Sri Bhageeratha Pattina Sahakara Sangha Niyamitha Vs ITO (ITAT Bangalore)
The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed this appeal challenging the order dated 20.9.202 1 passed by Ld. CIT(A), National Faceless Appeal Centre, Delhi and it relates to the assessment year 20 17-18.
2. The grounds of appeal urged by the assessee give rise to the following 3 issues:-
a) Disallowance of claim made u/s 80P(2)(a)(i) of the Income-tax Act,1961 [‘the Act’ for short].
b) Disallowance of claim made u/s 80P(2) (d) of the Act.
c) Addition made u/s 68 of the Act.
3. The facts relating to the case are stated in brief. The assessee is a Souharda Credit Co-operative Society engaged in providing credit facilities to its members. It filed its return of income for the year under consideration admitting Nil income after claiming deduction u/s 80P of the Act. The A.O. however denied deduction u/s 80P of the Act and also made addition u/s 68 of the Act. Accordingly the AO determined the total income at Rs.30,66,060/-. The assessee challenged the assessment order by filing appeal before Ld. CIT(A), but could not succeed. Hence, the assessee has filed this appeal before the Tribunal.
4. The first issue relates to disallowance of claim made u/s 80P(2)(a)(i) of the Act. The A.O. noticed that the assessee has declared business income of Rs.6, 18,558/-, which included interest income of Rs.4,61,848/-. The A.O. took the view that the above said interest income is chargeable under the head “income from other sources” u/s 56 of the Act. Accordingly, he held that the amount of Rs. 1,56,710/- only falls under the head “Income from business”. The assessee had claimed deduction u/s 80P(2)(a)(i) of the Act in respect of above said entire income. The A.O. took the view that the applicability of deduction u/s 80P(2)(a)(i) of the Act can be considered only in respect of business income of 1,56,710/-. He noticed that the assessee has admitted nominal members also as its members and they are not eligible to vote in elections. Accordingly, he took the view that the Principle of mutuality is hit in the case of the assessee. Accordingly, following the decision rendered by Hon’ble Supreme Court in the case of Citizens Co-operative Society Ltd. Vs. ACIT 397 ITR 1, the A.O. held that the assessee is not eligible for deduction u/s 80P(2)(a)(i) of the Accordingly, he assessed the business income o Rs.1,56,701/- without granting deduction u/s 80P(2)(a)(i) of the Act. The Ld. CIT(A) also confirmed the same.
5. I heard the parties on this issue and perused the record. The A.R. submitted that the law on deduction u/s 80P(2)(a)(i) of the Act, including the interpretation of the term “Members” has since been explained by the Hon’ble Supreme Court in the case of “The Mavilayi Service Co-operative Bank Ltd. & Others (431 ITR 1). Accordingly, he submitted that the claim of deduction u/s 80P(2)(a)(i) of the Act requires examination afresh in the light of decision rendered by Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd. (supra).
6. I heard Ld. D.R. on this issue and perused the record. I agree with the submissions made by Ld. A.R, since the assessment order has been passed prior to the decision rendered by Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd (supra), wherein many legal principles have been settled by Hon’ble Apex Hence, the issue of deduction u/s 80P(2)(a)(i) requires to be examined afresh by following the above said decision rendered by Hon’ble Supreme Court. Accordingly, I set aside the order passed by ld. CIT(A) on this issue and restore the same to the file of the A.O. with the direction to examine the claim of deduction u/s 80P(2)(a)(i) of the Act following the decision rendered by Hon’ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd. (supra).
7. The next issue relates to disallowance of claim of deduction u/s 80P(2)(d) of the Act. I noticed earlier that the A.O. has assessed the interest income earned by the assessee from deposits kept with bank amounting to Rs.4,61,848/- under the head “Income from other sources”. He also did not allow deduction u/s 80P(2)(d) of the Act. The Ld. CIT(A) also confirmed the order of the A.O. on this issue.
8. The Ld. A.R. submitted that the coordinate bench in the case of M/s. Vasavamba Co-operative Society Ltd. Vs. Principal CIT (ITA 453/Bang/2020 dated 13.8.202 1) has considered the contentions of the assessee that interest earned from deposits made with Co-operative banks in compliance with the Karnataka Cooperative Societies rules constituted its income under the head “income from business” and accordingly claimed that the same is eligible for deduction u/s 80P(2)(a)(i) of the Act. The Tribunal took the view that this claim of the assessee requires examination at the end of AO, since it was not raised before lower authorities. The Ld. A.R. submitted that a part of the interest income earned by the assessee is from deposits kept with banks is related to the deposits made by it under statutory compulsion. Accordingly, he submitted that interest income earned from those deposits is exempt u/s 80P(2)(a)(i) of the Act.
9. I heard Ld. D.R. on this issue. I notice that the assessee is raising this issue for the first time before the Tribunal. In the case of M/s Vasavamba Co-operative Society Ltd (supra), the division bench of Tribunal has restored this issue to the file of the AO. Accordingly, following the above said decision of the division bench, I restore this issue to the file of the A.O. for examining the claim of the assessee in accordance with law.
10. The Ld. A.R. also raised a contention that if interest income is assessed under the head “income from other sources”, then the corresponding expenditure incurred in earning interest income should be allowed as deduction. In support of this proposition, the Ld. A.R. placed his reliance on the decision rendered by Hon’ble jurisdictional Karnataka High Court in the case of Totagars Cooperative Sales Society Ltd. Vs. ITO (2015) 58 Taxmann.com 35.
11. I heard Ld. D.R. on this issue. Since this contention is also a new contention, I restore this issue also to the file of the A.O. for examining it in the light of decision rendered by Hon’ble jurisdictional High Court in the above cited case.
12. The last issue relates to addition made u/s 68 of the Act. The O. noticed that the assessee society has deposited “Specified bank notes” (demonetized notes) in the account maintained by it with CDCC Bank, Hosadurga as detailed below:-
