MUNDELA SERVICE CO-OPERATIVE BANK LIMITED vs. THE INCOME TAX OFFICER

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR TUESDAY, THE 22ND DAY OF MAY 2018 / 1ST JYAISHTA, 1940 WP(C).No. 9125 of 2018 PETITIONER: MUNDELA SERVICE CO-OPERATIVE BANK LIMITED NO.2433, REPRESENTED BY ITS SECRETARY-IN-CHARGE GOPINATHAN NAIR.K, S/O.KRISHNAPILLA, MUNDELA P.O.,THIRUVANANTHAPURAM DISTRICT, KERALA, PIN: 695 543. BY ADVS.SRI.C.A.JOJO SRI.JACOB CHACKO SRI.MATHEWS JOSEPH RESPONDENT(S): 1. THE INCOME TAX OFFICER, INCOME TAX OFFICE, WARD 2(3), KOWDIAR, TRIVANDRUM -695 003. 2. COMMISSIONER OF INCOME TAX (APPEALS)-1, OFFICE OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM -695 003. R1 & R2 BY SRI.CHRISTOPHER ABRAHAM, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 22-05-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts 23/5/2018

WP(C).No. 9125 of 2018 (M) APPENDIX PETITIONER(S)' EXHIBITS EXHIBIT P1 A COPY OF THE CERTIFICATE ISSUED BY THE ASST. REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) NEDUMANGAD DATED 28/12/2016 EXHIBIT P2 A TRUE COPY OF THE ASSESSMENT ORDER FOR AY 2011-12 DATED 29/11/2017 ISSUED BY THE FIRST RESPONDENT EXHIBIT P3 A TRUE COPY OF THE DEMAND NOTICE FOR AY 2011-12 DATED 29/11/2017 ISSUED BY THE FIRST RESPONDENT EXHIBIT P4 A TRUE COPY OF THE APPEAL FOR AY 2011-12 DATED 06/01/2018 FILED BEFORE THE 2ND RESPONDENT EXHIBIT P5 A TRUE COPY OF THE STAY PETITION FOR AY 2011-12 DATED 06/01/2018 FILED BEFORE THE 2ND RESPONDENT EXHIBIT P6 A TRUE COPY OF THE JUDGMENT OF THIS HON'BLE COURT IN WPC NO.6668/2018 DATED 28/2/2018 EXHIBIT P7 A TRUE COPY OF THE ORDER IN STAY PETITION BY THE 2ND RESPONDENT DATED 8/3/2018 EXHIBIT P8 A TRUE COPY OF THE ORDER OF THE HON'BLE ITAT, COCHIN BENCH AND ITA NO.361/COCH/2016 DATED 18/11/2016 RESPONDENT'S EXHIBITS: NIL /TRUE COPY/ P.S.TO JUDGE sts 23/5/2018

P.B.SURESH KUMAR, J. --------------------------------------------- W.P.(C) No. 9125 of 2018 --------------------------------------------- Dated this the 22nd day of May, 2018

JUDGMENT Petitioner is a primary agricultural credit co- operative society, registered under the Kerala Co-operative Societies Act, 1969 and an assessee under the Income Tax Act (the Act) on the rolls of the first respondent. The petitioner filed return for the assessment year 2011-'12 declaring nil income. The self assessment made by the petitioner for the said year was revised by the first respondent under section 143(3) read with section 147 of the Act in terms of Ext.P2 order, determining the taxable income of the petitioner at Rs.28,51,12,570/-. A demand was also raised consequently on the petitioner for

WPC 9125/18 -:2:- Rs.17,76,92,090/-. Aggrieved by Ext.P2 order, the petitioner preferred Ext.P4 appeal before the second respondent. Ext.P5 is the stay petition preferred by the petitioner in Ext.P4 appeal. Ext.P5 stay petition now stands disposed of in terms of Ext.P7 order granting the petitioner the stay sought for, on condition that the petitioner shall pay 50% of the demand in six instalments. The condition imposed in terms of Ext.P7 order is under challenge in the writ petition. 2. Heard the learned counsel for the petitioner as also the learned Standing Counsel for the respondents. 3. It is seen that the self assessment made by the petitioner for the relevant assessment year was revised by the assessing officer in terms of Ext.P2 order on three grounds. The petitioner had claimed exemption from payment of tax for their business income under Section 80P(2)(a)(i), which was declined by the assessing officer while revising the assessment. Similarly, the benefit of exemption claimed by the petitioner under Section 80P(2)(d) of the Act in respect of the interest income received by the petitioner for their surplus funds deposited in the District Co-

WPC 9125/18 -:3:- operative Banks was also declined by the assessing officer while revising the assessment. In addition, the assessing officer has brought to tax an amount of Rs.27,67,41,372/- as unexplained cash credits under Section 68 of the Act. In Ext.P7 order, the appellate authority took the view that the petitioner has made out in the appeal a prima facie case only as regards the first two grounds and it is on account of the said reason that the appellate authority confined the stay to 50% of the demand. In so far as Ext.P4 appeal is still pending, the only point arises for consideration is whether the petitioner has made out a prima facie case as regards the decision of the assessing officer to bring to tax the unexplained cash credits amounting to Rs.27,67,41,372/- under section 68 of the Act. 4. The learned counsel for the petitioner, relying on Ext.P8 decision of the ITAT, Cochin, the decision of the ITAT, Pune in Karad Merechant Sah. Credit Sanstha v. Department of Income Tax dated 28.2.2011 and the decision of the ITAT, Nagpur in Buldana Urban Co- operative Credit Society Limited v. Assistant

WPC 9125/18 -:4:- Commissioner of Income Tax dated 23.11.2012, contended that the unexplained cash credits being deposits received by the petitioner in cash, even if assessable under Section 68 of the Act, the said addition is exempted under Section 80P of the Act. 5. Section 68 of the Act provides that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The fact that the petitioner has credited in their books of account cash receipts to the tune of Rs.27,67,41,372/- and the fact that despite several notices, the assessee has not divulged the source thereof, are facts which are not in dispute. In the said circumstances, the assessing officer cannot be found fault with for having brought the said amount to tax under section 68 of the Act. The question to be considered therefore is as to whether the

WPC 9125/18 -:5:- petitioner is entitled to the benefit of exemption in respect of the said income under section 80P(2)(a)(i). 6. Ext.P8, of course, is a decision rendered in an identical matter. Ext.P8 is seen rendered solely relying on the decisions of ITAT, Nagpur and ITAT, Pune in the matters referred to by the learned counsel for the petitioner, of which, the issue in the decision rendered by ITAT, Pune was whether the income brought to tax on account of dis- allowance of expenditure is entitled to exemption under section 80P(2)(a)(i) of the Act which has nothing to do with Ext.P8 case. Of course the issue in the decision of the ITAT, Nagpur was almost identical. I am unable to agree with the view taken by the ITAT, Cochin in Ext.P8 decision as also the view taken by the ITAT, Nagpur in the decision relied on in Ext.P8, for if the said view is accepted, assessees who are entitled to the benefit of exemption under section 80P(2)(a) (i) of the Act can bring in illicit money into business without fear of consequences. Further, profits and gains of business is a matter covered by Chapter IV of the Act and Section 68 of the Act is one falling under Chapter VI of the Act dealing

WPC 9125/18 -:6:- with aggregation of income. This also fortifies the view that has been taken as above. The view taken by the appellate authority in the impugned order that the petitioner has not made out a prima facie case as regards the income brought to tax by the assessing officer under section 68 of the Act is therefore to be accepted. Of course, the aforesaid view expressed is a prima facie view of the issue and the issue needs to be seriously gone into at the time of final disposal of the appeal. It is relevant in this context to note that had the petitioner divulged the sources of the cash credits referred to by the assessing officer when called for, a situation of this nature would not have arisen. In the circumstances, as I am unable to rule out the possibility of the appellate authority granting the petitioner an opportunity to disclose the sources of the cash credits referred to in the assessment order and if it is ultimately found that the cash credits are deposits come from explainable sources, the petitioner may not have any liability on this count. In the aforesaid background, according to me, if the petitioner is compelled to pay 50% of

WPC 9125/18 -:7:- the demand as ordered by the appellate authority, the business of the petitioner is likely to be crippled and in that event, the customers of the petitioner including their depositors would also suffer. Having regard to all the aforesaid facts and circumstances, I deem it appropriate to modify the impugned order directing the petitioner to pay 20% of the demand in six equal monthly instalments commencing from 1.6.2018. Ordered accordingly. In the peculiar facts of this case, there will also be a direction to the appellate authority to dispose of the appeal preferred by the petitioner on merits as expeditiously as possible. Sd/- P.B.SURESH KUMAR, JUDGE vps 20/4 /True Copy/ PS to Judge