INDUSTRIAL CO. OPERATIVE CREDIT SOCIETY LTD.,,KHEDA vs. THE PR. CIT-2,, VADODARA

3 income. However, deductions under section 80P(2)(a)(i) and 80P(2)(a)(ii) amounting to Rs.3,77,122/- were allowed, and assessed income at Rs.5,09,983/-. Aggrieved, assessee went in appeal before the ld.first appellate authority. Before the ld.CIT(A) assessee reiterating submissions made before the ld.AO, and further relied upon following decisions: i) Jafari Momin Vikas Co-op. Credit Society Vs. ITO, 49 taxmann.com 571 (Guj); ii) Dhanalaxmi Co-op Crdit Scoeity Ltd. Vs. ITO, ITA No.2342/Ahd/.2012 (ITAT-Ahmedabad) iii) CI T Vs. Ratnagiri Dist. Central Coop Bank Ltd., 254 ITR 697 iv) Yamkanmardi Urban Co-op Credit Society Ltd. Vs. CIT 45 taxmann.com 297 (Kar) v) CIT Vs. Muzzaffarnagar Dist Coop Bank Ltd., 28 taxmann.com 132 (All) vi) Mehsana Dist. Coop Bank Ltd. Vs. ITO, 251 ITR 522 (SC)

4. On consideration of submissions of the assessee, and on the basis of the above judgments, the ld.CIT(A)-2, Vadodara vide order dated 28.12.2015 directed the AO to allow deduction under section 80P(2)(a)(i) of the Act and thus, allowed claim of the assessee. Thereafter, the ld.Pr.CIT-2, Vadodara invoked his revisional power under section 263 and issued a notice to the assessee as to why original assessment order dated 10.2.2015 passed under section 143(3) of the Act should not be cancelled. In 263-proceedings, the assessee restated the submissions as were made before both the authorities below. Assessee further submitted that section 80P(4) as relied on by the ld.Pr.CIT, was not applicable to the case of the assessee, because the assessee is cooperative credit society, and the said provision bars only cooperative bank. Assessee further submitted that ld.Pr.CIT wrongly assumed jurisdiction under section 263, because provisions of section 4 263 are not applicable to the assessee, as order of the AO passed under section 143(3) which was sought to be revised under section 263 was subject matter of an appeal, and was considered and decided in appeal. Therefore, by applying principle of doctrine of merger, order of AO was emerged with order of the ld.CIT(A), which was not amenable to section 263 of the Act, meaning thereby, once the issue was considered and decided by the CIT(A) revision under section 263 could not be done. However, contentions of the assessee were not convincing to the ld.Pr.CIT. He was of the view that the case of the assessee was hit by section 80P(4) of the Act, and therefore, deduction under section 80P(2)(a)(i) was not allowable to the assessee, therefore, order of the AO being erroneous in so far as prejudicial to the interest of the Revenue, required to be revised to that extent. Accordingly, the ld.Pr.CIT directed AO to make additions in accordance with the order passed under section 263 of the Act. Dissatisfied with action of the Pr.CIT, assessee is now before the Tribunal.

5. Before us, the ld.counsel for the assessee advanced arguments on similar footings as were made before the Revenue authorities. Further, he strongly relied upon judgment of Hon’ble Gujarat High Court in the case of Jafari Momin Vikas Co-op. Credit Society Ltd. (supra), and Circular No.133 of 2007 dated 3.7.2007 issued by the CBDT. He further submitted that against the original assessment passed under section 143(3) of the Act, the assessee went in appeal before the ld.CIT(A) and the ld.CIT(A) vide order dated 28.12.2015 allowed claim of the assessee. Against this order of the ld.first appellate authority, no appeal has been preferred by the Revenue, and therefore, the issue of deduction under section 80P(2)(a)(i) attained finality, and order of the AO got merged with appellate order. This being so, revisionary power exercised by the ld.Pr.CIT under section 263 is bad in law and liable to quashed. On the other hand, the ld.DR supported order of the Pr.CIT.

5 6. We have considered rival submissions and gone through the record carefully. We have also gone through relevant judgments cited at Bar by the ld.counsel for the assessee and Circular No.133 of 2007 of the CBDT. We find that issue before us is that, whether the assessee- society is entitled for deduction under section 80P(2)(a)(i) read with section 80P(4), and whether the ld.Pr.CIT can exercise revisionary power in view of Explanation 1(c) to section 263 of the Act. The fact is that the assessee is a cooperative credit society engaged in business of providing financial assistance to its members, and also accepting deposits from the members, and surplus funds available with it deposited with banks in FDRs. as normal business policy for generation of fund. In the return of income, assessee claimed deduction under section 80P(2)(a)(i) in respect of interest income earned by it from the banks. This claim was disallowed by the AO in his assessment order passed under section 143(3) on 10.2.2015. The issue was further agitated by the assessee before the ld.first appellate authority, who, however, allowed claim of the assessee vide order dated 28.12.2015. This appellate order was not challenged by the Revenue before any higher authority. Rather, the ld.Pr.CIT invoked his revisionary power under section 263, and vide order dated 2.3.2017 directed the AO to revise the original assessment order dated 10.2.2015 as per the observation made in the 263-order. The assessee is aggrieved by action of the ld.Pr.CIT in assuming jurisdiction under section 263 after passing appellate order. We find that when the original assessment order under section 143(3) was challenged before the first appellate authority, and first appellate authority has decided the issue and passed order in favour of the assessee, consequently, the assessment order gets merged with the appellate order. Further, even the Revenue has not preferred any appeal against the appellate order, and therefore, issue in dispute attained finality. We also find that clause (c) of Explanation 1 to Section 263(1) has clarified that when the subject matter of revision is in appeal before the CIT(A), the CIT has no power

6 to revise the same. In other words, CIT is competent to revise an order of assessment passed by the AO in all the matters except those which have been considered and decided in appeal. The ld.CIT can exercise revisional powers only on issue which are not before the ld.CIT(A). This is because powers of the CIT(A) are co-terminus to that of the CIT. The case on hand is clearly in violation of the Explanation 1 to section 263(1), therefore, applying principle of doctrine of merger, exercise of power under section 263 in the present case is bad in law and liable to be quashed.

7. Even otherwise also, if one considers the issue on merit, the dispute is covered in favour of the assessee by the decision of Hon’ble jurisdictional High Court in the case of Jafari Momin Vikas Co-op. Credit Society Ltd. (supra), wherein, the Hon’ble High Court examined applicability of section 80P(2)(a)(i) read with section 80P(4) of the Act and the CBDT Circular No.133 of 2007 dated 9.5.2007 clarifying scope of section 80P(2) in respect of cooperative credit society. The circular clarified that Delhi Co-op Urban Thrift and Credit Society Ltd. is not a cooperative bank, but a credit cooperative society, and section 80P(4) of the Act would not be applicable to it. For better understanding of the proposition laid down in this behalf, we would reproduce the above judgment Hon’ble jurisdictional High Court. They read as under:

2. The Revenue has challenged the judgment of the Income-tax Appellate Tribunal (for short the Tribunal") raising the following question for our consideration :

"Whether the hon'ble Tribunal is correct in allowing the deduction under section 80P(2)(a)(i) to the assessee's society even though the same is covered under section 80P(4) read with section 2(24)(viia) being income from providing credit facilities carried on by a co-operative society with its member ?"

"(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.

Explanation.-For the purposes of this sub-section,—

(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 (10 of 1949); (b) 'primary co-operative 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 agricultural credit societies along with primary co-operative agricultural and rural development banks for exclusion from such exclusion and, in other words, continued to hold such entity as eligible for deduction. However, the issue has been considerably simplified by virtue of the Central Board of Direct Taxes Circular No. 133 of 2007, dated May 9, 2007. Circular provides as under : "Subject : Clarification regarding admissibility of deduction under section 80P of the Income-tax Act, 1961.

3. In Part V of the Banking Regulation Act, 'co-operative bank' means a State co-operative bank, a Central co-operative bank and a primary co-operative bank.

4. Thus, if the Delhi Co-op. Urban Thrift and Credit Society Ltd. does not fall within the meaning of 'co-operative bank' as defined in Part V of the Banking Regulation Act, 1949, sub-section (4) of section 80P will not apply in this case.

5. This is issued with the approval of the Chairman, Central Board of Direct Taxes."

9 Vikas Co-credit Society Ltd. (supra), we quash order of the ld.Pr.CIT passed under section 263 of the Act, and thus allow the main ground of appeal of the assessee.