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TMI Blog2022 (6) TMI 1349X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of deduction u/s 80P. In this context, in the case of M/s. Jafri Momin Vikash Co-operative Society Ltd. [ 2014 (2) TMI 28 - GUJARAT HIGH COURT] has held that exclusion clause of section 80P(4) will not apply to cases where the assessee is a primary agricultural co-operative credit society. PCIT while arriving at a conclusion to set aside the impugned assessment order for fresh consideration by the AO has relied on the decision of Totagars Co-operative Societies Ltd. [ 2010 (2) TMI 3 - SUPREME COURT] to which ld. counsel placed on record that the said decision is not applicable to the facts of the assessee duly supported by the financial details submitted before us which are reproduced above. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. The case of the assessee was selected for limited scrutiny through CASS for examination, inter alia, "correct claim of deduction made by the assessee under Chapter VIA". Statutory notices were issued which were complied by the assessee. In its written submission before the AO, assessee submitted on the claim of deduction u/s 80P that the assessee has correctly claimed deduction u/s 80P under chapter VIA. As per section 80P(2)(a)(i) business for providing credit to members is exempted for cooperative society is exempted under section 80P(2)(a)(iv) of the IT Act. Besides interest earned from co-operative society is exempted under section 80P(2)(d). 5. The ld. AO examined the issue for which case was selected and raised a detailed questionnaire u/s 142(1) of the Act to furnish justification on claim of deduction u/s 80P amounting to Rs. 32,31,376/- specifically mentioning the amount claimed u/s 80P(2)(a)(i)(ii)(iv) and 80P(2)(d). Relevant extract of the questionnaire issued u/s 142(1) of the Act is reproduced as under: "ii. Issue relating to deduction under Chapter VIA:- You were asked vide notice u/s 142(1) of the I.T. Act 1961 to furnish justification of claiming d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y/Bank and interest income is not attributable either to the activity mentioned in section 80P(2)(i)(a) of the I.T. Act 1961 or section 80P(2)(a)(iv) of the I.T. Act 1961. 5.1. In response to the above questionnaire, assessee made a detailed reply explaining its case. The relevant extract is reproduced hereunder for ease of reference:- "In reply to your above referred notice the above named assessee beg to state as under- 1. That the turnover of the assessee as per Audited Accounts is 17120826/-. Synopsis from Audited statement is attached and as per Audit report the turnover is Rs. 171208.27. So there is only difference of Rs.1 on both the figures. 2) That the assessee has claimed deduction of entire income of the society under section 80P[2](a)(i) as being income for business of banking or providing credit facilities to its member. No part of the income can be treated as income from other sources and taxed as there was no income from other sources. That the assessee's contention is well supported by the decision of Income Tax Appellate Tribunal Banglore Branch SMC "B" in the case of Sri Basavaraj, CEO, Primary Agriculture Credit Co-operative Society Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction claimed u/s 80P of the Act. (i) During the year under consideration the assessee has claimed deduction u/s 80P of the Act amounting to Rs. 32,31,576/- on his total business income amounting to Rs. 32,31,576/- But the total business income of the assessee is comprised of Rs. 26,96,495/- and Rs.5,35,081/- on account of business income and income from short term capital gains respectively. ii) The short term capital gains of the assessee is chargeable u/s 111A of the Act as discussed in para 6 of the order. Therefore deduction under section 80P of the Act is not allowable to the assessee on its income from short term capital gain. (iii) Considering the facts and circumstances of the case, declared business income and deduction claimed u/s 80P of the Act is reduced by an amount of Rs.5,35,081/- which is the short term capital gains of the assessee chargeable to tax as per provision of section 111A of the Act." 7. Subsequently, the ld. PCIT on examination and verification of assessment record observed that the assessee had earned an amount of Rs. 39,44,212/- as interest income on deposits with Banks namely IDBI, Axis and Bandhan Bank which has been claimed as deduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... embers and provided credit facilities to its members. It also kept funds with various banks to earn interest and to keep liquid funds to repay its members whenever the deposits mature. The society had no surplus fund and the entire fund is used for business purposes. The assessee placed reliance on the decision of (i) Hon'ble High Court of Gujarat in the case of CIT vs Jafari Moumin Vikas Co-operative Credit Society Ltd. in tax appeal no. 442 of 2013 dated 15.01.2014, (ii) decision of Coordinate Bench of ITAT, Bangalore in ITA No. 867/Bang/2017 in the case of Shri Basavraj CFO Primary Agricultural Credit Co-operative Society Ltd. and (iii) decision of Co-ordinate Bench of ITAT, Ahmedabad in ITA No. 1491/Ahd/2012 in the case of M/s. Jafri Momin Vikash Cooperative Society Ltd. 7.2. Ld. PCIT concluded by placing reliance on the decision of Hon'ble Apex Court in the case of Totagars Co-operative Societies Ltd. (supra) and set aside the impugned assessment order for fresh consideration by the AO. 8. Before us, ld. counsel for the assessee reiterated the submissions made before the ld. PCIT in the revisionary proceeding and also pointed out the submissions made before the ld. AO in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SIS OF ALL TYPES DEPOSIT A/C AS ON 31.03.2016 Disburse Principal INTEREST 1-3 YEARS 3-4 YEARS 4-6 YEARS 6 ABOVE KCC 2568367 2229764 1135339 1009996 103852 199205 895436 TOTAL 2568367 2229764 1135339 1009996 103852 199205 895436 M.T. LOAN 5366137 4355693 1251055 3117972 617240 43328 577153 D.A. LOAN 4445578 3845963 986228 S.S. LOAN 3325000 4640273 614610 4170812 469461 OLD MT LOAN 241321 110403 124907 110403 HYPO LOAN 785000 446068 745399 446068 C.C. LOAN 49800 28995 32738 28995 TOTAL 14212836 1342739 5 3754937 7288784 617240 43328 163208 0 ADVANCE 6,19,789 9.3. The ld. counsel pointed out from the compilation to the chart showing the provisioning made for non-performing assets (NPA) on various loan accounts, which is reproduced as under: PROVISION FOR NPA 2015-16 1-3 YEARS 3-4 YEARS 4-6 YEARS 6 ABOVE D/A CURRENT K.C.C. LOAN 1009996 103852 199205 895436 OWN FUND LOAN 3617972 617240 43328 1632080 TOTAL 4627968 721092 242533 2527516 D/A LOAN 38,45,963 CURRENT LOAN 36,70,812 TOTAL 75,16,775 STANDER 75,16,775 @ 0% 00 SUB-STANDER 46,27,96 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding initiated by the ld. PCIT and the order passed thereon u/s 263 of the Act. The same is reproduced as under for ease of reference: "This appeal has been preferred by the assessee against the order u/s.263 of the I. T. Act passed by the Ld. PCIT, Asansol on 09.03.2021. The only issue involved is claim of deduction of Rs.39,44,212/- u/s.80P(2)(a)(i). As per the contents of internal pages 4 and 5 of the assessment order passed u/s. 143(3) on 27.12.2018 it is true that the assessing officer had raised this issue before the assessee. However, he did not draw any adverse inference purportedly being satisfied by the explanation put forth by the assessee that such income was claimed as deduction has been income for business of banking or providing credit facilities to its members. Further, they relied upon certain case laws in support of their arguments. Thereafter, the Ld. PCIT passed order u/s.263 of the Income Tax Act holding that - "Although the provisions of section 80P of income tax provides exemption to various cooperative societies including a cooperative society engaged in carrying on the business of banking or providing credit facilities to its members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration to the submissions made by both parties. At the outset, we note that the issue before us is on the jurisdiction assumed by ld. PCIT for invoking revisionary proceeding and passing the order u/s 263 of the Act vis-à-vis claim of deduction by the assessee u/s 80P(2)(a)(i) of the Act. Before adverting on the issue in hand, it is appropriate to delve upon the applicable law as provided u/s 80P of the Act, which is reproduced 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 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 co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) *********** the whole of the amount of profits and gains of business attributable to any one or more of such activities. *************************** *********** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though same is covered under section 80P(4) r.w.s 2(24) (viia) being income from providing credit facilities carried on by a co-operative society with its member?" 3. Issue pertains to interpretation of section 80P(2) and 80P(4) of the Income Tax Act, 1964 ("the Act" for short). Respondent assessee is a Cooperative Credit Society and claims benefit of deduction under section 80P(1) of the Act by virtue of the provisions contained in section 80P(2)(a)(i) of the Act. As is well known under subsection( 1) of section 80P certain co-operative societies are granted deductions of the sum specified in sub-section(2) in computing the total income. As per section 80P(2)(a)(i), the sums referred in sub-section(1) would be in case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members the whole of the amount of profits and gains of business attributable to any one or more of such activities. Revenue, however, contends that by virtue of newly amended sub-section(4) of section 80P inserted with effect from 1.4.2007 by Finance Act, 2006, section 80P would not apply to the respondent assessee. Section 80P(4) in the present form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails submitted before us which are reproduced above. We find force in the submission made by the ld. counsel which on the strength of financial details, distinguishes the facts of the case in the decision of Hon'ble Supreme Court in the case of Totagars Co-operative Societies Ltd. (supra). 13.1. We further note that in the case of of Gutti Gedarara Co-operative Society Ltd. vs ITO 377 ITR 464 (Karnataka), the Hon'ble High Court considered this issue in para 7 to 12 which is reproduced as under: "7. From the aforesaid facts and rival contentions, the undisputed facts which emerge are, certain sums of interest were earned from short-term deposits and from savings bank account. The assessee is a Co-operative Society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. 8. In this regard, it is necessary to notice the relevant provision of law i.e, Section 80P( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her than the actual conduct of the business of generation and distribution of electricity." 10. Therefore, the word "attributable to" is certainly wider in import than the expression "derived from". Whenever the legislature wanted to give a restricted meaning, they have used the expression "derived from". The expression "attributable to" being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A Co-operative Society which is carrying on the business of providing credit facilities to its members, earns profits 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount which is deposited in the bank was not an amount due to members and it was not the liability of the society to the members then the interest earned from the deposits in the banks was held to be eligible for deduction u/s 80P(2)(a)(i) of the Act. 13.2 We also note that Assessing Officer has made an extensive enquiry by raising a separate questionnaire on the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act to which a detailed reply was furnished by the assessee, considering which the ld. AO concluded that out of total claim of Rs. 32,31,576/-, only Rs. 26,96,495/- is the business income of the assessee and the balance of Rs. 5,35,081/- is the income towards short term capital gain. He thus allowed the claim u/s 80P(2)(a)(i) to the extent of Rs. 26,96,495/-. The sole grievance of the ld. PCIT in passing the order u/s 263 relates to inadequate enquiries conducted by the ld. AO in respect of claim of the assessee u/s 80P(2)(a)(i) of the Act. Based on which the impugned assessment order was set aside by holding it erroneous in so far as it is prejudicial to the interest of the revenue. Considering the detailed enquiry made by the AO in the case, the factual matri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction." [Emphasis supplied by us by underline] 13.5 On a perusal of the material brought on record and the order passed by the Ld. PCIT, it is perceptible that the said authority has not kept in view the requirement of section 263 of the Act in as much as the order does not reflect any kind of satisfaction based on correct and verifiable set of facts relating to claim of deduction u/s 80P of the Act. That having not been done, in our considered opinion, exercise of jurisdiction under section 263 of the Act is totally erroneous and cannot withstand scrutiny. In the aforesaid view of the matter, it must be held that the exercise of the power under section 263 by the Ld. PCIT was illegal and without jurisdiction. 13.6 We further observe that in the course of proceedings u/s 263 of the Act before the Ld. PCIT, the assessee had furnished the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Court further held that this distinction must be kept in mind by the CIT while exercising jurisdiction u/s 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the AO, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/enquiry himself. The order of the AO may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the AO to decide whether the order was erroneous. This is not permissible. An order is erroneous, unless the CIT holds and records reason why it is erroneous. Therefore, CIT must after recording reasons, hold that order is erroneous. The jurisdictional pre-condition stipulated is that CIT must come to the conclusion that the order is erroneous and is unsustainable in law. It was further observed by the Hon'ble High Court that the material, which the CIT can rely up on i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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