Citation Codes

Equivalent Citations

citation codes

Case Number

ITA 2681/MUM/2019

Disposition

allowed

Attorney(S)

Acts

INCOME TAX ACT 1961
Banking Regulation Act, 1949 (10 of 1949); 5 (b)
sub-section (1) of section 139;
sub-section (1) of section 139; (iv)
sub-section (1) of section 142,
sections 10AA, 80-IA, 80- IAB, 80-IB, 80-IC, 80-ID or section 80-IE,
u/s 8OP (2)(d) of The Income Tax Act, 1961
u/s 80P(2)(d) of the Income Tax Act, 1961. 1 2
Rule 34(4) of the ITAT Rules

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Smart Summary

Summary of the Opinion — The Income Tax Appellate Tribunal, "SMC" Bench, Mumbai

Factual and Procedural Background

This appeal arises from an order of the Commissioner of Income Tax (Appeals) dated 5.3.2019 in respect of assessment year 2015-16. The assessee, New Ideal Cooperative Housing Society Limited (a cooperative housing society), filed its return of income on 28-12-2016. In the return the assessee claimed a deduction of Rs. 2,47,769/- under section 80P(2)(d) and Rs. 50,000/- under section 80P(2)(c)(ii) of the Income Tax Act, 1961.

The return was processed by the Centralised Processing Centre (CPC), Bengaluru, under section 143(1) of the Act and these deductions were not allowed. The intimation under section 143(1) computed total income at Rs. 15,50,090/- and resulted in a tax demand of Rs. 1,34,864/-. The assessee appealed to the learned CIT(A).

The grounds of appeal as filed by the assessee alleged, among other things, that disallowances were made by CPC without giving intimation as provided under section 143(1)(a). The grounds, as lodged in the appeal record, also refer to certain amounts in different places (for example the grounds at one place refer to amounts of Rs. 2,91,169/- and Rs. 2,41,169/-), but the processing record (para 12 of the opinion) records the claimed amounts as Rs. 2,47,769/- (u/s 80P(2)(d)) and Rs. 50,000/- (u/s 80P(2)(c)(ii)).

The learned CIT(A) adjudicated the appeal by upholding the disallowance under section 80P(2)(d) (treating the interest as not eligible for deduction) and confirmed the Assessing Officer's disallowance. The learned CIT(A) did not decide the ground relating to section 80P(2)(c)(ii) for Rs. 50,000/-. The assessee appealed to the ITAT against the CIT(A)'s order.

Legal Issues Presented

Whether the CPC/Centralised Processing (under section 143(1)(a)) could disallow the deductions claimed under section 80P(2)(d) and section 80P(2)(c)(ii) without issuing the intimation / following the procedure required under section 143(1)(a) of the Income Tax Act?
Whether interest income earned by the cooperative housing society on fixed deposits held with cooperative banks is eligible for deduction under section 80P(2)(d) of the Income Tax Act?
Whether the statutory deduction under section 80P(2)(c)(ii) (amount Rs. 50,000/-) claimed by the assessee should be allowed, and whether the learned CIT(A) erred in not deciding that ground?

Arguments of the Parties

Appellant's Arguments

The CPC/Bengaluru made adjustments by disallowing deductions claimed under section 80P without giving any intimation or opportunity as required under section 143(1)(a) (i.e., without written or electronic intimation), and therefore such adjustments are not sustainable.
The assessee submitted that the disallowance of interest income (claimed under section 80P(2)(d)) earned on fixed deposits held with cooperative banks should be deleted and the deduction allowed. (The return claimed Rs. 2,47,769/- under section 80P(2)(d).)
The assessee contended that a statutory deduction of Rs. 50,000/- under section 80P(2)(c)(ii) was claimed but the learned CIT(A) failed to decide that ground; the CIT(A) should be directed to pass a corrigendum deciding that ground in favour of the assessee.

Revenue / Respondent's Position as reflected in the record

The learned CIT(A) upheld the disallowance of the deduction under section 80P(2)(d), treating the interest income from cooperative banks as not eligible for deduction. The CIT(A) relied on certain decisions (for example PCIT vs. Totagars Co-operative Sale Society) and on the view that the assessee fell within the mischief of section 80P(4) (which excludes cooperative banks from the benefit of section 80P in specified circumstances).
The learned CIT(A) did not adjudicate the claim under section 80P(2)(c)(ii) (Rs. 50,000/-), so there is no recorded decision by the Revenue on that specific ground in the CIT(A) order.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
PCIT vs. Totagars Co-operative Sale Society	Held (as relied upon by the learned CIT(A)) that interest income earned from cooperative banks is not eligible for deduction under section 80P(2)(d) (as interpreted by that authority).	The learned CIT(A) followed this decision to reject the assessee's claim under section 80P(2)(d). The ITAT, however, noted that the learned CIT(A) relied on these decisions but declined to follow tribunal decisions favourable to the assessee and ultimately found the CIT(A)'s conclusion unsustainable on legal grounds (see ITAT reasoning rejecting the CIT(A)'s approach).
Citizen Cooperative Society Ltd. (Civil Appeal No. 10245 of 2017; order dated 8.8.2017)	Established that to be considered a 'co-operative bank' for the purposes of section 80P(4), possession of an RBI licence is a sine qua non; absence of RBI licence means the entity cannot be treated as a cooperative bank for the exclusion in section 80P(4).	The ITAT relied on this principle to conclude that the assessee (a cooperative housing society without an RBI banking licence) cannot be treated as a cooperative bank so as to attract the exclusion in section 80P(4). Thus the CIT(A)'s invocation of section 80P(4) was held to be unsustainable.
The Mavilayi Service Cooperative Bank Ltd. & Ors. vs. CIT, Calicut & Ors. (Civil Appeal Nos. 7343-7350 of 2019; dated 12.1.2021)	Large-bench Supreme Court decision setting out propositions on section 80P, including that section 80P is benevolent and must be read liberally; if an assessee qualifies for a head of deduction under section 80P(2) the entire profits attributable to that activity are deductible; section 80P(4) excludes only cooperative banks that are licenced by the RBI.	The ITAT followed the propositions culled out by the Supreme Court in this decision (paras reproduced in the opinion) to hold that section 80P should be read liberally in favour of the assessee and that the assessee in the present case cannot be excluded under section 80P(4). On merits, the ITAT found the CIT(A)'s denial of deduction under section 80P(2)(d) unsustainable and allowed the claim.
Kerala State Cooperative Marketing Federation Ltd. (referenced in the Supreme Court's discussion)	Earlier appellate authority / Court had construed section 80P widely and liberally (as cited by the Supreme Court in subsequent cases).	The ITAT referred to the Supreme Court's reliance on that wide construction as part of the jurisprudential foundation supporting a liberal interpretation of section 80P for the assessee's benefit.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded along the following lines (as expressed in the text of the opinion):

Preliminary legal framework: The Tribunal examined section 143(1)(a) to determine what adjustments are permissible when processing a return. The statutory list of adjustments under section 143(1)(a) includes items such as arithmetical errors, incorrect claims apparent from the return, certain specified disallowances, additions based on Form 26AS/Form 16A/Form 16, etc., and provides that no such adjustments shall be made unless intimation is given to the assessee in writing or electronic mode (with a further provision for considering the assessee's response).
Application to facts — procedural impropriety: The Tribunal found that the denial of deductions under sections 80P(2)(d) and 80P(2)(c)(ii) by the CPC under section 143(1)(a) did not fall within any of the permitted categories of adjustment set out in section 143(1)(a). In particular, the Tribunal observed that whether a cooperative society is entitled to exemption on interest earned on deposits with cooperative banks is not an item that may be legitimately adjusted under the mechanical processing provisions of section 143(1)(a) without following the intimation/response procedure; therefore the CPC's processing adjustment was unsustainable on procedural grounds.
Merits — status as 'co-operative bank' and applicability of section 80P(4): The Tribunal held that the learned CIT(A) erred in treating the assessee as a cooperative bank and in invoking section 80P(4) to deny the benefit of section 80P. The Tribunal relied on the Supreme Court's decision in Citizen Cooperative Society Ltd., which stated that an RBI licence is a sine qua non for an entity to be treated as a cooperative bank for the purpose of section 80P(4). Absent such a licence the assessee cannot be treated as a cooperative bank and so section 80P(4) does not apply.
Merits — substantive interpretation of section 80P: The Tribunal referred to the larger bench decision in Mavilayi Service Cooperative Bank Ltd. & Ors. v. CIT, Calicut & Ors., which the Tribunal described as deciding the issue in favour of the assessee and laying down propositions that section 80P is benevolent and should be construed liberally, and that once an assessee is entitled to avail deduction under a head of section 80P(2) the entire amount attributable to that activity should be allowed as deduction. The Tribunal adopted this line of reasoning and held that on merits the denial of deduction under section 80P(2)(d) was not sustainable.
Section 80P(2)(c)(ii) claim: The Tribunal noted that the learned CIT(A) had not decided the ground relating to the statutory deduction of Rs. 50,000/- under section 80P(2)(c)(ii). The Tribunal held there was no reason to deny that statutory deduction, observed that its denial by CPC did not fall within the permitted adjustments under section 143(1)(a), and directed that the deduction under section 80P(2)(c)(ii) be allowed.
Conclusion of analysis: Combining the procedural defect in the CPC adjustment, the incorrect application of section 80P(4) by the CIT(A), and the binding Supreme Court guidance in favour of a liberal construction of section 80P, the Tribunal concluded that the CIT(A)'s order was to be set aside and the assessee's appeals decided in its favour.

Holding and Implications

APPEAL ALLOWED

Holding (direct effect on the parties):

The ITAT set aside the order of the learned CIT(A) and allowed the appeal filed by the assessee.
The Tribunal directed that the deduction claimed under section 80P(2)(d) (interest income from investments with cooperative societies / cooperative banks, as claimed by the assessee — recorded in the return as Rs. 2,47,769/-) be allowed on merits, and that the statutory deduction under section 80P(2)(c)(ii) of Rs. 50,000/- be allowed (the CIT(A) had not decided this ground and the Tribunal directed it be allowed).
The Tribunal also held that the CPC's denial of the deductions under section 143(1)(a) was not in accordance with the scope of adjustments permitted under that provision and that the procedural safeguards in section 143(1)(a) (intimation and consideration of response) were not met in a manner that would sustain the disallowances.

Broader implications:

The opinion rests on and follows existing Supreme Court authorities (as cited in the text) interpreting section 80P and the narrow scope of the exclusion in section 80P(4). The Tribunal did not purport to lay down a new precedent but applied the cited Supreme Court decisions and concluded in favour of a liberal, beneficent construction of section 80P in favour of cooperative societies that are not licenced cooperative banks. No novel legal principle beyond the application of those precedents was stated in the decision.

Disposition and Miscellaneous

The order was pronounced on the notice board on 3.2.2021 by the Accountant Member (Shamim Yahya). The appeal was allowed, the CIT(A) order set aside, and the matter was disposed accordingly. The order identifies the parties and counsel, records dates of hearing (01.12.2020) and pronouncement (03.02.2021), and lists the persons/offices to whom copies were forwarded.

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NEW IDEAL CO - OPERATIVE HOUSING SOCIETY LIMITED, MUMBAI v. INCOME TAX OFFICER , WARD -19(2)(4), MUMBAI

THE INCOME TAX APPELLATE TRIBUNAL

"SMC" Bench, Mumbai Shri Shamim Yahya (AM) I.T.A. No. 2681/Mum/2019 (Assessment Year 2015-16)

New Ideal Cooperative Housing Society Limited 87, Milan Building Tardeo Road Mumbai-400 034. PAN : AAAAN1563G	Vs.	ITO Ward 19(2)(4) 2nd Floor Matru Mandir Mumbai.
(Appellant)	(Respondent)
Assessee by	Shri Rashmikant Modi
Department by	Ms. Smita Verma
Date of Hearing	01.12.2020
Date of Pronouncement	03.02.2021

O R D E R

This appeal by the assessee is directed against the order of learned Commissioner of Income Tax (Appeals) [in short learned CIT(A)] dated 5.3.2019 pertains to A.Y. 2015-16.

2. The grounds of appeal read as under :-

1. On the facts and in the circumstances of the case, the Appellant submits that the Honorable Commissioner of Income Tax (Appeal) erred in upholding the adjustments by way of making disallowance of deduction u/s 8OP by Centralized Processing Centre, Bengaluru to the returned income without giving any intimation for making any adjustments of disallowing the deduction claimed by the Appellant u/s 8OP of Rs. 2,91,169/-. The Appellant submits that the adjustments made to the Returned Income be deleted and deduction claimed u/s 8OP be allowed.

2. On the facts and in the circumstances of the case, the Appellant submits that the Honorable Commissioner of Income Tax (Appeal) erred in upholding the action of Centralized Processing Centre, Bengaluru of disallowing the interest income of Rs. 2,41,169/- earned on Fixed Deposits held with Co- operative banks claimed by the Appellant u/s 80P(2)(d) of the Income Tax Act, 1961.

The Appellant submits that the deduction of Rs. 2,47,769/- claimed u/s 8OP (2)(d) of The Income Tax Act, 1961 be allowed.

3. On the facts and in the circumstances of the case, the Appellant submits that the Honorable Commissioner of Income Tax (Appeal) erred in not giving a decision on the ground of appeal raised for allowing the statutory deduction of Rs. 50,000/- available to and claimed by the Appellant claimed u/s 80P(2)(c)(ii) of The Income Tax Act, 1961.

The Appellant submits that the Honorable Commissioner of Income Tax (Appeal) be directed to pass corrigendum for giving decision on the ground of appeal raised for allowing statutory deduction of Rs. 50,000/- claimed by the Appellant u/s 80P(2)(c)(ii) of The Income Tax Act, 1961.

3. Brief facts of the case are as under :-

The assessee is a cooperative housing society, filed its return of income on 28-12-2016. The assessee claimed deduction of Rs. 2,47,769/- u/s. 8OP(2)(d) and Rs. 50,000/- u/s. 80P(2)(c)(ii). The return of income was processed u/s. 143(1) of the Act by the CPC, Bengaluru, wherein these deductions were not granted. The total income was computed u/s. 143(1) at Rs. 15,50,090/- and it resulted into demand of Rs. 1,34,864/-. The total income as per intimation u/s. 143(1) is Rs. 15,50,090/- and the tax payable computed thereon at Rs. 4,75,888/-.

4. Upon assessee's appeal learned CIT(A) only referred to disallowance of deduction u/s. 80P(2)(d). He has noted that this is an adjustment done to the returned income filed by the appellant without giving any intimation for making any adjustments either in writing or in electronic mode as per the provisions of Section 143(l)(a) of the Act. Learned CIT(A) rejected the contention regarding disallowance made u/s. 80P(2)(d) for Rs. 2,47,769/-being interest receipt from cooperative bank. In this regard he referred to the provisions of the Act and referred to several other decisions. He finally held as under :-

"In view of the above discussions and respectfully following the decision of the Hon'ble Karnataka High Court in the above referred case of PCIT vs. Totagars Co-operative Sale Society, I am of the considered opinion that the interest income earned by the appellant from Co-operative Bank is not eligible for deduction u/s 80P(2)(d) of the Act.

In view of above discussions, it is held that the interest income earned from investment of surplus funds with the Co-operative Banks are not eligible for deduction u/s 80P(2)(d) of the Act. Hence, the deduction u/s. 80P(2)(d) of the Act, of Rs. 2,47,769/- claimed by the assessee is not allowed and disallowance made by the Assessing Officer is confirmed. Accordingly, the Ground No's. 1 & 2 raised in appeal are dismissed."

5. The learned CIT(A) did not adjudicate the ground of denial of deduction u/s. 80P(2)(c)(ii) for an amount of Rs. 50,000/-.

6. Against this order assessee is in appeal before the ITAT.

7. I have heard both the parties and perused the records. I find that in this case assessee has been denied the claim of deduction under section 80P(2)(d) & 80P(c)(ii) in an order u/s. 143(1)(a) of the Act.

"Section 80P(2)(d) provides deduction to a Cooperative Society in respect of any income by way of interest or dividends derived by the co- operative society from its investments with any other cooperative society, the whole of such income.

Section 80P(2)(c) provides deduction to a Cooperative Society as under :-

(c) in the case of a co- operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities asdoes not exceed.

(ii) in any other case, twenty thousand rupees. Explanation- In this clause, 'consumers co-operative society' means a society for the benefit of the consumers;]"

8. First of all it is noted that the adjustment has been done by the CPC Bengaluru under section 143(1)(a) of the Act. Section 143(1)(a) provides for processing of return where the total income is computed after making certain adjustment. It reads as under :-

"143.(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:—

(a) the total income or loss shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the return; [***]

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

[(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;

(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80- IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:]

[Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;]"

9. In my considered opinion the adjustment done by denial of deduction u/s. 80P(2)(d) and 80P(2)(c)(ii) in this case does not fall in any of the above. That a cooperative society will not get exemption on the interest earned on deposits in cooperative bank is not something which is a subject matter of adjustment under section 143(1)(a) of the Act. I find that despite noting that there are tribunal decisions in favour of assessee, the learned CIT(A) has chosen not to follow the same by referring to some other decisions. I further find that learned CIT(A) has completely erred in treating the assessee as cooperative bank and invoking the provisions of section 80P(4). Section 80P(4) provides that :-

(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

Explanation.—For the purposes of this sub-section,—

(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.

10. Honourable Supreme Court in the case of Citizen Cooperative Society Ltd. (Civil Appeal No. 10245 of 2017 vide order dated 8.8.2017) has settled the law that for being considered as a cooperative bank licence from RBI in this regard is a sine qua non. In absence of the RBI licence as such the assessee cannot be treated as cooperative bank. Hence disallowing the deduction by referring to the provisions of section 80P(4) is completely unsustainable. Moreover section 80P(2)(d) provides exemption to interest earned on fixed deposit in cooperative societies. It is nobody's case that cooperative bank are not cooperative societies.

11. Moreover similar issue was elaborately dealt by a larger bench of honourable Supreme Court in the case of The Mavilayi Service Cooperative Bank Ltd. & Ors. Vs. CIT, Calicut & Ors. (Civil Appeal Nos. 7343-7350 of 2019 dated 12.1.2021 and the issue was decided in favour of the assessee. We may gainfully refer to the Hon'ble Apex Court observation in para 21 as under, wherein the Hon'ble Apex Court referred to its earlier decision of Citizen Cooperative Society Ltd. (supra) :-

"The following propositions may be culled out from the judgment:

(I) That section 80P of the IT Act is a benevolent provision, which was enacted by Parliament in order to encourage and promote the growth of the co-operative sector generally in the economic life of the country and must, therefore, be read liberally and in favour of the assessee;

(II) That once the assessee is entitled to avail of deduction, the entire amount of profits and gains of business that are attributable to any one or more activities mentioned in subsection (2) of section 80P must be given by way of deduction;

(III) That this Court in Kerala State Cooperative Marketing Federation Ltd. and Ors. (supra) has construed section 80P widely and liberally, holding that if a society were to avail of several heads of deduction, and if it fell within any one head of deduction, it would be free from tax notwithstanding that the conditions of another head of deduction are not satisfied;

(IV) This is for the reason that when the legislature wanted to restrict the deduction to a particular type of co-operative society, such as is evident from section 80P(2)(b) qua milk co-operative societies, the legislature expressly says so - which is not the case with section 80P(2)(a)(i);

(V) That section 80P(4) is in the nature of a proviso to the main provision contained in section 80P(1) and (2). This proviso specifically excludes only co- operative banks, which are cooperative societies who must possess a licence from the RBI to do banking business. Given the fact that the assessee in that case was not so licenced, the assessee would not fall within the mischief of section 80P(4)."

12. Hence on merits also the order of learned CIT(A) denying the deduction u/s. 80P(2)(d) is not sustainable.

13. As regards the statutory deduction u/s. 80P(2)(c)(ii) of the Act, there is no reason why the same should be denied. Moreover, the said adjustment is not falling in any of the adjustment permitted by 143(1)(a) of the Act. Hence, assessee's claim of deduction u/s. 80P(2)(c)(ii) has also been wrongly denied in the processing done u/s. 143(1)(a) of the Act. The learned CIT(A) has failed to decide the same despite assessee's ground in this regard. The same is directed to be allowed.

13. Hence, in the background of the aforesaid discussion, respectfully following the precedent as above I set aside order of learned CIT appeals decide the issues in favour of assessee.

14. In the result, appeal filed by the assessee is allowed. Order pronounced under Rule 34(4) of the ITAT Rules by placing the result on notice board on 3.2.2021.

Sd/-

(SHAMIM YAHYA)

ACCOUNTANT MEMBER

Mumbai; Dated : 03/02/2021 Copy of the Order forwarded to :

1. The Appellant

2. The Respondent

3. The CIT(A)

4. CIT

5. DR, ITAT, Mumbai

6. Guard File.

BY ORDER,

//True Copy// (Assistant Registrar) PS ITAT, Mumbai

NEW IDEAL CO - OPERA... v. INCOME TAX OFFICER ,...