TaxTMI 
TaxTMI 
2025 (4) TMI 1846
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....he impugned order has been assailed on the following grounds of appeal before us: "1. The Ld. CIT(A), NFAC, Delhi erred in law and on facts of the case. 2. The Ld. CIT(A) erred in holding that the assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act, in view of the clear finding of the Assessing Officer that the assessee had violated the provisions of AP Mutually Aided Co-operative Societies Act, 1985. 3. The Ld. CIT(A) erred in holding that the society is eligible for deduction u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act, in view of the fact that the assessee society is accepting loans and deposits from even non- members. 4. The Ld. CIT(A) is not correct in law by deleting the additions made u/s. 80P(2)(a)(i) and 80P(2)(d) of the Act relying on the decision of the Hon'ble ITAT in the assessee's own case for the assessment years 2008- 09 to 2010-11 wherein the case was restored to the file of the AO for quantification of loans given to the members. 5. The Ld. CIT(A) erred in allowing the interest paid on share capital despite the fact that the interest paid on share capital of Rs. 13,46,051/- was more than the bank inte....
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....deduction u/s 80P(2)(d) of the Act, it was the claim of the assessee society that it was a credit co-operative society that had advanced funds to its members, and had parked with the Regional Rural Banks (RRBs) which were categorized as co-operative banks by the CBDT, only those funds which were not immediately required, therefore, the interest on the said deposits was duly entitled for deduction u/s 80P(2)(d) of the Act. 7. Apropos the claim of the assessee society for deduction of interest payment of Rs. 13,46,051/- that was paid on the share capital as per its bye-laws, the assessee society claimed that the same was allowable as a deduction in its hands. 8. However, the A.O. did not find favour with the aforesaid explanation of the assessee society and framed the assessment vide his order passed u/s 143(3) of the Act dated 31.12.2019, wherein he declined its claim for deduction u/s 80P of the Act, viz (i) U/s 80P(2)(a)(i); Rs.1,04,92,276/ -; and (ii) U/s 80P(2)(d) of the Act: Rs.1,20,81,643/-. Also, the claim raised by the assessee society for deduction of interest paid on share capital of Rs. 13,46,051/- was disallowed. 9. Aggrieved, the assessee society carried the ma....
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....ned from investments made with scheduled banks and co-operative banks and not eligible for deduction u/s 80P(2)(d) of the Act. The AO held that the Regional Rural Banks are not co-operative societies as per the circular 6/2010 dated 20.09.2010. As such interest earned from investments in Regional Rural Banks are not eligible for deduction u/s 80P(2)(d) of the Act. 5.3.3 The appellant strongly opposed the order and submitted that the applicability of section 80P(2)(a)(i) of the Act has been extensively dealt by the Jurisdictional ITAT in the appellant's own case in the earlier Assessment Years. The ITAT, Hyderabad held that just because the appellant has deposits from Non-members, it does not prevent being a co-operative society nor it prevents claiming deduction u/s 80P(2)(a)(i) of the Act. The appellant also submitted that the interest income was from investment in Grameena Banks which are considered as Regional Rural Banks. Since the Regional Rural Banks are considered as co-operate societies, the interest earned from investment in such banks is allowable u/s 80P(2)(d) of the Act. 5.3.4 On the proper appreciation and evaluation of the order passed by the AO ....
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....ect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessee in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted." 5.3.6 The Hon'ble ITAT, Hyderabad judgement in the appellant's own case for AY 2012-13 vide ITA No. 1128/Hyd/2017 dated 27.03.2018 and ITA Nos. 348 & 1332/Hyd/2012 for AYs 2008-09 & 2009-10 and ITA No. 136/Hyd/2014 for AY 2010-11 dated 04.03.2015 has held the appellant eligible for deductions u/s 80P(2)(a)(i) and 80P(2)(d) of the Act. 5.3.7 The Hon'ble ITAT, Hyderabad in the case of Metro City Criminal Courts Employees Mutually Aided Coop Credit Society Ltd Hyderabad vs ACIT, Circle- 7(1), Hyderabad vide ITA Nos. 1581 & 1582/Hyd/2016 for AYs 2012-13 & 2013-14 dated 31.07.2017 has allowed the deduction u/s 80P(2)(d) of the Act and held as under: "....
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.... co-operative banks by a co-operative credit society/co-operative society. Section 80P(2)(d) is applicable to the assessee-society in respect of incomes by way of interest or dividends received by the co-operative society from its investments with any other co-operative society. Therefore, in the case of the ITA Nos 1581 and 1582 of 2016 Metro City Criminal Courts Employees Mutually Aided Coop Credit Society Ltd Hyderabad assessee-society, sub-section (4) is not applicable and deduction under section 80P(2)(d) is certainly eligible to the assessee. In the assessment of a co-operative bank, the incomes may not be exempt after April 1, 2007 by virtue of sub-section (4), but the assessee is not a co-operative bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the Assessing Officer to the learned Commissioner of Income-tax in their internal correspondence is extracted as a ground. This also indicates non-application of mind either by the Assessing Officer or by higher authority like Commissioner of Income-tax. This sorry state of affairs should come to an end and Officers should act res....
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....lowing the interest payment of Rs. 13,46,051/- on the shared capital of the society. 5.4.1 I have carefully considered the facts of case and the issue pertaining to addition of Rs. 13,46,051/- made by AO in his assessment order. In this regard I have duly considered the submission of the appellant. The appellant has explained that the amount paid by the appellant as interest on share capital goes to reduce the gross interest collected by it from its members and it would not form part of profit at all. 5.4.2 The Hon'ble ITAT, Hyderabad in the case of The Bhavana Rishi Co- operative Urban Bank Ltd. Vs. DCIT vide I.T.A. No. 418/Hyd/2016 dated 27.07.2016 passed judgement on the interest on share capital by co-operative societies as below: "6. We have heard the rival contentions of both the parties and perused the material available on the record. We are of the opinion that the order passed by the authorities below are required to be set aside and the appeal of the assessee is required to be allowed. In our view, in case of Cooperative Society, there is a liability to repay the share capital to the members concerned. Once he ceases to be a member, therefor....
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....ntatives of both parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. 12. Apropos, the declining of the claim of the assessee society for deduction u/s 80P(2)(a)(i) of the interest received from advancing of funds to its members, we find that the issue is squarely covered by the order passed by the Tribunal in the assessee's own case for the preceding years viz., (i) A.Y. 2012-13 in ITA No.1128/Hyd/2017 dated 27.03.2018; (ii) ITA Nos.348 and 1322/Hyd/2012 for A.Y. 2008-09 and 2009-10; (iii) ITA No.136/Hyd/2014 for A.Y. 2010-11, dated 04.03.2015. 13. Apropos the observation of the A.O. that as the primary business of the assessee society is to accept funds from members, non-members (categorized as nominal or associate members) to be utilized for giving loans to members and in practice to non- members also, it falls in the category of a primary co-operative bank under Section 56(c)/(ccv) of Part V of the Banking Regulation Act, 1949, and thus, being a co-operative bank it was disentitled from claiming....
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.... from non-members, it would not be disentitled from raising claim of deduction u/s 80P(2)(a)(i) of the Act. As Section 80P(2)(a)(i) of the Act contemplates a claim of deduction of the income of the assessee society from carrying out the business of banking or providing credit facility to its members, but does not lay down any restriction as regards the source from which the funds are to be settled i.e., members or non-members, therefore, we find substance in the claim of the assessee society that the very basis for, inter alia, declining of its claim for deduction u/s 80P(2)(a)(i) of the Act was based on a misconstrued position of law by the A.O. We are of the view that once it is clear that the co-operative society is providing credit facilities to its members, the fact that it is providing credit facilities to non-members does not disentitle it from availing of the deduction. However, as the profits and gains from the credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be claimed as deduction u/s 80P(2)(a)(i) of the Act. Our aforesaid view is fortified by the judgment of the Hon....
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....ligibility for deduction and attributability of amount of profits and gains to an activity is a real one. Since profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members, such amount cannot be deducted." (emphasis supplied by us) On a specific query by the Bench, the ld.AR for the assessee society, had clarified that the assessee society had raised the claim for deduction under Section 80P(2)(a)(i) of the Act only qua the interest income that it had received on the credit facilities provided to its members. 15. Considering the aforesaid facts, we find no infirmity in the observation of the CIT(A), who based on the fact that the aforesaid issue involved in the present appeal is squarely covered by the view taken by the Tribunal in the assessee's own case for the preceding years, and is also in conformity with the judgment of the Hon'ble Apex Court, had rightly vacated the disallowance made by the A.O. u/s 80P(2)(a)(i) of the Act. The Grounds of appeal Nos. 2 & 3 raised by the revenue are dismissed in terms of our aforesaid observations. 16. Apropos the declining of....
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....on 80P(2)(d) in respect of interest income earned from the investments/ deposits made with the co-operative banks is in order, or not. In our considered view, the issue involved in the present appeal revolves around the adjudication of the scope and gamut of sub-section (4) of Sec. 80P as had been made available on the statute, vide the Finance Act 2006, with effect from 01.04.2007. On a perusal of the order passed by the Pr. CIT under Sec. 263 of the Act, we find, that he was of the view that pursuant to insertion of sub-section (4) of Sec. 80P, the assessee would no more be entitled for claim of deduction under Sec. 80P(2)(d) in respect of the interest income that was earned on the amounts which were parked as investments/deposits with co-operative banks, other than a Primary Agricultural Credit Society or a Primary Co-operative Agricultural and Rural Development Bank. Observing, that the co-operative banks from where the assessee was in receipt of interest income were not co- operative societies, the Pr. CIT was of the view that the interest income earned on such investments/deposits would not be eligible for deduction under Sec. 80P(2)(d) of the Act. 7. After necessary....
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....claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „,co- operative society" had been defined under Sec. 2(19) of the Act, as under :- "(19) "Co-operative society" means a Co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any state for the registration of co- operative societies;" We are of the considered view, that though the co-operative banks pursuant to the insertion of sub- section (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a co- operative bank continues to be a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies, therefore, the interest income derived by a co-operative society from its investments held with a co-operative bank would be entitled for claim of deduction under Sec.80P(2)(d) of the Act. 8. We shall now advert to the judicial pronouncements that have been relied upon by....
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....d by the Hon'ble High Court of Bombay in the case of K. Subramanian and Anr. Vs. Siemens India Ltd. and Anr (1985) 156 ITR 11 (Bom), 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. Accordingly, taking support from the aforesaid judicial pronouncement of the Hon'ble High Court of jurisdiction, we respectfully follow the view taken by the Hon'ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Co-operative Sale Society (2017) 392 ITR 74 (Karn) and Hon'ble High Court of Gujarat in the case of State Bank Of India Vs. CIT (2016) 389 ITR 578 (Guj), wherein it was observed that the interest income earned by a co-operative society on its investments held with a co- operative bank would be eligible for claim of deduction under Sec.80P(2)(d) of the Act." 18. We thus, in terms of our aforesaid observations find no infirmity in the view taken by the CIT(A) who had rightly vacated the disallowance of the claim of the assessee society for the deduction u/s 80P(2)(d) of the interest income of Rs. 1,04,92....