion expenses disallowances. It emerges that neither the assessee has proved any nexus between the impugned expenses in the nature of loading and unloading charges and printing and stationery sales promotion by placing all supportive details in entirety nor the lower authorities have found any specific defect in the expenses in issue. Faced with this position, we deem it appropriate in larger interest of justice that a lumpsum disallowance of ₹ 1,00,000/- out of ₹ 4,19,204/- would be just and proper with the rider that the same shall not be treated as precedent in other assessment year. The assessee's instant first substantive ground is partly accepted in above terms. Necessary computation to follow as per law. 4. Next comes the later issue of section 80P(2)(a)(i) deduction disallowance of ₹ 3,23,80,202/- made in assessment order and affirmed in the lower appellate proceedings. The CIT(A)'s detailed discussion qua this instant issue reads as under: "4.6 Findings of the CIT(A) I have perused the submission of the appellant and various case laws on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative society,- (1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and (2) the bye-laws of which do not permit admission of any other co-operative society as member: Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccv) 'primary co-operative bank" means a co-operative society, other than a primary agricultural credit society. (1) the primary object or principal business of which is the transaction of banking business; From this definition of PACS it can be seen that under clause (ccii) Co-operative Credit Society includes Co-operative Land Mortgage Bank. Therefore, even in the Banking Regulation Act Co-operative Bank and Co-operative Credit Society are not mutually exclusive. Similarly clause (ccv) a Primary Co-operative Bank has been meant to be a Co-operative Society.- In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned. In view of above discussion I am of the opinion that the appellant is not entitled to deduction u/s 80P(2)(a)(i), in view of it being covered u/s 80P(4), therefore, I agree with the A.O. that the appellant is not eligible for the deduction, even though on a different reasoning. Therefore, the appeal of the appellant on this ground is dismissed." 5. Learned Authorized Representative vehemently contends during the course of hearing that both the lower authorities have erred in law and on facts in disallowing u/s 80P(2)(a)(i) deduction claim in the nature of interest income. He quotes the tribunal's order in assessee's case ITA No.1242/Kol/2007 dated 09.10.07 deciding the issue in its favour as upheld by hon'ble jurisdictional high court's judgment in ITA No.416 of 2008 dated 18.08.2008. We sought to know about the nature of assessee's interest income. Our attention was invited to page 2 para 4 of assessment order dated 30.12.2016 indicating the same to have been derived from surplus funds invested in term deposits in different banks mainly in the State Bank of India. We find in this factual backdrop that the assessee's impugned deduction claim deserves to be rejected as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the deposits into liquid funds for utilization in its business. A part of these investments were again pledged with the bank to avail of a credit limit which provided the working capital to the appellant. The loan funds were obtained through overdraft account so that the cost of borrowing remains co-related to the period of utilization of funds only. This arrangement of investment of funds in bank time deposits, obtaining loan against the same and utilization of borrowed funds as working capital, has been continued by the appellant for several number of years in the past and in scrutiny assessments, excepting for the preceding five Assessment Years 2009-10, 2010-11,2011-12, 2012-13 and 2013-14 this arrangement had never been disputed by the Assessing Officer in the matter of determining the business activities of the appellant and consequently in relation to the appellant's claim of Deduction u/s 80P. However, in respect of all the above-mentioned 5(five) Assessment Years, the actions of the Assessing Officer were held to be unjustified and the appellant's contention for its eligibility to Deduction u/s 80P in respect of its entire income from interest, was accepted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent. Here the funds invested are used for the purposes of business by (a) earning income to be utilised for providing Credit facilities to the members, (b) availing of credit limits which are essential for providing the working capital to the appellant for grant of credit to its members, (c) maintaining the liquidity option and (d) keeping the income option alive. The Assessing Officer considered the Interest income of ₹ 22070040 earned from fixed deposits and Savings Bank Account as alleged Income from Other sources and on that basis he denied the deduction u/s 80P(2)(a) in respect thereof. The appellant submits that the above- referred Supreme Court decision relied upon by the Assessing Officer, was distinguishable from the appellant's case as under: (i) The activities of the concerned co-operative societies were to provide credit facilities to its members and to market their agricultural produce, while in the case of the appellant the main objects were to create funds to be lent to the appellant's members and also to provide the members the facilities for the exercise of Thrifts and Savings. (ii) The concerned co-operative society had been in the business o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant got relief through the respective Appellate Orders passed by the CIT(Appeals)-XIX, Kolkata and the CIT (Appeals)-9, Kolkata for A.Y-2013-14 dated 30.09.2016 (copy of last order enclosed). The departmental appeal for A. Yrs. 2009-10 to 2012-13 before ITAT, Kolkata was decided in favour of assessee in ITA No. 158 & 1808 to 1809/Kol/14 & ITA 1126/Kol/15 dated 09.11.2016 (copy enclosed). It is further submitted that the Assessing Officer did not appreciate that as per the provisions of the Multi- State Co-operative Societies Act, 2002 the appellant had been required to make investments in respect of specified percentage of its business profit of the year and a substantial portion of the investments represented the statutory funds aggregating to ₹ 58957203 [statutory reserve fund of ₹ 48481947 and reserve fund (unforeseen loss) of ₹ 10475256]. It may kindly be appreciated that these investments having been made for complying with the statutory requirements, had direct nexus with the business carried on by the appellant and thus the interest earned therefrom should necessarily be treated as arising from business carried on by the appellant. Reference may kindly be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness income or for any other reason, then the interest cost which the assessee had incurred for earning such Interest income, was required to be deducted from the said interest income from Deposits. The time deposits with bank were made by utilizing the funds received by the appellant by way of its members' deposits carrying interest and therefore the interest earning had to be set-off with interest expense. In this regard reference may kindly be made to the above-mentioned Supreme Court" decision referred to by the Assessing Officer wherein the Supreme Court remitted to the Karnataka High Court, the issue of deducibility of cost of funds and appropriate administrative expenses u/s 57. The appellant submits, without prejudice to the submissions made in regard to Grounds Nos.1and 2 above, that in the event of considering the Interest income of ₹ 22070040 as allegedly not a part of Business Income, simultaneously with the exclusion of the said sum of ₹ 22070040 from the appellant's F.: Business Income, the Assessing Officer should also have excluded the expenses towards Interest paid on Deposits aggregating to ₹ 21073824, out of the head 'Busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee." (2) The sums referred to in sub-section (1) shall be the following, namely :- (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of agricultural produce grown by its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities :" 4. The AO was of the view that as per the decision re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of proceedings before CIT(A), the CIT(A) noticed that the assessee had claimed deduction u/s 80P(2(a) (i) of the Act on interest income arising from Savings Bank A/C. and Recurring Deposit(RD) Account which was made by the Assessee from and out of the RD Account made by its members with the Assessee. The Revenue took the view that as per the decision rendered by the Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO 322 ITR 283 (SC) interest earned on deposits had to be regarded as income under the head 'Income from other sources' and therefore deduction u/s 80P(2)(a)(i) of the Act ought not to have allowed to the assessee as only the whole of the amount of profits and gains of business attributable to carrying on the business of banking or providing credit facilities to its members is allowed as deduction under the said provision. On further appeal by the Assessee before the Tribunal, the Tribunal held as follows: "6. At the time of hearing of this appeal the ld. Counsel for the assessee filed before me a copy of the decision rendered by ITAT, Kolkata Bench in the case of S.E., S.E.C. & E.Co. Railways Employees'Co-operative Credit Society ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to assessment years 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of the decision of the Tribunal in relation to the assessment years 1998- 99 to 2002-03 and also 2003-04 to 2004-05 the matter would have been different. The revenue did not take any step whatsoever. Therefore, we presume the revenue has accepted the subsequent view of the Tribunal and the same now hold the field right now." 7.2. Considering the above we find that this issue is squarely covered in favour of the assessee by the decision of the Hon'ble Jurisdictional High Court in assessee's own case. In this regard we would like to place reliance upon the decision of the Hon'ble Apex Court in the case of CIT vs Excel Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case is identical to the interest income received by the assessee in the decision referred to above. I hold that the assessee is entitled to deduction u/s 80P(2)(a)(i) of the Act in respect of the interest income." 13. The aforesaid view has also been followed by the Tribunal in I.T.A.Nos.737-742/Kol/2011for Assessment Year: 1996-97 to 2001-02 in the case of A.C.I.T., Circle-56, -vs.-The West Bengal State Co-operative Bank Ltd. 14. The Hon'ble Karnataka High Court had also an occasion to examine the scope of Sec.80P(2)(a)(i) of the Act, in the light of the decision of the Hon'ble Supreme Court in the case of Totagar Co-operative Society (supra) in the case of Guttigedarar Credit Co-operative Society Ltd. Vs. ITO Ward 2(2), Mysore (Karnataka). The Assessee in that case which was a co-operative Society claimed deduction in respect of interest income it earned on deposit of surplus funds as eligible for deduction u/s.80P(2)(a)(i) of the Act. The appellate authorities under the Act held that assessee is liable to income tax in view of the judgment of the Apex Court in the case of Totgars Co-operative Sale Society Ltd. v. ITO 377 ITR 283 (Karn.). On appeal by the Assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. 11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Cooperative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CIT(A) and dismiss the appeal by the revenue. 8. In the result, appeal by the revenue is dismissed." Mr. Banerjee accordingly prayed for rejection of the instant appeal. 6. We have given our thoughtful consideration to rival contentions. The sole dispute between the parties is about the correctness of assessee's sec. 80P(2)(a)(i) deduction claim of ₹2,20,70,040/- pertaining to interest income from fixed deposits and other investments made in Central Bank of India as well as West Bengal State Co-operative. It appears at the time instance that this taxpayer's case is squarely covered by this tribunal's earlier year in its favour (supra). Relevant factual backdrop however speaks otherwise. It is sufficiently clear by now that the above co-ordinate bench followed yet another tribunal's order declining Revenue's stand on sec. 80P(2)(a)(i) issue as per hon'ble jurisdictional high court's decision in CIT vs. South Eastern Railway Employees Co-operative Credit Society in ITAT No.135 of 2010 GA No.1838 of 2010 dated 22.07.2010. The Revenue had filed said appeal against the tribunal's order holding the concerned assessee's interest income arising from investments in ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years. It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal) that there is no change in the facts and circumstances of this case and it was held that the assessee was eligible for deduction under Section 80P(2)(a)(i) on interest on investment amounting to ₹ 1,18,07,645/- in this assessment year also. Since the Tribunal found that this decision of the Tribunal was followed by CIT (A) there is no reason to take a different view. Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter. Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties before this Court. It is submitted by Mr. Bhowmick that there has been challenge of the decision in relation to assessment years 1995-96, 1996-97 and the same is pending before this Court we think that challenge of the assessee has now become redundant as the earlier view taken in both the assessment years have been rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from various activities. It is only an income falling under sub-section (2), which is deductible. The Supreme Court in the case of Totgar's Co-operative Sale Society Ltd. v. ITO reported in [2012] 322 ITR 283 (SC) took the following view in para. 10 of the report (page 289): 'At the outset, an important circumstance needs to be highlighted. In the present case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act is not the interest received from the members for providing credit facilities to them. 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 proceed 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 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 member' account, could be taxed as business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in many cases. It is this 'retained amount' which was payable to its members, from whom produce was brought, which was retained by the assessee-society, was a liability and it was shown in the balance-sheet on the liability side. Therefore, to that extent such interest income cannot be said to be attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in section 80P(2)(a)(iii). Therefore, looking to the facts and circumstances of this case, we are of the view that the Assessing Officer was right in taxing the interest income, indicated above, under section 56 of the Act. 9. We are prepared to agree with Mr. Khaitan to the extent that the interest earned from out of the investments made under section 64 read with section 63 of the Multi-State Co-operative Societies Act, 2002 is attributable to the business of providing credit facilities to its members. But we are not able to agree with Mr. Khaitan that the rest of the interest earned by the assessee from the investments is also attributable to the business of providing credit facilities to its members. We have not been impressed by the judgment cited by Mr. Khaitan. 10. We are unable to agree with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The interest paid to those members on account of such deposits should, therefore, have been separately accounted for, which exercise was not undertaken. The result thereof was that the expenditure was artifically enhanced and the income arising out of the business of providing credit facilities to its members got reduced. When the income got reduced, the amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded to the Assessing Officer for the purpose of working out the amount of expenditure incurred in earning the approximate sums of ₹ 99 laksh and ₹ 1.12crores respectively. The expenditure incurred for earning those two amounts of income is the amount of interest paid for that money to the members which has to be ascertained and that has to be deducted from the expenditure of the eligible business so that the eligible amount of deduction can be worked out. At the same time, The Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of investments of the funds created under section 63 as an income attributable to the business. Mr. Saraf submitted that this is a new case ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst of all make it clear that the Assessing Officer needs to re-do the entire computation afresh. He shall treat assessee's interest income if any, earned from investments made from deposits sec. 64 r.w.s. 63 of the Multi-State Co-operative Societies Act, 2002 to be very much attributable to the business of providing credit facility to its members. This shall follow the necessary netting exercise of the impugned interest income vis-à-vis the corresponding interest expenditure as well for arriving at the impugned disallowance. Needles to say, the assessee shall be afforded adequate opportunity of hearing in consequential proceedings." 6. We adopt the above detailed discussion mutatis mutandis to decline assessee's instant latter substantive ground regarding the issue of section 80P(2)(a)(i) deduction on interest income derived from parking of surplus funds in term deposits schemes of nationalized banks. The fact also remains that impugned disallowance has to be computed on netting basis and both the lower authorities have not taken into consideration the same in their respective orders. We therefore direct the Assessing Officer to compute the impugned disallowance on netting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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