ACIT, CIRCLE, BHILWARA vs. M/S. BHILWARA ZILA DUGDH UTPADAK SAHAKARI SANGH LTD., BHILWARA

O R D E R PER: Dr. S. Seethalakshmi, JM

The Revenue has filed an appeal against the order of the Learned Commissioner of Income Tax, Ajmer [herein after “Ld.CIT(A)”] dated 27.02.2019 for the assessment year 2016-17.

2. The Revenue has raised the following grounds of appeal:-

“"On facts and in law, the Ld. CIT(A), Ajmer erred in :-

1. deleting the addition of Rs. 2,23,46,187/- made on account of disallowance of deduction claimed u/s. 80P(2)(d) of the I.T. Act,

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. 1961, as the Baroda Rajasthan Gramin Bank Ltd. is not registered under the Co-operative Societies Act, 1912 or under any other law for registration of co-operative societies, as provided u/s. 2(19) of the I.T. Act, 1961;

2. not considering relevant part of the Circular No.6/2010 which provides that the Circular No.319 dated 11.01.1982 deeming any Regional Rural Bank to be co-operative society stands withdrawn for application with effect from assessment year 2007-08, thus, Baroda Rajasthan Bank Gramin Bank Ltd. cannot be treated as co-operative society in relation to the assessee and that fiction created u/s. 22 of RRB Act is limited to the assesseement of RRB itself in relation to I.T. Act, 1961 [40 ITR 142 (SC)/72 ITR (SC)]:

3. Deleting the addition of Rs.2,23,46,187/- following the Hon'ble ITAT, Jodhpur's order dated 31.10.2018 in for A.Y. 2014-15 in assessee's own case, without appreciating the fact that the order of the Hon'ble ITAT has not been accepted by the Revenue and further appeal has been preferred before the Hon'ble High Court, Jodhpur;

4. The appellant craves to add, amend, alter, delete or modify the above grounds of appeal before or at the time of hearing."

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. declaring total Income of Rs.4,43,83,930/-. The case was taken in the scrutiny through compulsory manual selection. Notice U/s 143(2) was issued and served on 27.09.2017 which was duly served on 28.09.2017. Thereafter, the notice U/s 142(1) along with questionnaire for furnishing certain details/ information was issued on 15.09.2018 and after various dates. The assessee filed the reply time to time on various dates through e-proceedings and the same is taken on record. During the period under consideration, the assessee has claimed deduction u/s 80P(2)(d) of the Act against the interest received from the following banks:-

Baroda Rajasthan Gramin Bank Ltd. : Rs. 2,23,46,187/-

Central Co-op. Bank : Rs. 31,128/-

Rs. 2,23,77,315/- The plea of the assessee’s reply at para 16(ii)(iii) &(iv) is not acceptable as the conditions laid down in the section 80P(2)(d) had not been satisfied. The interest received from the Baroda Rejasthan Gramin Bank Ltd. And Central Co-op. Bank, is not allowable deduction u/s 80P(2)(d) of the Act as these entities are not the co- operative societies as provided u/s 80P(2)(d) of the I.T. Act, 1961. In view of the above, it is concluded that the interest received from the ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. Baroda Rajasthan Gramin Bank Ltd. Is not the co-operative societies as provided u/s 80P(2)(d) of the I.T. Act, 1961. Therefore, the out of total deduction of Rs. 2,39,77,539/- the deduction to the tune of Rs. 2,23,46,187/- is disallowed and added back to the total income of the assessee for the assessment year 2016-17.

4. Being aggrieved by the order of the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:-

“4.3 I have gone through the assessment order, statement of facts, grounds of appeal and written submission carefully. It is seen that the appellant has contended that the issue is covered in favor of the assessee in assessee's own case by the ITAT Jodhpur's order dated 31.10.2018 (ITA No. 437/Jodh/2017, A.Y. 2014-15). I have gone through the ITATS Jodhpur order dated 31.10.2018 carefully. It is seen that the ITAT has observed as under at Para 5 to 7 as under:- "5. We have considered the rival submission of the parties and have gone through the assessment proceedings the AO noted that assessee has claimed exemption of interest income on FDR with Central Cooperative Bank Ltd., for Rs.76,43.562/- and interest on FDR with Baroda Rajasthan Kshetriya Gramin Bank of Rs.2,09,91,701 The AO allowed the exemption on interest received from Central Co-operative Bank However, the AO disallowed the exemption on account of interest earned from Baroda Rajasthan Kshetriya Gramin Bank on his observation that Baroda Rajasthan Kshetriya Gramin Bank is not a Co-operative Society. The 40 also took the view that Baroda Rajasthan Kshetriya Gramin Bank is neither registered under Co-operative Society Act or under, other law for the time enforce any such state for registration of Co-operative Societies. Therefore, the interest of Rx 2,09,91,701/- received on FDR was not held eligible for deduction w/s 80P(2)(d). The Id. CIT(A) confirmed the action of AO holding that Baroda Rajasthan (supra) is not a Co-operative Society registered under the Co-operative Society Act or under any law for the time enforce in any state for the registration of Co-operative Society, therefore, the interest received by assessee on FDR made with Baroda Rajasthan (supra) is not eligible for deduction w/s 80P(2)(d).

6. The ld. AR of the assessee relied upon the decision of Mumbai Tribunal in Presidency Co-operative Society (supra) and in Shree Keshorai Patan Sahakari ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. Sugar Mill. In our considered view the facts narrative is not applicable on the facts of the present case. In both the cases the assessee, (in those cases were held entitled for exemption of interest received on deposit with Co-operative Bank which were held as Co-operative Society. However, in the present case, the assessee has claimed that Rural Bank are also Co-operative We have examined the CBDT circular No. 6/2010 dated 16.09.2010, for appreciation of the contents the circular it is extracted below; CIRCULAR NO. 6/2010 IF NO. 173(3)/44/2009-IT (A-1)] DATED 20-9-2010.

1. Section 80P of the Income-tax Act, 1961 provides for a deduction from the income of cooperative societies referred to in that section.

2. As Regional Rural Banks (RRB) are basically corporate entities (and not cooperative societies), they were considered to be not eligible for deduction under section 80P when the section was originally introduced However, as section 22 of the Regional Rural Bank Act provides that a RRB shall be deemed to be cooperative society for the purposes of the Income-tax Act, 1961, in order to make such banks eligible for deduction under section 80P. CBDT issued a beneficial Circular No. 319 dated 11-1-1982, which stated that for the purpose of section 80P, a Regional Rural Bank shall be deemed to be a cooperative society.

3. Section 80P was amended by the Finance Act, 2006, with effect from 1-4-2007 introducing sub-section (4), which laid down specifically that the provisions of section 80P will not apply to any cooperative bank other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank Accordingly, deduction under section 80P was no more available to any Regional Rural Bank from assessment year 2007-08 onwards. An OM dated 25-8-2006 addressed to RBI was issued by the Board clarifying that Regional Rural Banks would not be eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards.

4. It has been bought to the notice of the Board that despite the amended provisions, some Regional Rural Banks continue to claim deduction under section 80P on the ground that they are cooperative societies covered by section 80P(1) read with Boards Circular No. 319 dated 11-1-1982.

5. It is, therefore, reiterated that Regional Rural Banks are not eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards. Furthermore, the Circular No. 319 dated 11-1-1982 deeming any Regional Rural Bank to be cooperative society stands withdrawn for application with effect from assessment year 2007-08. The field officers may take note of this position and take remedial action, if required.

7. We have also perused the various provisions of Regiona Rural Bank Act 1976. Baroda Rajasthan Kshetriya Gramina Bank was set up under the provisions of under the provisions of Regional Rural Bank Act. Section 22 of the Regional Rural

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. Bank Act provides that Regional Rural Bank to be deemed to be a co-operative society for purpose of the Income-tax Act, 1961. In our considered view the the Circular of CBDT cannot override the provisions of the Act of Parliament. Even the careful reading of the Circular No. 6 of CBDT make it clear that exemption is withdrawn with respect to Regional Rural Banks are not eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards, and not the co-operative societies. The assessee before us is the co- operative society and not the Regional Rural Bank. Therefore, considering the provisions of section 22 of Regional Rural Bank Act, wherein the status of the banks established are of the co-operative societ the assessee is entitled for the exemption on the interest earned on the deposits. In the result the ground No. 1 & 2 of the appeal are allowed." As the facts of the A.Y. 2014-15 are similar to the facts of the assessment year under appeal (2016-17), therefore, following the decision of ITAT, Jodhpur referred above, the AO is directed to allow deduction of Rs. 2,23,46,187/- u/s 80P(2)(d). In the result, the appeal is allowed.”

5. Aggrieved from the order of the ld. CIT(A), the Revenue preferred an appeal before this tribunal on the grounds as reiterated here in above in para

2. A propose to the grounds so raised the ld. DR submitted that the present appeal was filed on the basis of the fact that the addition of Rs. 2,23,46,187/- made on same ground u/s 80P(2)(d) of the Act, deleted the Coordinate Bench vide its order in ITA 437/Jodh/2017 dated 31.10.2018 has not been accepted by the Revenue and further appeal has been preferred before the Hon’ble High Court as also stated in ground No. 3 of the From No. 36.

6. Per contra, the ld. AR for the assessee submitted that the Department has preferred an appeal against the order in dated

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. 31.10.2018 wherein the Hon’ble Rajasthan High court, Jodhpur has decided in Revenue’s appeal filed for the assessment year 2014-15 in the case of PCIT, Ajmer vs M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. in BD Income Tax Appeal No. 2/2019 vide its order dated 13.08.2019.

7. We have heard the both parties and perused the materials available on record. The Bench observed that the said appeal was filed on the basis of that addition of Rs. 2,23,46,187/- u/s 80P(2)(d) of the Act. We note that the department has preferred an appeal against the order of ld. CIT(A) for assessment year 2016-17 wherein the disallowance of deduction claimed u/s 80P(2)(d) of the Act amount to Rs. 2,23,46,187/- was deleted. The issue before us is that whether the assessee being co-operative society be denied benefit of section 80P(2)(d) of the Act on interest received from another co- operative society engaged in banking activities. The similar issue has been decided by the Hon’ble Rajasthan High court, Jodhpur has decided in Revenue’s appeal filed for the assessment year 2014-15 in the case of PCIT, Ajmer vs M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. in BD Income Tax Appeal No. 2/2019 vide its order dated 13.08.2019. The relevant observation made in the order by the Jurisdictional High Court has been reproduced as under:-

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. “The revenue cites a CBDT Circular (No. 6/2010 dated 20.09.2010) and contends that the Board categorically stated that interest income derived from deposits, made with non-cooperative institutions and more specifically Regional Rural Banks do not qualify for the benefit under Section 80P(2) of the Act of 1961. Section 22 of the Regional Rural Banks Act, 1976 states as follows” “22. Regional Rural Bank to be deemed to be a co- operative society for purpose of the Income Tax Act, 1961- For the purpose of the Income Tax Act, 1961 (43 of 1961), or any other enactment for the time being in force relating to any tax on income, profits, or gains, a Regional Rural Bank shall be deemed to be a cooperative society." The CBDT reasoning appears to be that Section 80P was amended w.e.f. 1.4.2007 introducing specifically that the benefit of exemption would not apply to any cooperative bank other than Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. The circular then stated that in the light of this inclusion - to Section 80P by way of introduction of Section 80P(4), the exemption could not be availed of by the banks invested in Regional Rural Banks. This Court is of the opinion that the revenue's contention is unsustainable. Section 22 in uncertain terms categorically deems Regional Rural Banks (of which description Baroda Rajasthan Regional Rural Banks answer to) as Cooperative Societies for the purposes of Income Tax Act. In the absence of non-obstante clause, the mere fact that a restrictive condition was imposed in relation to a Cooperative Bank for regulating the benefit of Section 80P, does not in any manner, alter the pre-existing situation. By virtue of Section 22, Regional Rural Banks continue to be deemed Cooperative Societies and all the contingent consequences that flow from it. For the above reasons, this court is of the opinion that there is no substantial question of law involved in the present appeal. The appeal is, therefore, dismissed.”

Taking into consideration the present facts and circumstances of the case, we observed that the ld. CIT(A) has rightly passed the order as the similar written submission filed by the assessee during the appellate proceeding and the identical issue which is in favour of the assessee’s own case of the Coordinate Bench in case by the ITAT, Jodhpur’s order dated 31.10.2018 in ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. A.Y. 2014-15) which have been confirmed by the Hon’ble Court. The relevant observation of ITAT is as under:-

"5. We have considered the rival submission of the parties and have gone through the assessment proceedings the AO noted that assessee has claimed exemption of interest income on FDR with Central Cooperative Bank Ltd., for Rs.76,43.562/- and interest on FDR with Baroda Rajasthan Kshetriya Gramin Bank of Rs.2,09,91,701 The AO allowed the exemption on interest received from Central Co-operative Bank However, the AO disallowed the exemption on account of interest earned from Baroda Rajasthan Kshetriya Gramin Bank on his observation that Baroda Rajasthan Kshetriya Gramin Bank is not a Co-operative Society. The 40 also took the view that Baroda Rajasthan Kshetriya Gramin Bank is neither registered under Co-operative Society Act or under, other law for the time enforce any such state for registration of Co-operative Societies. Therefore, the interest of Rx 2,09,91,701/- received on FDR was not held eligible for deduction w/s 80P(2)(d). The Id. CIT(A) confirmed the action of AO holding that Baroda Rajasthan (supra) is not a Co-operative Society registered under the Co-operative Society Act or under any law for the time enforce in any state for the registration of Co-operative Society, therefore, the interest received by assessee on FDR made with Baroda Rajasthan (supra) is not eligible for deduction w/s 80P(2)(d).

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd.

3. Section 80P was amended by the Finance Act, 2006, with effect from 1-4-2007 introducing sub-section (4), which laid down specifically that the provisions of section 80P will not apply to any cooperative bank other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank Accordingly, deduction under section 80P was no more available to any Regional Rural Bank from assessment year 2007-08 onwards. An OM dated 25-8-2006 addressed to RBI was issued by the Board clarifying that Regional Rural Banks would not be eligible for deduction under section 80P of the Income-tax Act, 1961 from the assessment year 2007-08 onwards.

ACIT vs. M/s Bhilwara Zila Dugdh Utpadak Sahakari Sangh Ltd. As facts of the assessment year 2014-15 are similar of the facts of the assessment year 2016-17 under appeal, therefore, the following decision ITAT Jodhpur referred above which is also confirmed by the Hon’ble High Court. Based on these observations, we do not find any infirmity in the order of the ld. CIT(A) and therefore, the appeal filed by the Revenue stands dismissed.

In the result, the appeal of the Revenue is dismissed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board.