AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (6) TMI 1349
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....ct of the assessee is to collect deposit from its members and to provide credit facilities to its members. The assessee filed its return of income on 15.10.2016 reporting a total income at Rs. Nil after claiming a deduction of Rs. 32,31,576/- under the provisions of section 80P of the Act. The case of the assessee was selected for limited scrutiny through CASS for examination, inter alia, "correct claim of deduction made by the assessee under Chapter VIA". Statutory notices were issued which were complied by the assessee. In its written submission before the AO, assessee submitted on the claim of deduction u/s 80P that the assessee has correctly claimed deduction u/s 80P under chapter VIA. As per section 80P(2)(a)(i) business for providing credit to members is exempted for cooperative society is exempted under section 80P(2)(a)(iv) of the IT Act. Besides interest earned from co-operative society is exempted under section 80P(2)(d). 5. The ld. AO examined the issue for which case was selected and raised a detailed questionnaire u/s 142(1) of the Act to furnish justification on claim of deduction u/s 80P amounting to Rs. 32,31,376/- specifically mentioning the amount claimed u/s 80P....
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....P(2)(d) of the IT Act 1961. Under these circumstances you are requested to show cause why deduction u/s 80P should not be disallowed on the ground that you have earned interest income amounting to Rs: 39.44,212/- on deposits/investments made in financial limitation other than cooperative society/Bank and interest income is not attributable either to the activity mentioned in section 80P(2)(i)(a) of the I.T. Act 1961 or section 80P(2)(a)(iv) of the I.T. Act 1961. 5.1. In response to the above questionnaire, assessee made a detailed reply explaining its case. The relevant extract is reproduced hereunder for ease of reference:- "In reply to your above referred notice the above named assessee beg to state as under- 1. That the turnover of the assessee as per Audited Accounts is 17120826/-. Synopsis from Audited statement is attached and as per Audit report the turnover is Rs. 171208.27. So there is only difference of Rs.1 on both the figures. 2) That the assessee has claimed deduction of entire income of the society under section 80P[2](a)(i) as being income for business of banking or providing credit facilities to its member. No part of the income can be treated as income....
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....495/- (Rs. 32,31,576/- - Rs. 5,35,081/-) and short termed capital gain is assessed at Rs. 5,35,081/-. Penalty proceeding u/s 271(1)(c) of the Income Tax Act 1961 is initiated separately for furnishing inaccurate particulars of income to the tune of Rs.5,35,081/-. 7. Disallowance of deduction claimed u/s 80P of the Act. (i) During the year under consideration the assessee has claimed deduction u/s 80P of the Act amounting to Rs. 32,31,576/- on his total business income amounting to Rs. 32,31,576/- But the total business income of the assessee is comprised of Rs. 26,96,495/- and Rs.5,35,081/- on account of business income and income from short term capital gains respectively. ii) The short term capital gains of the assessee is chargeable u/s 111A of the Act as discussed in para 6 of the order. Therefore deduction under section 80P of the Act is not allowable to the assessee on its income from short term capital gain. (iii) Considering the facts and circumstances of the case, declared business income and deduction claimed u/s 80P of the Act is reduced by an amount of Rs.5,35,081/- which is the short term capital gains of the assessee chargeable to tax as per provision o....
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....ing and credit society which retained the sale proceeds of agricultural products of its members and deposited the surplus fund in short term deposits with banks and Govt. Securities. It was submitted that in the assessee's case, there is no surplus fund rather it took deposits from its members and provided credit facilities to its members. It also kept funds with various banks to earn interest and to keep liquid funds to repay its members whenever the deposits mature. The society had no surplus fund and the entire fund is used for business purposes. The assessee placed reliance on the decision of (i) Hon'ble High Court of Gujarat in the case of CIT vs Jafari Moumin Vikas Co-operative Credit Society Ltd. in tax appeal no. 442 of 2013 dated 15.01.2014, (ii) decision of Coordinate Bench of ITAT, Bangalore in ITA No. 867/Bang/2017 in the case of Shri Basavraj CFO Primary Agricultural Credit Co-operative Society Ltd. and (iii) decision of Co-ordinate Bench of ITAT, Ahmedabad in ITA No. 1491/Ahd/2012 in the case of M/s. Jafri Momin Vikash Cooperative Society Ltd. 7.2. Ld. PCIT concluded by placing reliance on the decision of Hon'ble Apex Court in the case of Totagars Co-operative Societ....
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....A/C AS ON 31.03.2016 TYPE OF A/C PRINCIPAL INTEREST REMARKS SAVINGS A/C 8,73,49,414 30,82,634 S.H.G A/C 3,05,203 11,574 P.T.S A/C 5,72,687 13,867 NREGS A/C 2,49,747 TOTAL 8,84,77,051 31,08,075 R.D. A/C 55,28,915 13,24,962 TOTAL 55,28,915 13,24,962 F.D. A/C 1,67,58,190 24,97,102 TOTAL 1,67,58,190 24,97,102 S.S.C A/C 2,45,77,500 1,08,32,580 TOTAL 2,45,77,500 1,08,32,580 MIDR 34,15,000 48,038 TOTAL 34,15,000 48,038 9.2. Also a synopsis of various types of loans placed in the compilation is reproduced as under: SYNOPSIS OF ALL TYPES DEPOSIT A/C AS ON 31.03.2016 Disburse Principal INTEREST 1-3 YEARS 3-4 YEARS 4-6 YEARS 6 ABOVE KCC 2568367 2229764 1135339 1009996 103852 199205 895436 TOTAL 2568367 2229764 1135339 1009996 103852 199205 895436 M.T. LOAN 5366137 4355693 1251055 311....
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....sp; 9.4. A detailed reconciliation of interest income received and receivable and the interest paid and payable by the assessee is also placed on record in the compilation which gives the details in respect of interest earned on various types of loans and also the interest expenses incurred on various types of loans and deposits. The same is also reproduced as under: Interest Received & Receivable (2015-16) Int. Received on KCC Robi Loan 905 Int. Received on CC Loan 64 Int. Received on KCC Loan 280312 Int. Received on Own Fund Loan 1048839 Int. Received on Investment 10205911.89 Total Int. Received 11536031.89 Add Receivable (2015-16) Int. Receivable on KCC Loan 1135339 Int. Receivable on Own Fund Loan 3754937 Int. Receivable on Investment 23538575 Total Interest Receivable 28428851 Total 39964882.89 Less Receivable (Last Year) Interest Receivable on loan 4491109 Interest Receivable on Investment 20990767 Total Receivable Last year 25481876 Total Interes....
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....f M/s. Totagars Cooperative Societies Ltd. SLP (C N. 7572 of 2009) has j held that interest income from surplus fund invested in the deposits with banks; and Govt. Securities would come in the category of income from other sources u/s.56 of income tax act and such interest income does not qualify for deduction u/s.80P of the I. T. Act, 1961. In view of the above, the amount of Rs.39,44,212/- should have been charged to income tax u/s.56 of the I. T. Act, 1961." In this respect the judgment of the Hon'ble Supreme Court in the case of M/s. Totagars Cooperative Societies Limited, 322 ITR 283 (SC) is discussed as below. The question before the Hon'ble Court was whether interest earned on surplus fund invested in short term deposits with Bank and Government Securities was business profit and thus eligible for deduction. The Hon'ble Apex Court held that section 80P(2)(a)(i) allows deduction in case of Cooperative Societies engaged in carrying on business of providing credit facilities to its members on the whole of the amount of the profits and gains of business attributable to such activities that the words "profits and gains of business" means "business profit" and....
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....evelopment bank. Explanation.-For the purposes of this sub-section,- (a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." 12. As per section 80P(2)(a)(i) reproduced above, the sums referred in sub-section (1) would be in case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities. Further, as per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than Primary Agricultural Credit Society or Primary Co-operative Agricultural and Rural Development Bank. As per the explanation, the terms "co-operative bank" and "primary agricultural credit society" shall have the meanings respect....
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....ection,-(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949(10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." 4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary cooperative agricultural and rural development bank. As per the explanation, the terms "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949. 7. From the above clarification, it can be gathered that sub-section(4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by CBDT, Delhi Coop Urban Thrift & Credit Society Ltd. was under consideration. Circular clarified that the said entity not being a cooperative bank, section 80P(4)....
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....and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely: (a) in the case of co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) to (vii) *********** the whole of the amount of profits and gains of business attributable to any one or more of such activities." 9. The word 'attributable' used in the said Section is of great importance. The Apex Court had an occasion to consider the meaning of the word 'attributable' as supposed to derive from its use in various other provisions of the statute in the case of Cambay Electric Supply Industrial Co. Ltd., v. Commissioner of Income Tax, Gujarat-II, reported in ITR Vol. 113 (1978) 84 (at page 93) as under:- "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of" the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to obser....
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....e judgment of the Apex Court in M/s. Totgars Co-operative Sale Society's Case (supra), on which reliance is placed, the Supreme Court was dealing with a case where the assessee/Co-operative Society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-Society was a liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the Apex Court held the assessing officer was right in taxing the interest income indicated above under Section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore it is ....
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....both, the records and the order passed by the Assessing Officer, has to arrive at a consideration that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. This is exercised by calling for and examining the records relating to any proceeding under this Act available at the time of examination by the PCIT. The term 'record' has been explained in Explanation 1(b) to section 263 of the Act as - 'record' shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Principal Commissioner or Commissioner. 13.4 Record shall include all the documentary evidences which were submitted before Ld. AO and also those submitted before Ld. PCIT against the SCN issued to invoke the provisions of section 263. Ld. PCIT is required to examine all the documentary evidences including those which were before Ld. AO and submitted before him. We find that in the assessment proceedings and before the Ld. PCIT, detailed explanations along with judicial precedents and verifiable financial details were placed on record to demonstrate the nature of activities carried on by the as....
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.... to the interest of revenue needs to be satisfied. This ratio stands laid down by various Hon'ble Courts. 13.7 The issue regarding whether the assessment order is erroneous or prejudicial on the ground of insufficiency of enquiry has been dealt by the Hon'ble Delhi High Court in the judgment of ITO v. DG Housing Projects Ltd. [2012] 343 ITR 329 (Del), which has been followed by various co-ordinate benches of the ITAT in various cases. Hon'ble High Court while adverting to the issue held that in cases of wrong opinion for finding on merit, the CIT has to come to the conclusion and himself decide that order is erroneous, by conducting necessary enquiry, if required and necessary before the order u/s 263 of the Act is passed. In such cases, the order of the AO will be erroneous because the order passed is not sustainable in law and the said finding must be recorded by CIT who cannot remand the matter to the assessing officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/enquiry made is erroneous. This can happen if an enquiry and verificatio....