Buldana Urban Co-Op.credit Society Ltd v. Acit – Itappeal Nos.151 To 153 And 179 To 181 (Itat Nagpur) Of 2012

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS MONDAY, THE 22ND DAY OF MARCH 2021 / 1ST CHAITHRA, 1943 ITA.No.11 OF 2017 AGAINST THE ORDER IN ITA 358/2016 DATED 17-11-2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAXKOTTAYAM. BY ADVS.SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES)JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: M/S.ETTUMANOOR SERVICE CO-OPERATIVE BANK LTDPEROOR ROAD, ETTUMANOOR 686 631 KOTTAYAM DISTRICT. R1 BY ADV. SRI.FIROZE B. ANDHYARUJINA (SR)R1 BY ADV. SRI.FIROZE B. ANDHYARUJINA SRR1 BY ADV. SRI.S.ARUN RAJ THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.03.2021, THE COURTON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. No.11/2017 J U D G M E N T Dated this the 22nd day of March 2021 S.V. Bhatti, J. Revenue is the appellant. The appeal is directed against the judgment of the Income Tax Appellate Tribunal in I.T.A. No.358/Coch/2016 dated 17.11.2016. The circumstances relevantfor disposing of the appeal are stated thus: 2.The assessee is a registered Primary AgriculturalCredit Society. The appeal pertains to the returns filed by theassessee/respondent for the Assessment Year 2012-13. Theassessee claims deduction under Section 80P(2)(i)(a) of theIncome Tax Act. The Assessing Officer held that the assesseecannot be considered as a Primary Agricultural Credit Society,and that, for the subject Assessment Year the assessee claimedexpenditure to the tune of Rs.8,99,40,357/- towards 'interest onvarious deposits'. The Assessing Officer, after taking note of the I.T.A. No.11/2017 circumstances and books of accounts produced by the assessee, disallowed 5% of the interest paid on deposit, amounting toRs.44,97,018/- and added the said amount as income returned.Through Annexure A, the Assessing Officer determined theincome of assessee as Rs.1,31,14,750/- and demanded tax etc onthe said amount. The assessee/respondent filed statutoryappeal before the Commissioner of Income Tax (Appeals) in ITANo.K-10/CIT(A)/KTM/2015-16/226. By order dated 06.06.2016,the Commissioner of Income Tax (Appeals) upheld the findingsof Assessing Officer, disallowing 5% of the total expenditurebooked by the assessee towards payment of interest ondeposits. However, the Commissioner of Income Tax (Appeals)directed the said addition, as entitled to benefit of deductionunder Section 80P(2)(a) of the Income Tax Act. The operativeportion of the order of Commissioner of Income Tax (Appeals)reads thus: I.T.A. No.11/2017 “10.I have carefully gone through the arguments and recordsand documents produced before me and also taken intoconsideration the jurisdictional High Court's decision in similarcases and the fact that the appellant has got deduction underSection 80P(2)(i)(a) for the assessment year 2010-2011, 2011-2012 and 2013-2014. There was no material or different factsthat are in support to disallow the claim for the assessmentyear under reference. Thus, I hold that the assessee is eligiblefor exemption under section 80P(2)(i)(a) for the assessmentyear 2012-2013. xxxxxxxxx 12.Section 80P(2)(d) allows exemption for the whole incomeby way of interest or dividends derived by a Co-operativeSociety from its investments with any other Co-operativeSociety. The appellant in their return has separately shownRs.2,20,200/- under other sources being dividend from IFFCO.As the same represents dividends received from IndianFarmers Co-operative Society Ltd., the receipt squarelycomes under the eligible clause 80P(2)(d) and accordingly theappellant's claim under this clause is also allowed. :Allowability of Deduction u/s 80P for the additions made 13. The addition made of Rs.44,97,108/- by the AO has beenupheld in paras 6 and 7 of this order. However, the saidaddition is eligible for deduction u/s 80P. The following caselaws are relevant here:- 12.Section 80P(2)(d) allows exemption for the whole incomeby way of interest or dividends derived by a Co-operativeSociety from its investments with any other Co-operativeSociety. The appellant in their return has separately shownRs.2,20,200/- under other sources being dividend from IFFCO.As the same represents dividends received from IndianFarmers Co-operative Society Ltd., the receipt squarelycomes under the eligible clause 80P(2)(d) and accordingly theappellant's claim under this clause is also allowed. :Allowability of Deduction u/s 80P for the additions made 13. The addition made of Rs.44,97,108/- by the AO has beenupheld in paras 6 and 7 of this order. However, the saidaddition is eligible for deduction u/s 80P. The following caselaws are relevant here:- I.T.A. No.11/2017 (1)Buldana Urban Co-op.Credit Society Ltd. Vs. ACIT – ITAppeal Nos.151 to 153 and 179 to 181 (ITAT Nagpur) of 2012. (2)Karad Marchant Sah.Credit Sanstha v. ITO – ITANo.159/PN/09 (A.Y. 2005-06) of ITAT, Pune. 14.In the above referred cases the ITATs, Nagpur and Punehad allowed the issue in favour of assessee. Based on the abovecited orders of the ITATs, the argument of the AR is upheld anddeduction u/s 80P is allowed for the amount of addition madeu/s 68 of the Income Tax Act.” 3.The Revenue aggrieved by the order in Annexure-B filed ITA No.358/Coch/2016 before the Income Tax Appellate Tribunal, Cochin Bench. Through the order in Annexure C theappeal filed by the Revenue has been dismissed, hence theinstant Income Tax Appeal. 4.The learned Counsel appearing for the parties agreethat in view of the recent judgment of the Apex Court inMavilayi Service Co-operative Bank Ltd. v. Commissioner of IncomeTax[1], the assessee is entitled to the benefits of Section 80P(2) of I.T.A. No.11/2017 the Income Tax Act. Having regard to the binding precedent onthe extent and scope of applicability of Section 80P(2) to aPrimary Agricultural Credit Society, this Court is required toconsider the other two objections raised by the Revenue againstthe order under appeal, by duly taking note of the fact thatassessee is entitled to the deduction under Section 80P(2) of theIncome Tax Act. 5.Learned Senior Counsel Sri P K R Menon argues thatthe assessee is not entitled to claim deduction on incomereceived by way of interest from Treasury and Laxmi VilasBank. According to him, even as per the judgment of the apexCourt in Mavilayi Service Co-operative Bank Ltd case, the Society isentitled to claim deduction of income/interest/dividend earnedfrom investments made in a Co-operative Society. In otherwords, investments with other Co-operative Society meritdeduction and not income received from other sources. The I.T.A. No.11/2017 interest received from Treasury Department or a scheduled Bank as Laxmi Vilas Bank, according to him, could not bededucted from the income of the assessee. 6.Advocate P Arun Raj, percontra, argues that thegrounds now raised by the Revenue cannot be taken up forconsideration by this Court for two reasons. Firstly, theexemption granted by the Assessing Officer in Annexure Aorder dated 13.03.2015 to the assessee to the extent of interestearned from Treasury and Laxmi Vilas Bank was not challengedby the Revenue by filing an appeal. Therefore, in the firstinstance, the said deduction granted by the Assessing Officerwas accepted and has become final. The Revenue did not raiseany objection to the deduction of interest earned frominvestment made with Treasury or Laxmi Vilas Bank in ITANo.358/Coch/2016 filed before the Appellate Tribunal. Thisobjection, it is argued as could be appreciated, is raised by Advocate P Arun Raj, percontra, argues that the I.T.A. No.11/2017 referring to the ratio of the apex Court in Mavilayi Service Co- Advocate P Arun Raj, percontra, argues that the I.T.A. No.11/2017 referring to the ratio of the apex Court in Mavilayi Service Co- operative Bank Ltd. Case, referred supra. He has, in detail, invitedour attention to all the findings, grounds raised on this behalf,and contends that this small amount granted by the AssessingOfficer by way of deduction, at this juncture, could not beallowed to be canvassed by the Department. 7.We have perused the record and noted thearguments of the learned Counsel appearing for the parties onthis point. We are of the view that the Revenue has acceptedthe assessment order to the extent of granting deduction ofRs.69,323/- in the computation of total income of assessee. TheRevenue has not challenged the said decision either before theCommissioner of Income Tax (Appeals) or before the AppellateTribunal, for the first time a ground is canvassed, in this behalf,by the Department. We are of the view that the saidobjection cannot straightaway be considered by this Court at We have perused the record and noted the I.T.A. No.11/2017 this juncture without the same being subjected to challenge, asprovided by law, and particularly the amount of deductiongranted is Rs.69,323/-. 8. The Commissioner of Income Tax (Appeals), as noted above, confirmed the finding of disallowing 5% of theexpenditure booked towards interest paid by the assessee in thesubject Assessment Year. However, included the said exclusionas deduction permissible under Section 80P(2) of the IncomeTax Act. 9.The learned Senior Advocate argues that the 5%expenditure excluded does not merit a deduction under ChapterVI A of the Act. The exclusion has to be treated as an occasionfalling under Section 68 of the IT Act. Further, the Circular,relied on by the Tribunal, has no application for it is restrictedto the sections adverted to in the said circular. Therefore, the5% now excluded by the Assessing Officer will have be treated The learned Senior Advocate argues that the 5% as income from other sources and liable to tax. 10.Advocate Arun contends that the Society hasaccepted deposits on which interest is paid to the depositors.The Society has advanced loans to its members and has earnedinterest therefrom. The interest paid by the Society, to theextent of 5% is disallowed by Assessing Officer andCommissioner of Income Tax (Appeals). Once 5% is disallowedfrom the expenditure, in the natural flow of events and as aconsequence to the deletion, the said portion comes back to thebusiness carried on by the assessee as income and is entitled todeduction under Section 80P(2)(i)(a) of the Act. In the abovecircumstances, the point for consideration is whether theCommissioner of Income Tax (Appeals) and the Tribunal arecorrect in extending the deduction availed under Chapter VI Ato the 5% disallowed by the Income Tax Officer on interest paidto the depositors. I.T.A. No.11/2017 11.The Society is entitled to claim deduction underSection 80P(2)(i)(a) of the IT Act. The exclusion of 5% from theexpenditure disallowed is treated as a deduction permissibleunder 80P(2)(a)(i) of the Act. The argument of the Departmentis that the said disallowed portion will have to be treated as'income earned from other sources'. The foundation for suchargument is that the Circular relied by the Tribunal isinapplicable, and secondly the dis-allowance forms part of asituation contemplated by Section 68 of the Act. 12.Let us first examine the applicability of the Circularto the case on hand. Circular Dated 02.11.2016 refers to Section32, 40(a)(ia), 40A(3), 43B, etc. The appreciation of Revenue thatit is applicable only to the sections stated therein, isunacceptable and stated so without noticing the word 'etc' usedin the Circular. Therefore, the objection now raised against theTribunal that the Tribunal relied on an inapplicable Circular is I.T.A. No.11/2017 incorrect and accordingly rejected. The Circular 12.Let us first examine the applicability of the Circularto the case on hand. Circular Dated 02.11.2016 refers to Section32, 40(a)(ia), 40A(3), 43B, etc. The appreciation of Revenue thatit is applicable only to the sections stated therein, isunacceptable and stated so without noticing the word 'etc' usedin the Circular. Therefore, the objection now raised against theTribunal that the Tribunal relied on an inapplicable Circular is I.T.A. No.11/2017 incorrect and accordingly rejected. The Circular comprehensively sets out the procedure for treating such itemsof expenditure. 13.The assessee/Society, in view of the recent SupremeCourt judgment in Mavilayi Service Co-operative Bank Ltd. Case, isentitled to be treated as a Society satisfying the definition ofSection 2(19) of Income Tax Act read with Kerala SocietiesRegistration Act, 1860. The primary business ofassessee/Society is accepting deposits and providing benefits tothe members of the Society. The income, therefore, received bythe Society is from the interest it earns on the amount lent tothe members. The Society, likewise, is paying interest on thedeposits it has accepted. For a reason recorded and accepted byall the authorities, the 5% of the expenditure booked againstinterest paid to depositors is disallowed and once disallowedportion is accepted by all the authorities, the said disallowed I.T.A. No.11/2017 portion forms part of the interest earned by the Society on theamount lent by the Society to its members, vis-a-vis in otherwords, income earned from business carried on by the Society.Therefore, the Society is entitled to deduction under Section80P(2)(i)(a) of the Income Tax Act. Section 68 of the Act interms is not applicable to an entry warranted consequent to thedisallowed expenditure by the Assessing Authority. For the reasons stated supra, the questions raised by theDepartment are without merit and are answered in favour ofthe assessee. The Income Tax Appeal is dismissed. No order asto Costs. Sd/- S.V.BHATTI JUDGE Sd/- BECHU KURIAN THOMAS JUDGE jjj I.T.A. No.11/2017 PETITIONER'S/S EXHIBITS:ANNEXURE A ANNEXURE B ANNEXURE C APPENDIX ASSESSMENT ORDER U/S.144 DT.13.03.2015. CIT (APPEALS) ORDER NO.K-10/CIT(A)/KTM/2015-16/226DT.06.06.2016. ITAT'S ORDER NO.358/COCH/2016 DT.17.11.2016.