TaxTMI 
TaxTMI 
2022 (4) TMI 1674
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....r: 1. The order u/s 143 r.w.s 147 of the income tax act is bad in law as the re assessment proceedings were initiated to reject the claim for deduction u/s.80P (2) (d) which is a debatable issue. 2. Learned CIT (A) has denied deduction u/s.80P in respect of interest earned form investments in co-operative banks as per the facts and circumstances of the case. 3. Learned CIT (A) has confirmed the addition made by the assessing officer of Rs.6,75,68,768/-being deduction claimed u/s.80P (2) (d) of the Income Tax Act. 3. The brief facts of the case are that the assessee is a Co-operative Society engaged in manufacture of sugar and sale of sugar and byproducts, filed its return of income for the AY 2011-12 on 28.09.2011 declaring total income at Rs.4,93,34,048/-. The assessment has been completed u/s.143(3) of the Act, on 28.11.2016 and determined total income at Rs.10,68,91,391/-. The case has been, subsequently, re-opened u/s.147 of the Act, for the reasons recorded, as per which, income chargeable to tax has been escaped assessment on account of deduction claimed u/s.80P(2)(d) of the Act, in respect of interest and dividend income earned from Co-operative....
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....of Rs.6,75,68,767/- was derived from its investments in Co-operative Banks. It is pertinent to note here that vide Finance Act, 2006, deduction from income of Co-operative banks as per the provision of section 80P of the Act, has been withdrawn by way of insertion of section 80P(4) of the I. T. Act, 1961, w.e.f. 01.04.2007 differentiate a co-operative bank in comparison to co-operative society. The co-operative banks are functioning at par with the other commercial banks, which do not enjoy any tax benefit. Therefore, section 80P of the Income Tax Act, 1961, was amended by inserting a new sub section (4) so as to provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. In view of the above, it is clear that a co-operative bank is a commercial bank and does not fall under the purview of a "Co-operative Society" referred in section 80P(2)(d) of the Income Tax Act, 1961. In the present case, the assessee has earned interest income of Rs.6,75,68,767/- from such co-operative bank. In view of the above discussion, the dedu....
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....present assessee. The Hon'ble Apex Court, in the case of Commissioner of Customs (Import) vs. Dilip Kumar and Sons (Civil Appeal No 3327 of 2007, decided on 30.07.2018) had held that exemption provisions in tax laws are to be interpreted strictly. Section 80P(2)(d) provides for 100% exemption of interest and dividend receipts from other Co-operative societies. This section also has to be interpreted in the strictest of manners. Following the judgment of Hon'ble Karnataka High Court cited above, it is held that appellant's receipts from Villupuram Central District Cooperative Dank Bank is not eligible fur deduction u/s.80P(2)(d). 6. The Ld.AR for the assessee submitted that this issue is squarely covered in favour of the assessee by the decision of the ITAT Chennai Bench in the case of M/s.Subramania Siva Co-operative Sugar Mills Ltd., in ITA No.1378/Chny/2019 dated 20.02.2020, wherein, the Tribunal had considered an identical issue and also by following the decision of the jurisdictional High Court of Madras in the case of CIT v. Salem Agricultural Producers' Cooperative Marketing Society in TCA No.5/2015 dated 10.08.2016, held that the assessee is entitled for deduc....
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....on that the assessee has earned interest income from a Co-operative Bank. In our considered view, although, the Co-operative Banks are not entitled for deduction u/s.80P(4) of the Act, in respect of their income derived from banking business, but there is no restriction for the assessee to claim deduction u/s.80P(2)(d) of the Act, in respect of interest income earned from its investments with any other Co-operative Society (Cooperative Bank) as long as the assessee is a Co-operative Society and further, interest income earned by the assessee is from any other Co-operative Society. 9. Further, this issue is squarely covered in favour of the assessee by the decision of the ITAT Chennai Bench in the case of M/s.Subramania Siva Co-operative Sugar Mills Ltd., in ITA No.1378/Chny/2019 dated 20.02.2020, wherein, the Tribunal had considered an identical issue and also by following the decision of the jurisdictional High Court of Madras in the case of CIT v. Salem Agricultural Producers' Cooperative Marketing Society in TCA No.5/2015 dated 10.08.2016, held that the assessee is entitled for deduction u/s.80P(2)(d) of the Act, in respect of interest income earned from deposits made with ot....
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....r Section 80 P (2) (d) of the Act and also this being a beneficial section to the co-operative Societies." 7. Let us consider the decision in KANGRA CO-OPERATIVE BANK LTD'S case referred to by the tribunal. The question of law framed therein is as follows:- "Whether on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the interest income earned by the assessee on deposits made with H.P.State Co-operative Bank in the shape of F.D.Rs. is income derived from banking business and therefore, eligible for deduction under Section 80 P (2) (a) (i) of the Income Tax Act?" 8. After considering the decisions in CIT Vs. Karnataka State Co-operative Apex Bank reported in [2001] 251 ITR 194, CIT Vs. Ramanathapuram District Co-operative Central Bank Ltd reported in [2002] 255 ITR 423 (SC), a Division Bench of the Himachal Pradesh High Court, at paragraph Nos.10 and 11 held thus:- "The Karnataka High Court in CIT Vs. Sri Ram Sahakari Bank Ltd., [2004] 266 ITR 632, held that the interest on investments and short-term fixed deposits in banks was entitled to be deducted under Section 80 P (2) (a) (i) of ....
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.... by the assessee u/s. 80P(2), accordingly. 10. In this view of the matter and consistent with view taken by the coordinate Bench, we are of the considered view that the assessee is entitled for deduction u/s.80P(2)(d) of the Act, in respect of interest income earned from its investments with Co-operative Banks and thus, we direct the AO to delete the additions made towards disallowance of interest income u/s.80P(2)(d) of the Act for the AYs 2011-12 & 2012-13. ITA No.369/Chny/2019: 11. The grounds of appeal raised by the assessee for the AY 2015-16 are as under: 1. The Learned CIT (A) has failed to note that the assessee is adopting the same method of valuation of closing stock and also failed to note that the sugar mill is covered under Government regulations and the accounts are also prepared as per government regulations as the sugar mill is a co-operative society under the control of the government as per the facts and circumstances of the case. 2. Learned CIT (A) has failed to note that the sale of power has to be considered for valuation of \ closing stock as the power is being generated out of Bagasse which is a byproduct in the sugar industry as pe....
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....ing for valuation of closing stock, which includes 'income from other sources' being income from sale of scrap, interest on FD, dividend and other income and thus, unless there is a change in facts, the AO cannot change the method followed by the assessee to determine the value of closing stock. 13. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. We find that an identical issue had been considered by the Tribunal in the assessee's own case for the AY 2011-12 in ITA No.1131/Mds/2015 dated 31.12.2015, wherein, the Tribunal by considering various facts held that there is no error in the reasons given by the AO to determine the value of closing stock by excluding 'income from other sources' being income from sale of scrap, interest on FD, dividend and other income, etc., because, the above components of income are not derived from the business of the assessee. The relevant findings of the Tribunal are as under: 4. We have heard both the sides and perused the material on record. The ld. AR submitted that method of closing stock valuation of cost of production after deducting the income from the above....