Gramin Sewa Sahakari Samiti Maryadit Vs ITO (ITAT Raipur)
ITAT Raipur held that cooperative society is entitled for claiming deduction u/s. 80P(2)(d) of the Income Tax Act in respect of dividend received on shares of cooperative banks.
Facts- The assessee is a Primary Agricultural Co-operative Society engaged in carrying out business of banking, paddy procurement, sale of fertilizers, seeds, manures, and pesticides and of control items under Public Distribution System. During the course of assessment proceedings, it was noticed that the assessee has failed to get its accounts audited within the specified due date i.e. 30.09.2012. Audit was done in the case on 23.02.2013. Thus, the AO observed that the assessee had committed default within the meaning of sec.44AB of the Act. Accordingly, penalty proceedings were initiated. Notice u/s.271B of the Act, was issued to show cause ‘as to why’ penalty should not be imposed. After considering the submissions, AO confirmed penalty of Rs. 1,50,000/- u/s. 271B. CIT(A) confirmed the same. Being aggrieved, the present appeal is filed.
The assessee society has claimed 100% deduction of income from all the activities claiming that it is covered by the provisions of sec.80P of the Act. The Ld.AO was not found satisfied with the explanations submitted by the assessee with respect to its entitlement to qualify for deduction u/s.80P of the Act, has made certain additions u/s.80P of the Act. CIT(A) granted partial relief. Being aggrieved, the present appeal is filed.
Conclusion- Held that order of penalty levied by the Ld.AO u/s.271B of the Act and confirmed by the Ld. CIT(A) is liable to be set aside with a direction to verify that the appointment of the statutory/tax auditor was done after the due date of completion of audit u/s 44AB of the Act, and if same is the case and audit was completed within a reasonable time of such appointment, then the penalty u/s 271B cannot be held as justified.
Held that the assessee’s society is entitled for deduction of its income from paddy procurement business u/s.80P(2)(a)(iii) of the Act, but restore the matter to the file of the AO for limited purpose of restricting the said claim of deduction to the extent of the profit relatable to the marketing of agricultural produce of the members of the agricultural society.
Held that the entitlement of cooperative society for claiming deduction u/s.80P(2)(d) of the Act, qua the dividend received on shares of cooperative banks is eligible for deduction u/s 80P(2)(d), which is squarely covered by the aforesaid decision, therefore, principally concurring with the claim of assessee i.e. disallowance made by the AO sustained by the Ld.CIT(A) stands vacated.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The above captioned appeals are directed against the order of the Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre, Delhi, emerged from the orders of the Ld. Assessing Officer, u/s.271B & 143(3) of the Income Tax Act, 1961 (in short “the Act”). The details of these appeals are as under:
| SL. No. | ITA No. | Assessee’s Name | AY | Date of the order of the Ld. CIT(A) | Date of the order of the Ld. AO | Remarks |
| 1 | 108/RPR/2022 | M/s. Gramin Sewa Sahakari Samiti Maryadit | 2012-13 | 07.12.2021 | 09.092015 | Penalty levied u/s.271B of the Act Disallowance u/s.80 of the Act |
| 2 | 109 /RPR/2022 | 2013-14 | 24.03.2022 | 26.09.2016 | ||
| 3 | 110/RPR/2022 | 2014-15 | 24.03.2022 | 23.06.2017 | ||
| 4 | 111/RPR/2022 | 2011-12 | 31.03.2022 | 24.03.2014 | ||
| 5 | 112/RPR/2022 | 2012-13 | 31.03.2022 | 20.03.2015 | ||
| 6 | 113/RPR/2022 | 2016-17 | 31.03.2022 | 26.09.2018 | ||
| 7 | 116/RPR/2022 | 2017-18 | 27.04.2022 | 25.11.2019 | ||
| 8 | 117/RPR/2022 | 2012-13 | 25.03.2022 | 23.03.2015 | ||
| 9 | 118/RPR/2022 | 2012-13 | 25.03.2022 | 09.09.2015 | ||
| 10 | 125/RPR/2022 | 2012-13 | 18.04.2022 | 09.09.2015 | ||
| 11 | 126/RPR/2022 | 2013-14 | 21.03.2022 | 02.05.2016 |
2. The issues involved in the present appeals are pertaining to levy of penalty u/s.271B of the Income Tax Act, 1961 (in short “the Act”), and disallowance u/s.80P of the Act. First, we are taking the appeals having common issue pertaining to levy of penalty u/s.271B of the Act.
ITA Nos.108, 109, 110, 118, 125 & 126/RPR/2022:
3. We shall take up the appeal in ITA No.108/RPR/2022 for the AY 201213 as the lead matter, and the order therein passed, shall be applied mutatis-mutandis to the remaining appeals i.e. ITA Nos.109, 110, 118, 125 & 126/RPR/2022. The grounds of appeal raised by the assessee in ITA No.108/RPR/2022, are as under:
1. That the Ld. CIT (Appeals) NFAC, Delhi erred in confirming the penalty levied u/s.27IB by the Ld. Assessing officer at Rs.1,50,000/- . Prayed that there is no delay on the part of the Appellant. The Statutory auditors was not appointed timely by the Registrar of Cooperative Society which was not in the hands of the appellant. only after completion of statutory audit tax audit was done. There is reasonable cause u/s.273B for delay, therefore the penalty levied kindly be cancelled.
2. That the Appellant is functioning in a remote small village at Belar District Gariaband. The Notices fixation by the Ld. CIT (Appeals), NFAC, Delhi did not come to the knowledge of the Appellant and therefore, proceeding could not be attended.
3. Without prejudice, that the Ld. CIT (Appeals) NFAC, Delhi, erred in passing ex parte order. He further erred in considering the explanation as filed before the learned AO and quoted by the Ld. Assessing officer in his penalty order.
4. The brief facts of the case are that the assessee is a Primary Agricultural Co-operative Society engaged in carrying out business of banking, paddy procurement, sale of fertilizers, seeds, manures, and pesticides and of control items under Public Distribution System. During the course of assessment proceedings, it was noticed that the assessee has failed to get its accounts audited within the specified due date i.e. 30.09.2012. Audit was done in the case on 23.02.2013. Thus, the AO observed that the assessee had committed default within the meaning of sec.44AB of the Act. Accordingly, penalty proceedings were initiated. Notice u/s.271B of the Act, was issued to show cause ‘as to why’ penalty should not be imposed. In response, the assessee submitted as under:
“Every person
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. Provided further that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report by an account in the form prescribed under this section.
Explanation- For the purpose of this section-
ii. “specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means the due date for furnishing the return of income under subsection (1) of Section 139.”
By virtue of the proviso as above, respondent was not required to have one more audit to be conducted in addition to the audit to be conducted by the Registrar in terms of the Chhattisgarh Cooperative Societies Act, 1960. However, by reason of the mandate contained in section 44AB, such auditing was required to be conducted before the specified date and the auditor was required to sign and verify the audit report on or before the specified date. The same was not done. It was done, however, after the specified date.
Assessee is cooperative society governed by the provision of the Chhattisgarh Cooperative Societies Act, 1960.
Assessee has relied upon following judgments:-
(a). (2002) 257 677 (MP) INCOME-TAX OFFICER V. NANAK SINGH GULIANI
b. Krishi Upaj Mandi Samiti vs. CIT (2008) 299 ITR (AT) (Jaipur-
c. CIT v. U.P. Rajya Sahkari Evam Bhoomi Vikas Bank Ltd. (2013) 353 ITR 152 (ALL)-
d. Lakshmi Car Clothing Manufacturing Co. P. Ltd. vs. DCIT (2013) 353 ITR 544 (Mad)-
e. CIT v. Capital Electronics (Gariahat) (2003) 261 ITR-4 (Cal)-
2.1 In all the case laws cited above, the penalty imposed u/s.271B was held not maintainable on the basis of principles of reasonable cause.
3. ……………………. the onus of establishing the existence of a reasonable cause failed in this case.
Reliance is placed in this case of Khuda Wood Products (P) Ltd. V. CIT, reported in (2008) 172 Taxman 49 (Gau), where the Hon’ble Gauhati High Court held that certificate issued by auditor giving reasons for delay in auditing accounts of assessee would not constitute a reasonable ground within meaning of section 271B as there was no evidence on record to show that any effort was made by assessee to get its accounts audited within scheduled time.
The substantial questions of law in the above case before the Hon’ble Gauhati High Court are as under.
(a) Whether, on the facts and in the circumstances of the case, the Tribunal ignoring the relevant materials, namely, auditor’s letter dated 5-6-1991, before it was justified and did not err in holding that there was no reasonable cause for the delay in submitting the audit report by the assessee and this pass a perverse order?
(b). Whether, on the facts and in the circumstances of the case, the Tribunal interpreted the word ‘reasonable cause’ appearing in section 273B under the Act contrary to the principle of interpretation of such words as has been laid down by the Apex Court in Surinder Singh Sibia v. Vijay Kumar Sood [1992] 1 SCC 70, paragraph 2 in Sarpanch Lonand Grampanchayat v. Ramgiri Gosavi AIR 1968 SC 222, paragraph 4 and other various decisions?”
5. The aforesaid response of the assessee was not found, convincing and acceptable by the Ld.AO, and therefore, after noting the satisfaction, penalty u/s.271B of the Act, was levied for Rs.1,50,000/- i.e. (i) 1/2 percent of gross-receipts of the business of the assessee’s society which was Rs.4,73,623/- ( 1/2 percent of Rs.8,47,34,616/- ) or (ii) Rs.1,50,000/-whichever is less. Aggrieved with the penalty imposed by the Ld.AO considering the submissions of the assessee, alleging that there was no reasonable cause in delaying the completion of audit u/s.44AB of the Act, assessee preferred an appeal before the Ld. CIT(A), NFAC. However, since the assessee was found to be non-compliant before the Ld. CIT(A). Therefore, the appeal of the assessee was dismissed.
6. Being the aggrieved with the order of the Ld. CIT(A), the assessee has carried the matter before us.
7. At the beginning of the hearing, it was pointed out by the Registry that the appeal of the assessee is delayed by 124 days, for which, an affidavit was submitted by Shri Neelkant Sahoo, Manager of the Cooperative Society, stating that the assessee’s society is situated in a remote village viz., Belar having population of about 1200, the assessee is a Primary Agricultural Co-operative Society and he is working of benefit of farmers and also providing items to Below Poverty Line (BPL) people. The assessee is not well versed with electronic medium, have tried to contact his Counsel in the matter also due to involvement of society people for procuring paddy from farmers as per policy of the State Government, necessary action could not be taken in due time, it was, therefore, prayer that the delay in filing of the appeal may kindly be condoned. In view of the submissions of the assessee with regard to delay in filing of the appeal, we find that there were reasonable and sufficient cause, whereby the assessee was prevented to file its appeals in the prescribed time. Therefore, we find it appropriate to condone the delay.
8. Since, the delay of the assessee was condoned, now we are taking up the issues in the present appeal for our consideration and adjudication.
9. At the outset, it was noticed that there was no representation on behalf of the assessee, however, written submission was submitted by the assessee on 12.07.2023. Since, none is appeared on behalf of the assessee even in the second round of hearing, we find it appropriate to dispose off the matter on the basis of merits evident from material available on record.
10. Written submissions of the assessee in the present case are extracted as under:
1. Assessment & First Appellate Proceedings:
I. The assessee is a primary agricultural cooperative society engaged in carrying out business of banking, paddy procurement, sale of fertilizers, seeds, manures, pesticides and sale of control items under Public Distribution System. 100% deduction of income from all the said activities has been claimed u/s.80P of the I.T. Act 1961 while filing return for the year under consideration.
II. The assessee had e-filled return of income on 31.03.2013 showing total income at Rs. NIL.
III. That assessment was completed by the AO u/s.143(3) of the Act on 23.03.2015 by determining total income of Rs. 11,68,460/-. That penalty proceeding was also initiated u/s.271B for failure to get the books of account for the F.Y. 2011/12 audited by an accountant before the specified date mentioned in Explanation to section 44AB, which was 30.09.2012, and furnish by that date the report of such audit in the prescribed form (Form No. 3CA) duly signed and verified by such accountant and selling forth such particulars as may be prescribed (Form No. 3CD).
IV. that without giving due regards to the reasonable cause shown by the assessee society with supporting documents for delay in getting books of account audited for the F.Y. 2011/12 and to furnish the audit reports and audited financial statement on or before the specified date mentioned in section 44AB during the course of penalty proceeding u/s.271B for the A.Y. 2012/13, AO has levied penalty u/s.27IB of Rs. 1,50,000/-. On first appeal, CIT (Appeals) has upheld the said action of the AO.
2. Assessee society’s submissions before hon’ble ITAT: –
That your honour authority for appointment of statutory auditor of the assessee society for the F.Y. 2011/12 was lying with “Registrar of Co-operative Societies”, therefore, assessee society had no control over to get the books of account audited from statutory auditor within specified time mentioned in section 44AB, which ultimately results in delay in getting tax audit report u/s.44AB in Form No. 3CA & statement of particulars required to be furnished u/s.44AB in Form No. 3CD from the tax auditor. That since statutory auditor had given audit certificate for the F.Y. 2011/12 on 20.02.2013, which was beyond the specified date mentioned in section 44AB, after appointment of tax auditor assessee society could get Form No. 3CA & Form No. 3CD only on 20.03.2013. Copies of report of statutory auditor appointed by the Registrar of Co-operative Society dt. 20.02.2023, tax audit reports in Form No. 3CA & Form No. 3CD dt. 20.03.2013, computation of total income & acknowledgment of return for the A.Y. 2012/13 and reply filed before CIT(A) are enclosed for ready reference.
Since, there was reasonable cause for delay in getting tax audit report u/s 44AB in Form No. 3CA & statement of particulars required to be furnished u/s.44AB in Form No. 3CD from the tax auditor for the F.Y. 2011/12 in terms of section 273B of the Income-tax Act’ 1961, the penally levied u/s.271B may kindly be cancelled.
That your honour in similar set of facts of case divisional bench of Hon’ble ITAT, Raipur in case of “Adim Jati Sewa Sahakari Samiti Maryadit, Mainpur Dhorra Vs. ITO in ITA No. 19/RPR/2022 dt. 24.04.2023” allowed the assessee’s appeal and cancelled penalty levied u/s 271U by holding that “We have considered the rival contentions and perused the orders of the authorities below along with the relevant documents placed on record. It is fairly admitted that the statutory auditor has provided the audit certificate and audit report only on 22.08.2015 and thereafter the tax audit was conducted, completed and submitted. This being so, we are of the view that the assessee has sufficient and reasonable cause for delay in submitting the audit report. Since the auditor was appointed by the Registrar of Cooperative Societies, therefore, there is no delay on the part of the assessee. Accordingly, respectfully following the various judicial pronouncements, referred to above, we are of the considered opinion that the penalty levied by the AO u/s.271 B of the Act and confirmed by the Id. CIT(A) deserves to be deleted and we do so. Thus, appeal of the assessee is allowed”. Copy of said decision of ITAT is enclosed.
The assessee society prays that –
In view of all above and especially favourable decision of jurisdictional ITAT” Raipur Bench in similar set of facts, your honour’s are kindly requested to cancel the penalty of Rs. 1,50,000/-levied u/s.271B for the A.Y. 2012/13 and oblige.
11. On perusal of the written submissions of the assessee, it is observed that the Audit Certificate by the Auditor of Co-operative Society which was issued after the due date for completion and submission of the same i.e. on 20.02.2013, (copy of the same was furnished at Page No.22 of the Written Submissions of the assessee), whereas, the due date for completion of the audit as per the provisions of sec.44AB of the Act, was 30.09.2012. It was the submission of the assessee that without giving due consideration to the reasonable cause shown by the assessee society with supporting documents in getting books of accounts audited for the Financial Year 201112 relevant to AY 2012-13, the penalty levied by the Ld.AO and confirmed by the Ld. CIT(A) was bad in law. The assessee also relied upon the order of the ITAT Raipur in ITA No.19/RPR/2022, wherein, the issue in the present appeal was discussed and is squarely covered by the said order. Observations of the ITAT in the said order were as under:
8. We have considered the rival contentions and perused the orders of the authorities below along with the relevant documents placed on record. Before us, the ld. AR of the assessee has filed paper book containing the documents relating to the audit report of auditors appointed by Registrar of Co-operative Society dated 22.08.2015, audited accounts, tax audit report dated 11.09.2015, computation of income and ITR and reply before the ld. CIT(A). It was also submitted by the ld. AR that the explanation of the assessee has not been considered in the proceeding before the ld. CIT(A). It is fairly admitted that the statutory auditor has provided the audit certificate and audit report only on 22.08.2015 and thereafter the tax audit was conducted, completed and submitted. This being so, we are of the view that the assessee has sufficient and reasonable cause for delay in submitting the audit report. Since the auditor was appointed by the Registrar of Cooperative Societies, therefore, there is no delay on the part of the assessee. Accordingly, respectfully following the various judicial pronouncements, referred to above, we are of the considered opinion that the penalty levied by the AO u/s.271B of the Act and confirmed by the ld. CIT(A) deserves to be deleted and we do so. Thus, appeal of the assessee is allowed.
12. The Ld. DR, on the other hand, submitted that since the assessee was non-compliant before the Ld.CIT(A), the appeal of the assessee should be dismissed on this count itself or alternatively, the issues in the present appeal needs to be restored back to the file of the Ld.CIT(A) for fresh adjudication of the same on merits.
13. We have considered the rival contentions and perused the materials available on record. Also, we have considered the order of the Tribunal in ITA No.19/RPR/2022, wherein, the co-ordinate Bench of the ITAT has considered several case laws, having dealt the issue of levy of penalty u/s.271B of the Act, and has held as under:
i) Kendrapara Credit Co-operative Society Ltd., ITA No.87/CTK/2021, order dated 07.06.2022, wherein it is held as under :-
8. We have considered the rival submissions. A perusal of the facts as recorded by the AO shows that the delay in submitting the audit report was on account of delay in obtaining audit report from the statutory auditors. It is fairly admitted that the statutory auditors is appointed by the Registrar of Co-operative Societies and not by the assessee. This being so, we are of the view that the assessee has sufficient and reasonable cause for delay in obtaining the audit report. It is also an admitted fact that the audit report was available before the AO, when the assessment was done. This being so, we are of the view that it is a fit case for deletion of penalty u/s.271B of the Act. Consequently, the penalty levied by the AO U/S.271B of the Act and confirmed by the ld CIT(A) stands deleted.
ii) M/s TPD 101 Uthangarai Mil Producers Co-operative Society Ltd., ITA No.152/Chny/2021, order dated 29.06.2022, wherein it is held as under :-
7. We have heard both the parties and perused the materials available on record and gone through the orders of the authorities below. The assessee supposed to have been filed audit report as required u/s.44AB of the Act, on or before 31.10.2015. However, such audit report has been filed on 05.03.2016, which is before the date of completion of assessment proceedings u/s.143(3) of the Act. In other words, although the assessee has filed tax audit report beyond the stipulated period, but such tax audit report was made available to the AO before he completes assessment proceedings. The assessee has given reasons for delay in filing tax audit report. As per which, the audit of accounts of society done by the Dept. of Cooperative Audit, could not be completed on or before 31.10.2015 and said delay was not in the hands of the assessee. Therefore, there is a reasonable cause for not filing the tax audit report within prescribed time limit ad thus, penalty cannot be levied. We find merits in the submission of the assessee for the simple reason that non-filing of audit report within the due date is a venial technical breach without any mala fide intention on the part of the assessee. Because, completion of audit of books of accounts of the society is under the control of Dept. of Cooperative Audit and thus, unless the Dept. of Cooperative Audit completes audit, the assessee cannot file return of income along with tax audit report. Therefore, we are of the considered view that reasons given by the assessee for not filing tax audit report prescribed u/s.44AB of the Act, is neither intention nor any mala fide intention, but it is venial technical breach and for this reason, penalty u/s.271B of the Act, cannot be levied. This principle is supported by the decision of the Hon’ble jurisdictional High Court in the case of P.Senthil Kumar v. PCIT reported in 416 ITR 336, where an identical issue had been considered by the Court and held that for venial technical breach without any mala fide intention, penalty cannot be levied. The ITAT Cochin Bench in ITA No.411/Cochin/2018 vide order dated 05.02.2019 had held that once audit report has been made available before the AO, when the assessment proceedings were completed, then, there is no reason for levy of penalty.
8. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that reasons given by the assessee for not filing tax audit report within due date comes under reasonable cause as provided u/s.271B of the Act, and thus, the AO is erred in levying penalty u/s.271B of the Act. Hence, we direct the AO to delete penalty levied u/s.271B of Act.
iii) Arambagh Co-op Agricultural Marketing Society Ltd., ITA No.804&8056/Kol/2014, order dated 28.02.2017, wherein the Tribunal has held as under :-
8. We heard rival submissions and perused the material available on record. As rightly pointed out by the ld. AR that this Tribunal decided the identical issue by holding that the delay caused in obtaining and filing the audit report was beyond the control of assessee. The relevant portion para no-4 of said order dated 03- 06-2016 in the case of supra is reproduced herein below for useful reading:
4. We have heard both the sides and also perused the relevant material available on record. As submitted on behalf of the assessee before the authorities below as well as before us, its failure to obtain and furnish the tax audit report by the specified date of 30.09.2009 as per the requirement of section 44AB was due to delay in completion of statutory audit by the auditors appointed by the Cooperative Department. Since the statutory auditor under the Cooperative Act was to be appointed by the Cooperative Department and such appointment as well as conduct and completion of audit by the statutory auditor was beyond the control of the assessee, we find merit in the contention of the Id. counsel of the assessee that the delay in completion of statutory audit, which caused the failure of the assessee to obtain and furnish the tax audit report under section 4AB, was due to the reasons beyond the control of the assessee and the same constituted the sufficient cause for its failure to comply with the requirement of section 44AB. Moreover, the tax audit report obtaining belatedly was filed by the assessee along with its return of income for the year under consideration on 05.01.2010 and the same, therefore, was available to the Assessing Officer while making the assessment of the assessee for the year under consideration. The default on the part of the assessee in obtaining and furnishing the tax audit report by the specified date thus was technical or venial in nature. Having regard to all these facts and circumstances of the case, we are of the view that it is not a fit case to impose penalty under section 271B and cancelling the penalty so imposed by the Assessing Officer and confirmed by the ld. CIT(Appeals), we allow this appeal of the assessee.”
9. In the present case also the assessee could not obtain and file the tax audit report as required u/s. 44AB of the Act due to delay in appointment of auditors by the cooperative department for statutory audit. This appointment is not in the control of the assessee. It is only then after that the assessee appoints tax auditor. The assessee filed the tax audit report immediately after obtaining the same from its Tax Auditor in Form No.3CA on 14-09- 2009. We find that the issue on hand is similar to that case decided by order dated 03-06-2016 by the Coordinate Bench of this Tribunal passed in ITA No.2396/Kol/2013 in the case of supra. Following the same, we are of the view that it is not a fit case to impose ITA Nos. 804 & 805/Kol/14-A-JM M/s. Arambagh Co-op Agrl. Mktg. Society Ltd 4 the penalty of Rs.1,00,000/- u/s. 271B of the Act. Therefore, we cancel the penalty imposed by the AO and confirmed by the CIT(A). Therefore, the ground raised by the assessee is allowed.
iv) Ahmedabad Co-operative Dept. Stores, [2001] 73 TTJ 784 (Ahmedabad-ITAT), wherein the Tribunal has held as under :-
5. I have given careful thought to the rival submissions advanced before me. There is no dispute that assessee is a cooperative society and its activities are governed by Gujarat Cooperative Societies Act, 1960. The accounts of the assessee are required to be audited by a special auditor appointed by the Registrar of Cooperative Societies. It is well known that Government auditors audit accounts of such cooperative societies. They carry out audit as per the statutory requirements and the assessee can have no control or authority over such auditors. It is settled law that penalty is to be imposed for defiance of law or for not carrying out a statutory obligation. It cannot be imposed on the assessee for nonperformance of duties by public agencies like Government auditors. The assessee right from beginning contended that delay is attributable to late auditing done by the statutory auditors. For the act of statutory auditor, the assessee cannot be held to be responsible under a provision like section 271B. It has been a settled law since the decision of Hindustan Steel Ltd. v. State Of Orissa. [1972] 83 ITR 26 (SC) that the levy of penalty is discretionary and penalty is not to be imposed for technical or venial breach of a statutory provision. In the present case, statutory audit was completed only on 17-1-1990. The auditors raised some points in the audit report which were required to be looked into and complied with by the assessee. After complying with the various points the assessee submitted return on 26-2-1990. It is not a case in which the assessee did not take proper care to comply with various statutory provisions. No default is attributable to the act and conduct of the assessee. Therefore, in my opinion, it is not a fit case for levy of penalty under section 271B of the IT Act. The penalty levied is held to be unjustified and is cancelled. In the light of above finding I deem it unnecessary to go into several other legal issues raised by the learned counsel for the assessee. The penalty imposed is cancelled.
v) Mathana Model Co-op Credit & Services Society Ltd., [20081 299 ITR 70 (Punjab & Haryana), wherein the Hon’ble Punjab & Haryana High Court held as under :-
Section 271B, read with section 273B, of the Income-tax Act, 1961 – Penalty – For failure to get accounts audited – Assessment year 2004-05 – As assessee-co-operative society failed to get its accounts audited within stipulated date, a show-cause notice under section 271B was issued to it – Assessee submitted copy of audit report along with its reply stating that it being a co-operative society was required to get its accounts audited by auditor appointed by Registrar, Co-operative Societies and since auditor was not appointed by Registrar within stipulated time, audit report could not be submitted in time – Assessing Officer rejected assessee’s explanation and imposed penalty upon it – Whether any penalty could be levied upon assessee – Held, no.
vi) Iqbalpur Cooperative Cane Development Union Ltd. [20131 218 Taxman 70 (Uttarakhand)(Mag.), wherein the Hon’ble Uttarakhand High Court has held as under :-
Section 44AB, read with sections 271B and 273B of the Income-tax Act, 1961 – Tax audit [Appointment of auditor] – Assessee was a cooperative society, registered under U.P. Cooperative Societies Act, 1965 – Accounts of assessee was required to be audited in accordance with section 64 of U.P. Co-operative Societies Act – Since assessee’s account was not audited within stipulated date, penalty under section 271B was imposed on assessee – Tribunal granted relief to assessee under section 273B holding that assessee established that appointment of auditor was not within his domain and, it was also not within his domain to have auditor to be appointed by Registrar or such person as appointed by State Government, to complete audit within specified date – Whether on fact there was no scope of interference with this appeal – Held, yes [Para 2] [In favour of assessee]
vii) Hindustan Steel Ltd., [1972] 83 ITR 26 (SC), wherein the Hon’ble Supreme Court has held as under :-
Section 270 of the Income-tax Act, 1961 – Penalty – General – Penalty is not to be imposed if there is no conscious breach of law An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged, either acted deliberately in defiance of law or guilty of conduct, contumacious or dishonest, or acted in conscious disregard to its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute.
14. On perusal of the ratio of law emerged in the aforesaid orders, respectfully following the judicial pronouncements, considering the facts and issue in the present appeal wherein it was the admitted fact that the Audit certificate was issued by the Tax Auditor on 20.02.2013, which was after the due date of completion of the audit u/s 44AB, which was contented by the assessee as beyond its control, and rightly so, we find merit in the submission of the assessee, however in the submissions of the assessee there was no whisper pertaining to delayed appointment of the Auditor, which could be the key fact or event justify the contention of the assessee that there was nothing on the part of assessee which makes asseseee responsible for the delay. It is therefore necessary to verify when the statutory auditors and tax auditor were appointed by the regulatory authority i.e. registrar of cooperative society, thus, we are of the considered opinion that order of penalty levied by the Ld.AO u/s.271B of the Act and confirmed by the Ld. CIT(A) is liable to be set aside with a direction to verify that the appointment of the statutory/tax auditor was done after the due date of completion of audit u/s 44AB of the Act, and if same is the case and audit was completed within a reasonable time of such appointment, then the penalty u/s 271B cannot be held as justified. We, therefore, set aside the order of the Ld.CIT(A) and restore the issue to the files of AO to verify the documents as discussed herein above, accordingly, in terms of our aforesaid observations herein either enforce or vacate the penalty imposed u/s.271B of the Act in the present case.
15. In the result, appeal filed by the assessee is in ITA No.108/RPR/2022 is partly allowed for statistical purpose.
ITA Nos. 109, 110, 118, 125, 126/RPR/2022:
16. All these appeals are also barred by limitation as pointed out by the registry, for which the delay is condoned by us, being delayed on account of identical reasons as submitted by the assessee by way of affidavit, akin to affidavit furnished in ITA No.108/RPR/2022.
17. The issue raised in ITA Nos.109, 110, 118, 125, 126/RPR/2022 is identical to the issue raised in ITA No.108/RPR/2022. Since, the assessee has submitted written submission in first set of appeals (ITA Nos.118, 125/RPR/2022) and no representation in others (ITA Nos.109 ,110, 126/RPR/2022). The appeal in which written submissions were made, copy of appointment letter of the statutory/tax auditor are missing although in cases were written submission were made, copy certificate of the auditor and tax audit report were furnished, which inspires our confidence in the submissions of the assessee that there was sufficient reasons by which the assessee was prevented to get its accounts audit before the prescribed due date u/s 44AB, thus, in the interest of natural justice, we find it appropriate to grant one more opportunity to assessee to get these facts furnished before the Ld AO to decide the issue in terms of our observations herein above.
18. The second set of appeals (ITA Nos.109 ,110, 126/RPR/2022) for which there was no representation or written submission by the assessee, there was no justification by the assessee on reasonableness of the delay in completion of the audit, however, since we are sending the first set of appeals to the files of AO, we consider it suitable to remit the second set of appeals also to the files of the Ld.AO to re-adjudicate the same afresh after hearing the assessee. The assessee is directed in all above appeals to furnish requisite documents, evidence, and information, before the Ld.AO to decide the issue in terms of our observations herein above, failing which the Ld.AO would be at liberty to dispose off the issue in accordance with law.
19. In combined result, ITA Nos. 109, 110, 118, 125, 126/RPR/2022 of the assessee are partly allowed for statistical purposes.
ITA No.111, 112, 113, 116 & 117/RPR/2022:
20. Now, we shall take up the appeal in ITA No.111/RPR/2022 for the AY 2011-12 as the lead matter, since the issue pertaining to disallowance u/s 80P of the Income Tax Act, 1961, raised in these appeals (ITA Nos.111, 112, 113, 116 & 117/RPR/2022) are common and identical, therefore, the ratio of our observations in order passed in ITA No.111/RPR/2022, shall be applied mutatis-mutandis to the remaining appeals i.e. ITA Nos.112, 113, 116 & 117/RPR/2022. The grounds of appeal raised by the assessee in ITA No.111/RPR/2022, are as under:
1. That under the facts and law, the Ld. Commissioner of the income Tax (Appeals), National Faceless Center (NFAC), New Delhi erred in the passing order u/s 250 ex parte without allowing opportunity to the applicant. Prayed that notice issued by the Ld. C1T(A) did not come to the Knowledge of tie appellant. The appellant is doing business in the remote village named Bitkuli, Hathband in the district of Baloda Bazar Chhattisgarh not well versed with electronic medium.
2. That under the facts and law, the Ld. CIT (Appeals) NFAC Delhi further erred in not allowing deduction of income from interest from banking business u/s.80P(2)(a)(i) amounting to Rs 18,25,283/- confirming the order of the Ld AO. Prayed that appellant is eligible for deduction of above sum under the above section which kindly be allowed.
3. That under the facts and the law the Ld. CIT (Appeals) NFAC Delhi further erred in treating the 35% of the surplus of the paddy procurement business amounting Rs 1,93,998/- as ineligible for deduction u/s 80P(2) of the act.
4. That under the facts and the law, the Ld. CIT (Appeals) erred in treating the surplus of PDS business amounting to Rs.1,70,480/- as ineligible deduction u/s.80P(2). Prayed that the exemption u/s.80P(2) be allowed and delete the addition.
5. That under the facts and the law, the Ld. CIT (Appeals) erred in treating the dividend income amounting to Rs.36,816/- as ineligible deduction u/s.80P(2). Prayed that the dividend income is deductible u/s.80P(2)(d) and delete the addition.
21. Briefly, the facts in the present case are that the assessee is a Primary Agricultural Cooperative Society engaged in carrying out business of banking, paddy procurement, sale of fertilizers, seeds, manures, and pesticides and of control items under Public Distribution System. The assessee filed its return of income on 24.03.2013 for the AY 2011-12 declaring a total income as ‘NIL’. The assessee society has claimed 100% deduction of income from all the activities claiming that it is covered by the provisions of sec.80P of the Act. The Ld.AO was not found satisfied with the explanations submitted by the assessee with respect to its entitlement to qualify for deduction u/s.80P of the Act, has made certain additions u/s.80P of the Act.
22. Aggrieved with the order u/s.143(3) of the Act, passed by the AO, the assessee preferred an appeal before the Ld. CIT(A), NFAC. However, the submissions made by the assessee before the Ld. CIT(A) were found part favour and therefore, Ld. CIT(A) has disposed off the grounds of appeal with part relief to the assessee by remitting certain issues back for verification to the AO.
23. Being aggrieved with the order of the Ld. CIT(A), the assessee has carried the matter before us.
24. At the beginning of the hearing, it was pointed out by the Registry that the appeal of the assessee is delayed by 24 days, for which, an affidavit was submitted by the Manager of the Co-operative Society, stating the reasons similar to that of we have observed in ITA No.108/RPR/2022, we, therefore, in view of the submissions of the assessee with regard to delay in filing of the appeal, which we find that there were reasonable and sufficient cause, whereby the assessee was prevented to file its appeals in the prescribed time. Therefore, we find it appropriate to condone the delay.
25. Since, the delay of the assessee was condoned, now we are taking up the issues in the present appeal for our consideration and adjudication.
26. At the outset, in all these five appeals i.e. ITA No.111, 112, 113, 116 & 117/RPR/2022, there was none appeared on behalf of the assessee, however, written submissions were filed by the assessee dated 22.07.2023, which reads as under:
1. Assessment & First Appellate Proceedings:
i. The assessee is a primary agricultural cooperative society engaged in carrying out business of banking, paddy procurement, sale of fertilizers, seeds, manures, pesticides and sale of control items under Public Distribution System. 100% deduction of income from all the said activities has been claimed u/s.80P of the I.T. Act 1961 while filing return for the year under consideration.
ii. The assessee had e-filed return of income on 24.03.2013 showing total income at Rs. NIL.
iii. That assessment was completed by the AO u/s.143(3) of the Act on 24.03.2014 by determining total income of Rs. 16,97,234/-. Aggrieved with this order framed by the Assessing Officer the assessee society had filed an appeal before the CIT(A), NFAC, Delhi, which was dismissed without considering the facts and circumstances of the case properly and judicially and without perusing binding past decisions of jurisdictional hon’ble IT AT, Raipur Bench in similar issues in cases of various co-operative societies involved in similar business activities.
2. Assessee’s submissions before hon’ble ITAT: –
Ground no. 1 :- Not pressed. •
Ground no. 2 :-
That under the facts and law, the Ld CIT (Appeals), NFAC Delhi further erred in not allowing deduction of income from interest from banking business u/s 80P(2)(a)(i) amounting to Rs. 18,25,283/- by confirming the order of the Ld.AO. Prayed that appellant is eligible for deduction of above sum under the above section which kindly be allowed.
That one of the activity of the assessee society is carrying on banking business like borrowing, raising or taking up money and lending or advancing money for the purpose of agriculture activities, sale and purchase of seeds and urea to it’s members. The source of income of assessee society from banking business is interest on loan advanced to it’s members and interest on deposits of surplus funds, where there were no takers, in cooperative bank.
That during the year under consideration, the assessee society had parked surplus funds, which were not immediately required by the assessee society for lending money to the members as there were no takers, in the form of deposit with Jila Sahakari Bank, i.e. a cooperative bank, to earn interest and earned interest thereon to the tune of Rs. 18,25,283/. That since said interest was earned in the normal course of its business of providing credit facilities to its members and is directly attributable to the banking business being carried on by the assessee society, interest earned on surplus funds deposited with co-operative bank is duly eligible for deduction u/s.80P(2)(a)(i).
However, AO had disallowed the deduction u/s.80P(2)(a)(i) on interest on deposit with cooperative bank of Rs. 18,25,283/- by alleging that the assessee society had made such deposits as an ordinary investor and hence, interest on such investment was liable to be taxed under the head “Income from other sources” and not as “Business Income” eligible for deduction u/s.80P(2)(a)(i). On first appeal, CIT (Appeals) has upheld the said action of AO.
That your honour aforesaid ground of appeal is duly covered in favour of the assessee society by the decision of divisional bench of Hon’ble ITAT, Raipur dt. 04.08.2022 in 22 cases of Gramin Sewa Sahakari Samiti Maryadit (Co-operative society) by taking appeal in ITA No. 126/RPR/2017 for the A.Y. 2014/15 as the lead matter. Copy of said decision of ITAT is enclosed.
Relevant extract of the above referred decision is reproduced below for your ready reference:
“7. Adverting to the disallowance of the assessee’s claim for deduction of the interest on bank deposits of Rs. 1,39,450/- u/s. 80P(2)(a)(i) of the Act, the Ld. Authorized Representative (for short ‘AR’) submitted that the issue was squarely covered by the order of this Tribunal in “ITA No.ll4/RPR/2016 & Ors., dated 23.02.2022 in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. the ITO, Ward- 1(3), Raipur”. The Ld. AR submitted that the facts and the issue involved in the present appeal as regards its claim for deduction remains the same as were there before the Tribunal in its aforesaid order. (Page no. 8 of the ITAT order)
8. Per contra, the Ld. Departmental Representative (for short ‘DR.’) conceded to the submissions put forth by the Ld. AR of the assessee. (Page no. 9 of the ITAT order)
9. We have heard the Id. Authorized Representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the order of the Tribunal in ITA No.ll4/RPR/2016 & Ors (supra) that have been pressed into service by the Ld. AR to drive home his contentions. As stated by the Id. AR, and rightly so, the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. the ITO, Ward-1(3), Raipur in ITA No.ll4/RPR/2016 & Ors., dated 23.02.2022 had after drawing support from the judgment of the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd., ITA No.307/2014, dated 28.10.2014, had after exhaustive deliberations concluded that the interest income earned on the surplus funds which were parked as deposits by the co-operative society in the normal course of its business of providing credit facilities to its members, i.e., at a point of time when there were no takers for the said funds was duly entitled for deduction under Sec. 80P(2)(a)(i) of the Act……….. (Page no. 9 of the ITAT order) ……………..
As stated by the Ld. AR, as the facts and the issue involved in the present appeal i.e, allowability of the assessee’s claim for deduction under Sec. 80P(2)(a)(i) on the interest on bank deposits remains the same as were there in the aforesaid case i.e, ITA No.ll4/RPR/2016 & Ors (supra.), therefore, we respectfully follow the same. We, thus, in terms of our aforesaid observations direct the AO to allow the assessee’s claim for deduction under Sec. 80P(2)(a)(i) of Rs.l,39,450/-. The Ground of appeal No. 1 (i) raised by the assessee is allowed in terms of our aforesaid observations”. (Page no. 15 of the ITAT order)
The assessee society prays that –
As can be affirmed from the decision of divisional bench of the Hon’ble ITAT’ Raipur in ITA No. 126/RPR/2017 & Ors (supra.), income earned by the assessee society by way of interest on deposit of surplus funds during the course of it’s banking business amounting to Rs. 18,25,283/- in the F.Y. 2010/11 relevant to the A.Y. 2011/12 is duly eligible for deduction u/s 80P(2)(a)(i) and hence, the same should kindly be allowed. ‘
Ground no. 3:-
That under the facts and the law, the Ld CIT (Appeals) NFAC Delhi further erred in treating 35% surplus of Paddy procurement business amounting to Rs. 1,93,998/-as ineligible for deduction u/s 80P(2). Prayed that the deduction u/s 80P(2) be allowed and the addition be deleted.
That in this case, either during the course of assessment proceedings or before the CIT (Appeals), the assessee society had not submitted documents to substantiate how much paddy was procured from the members of the society which would have helped to determine the quantum of amount of deduction eligible u/s 80P(2).
The assessee society prays that –
That since, verification of above stated documents is necessary to determine as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by the members, your honour is kindly requested to set aside this issue to the file of AO with the direction to call for and consider necessary documents and to re-adjudicate on this issue after considering the same.
That your honour, aforesaid request is made in way of decision of divisional bench of hon’ble ITAT, Raipur dt. 23.02.2022 in ITA no. 114/RPR/2016 and 15 other co-operative societies’ cases, wherein on Page no. 28, Para 17 of the ITAT order it is held that:- (Copy of said decision of ITAT is enclosed)
“We, thus, in terms of the aforesaid observation set-aside the matter to the file of the Assessing Officer, with a direction to re-adjudicate the same after considering the additional documentary evidence that had been filed by the assessee before us. The A.O. shall after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, therein, restrict the assessee’s claim for deduction u/s. 80P(2)(a)(iii) of the Act only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. The Ground of appeal No. 2 is allowed for statistical purposes in terms of our aforesaid observations.”
Ground no. 4 :-
That under the facts and the law, the Ld CIT (Appeals) erred in treating the surplus of PDS business amounting to Rs. 1,70,480/- without allowing proportionate expenses of Rs. 3,06,046/- as ineligible for deduction u/s 80P(2). Prayed that the exemption u/s 80P(2) be allowed and the addition be deleted.
The assessee society had undertaken PDS activity during the year i.e. distribution of essential commodities to the ration card holders through fair price shop, and a surplus of Rs. 1,70,480/- was earned on the same. The assessee society has claimed deduction u/s 80P(2) of the Income-tax Act’ 1961 on the entire amount of such surplus.
The AO by observing that such activity does not qualify for deduction u/s 80P of the Act, deemed income from such activity as income from business and treated the same as part of total income of the assessee society. On first appeal, CIT (Appeals) has upheld the said action of the AO.
That your honour aforesaid ground of appeal is duly covered in favour of the assessee society by the decision of divisional bench of Hon’ble ITAT, Raipur dt. 04.08.2022 in 22 cases of Gramin Sewa Sahakari Samiti Maryadit (Co-operative society) by taking appeal in ITA No. 126/RPR/2017 for the A.Y. 2014/15 as the lead matter. Copy of said decision of ITAT is enclosed.
Relevant extract of the above referred decision is reproduced below for your ready reference:
“16. Adverting to the assessee’s claim for deduction under Sec. 80P(2)(c)(ii) of the Act of Rs. 5.54,758/- i.e. profit from PDS activity i.e, distribution of essential commodities to the ration holders through fair price shop, it was submitted by the Ld. AR that the said issue had already been adjudicated upon by the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. ITO, Ward-l(3), Raipur in ITA No.ll4/RPR/2016 & Ors, dated 23.02.2022 and the matter was remanded to the file of the A.O with a direction to restrict the assessee’s claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses. ( Page nos. 20 to 21 of the ITAT order)
Considering our aforesaid observations in the order passed in ITA No.ll4/RPR/2016 & Ors, dated 23.02.2022,We on the same terms restore the matter to the file of the AO, with a direction to restrict the assessee’s claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses. Thus, the Ground of appeal No.l (iv) is allowed for statistical purposes in terms of our aforesaid observations”. (Page no. 22 of the ITAT order)
The assessee society prays that –
As can be affirmed from the decision of the divisional bench of Hon’ble ITAT’ Raipur in ITA No. 126/RPR/2017 & Ors (supra.), net surplus/ profit from PDS business is duly eligible for deduction u/s 80P(2) and hence, the same should kindly be allowed.
Ground no. 5 :-
That under the facts and the law, the Ld CIT (Appeals) erred in treating the dividend income amounting to Rs. 36,816/- as ineligible for deduction u/s 80P(2). Prayed that the dividend income is deductible u/s 80P(2)(d) and delete the addition.
The assessee society had earned dividend income amounting to Rs. 36,816/- on shares of Jila Sahakari Bank and had claimed deduction u/s 80P(2) of the Income-tax Act’ 1961 on the entire amount of dividend. The AO has observed that Jila Sahakari Bank is not a co-operative society, therefore, dividend income earned on such shares of the bank could not be allowed as deduction u/s 80P(2) of the Act and accordingly, he has disallowed deduction u/s 80P(2) on amount of dividend of Rs. 36,816/- claimed by the assessee society. On first appeal, CIT (Appeals) has upheld the said action of the AO.
That your honour aforesaid ground of appeal is duly covered in favour of the assessee society by the decision of divisional bench of Hon’ble ITAT, Raipur dt. 04.08.2022 in 22 cases of Gramin Sewa Sahakari Samiti Maryadit (Co-operative society) by taking appeal in ITA No. 126/RPR/2017 for the A.Y. 2014/15 as the lead matter. Copy of said decision of ITAT is enclosed.
Relevant extract of the above referred decision is reproduced below for your ready reference:
“19. Before us, it is the claim of the Ld. AR that the aforesaid issue is squarely covered by the order of the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors. Vs. the ITO, Ward-l(3), Raipur in ITA No.l 14/RPR/2016 & Ors, dated 23.02.2022. It was submitted by the Id. AR that the Tribunal in its aforesaid order, had observed, that the dividend income received by a cooperative society on the shares of a co-operative bank held by it would be eligible for deduction under Sec. 80P(2)(d) of the Act. Admittedly, in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors. Vs. the ITO, Ward-1(3), Raipur in ITA No.ll4/RPR/2016 & Ors the Tribunal, had observed, that the dividend income received by a cooperative society on the shares of a cooperative bank held by it would be eligible for deduction under Sec. 80P(2)(d) of the Act. (Page nos. 22 to 23 of the ITAT order)
We find that as stated by the Ld. AR, and rightly so, as the aforesaid issue in hand i.e, entitlement of a co-operative society for claim of deduction under Sec. 80P(2)(d) qua the dividend received on shares of a co-operative bank is squarely covered by the aforesaid decision of the Tribunal in ITA No.ll4/RPR/2016 & Ors (supra), dated 23.02.2022, therefore, principally concurring with the claim of the Id. AR we herein vacate the disallowance of the assessee’s claim for deduction u/s 80P(2)(d) qua the dividend received on shares of a cooperative bank, viz. Jila Sahakari Bank. Thus, the Ground of appeal No.l(v) raised in appeal by the assessee is allowed in terms of our aforesaid observations”. (Page nos. 27 to 28 of the IT AT order)
The assessee society prays that –
As can be affirmed from the decision of the divisional bench of Hon’ble ITAT’ Raipur in ITA number No.l26/RPR/2017 & Ors (supra.), dividend received on shares of a co-operative bank, i.e. Jila Sahakari Bank, is duly eligible for deduction u/s,80P(2)(d) and hence, the same should kindly be allowed.
27. While making the written submissions, the assessee placed his reliance on the order of the ITAT Raipur, in ITA No.126/RPR/2017 & Others in the case of Gramin Sewa Sahakari Samiti Maryadit (Group), wherein the issue assailed in the present appeal were discussed and decided, therefore, the issues in the present appeals are squarely covered by the said order.
28. The Ld.DR, on the other hand, conceded to the submissions by the assessee.
29. We have considered the rival contentions, perused the orders of the lower authorities and material available on record. On perusal of the order of the Tribunal in ITA No.126/RPR/2017 & others (supra), which were relied upon by the assessee in its written submissions in support of its contentions. With respect to Ground No.1 wherein it was the grievance of the assessee that the Ld.CIT(A), NFAC, has passed an order u/s.250 ex-parte without allowing the opportunity to the assessee prayer that the notice issued Ld.CIT(A) did not come to the knowledge of the assessee the assessee is doing business in the remote village viz. Bitkuli, Hathband, in the district of Baloda Bazar, Chhattisgarh, not well versed with the electronic medium. On Ground No.1 of the assessee’s appeal, we agreed with the contentions of the assessee that the matter should be adjudicated on merits, and therefore, we are adverting to other grounds of this appeal, accordingly, Ground No.1 becomes academic and disposed off.
30. With respect to Ground No.2 of the assessee’s appeal is pertaining to declining of deduction u/s.80P(2)(a)(i) of the Act, we find that the issues of the present appeals is squarely covered by the order of the ITAT relied upon by the assessee (supra), wherein, support was drawn from the judgment of the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd., in ITA No.307/2014 dated 28.10.2014, on the basis of its exhaustive deliberations concluded that interest income earned on the surplus fund which were part as deposit by the cooperative society in the normal course of business of providing credits facilities’ to its members i.e. At a point of time when there were no takers for the said funds was duly entitled for deduction u/s.80P(2)(a)(i) of the Act, observing as under:
“13. We shall first advert to the assessee’s grievance that the lower authorities had erred in declining its claim for deduction u/s. 80P(2)(a)(i) of the Act, i.e, as regards the interest income that was earned on the surplus funds which were deposited by it with Jila Sahakari Kendriya Bank, i.e, a co-operative bank. After deliberating at length on the issue in hand, we find that the aforesaid claim of the assessee hinges around the aspect that as to whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for the said funds, was eligible for deduction u/s. 80P(2)(a)(i) of the Act. We have given a thoughtful consideration to the contentions advanced by the Ld. Authorized representatives for both the parties. Before proceeding any further, we deem it fit to cull out the provisions of section 80P(2)(a)(i) of the Act, the scope and gamut of which is the primary bone of contention before us, which reads as under :
“80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely :—
(a) in the case of a co-operative society engaged in—
(i). carrying on the business of banking or providing credit facilities to its members, or
(ii) to (iii)………………………………………………………….. ” (Emphasis by underlining supplied by us)
On a perusal of the aforesaid statutory provision, we find that the same, contemplates, that the income of a co-operative society from its business of banking or providing credit facilities to its members is eligible for deduction u/s. 80P(2)(a)(i) of the Act. Our indulgence in the present appeal is confined to the limited aspect, i.e, as to whether or not the interest income earned by the assessee-society by depositing its surplus funds with a bank can be brought within the meaning of “income from carrying on the business of banking or providing credit facilities to its members”, and thus, would fall within the realm of the deduction contemplated in Section 80P(2)(a)(i) of the Act. At this stage, we may herein observe, that it is the claim of the assessee, that as depositing of its surplus funds, i.e, the funds for which there were no takers at the relevant point of time, in the course of its business of providing credit facilities to its members, is inextricably interlinked; or in fact interwoven with its said stream of its business activity, therefore, the interest income received on such short-term deposits was duly eligible for deduction under the aforesaid statutory provision, i.e., Sec. 80P(2)(a)(i) of the Act. We may herein observe, that though the assessee-society in addition to its business of providing credit facilities to its members was also engaged in other multiple activities for its members, viz. business of paddy procurement, sale of fertilizers, seeds, manures and pesticides and sale of controlled items under Public Distribution System (PDS), however, it is neither the case of the revenue nor a fact discernible from the record that the funds deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) were the amounts that were payable by the society to its members, and the same having being retained were for the time being invested as a short-term deposit/security with the bank. If that would have been so, then, the interest income earned on such short-term deposit/security with the bank would not have been eligible for deduction u/s.80P(2)(a)(i) of the Act. But then, as the amount deposited by the assessee-society with the bank, viz. Jila Sahakari Kendriya Bank (supra) was in the nature of simpliciter surplus or idle funds of the assessee society, for which there were no takers for the time being in course of its business of providing credit facilities to its members, therefore, depositing of the same by way of short-term deposits with the aforesaid bank, as stated by the ld. A.R, and rightly so, would clearly be inextricably interlinked, or in fact interwoven with its aforesaid primary business activity, i.e., providing of credit facilities to its members. At this stage, we may herein observe, that the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. Vs. ITO, Karnataka, 322 ITR 283 (SC), had held, that in a case where the assessee-cooperative society apart from providing credit facilities to its members was also in the business of marketing of agricultural produce grown by its members, and the sale consideration of the agricultural produce due towards its members was thereafter retained and invested as a short-term deposit/security with the bank, then, the interest income therein earned to the said extent could not be said to be attributable to its activity of providing credit facilities to its members. As is discernible from the aforesaid judicial pronouncement of the Hon’ble Supreme Court, we find the Hon’ble Apex Court had clarified beyond doubt that they have confined the judgment to the facts of the case before them, and the same was not to be considered as laying down of any law. Be that as it may, the aforesaid judgment of the Hon’ble Supreme Court in the case of M/s. Totgars Co-operative Sale Society Ltd. (supra) had thereafter been considered by the Hon’ble High Court of Karnataka in the case of Tumkur Merchants Souharda Cooperative Ltd. (supra) in ITA No.307/2014, dated 28.10.2014, wherein the Hon’ble High Court had after exhaustive deliberations held as under :
“6. From the aforesaid facts and rival contentions, the undisputed facts which emerges is, the sum of Rs.1,77,305/- represents the interest earned from short term deposits and from savings bank account. The assessee is a cooperative society providing credit facilities to its members. It is not carrying on any other business. The interest income earned by the assessee by providing credit facilities to its members is deposited in the banks for a short duration which has earned interest. Therefore, whether this interest is attributable to the business of providing credit facilities to its members, is the question. In this regard, it is necessary to notice the relevant provision of law i.e. section 80P(2)(a)(i):
“Deduction in respect of income of cooperative societies:
80P. (1) Where, in the case of an assessee being a cooperative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection (2), in computing the total income of the assessee.
(2) The sums referred to in sub-section (1) shall be the following, namely:— (a) in the case of a co-operative society engaged in—
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) xxx
(iii) xxx
(iv) xxx
(v) xxx
(vi) xxx
(vii) xxx
the whole of the amount of profits and gains of business attributable to any one or more of such activities.”
7. The word ‘attributable used in the said section is of great importance. The Apex Court had an occasion to consider the meaning of the word ‘attributable’ as supposed to derive from its use in various other provisions of the statute in the case of CAMBAY ELECTRIC SUPPLY INDUSTRIAL CO. LTD. VS. COMMISSIONER OF INCOME TAX, GUJARAT-II reported in ITR Vol.113 (1978) Page 842 at Page 93 as under:
As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of” the specified industry (here generation and distribution of electricity) 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”. Had the expression “derived from” been used it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection it may be pointed out that whenever the Legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General it has used the expression “derived from”, as for instance in s. 80J. In our view since the expression of wider import, namely, “attributable to” has been used, the Legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity.
8. Therefore, the word “attributable to” is certainly wider in import than the expression “derived from”. Whenever the legislature wanted to give a restricted meaning, they have used the expression “derived from”. The expression “attributable to” being of wider import, the said expression is used by the legislature whenever they intended to gather receipts from sources other than the actual conduct of the business. A cooperative society which is carrying on the business providing credit facilities to its members, earns profit and gains of business by providing credit facilities to its members. The interest income so derived or the capital, if not immediately required to be lent to the members, they cannot keep the said amount idle. If they deposit this amount in bank so as to earn interest, the said interest 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.
9. In this context when we look at the judgment of the Apex Court in the case of M/s. Totgars Co-operative Sale Society Ltd, on which reliance is placed, the Supreme Court was dealing with a case where the assessee co-operative society, apart from providing credit facilities to the members, was also in the business of marketing of agricultural produce grown by its members. The sale consideration received from marketing agricultural produce of its members was retained in many cases. The said retained amount which was payable to its members from whom produce was bought, was invested in a short-term deposit/security. Such an amount which was retained by the assessee-society 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. Therefore, in the facts of the said case, the Apex Court held the assessing Officer was right in taxing the interest income indicated above under section 56 of the Act. Further they made it clear that they are confining the said judgment to the facts of that case. Therefore, it is clear, Supreme Court was not laying down any law.
10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore, they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore, it is liable to be deducted in terms of section 80P(1) of the Act. In fact similar view is taken by the Andhra Pradesh High Court in the case of COMMISSIONER OF INCOME TAX III HYDERABAD VS. ANDHRA PRADESH STATE COOPERATIVE BANK LTD. Reported in (2011) 200 TAXMAN 220/12. In that view of the matter, the order passed by the appellate authorities denying the benefit of deduction of the aforesaid amount is unsustainable in law. Accordingly, it is hereby set aside. The substantial question of law is answered in favour of the assessee and against the revenue. Hence, we pass the following order:
Appeal is allowed.
The impugned order is hereby set aside. Parties to bear their own cost.”
In the backdrop of the aforesaid observations of the Hon’ble High Court, we are of a considered view, that as in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) of the Act. We, thus, in terms of our aforesaid observations, direct the Assessing Officer to allow deduction of Rs.7,98,705/- u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. Thus, the Ground of appeal No.1 raised before us is allowed in terms of our aforesaid observations.”
31. The aforesaid issue involved in the present appeal regarding allowability of assessee’s claim pertaining to sec.80P(2)(a)(i) of the Act, on the interest on the bank deposit remain the same as were there in ITA No.126/RPR/2017 & Others (supra), as relied upon by the assessee, therefore, we respectfully following the same, direct the AO to allow the assessee’s claim for deduction u/s.80P(2)(a)(i) of the Act, of Rs.18,25,283/-.
32. In the result, Ground No.2 of the appeal of the assessee is allowed in terms of our observation hereinabove.
33. We shall now take up Ground No.3 of the assessee, wherein, the grievance of the assessee is that both the revenue authorities had erred in law and facts of the case in declining the assessee’s claim for deduction of income from paddy requirement business for Rs.1,93,900/-u/s.80P(2)(a)(iii) of the Act.
34. For adjudication of this issue in Ground No.3, we have considered the written submissions of the assessee on which the Ld.DR did not raise any objection .
35. Since the issue pertaining to deduction u/s.80P(2)(a)(iii) of the Act, is also squarely covered by the order of the ITAT in ITA No.126/RPR/2017 & Others (supra), wherein the observation of the Tribunal are as under:
13. We find that the Tribunal while disposing off the appeal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors., dated 23.02.2022, while dealing with the assessee’s claim for deduction of the income from paddy procurement business u/s.80P(2)(a)(iii) of the Act had remanded the issue to the file of the A.O observing as under:
“16. Admittedly, the assessee as an ‘agent’ of Chhattisgarh Marketing Federation (CMF) had facilitated the procurement of paddy from the agriculturists, and for the said service was paid a fixed commission as per the rates prescribed by the Government. The gross profit of Rs.16,21,218/- that was earned by the assessee from its aforesaid stream of business activity, i.e., paddy procurement business was claimed by it as a deduction u/s. 80P(2)(a)(iii) of the Act. However, as per the mandate of Sec. 80P(2)(a)(iii) the deduction therein contemplated was only available qua the marketing of the agricultural produce grown by members of the society, therefore, the Assessing Officer in the course of assessment proceedings had called upon the assessee society to produce the register maintained in respect of its paddy procurement for the year under consideration. As the register produced by the assessee society did not reveal the requisite details which were required to identify the members and non-members, therefore, the Assessing Officer in the backdrop of the said fact had restricted the assessee’s claim for deduction u/s.80P(2)(a)(iii) of the Act on an adhoc basis to 35% (i.e. nearly 1/3rd of the aforesaid gross profit) of the profit that was earned by it from paddy procurement business, and had disallowed assessee’s claim for deduction as regards the balance amount of profit. Assailing the restriction of the assessee’s claim for deduction u/s 80P(2)(a)(iii) to 35% of its income of Rs. 16,21,218/-, it is the claim of the ld. A.R before us that the same is highly exorbitant, for the reason, that the assessee had mainly procured paddy from its members only. It was submitted by the Ld. AR that though as per the policy of the Government the assessee-society is obligated to purchase paddy from each and every farmer, whether member or non-member, i.e whosoever approaches it, but transactions with the non-members during the year under consideration was minimal and by no means exceeded 25% of the total transactions. In order to buttress his aforesaid claim the Ld. AR had taken us through the compilation of paddy purchase by the assessee-society, Page 1 to 55 of additional documentary evidence that was placed on our record. By drawing support from compilation of paddy purchase from its members, i.e. Page 1A to 255 of the additional documentary evidences filed before us, it was submitted by the ld. A.R that only a small fraction of the paddy procurement was carried out by the assessee society from non-members. In the backdrop of his aforesaid contentions, the Ld. AR had claimed that the restriction of its claim for deduction u/s 80P(2)(a)(iii) to 35% of the profit from paddy procurement business so made by the Assessing Officer was not only on the higher side, but in fact exorbitant and unrealistic.
17. After giving a thoughtful consideration to the aforesaid issue, we find substantial force in the claim of the Ld. AR that now when only a small fraction of the procurement of paddy was made by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 35% of the profits earned from the said business activity was not justified. Be that as it may, we are of the considered view that as the compilation of the paddy procurement by the assessee-society has been filed before us as additional documentary evidence, and the same was not there before the lower authorities, therefore, the matter in all fairness requires to be revisited by the Assessing Officer. We, thus, in terms of the aforesaid observation set-aside the matter to the file of the Assessing Officer, with a direction to re-adjudicate the same after considering the additional documentary evidence that had been filed by the asssessee before us. The A.O shall after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, therein, restrict the assessee’s claim for deduction u/s. 80P(2)(a)(iii) of the Act only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. The Ground of appeal No.2 is allowed for statistical purposes in terms of our aforesaid observations.”
Considering the parity of the facts involved in the present case as against those which were involved in ITA No.114/RPR/2016 & Ors., dated 23.02.2022, we are of the considered view that as stated by the Ld. AR, and rightly so, the assessee society in the present case was principally entitled for deduction of its income from the business of paddy procurement u/s.80P(2)(a)(iii) of the Act. However, as observed by us while disposing off the appeals in ITA Nos.114/RPR/2016 & Ors (supra), the claim of deduction of the assessee society would be limited to the extent it had facilitated the marketing of the agricultural produce of its members. We, though concur with the claim of the Ld. AR that the assessee society is entitled for deduction of its income from paddy procurement business u/s.80P(2)(a)(iii), but restore the matter to the file of the A.O for the limited purpose of restricting the said claim of deduction to the extent of the profit relatable to the marketing of the agricultural produce of the members of the assessee society. In the course of the set-aside proceedings the AO shall re-adjudicate the assessee’s claim for deduction under Sec. 80P(2)(a)(iii) i.e. after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by its members, and thus, restrict it’s claim for deduction u/s. 80P(2)(a)(iii) only to the extent of the profit relatable thereto. Needless to say, the assessee shall in the course of the set-aside proceedings furnish the requisite details/documents that are called for by the A.O. Thus, the Ground of appeal No.1 (ii) raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations.
36. Respectfully following the aforesaid observation of the ITAT in ITA No.126/RPR/2017 & Others (supra), wherein, it was observed that the claim of the deduction would be limited to the extent, it had facilitated the marketing of agricultural produce of its members. Though, we agreed with the claim of the assessee that the assessee’s society is entitled for deduction of its income from paddy procurement business u/s.80P(2)(a)(iii) of the Act, but restore the matter to the file of the AO for limited purpose of restricting the said claim of deduction to the extent of the profit relatable to the marketing of agricultural produce of the members of the agricultural society. In the result, Ground No.3 of the appeal is partly allowed for statistical purposes.
Ground No.4
37. We shall now take up Ground No.4 of the assessee, wherein, the grievance of the assessee is that the surplus of PDS business amounting to Rs.17,480/- was held as ineligible deduction u/s.80P(2)(c)(ii) of the Act by both the revenue authorities.
38. For adjudication of this issue in Ground No.4, we have considered the written submissions of the assessee, on which the Ld.DR did not raise any objection.
39. Since the issue pertaining to deduction u/s.80P(2)(c)(ii) of the Act, is
also squarely covered by the order of the ITAT in ITA No.126/RPR/2017 & Others (supra), wherein the observation of the Tribunal are as under:
18. We have given a thoughtful consideration to the aforesaid issue in the backdrop of the contentions advanced by the ld. Authorised Representatives of both the parties. As stated by the ld. AR, and rightly so, the Tribunal in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors Vs. ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors., vide its order dated 23.02.2022 had after necessary deliberations on the issue in hand remanded the matter to the file of the A.O, with a specific direction i.e, to restrict its claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses, observing as under :
“19. Before us, it is the claim of the assessee that as the profit from PDS activities after considering the proportionate expenses amounted to Rs.3,08,338/-, therefore, its claim for deduction u/s.80P(2)(c)(i) of the Act was liable to be restricted only to the said extent. After having given a thoughtful consideration to the claim of the Ld. AR, we though principally concur with his aforesaid claim, but then, the same cannot be accepted on the very face of it and would require factual verification. Therefore, for the said limited purpose, we restore the matter to the file of the Assessing Officer for doing the needful. During the course of the set-aside proceedings, the Assessing Officer is directed to restrict the assessee’s claim for deduction as regards its profit from PDS only to the extent of its net profit, i.e., after considering the proportionate expenses. Needless to say, the assessee shall in the course of set-aside proceedings furnish the requisite details/documents as would be called for by the Assessing Officer. The Ground of appeal No.3 is allowed for statistical purposes in terms of our aforesaid observations.”
Considering our aforesaid observations in the order passed in ITA No.114/RPR/2016 & Ors, dated 23.02.2022, we on the same terms restore the matter to the file of the AO, with a direction to restrict the assessee’s claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses. Thus, the Ground of appeal No.1 (iv) is allowed for statistical purposes in terms of our aforesaid observations.
40. Since Ground No 4 of the present appeal is covered by the aforesaid
observations of the Tribunal in ITA No.126/RPR/2017 & Others (supra), we on the same terms restore the matter to the file of the AO, with a direction to restrict the assessee’s claim for deduction as regards its profit from PDS only to the extent of its net profit i.e., after considering the proportionate expenses. In the result, Ground No.4 is allowed for statistical purposes in terms of our aforesaid observations.
41. We shall now take up Ground No.5 of the assessee, wherein, the grievance of the assessee is that both the revenue authorities had erred in treating dividend income amounting to Rs.36,816/- as ineligible deduction u/s.80P(2)(d) of the Act.
42. For adjudication of this issue in Ground No.5, we have considered the written submissions of the assessee on which the Ld. DR did not raise any objection.
43. Since the issue pertaining to deduction u/s.80P(2)(d) of the Act, is also squarely covered by the order of the ITAT in ITA No.126/RPR/2017 & Others (supra), wherein the observation of the Tribunal are as under:
21. We have given a thoughtful consideration to the aforesaid issue in hand. Admittedly, in the case of Gramin Sewa Sahakari Samiti Maryadit & Ors. Vs. the ITO, Ward-1(3), Raipur in ITA No.114/RPR/2016 & Ors the Tribunal, had observed, that the dividend income received by a cooperative society on the shares of a co-operative bank held by it would be eligible for deduction under Sec. 80P(2)(d) of the Act. It was observed by the Tribunal as under:
“22. After having given a thoughtful consideration to the aforesaid issue in hand, we are unable to concur with the view taken by the lower authorities. In our considered view, as a Co-operative bank falls within the realm of the definition of “Co-operative Society” as contemplated in Section 2(19) of the Act, therefore, the view taken by the lower authorities that dividend income received by the assessee from Jila Sahakari Kendriya Bank, Raipur, i.e a Cooperative Bank, would not eligible for deduction u/s. 80P(2)(d) of the Act cannot be sustained. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd Vs. Principal Commissioner of Income Tax-26, ITA No. 3155/Mum/2019, dated 29.11.2019 (wherein one of us, i.e, the JM was a party), had after exhaustive deliberations held as under:
“6. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements relied upon by them. Our indulgence in the present appeal has been sought, for adjudicating, as to whether the claim of the assessee for deduction under section 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 deliberations, we are unable to persuade ourselves to be in agreement with the view taken by the Pr. CIT. Before proceeding any further, we may herein reproduce the relevant extract of the aforesaid statutory provision, viz. Sec. 80P(2)(d), as the same would have a strong bearing on the adjudication of the issue before us.
“80P(2)(d)
(1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in subsection
(2), in computing the total income of the assessee.
(a) The sums referred to in sub-section (1) shall be the following, namely
(b) ………………………………………………
(c)………………………………………………..
(d) 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;”
On a perusal of Sec. 80P(2)(d), it can safely be gathered that interest income derived by an assessee co-operative society from its investments held with any other cooperative society shall be deducted in computing its total income. We may herein observe, that what is relevant for claim of deduction under Sec. 80P(2)(d) is that the interest income should have been derived from the investments made by the assessee co-operative society with any other co-operative society. We are in agreement with the view taken by the Pr. CIT, that with the insertion of sub-section (4) of Sec. 80P, vide the Finance Act, 2006, with effect from 01.04.2007, the provisions of Sec. 80P would no more be applicable in relation to any cooperative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. However, at the same time, we are unable to subscribe to his view that the aforesaid amendment would jeopardise the claim of deduction of a co-operative society under Sec. 80P(2)(d) in respect of its interest income on investments/deposits parked with a co-operative bank. In our considered view, as long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other cooperative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available. We find that the term „cooperative society‟ had been defined under Sec. 2(19) of the Act, as under:-
“(19) “Co-operative society” means a cooperative society registered under the Cooperative 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 subsection (4) to Sec. 80P would no more be entitled for claim of deduction under Sec. 80P of the Act, but as a cooperative 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 the ld. A.R. We find that the issue that a co-operative society would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income derived from its investments held with a co-operative bank is covered in favour of the assessee in the following cases:
(i) Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum)
(ii) M/s C. Green Cooperative Housing and Society Ltd. Vs. ITO-21(3)(2), Mumbai (ITA No. 1343/Mum/2017, dated 31.03.2017
(iii) Marvwanjee Cama Park Cooperative Housing Society Ltd. Vs. ITORange-20(2)(2), Mumbai (ITA No. 6139/Mum/2014, dated 27.09.2017.
(iv). Kaliandas Udyog Bhavan Pemises Co-op. Society Ltd. Vs. ITO, 21(2)(1), Mumbai
We further find that the Hon’ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative 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), had held, that the interest income earned by the assessee on its investments with a cooperative bank would be eligible for claim of deduction under Sec. 80P(2)(d) of the Act. Still further, we find that the CBDT Circular No. 14, dated 28.12.2006, also makes it clear beyond any scope of doubt that the purpose behind enactment of sub-section (4) of Sec. 80P was that the cooperative banks which were functioning at par with other banks would no more be entitled for claim of deduction under Sec. 80P(4) of the Act. Insofar the reliance placed by the Pr. CIT on the judgment of the Hon’ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) is concerned, we are of the considered view that the same being distinguishable on facts had wrongly been relied upon by him. The adjudication by the Hon’ble Apex Court in the aforesaid case 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. Although, in all fairness, we may herein observe that the Hon’ble High Court of Karnataka in the case of Pr. CIT Vs. Totagars co-operative Sale Society (2017) 395 ITR 611 (Karn), had concluded that a co-operative society would not be entitled to claim of deduction under Sec. 80P(2)(d). At the same time, we find, that the Hon’ble High Court of Karnataka in the case of Pr. Commissioner of Income Tax and Anr. Vs. Totagars Cooperative 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), had 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. We find that as held 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 Cooperative 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 cooperative 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.
9. Be that as it may, in our considered view, as the A.O while framing the assessment had taken a possible view, and therein concluded that the assessee would be entitled for claim of deduction under Sec. 80P(2)(d) on the interest income earned on its investments/deposits with co-operative banks, therefore, the Pr. CIT was in error in exercising his revisional jurisdiction u/s 263 for dislodging the same. In fact, as observed by us hereinabove, the aforesaid view taken by the A.O at the time of framing of the assessment was clearly supported by the order of the jurisdictional Tribunal in the case of Land and Cooperative Housing Society Ltd. Vs. ITO (2017) 46 CCH 52 (Mum). Accordingly, finding no justification on the part of the Pr. CIT, who in exercise of his powers under Sec. 263, had dislodged the view that was taken by the A.O as regards the eligibility of the assessee towards claim of deduction under Sec. 80P(2)(d), we „set aside‟ his order and restore the order passed by the A.O under Sec. 143(3), date 14.09.2016.
10. Resultantly, the appeal filed by the assessee is allowed.”
Backed by our aforesaid observations, we not being able to persuade ourselves to subscribe to the view taken by the lower authorities, therein vacate the disallowance of the assessee’s claim for deduction of Rs.1,16,224/- u/s. 80P(2)(d) of the Act. The Ground of appeal No.4 is allowed in terms of the aforesaid observations.”
We find that as stated by the Ld. AR, and rightly so, as the aforesaid issue in hand i.e, entitlement of a co-operative society for claim of deduction under Sec. 80P(2)(d) qua the dividend received on shares of a co-operative bank is squarely covered by the aforesaid decision of the Tribunal in ITA No.114/RPR/2016 & Ors (supra), dated 23.02.2022, therefore, principally concurring with the claim of the ld. AR we herein vacate the disallowance of the assessee’s claim for deduction u/s 80P(2)(d) qua the dividend received on shares of a co-operative bank, viz. Jila Sahakari Bank. Thus, the Ground of appeal No.1(v) raised in appeal by the assessee is allowed in terms of our aforesaid observations.
44. Respectfully following the aforesaid observation of the ITAT in ITA No.126/RPR/2017 & Others (supra), wherein, it was observed that the entitlement of cooperative society for claiming deduction u/s.80P(2)(d) of the Act, qua the dividend received on shares of cooperative banks is eligible for deduction u/s 80P(2)(d), which is squarely covered by the aforesaid decision, therefore, principally concurring with the claim of assessee i.e. disallowance made by the AO sustained by the Ld.CIT(A) stands vacated. In the result, Ground No.5 of the assessee is allowed.
45. In the result, appeal filed by the assessee in ITA No.111/RPR/2022 is partly allowed for statistical purposes.
46. Now, we shall be taking ITA Nos.112, 113, 116 & 117/RPR/2022, which are also barred by limitation as pointed out by the Registry, however, we condone the delay in all these appeals being the reason of delay was similar in nature in ITA No.108/RPR/2022 and affidavits for the same were also furnished by the assessee.
47. On merits, as the facts and issues involved in the captioned appeals are the same as were there before us in ITA Nos.111/RPR/2022 for the AY 2011-12 in the case of M/s. Gramin Sewa Sahakari Samiti Maryadit, Bitkuli Village. Therefore, our order passed therein while disposing of the said appeal, shall mutatis-mutandis apply for disposing of the captioned appeals in ITA No.112, 113, 116 & 117/RPR/2022.
48. In the result, appeals filed by the assessee in ITA Nos.112, 113, 116 & 117/RPR/2022, are also partly allowed for statistical purpose as per our observations hereinabove.
49. In combined result, appeals filed by the assessee in ITA No.108/RPR/2022, ITA Nos.109 & 110/RPR/2022, ITA Nos.111, 112 & 113/RPR/2022, ITA No.116/RPR/2022, ITA No.117/RPR/2022, ITA No.118/RPR/2022, ITA No.125/RPR/2022 & ITA No.126/RPR/2022 are partly allowed for statistical purpose in terms of our aforesaid observations hereinabove.
Order pronounced on the 16th day of August 2023, in Raipur.
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