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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Before: SHRI A.K.GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R
Per PAVAN KUMAR GADALE, JM :
The assessee has filed these appeals against different orders of the CIT(A)-5, Bengaluru, for the assessment years 2013-14 and 2014-15 passed u/s 143(3) r.w.s 250 of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short].
Since the issues involved in these appeals are common, the appeals were clubbed and heard together and disposed of by this common order consolidated order.
ITA Nos.2635 & 2636/Bang/2017 Page 2 of 11 3. For the sake of convenience, we take up the assessee’s appeal for assessment year 2013-14 and the facts narrated therein. The assessee has raised the following grounds of appeal:
The assessee is a co-operative society engaged in the banking business and filed the Return of income for the assessment year 2013-14 electronically on 26/09/2011 with total income ‘nil’ after claiming deduction u/s 80P of Rs.65,59,655/-. Subsequently the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act were issued. In compliance, ld. AR of the assessee appeared from time to time and the case was discussed. In the assessment proceedings the AO has raised doubts with respects to the activities of the assessee whether assessee-society is eligible for deduction u/s 80P as it is engaged in the business of banking. The AO has dealt on the provisions and the primary information and legal provisions and having not satisfied with the assessee’s submissions and claim that the assessee is a co- operative society but fact remains that the assessee is in the business of banking activities. Therefore, applying the amended provisions and the judicial decision made disallowance of claim of 80P(4) and assessed the total income of Rs.65,59,655/- and passed order u/s 143(3) dated 02/03/2016. & 2636/Bang/2017 Page 4 of 11 5. Aggrieved by the order, the assessee filed an appeal with the CIT(A). In the appellate proceedings, the CIT(A) having considered the grounds of appeal
and the submissions made by the assessee on the issue of provisions of section 80P(4) at pages 3 to 19, gave the findings in para.5.4 to 5.6, which are as under: & 2636/Bang/2017 Page 7 of 11 Further, the CIT(A) also dealt on the judicial decisions and also the Apex Court decision in the case of Citizen Co-operative Society vs. ACIT reported in (2017) 84 taxman.com 114 and came to conclusion in para.5.9 as under and dismissed the assessee’s appeal. & 2636/Bang/2017 Page 8 of 11
6. Aggrieved by the order of the CIT(A), the assessee has filed an appeal before the Tribunal.
7. Before us, ld. AR reiterated the submissions made in the appellate proceedings and also mentioned that though the assessee is a credit co-operative society is providing banking operations only to its members and there is no violation of provisions for declining deduction u/s 80P. Ld. AR substantiated with paper book and financial statements and the case laws in support, prayed that the assessee-society is ready to explain with reasons that the activities are not in violation of provisions and agreed to produce certificate from RBI on nature of business carried on by the assessee and prayed for allowing the appeal. Contra, learned Departmental Representative relied on the orders of the CIT(A).
8. We heard rival submissions and perused the material on record. The sole crux of the disputed issue is that the assessee was denied deduction u/s 80P as the assessee is involved in banking activities. Ld. AR’s contention that the assessee is a co-operative society and its activities are not in violation of the provisions of section 80P. Ld. AR further submitted that for earlier years, the Hon’ble Karnataka High Court has dismissed the revenue’s appeal. We found that the ITA Nos.2635 & 2636/Bang/2017 Page 9 of 11 assessee has filed financial statements and bye laws which were submitted before the lower authorities. The ld. AR relied on the decision of the jurisdictional High Court of Karnataka in the assessee’s own case in dated 27/06/2014 and ITA No.598/2013 dated 27/06/2014 for assessment year 2009-10. We found that the assessee’s activities are providing credit facilities to its members and as the CIT(A) has relied on the decision of the Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. vs. ACIT (2017) 84 Taxmann.com 114(SC). We found that if the assessee satisfies the income-tax authorities about nature of activities with clarification/certificate of RBI then there is scope for the appellate authority to consider the activities carried out by the society. Further, we consider it appropriate to refer to the observations of the Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. (supra) in paras.24 & 25 which read as under: “24. Undoubtedly, if one has to go by the aforesaid definition of 'co-operative bank', the appellant does not get covered thereby. It is also a matter of common knowledge that in order to do the business of a co-operative bank, it is imperative to have a licence from the Reserve Bank of India, which the appellant does not possess. Not only this, as noticed above, the Reserve Bank of India has itself clarified that the business of the appellant does not amount to that of a co-operative bank. The appellant, therefore, would not come within the mischief of sub-section (4) of Section 80P.
25. So far so good. However, it is significant to point out that the main reason for disentitling the appellant from getting the deduction provided under Section 80P of the Act is not sub-section (4) thereof. What has been noticed by the Assessing Officer, after discussing in detail the activities of the appellant, is that the & 2636/Bang/2017 Page 10 of 11 activities of the appellant are in violations of the provisions of the MACSA under which it is formed. It is pointed out by the Assessing Officer that the assessee is catering to two distinct categories of people. The first category is that of resident members or ordinary members. There may not be any difficulty as far as this category is concerned. However, the assessee had carved out another category of 'nominal members'. These are those members who are making deposits with the assessee for the purpose of obtaining loans, etc. and, in fact, they are not members in real sense. Most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilised to advance gold loans, etc. to the members of the first category. It is found, as a matter of fact, that he depositors and borrowers are quiet distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Act.”
We, after considering the provisions of law, written submissions and the judicial decisions relied on and the finding of the lower authorities and the prayer made by the assessee, are of the opinion that the assessee should be provided one more opportunity to substantiate with nature of activities of the society after obtaining certificate from the RBI as envisaged by ld. AR relying on the decision of the Apex Court. Accordingly, in the interests of substantial justice, we restore the entire disputed issue to the file of the CIT(A) to adjudicate afresh in line with judicial decision relied by the assessee and & 2636/Bang/2017 Page 11 of 11 allow the grounds of appeal of the assessee for statistical purposes.
In the result, the assessee’s appeal for assessment year 2013-14 is allowed for statistical purposes.
For the assessment year 2014-15, the issue raised in the grounds of appeal and the facts being similar, for parity of reasons, we restore the entire disputed issue to the file of the CIT(A) to adjudicate afresh in line with judicial decisions relied by the referred by the assessee and the assessee’s appeal for assessment year 2014-15 is allowed for statistical purposes.
In the result, the assessee’s appeal for assessment years 2013-14 and 2014-15 are allowed for statistical purposes.
Order pronounced in the open court on 02nd January, 2019.