M/S.PEROORKADA SERVICE CO-OP BANK LTD,TRIVANDRUM vs. THE ITO, WD-2(1), TRIVANDRUM, TRIVANDRUM

Per CHANDRA POOJARI, AM:

These appeals filed by the Revenue and the assessee are directed against the

different orders of the CIT(A), Trivandrum and pertain to the assessment years

2013-14 & 2014-15. The assessee has also filed Cross Objection in C.O. No.10/ Coch/2019 and Stay petitions in S.P. Nos.43 & 06/Coch/2018 for the assessment

years 2013-14 and 2014-15.

year 2013-14. This appeal is directed against the order of the Pr. CIT, Trivandrum

passed u/s. 263 of the Act vide order dated 24/03/2017.

2.1 The facts of the case are that original assessment was completed u/s. 143(3)

of the Act. The assessee’s income was assessed at Rs.1,04,84,857/- against the nil

income returned by the assessee. On examination of the records, the CIT(A) was of

the opinion that the Assessing Officer has not made proper enquiry and there was a

serious error in the order of the Assessing Officer which caused prejudice to the

interest of the Revenue. In view of the same, he initiated revision proceedings u/s.

263 of the Act directing the Assessing Officer to frame the assessment order afresh

in the following manner:

A. Compute profit and gains of business and profession in accordance with provisions of Chapter IV-D including verification of the following:

i. ensuring that the proof and identity of persons to whom interest payable is debited is established before granting deduction u/s. 80P of the Act.

ii. making necessary disallowance of provisions and reserves and other ineligible similar sums.

iii. disallowance of sums including sums paid in cash in violation of section 40A(3), including interest, rent, salary and other business expense where payment in cash exceeding Rs.20,000 and not covered by Rule 6DD.

iv. disallowance of interest and other sums under section 40(a)(i), if any, if section 195 is violated.

v. disallowance under section 40(a)(ia), after due examination (due care is to be taken not to disallow sums mentioned in section 194A(3)(viia).

vi. examining whether contingency expense claimed is an allowable item.

vii. Ensure that interest income on deposits is accounted for in accordance with provisions of section 145.

viii. computation of income in accordance with cash or mercantile system as applicable.

ix. consideration of Form 3CD which is to be called for.

B. Determine income from house property, capital gains and income from other sources, if any, in accordance with provisions of relevant chapters after making due enquiries and calling for information.

C. Compute Gross Total Income being A+B above.

D Determine profits from accounts eligible to be deducted under section 80P(2)(a) to (f) covering only items included in each of the sub-sections.

E. Determine assessed income at C-D (if any) subject to provisions of section 80AB.

F. The assessee must be given opportunity of being heard before finalizing the computation and for furnishing relevant information adequate time within the statutory time limit under section 153 is to be granted.

2.2 The CIT also observed that as judicial discipline is vital, the decision in case of

Chirakkal Servicce Co-operative Bank Ltd. vs. CIT (284 ITR 490) subject to final

decision in SLP in admitted case of Karakulam SCB Ltd. for the assessment year

2008-09 is to be borne in mind by the Assessing Officer at the time of giving effect

to this order. Against this, the assessee is in appeal before us.

the Income-tax Act seeks to remove the prejudice caused to the revenue by the

erroneous order passed by the Assessing Officer. It empowers the Commissioner to

initiate suo moto proceedings either where the Assessing Officer takes a wrong

decision without considering the materials available on record or he takes a decision

without making an enquiry into the matters, where such inquiry was prima facie

warranted. The Commissioner is well within his powers to treat an order as

erroneous on the ground that the Assessing Officer should have made further

inquiries before accepting the wrong claims made by the assessee. The Assessing

Officer cannot remain passive in the face of a claim, which calls for further enquiry

to know the genuineness of it. In other words, he must carry out investigation

where the facts of the case so require and also decide the matter judiciously on the

basis of materials collected by him as also those produced by the assessee before

him. The Assessing Officer was statutorily required to make the assessment under

Section 143(3) after scrutiny and not in a summary manner as contemplated by Sub-section (1) of Section 143. The Assessing Officer is therefore, required to act

fairly while accepting or rejecting the claim of the assessee in cases of scrutiny

assessments. The Assessing Officer should protect the interests of the revenue and

to see that no one dodged the revenue and escaped without paying the legitimate

tax. The Assessing Officer is not expected to put blinkers on his eyes and

mechanically accept what the assessee claims before him. It is his duty to ascertain

the truth of the facts stated and the genuineness of the claims made in the return.

The order passed by the Assessing Officer becomes erroneous when an enquiry has

not been made before accepting the genuineness of the claim which resulted in loss

of revenue.

3.1 In the present case, the Assessing Officer was under obligation to determine

income from other sources being deposits for which source was not explained. The

assessee is not a co-operative Bank having the meaning assigned to it in part V of

the Banking Regulation act, 1949 (10 of 1949). The Assessing Officer should have

called for details of deposits and anyalysed identity, genuineness and

creditworthiness of the same. Even if the benefit of section 80P(4) of the Act is

available to Primary Agricultural Co-operative Society, this does not imply that

eligibility u/s. 80P(2) automatically flows to the assessee which has to be

established. Further, the accounts were not subjected to audit under section 44AB.

In the present case, the profit and loss account and balance sheet were not filed either by an accountant or under co-operative audit. The assessee was liable to file

further report by an accountant in the prescribed format as per the provisions of

section 44AB of the Act. It appears that all these aspects were not enquired into

and no proper efforts were made to find out whether the assessee was eligible for

deduction u/s. 80P(2) of the Act. Without making any enquiry into these issues,

the Assessing Officer accepted the assessee’s claim. The failure on the part of the

Assessing Officer to make necessary enquiry rendered the assessment order

erroneous which also resulted in loss to the revenue. The CIT had observed in his

order that it is to be decided by the Assessing Officer after fresh examination .

Hence, the order of the CIT cannot be held as erroneous. The CIT’s approach was

correct. Further, CIT had observed that no proper enquiry has been made that

resulted in erroneous order and further it resulted in loss of revenue. Hence the

Assessing Officer has to pass the order after hearing the assessee. Therefore, the

CIT exercised his power conferred u/s. 263 of the Act in setting aside the

assessment and remanded the case back to the file of the Assessing Officer to make

enquiry into the issue and decide the same. As such, the CIT remitted the issue

back to the file of the Assessing Officer for de novo consideration.

3.2 Being so, in our opinion, there is no infirmity in the order of the CIT and the

same is confirmed. Accordingly, this ground of appeal of the assessee is dismissed.

Thus, the appeal filed by the assessee in ITA No. 141/Coch/2017 is dismissed.

I.T.A. No. 47/Coch/2019 : 2013-14 : Revenue Appeal

Trivandrum dated 07/11/2018 for the assessment year 2013-14. The assessee has

also filed Cross objection in C.O. No. 10/Coch/2019.

4.1 The Revenue has raised the following grounds of appeal:

1) The Learned Commissioner of Income tax (Appeals), Trivandrum erred in concluding that "the appellant is eligible for deduction under section. 80P(2)(a)(i) of the Act on the business income."

2) It is respectfully submitted that the respondent is essentially, a co-operative Bank and not merely a primary agricultural credit society and hence the allowance of deduction u/s. 80P to the respondent assessee while computing the total income was irregular in nature and also against law.

3) The present appeal involves substantial question of law:

(i) Whether on the facts and in the circumstances of the case, the order of CIT(A) deleting the additions made during the completion of assessment as per the provisions of Income Tax Act, considering the provisions of section 80P(4) is correct?

(ii) Whether on the facts and circumstances of the case, the order of CIT(A) is correct in considering the fact that reserve/provision is neither actual expenses nor ascertain liability and not entitled to deduction u/s. 80P(2)?

(iii) Whether on the facts and in the circumstances of the case, the order of the CIT(A) is correct in not duly considering that the interest income received from deposits made with bank cannot be attributable as p[rofit and gains from out of providing credit facilities to its members u/s. 80P(2)(a)(i)?

(iv) Whether on the facts and in the circumstances of the case, the order of the CIT(A) is correct in not duly considering that the assessee has invested surplus funds like an ordinary investor and it has to be taxed as income from other sources?

(v) Whether on the facts and in the circumstances of the case, the order of the CIT(A) is correct in not duly considering the judgment of Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. vs. ACIT, Circle-9(1), Hyderabad dated 08/08/2017 reported in 397 ITR 1 (SC), wherein it has been held that if a co-operative society is violating the principle of mutuality in the garb of persons who actually are not real members and indulging in banking business per se that it cannot claim the benefit of section 80P(2)(a)(i).

(vi) Whether on the facts and in the circumstances of the case, the order of CIT(A) is correct in not duly considering the following case laws

(a) Sabargantha Zilla Kharid Vechar Sangh Ltd. (203 ITR 1027) (SC)

(b) Perinthalmanna Service Co-operative Bank (363 ITR 68) (Kerala)

(c) CIT Vs Kerala State Co-operative Marketing Federation (234 ITR 201) (Ker.)

banking business and filed its return of income for AY 2013-14 declaring total

income for the year at Rs. Nil after claiming deduction under section 80P of the I.T.

Act. The Assessing Officer denied the deduction claimed by the assessee u/s. 80P

of the Act for AY 2013-14 vide order passed u/s. 143(3) of the Act on the ground

that the principal business carried out by the society was not according to the

objectives of the primary agricultural credit society.

5.1. On appeal, the CIT(A) held that the issue of eligibility of Primary Agricultural

Credit Society to claim deduction u/s. 80P was covered in favour of the assessee by

the judgment of the High Court of Kerala in the case of Chirakkal Service Co-

operative Bank Ltd. vs. CIT in 384 ITR 490. The CIT(A) also relied on the decision

of the ITAT, Cochin Bench in the case of Kararikanam Service Co-operative Bank Ltd. for AY 2009-10 in ITA No.293/Coch/2013 dated 14th October, 2016. Following

the above judgments, as the assessee is a registered Primary Agricultural Credit Co-

operative Society, the CIT(A) held that the assessee is eligible for deduction u/s.

80P of the Act.

5.2 Against this, the Revenue is in appeal before us. The Ld. DR relied on the

order of the Assessing Officer.

5.3 We have heard the rival submissions and perused the record. In our opinion,

the issue was considered by the Jurisdictional High Court in the case of Mavilayi

Service Co-operative Bank Ltd. vs. CIT reported in ITA No.97/2018 dated

19.03.2019 wherein it was held that the Assessing Officer is not obliged to grant

deduction by merely looking at the certificate of registration issued by the

competent authority under the Co-operative Societies Act. Instead, he has to

conduct an enquiry into the factual situation as to the activities of the assessee and

arrive at a conclusion whether the benefits of section 80P can be extended or not.

Thus, the Full Bench overruled the earlier judgment of the Jurisdictional High Court

in the case of Chirakkal Service Co-operative Bank Ltd. vs. CIT (384 ITR 490). The

Full Bench had followed the judgment of the Supreme Court in the case of Citizen

Co-operative Society Ltd. vs. ACIT reported in 397 ITR 1 (SC). In view of the latest

judgment of the Jurisdictional High Court cited supra, this issue is remitted to the

file of the Assessing Officer with the direction to examine the actual activities carried

on by the assessee so as to grant deduction u/s. 80P of the Act. Accordingly, the

issue in dispute is remitted to the file of the Assessing Officer for fresh consideration

in accordance with the above direction. This ground of appeal of the Revenue is

partly allowed for statistical purposes.

80P(2)(a)(i) of the Act. This issue was allowed by the CIT(A) in the light of the

order of the Tribunal in the case of Kizhathadiyoor Co-operative Bank Limited for AY

2009-10 in ITA No. 525/Coch/2014, order dated 20.07.2016 wherein it was held

that the interest income earned from the investment in Treasury and Banks is part

of the banking activity and therefore, the said income is eligible for deduction under

section 80P(2)(a)(i) of the Act.

6.1 Against this, the Revenue is in appeal before us. The Ld. DR relied on the

order of the Assessing Officer.

6.2 We have heard the rival submissions. With regard to the interest income

earned by the assessee from other Banks and Treasury on which deduction u/s.

80P(2)(i)(a) of the Act is to be granted, there is no dispute that the assessee has

made investments in the course of banking activities and such interest income was

received on investments made with cooperative banks and other scheduled banks.

The co-ordinate bench of the Tribunal in the case of Kizhathadiyoor Co-operative

Bank Limited cited supra had held that such interest income received by the

assessee should be assessed as “income from business” instead of “income from

other sources”. In view of the order of the co-ordinate bench, we hold that the

CIT(A) is justified in holding that interest income received by the assessee should be

assessed as “income from business”.

6.3 As regards grant of deduction u/s. 80P(2)(i)(a) of the Act, the Assessing

Officer shall follow the law laid down by the Larger Bench of the Jurisdictional High

Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT cited supra and

examine the actual activities of the assessee so as to grant deduction u/s.

80P(2)(i)(a) of the Act. Accordingly, we remit this issue to the file of the Assessing

Officer for fresh consideration in accordance with the above direction. Thus, this

ground of appeal of the Revenue is partly allowed for statistical purposes for both

the assessment years. Thus, the appeal filed by the Revenue in ITA No.

47/Coch/2019 is partly allowed for statistical purposes.

C.O. No. 10/Coch/2019

consideration, the Cross Objection filed by the assessee is rendered as infructous

and the same is dismissed as such. Thus, the Cross Objection filed by the assessee

in C.O. No. 10/Coch/2019 is dismissed.

ITA No. 563/Coch/2018 :AY 2013-14: Assessee’s Appeal

ITA No. 93/Coch/2018 : A.Y. 2014-15:Assessee’s Appeal

as we have already remitted the issue in dispute to the file of the Assessing Officer

for fresh consideration.

8.2 Regarding addition u/s. 68 of the Act, the facts of the case are that the

assessee was asked to furnish the details of persons from whom deposits have been

received. However, the assessee had not furnished the details of depositors.

Therefore, the Assessing Officer treated the increase in deposits as unexplained

credits u/s. 68 of the Act.

8.3 On appeal, the CIT(A), by placing reliance on the decision of the ITAT,

Hyderabad in the case of Citizen Co-operative Society, 24 taxmann. com 347, held

that the onus is on the assessee to prove the identity of the depositor and such

onus can be discharged only by furnishing the proper proof of address and identity

to the satisfaction of the Assessing Officer. In this case, the CIT(A) observed that

the assessee had failed to furnish the details of depositors and therefore, had not

proved the identity of the depositors. According to the CIT(A), the assessee had

not discharged the onus cast on it to prove the identity of the depositors as required

under the provisions of section 68 of the Act. Therefore, the CIT(A) confirmed the

addition made by the Assessing Officer u/s. 68 of the Act.

8.4 Against this, the assessee is in appeal before us. The Ld. AR submitted that

the provisions of section 68 are not applicable to the deposits received by the co-

operative societies.

8.5 The Ld. DR relied on the order of the CIT(A) .

8.6 We have heard the rival submissions and perused the record. Under section

68 of the Act, where any sum is found credited in the books of the assessee

maintained in any previous year and no explanation is offered by the assessee for

the nature and source thereof, the sum so credited may be charged to income tax

as the income of the assessee in that previous year. According to the provisions of

section 68, what is required by the assessee is:

a) identity of depositors.

b) Source and genuineness of such credits is to be explained.

In the present case, the explanation of the assessee is that the deposits were

received from the members of the Society/customers. It was submitted that the

deposits were collected in the normal course of assessee’s business and duly filled

application of each deposit is available with the assessee. In our opinion, it is the

duty of the assessee to prove the identity of the depositors to the satisfaction of the

Assessing Officer. It is seen that the assessee has not furnished the details of

names and addresses and PAN Nos. of the concerned depositors. In our opinion,

the assessee has to fulfil the above requirements. However, we make it clear that

the assessee, being a Co-operative Society, need not prove the creditworthiness

and genuineness of the deposits, but it has to prove the identity of the depositors

by furnishing proof of address and PAN details of the depositors to the satisfaction

of the Assessing Officer as held by the Hyderabad Bench of the Tribunal in the case

of ACIT vs. Citizen Co-operative Society Ltd. (54 SOT 196) (URO)(Hyd.).

Accordingly, we remit this issue to the file of the Assessing Officer with a direction

to the assessee to furnish the identity of the depositors with PAN details before the

AO and decide the issue in accordance with law. Thus, this ground of appeals of

the assessee is partly allowed for statistical purposes.

u/s. 80P of the Act on addition of unexplained income under section 68 of the Act.

9.1 The facts of the case are that the Assessing Officer made addition u/s. 68 of

the Act by holding that such amount does not fall under business profits.

9.2. On appeal, the CIT(A) denied deduction u/s. 80P of the Act on the unexplained

income u/s. 68 of the Act by following the judgment of the Jurisdictional High Court

in the case of Kerala Sponge Iron Ltd. (79 taxmann. com 350) wherein it was held

that unexplained income assessed under section 68 of the Act cannot be treated as

business income and consequently, no deduction u/s. 80P of the Act can be allowed

for the unexplained income assessed u/s. 68 of the Act.

9.3 Against this, the assessee is in appeal before us. The Ld. AR submitted that

the income assessed under section 68 of the Act is to be treated as business income

and accordingly, deduction u/s. 80P is to be allowed.

9.4 We have heard the rival submissions and perused the record. The contention

of the learned AR is misplaced. According to the AR, the additions made u/s. 68 of

the Act are to be considered as income from business so as to grant deduction u/s.

80P of the Act. The only dispute before us is with regard to granting of deduction

u/s. 80P of the Act for the resultant income on account of additions u/s. 68 of the

Act. The income resulting on account of addition u/s. 68 of the Act cannot be

considered as income derived from business though it is income of the assessee.

Even if the addition is made u/s. 68, it does not necessarily follow that such credit

represents business income of the assessee as a general practice unless there is

clear evidence that it represents business receipts. In the present case, it relates to

granting of deduction with regard to profit/grain derived from business and unless it

is proved that it is from business, deduction u/s. 80P cannot be granted. The

contention of the assessee is not acceptable in view of the clear provisions of

section 80P of the Act and the impugned additions cannot be said to be business

receipts. This is because the source of income is income from other sources and

the Department does not have to locate any particular source of income. It is

pertinent to place reliance on the judgment of jurisdictional High Court in the case

of G.M. Chenna Basappa vs. CIT (34 ITR 576) (AP) wherein it was held that addition

on account of unexplained cash credits which is altogether is from an unknown

source and they are legally sustainable additions.

9.5 The Hon'ble Supreme Court also held in the case of CIT vs. Orissa Corporation

Pvt. Ltd. (159 ITR 78) held that although section 68 provides that the previous year

for which the books of account are maintained may be taken as the previous year

for assessing the cash credit, it does not further provide that cash credit should

necessarily be deemed to be the profit of the business for which the books are

maintained. The cash credit may be assessed as business profit or as income from

other sources as the case may be. There is no rule that the amount is credited in

the business account, which must be taken as receipt from business. Whether the

amount of credit u/s. 68 is income from business or income from other sources

depends on the evidence and explanation furnished by the assessee.

9.6 It was held in the case of Laxmichand Baijnath vs. CIT (35 ITR 416) (SC) that

if credits are found in business account of the assessee and the explanation as to

the nature and source of account is rejected by the Income-tax authorities, such

authorities are entitled to treat the credit as income from business. The said

decision cannot be interpreted to mean that in all cases such credits must be

treated as income from business. Merely because the assessee is running a business

in which are found certain unexplained cash credits, it does not necessarily follow

that such credits represent suppressed business receipts and there would be no

error of law in regarding the unexplained cash credits as income of the assessee

from some independent and unknown sources unless there are strong reasons for connecting the unexplained cash credits with known sources of income of the

assessee, there would be no alternative to treating them as income from other

sources.

9.7 Reliance is also placed on the judgment of Supreme Court in the case of CIT

vs. Deviprasad Viswanath Prasad (72 ITR 194) wherein it was held that when the

assessee pleads that the impugned cash credits came out of suppressed profit, it is

for him to prove that it is so. If these receipts are allowed by treating as business

receipts, then the assessee will be entitled to set off of business expenditure against

these receipts which is not permissible. The assessee's business is carrying on of

export activities in granite slabs and not dealing in unexplained credits. Being so, we

are inclined to hold that the assessee is not entitled for deduction under section 80P

of the Act on account of addition u/s. 68 of the Act. This ground of appeals of the

assessee is dismissed.

9.8 The assessee has also submitted that the assessment was not made within the

time specified u/s. 153 as the assessment order was served on 03/01/2017.

However there is no ground raised by the assessee relating to this issue in its

appeal. Hence, this ground of the assessee is dismissed. Thus, the appeals of the

assessee in I.T.A. No. 563/Coch/2018 and 93/Coch/2018 are partly allowed for

statistical purposes.

also raised the following grounds of appeal:

10.1. Ground No. 5 is with regard to treatment of interest income received from

deposits as income from other sources and denying deduction of proportionate

expenses incurred to earn the interest income.

10.2 The facts of the case are that the AO brought to tax a sum of

Rs.20,68,89,029/- rejecting the claim of deduction made u/s. 80P(2) of the Act

while treating the same as income from other sources. According to the AO the

said amount of interest is liable to be taxed under the head income from other

sources since the assessee-Society has invested the surplus fund as an ordinary

investor. According to the AO the benefit of section 80P(2)(d) of the Act is

allowable only in respect of any income by way of interest derived by the co-

operative society from its investments with another co-operative society but not to the interest income earned from a District Co-operative Bank and Consumer

Federation as in the case of the assessee. The AO relied on the decision of

Supreme Court in the case of Totgar’s Co-operative Sales Society Ltd. vs. ITO (322

ITR 283) wherein it was held that the assessee being co-operative society is

engaged in providing credit facilities to its members or marketing agricultural

produce of its members, interest earned by it by investing surplus funds in short

term deposits would fall under the head income from other sources taxable u/s. 56

of Act and it cannot be said to be attributable to the activity of the society and , the

interest did not qualify for deduction u/s. 80P of the Act. The interest earned on

fixed deposits with the co-operative bank cannot be considered as business income.

10.3 We have heard the rival submissions and perused the record. As discussed in

paras 6.2 and 6.3, this issue is remitted to the file of the Assessing Officer on similar

directions.

11.1 The facts of the case are that the assessee claimed that they are eligible for

deduction u/s. 36(1)(viia) for provision of bad and doubtful debts. This cannot be

allowed since as per the list of rural branches furnished by the assessee, none of

the branches of the bank/society are situated in the villages where the population is less than 10,000. Hence, it was held that the assessee was not eligible for

deduction u/s. 36(1)(viia) of the Act. It was further observed that neither any

provision for bad and doubtful debts in the books of account was created nor made

any claim in the return of income filed. According to the Assessing Officer as per

section 36(2)(v) of the Act, no deduction shall be allowed unless the assessee debits

the amount on such debt in that previous year to the provision for bad and doubtful

debts. The AO relied on the judgment of the Supreme Court in the case of Goetze

(India) Ltd. (284 ITR 232) wherein it was held that claim of deduction/provision not

made in the return can be entertained by the AO only if such claim is made through

a revised return and not otherwise. This being the position of law as per the

decision of the Supreme Court, the Assessing Officer held that the claim made by

the assessee was unsustainable and devoid of merit. Therefore, the AO held that

the assessee is not entitled for any deduction u/s. 36(1)(viia) of the Act.

11.2 On appeal, the CIT(A) observed that if the expenditure disallowed is related

to the business activity against which Chapter VI-A deduction has been claimed, the

deduction is to be allowed on the enhanced profit. He observed that exemption u/s.

80P(2)(a)(i) is available to the assessee on this part of disallowance made on

account of provision for bad and doubtful debts and accordingly deleted the

disallowance made to that extent.

11.3 Against this, the assessee is in appeal before us.

11.4 The Ld. DR relied on the order of the CIT(A).

11.5. We have heard the rival submissions and perused the record. Admittedly,

the CIT(A) gave a finding that exemption u/s. 80P(2)(a)(i) is available to the

assessee on the part of disallowance made on account of provision of bad and

doubtful debts and the disallowance made to that extent was deleted. Being so, the

assessee cannot have any grievance against this finding of the CIT(A) on this issue.

Hence, the ground raised by the assessee with regard to exemption u/s. 36(1)(viia)

of the Act is misconstrued. Accordingly, this ground of appeal of the assessee is

dismissed.

dismissed by the CIT(A) since the order was rightly passed on 30/12/2016 which

was within the stipulated time limit envisaged in section 153 of the Act.

Accordingly, we do not find any infirmity in the order of the CIT(A) and the same is

confirmed. Hence, this ground of appeal of the assessee is dismissed. Thus, the

appeal of the assessee in ITA No. 93/Coch/2018 is partly allowed for statistical

purposes.

S.P. No. 43/Coch/2019 : 2012-13 & S.P. 06/Coch/2018 : 2014-15

have been disposed off, the above Stay Petitions filed by the assessee are rendered

infructuous and the same are dismissed as such.

ITA No. 400/Coch/2018 : A.Y. 2014-15: Assessee’s Appeal

non-filing of audit report by an accountant within the prescribed format.

14.1 The facts of the case are that the return for the year under consideration

was belatedly filed on 20/03/2015 but without filing the audit report as required u/s.

44AB of the Act. The assessee was required to file the audit report within the

stipulated time limit i.e. on 30/09/2014. In the absence of such audit report, the

Assessing Officer levied penalty u/s. 271B of the Act. According to the Assessing

Officer audit report along with Form 3CA is required to be filed u/s. Rule 6G(1) of

the I.T. rules which provides that in the case of an assessee who carries on

business and is required under any other law to get his accounts audited, the report

of such audit of accounts of the assessee is required to be furnished u/s. 44AB of

the Act. In the absence of satisfactory explanation from the assessee, the

Assessing Officer levied penalty u/s. 271B of the Act.

14.2 On appeal, the CIT(A) confirmed the order of the Assessing Officer by

observing that the assessee had failed to get his accounts audited before the

specified date and furnish the audit report by that date to the Assessing Officer.

Further, according to the CIT(A), sec. 271B provides for imposition of penalty if any

person fails without reasonable cause to get his accounts audited within stipulated

time.

14.3 Against this, the assessee is in appeal before us. The Ld. AR submitted that

the audit of the Society is done as per the provisions of Kerala Co-operative

Societies Act, 1969. The Society does not have any power in appointing auditor

under the said Act or getting his accounts audited in time. The Ld. AR submitted

that the delay in completion of audit was not because of any default on the part of

the assessee Society. The ld. AR relied on the judgment of the High Court of

Uttarakhand in the case of CIT vs. Iqbalpur Cooperative Cane Development Union

Ltd. (356 ITR 343) wherein it was held that delay in submitting the audit report in

such a situation is a reasonable cause for the purpose of section 273B and penalty

under section 271B shall not be imposed.

14.4 According to the Ld. AR, the Tax Audit Report is required to be submitted if

it is called for by the Income Tax Officer during the Assessment proceedings as

explained in CBDT Circular No 3 of 2009. In the case of the assessee-Society, the audit of the accounts was completed after due date and the assessee was not asked

by the assessing officer to file audit report at any point of time during the

assessment proceedings. According to the Ld. AR, as per proviso to Section 44AB, if

a person is required by or under any other law to get his accounts audited, getting

accounts audited under that law before specified date and furnishes by that date

the report of such audit report and a further report by an accountant in the form

prescribed would be enough to comply with the provisions of section 44AB. Audit

was completed late. Only further report was not furnished. 271B speaks only about

report of such audit and not about further report. The Ld. AR submitted that penalty

u/s Section 271B is applicable for (1) failure to get accounts audited; or (2) failure

to furnish report of such audit. The scope of Section 27IB cannot be expanded for

non-compliance of Section 44AB. It was submitted that penalty u/s 271B cannot

be imposed for not completing the audit or not furnishing the report in time.

According to the Ld. AR, as per Section 44AA read with Rule 6F books of accounts

to be maintained by different class of business are prescribed. Section 44AA and

Rule 6F is silent about the books of accounts need to be maintained by the

assessee. When books of accounts itself are not prescribed levy of penalty for not

getting the accounts audited is not valid. For this proposition, the Ld. AR relied on

the decision of the ITAT Cochin Bench in the case of K.V Ramachandran vs. DCIT

Circle 1(1) Kannur. 2013 SB SOT 264 (Cochin Trib). Further, he relied on CBDT

Circular No. 3/2009 dated 21/05/2009 wherein it was stated that audit report u/s.

44AB should not be attached with the return. As per the Circular, the assessee

should retain the report with himself and it need to be furnished only if the

Assessing Officer request the assessee to furnish it. The Circular also states that no

penalty u/s. 271B shall be imposed for not furnishing the audit report within due

date.

14.5. The Ld. DR relied on the order of the CIT(A).

14.6. We have heard the rival submissions and perused the record. The Ld. AR

submitted that in this case the assessee is a co-operative society. As per proviso to

section 44AB, if a person is required under any other law to get his accounts

audited, getting the account audited under that law before the specified date and

furnished by that date, the report of such audit report would be constituted as

sufficient compliance of section 44AB of the Act. In the present case, the assessee

is required to get its accounts audited under Co-operative Societies Act ad it has to

file the return of income on 20/03/2015 as per second proviso to section 44AB of

the Act which reads as follows:

“in case of persons whose accounts are required to be audited under any other law, getting accounts audited under such law is enough to comply with the provisions of section 44AB.”

As seen from the assessment order in para 3, the assessee furnished documents

such as Annual Report of the Financial year 2013-14 depicting the audited financial

statements, copy of receipts and distribution statement etc. The audit report by the

accountant in the prescribed format was not produced before the Assessing Officer.

In our opinion, non production of audit report in the prescribed format can be a

reason for levying penalty u/s. 271B of the Act. Thus, this is a fit case for levying

penalty u/s. 271B of the Act as the assessee has not given explanation regarding

reasonable cause for not filing the audit report within the prescribed time limit.

Accordingly, we confirm the penalty levied u/s. 271B of the Act. Thus, the appeal

of the assessee in ITA No. 400/Coch/2018 is dismissed.

allowed for statistical purposes and the Cross Objection of the assessee in C.O.

No.10/Coch/2019 is dismissed. The appeals of the assessee in ITA Nos.

93/Coch/2018 and 563/Coch/2018 are partly allowed for statistical purposes.

15.1 The appeals of the assessee in 141/Coch/2017 and in ITA No. 400/Coch/2018

and the Stay Petitions of the assessee are dismissed. Order pronounced in the open Court on this 26th June, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 26th June, 2019

GJ Copy to: 1. M/s. Peroorkada Service Co-operative Bank Ltd., Peroorkada, Thiruvananthapuram. 2. The Income Tax Officer, Ward-2(1), Trivandrum. 3. The Commissioner of Income-tax(Appeals), Trivandrum. 4. The Pr. Commissioner of Income-tax, Trivandrum. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin