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Income Tax Appellate Tribunal, ‘’D’’ BENCH, AHMEDABAD
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ IN THE INCOME TAX APPELLATE TRIBUNAL, ‘’D’’ BENCH, AHMEDABAD BEFORE, SHRI A.D. JAIN, VICE PRESIDENT And SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.1030/AHD/2017 �नधा�रण वष�/Asstt. Year: 2012-2013 The Kheda Taluka Shikshak Pr.C.I.T-2, 2nd Floor, Aykar Bhawan, Mandli Limited, Vs. Pay Centre Shala, Race Course Circle, Kheda Camp, Vadodara-390007. Dist. Kheda-322234 PAN: AABAT2790E
(Applicant) (Respondent) Assessee by : Shri Parin Shah, A.R Revenue by : Shri Jagdish, CIT.DR सुनवाई क� तार�ख/Date of Hearing : 08/04/2019 घोषणा क� तार�ख /Date of Pronouncement: 23/05/2019 आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Pr. Commissioner of Income Tax-2, Vadodara [Ld.CIT in short], dated 02/03/2017 arising in the matter of assessment order passed under s. 263 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dated 26/11/2014 relevant to Assessment Year (AY) 2012-13.
The assessee has raised the following grounds of appeal: 1 Ld. Pr. CIT' erred in law and on facts in invoking provisions of sec. 263 to revise scrutiny assessment framed u/s 143 (3) of the Act holding it as erroneous and prejudicial to the interest of revenue. Page 1 of 7
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2 Ld. Pr. CIT erred in law and on facts in holding the order erroneous and prejudicial to the interest of revenue on the ground that Id. AO wrongly allowed deduction of Rs. 9, 99, 500/- to the appellant u/s 80P of the Act. 3 Ld. Pr. CIT erred in law and on facts in initiating proceedings u/s 263 erroneously holding the appellant, a co operative credit society to be a co operative bank and hence ineligible to claim deduction u/s SOP as per provisions of sec. 80P(4) of the Act. 4 Ld. Pr. CIT erred in law and on facts framing order u/s 263 of the Act on a completely new ground not at all emanating from the show cause notice. 5 Ld. Pr. CIT erred in law and on facts directing AO to reframe assessment afresh holding that interest earned on investment of surplus amounts kept with banks is not eligible for deduction u/s 80P(2)(a)(i) of the Act. 6 Ld. Pr. CIT erred in law and on facts in holding that activity of appellant is akin to a Primary Co-operative Bank & hence the appellant as not eligible for deduction u/s 80P(2) r w s 80P(4) of the Act.
The only effective issue raised by the assessee is that learned CIT erred in holding the order of the AO as erroneous insofar prejudicial to the interest of Revenue under section 263 of the Act.
The facts of the case are that the assessee in the present case is a credit society and engaged in the activity of providing finance to its members. The assessee for the year under consideration filed its return of income at Rs. NIL after claiming the deduction under section 80P of the Act for ₹ 9,99,500.00 only. Subsequently, the case of the assessee was selected under scrutiny and accordingly the assessment was framed under section 143(3) of the Act vide order dated 26th November 2014 accepting the income declared in the return of income.
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2.1 Subsequently, the learned CIT on the examination of the assessment records noticed that the order passed by the AO under section 143(3) of the Act is erroneous insofar prejudicial to the interest of the Revenue on the reasons as detailed under: i. The assessee being a primary co-operative bank within the meaning as specified under section 56 of part V of Banking Regulation Act 1949, is not eligible for deduction under section 80P(4) of the Act. ii. The assessee is not eligible for deduction under section 80P(2)(a)(i) of the Act on interest income on the deposits made with the nationalized bank. 2.2 However, the AO allowed the deduction to the assessee under section 80P(4) and 80P(2)(a)(i) of the Act though the assessee is not eligible for the same. Accordingly, a notice under section 263 of the Act was issued to the assessee for the explanation on the issue as discussed above.
2.3 The assessee in compliance to it submitted that it is a co-operative society and it does not have any banking license. Therefore its activities cannot be governed under the banking regulation Act. Accordingly, the provisions under section 80P(4) of the Act do not apply to it.
2.4 As such it is engaged in the business of providing credit facility to its members and therefore the same is eligible for deduction under section 80P(2)(a)(i) of the Act.
2.5 However, the learned CIT disagreed with the submission of the assessee by observing that it is a primary co-operative bank and has paid up share capital exceeding ₹1 lakhs within the meaning of section 56 of part V of
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Banking Regulation Act. Accordingly, it is not eligible for deduction under the provisions of section 80P(4) of the Act.
2.6 Similarly, the interest income on the money deposited with the nationalized bank is not eligible for deduction under section 80P(2)(a)(i) of the Act. But the AO has allowed the same as a deduction.
In view of the above, the learned CIT held the order of the AO as erroneous insofar prejudicial to the interest of the Revenue. Accordingly, he set aside the order of the AO and directed him to make the fresh assessment as per the provisions of law after providing a reasonable opportunity of hearing to the assessee.
Being aggrieved by the order of the learned CIT, the assessee is in appeal before us.
The learned AR before us submitted that the assessee is not a cooperative bank and therefore there is no question of applying the provisions of section 80P(4) of the Act. As such the assessee is eligible for a deduction of its income earned from the business of providing finance to its members under section 80P(2)(a)(i) of the Act.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The facts of the case are not in dispute. Therefore we are not inclined to repeat the same for the sake of brevity. Page 4 of 7
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5.1 The provisions of section 80P(4) denies the deduction to the co- operative bank. But in the case before us, the assessee is a co-operative society. Therefore it cannot be governed under the provisions of the Banking Regulation Act. The learned DR at the time of hearing could not controvert the argument advanced by the learned counsel for the assessee. Therefore we hold that the assessee is out of the purview of the provisions of section 80P(4) of the Act. Regarding this, we also find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of the CIT versus Act Ekta Co-op Credit Society Ltd reported in 91 taxmann.com 42 wherein it was held as under: “4. As can be seen from the order passed by the Commissioner (Appeals), he has recorded that the provisions of sub-section (4) of section 80P of the Act would be attracted in case of a cooperative bank other than primary agricultural credit society or a primary cooperative agricultural and rural bank. In terms of clause (a) of the Explanation to section 80P(4), cooperative bank and primary agricultural credit society shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949. The Commissioner (Appeals) has recorded that the assessee society being a cooperative credit society limited is not a bank as contemplated under the Banking Regulation Act and hence, the provisions of sub- section (4) of section 80P of the Act would not be applicable to it. 5. The Tribunal has concurred with the view adopted by the Commissioner (Appeals). The above view of the Tribunal is fortified by a decision of this court in the case of CIT v. Surat Vankar Sahakari Sangh Ltd., [2014] 225 Taxman 162/43 taxmann.com 431 (Guj.), wherein the court has repelled the contention of the revenue that section 80P(4) would exclude not only the cooperative banks other than those fulfilling description contained therein but also credit societies, which are not cooperative banks. In the facts of the said case, the assessee was a credit cooperative society and not a cooperative bank. The court held that the exclusion clause of sub-section (4) of section 80P of the Act would, therefore, not apply. The above decision would be squarely applicable to the facts of the present case. 6. The impugned order passed by the Tribunal being in consonance with the view adopted by this court in the above decision, does not suffer from any legal infirmity so as to give rise to a question of law, much less, a substantial question of law, warranting interference. The appeal, therefore, fails and is, accordingly, summarily dismissed.”
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In view of the above, there remains no ambiguity that the provisions of section 80P(4) of the Act cannot be applied to the case on hand. Therefore the order passed by the AO cannot be held as erroneous and prejudicial to the interest of Revenue.
Coming to the 2nd allegation of the ld. CIT regarding the deduction under section 80P(2)(a)(i) of the Act, we note that the interest income earned by the assessee on the deposit of the surplus fund is not eligible for deduction under section 80P(2)(a)(i) of the Act as it is not arising from the activity of financing provided to the members of the society. In this regard we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of State Bank of India versus CIT reported in 72 taxman.com 64 wherein it was held as under: “Thus, in the case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, what is deductible under section 80P of the Act is the whole of the amount of profits and gains of business attributable to any one or more such activities. The Supreme Court in Totgars Co- operative Sale Society (supra) has, while giving a precise meaning to the words "profits and gains of business" mentioned in section 80P(2) of the Act, observed that the assessee in that case regularly invested funds not immediately required for business purposes and was of the view that interest on such investments, therefore, cannot fall within the meaning of the expression "profits and gains of business". It was held that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of the agricultural produce to its members. The court further held that the words "the whole of the amount of profits and gains of business" emphasise that the income in respect of which deduction is sought must constitute the operational income and not the other income which accrues to the society. The court observed that in that particular case, the evidence showed that the assessee-society earned interest on funds which were not required for business purpose at the given point of time. Therefore, in the facts and circumstances of the case, the court was of the view that, such interest income falls in the category of "Other income" which had rightly been taxed by the Department under section 56 of the Act.”
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5.2 Thus from the above it is clear that the assessee is not eligible for the deduction of the interest income on the money deposited with the nationalized bank. However, the AO during the assessment proceedings has allowed the claim to the assessee in respect of such income though the assessee is not eligible for the same. Therefore the order of the AO to the extent of the relief granted to the assessee on the interest income on the surplus fund deposited with the bank is erroneous and prejudicial to the interest of revenue.
5.3 After considering the facts in totality as discussed above, we are of the view that the order of the AO is not erroneous insofar prejudicial to the interest of revenue for not denying the deduction to the assessee under section 80P(4) of the Act.
5.4 However, the order of the AO is erroneous insofar prejudicial to the interest of revenue for the deduction allowed to the assessee under section 80P(2)(a)(i) of the Act on the interest income earned by the assessee on the surplus fund deposited with the nationalized bank. Accordingly, to this extent, we hold that the order of the AO is erroneous insofar prejudicial to the interest of Revenue. Hence the ground of appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 23/05/2019 at Ahmedabad.
-Sd- -Sd- (A.D. JAIN) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 23/05/2019 Manish Page 7 of 7