THE PRINCIPAL COMMISSIONER OF INCOME TAX vs. THE KADAKKARAPPALLY SERVICE CO-OPERATIVE BANK LTD.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 28TH DAY OF SEPTEMBER 2022 / 6TH ASWINA, 1944 ITA NO. 26 OF 2017 AGAINST THE ORDER ITA 361/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S:

THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM.

BY ADVS.MR NAVNEETH N NATH SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX

RESPONDENT/S:

THE KADAKKARAPPALLY SERVICE CO-OPERATIVE BANK LTD. KADAKKARAPPALLY P.O, ALAPPUZHA.

BY ADVS. SRI.C.A.JOJO SRI.MATHEWS JOSEPH; SRI.SREENATH V.GOPAL

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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J U D G M E N T S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Senior Counsel Mr P K R Menon, and learned Counsel Dr K P Pradeep for parties.

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assessee is substantially centering around Section 80P of the Income Tax Act, 1961 (for short ‘the Act’). The Counsel appearing for the parties invited the attention of the Court to the judgment in Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income Tax1 that the issue is no more res integra. The circumstances relevant for disposing of the appeal are stated in sufficient detail in the orders under appeal. Hence, are not reiterated. But a singular circumstance relevant for decision is noted viz. the assessee is a Primary Agricultural Credit Society, a Society registered under the Kerala Societies Registration Act. Therefore, deduction eligible under Section 80P(2) is the issue for consideration.

4 In the above background, the following substantial questions are considered:

1 (2021) 431 ITR 1 (SC)

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(1) Whether, on the facts and in the circumstances of the case and for the reasons highlighted in grounds B to D - i) Is not the decision reported in 384 ITR 490 against the relevant provisions of the Income Tax Act and the decision reported in 363 ITR 268? ii) Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act? iii) Is the Hon'ble Court right in intending in 384 ITR 490 that the Act which confers the benefit, is off after conferment/consideration of the benefit, and is not such an approach against the intention of the legislature? (2) Whether the Tribunal is right in holding that the unexplained cash credit assessed u/s 68 is entitled to deduction u/s 80P(2)(a)(i) of the Act? (3) Whether the issue of giving any deduction under section 80P(2)(a)(i) of the Act arises for consideration in the case in spite of the decision of this Hon'ble Court in 379 ITR 330 that addition u/s 68 cannot be classified as income derived from any of the sources falling under section 14 of the Act? (4) Whether, on the facts and in the circumstances of the case and since the circular relied on by the Tribunal speaks only

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about deductions under Chapter VI-A allowable on "disallowance of expenditure" and not about additions made under section 68 of the Act, and the decision of this Hon'ble Court in 379 ITR 330 being the law of the land, does the circular have any relevance in the light of the Constitutional Bench decision of the Supreme Court reported in 220 CTR (SC) 98 ? 5. The learned counsel appearing for the Revenue argues that the order of assessment mainly concentrated on the entitlement of deduction under Section 80P(2) of the Act and has not considered the consequential examination i.e., assuming that the assessee is a Co-operative Society and entitled to the benefit of Section 80P(2)(a) of the Act. But the deduction is restricted to the language of Section 80P(2) of the Act. In ITA No.22/2017, Revenue’s appeal, this Court has considered similar substantial questions of law in detail and the reasoning in ITA No.22/2017 squarely covers the question of law formulated in the instant appeal too. By applying the principle laid down by

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the Apex Court in Mavilayi Service Co-operative Bank Ltd and this Court in Peroorkada Service Co-operative Bank Ltd, the substantial questions raised in the appeal are answered thus: 6. Question nos.1(i) and (ii): (1) Whether, on the facts and in the circumstances of the case and for the reasons highlighted in grounds B to D - i) Is not the decision reported in 384 ITR 490 against the relevant provisions of the Income Tax Act and the decision reported in 363 ITR 268? ii) Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act?

6.1 The above questions are covered by the principle laid down in Mavilayi Service Co-operative Bank Ltd, both on the extent of entitlement of benefit under Section 80P(2) of the Act and also the obligation to independently consider whether the deduction is limited to such of the income which falls within the purview of in Mavilayi Service Co-operative Bank Ltd and Peroorkada Service Co-operative Bank Ltd. Hence, the questions are

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answered in favour of the Revenue for statistical purposes and the matter is remitted to the Assessing Officer for making fresh assessment order by keeping in view the judgments referred to above. 7. Question no.1(iii): iii) Is the Hon'ble Court right in intending in 384 ITR 490 that the Act which confers the benefit, is off after conferment/consideration of the benefit, and is not such an approach against the intention of the legislature?

7.1 In view of the answer to question nos: 1(i), (ii) question no.(iii) is also answered in favour of Revenue for statistical purposes. The matter is remitted to the Assessing Officer. 8. Question no.(2): (2) Whether the Tribunal is right in holding that the unexplained cash credit assessed u/s 68 is entitled to deduction u/s 80P(2)(a)(i) of the Act? 8.1 In view of the answer to question nos: 1(i) and (ii), question no.(2) is answered in favour of Revenue for statistical

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purposes. The matter is remitted to the Assessing Officer. 9. Question nos.(3) and (4): (3) Whether the issue of giving any deduction under section 80P(2)(a)(i) of the Act arises for consideration in the case in spite of the decision of this Hon'ble Court in 379 ITR 330 that addition u/s 68 cannot be classified as income derived from any of the sources falling under section 14 of the Act? (4) Whether, on the facts and in the circumstances of the case and since the circular relied on by the Tribunal speaks only about deductions under Chapter VI-A allowable on "disallowance of expenditure" and not about additions made under section 68 of the Act, and the decision of this Hon'ble Court in 379 ITR 330 being the law of the land, does the circular have any relevance in the light of the Constitutional Bench decision of the Supreme Court reported in 220 CTR (SC) 98 ? 9.1 The learned counsel appearing for the parties submit that question nos. 3 and 4 need not be independently considered having regard to the view taken in question numbers answered above. 10. Resultant to the above discussion, the Tribunal order, Appeal order and Assessment Order are set aside. The matter is remitted to Assessing Officer for disposal afresh, in accordance with law.

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The Income Tax Appeal is allowed as indicated above.

Sd/- S.V.BHATTI JUDGE

Sd/- BASANT BALAJI JUDGE jjj

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APPENDIX OF ITA 26/2017

PETITIONER ANNEXURES ANNEXURE A ASSESSMENT ORDER U/S.143(3) DT.27.03.2015. ANNEXURE B CIT (APPEALS) ORDER NO.A-17/ALP/CIT(A)/KTM/2015- 16 DT.02.06.2016. ANNEXURE C ITAT'S ORDER NO.361/COCH/2016 DT.18.11.2016.