DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2 1 1 AHMEDABAD, AHMEDABAD vs. THE GENERAL CO OP BANK LTD, AHMEDABAD

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.2199/Ahd/2025 (Assessment Year: 2012-13) Deputy Commissioner of Vs. The General Co. Op. Bank Ltd., Income Tax, General Bank House, 10, Shri Circle-2(1)(1), Sthanakvasi Jain Society, Ahmedabad Ahmedabad-380013 [PAN No.AAAJT0199D] (Appellant) .. (Respondent) Appellant by : Shri A P Nanavaty, AR Respondent by: Shri Rameshwar P Meena, Sr. DR Date of Hearing 25.03.2026 22.04.2026 Date of Pronouncement O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Department against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 04.09.2025 passed for A.Y. 2012-13.

“1. Whether the Ld. CIT(A) has erred in deleting the addition of Rs.2,89,66,968/- on account of disallowance of set off of brought forwarded loss without appreciating the fact that the income earned in the form of interest from deposits and recoveries is taxable as Income from Other Sources and not business income being non-banking entity and consequently, provisions of section 72 relating to set-off of brought forward business loss are not applicable? 2. The appellant craves leave to amend or alter nay ground or add a new ground, which may be necessary.” 3. The brief facts of the case are that the assessee, a co-operative bank under liquidation since 02.06.2003, filed its return of income for the assessment year 2012-13 declaring total income at Nil. The case was

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 2– selected for scrutiny under CASS and the original assessment was completed under section 143(3) on 05.03.2015 accepting the returned income. Subsequently, the Pr. CIT, on examination of records, invoked revisional jurisdiction under section 263 of the Act holding that the assessment order was erroneous and prejudicial to the interests of the revenue. The Pr. CIT observed that the assessee had earned substantial interest income aggregating to Rs. 2.92 crores from fixed deposits and recovery of loans, which, after depreciation, resulted in net income of Rs. 2.89 crores. This income was set off against brought forward business losses of earlier years, resulting in Nil taxable income. According to the Pr. CIT, since the assessee-bank was under liquidation and had ceased its banking operations, such interest income could not be treated as “business income” but was taxable under the head “Income from other sources,” and consequently, the set-off of brought forward business losses was wrongly allowed. Accordingly, the original assessment was set aside with a direction to the Assessing Officer to reframe the assessment.

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 3– Mills Ltd. vs. CIT (59 Taxman 22) (SC), held that once the banking licence was suspended and the assessee ceased to carry on banking operations, the income derived thereafter could not be regarded as business income. The Assessing Officer held that the interest income was assessable under the head “Income from other sources” and consequently disallowed the set- off of brought forward business losses. The total income was accordingly recomputed at Rs. 2,89,66,970/- in the order passed under section 143(3) read with section 263 dated 18.12.2017. The assessment order, therefore, rested on two principal conclusions: first, the characterization of interest income as “income from other sources,” and second, the consequential denial of set-off of brought forward business losses.

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 4– Corporation Act, 1961 (DICGCI Act) read with relevant regulations and section 115A of the Gujarat Co-operative Societies Act, the assessee- bank, being under liquidation, was under a statutory obligation to first repay the liabilities towards DICGCI out of all recoveries made from advances. The assessee submitted that that the DICGCI, having paid insurance claims to depositors, acquired a statutory right over the recoveries made by the bank, and the bank had no discretion to utilize such funds except for limited liquidation expenses. Therefore, the entire income generated during liquidation stood diverted at source in favour of DICGCI and never accrued as income in the hands of the assessee. The assessee placed reliance on the decision of the Hon’ble Supreme Court in DICGC vs. Raghupathi Raghavan (Civil Appeal No. 1035 of 2008), as well as on Poona Electric Supply Co. Ltd. vs. CIT (57 ITR 521) (SC) and Associated Power Co. Ltd. vs. CIT (84 Taxman 355) (SC) in support of the principle that where an assessee has no control or dominion over the income due to statutory diversion, such income cannot be taxed.

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 5– including the nature of income and the status of the assessee as a bank under liquidation. Respectfully following the binding precedent of the ITAT in the assessee’s own case, the CIT(Appeals) accepted the contention of the assessee that the entire income, including interest income, stood diverted at source by overriding title in favour of DICGCI. Consequently, it was held that such income did not constitute taxable income in the hands of the assessee. The CIT(Appeals), therefore, did not adjudicate on the issue of characterization of income as business income or income from other sources or the allowability of set-off, as the fundamental issue of taxability itself was decided in favour of the assessee.

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 6– facts of the present assessment year are identical, inasmuch as the assessee is a co-operative bank under liquidation, its banking license stands suspended, and the income in question represents interest realized from advances and fixed deposits during the course of liquidation proceedings. We find that the Coordinate Bench in the aforesaid order, after considering identical facts and the statutory scheme of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, has categorically held as under:

“Thus the assessee bank is being managed and administered by official Liquidator. In view of liquidation Section 21(2) of Deposit Insurance and Credit Guarantee Corporation of India (DICGCI) Act, 1961 provides that insurance claim being amount paid to depositors shall have to be paid out of realization of all advances and other assets without making payment of any liability.” 13. Further, after considering the findings of the Ld. CIT(A) and various judicial precedents, the Tribunal has held in clear and unequivocal terms: “We have heard the rival submissions and perused the materials available on record. We are in complete agreement with the findings of the Ld. CIT(A) in the light of various decisions discussed in the above order. As per this mandatory conditions of Section 21(2) DICGCI Act, till liability of DICGCI is fully paid all funds realized by Bank under liquidation are diverted at source. Entire income of the assessee including interest income and share dividend income are diverted at source and bank under liquidation has no discretion or authority to apply such funds. Such funds are not available to the assessee as income and therefore such income is not taxable in the hands of the assessee.” 14. The Tribunal accordingly held as below:

“Therefore the grounds raised by the Revenue are hereby rejected and the appeals filed by the Revenue are hereby dismissed.” 15. The above findings of the Coordinate Bench clearly lay down that in the case of a co-operative bank under liquidation, the statutory obligation under Section 21(2) of the DICGCI Act creates an overriding title in favour of DICGCI over the realizations made by the bank, and therefore, the income never accrues to the assessee. The doctrine of

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 7– diversion of income by overriding title, as explained by the Hon’ble Supreme Court in Poona Electric Supply Co. Ltd. vs. CIT (57 ITR 521) and Associated Power Co. Ltd. vs. CIT (218 ITR 195), squarely applies to such facts.

ITA No. 2199/Ahd/2025 DCIT vs. The General Co. Op. Bank Ltd. Asst.Year –2012-13 - 8–

Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 22/04/2026 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु�(अपील) / The CIT(A)- 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad