9911796707
TMI Blog2024 (10) TMI 248X X X X Extracts X X X X X X X X Extracts X X X X ..... AO in this respect. The matter is accordingly restored to the file of the Assessing Officer for the limited purpose that on furnishing of necessary details, the Assessing Officer will bifurcate the interest income earned by the assessee from the credit facilities granted to its members for agricultural purposes or purposes connecting with agricultural activities and further after netting off such interest income with the expenditure/interest incurred by the assessee-society for getting deposits in respect of such income, the AO would accordingly allow deduction in respect of the said amount out of total interest income u/s 80P(2)(a)(i) and further the AO will also bifurcate the income earned by the assessee-society from the purchase, sale and agricultural implements intended for agriculture for the purpose of supplying them to its members and will allow deduction on such income u/s 80P(2)(iv) of the Act Addition u/s 68 - Deposits during Demonetization Period - HELD THAT:- The assessee-society has deposited the said demonetized currency accepted from its members in cooperative/schedule bank and earned interest income on the same. The assessee-society has claimed that it is indulged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee u/s 80(P) of the Act. 2. For that on the facts and circumstances of the case, the Ld. CIT(A) was not justified in confirming the action of the A.O in treating the interest income from FDs etc. as unqualified for deduction 80P(2)(a)(i) of the Act. 3. For that on the facts and circumstances of the case, the Ld. CIT(A) was not justified in confirming the additions made by the A.O to the tune of Rs. 1,46,74,500/- being cash deposits during the demonetization period, by wrongly treating the same as unexplained cash credits u/s 68 of the Act. 4. For that on the facts and circumstances of the case, the Ld. CIT(A) was not justified in confirming the addition of Rs. 1,01,718/- made by the A.O on account of contingent liabilities. 5. The appellant craves leave to add further grounds of appeal or alter the grounds at the time of hearing. 4. Ground No.1 The assessee vide Ground no.1 has agitated against the non-grant of benefit of deduction u/s 80P of the Act in respect of income earned from deposits with bank. The assessee claimed deduction in respect of interest income earned from the activity which was done for non-agricultural purposes. The Assessing Officer has discussed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive Society Limited 397 ITR 1 (SC) has held that the assessee was engaged in the activity of granting loans to members of the general public as well and this was done without approval from Registrar of Societies and that therefore, the activity of the assessee was in violation of the Co-operative Societies Act and that it was a Co-operative Credit Society which was not entitled to deduction under section 80P(2)(a)(i) of the Act. A specific finding was also rendered that the assessee failed to satisfy the test of mutuality. These findings of fact remained undisturbed. Therefore, the assessee could not be treated as a co-operative society meant only for its members and providing credit facilities to its members. Such a society could not claim the benefit of section 80P of the Act. 3.10 In the instant case, the assessee has failed to prove that the business transactions of lending loans and advances, acceptance of deposits, the sale and purchase of agricultural implements, seeds, fertilizers, etc. was done only with its members. The case was selected for scrutiny for the Asst. Year(s) 2016-17 and the assessments were completed disallowing the deduction claimed u/s. 80P as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erative society is required to keep certain portion of their deposits with mother bank, etc., no evidence in support of the same has been furnished. In view of the above, the interest income on FDs, etc., is assessable as Income from Other Sources and does not qualify for deduction u/s. 80P. 5. The ld. CIT(A) has upheld the order of the Assessing Officer finding no infirmity in the same. 6. We have heard the rival contentions. The main contention of the ld. Counsel for the assessee has been that the assessee-society is engaged in the business of banking and that the aforesaid income was earned by the assessee by accepting deposits from its members and further reinvesting the same in cooperative banks and other commercial banks. It has been further pleaded that the assessee has taken loans from the cooperative banks and other commercial banks at a lesser rate and the same was paid to be members at a higher rate and the net of the interest income was eligible for deduction u/s 80P(2)(a)(i) of the Act. We find that the Assessing Officer has not only examined at length the details/facts including the details of the receipts, details of investments and income earned therefrom. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were granted by the assessee-society for non-agricultural purposes, therefore, the assessee-society s primary activity is not for granting loans for agricultural purposes or purposes connected with agricultural activities. Therefore, the Assessing Officer held that since the primary purposes of the assessee-society was not for loans and credits given for agricultural purposes, therefore, the assessee-society would not fall in the definition of primary agricultural cooperative society and therefore, could not be eligible for deduction u/s 80P(2)(a)(i) of the Act. Moreover, it is the own case of the assessee that the assessee-society had received cash in demonetized currency (Specified Bank Notes) during demonetization period and had deposited the same in cooperative bank/schedule bank and earned interest thereupon. The aforesaid affirmation on the part of the assessee-society would, itself, show the said activity of the assessee-society was not for providing financial accommodation to its members for agricultural purposes or purposes connecting with agricultural activities. Moreover, it has been also specifically observed by the Assessing Officer that the assessee has not denied t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for agriculture for the purpose of supplying them to its members and will allow deduction on such income u/s 80P(2)(iv) of the Act. Needless to say that the assessee-society will promptly supply the necessary details and information as and when called for by the Assessing Officer and the Assessing Officer will also give reasonable time and opportunity to the assessee to furnish the necessary details, thereafter, the Assessing Officer will pass a speaking order on this issue. This Ground of the appeal of the assessee is partly allowed. 7. Ground No.2 Vide Ground No.2, the assessee-society has agitated against the action of the ld. CIT(A) in confirming the disallowance in respect of cash deposits in demonetized currency accepted during the demonetization period. In the alternative, the assessee has pleaded that the ld. CIT(A) ought to have allowed the benefit of deduction of interest payable to its members attributable to the deposits with the bank and out of the income earned on cash deposits during the demonetization period. The relevant part of the findings of the Assessing Officer on this issue is reproduced as under: Deposits during Demonetization Period 3.13 Assessee had made c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void. As per Section 26 of the Reserve Bank of India Act 1934, which defines Legal tender character of notes (1) Subject to the provisions of subsection (2), every bank note shall be legal tender at any place in India in payment, or on account for the amount expressed therein, and shall be guaranteed by the Central Government. (2) On recommendation of the Central Board, the Central Government may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender save at such office or agency of the Bank and to such extent as may be specified in the notification. Every contract involves consideration. Thus, in the above type of contracts, consideration is money. The word money has not been defined under the said Act, but the most common definition of money as found from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rations, even during demonetization period, it has to be understood that he has received the money in legal tender only but not in SBNs, because from 09-11-2016 onwards, the SBNs are no longer money but a mere piece of paper as between the seller and the buyer, and do not constitute money in legal tender. The assessee cannot take a contradictory stand that he received price in SBNs. Thus, a valid contract during demonetization period and SBNs are mutually exclusive, and the assessee cannot be permitted to club both of them. Hence, if any one says that he has received price in SBNs as a part of contract, such contract itself is void and non-est in the eyes of law, because the claim of receipt of such price in SBNs as a part of contract of sale, if accepted, would defeat the provisions of Sec.26(2) of RBI Act, 1934 and the Notification in S.O.No.3407(E) dt. 08-11-2016 issued thereunder, through which the Central Government has withdrawn the legal tender status of SBNs from 09-11-2016 onwards. As per the said Notification, the only way-out given to the persons holding SBNs as on 09-11-2016 to realize the equivalent value of such SBNs is to deposit the same in to his bank account (plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in SBNs during the demonetization period are held to be unexplained. The total cash deposited in SBNs during the demonetization period was Rs. 1,46,74,500/-. Hence, the total cash deposits in SBNs during the demonetization period of Rs. 1,46,74,500/- are treated as unexplained and brought to tax u/s. 68 of the Act. 8. The ld. CIT(A) has confirmed the order of the Assessing Officer finding no infirmity in the same. 9. We have heard the rival contentions and gone through the record. Before us, the ld. Counsel for the assessee has submitted that the assessee-society has accepted the Specified Bank Notes during demonetization period from its members as the assessee-society was working in the rural area and the members were totally dependent upon it for banking needs. He, in this respect, has submitted that sources of the deposits were fully proved, therefore, the Assessing Officer was not justified in making the impugned additions u/s 68 of the Act. However, a perusal of the assessment order would reveal that the assessee-society has not provided the member-wise details of the deposits. Moreover, the assessee-society was not entitled to accept the demonetized currency/Specified Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- made by the Assessing Officer on account of contingent liability. 11. The ld. counsel for the assessee in this respect made the following submissions: Normally, the method of accounting which is followed by the assessee- PACS is mercantile system of accounting. However, the assessee considers income by way of interest pertaining to doubtful loans as not real income in the year in which it accrues, but only when it is realized. A mixed method of accounting is thus followed by the assessee-Society. This method of accounting adopted by the assessee is in accordance with accounting practice. Here, Assessee created a provision in respect of as OD Int. this provision eventually related to the bad debt; rather we can say it would be the provision for bad debt. Here, under the section 36(viia) minimum eligible amount would be 10% of the Total Income i.e. Rs. 3650389.00 as per return. Therefore, eligible rebate under sec 36(viia) would be Rs. 365039.00. Here, being an assessee, we created a provision of Rs 101718.00 by debiting the Profit and loss Account which was eventually less than the eligible amount. As such, A.O's consideration appeared to be contradictory and addition as cont ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
