TaxTMI 
TaxTMI 
2023 (8) TMI 1494
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....ing jurisdiction under section 263 of the Act, by invoking Explanation 2 to section 263 of the Act to conclude that the assessment order passed by the Assessing Officer was erroneous in so far as prejudicial to the interest of the Revenue. 3. On the facts and in the circumstances of the case, the Learned PCII, Mumbai 400017 erred in concluding that the income received by the appellant by way of interest and dividend from Mumbai District Central Co-operative bank in the previous year was not eligible for deduction u's 80P(2)(a)(1) of the Income-tax Act. 4. Without prejudice to Ground No. 3, on the facts and in the circumstances of the case, the Learned PCIT, Mumbai 400017 erred in concluding that the appellant is not entitled to any deduction u/s 80P(2)(d) of the Income tax Act in respect of interest and dividend received from Mumbai District Central Co-operative Bank. 5. On the facts and in the circumstances of the case, the Learned PCTT, Mumbai 400017 erred in concluding the provisions of section 80P(4) of the Income-tax Act will be applicable to the interest and dividend income received by the Appellant from the Mumbai District Central Co-operative ....
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....e assessee by notices issued u/s 142(1) of the Act, to explain how the assessee was entitled to deduction of entire income u/s 80P of the Act? b. The assessee made detailed submissions to justify its claim for deduction of entire income including Interest & Dividend referred above u/s 80P(2)(a)(i) of the Act, c. In support of its contentions, the assessee relied upon judicial pronouncements including that of jurisdictional High Court and CBDT circular explaining how a cooperative credit society was entitled to deduction of its entire income including interest and dividend earned from a co-operative bank u/s 80P(2)(a)(i) of the Act. d. The section 80P(2)(a)(i) referred to the deduction of entire "income attributable to the described activities" under the said section and not just the direct income from those activities Through the written submissions it was explained that: i. activities which generated income from Interest and Dividend were part of and inseparable from principal business, ii. said income was integral part of the business of providing credit to members by the assessee society. iii. Several judgments of higher auth....
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....other cases. There is no reason to believe that the AO did not consider and follow all these referred cases while passing assessment order, especially when this was the issues covered under CAS assessment. We rely on CIT VS G. M. Mittal Stainless Steel Pvt. Ltd. 130 Taxmann 67 (SC) Refer Annexure 7 v. The order of AO was in conformity with the principle explained by the junsdictional Bombay High Court in Quepem Urban Co-operative Credit Society Ltd. vs. ACIT (2015) 377 ITR 272 (Bom). No action against said order could legitimately be initiated u/s 263 as the said order was not erroneous and prejudicial to the interest of the Revenue. - CIT VS. Paul Brothers 216 ITR 548 (Bom.). Refer Annexure 8. vi. The assessment order also followed principle laid down in several ITAT judgments that the total income of a co-operative credit society dealing exclusively with its members is fully deductible u/s 80P(2)(a)(1) of the Act. This further supports the contention that the order was neither Erroneous nor Prejudicial to the interest of the revenue as the conclusion of AO in assessment orders was supported by several ITAT decisions. Refer Russel Properties P. Ltd. Vs. Addl. CIT....
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....ies Act, * The assessee society carried out the business of providing credit (loans) only with its members during relevant previous year and * In the original assessment and even in revision proceedings, entire income from core business was accepted as eligible for deduction u/s 80P(2)(a)(0) of the Act. B. 3. In your view, the Interest income of Rs. 1,07,52,999/-and the Dividend of Rs. 17,61,959/- both received from MDCC bank, were not eligible for deduction either u/s 80P(2)(a)(i) or even sec. 80P(2)(d) of the Act. The later confers deduction of the entire interest and dividend income received by one cooperative Society from the other co-operative society. This also is proposed to be denied. We completely disagree with you on above interpretation and place our submissions to bring out the facts and consequential legal position concerning these incomes We now make submissions on issues described in B.1. above: C. Interest on deposits and Dividend on shares earned from "Mumbai District Central Cooperative Bank Ltd." (MDCC Bank) were attributable to the business of the assessee Society and eligible for deduction u/s 80P(2)(a)(1) of the Act....
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.... idle funds with the assessee. The funds were set aside in Statutory Reserve as required by the Governing Act. This can establish that the funds invested were neither Surplus nor Idle Funds. f. The investment of funds originating from the business out of legal compulsion, was an integral part of the business and the interest earned on these deposits was therefore attributable to the business of the assessee viz. providing credit to members as specified in sec 80P(2)(a)(1) of the Act. Supreme Court has held this in the case of CIT v/s Karnataka State Co-operative Apex bank 118 Taxman 321. Refer Annexure 17. C. 2. Dividend income of Rs. 17,61,959/- How attributable to the business and covered by sec. 80P(2)(1) of the Act a. The assessee earned above Dividend income on shares of the MDCC bank. The need to invest in shares arose because funds collected from members by way of various deposits etc. and available for lending were short of the demand for loan from members. To tide over this shortfall, the assessee availed loan from above bank b. Every co-operative Society has to avail loan from Apex Co-operative Bank This is a directive of the administer....
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....explain how the said relationship makes both fall into the category of "income attributable to the business" c. The term "profits and gains attributable" has vide connotation than "profits and gain derived from or arising from The Interest from the MDCC bank was earned on deposits placed with it by the assessee as per the mandate of the Governing Act. The Dividend on shares of MDCC Bank arose out of the contractual arrangement, to make available additional funds for utilization in business and that required purchase of shares. The deposits with MDCC bank and the shares of the MDCC bank were not separable from the business and were integral part of the business. Had these two not been made, the business of the assessee would have suffered materially. Consequently, income earned from these investments related to the business and as such integral and inseparable from business These therefore were "attributable to the main business of the assessee. The sec. 80P(2)(a) clearly uses the term "profits and gains attributable" and not "profits and gains derived from or arising from Even if any source of income is distinct from the core activity but if the said source has nexus to th....
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.... case is still stronger as the act of investment in shares fetching Dividend had provided funds to carry on main business. These funds were utilised in core business of lending to the members and interest earned on these loans was accepted eligible for deduction u/s 80P (2)(a)(1) of the Act. The Dividend income arose on shares which made available these additional funds and therefore it was also "Attributable to the main business" of providing credit to members. * Supreme Court in case of CIT v/s Karnataka State Co-operative Apex bank - 251 ITR 194; 118 Taxman 321 (SC)has held that where placement of such funds being imperative for purpose of carrying on business, income derived therefrom was income from assessee's business falling under section. 80P(2)(a)(i). This decision of the Supreme Court is squarely applicable to the assessee and has been relied upon by various High Courts and Tribunals thereafter-Refer Annexure 17. f. Income earned from the compliance with Governing Act is attributable to the business Interest earned by a co-operative Society carrying on banking business, in compliance of the Governing Act/Regulation is eligible for deduction u/s 80P. ....
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....r business and were deployed for earning interest. In case of the assessee, the funds invested were not surplus but utilised from the business out of legal obligation. This is a material deviation of facts impacting determination of nature of income-whether Business income OR Income from Other Sources. Further its deployment with a co-operative bank also arose out of discharging legal compulsion. Refer sec 66 & 70 of the Governing Act viz. Maharashtra State Co-operative Society's Act referred above. I iii. The interest earned by Totgars Co-operative Sales Society was the property of the members whose money was withheld and invested and therefore was a liability of the said society. Totgars Co-operative Sales Society accounted this as its income and claimed deduction u/s 80P of the Act. In case of the Assessee, the amount invested in deposits with MDCC Bank was its own money and therefore the interest earned was its own income iv. As regards Dividend Income, as explained in "C.2" above, the investment which fetched the dividend was made to avail loans for further lending to members. This act added up to loans given and earned additional interest on loans, which....
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....tching interest arose out of legal compulsion imposed by the governing Act and dividend earning arose out of purely commercial activity. Both these acts were related to the main business. Thus, though the source of origin of income was not earning from main business of lending to members, these sources were integral, interconnected and inseparable from the main business. It is therefore concluded that the business of the assessee inclusive of interest income on Bank Fixed deposits with MDCC Bank was a complete and composite business and the Interest income on Fixed Deposits held with MDCC Bank and Dividend received on shares of the said bank were income attributable to the main business being inseparable. The assessee therefore, was fully justified in claiming deduction u/s 80P(2)(a)(i) of the Act even on this income and based on prevailing decisions of the Hon. Apex Court cited above and also jurisdictional Hon. High Court, and other High Courts the assessing officer did not commit any error in not denying deduction u/s 80P(2)(a)(i) to the Interest and Dividend Income earned by the assessee society during above AY from MDCC Bank In the proposed action an issue is....
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....operative bank" as a society, which is doing the business of banking as defined in clause (b) of sub-section (1) of section 5 of Banking Companies Act, 1949 and includes any society which is functioning or is to function as an (Agriculture and Rural Development Bank) under Chapter XI. Section 2(27) of Maharashtra Cooperative Societies Act, 1960 defines "society as a co- operative society registered or deemed to be registered, under this Act Copies of sec 2(10) and sec. 2 (27) of the MSC Act are enclosed as Annexure 23 & 24 resp. Thus, cooperative society is a wider term covering housing society, credit society or any society carrying on business of banking and includes co- operative bank. iv. The assessee society has received interest of Rs. 1,07,52,999/- and Dividend of Rs. 17,61,959/- from Mumbai District Central Co-operative (MDCC) bank. This bank was registered as co-operative society in the year 1974 and started its activity of banking from 1975 Even today it continues to be a co-operative Society. The very fact that its name includes the word "Co- operative" is testimony of its continuing as co-operative Society. If it ceases to be a cooperative Society, the word "Co....
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..... Subramanian ITO vs Siemens India Ltd & Anr. (1985) 156 ITR 11 where it was held that where there is a conflict between the decisions of non-jurisdictional High Court's, then a view which is in favour of the assessee is to be preferred as against that taken against him. Thus, The Bombay High Court and all the Benches of Hon. ITAT-Mumbai have consistently held that u/s 80P(2)(a)(i) entire profits and gains attributable to the business of providing credit to the members of the co-operative society and u/s 80P(2)(d) whole of the amount of interest and dividend received from a cooperative bank are deductible in computing total income of the co- operative society. The assessee being a co-operative society is fully covered by these decisions and therefore in its case u/s 80P(2)(a)() of the Act, entire income by way of interest and dividend from a cooperative bank, being attributable to its main business, is fully deductible. Alternatively entire said income is deductible u/s 80P(2)(d) of the Act. Jurisdictional High Court in Bank of Baroda vs H. C. Shrivastava (2002) 256 ITR 385 has held as follows "Judgment delivered by the Tribunal is binding on the AO; it is nec....
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....vidend income, both earned from a co- operative bank as the assessee and also the co-operative bank (MDCC bank) paying this income are cooperative societies registered under Maharashtra State CoOperative Societies Act and therefore are co-operative societies within the meaning of sec. 5 (19) of the Act. Conclusions: 1. Respected PCIT is requested to accept that the original assessment order was in no way suffered any deficiency and further it was not inconsistent with the applicable law and therefore it should not be subjected to any revision u/s 263. 2. Respected PCIT is requested to allow the claim of the appellant society regarding deduction of interest received from co-operative bank u/s 80P(2) (a)(i) or alternatively u/s 80P(2)(d) of the Act in the light of above submissions and the decisions." 4. However, the ld. Pr.CIT has not agreed with the submission of the assesse. The ld. Pr.CIT observed that provisions of subsection (4) of Sec. 80P is attracted to the case of the assessee. In subsection (4) it is mentioned that the provision of this section shall not apply in relation to any cooperative bank other than the primary agricultural credit socie....
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....eding before the ld. Pr. CIT. The ld. Counsel submitted that during the course of assessment the assessing officer has made specific inquiry by issuing of notice u/s 142(1) dated 17.02.2017 wherein as per question No. 10 of the annexure the AO has asked documentary evidences in support of deduction claimed under Chapter-VIA of the Act. In respect of claim of deduction under chapter ViA, the assessee has made detailed submission along with relevant evidences as per annexure 4 of the submission dated 6.03.2017. On the other hand, the ld. D.R supported the order of Pr.CIT. 6. Heard both the side and perused the material on record. The assessee is a cooperative society registered under the Maharashtra Cooperative Society Act. It is engaged in providing credit to its members. During the year the assessee has shown net profit of Rs. 17,73,07,795/- against which it has claimed deduction u/s 80P(2)(a)(i) of the Act. The income earned by the assessee is comprised business of providing loans to members, interest on deposit maintained with Mumbai District Central Co-op Bank and dividend on shares of that bank. The ld. Pr.CIT was of the view that such interest income and dividend i....