ITO,Wd.-1,, Satara v. The Karad Merchant Sah. Credit Sanstha, Karad

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO ACCOUNTANT MEMBER ITA NO. 159/PN/09 : A.Y. 2005-06 I.T.O. WARD 1 SATARA .... APPELLANT VS. KARAD MERCHANT SAH. CREDIT SANSTHA SOMWAR PETH KARAD PAN AAAATO955 A . RESPONDENT APPELLANT BY : SHRI HEMANT C. LEUVA DR RESPONDENT BY : SMT. DEEPA KHARE CA ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-II PUNE DATED 06-10-2008 FOR THE A.Y. 2005-06. 2. AT THE VERY OUTSET SUMMING UP THE GROUNDS OF APPE AL THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT THE ISSUE UNDER CONSIDERATION RELATES TO IF THE DISALLOWANCE MADE U/S 40(A)(IA) OF THE ACT BECO MES TAXABLE WHEN THE SAID AMOUNT IS OTHERWISE ATTRIBUTABLE TO THE BANKING ACTIV ITIES OF THE CREDIT SANSTHA WHICH ENJOYS EXEMPTION U/S 80P(2)(A)(I) OF THE ACT. IN THIS REGARD THE LEARNED COUNSEL MENTIONED THAT SUCH ADDITIONS ARE UNCALLED F OR AS THE ASSESSEE ENJOYS EXEMPTION U/S 80P OF THE ACT. FOR THIS PROPOSITION L EARNED COUNSEL RELIED ON A DECISION OF CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI MAHAVIR NAGARI SAHAKARI PAT SANSTHA LTD. VS. DY. CIT IN IT (SS) A N O. 2/PN/1997 FOR THE BLOCK PERIOD 1989-90 TO 1996-97 REPORTED IN (2002) 74 TTJ ( PUNE) 793 AND READ OUT THE RELEVANT PORTION WHICH IS REPRODUCED AS UNDER: 36. AS REGARDS THE APPLICABILITY OF S. 80P(2)( A)(I) WE FIND THAT THE ASSESSEE HAS GIVEN LOANS ONLY TO ITS MEMBERS. SHRI PATANKAR MANAGER IN HIS STATEMENT U/S 132(4) AT THE TIME OF SEARCH ITSE LF HAD STATED THAT FOR DRAWING A LOAN THE PERSON CONCERNED MUST BE A MEMB ER OF THE SOCIETY (P. 66 OF THE PAPER BOOK). FURTHER THE CONFIRMATI ON FROM THE CHAIRMAN PLACED AT P. 132 OF THE PAPER BOOK REVEALS THAT THE LOANS WERE PROVIDED ITA NO.159/PN/09 KARAD MERCHANT SAH. CREDIT SANSTHA A.Y. 2005-06 PAGE 2 OF 3 ONLY TO MEMBERS. THE HONBLE SUPREME COURT IN THE CASE OF U.P. CO-OP. CANE UNION FEDERATION LTD. VS. CIT (1999) 157 CTR (SC) 569 HAS HELD THAT THE DEFINITION OF A MEMBER OF A CO-OPERATIVE S OCIETY IS INCORPORATED UNDER THE MAHARASHTRA CO-OPERATIVE SOCIETIES ACT T HE DEFINITION OF A MEMBER AND NOMINAL MEMBER HAS TO BE ADOPTED FROM TH E SAID ACT. AS PER THESE DEFINITIONS (P. 90 OF THE PAPER BOO) MEMBERS INCLUDE NOMINAL MEMBERS ALSO WHO ARE ADMITTED AS PER THE BYE-LAWS A ND THE BYE-LAWS 74 TO 88 OF THE SOCIETY CLEARLY STATE THAT THE SOCIETY CAN ADMIT NOMINAL MEMBERS IN VIEW OF THE ABOVE FACTS THE ASSESSEE SA TISFIES THE CONDITIONS LAID DOWN U/S 80P(2)(A)(I) OF THE ACT AND HENCE IT IS ENTITLED T DEDUCTION U/S 80P OF THE ACT. THE INTEREST EARNED BY THE ASSE SSEE ACCORDINGLY WILL BE EXEMPT UNDER THIS SECTION. THE CASH CREDITS EVEN IF TAXED WILL BE CONSIDERED AS INCOME FROM THE SAME BUSINESS I.E. P ROVIDING CREDIT FACILITIES TO THE MEMBERS AND ACCORDINGLY THEY WI LL ALSO BE ENTITLED TO DEDUCTION UNDER SEC. 80P AND THUS THE ENTIRE INCOM E OF THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 80P AND ACCORDINGLY NO ADDITION IS SUSTAINABLE IN THE HANDS OF THE ASSESSEE-SOCIETY. 3. SIMILAR VIEW WAS ALSO TAKEN BY AHMEDABAD B BEN CH OF THE TRIBUNAL IN THE CASE OF ITO VS. COMPUTER FORCE (2011) 48 DTR (AHD) (T RIB) 298 AND BY JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LD. IN (2010) 233 CTR (BOM) 248. 4. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE RE LIED ON THE ORDER OF THE A.O. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS RELEVANT TO REPRODUCE PARA 7 OF THE IMPUGNED ORDER OF THE CIT(A) WHICH READS AS UNDER: REGARDING THE OTHER GROUND OF APPEAL THE A.O HAS STA RTED THE COMPUTATION OF INCOME WITH TOTAL INCOME AS PER RETURN AFTER AVAILING DEDUCTION U/S 80P(2)(A)(I) AND THEN ADDED THE DISAL LOWANCE U/S 40(A)(IA) OF THE ACT AT RS. 7 67 936/-. IT IS NOT IN DISPUTE THAT THE AMOUNT OF RS. 7 67 936/- WAS DEBITED TO THE P & L A/C. THERE IS N O FINDING BY THE A.O THAT THE DEDUCTION U/S 80P(2)(A)(I) OF THE ACT WAS NOT ALLOWABLE TO THE ASSESSEE. ONCE DEDUCTION U/S 80P(2)(A)(I) IS ALLOW ABLE AN ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE DEBITED TO THE P & L A/C IS ALSO REQUIRED T BE COVERED UNDER PROVISIONS OF SECTION 80P. IN VIEW OF THE ABOVE EVEN THOUGH ADDITION OF RS. 7 67 936/- MADE TO THE INCOME OF THE ASSESSEE IS SUSTAINED IT IS HELD THAT THE DEDUCTIO N U/S 80P(2)(A)(I) OF THE ACT WAS ALLOWABLE ON THE TOTAL INCOME. IN VIEW OF THE ABOVE THIS GROUND OF APPEAL IS ALLOWED. 6. FROM THE ABOVE IT IS EVIDENT THAT THE AMOUNT OF DISALLOWANCE OF EXPENDITURE UNDER CONSIDERATION IS THE PAYMENT WHICH IS INCIDENTAL TO THE BANKING ACTIVITIES AND IT COMES UNDER THE PURVIEW OF THE PROVISIONS OF SECTION 80P(20(A)(I) OF THE ACT. CONSIDERING THE ABOVE FACT S WE ARE OF THE OPINION THAT THE ORDER OF THE CIT(A) DOES NOT CALL FOR ANY INTERFERE NCE. IN PRINCIPLE THE ITA NO.159/PN/09 KARAD MERCHANT SAH. CREDIT SANSTHA A.Y. 2005-06 PAGE 3 OF 3 CITATION RELIED UPON BY THE LEARNED COUNSEL ALSO STREN GTHEN THE ABOVE DECISION OF THE CIT(A). ACCORDINGLY THE GROUNDS RAISED BY THE RE VENUE ARE DISMISSED. 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 28 TH FEBRUARY 2011. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 28 TH FEBRUARY 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. ITO WARD 3(1) NANDED 2. ASSESSEE 3. CIT(A)-II PUNE 4. CIT III PUNE 5. DR ITAT B BENCH PUNE BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE