TaxTMI 
TaxTMI 
2021 (11) TMI 1145
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.... appeal on merits. 3. The grounds raised read as follows: "1. The impugned order u/s 263, dated 13.03.2019 is opposed to the facts of the case and the law, as it is passed in haste violating the principles of natural justice and ignoring the submissions / the material on record and therefore, it is liable to be set-aside. Revision u/s 263 2.1 The learned CIT failed to appreciate that the learned AO allowed the deduction u/s 80P(2)(a)(i) based on the decision of the Hon'ble jurisdictional High Court in respect of interest income from the Co-operative Bank and as such, the order was not `erroneous' for the purpose of section 263 of the Act. 2.2 The learned CIT failed to appreciate that the NPA provision of Rs.17,78,298/- debited to profit and loss account is only for disclosure purpose and the contra entry was passed by way of credit entry in the accounts, which rendered the debit tax-neutral, and accordingly, there was no revenue loss / prejudice to justify revision u/s 263. 2.3 Without prejudice to the above ground in No.2.2, the learned PCIT failed to appreciate that the disallowance of NPA provision would result in enhanced profits ....
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....relevant finding of the CIT reads as follow:- "6.0 I have carefully considered the facts of the case and perused the contentions/submissions made by the assessee. On verification of the order of the Assessing Officer passed on 30.11.2016, the AO did not examine the above issues in detail and allowed the deduction u/s 80P(2)(a)(i) without giving valid findings/bringing facts on record. The interest earned on the surplus funds of the society invested with various banks including co-operative banks was allowed u/s 80P(2)(a)(i), without referring to the facts of the case and this has rendered the assessment order erroneous as well as prejudicial to interest of revenue. Similarly, the alternate way of claim for the eligibility of deduction u/s 80P(2)(d) for interest incomes earned on surplus money, required detailed examination of the facts whether the funds placed with banks/societies are surplus funds or not and the banks or societies with which the investments made are eligible to be called as co-op societies / co-op banks / Banks, , so as to decide the eligibility for said deduction u/s 80P(2)(d). Further, the AO, had failed to examine he claim of reversing of interest of R....
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.... certificate of registration under Karnataka Cooperative Societies Act and the Rules. The learned AR submitted that the issue involved is covered in favour of the assessee by the judgment of the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. Reported in (2021) 431 ITR 1 (SC). The submission of the assessee on the issues raised by the Pr.CIT in para 6 are as under:- Sl No. Issue raised by the PCIT Submissions (a) Whether the banks / cooperative banks with which deposits kept are members of the assessee society or not for examining the concept of mutuality. The assessee-society is under the statutory obligation u/s 57(2) of the Karnataka Co-operative Societies Act (the Societies Act) to transfer 25% of its profits to the Reserve Fund. As per Rule 23(2) read with Rule 22 and section 58 of the said Act, the society is required to deposit the reserve funds in the modes specified under the said Act. One of the modes specified is deposit / investment in district central cooperative bank. The deposits in the Bellary District Central Cooperative (BDCC) Bank are made in compliance of the said Act. (Reference is invit....
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....IT has correctly invoked the provisions of section 263 of the I.T.Act and we uphold the same. Further, the assessee has also raised grounds that assessment was selected for limited scrutiny in the Computer Aided Scrutiny Selection (CASS). Therefore, the inquiry in the assessment proceedings was restricted only to the issue which forms the basis of selecting the case for scrutiny as per the Instruction of the CBDT. This ground of the assessee is also devoid of any merit. No doubt, in this case, the assessment was selected for limited scrutiny. However, when the potential escapement of income was exceeding Rs.10 lakh, the A.O. has power to convert the limited scrutiny to a complete scrutiny assessment. There is no examination of the issue by the A.O. in the assessment order whether the escapement had resulted in excess of Rs.10 lakh. In this context also, the assessment order is erroneous and prejudicial to the interest of the revenue. Therefore, this ground of the assessee is also rejected. 7.1 As regards whether the assessee is entitled to deduction u/s 80P(2)(a)(i) and 80P(2)(d) of the I.T.Act, the recent order of the Tribunal in the case of M/s.Vasavamba Co-operative Society L....
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....erest income. The income so derived is the amount of profits and gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members by a co-operative society and is liable to be deducted from the gross total income under Section 80P of the Act. The Hon'ble Court also distinguished the decision of the Hon'ble Supreme Court in the case of Totgars (supra) by observing that the Supreme Court was dealing with a case where the assessee- Cooperative 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 shortterm 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....
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....by it during these years with a Co-operative Bank, M/s. Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale Society Limited itself rendered on 08th February 2010, in Totgar's Co-operative Sale Society Limited v. Income Tax Officer, reported in (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995- 1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% deductible from the Gross Total Income under Section 80P(2)(a)(i) of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100% deductible under Section 80P(2)(d) of the Act?" 11. The Hon'ble Court held that such interest income is not income from business but was income chargeable to tax under the head incom....
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....to deduct income tax at source under Section 194A of the Act also makes the legislative intent clear that the Cooperative Banks are not that specie of genus co-operative society, which would be entitled to exemption or deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act. (Paragarph 15 of the Judgment) 4. If the legislative intent is so clear, then it cannot contended that the omission to amend Clause (d) of Section 80P(2) of the Act at the same time is fatal to the contention raised by the Revenue before this Court and sub silentio, the deduction should continue in respect of interest income earned from the co-operative bank, even though the Hon'ble Supreme Court's decision in the case of Respondent assessee itself is otherwise.(Paragraph 16 of the Judgment) 5. On the decision of the earlier decision of the Hon'ble Karnataka High Court referred to in the earlier part of this order, the Court held that it did not find any detailed discussion of the facts and law pronounced by the Hon'ble Supreme Court in the case of the respondent assessee (Totagars Sales Co-operative society) and hence unable to follow the same i....
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....ts/securities; and the interest derived from the surplus funds that the assessee therein invested in short-term deposits with the Government securities. The Hon'ble Gujarat High Court in this regard referred to the decision of the Karnataka High Court from which the matter travelled to the Supreme Court wherein it was the case of the assessee that it was carrying on the business of providing credit facilities to its members and therefore, the appellant-society being an assessee engaged in providing credit facilities to its members, the interest received on deposits in business and securities is attributable to the business of the assessee as its job is to provide credit facilities to its members and marketing the agricultural products of its members. The Hon'ble Gujarat High Court therefore held that decision in the case of Totagar Co-operative Sales Society rendered by the Hon'ble Supreme Court is not restricted only to the investments made by the assessee therein from the retained amount which was payable to its members but also in respect of funds not immediately required for business purposes. The Supreme Court has held that interest on such investments, cannot fall within the ....
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....and therefore this argument of the learned counsel for the Assessee cannot be accepted. The argument that the view taken by the AO was a possible view and hence revision u/s.263 of the Act is bad is again not acceptable because, the view that ought to have been adopted was the later binding decision of the High Court in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 16. The argument that co-operative Banks are also co-operative societies is again without any basis in the light of the law explained in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). The reliance placed by the learned counsel for the Assessee on the earlier decisions of the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra) that the decision in Totgars Co-operative Sale Society (supra) stands explained by the later decision in the case of Totagar co-opeartive sales society 395 ITR 611 (Karn.). 17. We however find that the Assessee has raised the following grounds of appeal in its appeal, viz., "5. Without prejudice to the above, the learned Principal Commissioner ought to have considered the submissio....
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....the order of the CIT." 7.2 In the instant case, it was contended that majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with cooperative societies is to be allowed as deduction. 7.3 Moreover, the Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. (supra) had settled various issues for claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The gist of the judgment of the Hon'ble Apex Court are as follows:- (i) Section 80P is a benevolent provision enacted by the Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, if there is ambiguity, in favour of the assessee (....