TaxTMI 
TaxTMI 
2026 (8) TMI 465
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....e facts in brief are that the assessee, an agricultural credit society, is carrying on the business of providing credit facilities to its members. The assessee for A.Y. 2016-17 has not filed the regular return of income. The information available with the department revealed that the assessee has made cash deposits of Rs. 99,31,450/- in the bank account held with Canara Bank and has also earned interest income of Rs. 48,357/-. Based on the above information, the income escaping assessment under section 147 of the Act was initiated by issuing a notice u/s 148 of the Act on 23-03-2023. 3.1 In response, the assessee filed a return of income declaring total income at NIL after claiming a deduction u/s 80P(2)(a)(i) of the Act for Rs. 30,11,675/-. Further, during the assessment, the assessee furnished various details, including the balance sheet, profit & loss a/c, bank statement, bank book, cash books and income computation etc. 4. The AO, going through the details furnished by the assessee, observed that the gross total income which was claimed as deduction u/s 80P(2)(a)(i)/80P(2)(d) of the Act included other incomes of Rs. 18,52,199/-, which are detailed as under: Dividend fr....
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....The assessee before the AO has contended that the major portion of the deposit or investment with the SCDCC bank was in accordance with the compulsory requirements under the provisions of KCS Act. Further the other short-term deposit was made during ordinary course of the business to avoid keeping surplus fund idle when not immediately required for lending. However, the AO disallowed the claim of deduction under section 80P of the Act on impugned interest and dividend income. 19.1 The views of the AO are that such interest income from banks or cooperative banks cannot be said to be attributed to the carrying on banking business or providing credit facility as it is not arising from the members. Therefore, such income shall not be eligible for deduction under section 80P(2)(a)(i) of the Act. The views of the Revenue authorities are largely based on the ruling of Hon'ble Supreme Court in the case of Totgars, Co-Operative Sales Society Ltd Vs. ITO in Civil Appeal Nos. 1622 to 1629 of 2010, dated 8th February 2010, reported in 322 ITR 283/ 188 Taxman 282. 19.2 Going through the above stated judgment of Hon'ble Supreme Court, we note the assessee i.e. Totgars, Co-Opera....
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.... markets the produce of its members whose sale proceeds at times were retained by it. In this case, we are concerned with the tax treatment of such amount. Since the fund created by such retention was not required immediately for business purposes, it was invested in specified securities. The question, before us, is - whether interest on such deposits/securities, which strictly speaking accrues to the members' account, could be taxed as business income under section 28 of the Act? In our view, such interest income would come in the category of "Income from other sources", hence, such interest income would be taxable under section 56 of the Act, as rightly held by the Assessing Officer. In this connection, we may analyze section 80P of the Act. This section comes in Chapter VI-A, which, in turn, deals with "Deductions in respect of certain incomes". The headnote to section 80P indicates that the said section deals with deductions in respect of income of co-operative Societies. Section 80P(1), inter alia, states that where the gross total income of a co-operative Society includes any income from one or more specified activities, then such income shall be deducted from the gross t....
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....he assessee(s) stating that, if interest income in question is held to be covered by section 56 of the Act, even then, the assessee-Society is entitled to the benefit of section 80P(2)(a)(i) of the Act in respect of such interest income. We find no merit in this submission. Section 80P(2)(a)(i) of the Act cannot be placed at par with Explanation (baa) to section 80HHC, section 80HHD(3) and section 80HHE(5) of the Act. Each of the said sections has to be interpreted in the context of its subject-matter. For example, section 80HHC of the Act, at the relevant time, dealt with deduction in respect of profits retained for export business. The scope of section 80HHC is, therefore, different from the scope of section 80P of the Act, which deals with deduction in respect of income of co-operative Societies. Even Explanation (baa) to section 80HHC was added to restrict the deduction in respect of profits retained for export business. The words used in Explanation (baa) to section 80HHC, therefore, cannot be compared with the words used in section 80P of the Act which grants deduction in respect of "the whole of the amount of profits and gains of business". A number of judgments were cited o....
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....nataka High Court distinguished the ratio of the Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. (supra). 19.5 The assessee i.e. Tumkur Merchants Souharda Credit Cooperative Ltd (hereafter-TMSCC) was engaged only in the business of providing credit facilities to members unlike the assessee i.e. Totgars Co-operative Sale Society Ltd which was also engaged in marketing of agricultural produce of the members as well as providing credit facilities. For the A.Y. 2009-10, the assessee TMSCC earned interest income on short term deposit with the M/s Allahabad Bank and M/s Axis Bank and the same was included in the profit claimed for the deduction under section 80P(2)(a)(i) of the Act. The learned CIT(A) disallowed the deduction to the extent of aforesaid interest income and coordinate bench of the Tribunal confirmed the disallowances by following the ratio of the Hon'ble Supreme Court in case of Totgars Co-operative Sale Society Ltd. (supra). However, the Hon'ble High Court found that the assessee being cooperative society is only engaged in the business of providing credit facility to the members and other than that it does not engage in any other busi....
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....Co-operative Society Ltd. vs. ITO, Ward 2(2), Mysore dated 9th June 2015 reported in [2015] 60 taxmann.com 215. 19.8 Furthermore, the Hon'ble Karnataka High Court followed the principle laid down Tumkur Merchants Souharda Credit Cooperative Ltd(supra) in the subsequent judgment dated 19th February 2018 in the case of Lalitamba Pattina Souharda Sahakari Niyamita vs. ITO in ITA No. 100004 of 2018. 19.9 We also find that the identical view was taken by the Hon'ble High Court of Andhra Pradesh in the case of Commissioner of Income-tax-III, Hyderabad vs. Andhra Pradesh State Cooperative Bank Ltd. dated 7th June 2011 reported in 12 taxmann.com 66. This decision of Hon'ble Andhra High Court was passed after considering the ratio of the Hon'ble Supreme Court in Totgars Co-operative Sale Society(supra) and before the ratio of the Hon'ble Karnataka High Court in Tumkur Merchants Souharda Credit Cooperative Ltd(supra). The relevant extract stands as under: 11. Does section 80P(2)(a) of the Act make a distinction between income received by a cooperative bank from statutory deposits and the income from non-statutory deposit of surplus funds? The answer must be in the ....
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.... the assessee chooses to deposit its surplus profit in a permitted bank or financial institution, and earns interest on such deposits, such interest would cease to form part of its profits and gains attributable to its business of providing credit facilities to its members? In our view that question must be answered in the negative, since we cannot accept the contention of the Revenue that the interest earned on those deposits loses its character as profits/gains attributable to the main business of the assessee. It is not as though the assessee in the instant case had used the surplus amount [the profit earned by it] for an investment or activity that was unrelated to its main business, and earned additional income by way of interest or gain through such activity. The assessee had only deposited the profit earned by it in the manner mandated under Section 63 of the Multi-State Co-operative Societies Act, or permitted by Section 64 of the said Act. In other words, it dealt with the surplus profit in a manner envisaged under the regulatory Statute that regulated, and thereby legitimized, its business of providing credit facilities to its members. Under those circumstances, if the as....
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....st earned from such deposits in the bank should be held to be eligible for deduction under section 80P(2)(a)(i) of the Act. Yet again in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO [2015] 55 taxmann.com 447/ 230 Taxman 309 (Kar) identical issue was considered and it was held that where Cooperative Society was engaged in the business of providing credit facilities to its members, they deposited excess amount for short term in banks, interest earned was entitled to be deducted under section 80P of the Act. 19.12 At this point, we also find it pertinent to refer the decision of Hon'ble Gujarat High Court in the case of State Bank of India (SBI) vs. CIT reported [2016] 72 taxmann.com 64 wherein ratio of Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd(supra) was distinguished by holding the ratio of the Hon'ble Supreme Court in Totgars Co-operative Sale Society(supra) was properly interpreted. The relevant finding of the Hon'ble Gujarat High Court in this respect reads as under: 13. In the opinion of this court, in case of a society engaged in providing credit facilities to its members, income from investments m....
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....ative Sale Society (supra) is restricted to the sale consideration received from marketing agricultural produce of its members which was retained in many cases and invested in short term deposit/security and that the said decision was confined to the facts of the said case and did not lay down any law. 19.13 From the preceding discussion of the ratio laid down by the Hon'ble Supreme Court, High Court of Karnataka, Andhra Pradesh, Kerala, Culutta and Gujarat, we note the dispute of whether the interest income earned from deposit or investment of surplus/idle fund out of profit & gains or capital by the cooperative societies engaged in providing credit facilities to the members is squarely covered in favour of the assessee by the ruling of Jurisdictional High Court in the cases of Tumkur Merchants Souharda Credit Cooperative Ltd(supra), Guttigedarara Credit Co-operative Society Ltd. and Lalitamba Pattina Souharda Sahakari Niyamita vs. ITO as well as by the decision of Hon'ble Kerala High court and Calcutta high court as mentioned in preceding paras. 19.14 It well settled position of the law that the Income-tax Appellate Tribunal, though the final fact-finding author....
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....onferred on a superior tribunal that all the tribunals subject to its supervision should conform to the law laid down by it. Such obedience would also be conducive to their smooth working: otherwise there would be confusion in the administration of law and respect for law would irretrievably suffer. We, therefor, hold that the law declared by the highest court in the State is binding on authorities or tribunals under its supreintendence, and that they cannot ignore it either in initiating a proceeding or deciding on the rights involved in such a proceeding. If that be so, the notice issued by the authority signifying the launching of proceedings contrary to the law laid down by the High Court would be in. valid and the proceedings themselves would be without jurisdiction. 19.16 Further, the binding nature of Hon'ble Jurisdictional High Court decisions on the Tribunal has been reiterated in CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 by the Hon'ble Bombay High Court, wherein it was held that the Tribunal is bound by the decision of the Hon'ble High Court within whose jurisdiction it functions. The Hon'ble Court also clarified that decisions of other High Courts ....
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....ere is no specific provision making the law declared by the High Court binding on subordinate courts, it is implicit in the power of supervision conferred on a superior Tribunal that the Tribunals subject to its supervision would confirm to the law laid down by it. It is in that view of the matter that the Supreme Court in East India Commercial Co, Ltd. v. Collector of Customs, AIR 1962 SC 1893 (at page 1905) declared : "We, therefore, hold that the law declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it. ... 19.17 In the absence of a decision of the jurisdictional High Court, the Tribunal may rely upon judgments of other Hon'ble High Courts as persuasive precedents. The Hon'ble Bombay High Court in CIT v. Thana Electricity Supply Ltd. (supra) explained that when conflicting decisions of Hon'ble Non-Jurisdictional High Courts exist, the Tribunal may adopt the view it considers more reasonable. 19.18 Thus, under the constitutional scheme and the doctrine of judicial discipline, a decision of the Hon'ble jurisdictional High Court is binding on the Tribunal, while decisions of other Ho....
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....We are unable to take the view that found favour with the Bench that decided the case of M.P. Co-operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within section 80P(2)(a)(i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. 19.21 Applying the principle culled out from the elaborate discussion of various judicial pronouncements in the preceding paragraphs of this order, we hold that the assessee is eligible for deduction under section 80P(2)(a)(i) of the Act on the above-compulsory deposit, fixed deposit as well as saving bank interest and dividend income. 19.22 At this juncture it is equally important to note that in several earlier decisions, this Tribunal had taken a view that interest income earned by a co-operative society from deposits placed with banks would not qualify for deduction under section 80P(2)(a)(i) of the Act and the same was liable to be taxed under the head "Income from other sources". Accordingly, the claim of deduction under section 80P(2)(a)(i) in respect of such interest income was rejected in those c....
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....perative banks is not eligible for deduction under Section 80P of the I.T. Act. We find that the facts and the legal position considered in the aforesaid d ecision apply to the present case in all force. 19.26 From the perusal of the said finding we note that the decision of the Hon'ble High Court in the case of BELVE VYAVASAYA SEVA SAHAKARI SANGHA LTD vs. ITO (supra) was in relation to deduction under section 80P(2)(d) of the Act which deals with deduction of interest and dividend income on investments with other cooperatives society/ bank. As the SCDCC bank is a cooperative bank and not cooperative society, it was held that interest income from such cooperative bank is not eligible for deduction u/s 80P(2)(d) of the Act. However, in the present case, we are dealing with deduction under section 80P(2)(a)(i) of the Act which state the whole of the amount of profits and gains of business attributable to business of banking or providing credit facilities to its members shall be deducted. Therefore, the ratio of the Hon'ble Karnataka High court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. is applicable in the given fact whereas ratio in case of BELVE VYAVA....
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....section 149(1) of the Act, which mandates that no notice under section 148 of the Act can be issued if 3 years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) of section 149 of the Act 9.7 In the instant case for A.Y. 2016-17, the notice u/s 148 of the Act was issued on 23.03.2023, which is beyond the three-year period from the end of the relevant assessment year. Therefore, the Revenue was required to satisfy the conditions prescribed u/s 149(1)(b) of the Act. As per the said provision, notice beyond three years can be issued only where the AO has in his possession books of account or other documents or evidence which reveal that income chargeable to tax, represented in the form of asset, expenditure or entry in the books of account, has escaped assessment and such income amounts to or is likely to amount to Rs. 50 lakh or more. 9.8 In the present case, the income alleged to have escaped assessment, as per the order u/s 147 of the Act, is only Rs. 18,52,199/-. The same is admittedly below Rs. 50 lakhs. Further, the disallowance of deduction u/s 80P of the Act is not an escapement represented in the form of assets, expenditure....
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....ion 148 of the Act was issued on 7th April 2022. Finally, the assessment was finalised considering only the bank account as stated by the assessee, and the total income was assessed after making an addition of Rs. 27,45,000/- on account of cash deposit. In the given facts, the Hon'ble High Court considered the scope of section 149(1)(b) of the Act and held that where the income alleged to have escaped assessment is below Rs. 50 lakhs, notice issued beyond three years cannot be sustained. The relevant portion of the said decision is reproduced as under: "9. In terms of clause (a) of sub-Section (1) of Section 149 a period of three years has been fixed from the end of the relevant assessment year for initiating proceedings under Section 148. However, an exception has been carved out under clause (b) of sub-Section (1) of Section 149 extending the 1 said period by up to ten years, if there is a document or evidence which reveals escaped assessment as detailed under sub-Clause (i), (ii) and (iii) of clause (b) of sub Section (1) of Section 149. 10. In the present case, though it can be said that the entry in this statement of bank account, is a document which would sa....
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....National Bank above information uploaded by TAN(DELP09943D) As per reply filed by assessee and material available on record assessee total amount deposited in cash or Rs. 59,75,000 during the financial year 2014-15. Therefore, total income of Rs. 59,75,000 left from escape the assessment for assessment year 2015-16. Thus it is logical to conclude that the assessee has no proper explanation with respect to the above mentioned escapement of income in his case for AY 2015-16." 18. A perusal of the above would reveal that the authority despite the specific indications made by the petitioner, without application of mind and in a wholly mechanical manner came to the conclusion that the amount deposited in cash was Rs. 59,75,000/- and consequently, found it a fit case under section 148 of the Act of 1961. 19. During the pendency of assessment proceedings pursuant to notice under section 148 of the Act of 1961, a show cause notice dated 6-3-2023 (Annexure-4A) was issued to the petitioner inter alia observing as under: "Thus in the light of the above reasons, you are show caused as to why the cash deposited to the tune of Rs. 33,62,000 in the Bank shouldn't be....
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....f the above decisions squarely applies to the facts of the present case. In the case before us, the initial allegation of unexplained cash deposits of Rs. 99.31 lakh did not survive. The Ld. AO changed the basis of reopening to the denial of deduction u/s 80P of the Act. The income on such a basis is Rs. 18,52,199/-, or, to say, the maximum amount of claim for deduction u/s 80P, which stands at Rs. 30.11 lakhs, is below Rs. 50 lakhs. Therefore, the notice issued u/s 148 of the Act beyond three years is barred by limitation and is without jurisdiction. 9.15 In view of the above discussion, we hold that the condition prescribed u/s 149(1)(b) of the Act was not satisfied. The notice issued u/s 148 of the Act dated 30.03.2022 is therefore barred by limitation and invalid in law. Consequently, the order passed u/s 147 of the Act is also liable to be quashed. 10. In the result, the appeal of the assessee is allowed. Coming to ITA No. 240/Bang/2026, being the assessee's appeal against the penalty order for the AY 2019-20. 11. The penalty u/s 270A of the Act was levied by the AO on the basis of the additions made in the quantum assessment for the relevant assessment year 20....