Income Tax Appellate Tribunal - Amritsar
The Nakodar Primary Cooperative Agri. ... vs The Income Tax Officer, Nakodar on 15 March, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
(CAMP AT JALANDHAR)
BEFORE SH. A.D.JAIN, JUDICIAL MEMBER AND
SH. T.S. KAPOOR, ACCOUNTANT MEMBER
I.T.A No.397 (Asr)/2016
Assessment Year: 2010-11
The Nakodar Primary Vs. ITO,
Co-operative Agricultural Nakodar.
Development Bank Ltd.,
Nurmahal Road, Nakodar.
PAN:AAAJT-0597M
(Appellant) (Respondent)
I.T.A No.398(Asr)/2016
Assessment Year: 2010-11
The Shahkot Primary Vs. ITO,
Cooperative Agricultural Nakodar.
Development Bank Ltd.
Nurmahal Road, Shahkot.
PAN:AAAJT-1980E
(Appellant) (Respondent)
Appellant by: Sh. Navendu Khanna (CA)
Respondent by: Smt. Balwinder Kaur (DR.)
Date of hearing: 24.01.2017
Date of pronouncement: 15.03.2017
ORDER
PER T. S. KAPOOR (AM):
These are two appeals filed by assessee against the separate orders of Ld. CIT(A), Jalandhar both dated 02.05.2016.2 ITA No.397 & 398(Asr)/2016
Asst. Year: 2010-11
2. The following grounds of appeal has been raised by assessee in these appeals.
In ITA No.397(Asr)/2016 "(i) The Ld. CIT(A) has wrongly confirmed the addition of Rs.2,98,552/- made by the AO.
(ii) The Ld. CIT(A) has wrongly treated NPA charge 'debited to Profit & Loss A/C as "income" and held the same as not eligible for deduction under section 80(P) whereas the same constitutes expenditure and not income.
(iii) The Ld. CIT(A) has wrongly held miscellaneous income and loan fees as income not earned from the business of providing credit facilities to members by the assessee and denied the deduction of the same under section 80(P).
(iv) The order is bad in law & on facts."
In ITA No.398(Asr)/2016 "(i) The Ld. CIT(A) has wrongly confirmed the addition of Rs.2,56,778/- made by the AO.
(ii) The Ld. CIT(A) has wrongly held written back of excess provisions of audit fees, miscellaneous income and loan fees as service charges received from members for arranging loans & not the income earned from the business of providing credit facilities to members by the assessee and derived the deduction of the same under section 80(P).
(iii) The appellant prays that the addition/disallowance of Rs.2,56,778/- made in respect of written back of excess provision of audit fees, miscellaneous income and loan fees as service charges he deleted.
(iv) The order is bad in law & on facts."
3. These appeals were heard together, therefore, for the sake of convenience a common and consolidated order is being passed.
4. The brief facts of the cases as noted in the assessment order are that assessee is a Co-operative Society engaged in the business of giving loans to its members by obtaining the funds from the Punjab State Co- operative Agricultural Bank Ltd. Chandigarh. The assessee filed its 3 ITA No.397 & 398(Asr)/2016 Asst. Year: 2010-11 return of income declaring income to be exempt u/s 80P of I.T. Act,1961. During assessment proceedings, the Assessing Officer observed that assessee had credited to its P&L Account, miscellaneous income, loan fee and NPA charges to the tune of Rs.2,98,252/- which the Assessing Officer held that the same were not relatable to the business of providing credit facilities to its members similarly misc. income, loan fee and audit fee reversal charges in ITA No.398(Asr)/2016 were held to be not relatable to business, and therefore, Assessing Officer disallowed the exemption to the extent of Rs.2,98,252 & Rs.2,56,778/-respectively for these two years.
5. Aggrieved with the orders, the assessee filed appeals before Ld. CIT(A), who dismissed the appeals of assessee by relying on earlier years order for Asst. Year 2008-09 and 2009-10, where the Ld. CIT(A) has held such incomes to be not relating to business.
6. Aggrieved the assessee is in appeal before us.
7. At the outset, the Ld. AR submitted that in ITA No.397(Asr)/2016, the Assessing Officer had disallowed a total amount of Rs.2,98,252/- out of which Rs.2,34,562/- was not an income and rather it was an expenditure in the form of NPA charge which was debited to P&L Account and in this respect our attention was invited to (PB-7) where a copy of 4 ITA No.397 & 398(Asr)/2016 Asst. Year: 2010-11 P&L Account showing expenditure on account of NPA charges was placed. Therefore, it was argued that authorities below has wrongly considered this item of expenditure as item of income whereas the facts remains that this was an expenditure.
8. As regards miscellaneous income and loan fee credited in the P&L Account, the Ld. AR submitted that the Miscellaneous income and loan fee are attributable to the source of providing credit facilities of its members and has direct nexus with its earning and was allowable as eligible income entitled for exemption u/s 80P of the Act. Reliance in this respect was placed on the following case laws.
ACIT vs. Shivkrupa Sehkari Patpedhi Ltd. 2014 (Mumbai Benches) Vollore Electric Corp. Ltd. vs. CIT 227 ITR CIT (SC). CIT vs. Anankaplli Co-operative Marketing Society Ltd. (AP) 254 ITR 616 The Rurkee Co-operative Agri. Multipurposes Society Ltd. vs. JCIT (OSD).
The Ld. AR submitted that Assessing Officer has wrongly relied on the judgment of Hon'ble Andhra Pradesh High Court in the case of CIT vs. Anakaplli Co-operative Marketing Society Ltd. 254 ITR 616, as in that case the Agricultural Co-operative Society was not engaged in the business of providing credit facilities to its members and therefore, it was held that service charges recovered from members for arranging loans from Banks was not eligible for deduction u/s 80P. 5 ITA No.397 & 398(Asr)/2016
Asst. Year: 2010-11 The Ld. AR further submitted that in the present cases, the assessee was directly engaged in the business of providing credit facilities to its members and therefore, this case law was not applicable and in this respect our attention was invited to the bye laws of the society, wherein the objects to be perused by the society were placed at (PB-48).
9. As regards the appeal in ITA No.398(Asr)/2016, the Ld. AR submitted that in this case the disallowance of Rs.2,56,778/- included miscellaneous income of Rs.1,21,268/- and loan fee charges of Rs.45,010/- and reversal of excess audit fee of Rs.90,500/-.
As regards the reversal of excess audit fee, the Ld. AR submitted that due to appointment of outside auditors from the practicing Chartered Accountants the excess audit fee provision was written back and therefore, the written back of excess audit fee is in fact no income of the society but it is a reversal of a provision.
10. The Ld. DR, on the other hand, heavily placed his reliance on the order of authorities below.
11. We have heard the rival parties and have gone through the material placed on record. We first take up appeal in ITA No.397(Asr)/2016. We find from the P&L Account placed at (PB 4 to 7) that NPA charge is not an item of income but it is an item of expenditure 6 ITA No.397 & 398(Asr)/2016 Asst. Year: 2010-11 which has been booked by assessee as expenditure as is apparent from the (PB-7) where a copy of P&L Account is placed. The NPA charges has been specifically mentioned under the expenditure head. We further observe from the same P&L Account at page 4 that assessee had declared NPA income at Rs.1,26,740/- and therefore, the authorities below has taken wrong figures. The NPA charge is both appearing in the P&L Account as an item of expenditure and also as an item of income. The net effect of these are that there is net expenditure on account of NPA charges and therefore as regards this item, we find since there was no net income on account of NPA charge, therefore, no disallowance was warranted. If the NPA charge was its net income even then the disallowance was not warranted as the assessee had explained to the Ld. CIT(A) vide written submissions that this charge is collected from the defaulters who had defaulted on repayments and Ld. CIT(A) has not rebutted the same. The charging of some charge to the defaulters in the case of Banking Company can not be said to be not relating to its business.
As regards miscellaneous income and loan fee, the assessee had submitted before Ld. CIT(A) that loan fee & misc. income is charged to the members for processing loan applications and it was a normal banking receipts and Ld. CIT(A) had not rebutted it. The assessee is engaged in providing credit facilities to its members which finding has been recorded by the authorities below in their respective orders also and 7 ITA No.397 & 398(Asr)/2016 Asst. Year: 2010-11 this fact is apparent from the object clause of the bye laws placed at (PB 47 to 48). Therefore, the processing charge charged to a borrower is definitely part of business receipts in the case of Banking Company. Reliance placed by Assessing Officer on the case laws in the case of CIT vs. Anakaplli Co-operative Marketing Society Ltd. (AP) 254 ITR 616 is misplaced as in that case the assessee was not engaged in the business of providing credit facilities to its members and service charges were recovered from members for arranging loans from banks and therefore, in that case the charges were held to be not relating to business of the assessee. The facts of that case are that assessee was engaged in the business of providing credit facilities to its member for obtaining fertilizers, food grains, controlled cloth, etc. The assessee in that case was also engaged in arranging loans through the State Bank of India whereas in the present case, the assessee itself is engaged in the business of providing credit facilities to its members and therefore, the loan fees and miscellaneous income earned by assessee is directly attributable to the business of assessee and is eligible for exemption u/s 80P(2)(a)(i) of the Act. The Hon'ble Andhra Pradesh High Court in the case of CIT vs. Anankaplli Co-operative Marketing Society Ltd.(supra), the case law which has been relied on by Assessing Officer has held that if the society is engaged in the business of providing credit facilities to its members and if that society makes any profit and gain out of business attributable to such an activity, then that income earned by the society by way of profit or gain qualifies for exemption under section u/s 8 ITA No.397 & 398(Asr)/2016 Asst. Year: 2010-11 80P(2)(a)(i) of the Act. The miscellaneous income and loan fee are for the facilities of providing credit facilities to the members of the society and has direct nexus with the earnings of the assessee. The Hon'ble High Court in the case of A.P Co-operative Central Land Mortage Bank Ltd. vs. CIT 100 ITR 472, (AP) has held that the expression 'facilities' used in the provisions is an inclusive term of wide import embracing anything which aids or makes easier the performance of a duty. The Full Bench of Punjab & Haryana High Court in the case Budhewal Co-Operative Sugar Mills Ltde. Vs. CIT 315 ITR 351 has held as under..
"Section 80P has been enacted with the object of promote cooperative movement and it has to be liberally construed. It was also held that a correct way of reading the different heads of exemption enumerated in the section would be to treat each as a separate and distinct head of exemption and whenever a question arose as to exemption of a particular income of a cooperative society, what is to be seen is whether the case fell within any of the several heads of income, and if fell within any of such heads, the exemption should be allowed.
Further it is held in CIT Vs, Haryana State Coop Apex Bank Ltd. (2010) 322 ITR 404 (P&H) "interest on refund of Income Tax paid in excess was held to be attributable to the income derived from banking business within the meaning of section 80P(2)(a)(i)"
Further it is held in CIT Vs. Ramnathanpuram Distt. Central Coop. BankLtd. (2002) 255 ITR 423 (SC) held that "Interest on securities, subsidies received from the government and dividend were allowed to be treated as business income of the assessee eligible to deduction u/s 80P(2)(a)(i).
Further in the case of CIT Vs. Ratnagiri Distt. Central Coop, bank Ltd.(2002) 254ITR 597 (Bom.) held as under:
"Interest earned on Indira Vikas Patra, was also held to be attributable to business"9 ITA No.397 & 398(Asr)/2016
Asst. Year: 2010-11 Further in the case of The Rurkree Cooperative Agricultural Multipurpose Society Ltd. vs. JCIT(OSD), Phagwara Circle, ITAT Amritsar held that "Admission fees received from the members are also eligible for deduction u/s 80P(2)(a)(i)."
In view of the above facts and circumstances and judicial precedents, we hold the loan fee and miscellaneous income earned by assessee as eligible for exemption u/s 80IP of the Act.
As regard NPA charges, we have already observed that it is not an item of income but it is an item of expenditure. In view of the above, the appeal in ITA No.397(Asr)/2016 is allowed.
12. Now, we take up in Appeal No.398(Asr)/2016. The facts and circumstances of the appeal in Appeal No.398(Asr)/2016 are pari materia with the appeal in ITA No.397(Asr)/2016 except the fact that instead of NPA charges, the item of income includes reversal of audit fee, miscellaneous income and loan fee.
As regards miscellaneous income and loan fee, we have already held the same to be relatable to business of the assessee. As regards reversal of audit fee, we hold that same is also attributable to the business of assessee as it is not an income but a reversal of expenditure already booked and against which a provision was already laying. Therefore, we hold that the audit fee reversal is also entitled for 10 ITA No.397 & 398(Asr)/2016 Asst. Year: 2010-11 exemption u/s 80P. In view of the above, ITA No. 398(Asr)/2016 is also allowed.
13. In nutshell, both the appeals filed by assessee are allowed.
Order pronounced in the open Court on 15.03. 2017.
Sd/- Sd/-
(A.D. JAIN) (T. S. KAPOOR)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated:15.03.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By order