Income Tax Appellate Tribunal - Ahmedabad
The Peoples Co.Op. Credit Society ... vs The Acit, B.K.Circle,, Palanpur on 23 March, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "C" BENCH AHMEDABAD
BEFORE, SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER
AND SHRI S. S. GODARA, JUDICIAL MEMBER
ITA No. 1891/Ahd/2014 & 2987/Ahd/2015
(Assessment Years : 2011-12 & 2012-13)
The Peoples Co-operative Credit
Society Ltd., Ground Floor, Risala
Chowk, Fire Fighter Building,
AT. Deesa-385 535, Dist. Banaskantha Appellant
Vs.
ACIT, B. K. Circle,
C/o. Income Tax Office, 2nd Floor,
Shri. Hari Complex, Abu Highway,
Palanpur - 385 001 Respondent
PAN: AAAAT1739J
&
ITA No. 1090 & 1582/Ahd/2015
(Assessment Year : 2011-12)
M/s. Banaskantha Dist. Co-operative
Milk Producers Union Ltd., Banas Dairy
Palanpur, Banaskantha 385001 Appellant/Respondent
Vs.
ACIT,
B. K. Circle, Palanpur Respondent/Appellant
PAN: AAAAB0575E
ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit
Society Ltd. & Another ] -2-
आवेदक क ओर से / By Assessee : Shri M. K. Patel & Shri S.H. Talati, A.R.
राज
व क ओर से / By Revenue : Shri Prasoon Kabra, Sr. D.R. & Smt.
Aparna Agarwal, CIT.D.R.
सन
ु वाई क तार ख/Date of Hearing : 19.03.2018
घोषणा क तार ख/Date of
Pronouncement : 23.03.2018
ORDER
PER S. S. GODARA, JUDICIAL MEMBER
This batch of four appeals pertains to two different assessees namely the Peoples Co-operative Credit Society Ltd. and M/s. Banaskantha Dist. Co-operative Milk Producers Union Ltd. Former assessee has filed its two appeals ITA Nos. 1891/Ahd/2014 & ITA No.2987/Ahd/2015 for assessment years 2011-12 & 2012- 13 against the CIT(A)-XX & CIT(A)-IV, Ahmedabad's orders dated 07.05.2014 & 03.08.2015 in case nos. CIT(A)-XX/242/13-14 & CIT(A)-4/381/ACIT/BK Cir/PLNPR/14-15; respectively.
Latter assessee and Revenue have filed their cross appeals ITA Nos. 1090 & 1582/Ahd/2015 for assessment year 2011-12 against the CIT(A)-4, Ahmedabad's order dated 30.03.2015 in case no. CIT(A)-4/298/ACIT/B.K/14-15. Relevant proceedings in all cases are u/s. 143(3) of the Income Tax Act, 1961; in short "the Act".
2. We heard these four cases on 19.03.2018. Learned representatives appearing on behalf of these two assessees as well as the Revenue are ad idem that the tax payers' appeal herein raise a common issue of Section 80P deduction qua respective sums in the nature of interest income derived from parking of surplus funds in the payer/co-operative banks in question. We thus treat former assessee's first appeal ITA No. 1891/Ahd/2014 for assessment year 2011-12 as the "lead" case raising following substantive grounds:
"1) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in directing the AO to verify whether any interest was received by the appellant on ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -3-
short term deposits and Government Securities which is not permitted u/s. 251(1) of the I.T.Act, 1961.
2) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not allowing the deduction directly u/s. 80P(2)(a)(i) of the I.T.Act, 1961 amounting of Rs. 6,65,683=00 and erred in not properly appreciating the explanation and submission of the appellant.
3) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not allowing the deduction u/s. 80P(2)(d) of the I.T.Act, 1961 amounting to Rs. 27,97,019=00 and erred in not properly appreciating the explanation and submission of the appellant.
4) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in not appreciating the fact, that the provisions of section 80P(4) being not applicable, considering the facts of the case of the appellant, and as such erred in not granting the deduction u/s. 80P(2)(a)(i) and u/s. 80P(2)(d) as claimed and also in not properly appreciating the judgement of Hon'ble Guj. High Court given in the case of CIT Gandhinagar v. Jafri Momin Vikas Co-operative Credit Society Ltd passed vide order dated 15/01/2014.
5) The ld. Commissioner of Income Tax (Appeals) - XX, Ahmedabad has erred in stating that Banas Bank is not a co-operative society without cringing any corroborative evidence on record and failed to appreciate the fact that status of co- operative bank is co-operative society and as such deduction u/s. 80P(2)(d) is admissible in the case of the appellant.
6) It is therefore, prayed that the order of the ld. Commissioner of Income-Tax (Appeals)-XX, Ahmedabad may be set-aside and the return of income of the appellant be accepted."
3. Mr. Patel submits first of all that he is not pressing for assessee's 1st , 4th to 7th substantive grounds being general in nature. He then invites our attention to assessee's second substantive ground challenging correctness of both the lower authorities' action disallowing / adding Section 80P(2)(a)(i) deduction of Rs.6,65,683/- out of its total claim of Rs.34,62,700/-. The CIT(A) quotes hon'ble apex court's decision in Totagars Co-operative Sale Society Ltd. vs. ITO (2010) 322 ITR 283 (SC) in directing the Assessing Officer to verify as to whether the assessee has received any income from short term deposits and government securities. He makes it clear that the assessing authority shall treat the corresponding income under the head "income from other sources" in case the final outcome of the former direction is in affirmative. Learned counsel representing assessee fails to pinpoint any distinction on facts or law therein. We thus find no ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -4- reason to interfere with learned CIT(A)'s directions under challenge. This second substantive ground is therefore declined.
4. We now advert to the lead issue of Section 80(P)(2) disallowance of Rs.27,97,019/- in respect of assessee's interest income derived from its deposits with the Banas Co-operative Bank. Both the lower authorities quote the legislative amendment vide Finance Act, 2006 w.e.f. 01.04.2007 inserting subsection 4 in Section 80P as well as CBDT's explanatory notes to the above Finance Act dated 28.122006 in holding that the impugned interest income derived from co-operative bank is not eligible for deduction. Learned Departmental Representative vehemently contends that hon'ble Karnataka high court's recent decision in (2017) 83 taxmann.com 140 (Karnataka) PCIT vs. Totagars Co-operative Sale Society has settled the law that such an income is not allowable as Section 80P deduction in view of the legislative amendment hereinabove. Mr. Kabra thereafter files hon'ble apex court's judgment in (2017) 397 ITR 1 (SC). The Citizen Co-operative Society Ltd. vs. ACIT settling Section 80P deduction issue in respect of ordinary and nominal members. We however find that the above former decision goes contrary to hon'ble jurisdictional high court's judgment in Tax Appeal No. 473 of 2014 CIT vs. Sabarkantha District Cooperative Milk Producers Union Ltd. declining Revenue's identical question of law challenging tribunal's decision allowing Section 80P deduction in respect of interest earned on fixed deposits with a cooperative bank in assessment year 2009-10 i.e. post Section 80P(4) amendment w.e.f. 01.04.2007. Their lordships' reasoning to this effect reads as under:
"4.0. Now, so far as proposed question no. B i.e. whether the Appellate Tribunal has substantially erred in upholding the order of the CIT(A) in deleting the disallowances of Rs.1,42,19,5157- under Section 80(P)(2)(d) of the Act is concerned, it is required to be noted that the assessee claimed deduction under Section 80(P)(2)(d) of the Act on the interest earned on the fixed deposit with Cooperative Bank and the Societies and it has been found that as such the income was received from the investment in Cooperative Societies and Cooperative Bank. Considering Section 80(P)(2)(d) of the Act when the only requirement was that the income should be received from investment in Cooperative Societies and the Cooperative Bank which in the present case has been fulfilled, it cannot be said that the learned Tribunal has committed any error in deleting disallowance of Rs.1,42,19,515/- under section 80(P)(2)(d) of the Act. We are in complete ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -5- agreement with the view taken by the learned Tribunal. Under the circumstances, proposed question B is also answered against the revenue."
We therefore follow hon'ble jurisdictional high court's judgment than hon'ble Karnataka high court's decision. Coming to hon'ble apex court's decision in the Citizen Co-operative Society Ltd. (supra), we find that there is no dispute about the category of members as it was before their lordships. We thus conclude in view of all these facts and circumstances that hon'ble jurisdictional high court's judgment is binding on us. We accordingly delete the impugned disallowance of Rs.27,97,019/- in question. This lead appeal ITA No. 1891/Ahd/2014 is partly accepted.
5. Former assessee's remaining appeal ITA No. 2987/Ahd/2015 also raises assessee's sole substantive ground of disallowance of 80P deduction of Rs.13,53,864/- qua interest income derived from the cooperative bank in question. We follow our preceding reasoning to hold that the assessee is entitled for the impugned deduction. This latter appeal ITA No. 2987/Ahd/2015 is therefore accepted.
6. We now advert to cross appeals pertaining to latter assessee M/s. Banaskantha Dist. Cooperative Milk Producers Union Ltd. Both the parties are ad idem that assessee's sole substantive grievance herein challenges the correctness of both the lower authorities' action disallowing Section 80P deduction of Rs.7,19,41,260/- on the same reasoning that it is in the nature of interest income derived from cooperative banks. Learned counsel seeks to draw a distinction that the amount of Rs.1,39,11,275/- is in the nature of dividend received from various cooperative societies. We observe that this issue is rendered academic since we have already decided the issue of allowability of Section 80P deduction in principle against the Revenue hereinabove. The assessee's instant appeal ITA No.1090/Ahd/2015 thus succeeds accordingly.
7. We now advert to the Revenue's cross appeal ITA No. 1582/Ahd/2015. Its sole substantive ground is that the CIT(A) has erred in law as well as on facts in ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -6- reversing Assessing Officer's action making Section 14A disallowance of Rs.3,91,35,065/- in relation to the above dividend income with the following detailed discussion:
"5. The second and the third ground of appeal relates to addition of Rs.3,91,35,065/-made by the AO u/s 14A of the Act. The AO noted that appellant has deducted interest of Rs.43,53,44,446/-. The AO asked the appellant to explain why disallowance should not be made u/s 14A as appellant was paying interest on funds which were utilized for earning income claimed as exempted u/s 80P & 80IB. The appellant explained that the interest payment was made for working capital facility availed for day to day operational purpose and borrowed funds were exclusively used for purpose of milk payment and day to day working capital requirements only. There was no deviation in usage of loans from the purposes for which the loans were taken and no borrowed funds were used for making the investment. The above explanation was no accepted by the AO who noted that appellant, on one hand, borrowed funds for working capital and on the other hand made investments and earned dividend which was not forming part of the total income. Accordingly, the AO calculated disallowance u/s 14A as per Rule 8D of the Income Tax Rules amounting to Rs.3,91,35,065/-. However, no separate addition was made by the AO of this amount as it was treated as merged with the disallowance made u/s 80P(2)(d). The AO has held that if at any stage deduction u/s 80P(2)(d) is found allowable, disallowance of Rs.3,91,35,065/- made u/s 14A would come to effect.
5.1 The relevant part of the submission furnished by the appellant is reproduced as below :
"The second ground of appeal is with regard to an addition of Rs. 3,91,35,067/- u/s. 14A of the Income Tax Act. However the A.O. has stated in Para 3.2 of the order "
but as deduction claimed u/s 80P(2) has already been disallowed, this disallowance u/s 14A will be treated as merged with the disallowance u/s 80P2(d) and will become effective only if deduction claimed u/s 80P(2)(d) is found allowable at later stage. The Ld. A.O. has made an addition invoking the provision of Section 14A of the Act read with Rule 8D stating in Para 3.3. of the order " the assessee has on one hand borrowed funds for working capital during the year and on other hand made investments and is earning dividend which is not part of total income. Thus Section 14A is squarely applicable. "During the course of assessment, the appellant has submitted the complete details regarding the interest expenses was given and also the purpose and application of such interest bearing funds was provided to the AO. The Society had been investing the surplus funds in fixed deposits and shares of cooperative societies since long and out of its own funds only. During the year under consideration AO did not found any material on the record which proves that the borrowed funds were used for the purpose of making investment in deposits and shares of Cooperative Societies. The Ld. A.O. has clearly failed to prove the nexus between the borrowed funds and use of borrowed funds for the investment in Co. Operative Society. On other side the Assessee had clearly showed the nexus of funds used in investments in deposits and shares of Co. Operative Societies by clearly showing the source of funds for investment in Deposits and shares of ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -7- Cooperative societies is funds received from Federation for sale of milk bill on various dates.
Though the application of Rule 8D is not applicable unless the nexus has been proved that the borrowed funds being used for earning exempt income or income not being part of total taxable income. The Ld. AO has invoked Sec. 14A read with Rule 8D incorrectly and calculated the amount of disallowance. It is submitted that the Appellant has huge own funds out of which the investment has been made during the year as well in all earlier years. It can be seen from the Copies of Audited account for the A.Y. 2011-12 along with Statement ( Investment Chart) enclosed on Page 59 to 63 showing the huge Interest free funds available with Appellant Since A.Y. 2002-03 till the date and out of which only 15% funds have been used for making the investment reflected in B/s as on 31/03/2011.
Secondly, the appellant has to submit that provisions of section 14A are just not applicable inasmuch as on the preposition that provision of Section 14A have no application to the interest and dividend income claimed to be deductible under Chapter VIA of the Act, we rely on the decision of Hon'ble IT AT Chennai in the case of Tamil Nadu Silk Producers Federation Ltd. reported at 105 ITD 623 wherein it was held as " The provisions of section 14A cannot be applied to the provisions of Chapter VI-A (sections 80A to SOU) where deductions are to be made in computing the total income and in no way that can be compared with the exempted income which does not form part of the total income as provided, in Chapter III, containing sections 10 to 13 A. The right to exemption in respect of the items listed under sections 10 to 13A is absolute. The Provisions of section 14A were introduced retrospectively with effect from 1-4-1962 by the Finance Act, 2001 for the purpose of computing the total income under Chapter IV and no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such exempted income. But the provisions of section 14A do not speak about the deductions to be made in computing the total income as per the provisions of Chapter VI-A (section 80A to 80U), even though, as a result of such deductions, the taxable income is reduced wholly and partially. "
In any event in the appellant's own case in the Asst. Year 2008-09 Hon'ble I.T.A.T. Bench A, Ahmedabad in IT A No. 2630/Ahd72011 had clearly held as under :
"Respectfully following this decision as also considering the totality of the facts and circumstances of the case, we are of the considered opinion that learned CIT(A) has rightly held that the provisions of Section 14A have wrongly been invoked in this case. In the result, we hereby affirmed the finding of learned CIT(A) and dismiss this ground of the Revenue."
Further the CIT (A) has also decided the matter in favor of the assessee in all earlier years including A.Y.2009-10 as well as A.Y.2010-11 and deleted the disallowance by Ld . A.O. The copies of order passed by Hon'ble IT AT in assesse's own case for A.Y.2008-09 and by Hon'ble CIT(A) in A.Y.2009-10 & 2010-11 are enclosed herewith as per Page No 64 to 71, 71 to 92 & 93 to 118 for your verification. The Appellant also relies on the decision of Hon'ble Gujarat in case of CIT Vs. Torrent Power Ltd. , wherein it is clearly held that " Where it was apparent from records that assessee had sufficient funds for making investments in shares and interest free bonds and it had not used borrowed funds for such purpose, ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -8- Assessing Officer was not justified in invoking provisions of section 14A in order to disallow one per cent of interest expenses incurred for earning exempt income "
The copy of decision is also enclosed herewith as per Page No. 119 to 120 for your verification.
In view of the above submission as well as the matter is fully covered in favor of appellant's in its own case as well as in other cases, the addition made u7s. 14A of Rs. 3,91,35,065/-should not be confirmed and the same be deleted."
5.2 I have considered the facts as reported in the assessment order and the submissions filed by the appellant.
5.2.1 The AO has made the disallowance of the interest and expenses Invoking the provisions of section 14A of the Act amounting to Rs.3,91,35,065/-. The AO concluded that the appellant had received interest and dividend of Rs.7,19,41,260/- and those incomes have been claimed as deduction u/s.80P(2)(d) of the Act. On the other side, the appellant had the interest expenses of Rs.42,53,44,446/-. So, AO was of the view the interest bearing funds have been utilized for the purpose to earn the exempted income. In the table, at page No.7 of assessment order the working of the disallowance u/s14A has been made. It has been found that the AO has taken the figure of share investment, of Rs.8,17,57,000/- and the deposits with BDCC Bank at Rs. 1,31,00,00,000/- and the average investments were worked at Rs.84,79,62,26 /- for working out the disallowance in the formula provided under Rule-8D of I.T. Rules.
5.2.2 The appellant submitted that no investments during the year under consideration in share have been made and the entire share investment of Rs.8,17,57,000/- was very old as is apparent from the balance sheets and the decision of the Hon'ble ITAT, Ahmedabad in appellant's own case in ITA No.2630/Ahd/2011 and 182/Ahd/273 for A.Y. 2008-09. So, the same investment was also in A.Y. 2008-09 and thereafter no new investment till end of the year under consideration have been made. The appellant also contended that on the similar facts, the Hon'ble ITAT in A.Y. 2008-09 has observed that the appellant had the share capital of Rs.37,05,88,000/- and the reserves and other funds at Rs.20,43,06,246/- totaling to Rs.57,48,94,246/- while the investments out of them were only at Rs.8,17,57,010/-. So, the interest free funds were much higher than the investment in shares. Considering the availability of interest free funds available and the decision of the Hon'ble ITAT, Chennai Bench in the case of Tamilnadu Silk Producers Federations Ltd. the disallowance made by the A.O. under section 14A was deleted in A.Y. 2008-09 by the Hon'ble ITAT in appellants own case.
8. We have heard rival contentions. Case file perused. Learned counsel representing assessee urges us to adopt judicial consistency as this tribunal has decided the very issue against the Revenue in preceding assessment years. Learned Departmental Representative first of all quotes hon'ble Punjab & Haryana high court's judgment (2016) 67 taxmann.com 27 (Punjab & Haryana) Punjab State Cooperative Milk Producers Federation Ltd. vs. CIT deciding the issue in ITA No. 1891/Ahd/14 & 3 Ors. [The Peoples Co-Op. Credit Society Ltd. & Another ] -9- Revenue's favour that Section 14A disallowance provision is applicable even to income claimed as deduction u/s.80P(2)(d) of the Act. Mr. Kabra then cites hon'ble apex court's latest judgment in Maxopp Investment Ltd. vs. CIT in Civil Appeal Nos. 104-109 of 2015 settling the law that the impugned disallowance has to be made in case an assessee has derived any exempt income regardless of its purpose test. We thus accept Revenue's instant substantive ground in principle and direct the Assessing Officer to frame consequential computation as per law after affording adequate opportunity of hearing to the assessee. Revenue's instant sole substantive ground and main appeal ITA No. 1582/Ahd/2015 is accepted for statistical purposes.
9. We quote our above detailed discussion to partly allow former assessee's appeal ITA Nos. 1891/Ahd/2014 and allow its appeal ITA No.2987/Ahd/2015 & latter assessee's appeal ITA No.1090/Ahd/2015. Revenue's appeal ITA No.1582/Ahd/2015 in case of latter assessee is allowed for statistical purposes.
[Pronounced in the open Court on this the 23rd day of March, 2018.] Sd/- Sd/-
(N. K. BILLAIYA) (S. S. GODARA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad: Dated 23/03/2018
True Copy
S.K.SINHA
आदे श क त ल
प अ े
षत / Copy of Order Forwarded to:-
1. राज
व / Revenue
2. आवेदक / Assessee
3. संबं धत आयकर आयु!त / Concerned CIT
4. आयकर आयु!त- अपील / CIT (A)
5. )वभागीय ,-त-न ध, आयकर अपील य अ धकरण, अहमदाबाद /
DR, ITAT, Ahmedabad
6. गाड3 फाइल / Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण, अहमदाबाद ।