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Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SMT. BEENA PILLAI & SHRI. LAXMI PRASAD SAHU
ORDER
PER BEENA PILLAI, JUDICIAL MEMBER Present appeal filed by assessee against order dated 06/03/2020 passed by the Ld.Pr.CIT, Mysore for Assessment Year 2015-16 on following grounds of appeal: “1. The Impugned Order as passed by the Hon'ble Pr.CIT u/s 263 of the Income-tax Act, 1961 is arbitrary, unjust and illegal under the facts and circumstances of the appellant case.
2. On the facts and circumstances of the case and on law, the Hon'ble Pr.CIT has assumed the jurisdiction u/s 263 under incorrect application of law as twin condition of Page 2 of "erroneous Order and Prejudicial to interest of revenue" as enunciated u/s 263 were not satisfied simultaneously and therefore assumption of jurisdiction u/s 263 and impugned Order passed thereunder liable to be quashed as void-ab-initio.
3. On the facts and circumstances and law, the original Order passed by the learned AO was after proper application of mind and proper appreciations of law and the intervention caused by the Hon'ble Pr. CIT by invoking the provisions of section 263 has no sanction of settled position of Law and therefore liable to be quashed as non- est.
4. On the facts and circumstances and on law, the Hon'ble Pr.CIT observations and directions by way of impugned Order u/s 263 is incorrect on facts and further untenable in law and the case law relied on by the Hon'ble Pr.CIT is distinguishable on facts and circumstances of the appellant case and therefore premise on which impugned Order u/s 263 passed is an impermissible act and therefore final impugned Order u/s 263 deserved to be annulled.
5. On the facts and circumstances and on law, the Hon'ble Pr.CIT has assumed the jurisdiction u/s 263 on the issues which were not part of CASS Limited scrutiny mandate resulting-in violating the CBDT guidelines/instructions and therefore assumption of improper jurisdiction u/s 263 by breaching CBDT Instructions and impugned Order thus passed thereof is bad in law and liable to be annulled.
6. On the facts and circumstances and on law, the Order passed by the learned AO as on 26.12.2017 u/s 143(3) was neither erroneous nor prejudicial to the interest on revenue and therefore the intervention by the Hon'ble Pr.CIT by invoking provisions of the Section 263 is without proper jurisdiction and impugned Order thus passed u/s 263 is void-ab-initio liable to be annulled.
7. On the facts and circumstances and on law, the Hon'ble Pr.CIT assumed the jurisdiction u/s 263 on the issues on which the escapement of income are on probability and further based on pure guess-work which is not permissible u/s 263 and therefore improper assumption jurisdiction on surmises and conjectures is bad in law and further void- ab-initio and Impugned Order thus passed liable to be set- aside in toto.
8. On the facts and circumstances and on law, the Hon'ble Pr.CIT assumed the jurisdiction u/s 263 on an opinion which is different from that of the learned AO which is not permissible on a settled law on subject and therefore improper assumption of jurisdiction u/s263 on a debatable issue and indifferent view discern on issues which is already dealt by AO is bad in law and directions thereof u/s 263 is liable to be annulled.
On the facts and circumstances of the appellant case, the Hon'ble Pr.CIT ought not to have directed the learned AO to deny the deduction u/s 80P(2)(a)(i) on a claim based on the settled law on the subject and further decision relied on by the Hon'ble Pr.CIT is distinguishable to the facts of the appellant case and therefore interest on bank deposit of Rs Rs 5,38,573/- denied by the Hon'ble Pr.CIT u/s 260 impugned Order is liable to be deleted and deduction be eligible to the appellant as originally allowed by learned AO. 10. That the grounds of appeal
herein are without prejudice to each other and are independent of each other.
11. The appellant craves leave to amend, alter, modify, substitute, and to, abridge and / or rescind any or all of the above grounds.”
2. At the outset we note that, there is a delay of 502 days in filing the present appeal before the Tribunal which is due to covert 19 pandemic that persisted at the relevant period when the impugned order was passed by the learnt Pr.CIT.
3. Considering the directions by Hon’ble Supreme Court that prevailed during the relevant period the delay in filing the present appeal before the tribunal stands condoned.
4. Brief facts of the case are as under:- 4.1 The assessee is a cooperative bank. For the assessment year 2015-2016, the return of income was filed on 27.09.2015 declaring total income of Rs.7,18,060/- after claiming deduction u/s 80P(2)(a)(i) of the I.T.Act. The assessment u/s 143(3) of the Page 4 of I.T.Act was completed vide order dated 26/12/2017 accepting the income returned by the assessee- society. 4.2 The assessment order dated 26/12/2017 was revised u/s 263 of the I.T.Act vide order dated 06/03/2020, for the reason that, interest income received by the assessee was claimed as a deduction u/s 80P(2)(a)(i) of the I.T.Act. The CIT conclude that the interest income received by assessee is not eligible for deduction u/s 80P(2)(a)(i) of the I.T.Act. as the same is not related to any banking activity. Further, the CIT held by relying on the ratio of the judgment of the Hon'ble Karnataka High Court in the case of Pr.CIT & Anr. v. Totagars Co- operative Sale Society reported in (2017) 395 ITR 611, the assessee is not entitled to deduction u/s 80P(2)(d) of the I.T.Act since the interest income was not received from investments with other co-operative societies. 4.3 Aggrieved by the order passed u/s 263 of the I.T.Act, the assessee has preferred this appeal before the Tribunal.
The Ld.AR submitted that, identical issue was considered by the ITAT in in the case of M/s.Kakkabe VSSN BAnk Ltd.vs. Pr.CIT by order dated 28.02.2022for assessment A 2015-16. The Ld.AR submitted that, this Tribunal in above cited case, directed the Ld.AO to consider the dictum laid down by the Hon'ble Supreme Court in case of Mavilayi Service Co- operative Bank Ltd. v. CIT reported in 431 ITR 1, de horse the observation of the Ld.CIT, u/s 263 of the I.T.Act.
The Ld.DR did not raise any objection for giving a similar direction in the instant case.
We have heard the submissions advanced by both sides based on the material placed on record. Hon'ble Supreme Court in the Page 5 of Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) held that, when the assessee is registered as a Co-operative Society under the respective State Acts, the interest income received for providing credit facilities to its members is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act. The relevant finding of the Hon'ble Supreme Court reads as under:- "45. To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co- operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes cooperative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to nonmembers, profits attributable to such loans obviously cannot be deducted.
It must also be mentioned here that unlike the Andhra Act that Citizen Cooperative Society Ltd. (supra) considered, `nominal members' are 'members' as defined under the Kerala Act. This Court in U.P. Cooperative Cane Unions' Federation Ltd., Lucknow v. Commissioner of Income Tax, Lucknow-I (1997) 11 SCC 287 referred to section 80P of the IT Act and then held: "8. The expression "members" is not defined in the Act. Since a cooperative society has to be established under the provisions of the law made by the State Legislature in that regard, the expression "members" in Section 80-P(2)(a)(i) must, therefore, be construed in the context of the provisions of the law enacted by the State Legislature under which the cooperative society claiming exemption has been formed. It is, therefore, necessary to construe the expression "members" in Section 80-P(2)(a)(i) of the Act in the light of the definition of that expression as contained in Section Page 6 of 2(n) of the Cooperative Societies Act. The said provision reads as under: "2. (n) 'Member' means a person who joined in the application for registration of a society or a person admitted to membership after such registration in accordance with the provisions of this Act, the rules and the bye-laws for the time being in force but a reference to`members' anywhere in this Act in connection with the possession or exercise of any right or power or the existence or discharge of any liability or duty shall not include reference to any class of members who by reason of the provisions of this Act do not possess such right or power or have no such liability or duty;" Considering the definition of 'member' under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).
Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non- members under section 59(2) and (3), which reads as follows: "59. Restrictions on loans.- (1) A society shall not make a loan to any person or a society other than a member: Provided that the above restriction shall not be applicable to the Kerala State Co-operative Bank. Provided further that, with the general or special sanction of the Registrar, a society may make loans to another society. (2) Notwithstanding anything contained in sub-section (1), a society may make a loan to a depositor on the security of his deposit. (3) Granting of loans to members or to non-members under subsection (2) and recovery thereof shall be in the manner as may be specified by the Registrar." Thus, the giving of loans by a primary agricultural credit society to nonmembers is not illegal, unlike the facts in Citizen Cooperative Society Ltd. (supra).
Resultantly, the impugned Full Bench judgment is set aside. The appeals and all pending applications are disposed of accordingly. These appeals are directed to be placed before appropriate benches of the Kerala High Court for disposal on merits in the light of this judgment."
In view of the recent judgment of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT (supra), we remit the issues raised in this appeal to the file of Ld.AO. The Ld.AO is directed to examine the deduction u/s 80P(2)(a)(i) of the I.T.Act in the light of the dictum laid down by the Hon'ble Supreme Page 7 of Court in the case of Mavilayi Service Co- operative Bank Ltd. v. CIT (supra). It is ordered accordingly. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in open court on 30th June, 2022.