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TMI Blog2023 (8) TMI 1494X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to explain with supporting documentary evidences the claim of deduction under chapter VI-A of the Act. In response the AO vide submission dated 06.03.2017 has provided the details as referred in the Annexure 4 to the submission as placed at page 15 to 24of the paper book filed by the assessee. The assessee explained that it provides loans to its members therefore, it fall under section 80P(2)(a)(i) of the Act - It is also explained that assessee society is not in the business of banking therefore it cannot be treated as bank and provision of Section 80P(4) are not attracted to the assessee at all. As decided in Vavveru Cooperative Rural Bank Ltd. [ 2017 (4) TMI 663 - ANDHRA PRADESH HIGH COURT] wherein held that the co-operative society may claim the benefit of clause (d) or (e) either by investing the income in another co-operative society or investing the income in the construction of godown or warehouse and letting out the same. Also decision of ITAT Mumbai in the case of Jaoli Taluka Sahkari Patpedhi Maryadit [ 2015 (9) TMI 170 - ITAT MUMBAI] claim of deduction u/s 80P(2)(a)(i) for interest income earned on depositing of surplus funds with the co-operative Banks was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest and dividend income received by the Appellant from the Mumbai District Central Co-operative Bank. The appellant craves leave to add to or delete or alter any of the above ground as considered more appropriate to the case. 2. Fact in brief is that return of income declaring nil income was filed on 30.09.2015. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 11.08.2018. The assessee is a Cooperative Credit Society registered under the Maharashtra Cooperative Society Act. It is engaged in providing credit to its members and for the year under consideration it has shown net profit of Rs. 17,73,07,795/-. The assessee has claimed deduction u/s 80P(2)(a)(i) of the Act. The assessing officer after verification of the details and submission filed by the assessee has allowed the claim of deduction. 3. Subsequently, the ld. Pr.CIT on perusal of the assessment record noticed that assessee has earned dividend income of Rs. 17.61,959/-, interest of Rs. 107,52,999/- aggregating to Rs. 125,14,958/- and claimed deduction u/s 80P(2)(d) of the Act. The ld. Pr.CIT observed that assessee has also claimed deduction on the aforesaid interest and dividend i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon were also referred for consideration. A. 2. After considering the written submissions, the Assessing Officer allowed the claim for deduction u/s 80P(2)(a)(i) of the Act of entire income including interest and Dividend referred above in the assessment completed u/s 143(3) of the Act. A. 3. Sec. 263 of the Act, under which the revision is proposed now, contemplates two situations A. order is erroneous and B the error must be prejudicial to the revenue. Both these conditions need to be simultaneously attracted for revision u/s 263. Refer Malabar Industrial Co Ltd Vs CIT, 243 ITR 83 (SC) and CIT VS. Kwality Steel Suppliers Complex 395 ITR 1 (SC). Annexure 1 2 resp. In the assessee's case, leave aside attracting both the conditions but even one is not attracted. This is explained below: i. the order proposed to be revised was not erroneous as it was based on several reported decisions of the High Courts including jurisdictional High Court and Tax Tribunals. Thus, AO's decision to allow deduction had enough support of higher authorities. ii. the order was not prejudicial to the interest of the revenue as there was no grievous error in original assessment order, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions cannot be revised u/s 263 of the Act. vii. Merely because the assessment order does not contain any specific discussions and or reasoning for accepting deduction in full in respect of both the incomes, which now proposed to be denied benefit of deduction u/s 80P(2)(a)(1) of the Act, cannot be a ground for resorting to action u/s 263. Refer CIT VS. Goyal Private Family Specific Trust 171 ITR 698 CIT VS. Gabriel India 203 ITR 108 Annexure 10 11. All the judgments relied upon by the assessee and further additional decisions are stated at the end of these submissions. (Page 15 onwards). Copies of all these judgments are enclosed for ready reference. Therefore, in our view, the revision u/s 263 proposed by you, is against the laid down principles and law and therefore need not be proceeded with During the hearing before Hon. ITAT in the appeal against your first order u/s 263, all these points as also merit of the case was explained. As can be seen from appeal order, the DR did not refute any of these submissions. He pleaded for principle of Natural Justice as none of those submissions were made before the Ld. PCIT in the hearings fixed before order u/s 263 was passed. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee was to provide credit (loans) to the members. This business called for certain financial discipline and was also subjected to certain legal compulsions. All these were required to be followed up for smooth and uninterrupted business continuity. b. Sec. 66 of the Governing Act viz. Maharashtra State Co-Op Societies Act requires every society to set aside profits up to 25% to Statutory Reserve before declaring dividend to members. The amounts so set aside are required to be invested in bank deposits u/s 70 of the said Governing Act. Copies of these are enclosed as Annexure 12 13 respectively for ready reference. c. The assessee society had transferred applicable profits every year to Statutory Reserve- compliance of sec. 66 of Governing Act and placed these in deposits with the MDCC bank-compulsion of sec. 70 of the Governing Act. The below table will bring out relationship between rise in Statutory Reserve Bank Deposit during the year. Statutory Reserve Bank Deposits Op Balance 9,52,54,708 7,57,61,000 Add: Profits Transferred 2,54,50,265 Entrance Nominal Members fee 5,796 Fresh FDs (net) made 4,48/97,000 Cl. Balance 12,07,10,769 12,06,58,000 The funds invested in bank deposit wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores The assessee society had invested Rs. 7.50 crores in shares of the said bank at the time of availing loan in earlier year and the said investment continued as at 31.03.2015. The borrowed amount was advanced to members as loans at rates higher than the rate of interest paid on Overdraft to bank. The dividend of Rs. 17,61,959/- was received on the investment of these shares. The rate of dividend was just 2.35% d. The transaction of availing loan was an act of business exigencies, this mandated investment in shares of the lending bank and the dividend was earned on shares so bought. Thus, all of these were part of the business activity. e. If the investment is made as business exigencies, income arising from said investment is business income and not income from other sources. It was held in CIT vs. Chinna Nachimuthu Constructions 297 ITR 70 (Kar) - (Refer Annexure 18). that if FDs were placed with bank for availing bank guarantee for utilizing in the business, interest on such bank fixed deposits was treated as business income and not income from other sources. Applying the same ratio, the dividend earned on shares bought for the purpose of availing loan, which was utilised i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arning of interest and dividend therefore were earned while conducting the said business and fully attributable to the said business. e. The term attributable to the business is explained by Apex Court in Cambay Electric Supply Industrial Co Ltd v/s CIT 113 ITR 84, which is produced here under: it will be pertinent to observe that the legislature, has deliberately used the expression attributable to and not the expression derived from It cannot be disputed that the expression attributable to is certainly wider in import than the expression derived from Had the expression derived from been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned SolicitorGeneral, it has used the expression derived from , as, for instance, in section-80J In our view, since the expression of wider import, namely, attributable to , has been used, the legislature i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible for the benefit of these decisions. D. The decision of the Apex Court in Totgars Co-operative Sales Society: This decision is reported in 188 Taxmann 282 (SC) -Annexure 22 and has been relied upon in proposing action u's 263 in this case Based on this decision, a conclusion is drawn that deduction u's 80P(2)(a)(i) was not available to a cooperative credit Society in respect of income by way of Interest from Bank and Dividend on shares. It is submitted that this decision cannot be applied to the assessee's case for the following reasons i. The facts of the Totgars Co-operative Sales Society were completely different from the facts of the assessee The Totgars Co-operative Sales Society was an agriculture produce marketing society. Its principal business was marketing of agricultural produce of members It held back part of such sale proceeds and invested that in bank deposits. The Totgars society had two businesses while assessee was in only business of providing credit facilities to its members. ii. The amounts invested by the Totgars Co-operative Sales Society was part of sale proceeds of members' agriculture produce which was invested in fixed deposits with ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailability of additional funds for normal business. This enabled the assessee society to retain its members' business to itself and provided incremental income to the assessee. vi. The Apex Court observed in the case of Totgars Co-operative Sales Society that the funds invested were surplus funds and were idle funds at relevant point in time These features did not apply to the assessee society's funds invested in deposits and in shares. Therefore, the decision of the Apex Court cannot be applied per se as facts are completely different. vii. In view of the peculiarity of the case, the Apex Court made it clear that the judgment was confined to the facts of the case. Refer second para in clause 11 of the judgment. The Apex Court has further observed that to qualify for the deduction of whole of the amount, the income concerned must constitute operational income . It is explained in the earlier para that the Interest and the Dividend from co-op. Bank were fully attributable to the operations of the assessee and therefore these were operational income of the assessee. The income from direct operations is accepted as eligible for 100% deduction and therefore these income by way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome in the circumstances explained above, is not accepted for any reason, alternate claim for deduction u/s 80P(2)(d) of the Act is made in respect of the said income earned from MDCC Bank The Mumbai District Central Co-Operative Bank (MDCC bank) is a Co- operative Bank, registered under Maharashtra State Co-Operative Societies Act. Since its objects provided for undertaking banking business, it additionally obtained registration under banking Regulation Act, without forgoing/cancelling its original registration under Maharashtra State Co-Operative Societies Act. In view of its continued registration as a co-operative society its name still indicates word Co-Operative This word is a testimony of its continued status as co-operative society Section 80(P)(2)(d) reads as under in respect of any income by way of interest or dividends derived by the co-operative society from its investment with any other cooperative society, the whole of such income . i. Section 2(19) of Income Tax Act, 1961 defines co-operative society to mean a cooperative society registered under the Co-operative Societies Act 1912 (2 of 1912), or under any other law for the time being in force in any State for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Dividend income of Rs. 17,61,959/- received by the appellant society from another co- operative society are eligible for deduction u/s 80P(2)(d) of the Act. Judicial Pronouncements supporting assessee's case Deduction permissible u/s 80P(2)(a)(i) of the Act to entire Income: i. The Quepem Urban Co-operative Credit Society Ltd vs. ACIT (2015) 377 ITR 272 (Bom)- Annexure 6. ii. Guttigendarara Credit Co-Op. Society Vs CIT-60 Taxmann Com 215- Annexure 25 Deduction permissible u/s 80P(2)(d) of the Act: i. Principal Commissioner of Income Tax vs Totgars Co-operative Sale Society reported in (2017) 392 ITR 74 (Kar)-Annexure 26 ii. Surat Vankar Sahakari Sangh Vs. ACIT 72 Taxmann.Com 169 (Guj) Annexure 27 iii. Lands End Co-operative Housing Society Ltd. vs. ITO (2016) 46 CCH 0052 (Mum Trib)- Annexure 28 iv. CIT Vs UP. Co-Op Sugar Factories 219 Taxmann 33 (Allahabad) - Annexure 29. v. CIT Vs. Haryana State Co-Op Hsg. Society 234 ITR 714 (Punjab Haryana)Annexure 30. vi. Kaira Dist. Co-Op. Milk Producers Union Vs. DCIT 387 ITR 183 (Gu)) - Annexure 31 vii. Kaliandas Udyog Bhavan Premises Co-op Socy. Ltd. vs. IT.O. 21(2)(1) ITA No. 6547/Mum/2017 dated 25.04.2018 Copy marked as Annexure- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. B. Deduction permissible u/s 80P(2)(a)(i) of the Act to the entire income: 1. Interest received from Co-Operative Bank Fixed Deposits with MDCC Bank were made to comply with specific direction of the governing Act. These Fixed deposits earned interest, which was incidental to the investment, was not separable from main business and therefore was an integral part and attributable to the core business of providing credit to members 2. Dividend received from Co-Operative Bank Investment in shares of MDCC Bank was made to avail additional funds by way of loan, which was used in principal business Dividend was earned on those shares as incidental income and therefore was integral part and attributable to the core business of the assessee, 3. Any income/expenditure not separable from main activity becomes integral part of the said activity and therefore it is held to be attributable to that business. 4. The decision of Apex Court in Totgars case was a restrictive decision and there were several dissimilarities of facts of two cases and hence it could not be relied upon to determine taxability of certain income in the assessee's case. Without prejudice to the above: C. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng judicial pronouncement wherein action u/s 263 is held valid on the ground that the AO failed in making due verification and enquiry: i. Hon ble High Court in the case of Ballarpur Industries Ltd. (85 taxmann.com 10). ii. Rajalakshmi Mill Ltd. Vs. ITO, Coimbatore (2009) 31 SOT 353 (Chennai) (SB). iii. Dr. Rabindra Kumar Singh Vs. CIT (Central), Patna (2011) 131 ITD 39 (Ranchi). The ld. Pr. CIT has also referred the following judicial pronouncement where in held that mere filing of an explanation was not sufficient if there is not further enquiries carried out: (i) Jeevan Investment Finance (P) Ltd. 88 taxman.com 552 Bom) (ii) Gee Vee Enterprises V. Addl. CIT (1975) 99 ITR 375 (Del) (iii) Ambika Agro Supplies Vs. ITO Jalagon (2005) 95 ITD 326 (iv) Remeshchandra Maleram Varma Vs. DCIT (2002) 121 Taxman 29 (Ahd). (v) Mahalakshmi Ligor Promoters (P) Ltd. Vs. CIT (2013) 29 taxmann.com 74 and the assessing officer is directed to frame the assessment de novo after due verification. 5. During the course of appellate proceedings before us the ld. Counsel furnished paper book comprising detail and copies of documents filed during the course of assessment proceedings and proceeding before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked the assessee to explain with supporting documentary evidences the claim of deduction under chapter VI-A of the Act. In response the AO vide submission dated 06.03.2017 has provided the details as referred in the Annexure 4 to the submission as placed at page 15 to 24of the paper book filed by the assessee. The assessee explained that it provides loans to its members therefore, it fall under section 80P(2)(a)(i) of the Act. It is also explained that assessee society is not in the business of banking therefore it cannot be treated as bank and provision of Section 80P(4) are not attracted to the assessee at all. The ld. Counsel has placed reliance on the decision of Hon ble High Court of Telangana and Andhra Pradesh in the case of Vavveru Cooperative Rural Bank Ltd. Vs. Chief Commissioner of Income Tax (2017) 88 taxmann.com 728 (Andhra Pradesh Telangana) dated 15.03.2017 wherein held that the co-operative society may claim the benefit of clause (d) or (e) either by investing the income in another co-operative society or investing the income in the construction of godown or warehouse and letting out the same. The ld. Counsel has also referred the decision of ITAT Mumbai in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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