S. 681 Chinnathirupathi Pacb Ltd., ... vs Department Of Income Tax

The Income Tax Officer, Vs. M/s. S.681 Chinnathirupathi Ward 1(4), PACB Ltd, Salem Chinnathirupathi, Salem 636 008.

[PAN AAATT 5833A] (अपीलाथ(/Appellant) ()*यथ(/Respondent)

अपीलाथ क ओर से/ Appellant by : Shri. S. Das Gupta, IRS, JCIT. यथ क ओर से /Respondent by : None

सन ु वाई क तार ख/Date of Hearing : 13-07-2015 घोषणा क तार ख /Date of Pronouncement : 17-07-2015

आदे श / O R D E R

PER CHANDRA POOJARI, ACCOUNTANT MEMBER

This appeal by Revenue is directed against the order of

the Commissioner of Income-tax (Appeals), Salem, dated

29.01.2015 for the assessment year 2010-2011.

:- 2 -: ITA No.946/Mds/2015

2. The crux of the ground raised by the Revenue is with

regard to Commissioner of Income Tax (Appeals) ought to have

considered the fact that deduction u/s.80P(2)(d) of the Income Tax

Act, 1961 is allowable only on net receipts after deducting the

expenses from the gross receipts of interest and that the Assessing

Officer has rightly disallowed the deduction u/s.80P(2)(d) on pro-

rata basis.

3. The facts of the case are that the assessee was engaged

in banking business and trading in civil supply goods and according

a report under section 44AB has been filed. The assessee in

computation statement filed during the assessment proceedings

has claimed an amount of A52,50,233/- has deduction

u/s.80P(2)(d) of the Act. In the profit and loss account the

assessee has credited A58,90,987/- under the head miscellaneous

income. The assessee has claimed the following amount as

deduction u/s.80P(2)(d) of the Act.

Sl.No Dividend on Shares ) 1 SDCCB Ltd Salem 8,250 2 IFFCO 2,00,200 3 KRIBCO 1,00,000 4 SDCCWS Ltd, Salem 14 Total 3,08,464

Interest on Investment in SDCCB 1 FD & RD 26,88,872 2 Liquidity cover deposit 12,76,706 3 Reserve Fund 5,88,127 :- 3 -: ITA No.946/Mds/2015

4 Savings A/c.02 28,755 5 Spl. SB 3,43,413 6 Spl. Current A/c. 3,117 7 Escrow savings A/c. 3,969 8 Int. incentive 8,810 Total 49,41,769 Grand Total 52,50,233

The assessee claimed the entire amount of A52,50,233/- as

deduction u/s.80P(2)(d) of the Act. According to the Assessing

Officer the claim of deduction of the assessee seems to be

excessive. The assessee has not furnished net income eligible for

deduction inspite of opportunity given. So, the Assessing Officer

derived the net income worked out as under:-

Total Available Funds A.23,95,53,103/-

Total interest bearing funds Deposits from

1. Members A17,54,01,016/-

2. Non A58,00,780/-

Members Borrowings from

1. SDCCB

2. T.N. State A34,920/-

Govt Total 18,12,36,716/- Proportionate of 76% Interest bearing funds to the total funds is :- 4 -: ITA No.946/Mds/2015

3.1 Thus, out of A6,27,34,976/- invested in Salem District

Central Co-operative bank 76% i.e. A4,76,78,582/- was the pro-

rate investment made out of interest bearing funds.

Total interest paid = 1,48,56,731/- = 8.2% Total deposits 18,12,36,716/-

Thus, the cost of the funds invested by the assessee with Salem

District Central Co-opratie bank and other co-opeatie society works

out to A4,76,78,582 * 8.2% = A39,09,644/-. The net income

from investment with SDDCB and other co-operative societies is

A52,50,233/- - A39,09,644/- = A13,50,589/-. The Assessing

Officer computed the qualifying amount eligible for 80P(2)(d)

deduction is A13,40,589/-. Aggrieved the assessee preferred an

appeal before the Commissioner of Income Tax (Appeals).

4. On appeal, the Commissioner of Income Tax (Appeals)

followed the earlier order of the Tribunal Chennai Bench in the

case of M/s. SL(SPL) 151 Karkudalpatty PACCS Ltd vs. ITO in ITA

No.292/Mds/2014 dated 17.03.2014 wherein the Tribunal held that

"In the lower appellate proceedings, so far as the findings of the Assessing Officer holding the assessee as a 'bank' u/s 80P(4) are concerned, they stand overruled in view of the decision of the 'tribunal' in ITO vs Kasipalayam Primary Agricultural Co-operative Bank Ltd 2014(2) TMI

676. However, in CIT(A)'s view, since the assessee had also advanced credit and other facilities to the 'nominal' or 'B' class members, its claim is hit by 80P(2)(a)(i) of the Act. The CIT(A) observes that as assessee's 'nominal'/'B' class members are not :- 5 -: ITA No.946/Mds/2015

treated as 'members' in its audit record etc, it is not entitled for deduction. Thus, he has cancelled deduction of ₹3,75,420/- granted by the Assessing Officer.

Therefore, the assessee is in appeal.

We have heard both parties and gone through the case file. As stated in the preceding paragraphs, the CIT(A) has proceeded to enhance the assessment(supra) only on the ground that the assessee's credit and various other loan facilities have been allowed to be availed by 'B' class 'nominal' members whose liability is limited, at the best; to the extent of loan repayable instead of 'A' class members who have voting rights and dividend claim, and also that the latter members are jointly and severely liable. In this backdrop, when we peruse the relevant provisions of the State Co-operative Societies Act, 1983, governing the assessee-society, it is evident from the definition of 'member' u/s 2(16) that the same includes an 'associate member' u/s 2(6) appended therein. In other words, the 'nominal' members also enjoy statutory recognition as per the Act. The net result is that once the 'nominal' members or non-voting members are themselves included in the definition of 'members', they satisfy the relevant condition imposed by the legislature u/s 80P(2)(a)(i). We make it clear that we are dealing with a deduction provision to be interpreted liberally. In our considered opinion, the objections of the Revenue that the 'members' defined in sub-clause(i) of section 80P(2) should only include voting members would amount to a classification within classification which is beyond the purview of tax statute; unless provided specifically by the legislature. Moreover, we find that the case law of hon'ble Punjab & Haryana high court (supra) also supports the assessee's case wherein it has been held under the very provision that for the purpose of impugned deduction, it is irrelevant so far as classification of the members in 'A' or 'B' category is concerned. We follow the same and accept contentions of the assessee''.

:- 6 -: ITA No.946/Mds/2015

The Commissioner of Income Tax (Appeals) also placed reliance on

the order of the Tribunal Chennai Bench in the case of M/s. The

Salem Agricultural Producers Co-Operative Marketing Society Ltd

vs. ITO, Salem in ITA Nos.730, 731 & 732/Mds/2014, dated

30.06.2014, wherein the Tribunal held that

''We have heard both sides, perused the materials on record and gone through the orders of authorities below. The case of the assessee is that the income by way of interest and dividend earned by the assessee society are from investments made in Salem District Central Cooperative Bank, which is also admittedly, a co-operative society and are allowable deduction. The Assessing Officer has held that the assessee has made only with Salem District Central Cooperative Bank and therefore, the income from investment with the Bank is not entitled for deduction under section 80P(2)(d) of the Act. On appeal, the ld. CIT(Appeals confirmed the order passed by the ld. CIT(Appeals). We find that in the case of CIT v. Kangra Co-operative Bank Ltd. [2009] 309 ITR 106 (HP), the Hon'ble Himachal Pradesh High Court has considered section 80P(2)(d) of the Act. The interest earned by the assessee co-operative bank on fixed deposits with Himachal Pradesh State Co-operative Bank in compliance with the provisions of section 57 of the Himachal Pradesh Co-operative Societies Act, 1968, the income derived from banking business is eligible for deduction under section 80P(2)(a)(i) of the Act. Exemption is also available under section 80P(2)(d) of the Act. In the present case, the assessee is an Agricultural Producers Co-operative Marketing Society Ltd., registered under Tamilnadu Co- operative Societies Act and established for the benefit of the agricultural producers and the interest or dividend earned by the assessee will be beneficial to the members alone. Therefore, keeping in view of the decision in the case of CIT v. Kangra Cooperative Bank Ltd. (supra), we hold that the assessee is eligible for benefit under section 80P(2)

(d) of the Act and also this being a beneficial section to the co-operative societies.

:- 7 -: ITA No.946/Mds/2015

9. In result, all the appeals filed by the assessee are allowed''.

and allowed the deduction. Against this, the Revenue is in appeal

before us.

5 None appeared on behalf of the assessee. We proceed

to dispose of the case after hearing the ld. Departmental

Representative. The ld. Departmental Representative submitted

that the assessee has not fulfilled the conditions laid down

u/s.80P(2)(d) of the Act and therefore deduction cannot be

granted to the assessee, as the assessee is not a co-operative

society as the assessee is engaged in banking activity and relied

on Panaji Bench decision of Tribunal in the case of Shri

Chandraprabhu Urban Co-operative Credit Society Ltd in ITA

No.142 & 143/Pnj/2013, dated 14.03.2014.

6. We have heard the ld. Departmental Representative. The

argument of the ld. Departmental Representative is misconceived.

The Departmental Representative cannot raise the issue what was

not considered by the Assessing Officer. The issue before the

Assessing Officer was whether the gross income or net income to

be considered for deduction u/s.80P(2)(d) of the Act. The

Commissioner of Income Tax (Appeals) while deciding the issue

followed the Co-ordinate Bench decisions (cited supra) and allowed :- 8 -: ITA No.946/Mds/2015

the claim of the assessee. So, we are not in a position to reverse

the findings of the Commissioner of Income Tax (Appeals) as the

decision of Commissioner of Income Tax (Appeals) was based on

the orders of Co-ordinate Bench which is binding on this Tribunal.

7. Accordingly, we have no hesitation in confirming the order

of the Commissioner of Income Tax (Appeals).

8. In the result, the appeal of the Revenue in ITA

No.946/Mds/2015 is dismissed.

Order pronounced of Friday, the 17th day of July, 2015 at Chennai.

Sd/- Sd/- (एन.आर.एस. गणेशन)) (चं पज ू ार ) (N.R.S. GANESAN) (CHANDRA POOJARI) या यक सद य/JUDICIAL MEMBER लेखा सद य /ACCOUNTANT MEMBER चे#नई/Chennai $दनांक/Dated:17.07.2015 KV

आदे श क त(ल)प अ*े)षत/Copy to: 1. अपीलाथ /Appellant 4. आयकर आयु+त/CIT 2. यथ /Respondent 5. )वभागीय त न.ध/DR 3. आयकर आयु+त (अपील)/CIT(A) 6. गाड फाईल/GF