The assessee, a co-operative sugar cane supply society, was engaged in supplying sugar cane to sugar mills and providing credit and agricultural inputs to its members. For Assessment Year 2020-21, it declared nil income after claiming deduction under Section 80P(2)(a)(iii) of the Income-tax Act, 1961.

During assessment proceedings, the Assessing Officer noted that the assessee had earned interest income of ₹30,08,496 from fixed deposit receipts maintained with nationalised banks. The said interest income was treated as taxable by placing reliance on the decision of the Hon’ble Supreme Court in Totgars Co-operative Sale Society Ltd. v. ITO. The addition was confirmed by the Commissioner (Appeals), NFAC.

On appeal, the Tribunal condoned a delay of 46 days in filing the appeal, following the liberal approach laid down by the Hon’ble Supreme Court in Collector of Land Acquisition v. Mst. Katiji, considering the medical exigency explained by the assessee.

On merits, the Tribunal observed that the assessee was statutorily required under the U.P. Co-operative Societies Act and Rules to maintain reserve funds, and investments made out of such statutory reserves could not be characterised as surplus funds. The Revenue did not dispute the statutory nature of these reserves.

The Tribunal placed reliance on earlier coordinate bench decisions, including Co-operative Cane Development Union Ltd. v. ACIT, and judicial precedents such as CIT v. Nawanshahar Central Co-operative Bank Ltd. and the Madras High Court ruling in Saravanampatti Primary Agricultural Co-operative Credit Society Ltd., wherein it was held that interest earned on statutory investments is attributable to the principal business of the co-operative society.

It was further held that the ratio of Totgars Co-operative Sale Society Ltd. was not applicable, as that decision dealt with surplus funds not required for statutory or business purposes, whereas in the present case, the deposits were made pursuant to statutory obligations.

Additionally, the Tribunal accepted the contention that interest earned on provident fund balances of seasonal employees could not be treated as income of the society.

Accordingly, the Tribunal directed deletion of the entire addition of ₹30,08,496 and allowed the appeal in favour of the assessee.

 

Source Link- https://itat.gov.in/public/files/upload/1767163962-bVs8eV-1-TO.pdf

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