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TMI Blog2023 (12) TMI 970X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was not considered and examined. During the course of assessment proceedings, the assessee has also not brought into notice of the AO, therefore, for the limited purpose for determining the source issue is remitted back to the AO and if it is found that these income satisfies the requirement of sec. 80P(2)(d) of the Act, then it has to be allowed. Accordingly, this issue is remitted back for the verification to the AO and the assessee has to show the necessary proof of evidence for substantiating its case. We further note from the statement of facts that the assessee has received interest and dividend, from the cooperative banks. If the AO finds otherwise, the AO shall follow the judgment of Totgars Co-operative Sales Society[ 2017 (7) TMI 1049 - KARNATAKA HIGH COURT] accordingly the assessee will not be eligible for deduction u/s 80P(2)(d) on such interest income received after giving necessary cost for earning interest income. The AO is directed to give reasonable opportunity of being heard to the assessee. The assessee is also directed to produce necessary documents for sustaining its case and avoid to unnecessary adjournments for early disposal of the case. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa, Advocate] For the Revenue : Shri Parithivel, JCIT (DR) ORDER PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER :- This appeal filed by the assessee is against the order passed by the NFAC, Delhi dated 24/08/2023 vide DIN No.ITBA/NFAC/S/250/2023- 24/1055376297(1) u/s 250 of the Act on the following grounds of appeal:- 1. The Order of the learned Commissioner passed under section 250 of the Act is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case. 2. The Appellant denies to be assessed to tax on total income as determined by the learned AO of Rs. 86,31,770/- as against the total income reported by the Appellant of Rs. NIL on the facts and circumstances of the case. 3. The learned Commissioner of Income-tax (Appeals) erred in applying the ratio of judgment of Supreme Court in the case of M/s Totgars Cooperative Sales Society reported in 322 ITR 283 (SC) which are distinguishable on facts of the Appellant' case: a. the Appellant is a primary agricultural credit co-operative society and not engaged in marketing of agricultural produce; and b. The Appellant has earned interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Chief Commissioner of Income Tax/Director General of Income Tax, the Appellant denies itself liable to be charged to interest under section 234B of the Act which under the facts and circumstances of the case deserves to be cancelled. The calculation of interest under section 234B of the Act is not in accordance with law as the rate, amount and method for calculating interest is not discernible from the order of assessment. 3. The Appellant craves leave to add, alter, delete or substitute any of the grounds urged above. In the view of the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice and equity. 3. The brief facts of the case are that the assessee is a primary agricultural cooperative society engaged in the business of acceptance of deposits from members, lending loans to members and providing public distribution services. The assessee filed return of income on 24/10/2017 declaring total nil income after claiming deduction of Rs. 64,97,640/- u/s 80P(2)(a)(i) of the Income-tax Act, 1961. The case was selected for scrutiny under CASS and other statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in 395 ITR 611 vide order dated 16/06/2017. In this regard, the show cause notice was issued to the assessee on 24/10/2019. In response to this show cause notice, the assessee filed reply dated 25/11/2019, which has been incorporated by the AO at para No.7.4 of his order. The AO after analyzing the submissions made observed that the assessee has invested its surplus/idle funds to earn interest income relying on the judgment of Hon ble Supreme Court in the case of Totagars Sales Society Ltd Vs. ITO [2010] 322 ITR 282 (SC). He further noted that the interest income arise on the surplus invested in short term deposits and securities with scheduled/cooperative banks which was not required immediately for business purpose is require to be taxed under the head income from other sources . He did not allow deduction u/s 80P(2)(d) of the Act on the interest/dividend income received by the assessee of Rs. 24,47,530/- and added back into the total income of the assessee. 4. The AO further noted that from the profit and loss account, the assessee provided the following provisions;- 1. Reserve for NPA Rs. 1,06,167/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g written submissions containing page No. 01 to 103 which is placed on record. 9. On the other hand, the ld.DR relied on the order of the CIT(A) and submitted that the CIT(A) has rightly considered the latest decision of the jurisdictional High Court reported in 395 ITR 611 order dated 16/06/2017 of the jurisdictional High Court, which is in favour of the revenue. The para No.23 is very much clear, the case law relied by the ld.AR is of Division Bench of the ITAT but the decision rendered by the Hon ble jurisdictional High Court of Karnataka on disallowance of deduction of interest earned by the cooperative society on the investment made in the cooperative bank which is a higher court decision, therefore the Hon ble High Court s decision should be followed. He further submitted that the decision of the jurisdictional High Court is not distinguished on the Division Bench case law as relied by the ld.AR. Accordingly, he requested that the order of the CIT(A) should be upheld. 10. The ld.DR further submitted that in respect of disallowance of provisions of Rs. 21,34,129/-, it is merely provision but not an expenditures. The provisions are not allowed as per sec.37 of the Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Co-Operative Agricultural Rural Development Bank Ltd. v. Assessing Officer reported in [2023] 154 taxmann.com 305 (SC) order dated 14.09.2023, however this judgment is directly not in the issue of deduction u/s 80P(2)(d) of the Act. but the distinction between the Co-operative Scociety Co-operative Bank for the benefit of deduction u/s 80P has been examined in details, for the sake of convenience we are reproducing the relevant parts of the judgment which is as under:- 14. We shall now analyse the aforesaid judgments in a common conspectus. 14.1 In Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd., (supra) it was categorically held that under section 56 of the BR Act, 1949 only three co-operative banks have been defined, namely, state co-operative bank, central co-operative bank and primary co-operative bank which are covered under section 56(cci) read with (ccvii) read with the provisions of the NABARD Act, 1981. Thus, it is only these three banks which are co-operative banks which require a licence under the BR Act, 1949 to engage in banking business. If any bank does not fall within the nomenclature of the aforesaid three banks as defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India to do banking business. In other words, if an entity does not require a licence to do banking business within the definition of banking under section 5(b) of the BR Act, 1949, then it would not fall within the scope of sub-section (4) of section 80P. 14.3 While analysing section 80P of the Act in depth, the following points were noted by this Court: (i) Firstly, the marginal note to section 80P which reads Deduction in respect of income of co-operative societies is significant as it indicates the general drift of the provision. (ii) Secondly, for purposes of eligibility for deduction, the assessee must be a co-operative society . (iii) Thirdly, the gross total income must include income that is referred to in subsection (2). (iv) Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society being engaged in , inter alia, carrying on the business of banking or providing credit facilities to its members. (v) Fifthly, the burden is on the assessee to show, by adducing facts, that it is entitled to claim the deduction under section 80P. (vi) Sixthly, the expression providing credit facilities to its members does not necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se that some primary agricultural credit societies had sought for banking licence from Reserve Bank of India but the same was turned down by observing that such a society was not carrying on the business of banking and that it did not come under the purview of Reserve Bank of India requiring a licence for its business. 14.6 Thereafter in paragraph 48 of the judgment, it was observed that a deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication. That sub-section (4) of section 80P which is in the nature of a proviso specifically excludes co-operative banks which are cooperative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from Reserve Bank of India. 15. It is on the aforesaid touchstone that these appeals must now be further considered from the point of view of the applicable provisions of law. 15.1 section 80P speaks about deduction in respect of income of co-operative societies from the gross total income referred to in sub-section (2) of the said section. From the said income, there shall be deducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act shall apply to, or in relation to, co-operative societies as they apply to, or in relation to banking companies subject to the following modifications, namely, in clause (a) throughout the said Act, unless the context otherwise requires,- (i) references to a banking company or the company or such company shall be construed as references to a co-operative bank. in clause (c), it is stated that in section 5 as per clause (cci), co-operative bank means a state co-operative bank, a central co-operative bank and a primary co-operative bank. clause (ccv) defines primary co-operative bank while clause (ccvii) defines central co-operative bank and state co-operative bank to have the meanings assigned to them in the NABARD Act, 1981. Since the expression 'banking company' is defined under the BR Act, 1949, it would be useful to consider the definition of banking company in section 5(c) thereof which means any company which transacts the business of banking in India. Banking is defined in section 5(b) of the said Act to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BARD Act, 1981 and not defined either in the said Act or in the RBI Act, but defined in the BR Act, 1949, shall have the meanings respectively assigned to them in the BR Act, 1949. Therefore, we revert back to BR Act, 1949. 15.7 What is central to the controversy in this batch of cases is, whether, the appellant bank is a co-operative bank. What is of significance to know is, a state co-operative bank or central co-operative bank under the NABARD Act, 1981 is essentially a principal co-operative society either in a district or in a State, respectively, the primary object of which is the financing of other co-operative societies in the district or the State respectively. Further, NABARD Act, 1981 does not define banking business. Hence, reliance is to be placed, on the definition of banking business in terms of clause (w) of section 2 of NABARD Act, 1981 which means the RBI Act has to be seen. When the RBI Act is perused, it is noted that clause (i) of section 2 defines co-operative bank , co-operative credit society , director , primary agricultural credit society , primary co-operative bank and primary credit society to have the meanings respectively assigned to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would not be entitled to the benefit of deduction under sub-section (4) of section 80P of the Act. 11.1 We further noted that the coordinate bench has decided the issue in ITA NO. 640/Bang/2023 in the case of M/s Vittal Vyavasaya Seva Sahakari Bank Niyamith vs. ITO Ward- 2(5) considering the relevant part of the above judgment of Hon ble Apex Court cited supra which is as under :- 5.7. In any event Hon ble Supreme Court in the decision relied by the Ld.DR has elaborately analysed the requirement of a cooperative bank that could fall within the exception of section 80 P(4) of the Act. Based on such principle analysed by Hon ble Supreme Court and respectfully following the view taken by the Hon'ble Karnataka High Court in the case of PCIT Anr. Vs. Totagars Cooperative Sale Society reported in (2017) 392 ITR 74 and Hon ble Gujarat High Court in the case of State Bank Of India Vs. CIT reported in (2016) 389 ITR 578, we hold that, the interest income earned by a cooperative society on its investments held with a cooperative bank that do not have licence under section 22 of the Banking R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been deposited in the bank account in view of the interest received on such deposits should be treated as attributable to the business income of the assessee and allowed deduction on such interest u/s 80P(2)(a)(i). This argument of the ld. AR of the assessee is not acceptable because the interest income received by the assessee is not from the activity of carrying on the business of banking or providing credit facilities to its members as per section 80P(2)(a)(i) of the Act.. 12. In respect of ground No.7, the assessee has challenged the disallowance of Rs. 21,34,129/- under various heads towards provisions made in the profit and loss account. Since, we have noted that the assessee has been allowed deduction by the CIT(A) u/s 80P(2)(a)(i) of the Act on the profits earned from the business of the assessee. The ld.AR of the assessee relied on Circular/notification No.37/2016 dated 02/11/2016 for any disallowance made under the profit and loss account of business or profession and if the assessee is eligible for deduction under Chapter IVA, then the deduction should be allowable as per the eligibility of the Chapter VIA of the I. T. Act. However, the ld.AR of the assessee could no ..... 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