TaxTMI 
TaxTMI 
2025 (6) TMI 2113
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....o. 2347/Bang/2024 for the AY 2018-19 as base appeal for adjudication. The grounds raised by the revenue in this appeal are as follows: 1. The decision of the Ld. CIT(A)/NEAC is opposed to the facts of the case and is erroneous in law in allowing entire deduction u/s. 80P(2)(d) of the Act. 2. The Ld. CIT(A)/NFAC has erred in law by not appreciating that the interest income has been earned from investment in FDs with Co-operative banks and further the CIT(A) has disregarded the decision of the Hon'ble Supreme Court in the case of Totagar Sales Society Vs ITO (2010) 322 ITR, wherein it was held that interest earned out of surplus funds kept by Co-operative Societies with banks is taxable as income from other sources. 3. The learned CIT(A)/ NFAC has erred in law in disregarding the decision of the Hon'ble High Court of Karnataka Dharwad Division Bench in the case of Pr. CIT Hubballi Va Totgar's Co-operative Sale Society Limited. Sirsi in ITA No. 100066 of 2016 dated 16.06.2017, wherein it was held that the income by way of interest earned from deposits and investments of surplus funds does not change its character irrespective of whether such inte....
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....ra Sahakara Bank cannot be said to be accrued and therefore, cannot be treated as income. Each of the above grounds is without prejudice to one another and the appellant craves leave of the learned Commissioner of Income-tax (Appeals) to add, delete, amend or otherwise modify one or more of the above grounds either before or at the time of hearing of this appeal. 4. At the outset, there is a short delay of 4 days in filing the appeals by the revenue and delay of 11 days in filing COs by the assessee before this Tribunal. Both the ld. DR as well as ld. AR of the assessee have drawn our attention to their respective petitions for condonation of delay filed before us. We are reproducing herewith both the applications for condonation of delay for the AY 2018-19 below for ease of reference & convenience :- AFFIDAVIT FOR CONDONATION OF DELAY IN FILING APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE. ITA NO./BANG/2024 In the matter of : Income Tax Officer, Ward -7(2)(1), Bengaluru Vs. Bangalore Credit Co-operative Society Ltd, PAN- AAAAB1598B # 723/1, New No. 37/1, 10th Main, 36th Cross, Jayanagar 4th Block, Bengaluru - 560011.....
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....work, grievance redresser, demand verification works, the appeal could not be filed in time. 5. That there exists a delay of 11 days in filing of this appeal before Hon'ble ITAT as the CIT(A) order dated 24.09.2024 was considered as received in the of Pr.CIT-2, Bengaluru on 24.09.2024 as the order has been passed in ITBA system. 6. That the above delay is unintentional and the reasons for the same are beyond the control of the undersigned officer in view of the huge workload assigned to this office. That the Hon'ble Karnataka High Court in the case of Sri Muninaga Reddy, vs Assistant Commissioner Of Income, WRIT PETITION NO. 25553/2018 (T-IT) condoned the delay of 11 months and 17 days in filing of appeal and directed ITAT to decide the matter on merits of the case. The rationale followed was that non-consideration of jurisdictional High Court judgement has caused substantial injustice and the same needs to be corrected. Relevant extract of the order is reproduced below: "9 ... .Though under the provisions of Section 254 the Tribunal cannot go beyond the provisions of the said Section, the fact remains that the petitioner has substantiate....
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....ience, the principles laid down by the Apex Court are reproduced hereunder: (1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late (2) Refusing to condone delay can result in a meritorious matter being thrown at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner. (4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious....
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.... 143(1) of the Act on 16.03.2020. 9.1 Parallelly the case was selected for scrutiny and notices u/s 143(2) of the Act was issued on 22.09.2019. The case was selected under CASS for the following reasons: a. Low Income (including exempt income and agricultural income) in comparison to high loans/advances/investment in shares appearing in balance sheet. b. Low income in comparison to very high investments appearing in balance sheet. c. Deduction from total income (Chapter VI-A) (Business ITR). 9.2 Accordingly, notices u/s 142(1) of the Act was issued to the assessee seeking certain information and documents. In response to the same, the assessee made its submissions by a letter dated 15.02.2021. The assessee society claims that the deduction u/s 80P(2)(d) on the interest earned from FDs with other co-operative societies/ Co-operative banks cannot be denied. Upon perusal of the submissions made by the assessee, the AO assessed on a total income of Rs. 3,32,62,487/- by disallowing the deduction claimed amounting to Rs. 3,32,62,487/- u/s 80P of the Act. 9.3 We take a note that for the AY 2018-19 as submitted by the AR, the assessee society earned inte....
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....e interest income has been earned from investment in FDs with Co-operative banks. Further, the ld. DR submitted that the ld. CIT(A)/NFAC has disregarded the decision of the Hon'ble Supreme Court in the case of Totagar Sales Society Vs. ITO (2010) 322 ITR wherein it was held that interest earned out of surplus funds kept by Co-operative Societies with banks is taxable as income from other sources. Further, he relied on the decision of Hon'ble High Court of Karnataka Dharwad Division Bench in the case of Pr. CIT Hubballi Vs. Totgar's Co-operative Sale Society Ltd, Sirsi in ITA no.1000066 of 2016 dated 16.6.2017, wherein it was held that the income by way of interest earned from deposit and investments of surplus funds does not change its character irrespective of whether such interest is earned from the scheduled banks or the co-operative banks and thus clause (d) of section 80P of the Act would not apply to the facts and circumstances of the case. In view of the above, he prayed that the disallowance of assessee Society's claim of deduction of interest income earned from co-operative banks may be restored. 13. The ld. A.R. on the other hand in his written submissi....
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....ble to" the business of providing credit facilities to its members. Kindly note that the deduction u/s. 80P is not with respect to an activity but with reference to business as a whole. It is an undisputed fact that the assessee has made the investments from the surplus funds available. Therefore, on this ground also the assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act. We rely on the decision of Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Co-operative Ltd, ITA No. 307 of 2014 for the above proposition. Ground No. 5 - Deduction of interest on Reserve Fund Deposits 13.3 It is submitted that the interest of Rs. 45,91,489/- is earned from the Reserve funds which has to be mandatorily maintained by a co-operative society as per the provisions of Karnataka Co- operative Society Act, 1959. The Hon'ble Supreme Court in CIT Vs Karnataka State Co-operative Apex Bank (251 ITR 194) has held that interest arising from investment made, in compliance with statutory provisions to enable it to carry on banking business, out of reserve fund by a co-operative society engaged in banking business, is exempt under section 80P(2)(a)(i) of the Income-tax ....
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.... 13.5 Without prejudice to the above submissions and assuming but without admitting that the learned assessing officer is correct in stating that the assessee has utilized the interest bearing funds have been utilized for making the investments, the income has to be assessed under the head "Income from other sources" u/s. 56 of the Act. In such scenario, the assessee is entitled for deduction u/s. 57 of the Act. This view is supported by the decision of Hon'ble Karnataka High Court in Totgars Co-operative Sale Society Ltd v. ITO 58 Taxmann.com 35 wherein it was held that Where assessee a co-operative society, earned interests on deposits kept with scheduled banks only net interest income, i.e., interest income reduced by administrative expenses and other proportionate expenses to earn said income had to be brought to tax under section 56. In the instant case, the interest paid on the deposits kept by the members which have been utilized for making investments is eligible for deduction and proportionate administrative expenses. The interest rate offered for the deposits received by the members would vary depending upon the type of deposits, tenure of deposits, status of the d....
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....ecision of Hon'ble Supreme court in Goetze India 284 ITR 323 for the above proposition. 13.8 The AO disallowed the deduction u/s 80P(2)(d) of the Act. It is submitted that the investments were made out of surplus funds and relied on the decision of Hon'ble Karnataka High Court in the decision of PCIT v. Totagars Co-operative Sale Society 392 ITR 74 wherein it was held that the interest earned on deposits in the co- operative banks by co-operative society is eligible for deduction u/s.80P(2)(d) of the Act. The relevant portion of the judgment is reproduced below; "10. Admittedly, the interest which the assessee respondent had earned was from a Co-operative Society Bank. Therefore, according to Sec. 80P(2)(d) of the I.T. Act, the said amount of interest earned from a Co-operative Society Bank would be deductible from the gross income of the Co-operative Society in order to assess its total income. Therefore, the Assessing Officer was not justified in denying the said deduction to the assessee respondent. 11. The learned counsel has relied on the case of Totgars Co-operative Sale Society Ltd. v. ITO [2010] 322 ITR 283/188 Taxman 282 (SC). However, the said....
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....eported in 395 ITR 611 is per incuriam since it has not followed the decision of Co-ordinate Bench of the same High Court reported in 392 ITR 74. It is submitted that A Division Bench must ordinarily respect another Divisional Bench of co-ordinate jurisdiction but if it differs, the case should be referred to a Full Bench. This procedure would avoid unnecessary conflict and confusion that otherwise would prevail. The assessee also rely on the judgment of Andhra Pradesh Full Bench Decision in CIT v. B R Construction 202 ITR 222 for the above proposition. 13.11 The Hon'ble Andhra Pradesh High Court in Full Bench Decision in CIT v. B R Construction 202 ITR 222 has also held as under - "The effect of binding precedents in India is that the decisions of the Supreme Court are binding on all the courts. Indeed, article 141 of the Constitution embodies the rule of precedent. All the subordinate courts are bound by the judgments of the High Courts. A single judge of a High Court is bound by the judgment of another single judge and a fortiori judgments of Benches consisting of more judges than one. So also, a Division Bench of a High Court is bound by judgments of another Div....
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....s has been noticed above, a judgment can be said to be per incuriam if it is rendered in ignorance or forgetfulness of the provisions of a statute or a rule having statutory force or a binding authority. But, if the provision of the Act was noticed and considered before the conclusion arrived at, on the ground that it has erroneously reached the conclusion the judgment cannot be ignored as being per incuriam. In Salmond on Jurisprudence, Twelfth Edition, at page 151, the rule is stated as follows : " The mere fact that (as is contended) the earlier court misconstrued a statute, or ignored a rule of construction, is no ground for impugning the authority of the precedent. A precedent on the construction of a statute is as much binding as any other, and the fact that it was mistaken in its reasoning does not destroy its binding force. " In Choudry Brothers' case [1986] 158 ITR 224, as noticed above, the Division Bench treated the judgment in Ch. Atchaiah's case [1979] 116 ITR 675, as per incuriam on the ground that the earlier Division Bench did not notice the significant changes the charging section 3 has undergone by the omission of the words " or the partn....
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.... "Thus, we are pitted against two decisions of the hon'ble jurisdictional High Court taking divergent views and, under such circumstances we have to decide which decision to follow. We find from the decisions relied upon by the learned senior counsel more particularly in the case of Bhika Ram (supra) that later pronouncement by a Bench of co-equal strength should be followed even if the earlier decision was not considered. We are not convinced with the submission of the learned senior counsel that the Tribunal can decide which decision state the law more elaborately and accurately. We are of the view that the decision in the case of Cassel and Co. Ltd. v. Broome (supra) should guide the course of action wherein it has been observed as under : "Though a judgment rendered per incuriam can be ignored even by a lower court, yet it appears that such a course of action was not approved by the House of Lords in Cassell and Co. Ltd. v. Broome [1972] 1 All ER 801, wherein the House of Lords disapproved the judgment of the Court of Appeal treating an earlier judgment of the House of Lords as per incurium. Lord Hailsham observed (at page 809) : 'It is not open t....
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....the assessee, the Income-tax Officer took into consideration not the amount demanded under section 156 of the Act but the amount assessed under section 143 of the Act. In the back drop of these facts the controversy before the hon'ble Supreme Court was whether the penalty was to be levied on the tax assessed under section 143 or as demanded under section 156 being tax assessed minus the amount paid under the provisional assessment order. The hon'ble Supreme Court before resorting to the interpretation of term in addition to the amount of the tax, if any, payable by him as appearing in section 271(1)(a)(i) observed as under (page 195) : "On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions." The hon'ble Supreme Court held as under (page 196) : "We must first determine what is the meaning of the expression 'the amount of the tax, if any, payable by him' in section 271(1)(a)(i). Does it mean the amount of tax assessed under section 143 or the amoun....
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.... been gone into by the Court deciding the matter earlier, it cannot hold that such decision as per incuriam and liable to be ignored. 13.15 The assessee also relied on the Constitutional Bench decision of Hon'ble Supreme Court in Central Board of Dawoodi Bohra Community v. State of Maharashtra 254 ELT 196 (SC) for the proposition that the decision in Fibre Boards P. Ltd in 376 ITR 596 is not binding precedent. In Central Board of Dawoodi Bohra Community v. State of Maharashtra 254 ELT 196 (SC), it has held as under (Para 12). "12. Having carefully considered the submissions made by the learned senior counsel for the parties and having examined the law laid down by the Constitution Benches in the abovesaid decisions, we would like to sum up the legal position in the following terms : - (1) The law laid down by this Court in a decision delivered by a Bench of larger strength is binding' on any subsequent Bench of lesser or co-equal strength. (2) A Bench of lesser quorum cannot; doubt the correctness of the view of the law taken by a Bench of larger quorum. In case of doubt all that the Bench of lesser quorum can do is to invite the attention of t....
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.... deduction u/s. 80P(2)(a)(i) of the Act to Co-operative Banks. Therefore, the same ratio has to be applied to section 80P(2)(d) of the Act and interest from the investments made in Co-operative Societies alone should be allowed as deduction u/s. 80P(2)(d) of the Act. The relevant portion of the judgment is reproduced below; "14. The purpose of bringing on the statute book sub-section (4) in section 80P of the Act was to exclude the applicability of section 80P of the Act altogether to any co-operative bank and to exclude the normal banking business income from such exemption/deduction category. The words used in section 80P (4) are significant. They are: "The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society . . . ". The words "in relation to" can include within its ambit and scope even the interest income earned by the respondent-assessee, a co-operative society from a co-operative bank. This exclusion by section 80P(4) of the Act even though without any amendment in section 80P(2)(d) of the Act is sufficient to deny the claim of the respondent- assessee for deduction under section 80P(2)(d) o....
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....owing the interest income derived by the co- operative society with other co-operative societies/co-operative banks as deduction u/s 80P(2)(d) of the Act by the ld. CIT(A)/NFAC. 14.1 However, the assessee in his cross objection firstly raised the ground that the assessee is entitled for the benefit of deduction amounting to Rs. 3,05,38,002/- u/s 80P(2)(a)(i) of the Act as the entire interest is attributable to the business of the assessee. Without prejudice, the assessee claimed that they are entitled for the benefit of deduction to such portion of interest from Co- operative banks in respect of mandatory maintenance of Statutory deposits/fluid resources as bound under the Karnataka Co-operative Society Act and only the balance of net interest over and above, the mandatory SLR was liable to be charged u/s 56 of the Act after allowing the deduction u/s 57 of the Act. 14.2 First we will consider the grounds of cross objection raised by the assessee by contending that the assessee is entitled for the deduction under section 80P(2)(a)(i) of the act as the entire interest earned by the cooperative society from Co-operative Bank/Scheduled Bank/Co-operative society is attributable t....
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....from whom produce was bought, was invested in a short-term deposit/security. Such amount retained by the assessee therein 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. On these facts Hon'ble Supreme Court held the assessing officer was right in taxing the interest income indicated above under Section 56 as income from other sources of the Act. Hon'ble Supreme Court, also clarified that, they are confining the said judgment to the facts of that case alone. 14.4 Further the adjudication by the Hon'ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. vs. ITO(supra) was in context of Sec. 80P(2)(a)(i), and not on the entitlement of a cooperative society towards deduction under Sec.80P(2)(d) on the interest income on the investments/deposits parked with a cooperative bank. Therefore, reliance was placed by the Ld. DR on the decision of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (supra) is distinguish....
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....isions. 14.8 Given this statutory compulsion, we find that interest income is attributable to the profits and gains of business and therefore, the interest income derived from the statutory deposits made with the banks are entitled for deductions u/s 80P(2)(a)(i) of the Act. In holding so, we also draw our support and guidance from the judgment of the Hon'ble Supreme Court reported in 113 ITR 84 in the case of Cambay Electrical Supply Industrial Co. Ltd. Vs. CIT which has considered the term "attributable" and held as follows: "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business" of the specific industry (here generation and distribution of society) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from" been used, it could have with some force been contented that a balance charge arising from the sale of old machinery an....
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....Court if the income is attributable to the profits & gains of business of the society, then the assessee society is entitled for deduction u/s 80P(2)(a)(i) of the Act. 14.11 Further, In the case of ClT Vs Nawanshahar Central Cooperative Bank Ltd. [2007] 160TAXMAN 48(SC), the Apex Court held that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head "Profits and Gains of Business and Profession". Even though the abovementioned decision was in the context of co-operative societies /Banks claiming deduction under section 80P (2)(a)(i) of the Act, the principle is equally applicable to all banks/commercial banks, to which Banking Regulation Act, 1949 as per the CBDT Circular No. 18/2015 dated 02/11/2015. 14.12 Further, the Hon'ble High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. v. Income-tax officer Ward-V, Tumkur reported in [2015] 230 Taxman 309 had also held as under- "7. The word 'attributable' used in the said section is of great importance. The Apex Court had an occasion t....
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....st income is attributable to the profits and gains of the business of providing credit facilities to its members only. The society is not carrying on any separate business for earning such interest 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." 14.13 However, we are also conscious to the fact that the details of quantum of amount necessary to be deposited to comply with the Karnataka Co-operative Society Act is not provided by the assessee to the AO. Therefore, we, in the interest of justice and fair play are inclined to set aside this issue to the file of AO with a direction to compute the required quantum of amounts needs to be deposited as per the statutory requirement and allow the claim of the deduction u/s 80P(2)(a)(i) of the Act of the corresponding interest income irrespective of the fact that the investment were made by the co-operative society in co-operative Banks or scheduled banks. 14.14 Furthermore, without p....
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....Kerala High Court. 14.15.2 The Apex Court analyzed the legal framework, relevant provisions under the co-operative societies Act, NABARD Act, provisions of sec. 80P under the Income Tax Act, 1961, RBI Act, the Banking Regulation Act and the various judicial precedents on similar issues. The observations of Hon'ble Supreme Court in Paras 14.3 and 15.8 are relevant that read as under: - "14.3. While analysing Section 80P of the Act in depth, the following points were noted by this Court: i) Firstly, the marginal note to Section 80P which reads "Deduction in respect of income of co-operative societies" is significant as it indicates the general "drift" of the provision. ii) Secondly, for purposes of eligibility for deduction, the assessee must be a "co-operative society". iii) Thirdly, the gross total income must include income that is referred to in sub-section (2). iv) Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society being "engaged in", inter alia, carrying on the business of banking or providing credit facilities to its members. v) Fifthly, the burden is on the assessee to show, by adducing facts, that it i....
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....on 22 of the BR Act, 1949 would apply wherein it would require a licence to run a co-operative bank. In other words, if a co- operative society is not conducting the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co-operative bank or a primary co-operative bank in terms of Section 56(c)(i)(cci). Whereas a co- operative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949. But if a cooperative society does not transact the business of banking as defined in clause (b) of Section 5 of the BR Act, 1949, it would not be a cooperative bank. Then the definitions under the NABARD Act, 1981 would not apply. If a co-operative society is not a co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of Section 56 of BR Act, 1949 read with the provisions of NABARD Act, 1981 then it would not be entitled to the benefit of deduction under sub-section (4) of Section 80P of the Act." 14.15....
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.... the Apex Court, in these appeals referred to Supra, the income earned on the interest is declared as "other income" falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from "other sources", the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the next income which the appellant earns after deducting cost and expenditure incurred and administrative expenses incurred by the assessee. 13. Accordingly, we answer the question of law and hold that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of the proportionate costs, administrative expenses incurred in respect of such deposits. " 14.17 The assessee has not ra....
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....lated administrative expenses in respect of earning such interest income should also be allowed as deduction u/s 57 of the Act. iv) In respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income is eligible for deduction u/s 80P(2)(d) of the Act. v) In respect of interest earned on investment out of the surplus fund over and above the required statutory limits can not be said to be attributable to the business of the assessee & therefore deduction u/s 80P(2)(a)(i) can not be allowed on such interest income. Needless to say, a reasonable opportunity of being heard must be granted to the assessee. The assessee is also directed to submit all the relevant details as well as the breakups as per our observation above. 15. In the result appeal filed by the assessee is partly allowed for statistical purposes. The cross-objection No. 04/Bang/2025 filed by the assessee for the AY 2018-19 is also partly allowed for statistical purposes. 16. Now we take the revenue appeal in ITA No. 2348/Bang/2024 and CO of the assessee in CO 05/Bang/2015 for the AY ....