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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI LAXMI PRASAD SAHU
Per Laxmi Prasad Sahu, Accountant Member :
These cross appeals have been filed by the assessee as well as the Revenue against the order passed by the CIT(A) dated 19/03/2020.
First we will take up the appeal of assessee in ITA No.611/Bang/2020.
The assessee has also filed revised grounds of appeal and additional grounds of appeal dated 01/11/2022 vide receipt No.1894, which is as under:- Grounds of Appeal : “1. The Order of the learned Commissioner of Income Tax [Appeals], Hubballi, passed under section 250 of the Act dated 19/03/2020 in so far as it is against the appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case. 2. The Appellant denies itself Liable to be taxed over and above the total business toss of Rs. 363,82,18,993/- declared by the appellant on the facts and circumstances of the case. 3. The learned Commissioner of Income Tax [Appeals] is not justified in upholding the disallowance made by the learned assessing officer on account of provision for bad and doubtful debts amounting to Rs. 492,74,01,516/- under Section 36[1][viia] of the Act on the facts and circumstances of the case. 4. The learned authorities below failed to appreciate that the provision for bad and doubtful debts is governed by Section 36[1][viia] of the Act and the words used are 'in respect of any provision', thus the authorities below failed to appreciate that as long as provision is made in the books of accounts, the appellant is eligible for claiming deduction under section 36[1][viia] of the Act since it is a specific deduction given by the statute irrespective of the quantum provided by the assessee in its accounts
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towards provision for bad and doubtful debts, and consequently the learned authorities below were not justified in disallowing a sum of Rs. 492,74,01,516/- under Section 36[1][viia] of the Act on the facts and circumstances of the case. 5. Without prejudice to the right to seek waiver as per the parity of reasoning of the decision of the Hon'ble Apex Court in the case of Karanvir Singh 349 hR 692, the Appellant denies itself liable to be charged to interest under section 234B, 234D and 244A of the Income Tax Act on the facts and circumstances of the case. Further the levy of interest under section 234B, 234D and 244A of the Act is also bad in law as the period, rate, quantum and method of calculation adopted on which interest is levied are all not discernible and are wrong on the facts of the case 6. The Appellant craves leave of this Hon'ble Income Tax Appellate Tribunal to add, alter, delete or substitute any or all of the above grounds as may be necessary at the time of hearing of the appeal. 7. For the above and other grounds that may be urged at the time of the hearing of the appeal, the Appellant prays that the appeal may be allowed in the interest of justice.
Additional Grounds of appeal :-
“ADDITIONAL GROUNDS OF APPEAL 1. The assessment order u/s. 143[3] r.w.s. 147 of the Act dated 28/12/2018 passed by the assessing officer is bad in law since the mandatory conditions for re-opening as envisaged in the Act to resume jurisdiction did not exist or having not been compiled with and consequently, the reassessment requires to be cancelled under the facts and circumstances of the case. 2. The order of assessment is bad in law and void-ab-initio as the assessing officer had no reason to believe that the income of the Appellant has escaped assessment and reassessment amounted to merely reasons to suspect under the facts and circumstances of the Appellant's case. 3. The assessing officer mechanically relied upon the recommendation of Assistant Commissioner of Income Tax [TDS], Hubbatli without applying his mind independently to the facts of the case and completed the assessment on borrowed satisfaction which is liable to be cancelled under the facts and circumstances of the case. 4. The appellant craves leave to add, alter, amend, substitute or delete any or all of the grounds of appeal urged above. 5. For the above and other grounds to be urged during the course of hearing of the appeal the Appellant prays that the appeal be allowed in the interest of equity and justice.”
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Additional grounds of appeal : “1. The authorities below failed to appreciate that the appellant is a Co- operative Society being a Rural Regional Bank and consequently not hit by the prohibition under section 8oP(4) of the Act, on the facts and circumstances of the case. 2. The appellant is eligible to the claim of deduction under section 8oP of the Act, on the facts and circumstances of the case. 3. The authorities below ought to have allowed the deduction under section 8oP of the act, by adhering to Circular 14/1955, of the Act, on the facts and circumstances of the case. 4. The assessee denies itself to be assessed as an AOP, and ought to have been assessed as a Co-operative Society, and the order passed in the wrong status is required to be set aside as bad in law, on the facts and circumstances of the case. 5. The Appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. 6. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered.”
The brief facts of the case are that the assessee is a Karnataka Vikas Grameen Bank, it filed return of income on 29/09/2016 electronically declaring a loss of Rs.336.66 crores. The notice u/s 148 was issued to the assessee on 20/12/2017 after obtaining approval from the Addl.CIT(A) on 15/12/2017. The reason for reopening the case is that a TDS survey was conducted by the AICT(TDS), Hubli dated 23/111/2017 on three branches. As per the information emanating from the TDS, it was found that there was non-submission of Form No. 15G/H within the prescribed time and as per prescribed procedures. They also observed that the form No.15G/H claiming interest payment of TDS have not been submitted to jurisdictional CCIT/CIT/efiled
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within the prescribed time and the Revenue Officer quantified and tabulated the financial year wise for non deduction of TDS which has been reproduced in the assessment order. It was observed that it warrants disallowance u/s 40(a)(ia) of the Income-tax Act. In response to the notice, the assessee filed a letter stating that the original return filed on 29/09/2016 may be treated as return filed in response to notice u/s 148 of the Act and the assessee asked for the copy of reasons recorded, which was provided to the assessee. Later on notice u/s 142(2) and other notices were issued to the assessee. The reply submitted by the assessee was verified by the revenue authorities and the proceedings on this issue was found in order and no addition was made on this count. Further, as per the copy of reasons recorded, it has been observed that for the assessment year 2014-15, it was noticed by the AO that the deduction u/s 36(1)(viia)(a) and deduction u/s 36(1)(viii) of the Act was wrongly claimed by the assessee. In this regard, details were submitted by the assessee and it also submitted that deduction of 7.5% from the total income and 10% from rural advances. The addition made by the Department for the assessment year 2014-15 is acknowledged by the CIT(A) and the matter is pending before the ITAT, Bangalore, therefore reopening cannot be made on the basis of this point. Detailed written submissions before the AO and relying on some case laws, the AO was not agreed and computed the income as under:-
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Aggrieved from the order of the AO, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee and passed order on 19/03/2020.
Aggrieved from the order of the CIT(A), the assessee as well as revenue is in appeal before us.
The ld.AR filed written synopsis, which is as under:- “The appellant begs to submit the under mentioned additional grounds of appeal which were not urged specifically in the grounds of appeal filed before the learned Commissioner of Income-tax [Appeals], Hubli. These grounds do not involve any investigation of any facts otherwise on the record of the department and are also pure question of law. It is humbly prayed before this Hon'ble Tribunal that the additional grounds may kindly be admitted and disposed off on merits for the advancement of substantial cause of justice. Reliance is placed on the decision of the Hon'ble Apex Court in the case of National Thermal Power Company Limited Vs. CIT, reported in 229 ITR 383 and also on the ratio of the decision of the Hon'ble Karnataka High Court in the case of Gundathur Thimmappa & Sons Vs. CIT, reported in 70 ITR 70. 2. Whether the assessee being a Regional Rural Bank (RRB) is a Cooperative society for the purpose of deduction under section 8oP of the Act? Brief History: a) The Central government after consultation with the National Bank for Agriculture and Rural Development (hereinafter referred to as NABARD) and Syndicate Bank, (which was the sponsor for Malaprabha Grameena
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Bank, Bijapur Grameena Bank Netravati Grameena Bank and Varada Grameena Bank, all of whom were Regional Rural Banks) be merged into one Regional Rural Bank, for the development of the area primarily served by agriculture. b) The Central Government, in exercise of the powers conferred by section 23A(1) of the Regional Rural Banks, Act, 1976(21 of 1976), merged the above four Regional Rural Banks into a single Regional Rural Bank, i.e., the appellant M/s Karnataka Vikas Grameena Bank, Belgaum Road, Dharwad - 580 008. a) The appellant came into being by amalgamation of the four Regional Rural Banks, on the date of the publication in the Official Gazette, i.e., on 12/09/2005 and was to operate in the regions of Dharwad, Belgaum, Haven, Gadag, Bijapur, Bagalkot, Uttara Kannada, Dakshin Kannada and Udupi districts of the State of Karnataka. b) The Regional Rural Bank Act, Section 22 and 32 are reproduced below; 22. Regional Rural Bank to be deemed to be a co-operative society for purpose of the Income-tax Act, 1961.- For the purpose of the Income-tax Act, 1961 (43 of 1961), or any other enactment Jbr the time being injbrce relating to any tax on income, profits or gains, a Regional Rural Bank shall be deemed to be a co- operative society. 32. Act to override the provisions of other laws.—The provisions of this Act shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force or in any contract, express or implied, or in any instrument having effect by virtue of any law other than this Act, and notwithstanding any custom or usage to the contrary. c) By virtue of the above section RRB is treated as a co-operative society. In view of the fact that section 32 overrides all other laws. It has to be interpreted accordingly. In view of section 22 of the Regional Rural Bank is deemed to be a Co-operative Society. d) The appellant, being a RRB, is therefore liable to be treated as a co- operative society for the purpose of Income Tax Act, 1961. 3. Whether the provisions of section 8oP () of the Act applicable to Regional Rural Banks? a) The appellant submits that there are three types of Banks, namely, Scheduled Banks, Co-operaLive Banks and Regional Rural Barks. b) The provisions of section 80P(4) has been introduced to deny the claim of deduction under section 8oP, to Co-operative banks, other than "Primary Agricultural Credit Societies" and "primary co-operative agricultural and rural development bank". The explanation to this sub- section defines co-operative banks as follows: "Explanation. —For the purposes of this sub-section,-
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(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (io of 1949);" In Part V of the Banking Regulation Act, 1949 (io of 1949) the term cooperative bank is defined as follows: (cci) "Co-operative bank" means a state co-operative bank, a central cooperative bank and a primary co-operative bank Further the above terms are defined in the said act as follows: (ccv) "primary co-operative bank" means a co-operative society, other than a primary agricultural credit society,— (1) the primary object or principal business of which is the transaction of banking business; (2) the paid-up share capital and reserves of which are not less than one lakh of rupees; and (3) the bye-laws of which do not permit admission of any other cooperative society as a member: Provided That this sub-clause shall not apply to the admission of a cooperative bank as a member by reason of such co-operative bank subscribing to the share capital of such co-operative society out of funds provided by the State Government for the purpose; (ccvii) "central co-operative bank", "primary rural credit society" and "state co-operative bank" shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981)RNAA vcS GR BANK c) Sec 2 of the NABARD Act, 1981 defines the above terms as follows: (d) "central co-operative bank" means the principal Co-operative Society in a district in a State, the primary object of which is the financing of other cooperative societies in that district Provided that in addition to such Principal Society in a district, or where there is no such principal society in a district, the State Government may declare any one or more co-operative societies carrying on the business of financing other co- operative societies in that district to be also or to be a central co- operative bank or central cooperative banks within the meaning of this definition; (u) "State co-operative bank" means the principal co-operative society in a State, the primary object of which is the financing of other co-operative societies in the State: Further NBARD Act also defines Regional Rural Bank as follows: (p) "regional rural bank" means a Regional Rural Bank established under section 3 of the Regional Rural Banks Act, 1976 (21 of 1976):
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d) From the above definitions it can be seen that the appellant is not a co-operative bank as it is not a Central co-operative bank or a State co- operative bank or a primary co-operative bank. e) The above definitions which set the treatment of whether any co- operative society is a co-operative society or a Bank to be eligible for the claim of deduction under section 8oP of the income Tax Act, 1961, treat the appellant unlike a "primary Co-operative Bank", which means that the appellant shall not be treated as a Co-operative bank for the purpose of the Banking Regulation Act and thus it is a Co-operative society, eligible for the claim of deduction under section 8oP of the Income Tax Act 1961 and is not hit by section 80P () of the Act. f) Thus a harmonious reading of the various provisions indicate that section 8oP(4) excludes and denies benefits only for a co operative bank and not a regional rural hank and consequently a RRB cannot be denied exemption under section 80P 4. In this regard reliance is placed upon the decision of the Allahabad Tribunal in the case of Baroda Uttar Pradesh Gramin Bank v. Deputy Commissioner of Income Tax, Sultanpur in [2018] 169 lTD 656 (Allahabad -Trib.), which has been upheld by the Allahabad High Court in [2022] 138 taxmann.com 449 (Allahabad)I15-o3-2o22] 5. The appellant summarises its contention as follows; a. What is excluded under 80P(4) is only a co - operative bank and not a regional rural bank. b. That there are three types of banks, i.e. scheduled banks, co - operative banks and Regional Rural Banks. c. The definition of cooperative bank for the purpose of 8oP is as per banking regulation act. d. The Banking regulation Act defines co operative bank as per NABARD, [See section 5 (cci) read with ccvii read with section 56(C)]. e. The NABARD Act, also defines the different class of banks [see Sec 2 (d), (p) and (q) of NABARD Act] f. Section 22 of the regional rural bank clearly deems the RRB as Co operative society for income tax act 6. The appellant, M/s Karnataka Vikas Grameena Vikas Bank, being a RRB is deemed to be Co operative society under income tax act and hence the assessment as AOP is contrary to statutory provision and an additional ground is being raised to cancel such assessment, notwithstanding that the return has been made as AOP 7. In view of the above, the appellant falls within the exception of section 8oP(4) of the Act, i.e., is not a Co-operative bank as defined under the Banking Regulations Act, 1949 and thus eligible for the claim of deduction under section 8oP of the Act.”
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In addition to the above written synopsis, the ld.AR argued on the legal issue in regard to eligibility of claiming deduction u/s 80P of the Act by holding that the assessee is not cooperative bank and it is a cooperative society, therefore, the sec.80P(iv) will not affect the eligibility for claiming deduction u/s 80P(2a)(i) of the Act on the profits earned. During the year, he further submitted that the Central Government in exercise of his powers conferred by sec.23A(i) of the Rural Bank Act 1976 merged four Regional Rural Banks in single rural bank, which is a assessee bank. He also referred to the various definitions as per respective Act and banking regulations Act, it has been mentioned in his written synopsis. He also referred to paper book page no.18, in which sec. 22 have clearly stated that the regional rural bank to be deemed to be a cooperative society for the purpose of Income-tax. It is sec. 22 of Chapter V of the regional rural bank Act 1976 and he also referred to sec. 32 which is overriding provisions of other laws. He also referred to sec. 56 of the Banking Regulations Act 1949, which is an obligation of the Act to cooperative banks and cooperative society subject to the modifications. He also referred to NABARD Act 1981 under which, the definition of sec. 2(d) of Central Cooperative Bank has been defined and he also referred to sec. 2(p) which is definition of regional rural banks. He also relied on the judgment of Hon’ble High Court of Allahabad which is placed on record.
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PCIT Vs. Baroda Uttar Pradesh Gramin Bank [2022] 138 taxmann.com 449 (Allahabad)
Baroda Uttar Pradesh Gramin Bank Vs. DCIT [2018] 138 taxmann.com 449 (Allahabad)
The ld.AR further submitted that the assessee is eligible for claiming deduction u/s 80P(2a)(i) within the frame work of Circular No.14/1959 of the Act to which the lower authorities have not granted.
On the other hand, the ld.DR relied on the order CIT(A)/ AO in regard to sec.36(1)(vii)/36(1)(viia) of the Act has been decided by the Hon’ble jurisdictional High Court of Karnataka in the case of CIT Vs. Syndicate Bank [2020[ reported in 422 ITR 460 [kar[ that the issue is decided in favour of the revenue, therefore, reopening made by the lower authorities have been justified and addition should be upheld.
We have heard both the parties and perused the entire materials on record and examined the orders of the lower authorities, we observe that additional ground raised by the assessee first time before us. and the assessee has dealt this issue by filing additional ground by holding that it is a legal ground which could be raised any point of time. Considering the judgment of Hon’ble of Supreme Court in the case of National Thermal Power
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Company Ltd., Vs. CIT, 229 ITR 383 (SC) the additional ground filed by the assessee is accepted.
We further observe that the assessee is a regional rural bank and formed with the merging of four regional banks into a single regional rural bank. As per the Regional Rural Bank Act 1976 notification dated 12/09/2005, the shareholders were Central Government, State Government and sponsored Bank. The case was reopened on the basis of two counts 1st for not complying TDS provisions and not submitting Form 15G/H to the respective offices, 2nd wrongly claimed deduction as per 36(1)(viia)(a) and deduction u/s 36(1)(viii) of the Act . As per assessment order for the assessment year 2014-15, the assessee filed detailed written synopsis and on the basis of that TDS issue on which the assessee has not deducted TDS of Rs.13,62,66,494/- was dropped by the AO during the reassessment proceedings and the second issue was not accepted by the AO for granting deduction u/s 36(1)(vii)/36(1)(viia) of Act. The assessee raised the issue before the CIT(A) and CIT(A) has also partly allowed the appeal of the assessee. During the course of hearing, the ld.AR vehemently argued on legal issue raised by the issue as additional ground that the assessee is a cooperative society as per Regional Rural Bank Act 1976. On perusal of Chapter V sec.22 it has been stated as under:-
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“22. Regional Rural Bank to be deemed to be a co-operative society for purpose of the Income-tax Act, 1961.- For the purpose of the Income-tax Act, 1961 (43 of 1961), or any other enactment for the time being in force relating to any tax on income, profits or gains, a Regional Rural Bank shall be deemed to be a co-operative society.”
As per the above section, it is clear that for the purpose of Income-tax Act, the assessee is deemed to be a cooperative society and for computing the income from profit or gains as per sec.32 of the Regional Rural Bank Act 1976, is overriding provisions which is stated as under:- “32. Act to override the provisions of other laws.- The provisions of this Act shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force or in any contract, express or implied, or in any instrument having effect by virtue of any law other than this Act, and/ notwithstanding any custom or usage to the contrary.”
From the above cited sections 22 and 32, it is clear that the assessee is deemed to be a cooperative society for the Income-tax purpose. On going through the written synopsis, the assessee referred to various definitions under the different Acts according to which, the assessee is a cooperative society for the purpose of Income-tax Act. The Hon’ble High Court of Allahabad has decided the similar issue in the case of PCIT Vs. Baroda Uttar Pradesh Gramin Bank reported in [2022] 138 taxmann.com 449 for the assessment year 2012-13 to 2016-17 in favour of the assessee. The relevant part of the decision is as under:-
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“3. It has been admitted before us that the respondent-assessee is a Primary Cooperative Agricultural and Rural Development Bank. It has also been admitted before us that the respondent/assessee is a Bank, established under section 3 of the Regional Rural Banks Act 1976. The respondent/assessee claimed deduction under section 80P of the Income- tax Act, 1961(hereinafter referred to 'as the Act, 1961') on the ground that it is a Cooperative Society and, therefore, in terms of the provision of Section 22 of the Regional Rural Development Banks Act,1976 (hereinafter referred to 'as the R.R.B Act, 1976'), it is entitled for deduction under section 80P of the Act. 4. The assessing authority has not accepted the claim of the deduction on the ground that the respondent/assessee is not a Cooperative Society registered under the U.P. Cooperative Societies Act, 1912 and, therefore, it is not entitled for deduction under section 80P of the Act,1961. It was further held by the Assessing Authority in paragraph 2.5 of the Assessment Order that the Regional Rural Banks are not eligible for deduction under section 80P of the Act, 1961 from the Assessment Year 2007-08, as by Circular No. 319 dated 11-1-1982 issued by the Central Board of Direct Taxes, deeming status of the Regional Rural Banks as Cooperative Society stands withdrawn w.e.f. Assessment Year 2007-08. 5. In the assessment order, the assessing authority has held in para no. 4 and 5, as under:— 4. The stand taken by assessee on this issue is not correct due to following reason:— a. Regional Rural Bank Act, 1976 has not overriding power over Income- tax Act, 1961 Circular No. 319 dated 11-1-1982 allowing deeming provision of cooperative society has been withdrawn by Board CIRCULAR NO. 6/2010 (F. No. 173 (3)/44/2009-IT (A-1) DATED 20/9/2010 w.e.f. assessment year 2007-08, And a clarification has been also given in this circular that Regional Rural Bank are not entitled for deduction u/s 80P of I.T. Act Circular has been typed in paragraph 3.1 (B) of assessment order. b. A sub-section 80P(4) was introduced by Finance Act, 2006 w.e.f. 1-4- 2007 withdrawing deduction u/s 80P in relation to any cooperative bank. The explanatory note to Finance Act with regard to this section is noted below:— "Withdrawl of tax benefits available to certain cooperative banks:— Section 80P, inter alia, provides for a deduction from the total income of the Co-operative societies engaged in the business of banking or providing credit facilities to its members, or business of a cottage
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industry , or of marketing of agricultural produce of its member, or processing, without the aid of power, of the agricultural produce of its members, etc. The cooperative banks are functioning at per with other commercial banks, which do not enjoy any tax benefit. It is, therefore, proposed to amend section 80P by inserting a new sub-section (4) so as provide that the provisions of the said section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank. It is also proposed the expressions "cooperative bank", "primary agricultural credit society" and "primary cooperative agricultural and rural development bank". It is also proposed to insert a new sub-clause (viia) in section 2 (24) so as to provide that the profits and grains of any business of banking (including credit facilities) carried on by a cooperative society with its members shall be included in the definition of 'income'. This amendment takes effect from 1st April, 2007 and apply in relation to the assessment year 2007-08 and subsequent years. (Clauses 3 and 19)" From aforesaid facts, intension of Parliament is very much clear and deduction under section 80P is not allowable to Regional Rural Bank and any cooperative bank. 5. However, it should be kept in mind that 80P (1) and 80P (2) (I) shall never be read in isolation rather it should always be read in association with 80P (4). The selection 80P (4) is introduced by Finance Act, 2006 w.e.f 1-4-2007 to clear any doubt while claiming deduction under section 80P (1) and 80P (2) (II) FURTHR CBDT ISSUED "circular no. 6/2010 (F. NO. 173 (3)/44/2009-IT (A-1) DATED 20-9-2010 C to give more and more clarity on 80P deduction. Therefore, the assessee is assessed as status of AOP. From aforesaid discussion it is held that assessee is not entitled for deduction u/s 80P (1) of I.T. Act and claiming disallowed and added back to the total income. Penalty notice u/s 271(1) (c) is being issued separately. 6. Sections 22 and 32 of the Regional Rural Banks Act, 1976 provides as under:— 22. Regional Rural Bank to be deemed to be a cooperative society for purpose of the Income-tax Act, 1961.- For the purpose of the Income-tax Act, 1961 (43 of 1961), or any other enactment for the time being in force
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relating to any tax on income, profits or gains, a Regional Rural Bank shall be deemed to be a cooperative society. 32. Act to override the provisions of other laws.- The provisions of this Act shall have effect notwithstanding anything to the contrary in any other law for the time being in force or in any contract, express or implied, or in any instrument having effect by virtue of any law other than this Act, and notwithstanding any custom or usage to the contrary. 7. Sub-section (4) of section 80P of the Act. 1961 (incorporated by Finance Act, 2006 w.e.f. 1-4-2007 provides as under. Para 1.644 (4) The provisions of this section shall not apply in relation to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank; Explanation- For the purposes of this sub-section- (a)"cooperative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949); (b) 'primary cooperative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities. 8. The Tribunal has passed impugned two common orders, firstly in matters arising out of the assessment orders, and secondly order in matters arising from the penalty orders. 9. In the Income-tax Appeals arising from the assessment order, the Income-tax Appellate Tribunal Allahabad Bench, Allahabad has recorded the following findings of the fact (paragraphs 38, 39, 41, 42, 50, 51, 54, 55, 56, 57, 58, 61):— 38. We have heard the contentions, put forth by the rival parties, perused the Paper Books in three volumes as had been uploaded by the appellant RRB. The central issue involved in all these appeals is whether 'appellant RRB is entitled to claim exemption under section 8OP(2)(a)(i) of the Act, on the ground that Regional Rural Banks in general had been notified as "Cooperative Society" by virtue of insertion of section 22 read with section 32 of Regional Rural Bank Act 1976. Further, whether such a claim is adversely affected by insertion of sub- section (4) below section 80P, by the Finance Act 2006. To find out answer for such issues, it would be useful to trace the history of section 80P as well as of Banking
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Regulation Act, 1949 and Part-V thereof as had been inserted to the main statute, i.e., Banking Regulation Act 1949, in the year 1965. 39. The section 80P of the Act' had been inserted, in substitution of section 8l of the Income-tax Act 1961, by the Finance Act (No.2) of 1967, (20 of 1967), w.e.f. 1-4-1968. The purpose behind such a substitution, was to enlarge the scope of deduction as used to be permissible under erstwhile section 81 (the then) of the Act. In terms of section 81, rebate on certain types of income had been provided, whereas in terms of section 8OP, full and outright deduction of income earned from the 'business of Banking' or 'providing credit facilities to its members, to various types of Cooperative Societies as mentioned in sub-clauses (i) to (vii) of clause (a) of sub section 2 of 80P had been given. It clearly meant that, while enacting sections 22 r.ws. 32 of Regional Rural Bank Act, 1976, the Parliament was fully aware of the provisions contained in the newly substituted section 80P, in place of erstwhile regime of granting rebate as had been provided under section 81 of the Act. Yet the said RRB Act had granted 'Regional Rural Banks' 1961, the status of "cooperative society", for the purposes of "taxation of its income or any other enactment for the time being in force, related to any tax on its income, profits or gain as derived by specified categories of co operative societies, from Banking Business". The term Banking Business' itself is a connotation of very wide import. The said statute, namely RRB Act 1976, as a whole had been given the status of 'overriding nature, as per section 32 thereof. Therefore, as per simple rule of interpretation, the Regional Rural Bank Act, 1976, overrides the substituted section 80P of the Act. Such an analogy is applicable to sub-section (4) also of section 80P also, for the reason that the said sub-section (4) had been inserted by the Finance Act, 2006 without there being any corresponding amendment in the RRB Act 1976 particularly in section 22 of Regional Rural Bank Act 1976. 41. In short, the effect of over-riding provisions as contained in section 22 read with section 32 of Regional Rural Bank Act 1976, had not/could not have been taken away or whittle down their true effect, as the said provisions remain intact. Accordingly, all the Regional Rural Banks as have been constituted and incorporated under the Regional Rural Bank Act 1976, as the appellant RRB is, continue to be "cooperative society" and thereby continue to enjoy exemption under section 80P (2)(a)(i). The "appellant RRB", is no exception. Meaning thereby, that the appellant RRB', in spite of insertion of bar by virtue of sub-section (4) below section 80P, by the Finance Act 2006 effective from 1-4-2007, continues to be enjoying exemption under section 80P(2)(a)(1).
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Here itself, it would not be out of place to mention that status of "cooperative society" had been conferred on Regional Rural Banks, as the "appellant RRB" is, by virtue of section 22 read with section 32 of Regional Rural Bank Act 1976, and not by circular no. 319 dated 11-1- 1982 as had been issued by CBDT, as had been opined, by the Authorities below. Therefore, insertion of sub-section (4) below section 80P, and/or withdrawal of the said Circular no. 319 dated 11-1-1982 in the wake of insertion of bar by virtue of sub section (4) had not gone to adversely affect 'claim for exemption' from income tax as had been put forth by the "appellant RRB". The "appellant RRB" continues to be having the status of a "cooperative society" enjoying the benefit of exemption. 50. For taking such a view, about interpretation of Regional Rural Bank Act, vis-à-vis sub-section (4) of Income-tax Act, 1961, we are fortified by the decision rendered by Hon'ble Supreme Court in the case of Reserve Bank of India vs. Peerless General Finance and Investment Co. Ltd. reported in (1987) 1 SCC 424 wherein it has been held that: "interpretation must depend on the text and the context. They are the basis of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither Can be 1gnored. Both are important. That interpretation is best which makes the textual interpretation match the Contextual. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word. 1f a statute is looked at in the context of its enactment, with the glasses of the statute maker provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With those glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place and everything is in its place. It is by looking at the definition as a whole in the setting of the entire Act and by reference to what preceded the enactment and the reasons for it that the court construed in the expression 'Prize Chit' in Srinivasa and we find no reason to depart from the Court's construction". 51. Speaking further, even if it is held that the term 'Regional Rural Bank' has a different meaning in its purport, than that given in the Regional Rural Bank Act 1976, this would be the case of ambiguity in the statute. It is a law well settled that benefit of such an ambiguity has to be given to
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the 'subject', as the 'appellant RRB' is. It is a trite law that provisions contained in the fiscal statutes, have to be read word by word and nothing is to be subtracted therefrom and nothing is to be intended therein. Such a rule of interpretation had been laid down by the Hon'ble Jurisdictional High Court in the case of CIT v. Sahara India Savings and Investment Corpn. Ltd. reported in [2003] 264 ITR page 646, wherein their lordships have observed and held as under: "We do not agree. It is a well settled principle of interpretation of taxing statues that while interpreting a taxing statue we have only to see the words used in the statue and not the intention or the spirit of the statutory provision. In a taxing statue the literal rule of interpretation applies, and it is well settled that if a transaction comes within the letter of the law it has to be taxed, however great the hardship, but if it does not, it cannot be taxed, however great the loss may be to the public exchequer. The view was best expressed by Lord Cairns in Partington v. Attorney General [1869] 4 LR 100 (HL) as follows (at page 122): If the person sought to be taxed, comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand if the Court seeking to recover the tax, cannot bring the subject within the letter of law, the subject is free, however apparently within the spirit of the law the case might otherwise appear to be. The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J. in his classic statement: In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One must only look fairly at the language used. In A.V. Fernandez v. State of Kerala (1957 8 STC 561; AIR 1957 SC 657, the Supreme Court of India stated the principle as follows (page 661 of AlR 1957 SC): 'If the Revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statue no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering what was the substance of the matter' Where the language of a provision is plain, Courts cannot ordinarily concern themselves with the policy behind the provision, or the intention of the Legislature. As Lord Watson said in A. Salomon V. A. Salomon and Co. (1897) AC 22, 38 (HL) "intention of the Legislature is a common but slippery phrase". In ITO v. TS Devinatha Nadar [1968] 68 ITR 252; AIR
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1968 SC 623, the Supreme Court of India observed that the rule that (page 257): "we must look to the general scope and purview of the statute, and at the remedy sought to be applied, and consider what was the former state of the law, and what it was that the Legislature contemplated' was made while construing a non-taxing statute. The said rule had only a limited application in interpreting a taxing statute. It follows from this decision that the mischief rule laid down in Heydon's case (1584) 3 Co. Rep 7a has only a limited application to taxing statutes. Hence there is no question of looking into the legislative intent or spirit of the law in a taxing statute. We have only to see the actual words used. In other words, in a taxing statute we have to go by the letter of the law, and not its spirit or intent." The new definition of the word "interest" in section 2 (7) is in two parts. Firstly, it says that "interest" means interest on loans and advances. Secondly, it includes two other items in the definition of the word "interest". In our opinion, the only correct interpretation of this provision can be that firstly nothing is interest except interest on loans and advances. Secondly, two other categories are also included in the definition of the word "interest" as specified in clauses (a) and (b) of section 2(7). In our opinion, the word "means can only have one meaning, that is, it is CIT v. Sahara India Savings and Investment Corporation Ltd. reported in [2010] 321 ITR 371 an exclusive definition vide P. Kasilingam v. P.S. G. College of Technology (1995/supp 2 SCC 348. When we say that a word has a certain meaning then by implication we mean that it has no other meaning vde a Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer, Labour Court/1990] 77 FJR 17; |1990) 3 SCC 682. However, when certain other categories are added then it means that only those additional categories will be included within the definition and none others, Vide Mahalakshmi Oil Mills v. State of A.P 1989 1 SCC 164; 1988) 71 STC 285 (SC)" The aforesaid judgment had received affirmation also, from the Hon'ble Supreme Court in the case of CIT v. Sahara India Savings and Investment Corporation Ltd. reported in [2010] 321 ITR 371." 54. So far as claim of exemption of its income is concerned, we have noted the decision of Hon'ble Supreme Court in the case of Citizen Coopèrative Society Ltd. v. Asstt. CIT [2017] 397 ITR 1, dated 8-1-2017, wherein denial of the appellant's claim for exemption, by the authorities below had been upheld, owing mainly 'to the bar contained in sub- section (4) of section 80P of the Act. The facts of the said case were, that
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it was a "cooperative society" registered under the Andhra Pradesh Mutually Aided Cooperative Societies Act 1955. In that case, the said cooperative society had violated the provisions of Andhra Pradesh Mutually Aided Cooperative Societies Act 1955. It was under these circumstances, that the Hon'ble Supreme Court had approved the judgment, adverse to the assessee, as had earlier been delivered by Hon'ble Andhra Pradesh High Court. As against this, it is stated that this is not even the case of the revenue that the appellant had carried on the banking business, in violation of any of the provisions of Regional Rural Bank Act 1976. On the other hand, the revenue's case, had been that the appellant carried on the "business of banking", like that of any other bank which did not enjoy the benefit of exemption under section 80P(2)(a)(i). Succinctly speaking, present is the case where the appellant RRB had been carrying on the 'business of Banking' as per enabling provisions, as contained in section 18 of Regional Rural Bank Act, 1976 and it had been specifically given the status of a 'Cooperative Society' by virtue of section 22 of RRB Act 1976 looking to the preamble of the statute namely Regional Rural Bank Act 1976. 55. It is worthwhile to mention here that in the case of Citizen Cooperative Society Ltd., as has been referred to by the ld. CIT DR, the Hon'ble Supreme Court had also, referred to its earlier decision in the case of CIT v. Nawanshahar Central Co-op Bank Ltd. reported in [2007] 289 ITR 6 wherein it has been held that if a cooperative bank was carrying on business of banking, which required it to place a part of its funds in approved securities, the income attributable thereto, is deductible under section 8OP(2)(a)(i) of the Act. 56. Further, in other case of CIT v. Nawanshahar Central Co- op Bank Ltd. reported in [2012] 349 ITR 689, the Hon'ble Supreme Court has also held that "the assessee - cooperative society was entitled for deduction under section 80P(2)(a) (i) of focome Tax Act 961, in respect of underwriting commission and interest on PSEB Bonds and IDBI Bonds, as such is an income, attributable to the business of banking. It is not the case of revenue that any part of its income had been earned by the "appellant RRB", which is different from "Business of Banking" as defined in section 18 of Regional Rural Bank 1976. 57. From the discussion made in the foregoing paragraphs, it is abundantly clear that the Assessing Officer and so also the ld. CIT (A), had gone off the tangent, while deciding/adjudicating the appellant's claim for exemption under section 80P(2)(a)(i), owing mainly to the reason that they have failed to interpret the provision contained in section 22 of RRB Act 1976 and also the significance of section 32 of the said statute, which had the effect of making the overall statute i.e.
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Regional Rural Bank Act 1976, of over-riding nature. Both these sections have been reproduced by us earlier in this order. A perusal of the said sections would clearly mean that the "appellant RRB" is a "cooperative society" and accordingly sub-section (4) below section 80P of the Income-tax Act would not operate as a bar to its claim for exemption and accordingly, we set aside the findings given in the related assessment orders as well as appellate orders so far as appellant's claim for exemption under section 80P(2)(a)(i) is concerned. The Assessing Officer would recompute the income after allowing deduction under section 80P(2)(a)(i), as per our findings given hereinfore. 58. Before parting with the issue of appellant's claim case for exemption under section 8OP(2)(a) (i), we also hold that the case laws referred to and relied upon by the ld. "CIT(A), while upholding the denial of claim for exemption of income derived from "banking business", she has referred to and relied upon various case laws, as have been discussed by us in para 47 hereinfore. Such case laws are not applicable on the facts of the present case. Surprisingly enough, the underlying principle in all such case laws support the appellant's claim for exemption as it had achieved the objective for which it had come into existence in the year 1976. As stated above, the "appellant RRB had come into existence for development and growth of agricultural sector which had always been on the priority list of the Government of India. In such a situation, the claim for exemption from income- tax, gets fully fortified. 61. Thus, we fully concur with the view expressed by the Coordinate Bench at Allahabad in the case of 'appellant RRB' in order dated 8-1- 2018 and reverse the orders passed by the authorities below, in relation to the appellant's claim for exemption under section 80P(2)(a)(i). With such an elaboration as has been given by us, we uphold the appellant's claim for exemption under section 80P(2)(a)(i). 10. Income Tax Appellate Tribunal has recorded a clear finding of the fact in the afore-noted order that the appellant had come into existence for development and growth of agricultural sector. This finding of fact has not been disputed in the present appeals. 11. Assessing authority, in para no. 2 of the assessment order itself has recorded a finding that the respondent-assessee came into existence w.e.f. 31-3-2008, after amalgamation of the two Regional Rural Banks (RRB) i.e. Baroda Eastern U.P. Gramin Bank and Baroda Western Gramin Bank. It has not been disputed that by virtue of deeming provision under section 22 of the Regional Rural Banks Act, 1976, the respondent/assessee is deemed cooperative society.
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We have perused the impugned common order of the Tribunal arising from the assessment order and we do not find any legal infirmity in it.
The AR of the assessee also relied on the judgment of the coordinate bench ITAT Allahabad Bench has decided the similar issue in the case of Baroda Uttar Pradesh Gramin Bank Vs. DCIT in ITA No.403 to 405/2014 for the assessment year 2009-10 to 2011-12 in favour of the assessee.
Respectfully following the above decisions, we hold that the assessee is a cooperative society for the purpose of Income-tax Act and assessee is eligible for claiming deduction as per sec. 80P(2)(a)(i) of the Act. The provisions of sec.80P(4) will not apply in the case of the assessee. Accordingly, the additional ground Nos.1 and 2 raised by the assessee is allowed. Necessary computation shall be followed by the AO as per law.
In ground No.3 the assessee has raised that the deduction u/s 80P of the Act should be given by the Revenue authorities on the basis of Circular No.14/1955. Since we have directed to the AO for giving necessary computation as per law, therefore this ground becomes consequential in nature.
The assessee has raised in ground No.4 that assessee is not an AOP but it is cooperative society, whereas the authorities below
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has passed the order in the status of AOP, therefore, the order should be set aside.
The assessee has himself obtained PAN No. in the capacity of AOP [AAAAK 6324 Q] and from the alphabets of PAN, it is clear that the assessee is an AOP, the arguments taken by the assessee does not survive. therefore, the issue raised by the assessee is dismissed. However, for the purpose of claiming deduction u/s 80P of the Act as per the Regional Rural Bank Act we have uphold that it is a cooperative society. therefore, the ground No.4 is premature.
Ground No.5 and 6 is general in nature. Accordingly, we partly allow the appeal of the assessee. Other grounds were not argued; hence it is dismissed as not pressed.
In the result, the appeal of the assessee is partly allowed.
Revenue appeal in ITA No.720/Bang/2020
The revenue has raised the following grounds of appeal:- "Whether on the facts and circumstance of the case the id. CIT(A) is right in allowing the fresh claim of the assessee during the course of appellate proceeding in the absence of revised return of income ignoring the judgment in the case of Goetze (India) Ltd Vs CIT 284 itr 323 (SC)."
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The ld.DR submitted that the CIT(A) has accepted the claim of the assessee without revising return of income filed by him ignoring judgment in the case of Goetze (India) Ltd., Vs. CIT reported in 284 ITR 323 (SC), therefore the CIT(A) is not justified in giving relief to the assessee, hence the order of the AO should be restored.
The ld.AR relied on the order of the CIT(A).
After going through the record and arguments put forth by the before us, the revenue has challenged that the CIT(A) cannot accept the claim of the assessee. However, the CIT(A) has coterminous power as per sec. 251 of the Act. Aes pr sec.251 of the Act, the power of the CIT(A) has been defined. According to the sec.251 of the Act, the CIT(A) can grant relief during the course of hearing before him which was raised by the assessee. In the impugned case, the fresh claim was raised by the assessee, which has been rightly accepted by the CIT(A) as per sec. 251 of the Act. There is no any infirmity for accepting fresh claim by the CIT(A). Therefore, the ground raised by the revenue on this count is dismissed.
The appeal of the revenue is dismissed.
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In the result, the appeal of assessee is partly allowed and the appeal of the revenue is dismissed. A copy of the order shall be placed in both the files.
Order pronounced in court on 5th day of December, 2022 Sd/- Sd/- (George George K) (LAXMI PRASAD SAHU) Judicial Member Accountant Member
Bangalore, Dated, 5th December, 2022 / vms /
Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.
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Date of Dictation ……………………………………
Date on which the typed draft is placed before the dictating Member ……………………. 3. Date on which the approved draft comes to Sr.P.S .……………………………. 4. Date on which the fair order is placed before the dictating Member ……………….. 5. Date on which the fair order comes back to the Sr. P.S. ………………….. 6. Date of uploading the order on website…………………………….. 7. If not uploaded, furnish the reason for doing so ………………………….. 8. Date on which the file goes to the Bench Clerk ………………….. 9. Date on which order goes for Xerox & endorsement…………………………………… 10. Date on which the file goes to the Head Clerk ……………………. 11. The date on which the file goes to the Assistant Registrar for signature on the order ………………………………. 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order …………………………. 13. Date of Despatch of Order. ……………………………………………..