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TMI Blog2023 (2) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of business has to be examined by the AO. In so far as deduction u/s 57 of the Act is concerned, if the claim of the assessee for deduction u/s 80P(2)(a)(i) of the Act is rejected then in terms of paragraph 16 of the Tribunal s order referred to above, the assessee will be entitled to deduction on account of expenses - issues are accordingly restored to the file of the AO to decide the same afresh in accordance with law - Appeal of the assessee is treated as partly allowed for statistical purposes. - ITA No.955/Bang/2022 - - - Dated:- 2-2-2023 - Shri N. V. Vasudevan, Vice President For the Assessee : None For the Revenue : Shri. Ganesh R. Ghale, Standing Counsel ORDER This is an appeal by the assessee against the order dated 31.08.2022 of NFAC, Delhi, relating to Assessment Year 2017-18. 2. The assessee is a Primary Agricultural Co-operative Society registered under the Karnataka Co-operative Socieites Act, 1959 and is engaged in providing agricultural credit facilities to the members of the society. The assessee received interest on investments made in SCDC Bank (a co-operative Bank) of a sum of Rs.17,63,679/-. The assessee claimed that the aforesaid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 8oP(2)(a)(i) of the Act. 6. The learned CIT(A) has erred on facts and in circumstances of the case and in law by considering that the Appellant is not entitled for deduction under section 57 of the Act for the expenses incurred by it against interest received from Cooperative Bank. 7. The learned CIT(A) has erred in confirming the levy of interest under sections 234A and 234B of the Act though the same should not have been levied in the present situation. 8. That the Appellant craves leave to add to and / or to alter, amend, rescind, modify, the grounds herein above or produce further documents before or at the time of hearing of this appeal. 4. Learned Counsel for the assessee filed an application or adjournment on the ground that the authorized representative is on medical leave. None appeared at the time of hearing. The learned DR filed before us copy of the decision of the ITAT, Bengaluru Bench, in the case of M/s. Krishnarajapet Taluk Agri Pro Co-op Marketing Society Ltd., Vs. PCIT ITA No.514/Bang/2021 order dated 08.02.202 wherein on identical issues raised by the assessee was considered and decided by this Tribunal. 5. We have perused the above sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon ble Court also distinguished the decision of the Hon ble Supreme Court in the case of Totgars (supra) by observing that 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 received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount 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 under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. The Court also obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited itself rendered on 08th February 2010, in Totgar's Co-operative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act? 12. The Hon ble Court held that such interest income is not income from business but was income chargeable to tax under the head income from other sources and therefore there was no question of allowing deduction u/s.80P(2)(d) of the Act. The following points can be culled out from the aforesaid decision: 1. society. The words 'Co-operative Banks' are missing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same in the face of the binding precedent laid by the Hon'ble Supreme Court. The Hon ble Court observed that in paragraph 8 of the said order passed by a co- ordinate bench that the learned Judges have observed that the issue whether a co-operative bank is considered to be a co- operative society is no longer res integra, for the said issue has been decided by the Income Tax Appellate Tribunal itself in different cases .. . No other binding precedent was discussed in the said judgment. Of course, the Bench has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the meaning of the expression profits and gains of business and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kept with banks is not eligible for deduction u/s 80P(2)(c) 80P(2)(d) of the Act since the assessee is not eligible for deduction u/s 80P(2)(a)(i) of the Act. In AY 2016-17, the AO assessed the interest income received on bank deposits under the head Income from other sources and denied deduction claimed u/s 80P(2)(d) of the Act. The Ld CIT(A) confirmed the action of the AO on this issue. 8. The Ld. A.R. submitted that the assessee is entitled to claim deduction allowable u/s 57 of the Act in respect of cost of funds and proportionate administrative and other expenses. In support of this submission, the Ld. A.R. placed reliance on the decision rendered by Hon'ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO (2015) 58 taxmann.com 35 (Karn). The Ld. A.R. submitted that the assessee in the above said case had put forth identical claim claim before Hon'ble Supreme Court in the case reported as Totgars Co-operative Sale Society Ltd. Vs. ITO (2010) 188 taxmann.com 282 and the Hon'ble Supreme Court, vide 14 of its order, had restored the question raised by the assessee to the file of Hon'ble High Court of Karnataka. Conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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