TaxTMI 
TaxTMI 
2020 (8) TMI 361
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....rmed the same addition and without considering the fact that the provisions are made as per the statute. 3. That the learned assessing officer has erred in law and on facts of the case by disallowing the provision for gratuity amounting to Rs. 1,47,351 to which the Ld. CIT(Appeals) has wrongly confirmed the same addition and without considering the fact that the provisions are made as per the statute. 4. That the Ld. CIT(Appeals) has confirmed the addition on account of provision for bad-debts, provision for interest and provision for gratuity without appreciation of fact that all these are infructuous when section 80P comes into effect. 5. That the appellant may add, alter, delete or modify any of the grounds at the time of hearing of the matter with the leave of the Hon'ble ITAT. 4. Grounds raised for A.Y.2010-2011 read as under :- 1. That the order passed by the learned C1T(A) is arbitrary, excessive, contrary to facts and bad in law. 2. That the learned assessing officer has erred in law and on facts of the case by disallowing the provision for bad-debts and provision for interest amounting to Rs. 10,50,000 to which the Ld. CI....
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....hat no debt/overdue principal has been written off during the year. It was confirmed from the Secretary of the Society and he also stated that no overdue principal has been written off. Accordingly, the AO made disallowance of provision for over due principal made by the assessee u/s.36(1)(vii) of the Act and added the same to the total income of the assessee. On further perusal of the profit and loss account the AO found that the assessee had debited a sum of Rs. 1,47,351/- under the head provision for gratuity fund. It was also noticed by the AO that it was not as per the provisions of Section 36(1)(v) of the Act, therefore, he added the same to the total income of the assessee. 6. On further scrutiny the AO disallowed claim of deduction u/s.80P of the Act as claimed by the assessee by holding as under :- 5.1. Deduction U/s.80P: The society in its profit & loss account arrived at net profit of Rs. 18,16,783.95. However, in the audited report u/s.44AB dated 17.11.2015 in form No.3CD at Para No.26, section-wise details of deductions if any admissible under chapter VIA, reported deduction u/s.80P at Rs. 18,00,560/-. In the profit & loss account depreciation has been clai....
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....ssed the appeal of the assessee on merits. 8. Aggrieved from the order of dismissal by the CIT(A), the assessee is in appeals before us for the above mentioned assessment years. 9. Ld. AR submitted that the CIT(A) has wrongly endorsed the order of AO the assessee is eligible for deduction u/s.36(1)(vii) of the Act and further the CIT(A) also disallowed the provision for gratuity of Rs. 1,47,351/- without verifying the actual facts whereas these gratuity amounts have been transferred to LIC of India on the approved gratuity fund maintained by the LIC. Further he also submitted that once the assessee is eligible for deduction u/s.80P(2)(i) of the Act, then the entire exercise done by the AO and CIT(A) will be futile. The CIT(A) has held that the assessee is entitled for deduction u/s.80P(2) of the I.T.Act. Had these two disallowance been claimed by the assessee as expenditure then profit would be increased and the same amount will be claimed by the assessee as deduction u/s.80P(2)(a)(i) of the Act. 10. On the other hand, ld. DR supported the order of the lower authorities and he submitted that the assessee did not fulfil the requirements as provided u/s.36(1)(vii) for deb....
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....ry Co-operative Bank means a Co-operative society fulfilling the following conditions cumulatively-: (i) The primary object of principal business of the Co-operative Society is the transaction of banking business. (ii) The paid up capital and reserves of the Co-operative Society are not less than one Lakh of rupees; and (iii) The bye-laws of the Co-operative Society do not permit admission of any other Co-operative Society as a member. The second and third conditions as laid down in section 5(CCV) of the Banking Regulation Act, 1949 do apply to the assessee's case. The paid up share capital as on 31.03.2013 stands at Rs. 3,70,04,045/- which thus meets the requirement of the paid up capital of the Co-operative society not being less than one lakh of rupees. As regards the third condition, it is observed that clause 9 of the bye-laws governs the membership rules of the society. This clause states that any 'person', subject to certain conditions, can become a member of the Co-operative society. The bye-laws then go on to define 'Person' in clause 4 and state that 'person' means an adult individual, proprietary concern, pa....
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....al, withdrawal by cheque, draft, order or otherwise for the purpose of lending or investment with permission of competent authority: 1. Savings Bank Deposit, 2. Daily Deposits (Ddhana Sambrudhi Yojana, 3. Term Deposits, 4. Current Account Deposits, 5. Biju Pattnaik Bikas Patra. (iii) ............ (iv) To lend or to advance money with security to members. Therefore, it is evident that the bye-laws of the assessee Co-operative society do not make an allowance for extending banking facilities to non-members or the general public. Neither is there any finding in the assessment order u/s.l43(3)/147 for A.Y.- 2010-11 dt. 30.03.2016 to the extent that the assessee society has been accepting deposits or lending money from/to the public at large. Under these circumstances, the AO's assertion that the assessee Co-operative society is engaged in the business of banking is perverse as it is not supported by any evidence. Now, in order for a Co-operative society to be called a primary Co-operative Bank, all the three conditions laid down in clause 5(CCV) of the Banking Regulation Act, 1949 have to be satisfied cumulatively. Failure to meet any on....
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....ultural produce of its members, or (vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities : Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government; (b) in the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to- (i) a federal co-operative society, being a society engaged....
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.... of the Act. In the above sections, if the cooperative society is carrying business of banking or provided credit facility to its members. 16. Ld. CIT(A) has stated in his order that the assessee is not engaged in banking business activity which has not been agitated by the assessee but the assessee is providing credit facility to its members, this fact has also not been controverted by the ld. DR before us as well as by the revenue authorities. Providing credit facilities has been decided by the various forums/courts in the following manner :- MEANINGS OF EXPRESSIONS 'Facilities' - The expression 'facilities' used in the provision is an inclusive term of wide import embracing anything which aids or makes easier the performance of a duty - Artdhra Pradesh Co-op. Central Land Mortgage Bank Ltd v. CIT[l 975] 100 ITR 472 (AP). 'Providing credit facilities' - The expression 'providing credit facilities' would comprehend not only the business of lending money on interest but also the business of lending services for guaranteeing payments - C/Jv. U.P. Co-op. Cane Union Federation Ltd [1980] 122ITR913 (All.). Where the....
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.... Co-operative society which is a member of a federated co-operative society - In section 80P(2)(#)(z), when Parliament has used the word 'members', it has used it in the normal sense of a member of a co-operative society. The intention was to extend the exemption to co-operative societies directly extending credit facilities to their members. There is nothing in the said provision to show that the intention was to grant exemption to co-operative societies which were extending credit facilities to persons, who, though not members of the said society, were members of another co-operative society which is a member of the co- operative society seeking exemption. The meaning of the expression 'member' cannot therefore be extended to include the members of a primary co-operative society which is a member of the federated co-operative society seeking exemption. The principle of lifting the corporate veil cannot have any application in the context of the provisions contained in section 80P(2)(a)(z) of the Act - U.P. Co-operative Cane Union Federation Ltd v. CIT [1999] 103 Taxman 370 (SC)." 17. It is clear from the above discussion that the assessee is eligib....
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....ath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.(NJRS-2015-LL-0911-22) (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the This view was taken by the court in the following case: Principal CIT, Kanpur vs. Surya Merchant s , I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court. (NJRS-2016-LL-0503-77) The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3) , 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ....