Haldia_Ioc_Employees_Welfare_vs_Acit_Circle_27_2_Haldia_Haldia_on_22_November_2019

Haldia Ioc Employees Welfare ...
vs Acit, Circle - 27(2), Haldia, Haldia on 22 November, 2019
Haldia Ioc Employees Welfare ... vs Acit, Circle - 27(2), Haldia,

Haldia on 22 November, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL "A", BENCH KOLKATA BEFORE SHRI P.M.
JAGTAP, V.P & SHRI S. S. GODARA, JM €□‚ ƒ „ …†‡ ˆ ‰./I.T.A No.1440/Kol/2017 ( Š‹ Œƒ □ Ž□
/
Assessment Year: 2014-15) Haldia IOC Employees Welfare Vs. ACIT, Circle-27(2), Haldia
Co-Operative Credit Society Samabay Bhawan, Mohana Market, Haldia, Purba Medinipur-721602.
□□□□□□ □□□□ . /□□□□□□□□ . /PAN/GIR No.: AAAAH0504M

(Appellant) .. (Respondent)
Appellant by : Shri Manoj Dutt, CA

Respondent by : Smt. Ranu Biswas, Sr. DR
□□□□□□□ □□□ □/ Date of Hearing : 23/09/2019

□□□□□□ □□□ □/Date of Pronouncement : 22/11/2019
□□□ □ / O R D E R
Per Shri S. S. Godara:
This assessee's appeal for assessment year 2014-15 arises against the Commissioner of Income Tax
(A) - 7, Kolkata dated 24.04.2017 passed in Case No.185/CIT(A)-7/Kol/Circle-27(2)/16-17 involving
proceedings u/s 143(3) of the Income Tax Act, 1961 (in short 'the Act').
Heard both the parties. Case file perused.
2. The assessee's former substantive ground challenges correctness of both the lower authorities'
action disallowing business promotion expenses of Rs.4,19,204/- @ 20% both in the course of
assessment as well as in the lower appellate proceedings. The assessee's only case during the course
of hearing is that it had incurred the impugned expenditure wholly and exclusively for the purpose
of business and therefore, both the lower authorities have erred in law as well in the facts in
disallowing the same. It is reiterated that the assessee's books are audited by the state government's
Registrar of Cooperative Societies as well and Haldia IOC Employees Welfare Co-Operative Credit
Society I.T.A No .144 0/ Ko l/2 017 therefore the impugned disallowance is not liable to be affirmed.
Our attention is further invited to the CIT(A)'s findings as under:
"2.1 The individual grounds of appeal are dealt as under:
Ground Nos. 3, 4, 5 & 6: 10% disallowance out of loading and unloading charges,
printing & stationery and sales promotion and 20% disallowance out of business
promotion.
2.2 The A.O has stated the following in support of the addition -
Indian Kanoon - http://indiankanoon.org/doc/180352893/ 1

Haldia Ioc Employees Welfare ... vs Acit, Circle - 27(2), Haldia, Haldia on 22 November, 2019
On perusal of the relevant P/L Account of Servo Division and other details, it is found that the
assessee Co-operative Society, Servo Division debited i) Loading & Unloading Charges of
Rs.2,11,564/-, ii) Printing & Stationery Charges of Rs.1,46,049/-, iii) Business Promotion of
Rs.20,96,023/- and iv) Sales Promotion of Rs.73,698/-. The A.R of the assessee was requested to
produce all bills & vouchers in respect of these expenses. But he submitted some documents from
which it is found that those expenses was paid sometimes to its employees and staffs, its car drivers
through self-made vouchers and also to other persons. The A/R of the assessee could not submit
bills/vouchers containing complete postal address of the payees.
In absence of verifiable bills vouchers genuineness of these transactions cannot be ascertained and
identities of the payees have not been proved. Under this circumstance to protect the probable
leakage of revenue I hereby disallow 10% of i) Loading & Unloading Charges i.e. Rs.21,156/-, 10% of
ii) Printing & Stationery Charges i.e. Rs.14,604/-, 20% of iii) Business Promotion i.e. Rs.4,19,204/-
and 10% of iv) Sales Promotion i.e. Rs.7,369/-.
2.3 The A/R of the appellant has made the following submission -
2) The Ld. A.O. disallowed 10% of loading and unloading charges of Servo Division of Rs. 21,156/-
on assumption basis (Out of Total expenditure of loading & unloading charges of Rs.2,11,5460/-.
The above expenditure was revenue in nature and in relation to the business of the assessee and
relating to that Financial year. Such addition was made purely on assumption basis and there is no
basis at all. Copy of ledger and documents enclosed for your perusal.(Page 5) Reference is invited to
the Supreme Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITR1, SC] where it was
held by the Apex Court that the expression "Commercial Expediency" is of wide import & includes
such expenditure as a prudent businessman incurs for the purpose of the business.
3) The Ld. A.O. disallowed 10% of Printing & Stationery Charges of Servo division of Rs.14,604/- on
assumption basis (Out of total printing & Stationery expenditure of Rs. 1,46,049/-) The above
expenditure was revenue in nature and in relation to the business of the assessee and relating to that
Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy
of ledger and documents enclosed for your perusal. (Page-6) Reference is invited to the Supreme
Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI,SC] where it was held by the
Apex Court that the expression "Commercial Expediency" is of wide import & includes such
expenditure as a prudent businessman incurs for the purpose of the business,
4) The Ld. A.O. disallowed 20% of Business Promotion of Servo division of Rs.4,19,204/- on
assumption basis (Out of total Business Promotion expenses of Rs. 20,96,023/-) The above
expenditure was revenue in nature and in relation to the business of the assessee and relating to that
Financial year. Such addition was made purely on assumption basis and there is no basis at all. Copy
of ledger and documents enclosed for your perusal. (Page-7) Reference is invited to the Supreme
Court Judgment SA Builders Ltd vs CIT (Appeals) (2007) [288 ITRI, SC] where it was held by the
Apex -Court that the expression "Commercial Expediency" is of wide import & includes such
expenditure as a prudent businessman incurs for the purpose of the business. 5) The Ld. A.O.
disallowed 10% of Page | 2 Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No

.144 0/ Ko l/2 017 Sales Promotion of Servo Division Rs.7,369/- on assumption basis (Out of total
Sales promotion expenses of Rs. 73,698/-) The above expenditure was revenue in nature and in
relation to the business of the assessee and relating to that Financial year. Such addition was made
purely on assumption basis and there is no basis 'at all. Copy of ledger and documents enclosed for
your perusal, (Page-B) Reference is invited to the Supreme Court Judgment SA Builders Ltd vs CIT
(Appeals) (2007) [288 ITRI, SC] where it was held by the Apex Court that the expression
"Commercial Expediency" is of wide import & includes such expenditure as a prudent businessman
incurs for the purpose of the business 2.4 Findings of the CIT(A):
I have perused the assessment order and the submission of the A/R of the appellant
as far as loading and unloading charges, printing & stationery expenses, business
promotion expenses and sales promotion expenses are concerned. Most of the
payments have been made through cheques and appeared to be genuine. Therefore,
disallowances are deleted, However, with respect to business promotion expenses it
is seen that most of the expenditures have been made in cash and the AR has not
produced all the bills & vouchers during the course of appellate proceedings also. The
decision of Hon'ble Supreme Court in 288 IRT 1 is on totally different fact and
therefore does not help the assessee. In the instant case the assessee has not been
able to establish commercial expediency. Therefore, disallowance is being up-held.
Therefore, ground nos. 3, 4 & 6 are allowed and ground No. 5 is dismissed."
3. We have given our thoughtful consideration to both the parties' rival contentions against and in
support of the impugned estimated business promotion expenses disallowances. It emerges that
neither the assessee has proved any nexus between the impugned expenses in the nature of loading
and unloading charges and printing and stationery sales promotion by placing all supportive details
in entirety nor the lower authorities have found any specific defect in the expenses in issue. Faced
with this position, we deem it appropriate in larger interest of justice that a lumpsum disallowance
of Rs.1,00,000/- out of Rs.4,19,204/- would be just and proper with the rider that the same shall
not be treated as precedent in other assessment year. The assessee's instant first substantive ground
is partly accepted in above terms. Necessary computation to follow as per law.
4. Next comes the later issue of section 80P(2)(a)(i) deduction disallowance of Rs.3,23,80,202/-
made in assessment order and affirmed in the lower appellate proceedings. The CIT(A)'s detailed
discussion qua this instant issue reads as under:
"4.6 Findings of the CIT(A) I have perused the submission of the appellant and
various case laws on this issue.
Page | 3 Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/
Ko l/2 017
(i) Section 80P(4) is reproduced below:

80P(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 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.
From the definition u/s 80P(4) it is clear that if it was intended that Co-operative society is not a
Cooperative bank then there was no need to Primary Agricultural Credit Society (PACS) or Primary
Co-operative Agricultural and Rural Development Bank (PCARDB) since the appellant is not a
PACS, therefore, it would be covered under definition of Co-operative Bank and would therefore be
covered by 80P(4).
(ii) Following definition contained in the Banking Regulation Act. are also useful -
(cci) "Co,-operative creditsociety" means a state co-operative bank, a central co-operative bank and
a primary co-operative bank;
(ccii) "co-operative credit society" means a co-operative society, the primary object of which is to
provide financial accommodation to its members and includes a co-operative land mortgage bank;
[(cciia) "co-operative society" means a society registered or deemed to have been registered under
any Central Act for the time being in force relating to the multi-State co-operative societies, or any
other Central or State law relating to co-operative societies for the time being in force;
[(cciiia) "multi-State co-operative bank" means a multi-State co-operative society which is a primary
co-operative bank;
[(cciiib) "multi-State co-operative society" means a multi-State co-operative society registered as

such under any Central Act for the time being in force relating to the Multitate co-operative societies
but does not include a national co-operative society and a fed era I co-operative ; l (cciv) "primary
agricultural credit society" means a co-operative society,-
(1) the primary object or principal business of which is to provide financial accommodation to its
members for agricultural purposes or for purposes connected with agricultural activities (including
the marketing of crops); and (2) the bye-laws of which do not permit admission of any other
co-operative society as member: Provided that this sub-clause shall not apply to the admission of a
co-operative bank as a member by reason of such co-operative bank subscribing to the share capital
of such co-operative society out of funds provided by the State Government for the purpose;

(ccv) 'primary co-operative bank" means a co-operative society, other than a primary agricultural
credit society.
(1) the primary object or principal business of which is the transaction of banking business; From
this definition of PACS it can be seen that under clause (ccii) Co-operative Credit Society includes
Co-operative Land Mortgage Bank. Therefore, even in the Banking Regulation Act Co-operative
Bank and Co-operative Credit Society are not mutually exclusive. Similarly clause (ccv) a Primary
Co-operative Bank has been meant to be a Co-operative Society.-
Page | 4 Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017 In
view of the above definition it is clear that the legislature only wants to exclude PACS and PCARDB.
Other Credit Societies would be covered under-section 80P(4).
(iii) Further, Section 5A of Banking regulation Act, 1949 overrides Bye laws of the co op credit
society whose principal business of a primary credit society is thetransaction of banking business
and when its paid up capital and reserves attain the level of Rs. 1 lakh, a primary credit society
automatically becomes a primary co-operative bank.
(iv) Further, vide para 8 in the case of [Salgaon Sanmitra Sahakari Pathpedhi Ltd.
v. Additional Commissioner' of Income-tax, Ward-17(3),Mumbai. - [12, Taxmann.com 246 (2011)]

the assessee society was classified as "Co-operative Bank" under section 12(1) of the Maharashtra
Co-operative Society Act, 1960 as per the registration certificate issued by the Assistant Registrar,
Co-operative Society, Mumbai. Once the urban Co-operative credit society and Pal-pedhis are
classified as Bank then they are not eligible for benefit provided under section 80P of the Income
Tax Act, 1961, from Assessment Year 2007-08 by virtue of Section 80P(4) read with section 2(24)
(viia) both of Income Tax Act, 1961.
(v) In Citizen Co-op. Society Ltd. VS. Addl. CIT- the, assessee co-operative society was providing
members only. It was found that certain activities carried on by assessee were not as per
requirements of principles of co-operative society and that assessee was also engaged in activity of
bill discounting and providing accommodation cheques by taking cash from members. In view of
aforesaid facts, assessee was held not entitled to deduction under section 80P. Further it was held
that assessee society being a co-operative bank providing banking facilities to members was not
eligible to claim the deduction under section 80P(2)(i)(a) after introduction of sub-section (4) to
section 80P[2012] 24 taxmann.com 347 (HYD)
vi) Kekri Sahakari Bhumi Vikas Bank Ltd. VS. Income-tax Officer-In view of amendment to section
80P vide Finance Act, 2006 with effect from 1.4.2007, from assessment year 2007-08 onwards, an
assessee would be eligible for relief there under if it falls within two categories of co-operative banks
allowed by economic activity generating the income, financing forms part of banking, or at least as
far as the specified entitles, being co-operative societies, are concerned.

In view of above discussion I am of the opinion that the appellant is not entitled to deduction u/s
80P(2)(a)(i), in view of it being covered u/s 80P(4), therefore, I agree with the A.O. that the
appellant is not eligible for the deduction, even though on a different reasoning. Therefore, the
appeal of the appellant on this ground is dismissed."
5. Learned Authorized Representative vehemently contends during the course of hearing that both
the lower authorities have erred in law and on facts in disallowing u/s 80P(2)(a)(i) deduction claim
in the nature of interest income. He quotes the tribunal's order in assessee's case ITA
No.1242/Kol/2007 dated 09.10.07 deciding the issue in its favour as upheld by hon'ble
jurisdictional high court's judgment in ITA No.416 of 2008 dated 18.08.2008. We sought to know
about the nature of assessee's interest income. Our attention was invited to page 2 para 4 of
assessment order dated 30.12.2016 indicating the same to have been derived from surplus funds
invested in term deposits in different banks mainly in the State Bank of India. We find in this factual
backdrop that the assessee's impugned deduction claim deserves to be rejected as per this tribunal's
latest decision in ACIT vs. Central Bank of India Employees Co-operative Society Ltd.
Page | 5 Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017
decision as under:
"2. The Revenue's sole substantive grievance pleaded in the instant appeal challenges
the CIT(A)'s order accepting assessee's section 80P(2)(a)(i) deduction claim of
œ2,20,70,040/- in the nature of interest income earned from investment in fixed
deposits with various banks.
3. This assessee is a co-operative society of employees working with the Central Bank
of India. It provides loan to its members in lieu of charging interest. The assessee
invested its surplus funds in both Central Bank of India, 10, Nellie Sengupta Sarani,
Kolkat-87 as well as the West Bengal State Co-operative Bank thereby deriving
interest income of œ2,20,70,040/-. It claimed the same to be eligible for sec.
80P(2)(a)(i) deduction. The Assessing Officer's assessment order dated 26.12.2016
quoted hon'ble apex court's decision in Tatgar's Cooperative Sale Society Ltd. vs.
Income Tax Officer (2010) 188 Taxman 282 (SC) to hold that impugned interest
income had been earned from investment in fixed deposits than from carrying on
business of banking or providing credit facilities to its members. He accordingly
disallowed assessee's impugned deduction claimed.
4. The assessee preferred its appeal. The CIT(A) has reversed the Assessing Officer's
action disallowing assessee's deduction claimed mainly on the ground that this issue
is already covered in its favour in earlier years as per tribunal's order. His findings in
para 4.1 of the lower appellate order are very very much unspeaking. He accepts
assessee's written submissions filed during the course of lower appellate proceedings
reading as below:-
"3 Submission: The AR of the appellant made the submissions as under:

3.1 Grounds No. 1 and 2:
The appellant is a Co-op. Society engaged in providing credit facilities to its members
and the said fact has been mentioned by the Assessing Officer in his Assessment
Order. The management of the appellant Co-op. Society decided for quite a long time
to keep a part of its working capital invested in Fixed Deposits with the parent bank
(Viz., Central Bank of India) to ensure two Objectives: (a) Absolute security of
repayment of members' deposits and (b) Any time conversion of the deposits into
liquid funds for utilization in its business. A part of these investments were again
pledged with the bank to avail of a credit limit which provided the working capital to
the appellant. The loan funds were obtained through overdraft account so that the
cost of borrowing remains co-related to the period of utilization of funds only. This
arrangement of investment of funds in bank time deposits, obtaining loan against the
same and utilization of borrowed funds as working capital, has been continued by the
appellant for several number of years in the past and in scrutiny assessments,
excepting for the preceding five Assessment Years 2009-10, 2010-11,2011-12, 2012-13
and 2013-14 this arrangement had never been disputed by the Assessing Officer in
the matter of determining the business activities of the appellant and consequently in
relation to the appellant's claim of Deduction u/s 80P. However, in respect of all the
above-mentioned 5(five) Assessment Years, the actions of the Assessing Officer were
held to be unjustified and the appellant's contention for its eligibility to Deduction
u/s 80P in respect of its entire income from interest, was accepted. Further, the
appellant had also kept invested certain statutory funds with Banks in accordance
with the relevant provisions of the Multi-State Co-operative Societies Act, 2002.
The appellant was formed, and has been operating from long ago for the main
purpose of providing credit facilities to its members. This is the main activity pursued
by the appellant co-op Society and this is sufficiently evident from the Profit and Loss
Account of the appellant as well as the Asset & liabilities disclosed in the appellant's
Balance Sheet. Apart from the main activity of providing credit facilities to its
members, the appellant also obtains deposits from members to inculcate thrift and
savings habits amongst them. The credit to members is provided out of the deposits
obtained from the members. The funds obtained as deposits are invested in bank
time deposits against which overdraft facilities are obtained and credit facilities are
provided to the members. All these activities are closely integrated, interrelated and
synergized to carry on the business of providing credit facilities to the members. To
take a view that the business of providing credit is only the last step in these chain of
activities, will not be reasonable, logical or justified.
In the Assessment Year 2014-15 (under Appeal), the Assessing Officer held that the
interest income from investments made in time deposits with banks amounting to
RS.22070040 was allegedly not eligible for deduction u/s 80P(2)(a)(i) on the ground
that these funds had allegedly not been used for the purposes of the appellant's
business of providing credit facilities to its members. The Assessing Officer just

followed his predecessor's Assessment Orders passed for the immediate five
preceding Assessment Years 2009-10 to A.Y. 2013-14. As done earlier for the
above-referred five Assessment Years, the Assessing Officer relied on the Supreme
Court decision in the case of Totgars' Co-operative Sale Society Ltd. V. ITO,
Karnataka [2010] 188 Taxman 282 (SC). The facts of the above-referred case had
been that. a part of the funds not immediately required for business, was invested as
short-term deposits and interest income on such short term investments were held as
non- business income and consequently not eligible for deduction u/s. 80P(2)(a).
The facts of the Page | 6 Haldia IOC Employees Welfare Co-Operative Credit Society
I.T.A No .144 0/ Ko l/2 017 appellant's present appeal are completely different. Here
the funds invested are used for the purposes of business by (a) earning income to be
utilised for providing Credit facilities to the members, (b) availing of credit limits
which are essential for providing the working capital to the appellant for grant of
credit to its members, (c) maintaining the liquidity option and (d) keeping the
income option alive. The Assessing Officer considered the Interest income of
Rs.22070040 earned from fixed deposits and Savings Bank Account as alleged
Income from Other sources and on that basis he denied the deduction u/s 80P(2)(a)
in respect thereof. The appellant submits that the above- referred Supreme Court
decision relied upon by the Assessing Officer, was distinguishable from the
appellant's case as under:
(i) The activities of the concerned co-operative societies were to provide credit
facilities to its members and to market their agricultural produce, while in the case of
the appellant the main objects were to create funds to be lent to the appellant's
members and also to provide the members the facilities for the exercise of Thrifts and
Savings.
(ii) The concerned co-operative society had been in the business of marketing the
agricultural produce of its members and the said society used to retain the sale
proceeds from such business, in many cases. The "retained amounts" which were
payable to the society's members from whom the produce had been bought, not being
required immediately for the society's business, were invested in the short-term
deposits/securities.
In the appellant's case the primary objects were to create fund to be lent to the members as well as
to provide facilities for the exercise of Thrifts and Savings. The appellant had to arrange for creation
of the necessary funds through - (a) members' contributions to Thrift Fund, (b) members' payments
to guarantee fund at the time availing of loan facilities, (c) interest receivable from the members in
relation to loans taken by them, (d) interest receivable from the deposits made with the bank out of
the contributions/payments received from the members, etc.
(iii) While in the case of the concerned co-operative society the interest had been received in relation
to the investments made out of the sale proceeds arising out of the business, in the appellant's case
interest was earned from deposits and payments received from the members, for creation of funds

to be lent out to the members as well as to reward the members by paying interest on their
respective balances in thrift fund and guarantee fund.
From the above-mentioned specific differences it may kindly be appreciated that while in the
above-referred Supreme Court case, the interest had been earned from deposits made by utilizing
the idle fund, in the case of the appellant the interest was earned from the deposits that had been
made for facilitating the business of the appellant. Hence, it is submitted that the interest earned on
deposits by the appellant had direct nexus to its business of providing loan facilities to its members
as well as for encouraging the members towards thrifts and savings. Accordingly, it is submitted that
the interest earned on deposits by the appellant should be considered as having arisen from
business activities and therefore, deduction u/s 80(2)(a)(i) may kindly be directed to be allowed. It
may be noted that in respect of all the preceding five Assessment Years in which the Assessing
Officer had denied deduction u/s 80P in relation to the Interest earned on Deposits with Banks,
appellant got relief through the respective Appellate Orders passed by the CIT(Appeals)-XIX,
Kolkata and the CIT (Appeals)-9, Kolkata for A.Y-2013-14 dated 30.09.2016 (copy of last order
enclosed). The departmental appeal for A. Yrs. 2009-10 to 2012-13 before ITAT, Kolkata was
decided in favour of assessee in ITA No. 158 & 1808 to 1809/Kol/14 & ITA 1126/Kol/15 dated
09.11.2016 (copy enclosed).
It is further submitted that the Assessing Officer did not appreciate that as per the provisions of the
Multi- State Co-operative Societies Act, 2002 the appellant had been required to make investments
in respect of specified percentage of its business profit of the year and a substantial portion of the
investments represented the statutory funds aggregating to Rs.58957203 [statutory reserve fund of
Rs.48481947 and reserve fund (unforeseen loss) of Rs.10475256]. It may kindly be appreciated that
these investments having been made for complying with the statutory requirements, had direct
nexus with the business carried on by the appellant and thus the interest earned therefrom should
necessarily be treated as arising from business carried on by the appellant. Reference may kindly be
made to the Supreme Court decision in the case of CIT v. Karnataka State Co-operative Apex Bank
[2001] 251 ITR 194(SC) wherein it was held that any income derived from funds placed in
accordance with the statutory requirements, would be considered as income arising from business
and thus deduction u/s 80P(2)(a)(i) would be available in respect thereof. In fact, during the
assessment proceeding, this particular Supreme Court decision was brought to the attention of the
Assessing Officer .
Without prejudice to the above claim of considering the interest income earned on deposits as part
of business income, the Interest income from WB Co-operative Bank Ltd. of Rs. 30,25,211 had
qualified for deduction u/s. 80P(2)(d) as the relevant interest was earned from another cooperative
society. The Assessing Officer disallowed this claim without showing any specific reason. The
appellant submits that the finding of the Assessing Officer are all wrong on facts and law. WB Co-op.
Bank Ltd. is a co-operative society having license to carry on banking business from RBI. It is a
scheduled bank and that schedule is mentioned in Banking Regulation Act, 1949 only, which have
no relationship with the Income-tax Act or any Co-operative Societies Act. The appellant co-op.
society is again a member/shareholder of WB Co-op. Bank Ltd. and owns shares worth Rs. 1100 of
that Bank as duly reflected in its Balance Sheet. The appellant submits that Page | 7 Haldia IOC

Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017 deduction u/s.
80P(2)(d) is available for interest income from W.B. Cooperative Bank Ltd. The deduction has been
allowed in the assessee's cases in the past five A.Yrs. by CIT(A) and ITAT.
The Assessing Officer did not allow benefit of deduction u/s. 80P(2)(a)(i) on the Miscellaneous
Receipts of Rs.2472 stating that the receipts under this head had allegedly nothing to do with
business of providing credit facilities to the appellant's members. The appellant submits that the
items comprised in the receipt, were directly related to, inextricably connected with and were
attributable to the business activities of the appellant co-op. society. In the past appeals the CIT(A)
and ITAT allowed the deduction on this type of receipts.
The appellant submits that even if it would be assumed that the Interest income from Investments
allegedly did not qualify for deduction u/s 80P(2)(a) and/or 80P(2)(d) as it was allegedly not a
business income or for any other reason, then the interest cost which the assessee had incurred for
earning such Interest income, was required to be deducted from the said interest income from
Deposits. The time deposits with bank were made by utilizing the funds received by the appellant by
way of its members' deposits carrying interest and therefore the interest earning had to be set-off
with interest expense. In this regard reference may kindly be made to the above-mentioned
Supreme Court" decision referred to by the Assessing Officer wherein the Supreme Court remitted
to the Karnataka High Court, the issue of deducibility of cost of funds and appropriate
administrative expenses u/s 57.
The appellant submits, without prejudice to the submissions made in regard to Grounds Nos.1and 2
above, that in the event of considering the Interest income of Rs.22070040 as allegedly not a part of
Business Income, simultaneously with the exclusion of the said sum of Rs.22070040 from the
appellant's F.: Business Income, the Assessing Officer should also have excluded the expenses
towards Interest paid on Deposits aggregating to Rs.21073824, out of the head 'Business Income'
since the said expenses of interest had direct nexus with the earning of the Interest on deposits.
Hence, it is submitted that if it is held that the Interest income of Rs.22070040 would not be eligible
for deduction u/s 80P(2)(a)(i), necessary direction may kindly be given to the Assessing Officer to
reduce the Interest expenses of RS.21073824 from the Interest income of Rs.22070040 for
determining the income/loss arising from such earning of Interest allegedly assessable under the
head "Income from Other sources".
5. Mr. Choudhury's sole argument during the course of hearing is that assessee's interest income on
investment made in fixed deposits in the Central Bank as well as West Bengal State Cooperative
Bank (supra) is not eligible for section 80P(2)(a)(i) deduction since not derived or attributable to
any banking business activities or from members. Case law CIT vs. South Eastern Railways
Employees Co-Op. Credit Society Ltd. (2017) 390 ITR 524 (Cal) is quoted in support deciding the
very issue in Revenue's favour. The assessee's case on the other hand is that this issue of allowability
of sec.80P(2)(a)(i) deduction is no more res integria since covered in its favour as per tribunal's
earlier order(s). It places on record a co-ordinate bench's order in ITA No.2203/Kol/2016 for AY
2013-14 decided on 01.03.2018 as follows:-

"3. The issue involved in this appeal by the revenue is as to whether the CIT(A) was
justified in allowing deduction u/s.80P(2)(a)(i) of the Income Tax Act, 1961 (Act) on
interest income earned on Fixed Deposits. The Assessee is a Co-operative Society of
the employees of Central Bank of India. It provides loan to its members and earns
interest on them. In addition to the loan provided to the employees of the Central
Bank of India who are its members the Assessee had also made investments in Fixed
Deposits with Banks and other co-operative societies and earned interest income
thereon. The Assessee claimed deduction u/s.80P(2)(a)(i) of the Act in respect of the
interest so received. The relevant provisions of Sec.80P(2)(a)(i) of the Act reads thus:
"Deduction in respect of income of co-operative societies 80P. (1) Where, in the case
of an assessee being a co-operative society, the gross total income includes any
income referred to in sub-section (2), there shall be deducted, in accordance with and
subject to the provisions of this section, the sums specified in sub-section (2), in
computing the total income of the assessee."
(2) The sums referred to in sub-section (1) shall be the following, namely :--
(a) in the case of a co-operative society engaged in--
(i) carrying on the business of banking or providing credit facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of agricultural produce grown by its members, or
(iv) the purchase of agricultural implements, seeds, livestock or other articles

intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agricultural produce of its
members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, the catching, curing, processing,
preserving, storing or marketing of fish or the purchase of materials and equipment
in connection therewith for the purpose of supplying them to its members, the whole
of the amount of profits and gains of business attributable to any one or more of such
activities :"
Page | 8 Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/
Ko l/2 017

4. The AO was of the view that as per the decision rendered by the Hon'ble Supreme
Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO 322 ITR 283 (SC)
interest earned on deposits had to be regarded as income under the head 'Income
from other sources' and therefore deduction u/s 80P(2)(a)(i) of the Act cannot be
allowed to the assessee as only the whole of the amount of profits and gains of
business attributable to carrying on the business of banking or providing credit
facilities to its members is allowed as deduction under the said provision. According
to the AO the aforesaid income is not derived from the business of providing credit
facility to its members. Applying the decision in the case of Totgar's Co-operative Sale
Society Ltd vs ITO (supra), the AO treated the interest income as income from other
sources and accordingly denied the benefit of deduction u/s 80P(2)(a)(i) of the Act.
5. Aggrieved by the orders of AO, the Assessee preferred appeal before CIT(A). The
CIT(A) held that interest income had to be assessed under the head income from
business and that the Assessee was entitled to deduction u/s.80P(2)(a)(i) of the Act
on the interest income in question. In doing so, he followed his own order in
Assessee's own case in AY 2012-13 wherein he had allowed similar claim of the
Assessee.
6. Aggrieved by the order of the CIT(A), the revenue is in appeal before the Tribunal.
At the time of hearing it was brought to our notice that this tribunal in Assessee's own
case adjudicated identical issue in I.T.ANos.158 & 1808 to 1809/Kol/14 & ITA
1126/Kol/15 for Assessment Years : 2009-10 to 2012-13 by order dated 9.11.2016. The
tribunal held on identical issue on identical facts as follows:
"11. We have given a very careful consideration to the rival submissions. Since the
revenue has laid much emphasis on the decision of the Hon'ble Supreme Court in the
case of Totagars Co-operative Society 322 ITR 283 (SC), we deem it necessary to deal
with this contention.
12. This tribunal had an occasion to deal with similar objections in the case of another
co-operative society similar to the Assessee in the present appeals. In ITA
No.07/Kol/2014 for Assessment Year: 2009-10 in the case of Rupnarayanpur
Samabay Krishiunnayan Samity Ltd. Vs. A.C.I.T., Circle-1, Hooghly, the Assessee was
an is an agricultural credit society duly registered under the West Bengal Cooperative
Societies Act, 1983. In the course of proceedings before CIT(A), the CIT(A) noticed
that the assessee had claimed deduction u/s 80P(2(a) (i) of the Act on interest
income arising from Savings Bank A/C. and Recurring Deposit(RD) Account which
was made by the Assessee from and out of the RD Account made by its members with
the Assessee. The Revenue took the view that as per the decision rendered by the
Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO
322 ITR 283 (SC) interest earned on deposits had to be regarded as income under the
head 'Income from other sources' and therefore deduction u/s 80P(2)(a)(i) of the Act
ought not to have allowed to the assessee as only the whole of the amount of profits

and gains of business attributable to carrying on the business of banking or providing

credit facilities to its members is allowed as deduction under the said provision. On
further appeal by the Assessee before the Tribunal, the Tribunal held as follows:
"6. At the time of hearing of this appeal the ld. Counsel for the assessee filed before me a copy of the
decision rendered by ITAT, Kolkata Bench in the case of S.E., S.E.C. & E.Co. Railways
Employees'Co-operative Credit Society ltd. Vs ACIT in ITA No.1693/Kol/2012 order dated
30.10.2014. In the aforesaid case the identical question as to whether interest income had to be
regarded as income from business or income from other sources had come up for consideration. The
Assessee in the aforesaid decision accepted loans and deposits from its members and utilized the
same towards providing loans and credit facilities to its members. However excess funds were
utilized in making deposits in banks and investments. The Tribunal relying upon the decision
rendered by the Hon'ble Calcutta High Court in the case of CIT vs South Eastern railway Employees
Co-operative Credit Society in G.A.No.1838 of 2010 dated 22.07.2010 came to the conclusion that
interest income has to be regarded as income from business of banking and is entitled for deduction
u/s 80P(2)(a)(i) of the Act. The Tribunal had also distinguished the decision rendered by the
Hon'ble Supreme Court in the case of Totgar's Co-operative Sale Society Ltd vs ITO (supra). The
following observations of the Hon'ble Tribunal read as under :-
"7.1. We further find that the issue involved is covered in favour of the assessee by catena of
decisions of the Tribunal in assessee's own case. These decisions are also affirmed by the Hon'ble
Jurisdictional High Court in its order for A.Yr.2005-06. In this order the Hon'ble Jurisdictional
High Court has considered all the relevant orders and has decided the issue in favour of the
assessee. We may gainfully reproduce the operative order of the Jurisdictional High Court which is
as under :-
"We have gone through the impugned judgment and order of the Learned Tribunal. It
appears that the point involved .is whether interest earned out of the investment
earned by the assessee cooperative can be treated to be the income arising out of
business activity or from other sources in order to apply the provision of Section
80P(2)(a)(i) of the I.T. Act. It is an undisputed factual position that similar issue
arose before the Commissioner of Income Tax (Appeal) in relation to the assessment
year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97
show subsequent decision of the Tribunal in relation to the assessment years 1998-99
to 2002-03 and 2003-04 have been challenged by any of the parties before this
Court. It is submitted by Mr.Bhowmick that there has been challenge of the decision
in relation to assessment Page | 9 Haldia IOC Employees Welfare Co-Operative
Credit Society I.T.A No .144 0/ Ko l/2 017 years 1995-96, 1996-97 and the same is
pending before this Court we think that challenge of the assessee has now become
redundant as the earlier view taken in both the assessment years have been reversed
by the Tribunal by its subsequent decision. Hence, the pendency of that earlier
matter is of no consequence in this matter. Had there been a challenge of the decision
of the Tribunal in relation to the assessment years 1998- 99 to 2002-03 and also
2003-04 to 2004-05 the matter would have been different. The revenue did not take

any step whatsoever. Therefore, we presume the revenue has accepted the
subsequent view of the Tribunal and the same now hold the field right now."
7.2. Considering the above we find that this issue is squarely covered in favour of the assessee by the
decision of the Hon'ble Jurisdictional High Court in assessee's own case. In this regard we would
like to place reliance upon the decision of the Hon'ble Apex Court in the case of CIT vs Excel
Industries 358 ITR 295 wherein the principle of consistency has been reiterated. Hence when the
issue has been decided by the Jurisdictional High Court no convincing reason has been pointed to
take a different view, any deviation is not permitted.
7.3. Now we come to the case laws relied upon by the ld. CIT(A). As regards the decision of the
Hon'ble Apex Court in the case of Totgars Co-operative Sale Society Ltd. (supra) we find that the
said decision is not applicable in the facts of the case. We find that the Hon'ble Apex Court in the
said decision in para 11 has itself mentioned that "We are confining the judgment to the facts of the
present case". The facts of the case were that assessee's business was to provide credit facilities to its
members and to market their agricultural produce. In many cases assessee retained sale proceeds of
members whose produce was marketed by it and since funds created by such retention were not
required immediately for business purposes, it invested same in specified securities and earned
interest income. In these circumstances the Hon'ble Apex Court had held that interest earned would
come in category of 'Income from other sources' taxable u/s 56 of the Act and would not qualify for
deduction as business income u/s 80P(2)(a)(i). From the above it is amply evident in the present
case the assessee has not retained any amount due to its members and instead of paying the same
had invested the same and earned interest. Thus this case law is not applicable on the facts of the
present case.
7.4. As regards the decision of Hon'ble Patna High Court in the case of Bihar Rajya Sahkari Bhoomi
Bikash Co-op. Bank Ltd. (supra) the same is also not applicable to the facts of the present case. In
that case the question was the treatment of interest earned on provident fund and rental income as
attributable to banking business and this qualifying for deduction u/s 80P(2)(a)(i) of the Act.
7.5. In the background of the aforesaid discussion and precedent we hold that the issue is squarely
covered in favour of the assessee by the decision of the Tribunal and the Jurisdictional High Court in
assessee's own case. The decision relied upon by the ld. CIT(A) are not applicable in the facts of the
case. The principle of consistency as conveyed by the Hon'ble Apex Court mandates that the
Revenue does not take a different stand. Accordingly we set aside the orders of the authorities below
and decide the issue in faovur of the assessee."
6.1. Respectfully following the above decision and taking down the fact that interest income in the
present case is identical to the interest income received by the assessee in the decision referred to
above. I hold that the assessee is entitled to deduction u/s 80P(2)(a)(i) of the Act in respect of the
interest income."
13. The aforesaid view has also been followed by the Tribunal in I.T.A.Nos.737-742/Kol/2011for
Assessment Year: 1996-97 to 2001-02 in the case of A.C.I.T., Circle-56, -vs.-The West Bengal State

Co-operative Bank Ltd.
14. The Hon'ble Karnataka High Court had also an occasion to examine the scope of Sec.80P(2)(a)(i)
of the Act, in the light of the decision of the Hon'ble Supreme Court in the case of Totagar
Co-operative Society (supra) in the case of Guttigedarar Credit Co-operative Society Ltd. Vs. ITO
Ward 2(2), Mysore (Karnataka). The Assessee in that case which was a co-operative Society claimed
deduction in respect of interest income it earned on deposit of surplus funds as eligible for
deduction u/s.80P(2)(a)(i) of the Act. The appellate authorities under the Act held that assessee is
liable to income tax in view of the judgment of the Apex Court in the case of Totgars Co-operative
Sale Society Ltd. v. ITO 377 ITR 283 (Karn.). On appeal by the Assessee, the Hon'ble Karnataka
High Court held:
"9. The word 'attributable' used in the said Section is of great importance. The Apex
Court had an occasion to consider the meaning of the word 'attributable' as supposed
to derive from its use in various other provisions of the statute in the case of Cambay
Electric Supply Industrial Co. Ltd. v.CIT 113 ITR 84 (SC) (at page 93) as under:--
'As regards the aspect emerging from the expression "attributable to" occurring in the
phrase "profits and gains attributable to the business of" the specified industry (here
generation and distribution of electricity) on which the learned Solicitor-General
relied, it will be pertinent to observe that the legislature has deliberately used the
expression "attributable to" and not the expression "derived from". It cannot be
disputed that the expression "attributable to" is certainly wider in import than the
expression "derived from". Had the expression "derived from" been used, it could
have with some force been contended that a balancing charge Page | 10 Haldia IOC
Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017 arising
from the sale of old machinery and buildings cannot be regarded as profits and gains
derived from the conduct of the business of generation and distribution of electricity.
In this connection, it may be pointed out that whenever the legislature wanted to give
a restricted meaning in the manner suggested by the learned Solicitor- General, it has
used the expression "derived from", as, for instance, in section 80J. In our view, since
the expression of wider import, namely, "attributable to", has been used, the
legislature intended to cover receipts from sources other than the actual conduct of
the business of generation and distribution of electricity.'
10. Therefore, the word "attributable to" is certainly wider in import than the
expression "derived from".
Whenever the legislature wanted to give a restricted meaning, they have used the expression
"derived from". The expression "attributable to" being of wider import, the said expression is used
by the legislature whenever they intended to gather receipts from sources other than the actual
conduct of the business. A Co-operative Society which is carrying on the business of providing credit
facilities to its members, earns profits and gains of business by providing credit facilities to its
members. The interest income so derived or the capital, if not immediately required to be lent to the

members, the society cannot keep the said amount idle. If they deposit this amount in bank so as to
earn interest, the said interest income is attributable to the profits and gains of the business of
providing credit facilities to its members only. The society is not carrying on any separate business
for earning such interest income. The income so derived is the amount of profits and gains of
business attributable to the activity of carrying on the business of banking or providing credit
facilities to its members by a co-operative society and is liable to be deducted from the gross total
income under Section 80P of the Act.
11. In this context when we look at the judgment of the Apex Court in Totgars Co-operative Sale
Society's case (supra), on which reliance is placed, the Supreme Court was dealing with a case where
the assessee/Co- operative Society, apart from providing credit facilities to the members, was also in
the business of marketing of agricultural produce grown by its members. The sale consideration
received from marketing agricultural produce of its members was retained in many cases. The said
retained amount which was payable to its members from whom produce was bought, was invested
in a short-term deposit/security. Such an amount which was retained by the assessee Society was a
liability and it was shown in the balance sheet on the liability side. Therefore, to that extent, such
interest income cannot be said to be attributable either to the activity mentioned in Section 80P(2)
(a)(i) of the Act or under Section 80P(2)(a)(iii) of the Act. Therefore in the facts of the said case, the
Apex Court held the assessing officer was right in taxing the interest income indicated above under
Section 56 of the Act. Further they made it clear that they are confining the said judgment to the
facts of that case. Therefore it is clear, Supreme Court was not laying down any law.
12. In the instant case, the amount which was invested in banks to earn interest was not an amount
due to any members. It was not the liability. It was not shown as liability in their account. In fact
this amount which is in the nature of profits and gains, was not immediately required by the
assessee for lending money to its members, as there were no takers. Therefore they had deposited
the money in a bank so as to earn interest. The said interest income is attributable to carrying on the
business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. In
fact similar view is taken by the Andhra Pradesh High Court in the case of CIT v. Andhra Pradesh
State Cooperative Bank Ltd. 336 ITR 516 (AP).
13. In that view of the matter, the order passed by the appellate authorities denying the benefit of
deduction of the aforesaid amount is unsustainable in law. "
15. In view of the aforesaid judicial pronouncements, we are of the view that the objections raised by
the revenue in the grounds of appeal before us, cannot be sustained."
7. It is not disputed before us by the parties that the facts and circumstances under which the appeal
was decided by the Tribunal in the earlier AYs was identical to the facts and circumstances in the
present AY. We are therefore of the view that the decision rendered by the tribunal will be applicable
to the present AY also. Respectfully following the decision of the Tribunal in Assessee's own case, we
uphold the order of the CIT(A) and dismiss the appeal by the revenue.
8. In the result, appeal by the revenue is dismissed."

Mr. Banerjee accordingly prayed for rejection of the instant appeal.
6. We have given our thoughtful consideration to rival contentions. The sole dispute between the
parties is about the correctness of assessee's sec. 80P(2)(a)(i) deduction claim of œ2,20,70,040/-
pertaining to interest income from fixed deposits and other investments made in Central Bank of
India as well as West Bengal State Co-operative. It appears at the time instance that this taxpayer's
case is squarely covered by this tribunal's earlier year in its favour (supra). Relevant factual
backdrop however speaks otherwise. It is sufficiently clear by now that the above co-ordinate bench
followed yet another tribunal's order declining Revenue's stand on sec. 80P(2)(a)(i) issue as per
hon'ble jurisdictional high court's decision in CIT vs. South Eastern Railway Employees
Co-operative Credit Society in ITAT No.135 of 2010 GA No.1838 of 2010 dated 22.07.2010. The
Revenue had filed said appeal against the tribunal's order holding the concerned assessee's Page | 11
Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017 interest
income arising from investments in banks to be eligible for sec. 80P(2)(a)(i) deduction. Their
lordships' detailed discussion in the said case qua in the instant issue as follows:-
"It appears in this matter the Revenue wants us to admit the appeal on the points as
formulated hereinbelow;
i) Whether on the facts and circumstances of the case, the interest earned by the
assessee to the tune of Rs.l,18,07,64S/- out of its investment in banks is not the
activity that arose from the activity of providing loan and credit facilities to its
members as the society is not engaged in the business of banking and is therefore not
qualifying for deduction u/S.80P(2a)(a)(i) of the Act, the learned Tribunal is correct
in law in holding that interest earned on such investment is within the purview of
section 80P of the Act?
We have gone through the impugned judgment and order of the Learned Tribunal. It appears that
the point involved is whether interest earned out of the investment earned by the assessee
cooperative can be treated to be the income arising out of business activity or from other sources in
order to apply the provision of Section 80P(2)(a)(i) of the LT. Act. It is an undisputed factual
position that similar issue arose before the Commissioner of Income Tax (Appeal) in relation to the
assessment year 1998-99 to 2002-2003 as also for the assessment year 1995-96 and 1996-97- Then
again in relation to the assessment years 2003-04 and 2004- 05 a similar point arose. The Learned
Tribunal in relation to the assessment years 1998-99 to 2002-03 by order dated 10.11.2006 in ITA
Nos.840 to 844/Kol/2006 and again by order dated 29.12.2006 in relation to assessment years
2003-04 and 2004-05 has deleted the disallowance made in those assessment years and it was held
that the interest earned by the assessee cooperative society from its short term and fixed deposits
with the banks and other institutions were disallowed on the ground that this income was not
business profit of the assessee society but was income from other sources. The Ld. tribunal has also
has held that income from investment in banks and other financial institutions is the business
income of the assessee society and it is eligible to get deduction under Section 80P(2)(a)(i). The

Tribunal has overruled the decisions rendered against the assessee in relation to assessment years
1995-96 and 1996-97 on the same issue in relation to subsequent years.
It was found by the Tribunal while affirming the order of the Commissioner of Income Tax (Appeal)
that there is no change in the facts and circumstances of this case and it was held that the assessee
was eligible for deduction under Section 80P(2)(a)(i) on interest on investment amounting to
RS.1,18,07,645/- in this assessment year also. Since the Tribunal found that this decision of the
Tribunal was followed by CIT (A) there is no reason to take a different view.
Under these circumstances, we feel that when the Commissioner of Income Tax (A) as well as the
Tribunal has followed the earlier unchallenged decision no question of law is involved in this matter.
Nothing has been produced before us to show subsequent decision of the Tribunal in relation to the
assessment years 1998-99 to 2002-03 and 2003-04 have been challenged by any of the parties
before this Court.
It is submitted by Mr. Bhowmick that there has been challenge of the decision in relation to
assessment years 1995-96, 1996-97 and the same is pending before this Court we think that
challenge of the assessee has now become redundant as the earlier view taken in both the
assessment years have been reversed by the Tribunal by its subsequent decision. Hence, the
pendency of that earlier matter is of no consequence in this matter. Had there been a challenge of
the decision of the Tribunal in relation to the assessment years 1998-99 to 2002-03 and also
2003-04 to 2004-05 the matter would have been different. The revenue did not take any step
whatsoever. Therefore, we presume the revenue has accepted the subsequent view of the Tribunal
and the same now hold the field right now.
The appeal is dismissed accordingly."
7. We find that this issue does not set at rest as per the above extracted judgment. Their lordship's
subsequent decision in the very assessee's case for assessment years 2003-04 and 2004-05 came to
be decided on 15.07.2016 reported as (2017) 390 ITR 524 (Cal). The Revenue's substantial question
of law admitted therein was as to whether the said assessee's interest income arising from
investment in banks and other financial institutions quantify for sec. 80P(2)(a)(i) deduction or not.
The tribunal had admittedly held the same to be eligible for deduction. Hon'ble jurisdictional high
court's answers Revenue's substantial question of law as follows:-
"7. We have not been impressed by the first submission advanced by Mr.Saraf. If the
Multi-State Co-operative Societies At, 2002 does not provide for the consequences of
an omission to act in accordance with section 63 thereof, that is no valid reason why
the mandate of law should not be followed. When law requires a business to be done
in a particular manner the business can be done only in that manner or not at all.
8. We are also not impressed by the submission advanced by Mr. Khaitan that the
interest earned by the assessee from the investments made, to the extent of a sum of
Rs.99 lakhs during the assessment year 2003- 004 and a sum of Rs.1.12 crores during

the assessment year 2004-05, should be attributable to the business of providing

credit facilities to it members Section 80P, it is true provides that "in the case of a
co-operative society engaged n carrying on the business... providing credit facilities to
its members .... the whole of the Page | 12 Haldia IOC Employees Welfare
Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017 amount of the profits and
gain of business 'attributable' to any such activity 'shall be deducted'. But there is a
caution appearing in sub-section (1) which provides that the gross total income of a
co-operative society may include income from various activities. It is only an income
falling under sub-section (2), which is deductible. The Supreme Court in the case of
Totgar's Co-operative Sale Society Ltd. v. ITO reported in [2012] 322 ITR 283 (SC)
took the following view in para. 10 of the report (page 289):
'At the outset, an important circumstance needs to be highlighted. In the present

case, the interest held not eligible for deduction under section 80P(2)(a)(i) of the Act
is not the interest received from the members for providing credit facilities to them.
What is sought to be taxed under section 56 of the Act is the interest income arising
on the surplus invested in short-term deposits and securities which surplus was not
required for business purposes The assessee(s) markets the produce of its members
whose sale proceed at times were retained by it. In this case, we are concerned with
the tax treatment of such amount. Since the fund created by such retention was not
required immediately for business purposes, it was invested in specified securities.
The question, before us, is-whether interest on such deposits/securities, which
strictly speaking accrues to the member' account, could be taxed as business income
under section 28 of the Act? In our view, such interest income would come in the
category of 'income from other sources', hence such interest income would be taxable
under section 56 of the Act, as rightly held by the Assessing Officer. In this
connection, we may analyze section 80P of the Act. This section comes in Chapter
VI-A, which, in turn, deals with 'Deductions in respect of certain income'. The
headnote to section 80P indicates that the said section deals with deductions in
respect of income of co-operative societies. Section 80P(1), inter alia, states that
where the gross total income of a co-operative society includes any income from one
or more specified activities, then such income shall be deducted from the gross total
income in computing the total taxable income of the assessee-society. An income,
which is attributable to any of the specified activities in section 80P(2) of the Act,
would be eligible for deduction. The word 'income' has been defined under section
2(24)(i) of the Act to include profits and gains. This sub-section is an inclusive
provision. Parliament has included specifically 'business profits' into the definition of
the words 'income'. Therefore, we are required to give a precise meaning to the words
'profits and gains of business' mentioned in section 80P(2) of the Act. In the present
case, as stated above, the assessee-society regularly invests funds not immediately
required for business purposes. Interest on such investments, therefore, cannot fall
within the meaning of the expression 'profits and gains of business'. Such interest
income cannot be said also to be attributable to the activities of the society, namely,
carrying on the business of providing credit facilities to its embers or marketing of

the agricultural produce of its member. When the assessee-society provides credit
facilities to its members, it earns interest income. As stated above, in this case,
interest held as ineligible for deduction under section 80P(2)(a)(i) is not in respect of
interest received from members. In this case, we are only concerned with interest
which accrues on funds not required immediately by the assessee(s) for its business
purposes and which have been only invested in specified securities as 'investment'.
Further, as stated above, the assessee(s) markets the agricultural produce of its
member. It retains the sale proceeds in many cases. It is this 'retained amount' which
was payable to its members, from whom produce was brought, which was retained by
the assessee-society, was a liability and it was shown in the balance-sheet on the
liability side. Therefore, to that extent such interest income cannot be said to be
attributable either to the activity mentioned in section 80P(2)(a)(i) of the Act or in
section 80P(2)(a)(iii). Therefore, looking to the facts and circumstances of this case,
we are of the view that the Assessing Officer was right in taxing the interest income,
indicated above, under section 56 of the Act.
9. We are prepared to agree with Mr. Khaitan to the extent that the interest earned
from out of the investments made under section 64 read with section 63 of the
Multi-State Co-operative Societies Act, 2002 is attributable to the business of
providing credit facilities to its members. But we are not able to agree with Mr.
Khaitan that the rest of the interest earned by the assessee from the investments is
also attributable to the business of providing credit facilities to its members. We have
not been impressed by the judgment cited by Mr. Khaitan.
10. We are unable to agree with the views of the Patna High Court in the case of Bihar
State Housing Co-op Federation Ltd. (supra). The Division Bench in that case relied
upon the judgment of the apex court in the case of CIT v. Karnataka State
Co-operative Apex Bank reported in [2001] 251 ITR 194 (SC). That was a case of a
co-operative bank. A co-operative bank and a co-operative society do not stand on the
same footing.
The whole of the income of co-operative bank is deductible whereas in the case of society the income
attributable to any one or more of the activities laid down in sub-section (2) is deductible. The
Division Bench did not give any independent reasoning. The Division Bench proceeded on the basis
that the view taken by them was supported by the judgment in the case of Karnataka State
Co-operative Apex Bank (supra) which, with respect, was not a correct impression. The other
judgment cited by Mr. Khaitan in the case of Guttigedarara Credit Co-operative Society Ltd. (supra)
is not applicable because the caution appearing in sub-section (1) of section 80P, that only an
income referred to in sub-section (2) was deductible, was not taken into account. The sub-section
(2) provides for only the income attributable to the business of advancing credit facilities to its
members. Income arising from any other source including investment of capital "if not immediately
required to be lent to the member" was not contemplated. The assessee cannot claim any deduction
which is not provided for by the section. Moreover the judgment in the case of Totgar's Co- operative
Sale Society Ltd. (supra is a binding authority for the preposition that "interest income arising on

the surplus invested in short-term deposits and securities... would come in the category of income
from other sources."
Page | 13 Haldia IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017
Realising his difficulty, MR. Khaitan submitted that the assessee was under the impressions that the
income arising out of investments is also attributable to the business of providing credit facilities to
its members and on that basis, the assessee did not separately provide for the expenditure incurred
for the purpose of earning Rs.99 lakhs during the assessment year 2003-04 and Rs.1.12 crores
during the assessment year 2004-05, form investments. Those investments were obviously made
from out of the funds deposited by the members and for such deposits, interest has been paid to
those members by the assessee. The interest paid to those members on account of such deposits
should, therefore, have been separately accounted for, which exercise was not undertaken. The
result thereof was that the expenditure was artifically enhanced and the income arising out of the
business of providing credit facilities to its members got reduced. When the income got reduced, the
amount of deduction also got reduced. He, therefore, submitted that the matter should be remanded
to the Assessing Officer for the purpose of working out the amount of expenditure incurred in
earning the approximate sums of Rs.99 laksh and Rs.1.12crores respectively. The expenditure
incurred for earning those two amounts of income is the amount of interest paid for that money to
the members which has to be ascertained and that has to be deducted from the expenditure of the
eligible business so that the eligible amount of deduction can be worked out. At the same time, The
Assessing Officer has to be directed, according to him, to treat the amount of interest arising out of
investments of the funds created under section 63 as an income attributable to the business.
Mr. Saraf submitted that this is a new case made out by the assessee before the High Court. This was
never the plea before any of the authorities. He is no doubt correct in his submission. But court
cannot refuse to give a person what is due to him. As a matter of fact, only that is a good judgment
which renders every person his due. Whether the assessee claimed the amount or did not claim the
amount, is not of much importance. What is of importance is whether the benefit is allowable in
law? If an answer to that question is in the affirmative, then that benefit has to be allowed.
In that view of the mater, the question raised for decision is answered in the affirmative and in
favour of the Revenue to the extent as indicated above. The appeal is allowed. The matter is,
however, remained to the Assessing Officer (a) to work-out the interest earned under sections 63
and 64 of the Multi-Stat Co-operative Societies Act, 20002 and to allow benefit under section 80P
and (b) to ascertain the interest paid to the members for the purpose of earning the sums of Rs.99
lakhs and 1.2 crores on account of interest from investments. Such interest shall be deducted from
the expenses of eligible business. Consequent increased amount of profits of eligible business as
discussed above shall be the amount of deduction available to the assessee under section 80P."
8. We deem it appropriate to conclude in these peculiar facts and circumstances that assessee's
impugned interest income derived from investment is not eligible for u/s 80P(2)(a)(i) deduction per
se. Its reliance on learned co-ordinate bench's decision in its own case dated 01.03.2018 (supra) is
not very well founded since going against the hon'ble jurisdictional subsequent judgment on the
very issue. We therefore treat learned co-ordinate bench's earlier order to be per inquriam as per the

CIT vs. B.R. Constructions (1993) 202 ITR 222 (AP)(F.B) since not taking into consideration the law
settled by hon'ble jurisdictional high court. The Revenue therefore succeeds in its sole substantive
ground in principle.
9. This leaves us with the equally significant aspect of computation of the impugned sec.
80P(2)(a)(i) deduction. There is hardly any dispute about the assessee having derived its interest
income from investments made in a nationalised and State co-operative bank (supra). We quote
jurisdictional high court's above stated latter judgment first of all make it clear that the Assessing
Officer needs to re-do the entire computation afresh. He shall treat assessee's interest income if any,
earned from investments made from deposits sec. 64 r.w.s. 63 of the Multi-State Co-operative
Societies Act, 2002 to be very much attributable to the business of providing credit facility to its
members. This shall follow the necessary netting exercise of the impugned interest income vis-à-vis
the corresponding interest expenditure as well for arriving at the impugned disallowance. Needles to
say, the assessee shall be afforded adequate opportunity of hearing in consequential proceedings."
6. We adopt the above detailed discussion mutatis mutandis to decline assessee's instant latter
substantive ground regarding the issue of section 80P(2)(a)(i) deduction on interest income derived
from parking of surplus funds in term deposits schemes of nationalized banks. The fact also remains
that impugned disallowance has to be computed on netting basis and both the lower authorities
have not taken into consideration the same in their respective orders. We therefore Page | 14 Haldia
IOC Employees Welfare Co-Operative Credit Society I.T.A No .144 0/ Ko l/2 017 direct the Assessing
Officer to compute the impugned disallowance on netting basis as per law within three effective
opportunities of hearing.
7. This assessee's appeal is partly allowed in above terms.
Order is pronounced in the open court on 22.11.2019.
Sd/- Sd/-
(P. M. Jagtap) (S. S. Godara)
VICE-PRESIDENT JUDICIAL MEMBER
□□□□□□□ /Kolkata;
□□□□□/ Date:22/11/2019
RS
□□□ □□ □ □ □□ □ □□/Copy of the Order forwarded to :
1. The Appellant - Haldia IOC Employees Welfare Co-Operative Credit

Society
2. The Respondent - ACIT, Circle-27(2), Haldia
3. □□□□□□□ □(□□□□) / The CIT(A), Kolkata [sent through email]
4. □□□□□□□ □/ CIT
5. □□□□□□ □ □ □, □□□□□□□□ □□ □□□□, □□□□□□□/ DR, ITAT, Kolkata [sent
through email]
True Copy
By Order

Assistant Registrar,
I.T.A.T, Kolkata Benches,
Kolkata.
Pag

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Haldia Ioc Employees Welfare ...

vs Acit, Circle - 27(2), Haldia, Haldia on 22 November, 2019

Haldia Ioc Employees Welfare ... vs Acit, Circle - 27(2), Haldia,

□□□□□□ □□□□ . /□□□□□□□□ . /PAN/GIR No.: AAAAH0504M

Appellant by : Shri Manoj Dutt, CA

□□□□□□□ □□□ □/ Date of Hearing : 23/09/2019

Per Shri S. S. Godara:

Heard both the parties. Case file perused.

"2.1 The individual grounds of appeal are dealt as under:

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 1

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 2

(i) Section 80P(4) is reproduced below:

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 3

[(cciiib) "multi-State co-operative society" means a multi-State co-operative society registered as

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 4

v. Additional Commissioner' of Income-tax, Ward-17(3),Mumbai. - [12, Taxmann.com 246 (2011)]

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 5

"3 Submission: The AR of the appellant made the submissions as under:

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 6

3.1 Grounds No. 1 and 2:

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 7

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 8

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 9

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 10

(a) in the case of a co-operative society engaged in--

(ii) a cottage industry, or

(iii) the marketing of agricultural produce grown by its members, or

(iv) the purchase of agricultural implements, seeds, livestock or other articles

(vi) the collective disposal of the labour of its members, or

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 11

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 12

and gains of business attributable to carrying on the business of banking or providing

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 13

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 14

Co-operative Bank Ltd.

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 15

8. In the result, appeal by the revenue is dismissed."

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 16

Mr. Banerjee accordingly prayed for rejection of the instant appeal.

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 17

The appeal is dismissed accordingly."

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 18

the assessment year 2004-05, should be attributable to the business of providing

'At the outset, an important circumstance needs to be highlighted. In the present

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 19

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 20

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 21

7. This assessee's appeal is partly allowed in above terms.

Order is pronounced in the open court on 22.11.2019.

□□□ □□ □ □ □□ □ □□/Copy of the Order forwarded to :

1. The Appellant - Haldia IOC Employees Welfare Co-Operative Credit

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 22

Indian Kanoon - http://indiankanoon.org/doc/180352893/ 23

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