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TMI Blog2017 (12) TMI 1883X X X X Extracts X X X X X X X X Extracts X X X X ..... in the preceding paragraph. As the present issue of interest is common with that of the assessee, therefore we are inclined to restore the same issue to the file of AO for fresh adjudication in accordance with the law. Other interest income - We notice that these funds were created to meet the requirement of the provisions of West Government Co-operative Societies Act 1983 as discussed above. Therefore in our considered view the impugned interest income is eligible for deduction u/s 80P(2)(a)(i). We find that the impugned issue has already been decided by the Hon ble ITAT in the own case of the assessee for the AY 2008-09 in [ 2012 (4) TMI 832 - 13-04-2012] where the Co-ordinate Bench of this Tribunal was pleased to delete the addition made by the AO. The relevant extract of the order has already been produced in the preceding paragraph. Thus, we hold that the impugned interest income earned on MSSS, Reserve Fund on Bad debts Funds is eligible for deduction under section 80P(2)(a)(i) of the Act. Thus, the ground raised by the Revenue is partly allowed for statistical purposes. Addition made on account of subsidy received by the assessee - AO disallowed the deduction claimed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not giving any finding/direction to the AO in respect of ground nos. (i) (vi) and (vii). 6. That the appellant craves leave to add, alter or delete all or any of the grounds of appeal. Shri Arindam Bhattacharjee, Ld. Departmental Representative appeared on behalf of Revenue and Shri Subash SAgarwal, Ld. Advocate appeared on behalf of assessee. 2. The ground no. 1, 4 5 are inter-related and therefore being taken up together. The issued raised by Revenue in this appeal is that Ld CIT(A) erred in deleting the addition made by the Assessing Officer u/s 80P(2)(a)(i) of the Act on account of interest income earned on the surplus fund i.e. Interest on Reserve, Bad Debt, MSSS 5% on the FD general. 3. Briefly stated facts are that the assessee in the present case is a co-operative society and engaged in the activity of providing loan to its members. The assessee is also claiming deduction in respect of its profit under section 80P(2)(a)(i) of the Act. The assessee in its profit loss account has shown interest incomes as detailed under:- 1. Interest on Long Term Loan ₹ 1,45,08,490.00 2. Interest on Mid Term Loan ₹ 41,52,295.00 3. Interest on Education Loan ₹ 90,971.00 4. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is earmarked for a certain purpose and therefore it cannot be under any circumstances be deemed to be a surplus. The fund is set aside to provide for contingencies which cannot be predicted. Thus the Reserve Fund is intended to provide against losses arising from the business of providing credit and therefore the interest earned from investing such fund is attributable to that same business. The bad debts fund is another fund created by the society for its specific purpose to provide safeguard against losses arising from default in payment of loans by members. The subsidy was received from the company that employs the members of the appellant society namely National Coal Development Corporation Ltd. This has been given because the appellant carried on the business of providing credit facilities to its employees. Therefore it is unquestionably attributable to that business and was not received in the course of providing credit facilities. Further vide in the Income Tax Appellate Tribunal Bench- C Kolkata vide No. ITA No.1564/Kol/2011 dated 13.043.2012 has given in the order that interest on reserve fund, SBF Loan MSSS loan all are main activity of the business. The assessee also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned surplus from the sale of the produce of its members. The Ld. CIT(A) after considering the submission of the assessee deleted the addition made by the AO by observing as under:- 4- Ground No.(i) relates to contention of the appellant against not allowing deduction The fact of the case is that the interest income shown by the appellant aggregating to ₹ 64,88,318/- was claimed as deduction u/s.80P which was disallowed by the AO. The interest income includes interest from Fixed deposits, Reserve fund, Bad debt fund and MSSS account. This issue was adjudicated by my redecessor in the appellant s on case for the assessment year 2011-12 by which he directed the AO to allow deduction u/s. 80P on the amount pertaining to Reserve fund, Bad debt fund and MSSS account but the interest income earned on fixed deposits does not qualify for deduction u/s 80P of the IT Act. The Revenue, being aggrieved, is in appeal before us. 6. The Ld DR before us submitted that the impugned interest income earned by the assessee is arising out of the surplus fund deposited in the form of fixed deposit with the bank. Therefore such interest income on the surplus fund is not eligible for deduction unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fixed deposit (general) Rs.40,76,664/- (2) Interest on reserve fund ₹ 3,66,436/- (3) Interest on bad debts fund ₹ 2,62,408/- (4) Interest on MSSS (Net) Rs.20,33,844/- The interest income earned by the assessee on the fixed deposits (general) made with the bank for ₹ 67,39,352.00 was disallowed by the AO on the ground that it does not arise from the business of providing credit to the members. However the Ld CIT(A) was pleased to delete the addition to the tune of 5% of the interest income earned on the FD (general). Against the order of Ld CIT(A) assessee preferred an appeal before the Co-ordinate Bench of this Tribunal in ITA No. 1249/Kol/2015 for the assessment year 2012-13 on the following grounds of appeal:- 1.For that on the facts and in the circumstances of the case, the Ld. CIT(A) was not justified in confirming the action of the A.O. in holding that the interest income earned by the assessee-credit society amounting to ₹ 40,76,664/- on account of fixed deposits does not qualify for deduction u/s.80P. 2. For that the Ld. CIT(A) ought to have considered that the judgment in the case of Totgars Co - operative Sale Society Ltd. vs. ITO 322 ITR 283 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... milar issue to the file of the AO after recording its observations in paragraph nos. 11 and 12 as under : 11. We have considered the. rival submissions and carefully perused the relevant material available on record. In the case of Totgar's Cooperative Sale Society Limited (supra) cited by the ld. D.R. in support of the revenue s case .on the issue under consideration, the assessee Society besides carrying on the business of providing credit facilities to its members was also marketing its agricultural produce. The sale proceed of such agricultural produce, which was payable to its members, in many cases-was retained by the assessee-Society and the same was invested-in short-term deposits/securities. In these facts and circumstances of the case, interest income received on short-term deposits/securities was held to be chargeable to tax under the head 'income from other sources' by the Hon'ble Supreme Court observing that the amount invested by the assessee was a liability payable to its members, and, therefore, the interest income could not be said to be attributable to the activity mentioned in section 80P(2) (a) (i). In the case of Tumkur Merchants Souharda Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said date were ₹ 1.76 crores and 1.73 crores respectively. The major amount appearing on the liability side of the balance-sheet as on 31.03.2009 was deposit and other account aggregating to ₹ 28.89 crores, which comprised of various funds and deposits. Keeping in view these facts and figures, we are of the view that the issue as to whether the relevant investment is made by the assessee out of its own surplus funds or out of the amount payable to its members, which represent its liability, requires verification in order to determine the exact head of income under which the interest on such investment is chargeable to tax in the hands of the assessee by applying the relevant case laws. We, therefore, set aside the' impugned order of the Id. CIT(Appeals) on this issue and restore the matter to the file of the Assessing Officer for deciding the same afresh after verifying the relevant factual position from record and after giving the assessee proper and sufficient opportunity of being heard. Ground No. 2 of the Revenue's appeal is accordingly treated as allowed for statistical purposes. 7. Relying on the decision of the Tribunal in the case of Baksara Cooperat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act,1973 shall be deemed to have been registered under this Act, and its by-laws shall, in so far as they are not in consistent with the provisions of this Act, continue in force until altered or rescinded and shall to such extent be deemed to be registered under this Act. As per the provisions of Section 63 to 66 of the West Government Co-operative Societies Act 1983, the assessee was required to create certain funds as detailed under:- 63. (1) There shall be a Fund to be called the Co-operative Education Fund to be administered by such authority and in such manner as may be prescribed. Every cooperative society shall contribute to the Co-operative Education Fund such portion of its net profit in any co-operative year as may be prescribed. ( 2) All references to the Co-operative Development Fund established under the West Bengal Co-operative Societies Act, 1973 shall be construed as references to the Cooperative Education Fund established under this Act. 64. Every co-operative society shall create a Bad Debt Fund by transfer of not less than fifteen percent of its net profit in a co-operative year and shall utilize it in any business if it has no outside liability in the form bad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the fixed deposits (general) for ₹ 40,76,664.00 but the Ld CIT(A) has deleted the addition made by the AO to the tune of 5% of the interest income. Both the assessee and the Revenue against the order of Ld CIT(A) preferred an appeal before the Hon ble ITAT vide ITA No. 1249/Kol/2015 and 1244/Kol/2015 respectively. In this regard, we noticed that Hon ble ITAT has restored the issue raised by the assessee in ITA 1249/Kol/2015 to the file of AO for fresh adjudication for the same assessment year. The relevant extract of the order has already been produced in the preceding paragraph. As the present issue of interest is common with that of the assessee, therefore we are inclined to restore the same issue to the file of AO for fresh adjudication in accordance with the law. 9. Now coming to the issue of other interest income as discussed above, we notice that these funds were created to meet the requirement of the provisions of West Government Co-operative Societies Act 1983 as discussed above. Therefore in our considered view the impugned interest income is eligible for deduction under section 80P(2)(a)(i) of the Act. Moreover, we find that the impugned issue has already been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applying the ratio laid down by Hon'ble Supreme Court in the case of the Totgars Co-operative Sales Society Ltd. vs. ITO (supra) We respectfully following the consistent view decline to interfere with the order passed by the Ld CIT(A) on this account and accordingly the ground taken by the Revenue is regretted. Consequently, the ground of appeal raised by the Revenue is dismissed. 15. The next issue raised by Revenue in this appeal is that learned CIT-A erred in allowing the deduction under section 80P(2)(a)(i) of the Act on account of the provision for Ex-gratia. 16. The assessee in the year under consideration has debited a sum of ₹ 1.50 Lacs under the head provision for ex-gratia. However the AO was of the view that the provisions cannot be allowed as deduction. Therefore the same was disallowed by the AO and added to the total income of the assessee. 17. Aggrieved, assessee preferred an appeal before Ld CIT(A) who deleted the addition made by the AO by observing as under :- 7- Ground No.(vi) and (vii) relate to disallowance made by the AO of ₹ 1,50,000/- on account of provision for ex-gratia. Though, the appellant submitted that the AO had disallowed the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X
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