Income Tax Appellate Tribunal - Ahmedabad
Bardoli Vibhag Gram Vikas Co.Op.Credit ... vs Department Of Income Tax on 3 January, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH " D "
Before Shri MUKUL Kr. SHRAWAT, JUDICIAL MEMBER and
Shri N.S. SAINI, ACCOUNTANT MEMBER
Date of hearing : 15/12/2010 drafted on: 03/01/2011
1. ITA No.2985/AHD/2008 - A.Y. 2005-06
2. ITA No.3129/AHD/2008 - A.Y. 2005-06
1. Income Tax Officer Vs. 1. Bardoli Vibhag Gram
Ward-6(1), Surat Vikas Coop.Credit Soc.
Ltd.
Sardar Baug, Bardoli
Dist.Surat
2. Bardoli Vibhag 2. Income Tax Officer
Gram Vikas Coop Ward-6(1) Surat
Credit Soc Ltd.,
Bardoli, Dist. Surat
PAN/GIR No. : AAATB 8135 B
(APPELLANTS) .. (RESPONDENTS)
Assessee by : Shri M.K. Patel, A.R.
Revenue by : Shri U.B. Mishra, D.R.
ORDER
PER SHRI MUKUL Kr. SHRAWAT, JUDICIAL MEMBER :
For Assessment Year 2005-06, these are cross appeals by the Revenue as well as by the Assessee arising from the order of CIT(A)-IV, Surat dated 20/06/2008. Both these appeals have been heard together and hereby decided through this common order.
(A) Revenue's appeal ; ITA No.2985/Ahd/2008
2. The following grounds have been raised by the Revenue in its appeal:
ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee)ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -2- [1] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-IV, Surat has erred in restricting the addition of Rs.94,53,213/- to Rs.11,63,444/- made by the Assessing Officer on account of deduction u/s.80P(2).
[2] On the facts and in the circumstances of the case and in Law, the Ld. CIT(A)-IV, Surat ought to have upheld the order of the Assessing Officer.
2.1. The assessee is a Co-operative Credit Society engaged in the banking activity. As per the return, a deduction u/s.80P of the I.T.Act of Rs.5,85,94,515/- was claimed. The bifurcation of the same was as follows:-
"interest received from the co-op.bank 3,71,91,552/- Dividend received from the co-op.bank 90,375/-
Interest on loan and advances to members
u/s.80P(2)(a)(i) 2,12,62,588/-
Basic deduction u/s.80P(2)(c) 50,000/-
----------------
5,85,94,515/-"
2.2. On the basis of above calculation, the Assessing Officer has raised an objection that why the deduction u/s.80P of the I.T.Act was claimed on gross amount. The Assessing Officer has also discussed the provisions of section 80B(5) of the I.T.Act so as to inform the definition of "gross total income" to the assessee. Thereafter, he has mentioned that the "gross total income" before allowing the claim of deduction u/s.80P, was only at Rs.1,11,99,966/- which could be taken into account for the computation of net income of the assessee. An another calculation has thereafter been made by the Assessing Officer according ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee) ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -3- to which the total receipts which according to Assessing Officer were admissible for deduction u/s.80P were amounted to Rs.3,71,91,552/-. This income was stated to be income derived from co-operative banking or out of the loans given to the members, etc. Against that income, the Assessing Officer has allowed the expenditure to the tune of Rs.4,91,47,302/- as against the claimed expenditure of the assessee at Rs.5,57,54,113/-. The Assessing Officer has mentioned that the expenditure of Rs.67,92,105/- pertaining to building fund, relief expenses, Utkarsh fund, etc. were already added back by the assessee itself and further there was an amount of depreciation of Rs.1,85,294/-, therefore, without allowing this expenditure, the net amount of Rs.4,91,47,302/- was deducted to arrive at the net figure of eligible profit u/s.80P of Rs.93,97,213/-. For ready reference, relevant paragraph is reproduced below:-
"3.5. On perusal of the balance sheet it is noticed that the entire amount of the deposits/funds are invested either in the co- operative banks in the form of deposits/shares or given loan to the members. The interest income/dividend income from such investment claimed as deduction and hence entire expenses claimed in the return of income and in profit and loss account are wholly and exclusively related for earning the specific income. In the Profit and loss account the assessee has claimed total expenses of Rs.5,57,54,113/- out of which the expenses to the tune of Rs.67,92,105/- are not allowable and shown by the assessee in the computation of income and after considering allowable current depreciation of Rs.1,85,295/- the total expenses of Rs.4,91,47,302/- are wholly and exclusively related for earning the specific income. As such, the expenses are deductible to arrive at the eligible amount of deduction u/s.80P of the Act. It is therefore the eligible deduction u/s.80P of the Act is recalculated hereunder:ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee)
ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -4- Eligible receipt for deduction u/s.80P Interest received from the co-op.bank 3,71,91,552/-
Dividend received from the co-op.bank 90,375/-
Interest on loan and advances to members
u/s.80P(2) (a)(i) 2,12,62,588/-
-----------------
5,85,44,515/-
Less : Expenses wholly and
Exclusively pertains for
Earning the above mentioned income
Provided in the section 80B(5) and
Discussed above 4,91,47,302/-
Eligible profit for deduction u/s.80P 93,97,213/-
Calculation of deduction u/s.80P
100% of eligible income 93,97,213/-"
========
2. 3. The result of the above two calculation was that as against the claim of deduction u/s.80P of Rs.1,11,99,966/-, the Assessing Officer has allowed the deduction only of Rs.93,97,213/-, therefore, the balance of Rs.17,46,753/- was assessed in the hands of the assessee as per the following calculation:-ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee)
ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -5- "Gross total income before allowing deduction under chapter VI As per return of income Rs.1,11,99,966/-
Less i) Deduction u/s.80 G 50% of (11,000 + 1,01,000) Rs. 56,000/-
ii) Deduction u/s.80P as discussed above Rs.93,97,213/- Rs.94,53,213/-
------------------ -----------------
Total income Rs.17,46,753/-"
Being aggrieved matter was carried before the first appellate authority.
3. The Learned CIT(Appeals) has not addressed the entire issue in its totality and confined himself to the issue in respect of claim of deduction pertaining to income-tax re-fund and the income under the head "Other Income" of Rs.5,32,624/-. The total of the two, i.e. Rs.11,63,444/- was considered as not eligible for the deduction u/s.80P of the I.T.Act and in place of Rs.17,46,753/- as assessed by the Assessing Officer, Learned CIT(Appeals) has restricted the same to Rs.11,63,444/- as per the following paragraph:-
"It is seen that the income received as interest from IT refunds at Rs.6,30,820/- and other income of Rs.5,32,624/- do not fall under any of the above activities and therefore become taxable which has not been done by the appellant due to incorrect computation of deduction, i.e. claiming the entire receipts and not the profit and gains of such business. However, I am also not inclined to agree with the AO regarding application of section 14A of the Act.ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee)
ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -6- Further, the interest received from members is also eligible for deduction u/s.80P(2) of the IT Act. The net interest received is exempt u/s.80P(2)(a) of the IT Act and provisions of section-14A of the Act are not applicable in respect of such income. Therefore, the deduction u/s.80P of the IT Act will be restricted to only the eligible income, i.e. interest on Banking activity and the balance amount is not eligible for deduction u/s.80P(2) of the IT Act. Therefore, the total addition to the income of the appellant is directed to be restricted to Rs.11,63,444/- (Rs.630820/- + Rs.532624/-). The AO shall also allow statutory deduction u/s.80P of the IT Act as per law out of this amount."
4. With this brief background, we have heard both the sides. As far as ground in question is concerned, that the Learned CIT(Appeals) has erred in restricting the addition from Rs.94,53,213/- to Rs.11,63,444/-, we are of the firm view that the ground has wrongly been raised and not in accordance with the facts of the case. The verdict of the Learned CIT(Appeals) has not been correctly understood while raising this ground. In fact, the Learned CIT(Appeals) has held, as noted above, that the two resources of income; i.e. "Income-tax Refund" of Rs.6,30,820/- and the income under the head "Other Income" of Rs.5,32,624/- totalling to Rs.11,63,444/- were not admissible for deduction u/s.80P(2) of the I.T.Act. The ground which is very much general in nature without specifying the defect in the order of Learned CIT(Appeals) therefore has no substance. The two additions which were affirmed by the Learned CIT(Appeals) are as follows:-
ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee)ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06
-7-
(i) Interest of Refund Rs. 6,30,820/-
(ii) "Other Income" Rs. 5,32,624/-
T o t a l .... Rs.11,63,444/-
These two additions have been contested by the assessee which shall be dealt with in the following paragraph.
5. As far as the question of reducing the addition from Rs.94,53,213/- to Rs.11,63,444/-, it is apparent from the above calculation that the Assessing Officer has never made an addition of rs.94,53,213/- but he has assessed the income at Rs.17,46,753/-. By this calculation itself, the ground is misplaced and deserves to be dismissed. As far as the question of assessee's claim of 80P of the I.T.Act on the "gross total income" is concerned, the same shall also be dealt with in the following paragraph while deciding the assessee's appeal, therefore, in effect, that result shall automatically cover the total income as assessed by the Assessing Officer. In the result, we dismiss the ground of the Revenue.
(B) Assessee's Appeal; i.e. ITA No.3129/Ahd/2008
6. Ground No.1 reads as under:
(1) That the learned Commissioner of Income-tax (Appeals) has grievously erred in law and on facts in holding that the deduction u/s.80P(2)(a) of the Act is allowable only on the net income and not on the gross income of the assessee.
6.1. In the light of the above discussion, we have noticed that the assessee has claimed a deduction u/s.80P on the "gross total income" of ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee) ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -8- Rs.5,85,94,515/-. This claim has to be rejected because as per the provisions of deduction u/s.80P of the I.T.Act where an assessee being a Co-operative Society has the "gross total income" which include income from Co-operative Banking, Cottage Industry, Marketing Agricultural Produce, etc., then such an income shall be deducted therefrom. Meaning thereby out of the "gross total income", the assessee is entitled for the deduction only in respect of such income which are defined in sub-section(2) of section 80P of the I.T.Act. As far as the definition of "Gross Total Income" is concerned, as per section 80B(5) means the total income computed in accordance with the provisions of this Act before making any deduction under Chapter VI-A of the I.T.Act. In view of this definition, the Assessing Officer has rightly held that the assessee has wrongly claimed the deduction u/s.80P of the I.T.Act on the "gross total income". The Assessing Officer was right in holding that a Co-operative Society is entitled for deduction u/s.80P of the I.T.Act only in respect of that income which qualifies u/s.80P(2) of the I.T.Act and not the entire 'gross total income" of the Society. In view of this, we hereby dismiss this ground of the assessee.
7. Ground No.2 reads as under:
(2) That the learned Commissioner of Income-tax (Appeals) has grievously erred in law and on facts in confirming the disallowance of deduction u/s.80P in respect of Income-tax refund of Rs.6,30,820/- and other income of Rs.5,32,624/-.
7.1. This ground of the assessee has raised two questions; one is in respect of claim of deduction u/s.80P of the I.T.Act pertaining to ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee) ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06 -9- "income-tax refund" and the other question is in respect of claim of deduction u/s.80P of the I.T.Act pertaining to "other income" of Rs.5,32,624/-, the details of which are as follows:-
(i) By Penalty Interest Rs.4,58,217.00
(ii) By Lockers Rent Rs.59,550.00
(iii) By Share Transfer Fee Rs.374.00
(iv) By Late Fee Rs.583.00
(v) By Insurance Refund Rs.8,900.00
(vi) By Rajdut Sale Profit Rs.5,000.00
7.2. First, we shall deal with the admissibility of claim of income-tax refund whether allowable u/s.80P of the I.T.Act or not. An argument was that tax at source was deducted which had a direct nexus with the banking business of the assessee. In support, the Learned Authorised Representative of the Assessee Mr.M.K.Patel has placed reliance on the decision of ITAT Ahmedabad Special Bench in the case of Surat District Co-operative Bank Ltd. & Ors vs. ITO & Ors. reported as [2003]85 ITD 01 (Ahd)[SB].
8. We have examined the facts of that precedent wherein it was held that interest on investments made by a Co-operative Bank in Government securities attributable to utilization of its funds from statutory reserves of Gujarat Co-operative Societies, and the interest income from investment made by way of mandatory minimum banking reserves as required by the relevant provisions of the Banking Regulation Act and income from hiring of sale Safe Deposit Vaults, are eligible for grant of deduction ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee) ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06
- 10 -
u/s.80P of the I.T.Act. At present we are not dealing any such source of income, hence this citation is not useful to the assessee.
8.1. Next was the question in respect of interest income on investments in Government Securities, FDs, KVP, IVP, UTI, etc. out of surplus or idle money available from working capital including voluntary reserves. All these are income attributable to the business of banking and, therefore, eligible for grant of deduction u/s.80P of the I.T.Act. However there is no such fact in this part of the ground which are related to such nature of funds hence the said case-law is not useful to the assessee.
8.2. There was one more issue which was settled by the Respected Special Bench of ITAT Ahmedabad in respect of surplus of interest tax collected by the Co-operative Banks and that was held as integral part of income attributable to banking activities and, therefore, held as qualified for deduction u/s.80P(2)(a)(i) of the I.T.Act. On careful reading of this judgement of Respected Special Bench a conclusion can be drawn that the sums as referred in section 80P(2) only qualify for the deduction u/s.80P(1) of the I.T.Act. The question of admissibility of income tax refund do not arise because there is no such mention that the assessee can be entitled for deduction of income-tax refund amount. The only argument is that the income-tax refund was connected with the business of banking or credit facilities provided to its members. But this argument is very far-fetched proposition. As per the settled position of law, no taxpayer is entitled for claim of deduction in respect of expenditure incurred towards payment of income-tax. Once an income-tax ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee) ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06
- 11 -
expenditure is not allowable as deduction in the computation of taxable income, then, the income-tax refund which had a nexus only with the collection of tax at source , therefore, in our considered opinion, very much beyond the scope of the provisions of section 80P(2) of the I.T.Act. We, therefore, hold that the Assessing Officer has rightly disallowed the claim. This part of the ground is consequently dismissed.
8.3. Next is the question of admissibility of "other income" as listed hereinabove. The receipts from locker rent, share transfer fee, Insurance re-fund, etc. can be held as admissible for deduction u/s.80P of the I.T.Act because these are already held by several Courts as eligible income for grant of deduction.
8.4. Now we are left with an amount of Rs.4,58,217/- in respect of penalty interest. The Assessing Officer as well as the Learned CIT(Appeals) have not examined the exact nature of the penalty which was imposed on the assessee and why the assessee has then earned interest thereon. In the absence of any such finding being not given by the authorities below, we deem it proper to restore this part of the ground back to the Assessing Officer so that he can investigate whether the interest on penalty had any nexus with the banking activity of the assessee.
8.5. Finally, we are left only with an amount of Rs.5,000/- earned on sale of Motor Cycle. We are of the view that the sale of Motor cycle may be connected with the assets of the Co-operative Society, but by no ITA No.2985/Ahd/2008 (By Revenue)& ITA No.3129/Ahd/2008(By Assessee) ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06
- 12 -
means sale of motor cycle can be said to be a business of banking carried on by the assessee. An employee of the Society might have been using the motor cycle but that use of motor cycle had no nexus with banking activity because banking activity is an activity which is connected with the deployment of funds and not the deployment of an employee. We, therefore, uphold the view taken by the lower authorities and confirm the disallowance. With the result this part of the ground is partly allowed.
9. In the result, appeal of the Revenue is dismissed, whereas appeal of the Assessee is partly allowed.
Order signed, dated and pronounced in the Court on 13/ 1 /2011.
Sd/- Sd/-
( N.S. SAINI ) ( MUKUL Kr. SHRAWAT )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 13 / 01 /2011
T.C. NAIR, Sr. PS
Copy of the Order forwarded to :
1. The Assessee.
2. The Department.
3. The CIT Concerned
4. The ld. CIT(Appeals)-IV, Surat
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स×याǒपत ूित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad
ITA No.2985/Ahd/2008 (By Revenue)&
ITA No.3129/Ahd/2008(By Assessee)
ITO vs. Bardoli Vibhag Gram Vikas Coop Credit Soc.Ltd.
Asst.Year - 2005-06
- 13 -
1. Date of dictation.......................03/01/2011
2. Date on which the typed draft is placed before the Dictating Member 05/01/2011.................. Other Member.....................
3. Date on which the approved draft comes to the Sr.P.S./P.S.................
4. Date on which the fair order is placed before the Dictating Member for pronouncement......
5. Date on which the fair order comes back to the Sr.P.S./P.S...................
6. Date on which the file goes to the Bench Clerk.................................
7. Date on which the file goes to the Head Clerk..................................
8. The date on which the file goes to the Assistant Registrar for signature on the order..........................
9. Date of Despatch of the Order..................