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TMI Blog2020 (10) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is against the order passed by the Pr. CIT, Cuttack, dated 30.03.2019 for the assessment year 2014-2015. 2. At the outset, ld. AR drew our attention to an application of the assessee dated 08.09.2020, wherein the he has requested to withdraw the appeal for the assessment year 2014-2015 which has been filed against the order passed by the Pr. CIT, Cuttack. Accordingly, we allow the application of the assessee and dismiss the appeal of the assessee filed for the assessment year 2014-2015 in ITA No. 162/CTK/2019 as withdrawn. 3. Now, we shall decide the cross appeals filed by the assessee and Revenue. 4. Since the issue involved in both the appeals are identical, therefore, for the sake of brevity, both the appeals are heard together and disposed off by this consolidated order. 5. Grounds raised by the assessee in its appeal for A.Y. 2013-2014 read as under:- 1. That the order passed by the learned CIT(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 ₹ 1,36,00,000/- to which the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the Hon'ble Supreme Court's decision in the case of The Citizen Co-operative Society Ltd. v. ACIT [2017] 397 ITR 1 (SC), whose facts were more or less similar to that of the assessee. Ground No. 4: On the facts and in the circumstances of the case, it is prayed that the order of the Ld. CIT(A) be set aside and that of the Assessing Officer may be restored. Ground No. 5: The appellant craves leave to add, alter, amend one or more grounds of appeal before the appeal is heard. 7. Brief facts of the case are that the assessee Kendrapara Credit Cooperative Society Limited registered under the Odisha Cooperative Society Registration Act, 1962 bearing Registration No. 158KE, dated 19.08.2000. The society derives income from doing business of banking operating in the district of Kendrapara, Jagatsinghpur, Jajpur and Cuttack. The assessee filed its return of income for A.Y. 2013-2014 on 03.02.2015 showing total income at Rs. Nil. Thereafter case of the assessee was selected for scrutiny and statutory notices were issued to the assessee. On perusal of the return of income, the AO found that the assessee got its accounts audited on 25.12.2014 and has shown gross rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year were accepted by the revenue but in the impugned year the revenue is in appeal in this regard. 11. Ld. DR, on the other hand, relied on the orders of Assessing Officer in respect of non-allowability of deduction u/s. 80P(2) of the Act. He also relied on the facts of case submitted along with Form No. 36 which reads as under:- The assessee-society is engaged in the business of banking in the districts of Kendrapara, Jagatsinghpur, Jajpur, Cuttack in Odisha. The return of income for the A.Y. 2013-14 was filed on 03.02.2015 disclosing total income at NIL by virtue of claim of deduction u/s. 80P(2)(a)(i) of the I.T. Act, 1961 (hereinafter referred as the Act ). 2. Regular assessment in the case of the assessee-society was completed u/s. 143(3) of the Act on 31.03.2016 determining total income at ₹ 1,92,89,760/- as the assessee-society was denied deduction u/s. 80P(2)(a)(i) of the Act by adding the following items to the profit disclosed at ₹ 25,52,940/- for the year under consideration. (a) Provisions for bad debt - ₹ 1,36,00,000/- (b) Provision for Gratuity Fund - ₹ 1,36,824/- (c) Provision for Building Fund - ₹ 30,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deposits, Current Accounts Deposits Biju Pattnaik Bikash Patra. iii) To borrow or raise money iv) To lend or to advance money with security to members as per subsidiary rules to be approved by the D.R.C.S., Cuttack v) To acquire to construct to maintain and to alter any building or works necessary or convenient for the purpose of the society. 6. In its return of income, the assessee had chimed that its entire income is deductible u/s. 80P(2)(a)(i) of the IT Act or the ground that it is a cooperative society engaged in carrying on the business of banking or providing credit facilities to its members. The Section 80P(2)(a)(i) stipulates as under:- 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk means a co-operative society, other than a primary agricultural credit society,- (i) The primary objects or principal business of which is the transaction of banking business; (ii) The paid-up share capital and reserves of which are not less than 1 lakh of Rupee; and (iii) The bye-laws of which do not permit admission of any other cooperative society as a member: Provided that this sub-clause shall not apply to the admission of a cooperative 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; 10. Explanation (b) to Section 80P(4) defines primary co-operative agricultural and rural development bank as under: Explanation (b): Primary co-operative agricultural and rural development bank means a society having its area of operation confined to a taluk and the principal object of which is to provide for long term credit for agricultural and rural development activities. 11. After having reproduced the definition of various terms used in Section 80P(2)(a)(i) Section 80P(4) of the IT. Act and section 56 of the Banking Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons attached to the definition of primary cooperative bank are fulfilled by the assessee society. 15. Of Course, clause 9 (Page 5) of the Bye-Laws does permit the Orissa State Cooperative Bank Ltd. and Cuttack Central Cooperative Bank Limited to become members of the assessee society, but neither of them is a co-operative society . However, the same is allowed in view of proviso to Sub clause (3) of Clause (ccv) of Section 56 to Part V of the Banking Regulation Act, 1949. Hence, the assessee is a primary cooperative bank and thus, also becomes a cooperative bank , as defined in Section 56(cci) of Part-V of the Banking Regulation Act, 1949. 16. Although a few cooperative societies such as Farmers Development Cooperative Limited and Regulated Marketing Cooperative Societies are appearing as members, it is found that they have been admitted as members in violation of Clause 9 of the Bye-laws (Annexed herewith as Annexure-1) of the assessee society. Clause 9 of the Bye-laws deals with the membership criteria of the society. 9. MEMBERS: a) An individual may admitted as a member of he is an adult, competent to contract and resides within the areas of operation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments to the society in respect of membership or acquired such interest in the Society as may be prescribed by the Act of Rules or the Bye-Laws. 20. From a reading of the above, it is evident that there are only 5 categories of eligible members. They are (i) individuals with certain qualification, (ii) the Government of Orissa, (iii) the Central Government, (iv) The Orissa State Cooperative Bank Ltd. and (v) Cuttack Central Cooperative Bank Ltd. Neither Orissa State Cooperative Bank Ltd., nor Cuttack Central Co-operative Bank Ltd. are cooperative societies. It is really surprising that in spite of such clear membership criteria provided in its Bye-laws, the assessee society has taken other cooperative societies like Farmers Development Cooperative Limited and Regulated Marketing Cooperative Societies, as its members in violation of its own Bye-laws. 21. Thus it is clear that the assessee society is a primary co-operative bank , thereby satisfying the definition of a co-operative bank given in Part V of the Banking Regulation Act, 1949. As the assessee society is a co-operative bank , it is debarred from enjoying the benefit of Section 80P(2)(a)(i) in view of clear ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present appeal in the case of the assessee-society may be decided as per the Ground of Appeal enclosed separately. He relied on the order of CIT(A) in respect of assessee's appeal. 12. After considering the submissions of both the parties and perusing the orders of authorities below, we find that the issue involved in the present appeal has already been decided by us in assessee's own case for the assessment year 2009-2010 2010-2011 passed in ITA Nos. 133 134/CTK/2019, vide order dated 14.08.2020, wherein it has been observed as under:- 11. After hearing both the sides and perusing the material available on record and the orders of authorities below, first before deciding the entire issue, it would be appropriate to discuss the observations of the CIT(A) regarding deduction as to whether the assessee is eligible for deduction u/s. 80P(2) of the Act or not. This issue has already been dealt by the CIT(A) in his order which reads as under:- After perusing the aforementioned comments of the creditor, the bye laws of the society and the books of account of the assessee, the AO concluded that the benefit of section 80P(2) will be denied to the assessee as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson' 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 Cooperative Societies Act. Hence, the bye-laws of the assessee specifically prohibited any other co-operative society from becoming a member. Coming now to the first condition that a Co-operative society needs to satisfy, as per the provisions of the Banking Regulation Act, 1949 it is seen that a Co-operative bank is not debarred from extending its banking facilities to the general public. In other words a Co-operative society as understood in terms of section 80P(4) can accept deposits, make loans and carrying out all banking operations even in respect of persons who are not members of the Co-operative society. This is in sharp contrast to the provisions of section 80P (2) where the benefit of the deduction can be availed only by a Co-operative society engaged in the business of banking or providing credit facilities to its members. This is a crucial distinction that sets apart a Co-operative society from a Co-operative Bank. However, in the assessment order U/S. 143(3)/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. 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. Further, the assessee does not possess a banking license from the RBI which is essential for an entity to engage in banking activities. Hence, with these observations, it is held that the assessee. Society is not a primary Co-operative bank and that, therefore, it would be eligible for the deductions envisaged u/s. 80P (2) of the I.T. Act, 1961. 12. From the above discussion by the CIT(A), it is also pertinent to mention here that the assessee is not carrying on banking business activity but as per clause 5 specifically restricts the scope in the banking activities, the members of the society as narrated above. It is clear that the assessee is accepting deposits of money from its members and advancing money to members. In view of this the assessee is eligible for deduction u/s. 80P(2) of the Act. 13. We noticed from the order of AO that the AO, at the outset, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be, to the public), the whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,-- (i) where such co-operative society is a consumers' co-operative society, one hundred thousand rupees; and (ii) in any other case, fifty thousand rupees. Explanation.--In this clause, consumers' co-operative society means a society for the benefit of the consumers; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em 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 providing credit facilities in the nature of the business of banking so as to amount to carrying on the business of banking or providing credit facility to its members-CIT v. Co-operative Supply Commission Shop Ltd.: [1993] 204 ITR 713 (Raj.). Considered in the context and collocation of words, the words 'providing credit facilities to its members' mean providing credit by way of loans and not selling goods on credit-Kerala Co-op. Consumers' Federation Ltd. v. CIT [1988] 170 ITR 455 (Ker.). Investment in Government securities of the reserve fund made by cooperative societies in compliance with statutory directives cannot be treated as investment of the stock-in-trade or circulating capital. The income derived from such investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 10 lakhs and provision for gratuity amounting to ₹ 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 Delhi, Dated 2nd November 2016 Subject: Chapter VI-A deduction on enhanced profits-Reg. Chapter VI-A of the Income-tax Act, 1961 ( the Act ), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit-linked deduction under Chapter VI-A. 2. The issue of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. In support of our above view, we also rely on the decision of the coordinate bench of the Tribunal in the case of Ozone Pharmaceutical Ltd., ITA Nos. 2935-2937/Del/2015, order dated 15.04.2019, wherein the assessee has got deduction under Chapter VIA if the profit from business has been increased by the AO by making certain disallowance. Accordingly, we allow the appeal of the assessee. 20. Since, the grounds taken by the assessee in appeal for the assessment year 2010-2011 in ITA No. 134/CTK/2019 are same to the appeal decided by us for assessment year 2009-2010 in ITA No. 133/CTK/2019, therefore, our view made in the above appeal shall be applied mutatis m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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