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TMI Blog2020 (8) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions are made as per the statute. 3. That the learned assessing officer has erred in law and on facts of the case by disallowing the provision for gratuity amounting to Rs. 1,47,351 to which the Ld. CIT(Appeals) has wrongly confirmed the same addition and without considering the fact that the provisions are made as per the statute. 4. That the Ld. CIT(Appeals) has confirmed the addition on account of provision for bad-debts, provision for interest and provision for gratuity without appreciation of fact that all these are infructuous when section 80P comes into effect. 5. That the appellant may add, alter, delete or modify any of the grounds at the time of hearing of the matter with the leave of the Hon'ble ITAT. 4. Grounds raised for A.Y.2010-2011 read as under :- 1. That the order passed by the learned C1T(A) is arbitrary, excessive, contrary to facts and bad in law. 2. That the learned assessing officer has erred in law and on facts of the case by disallowing the provision for bad-debts and provision for interest amounting to Rs. 10,50,000 to which the Ld. CIT(Appeals) has wrongly confirmed the same addition and without considering the fact that the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he also stated that no overdue principal has been written off. Accordingly, the AO made disallowance of provision for over due principal made by the assessee u/s.36(1)(vii) of the Act and added the same to the total income of the assessee. On further perusal of the profit and loss account the AO found that the assessee had debited a sum of Rs. 1,47,351/- under the head provision for gratuity fund. It was also noticed by the AO that it was not as per the provisions of Section 36(1)(v) of the Act, therefore, he added the same to the total income of the assessee. 6. On further scrutiny the AO disallowed claim of deduction u/s.80P of the Act as claimed by the assessee by holding as under :- 5.1. Deduction U/s.80P: The society in its profit & loss account arrived at net profit of Rs. 18,16,783.95. However, in the audited report u/s.44AB dated 17.11.2015 in form No.3CD at Para No.26, section-wise details of deductions if any admissible under chapter VIA, reported deduction u/s.80P at Rs. 18,00,560/-. In the profit & loss account depreciation has been claimed at Rs. 70,284.25 and arrived net profit of Rs. 18,16,784. But in Schedule BP of the return of income, profit after adjustment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned assessment years. 9. Ld. AR submitted that the CIT(A) has wrongly endorsed the order of AO the assessee is eligible for deduction u/s.36(1)(vii) of the Act and further the CIT(A) also disallowed the provision for gratuity of Rs. 1,47,351/- without verifying the actual facts whereas these gratuity amounts have been transferred to LIC of India on the approved gratuity fund maintained by the LIC. Further he also submitted that once the assessee is eligible for deduction u/s.80P(2)(i) of the Act, then the entire exercise done by the AO and CIT(A) will be futile. The CIT(A) has held that the assessee is entitled for deduction u/s.80P(2) of the I.T.Act. Had these two disallowance been claimed by the assessee as expenditure then profit would be increased and the same amount will be claimed by the assessee as deduction u/s.80P(2)(a)(i) of the Act. 10. On the other hand, ld. DR supported the order of the lower authorities and he submitted that the assessee did not fulfil the requirements as provided u/s.36(1)(vii) for debiting the amount of provision for bad debts and he also did not submit the details of the amount of Rs. 10 lakhs before the CIT(A) as well as the AO. He further sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of banking business. (ii) The paid up capital and reserves of the Co-operative Society are not less than one Lakh of rupees; and (iii) The bye-laws of the Co-operative Society do not permit admission of any other Co-operative Society as a member. The second and third conditions as laid down in section 5(CCV) of the Banking Regulation Act, 1949 do apply to the assessee's case. The paid up share capital as on 31.03.2013 stands at Rs. 3,70,04,045/- which thus meets the requirement of the paid up capital of the Co-operative society not being less than one lakh of rupees. As regards the third condition, it is observed that clause 9 of the bye-laws governs the membership rules of the society. This clause states that any 'person', subject to certain conditions, can become a member of the Co-operative society. The bye-laws then go on to define 'Person' in clause 4 and state that 'person' means an adult individual, proprietary concern, partnership firm or any other body corporate constituted under the law for the time being in force except a Co-operative society registered under the Co-operative Societies Act. Hence, the bye-laws of the assessee specifical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u Pattnaik Bikas Patra. (iii) ............ (iv) To lend or to advance money with security to members. Therefore, it is evident that the bye-laws of the assessee Co-operative society do not make an allowance for extending banking facilities to non-members or the general public. Neither is there any finding in the assessment order u/s.l43(3)/147 for A.Y.- 2010-11 dt. 30.03.2016 to the extent that the assessee society has been accepting deposits or lending money from/to the public at large. Under these circumstances, the AO's assertion that the assessee Co-operative society is engaged in the business of banking is perverse as it is not supported by any evidence. Now, in order for a Co-operative society to be called a primary Co-operative Bank, all the three conditions laid down in clause 5(CCV) of the Banking Regulation Act, 1949 have to be satisfied cumulatively. Failure to meet any one condition would imply that the Co-operative society in question is not a Primary Co-operative Bank. As has been established in the preceding paragraphs, the assessee is not engaged in the business of 'banking' as understood within the scope of the Banking Regulation Act, 1949. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the amount of profits and gains of business attributable to any one or more of such activities : Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to- (i) a federal co-operative society, being a society engaged in the business of supplying milk, oilseeds, fruits, or vegetables, as the case may be; or (ii) the Government or a local authority; or (iii) a Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956), or a corporation established by or under a Central, State or Provincial Act (being a company or corporation engaged in supplying milk, oilseeds, fruits or vegetables, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the various forums/courts in the following manner :- MEANINGS OF EXPRESSIONS 'Facilities' - The expression 'facilities' used in the provision is an inclusive term of wide import embracing anything which aids or makes easier the performance of a duty - Artdhra Pradesh Co-op. Central Land Mortgage Bank Ltd v. CIT[l 975] 100 ITR 472 (AP). 'Providing credit facilities' - The expression 'providing credit facilities' would comprehend not only the business of lending money on interest but also the business of lending services for guaranteeing payments - C/Jv. U.P. Co-op. Cane Union Federation Ltd [1980] 122ITR913 (All.). Where the assessee-society was engaged in the business of purchasing autorickshaws and reselling them to its members on hire-purchase terms, the said activity could not be treated as providing 'credit facilities' to its members, under section 80P(2)(a)(f) of the Act - Madras Auto Rickshaw Drivers' Co-op. Society v. C/T[2001] 117 Taxman 370 (SC). The facility of selling goods on credit to members is an activity of business of selling of goods, of which the credit facility is only an incidence; it will not amount to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members of another co-operative society which is a member of the co- operative society seeking exemption. The meaning of the expression 'member' cannot therefore be extended to include the members of a primary co-operative society which is a member of the federated co-operative society seeking exemption. The principle of lifting the corporate veil cannot have any application in the context of the provisions contained in section 80P(2)(a)(z) of the Act - U.P. Co-operative Cane Union Federation Ltd v. CIT [1999] 103 Taxman 370 (SC)." 17. It is clear from the above discussion that the assessee is eligible for deduction u/s.80P(2)(a)(i) of the Act. The AO has disallowed two additions i.e. provision for bad & doubtful debts amounting to Rs. 10 lakhs and provision for gratuity amounting to Rs. 1,47,351/-. These two additions are resulting to enhancement of profit of the assessee society which are specific disallowances related to the business of the assessee. 18. The CBDT has issued Circular No.37/2016, which reads as under :- CIRCULAR NO. 37/2016 F.No.279 /Misc/140/2015/ITJ Government of India Ministry of Finance, Department of Revenue Central Board of Direct Taxes New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3) , 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned. (K. Vamsi Krishna) ACIT (OSD) (ITJ) CBDT, New Delhi 19. Further, the Circular issued on 02.11.2016, whereas the case of the assessee is pertaining to A.Y.2009-2010 & 2010-2011. The Circular is clarificatory in nature. Therefore, it would be presumed that the benefit of Circular will apply to the assessee. It is also clear that the additions made by the AO is covered by this Circular. The above mentioned additions are eligible for deduction under Chapter-VIA and under section 80P of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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