THE SRI KANNIKAPARAMESHWARI CO-OP BANK LIMITED,DAVANGERE vs. INCOME-TAX OFFICER, DAVANGERE

Ground no.1 to 4 are as under;

It was submitted by the ld. AR of the assessee that the reasons recorded by the AO for re-opening are available on page no.189 of the paper book. He also submitted that in the present case, the original assessment was completed by AO u/s 143(3) of the IT Act, 1961 and copy of this assessment order is available on page no.33 of the Appeal Memo. He also submitted that under these facts, re-opening is based on change of opinion and therefore, not valid. In support of this contention, he placed reliance on the following judicial pronouncements a) Sheo Nath Singh Vs Appellate Asst. Commissioner of IT 82 ITR 147(SC) b) CIT Vs Orient Crafts Ltd., 354 ITR 536(Del.) c) CIT Vs Ramakrishna Hegde 326 ITR 347(Kar.)

The ld. DR of the revenue supported the orders of the authorities below.

I have considered the rivals submissions. First, I reproduce the reasons recorded by the AO for re-opening which are available on page- 189 of the paper book.

Now, I examine the original assessment order framed by the AO u/s 143(3) of the Act and as per this order passed by the AO on 06-03- 2006, this assessment order is very cryptic and as per the same and since no other tangible material brought on record in the form of paper book to show that any query was raised by the A.O. on this issue and reply was gioven to show that the A.O. formed an opinion, it has to be accepted that the AO has not formed an opinion at the time of making the original assessment order passed u/s 143(3) of the Act and therefore, there is no merit in this contention that the re-opening is on the basis of change of opinion.

In the light of these facts, now I examine the applicability of various judgments cited by the ld. AR of the assessee. First judgment cited by him is the judgment of the Hon’ble Apex Court rendered in the case of Sheo Nath Singh Vs Appellate ACIT (Supra). In that case, it is held by the Hon’ble Apex Court that there is no material or fact which has been stated in the reasons for starting proceedings of re-opening.

The second judgment on which reliance has been placed by the ld. AR of the assessee is the judgment of the Hon’ble Delhi High Court rendered in the case of CIT Vs Orient Crafts Ltd.(Supra). In that case, the substantial question of law framed by the Hon’ble Delhi High Court was this as to whether the Tribunal was right in law in holding that in the absence of any tangible material available with the AO to form the requisite belief regarding escapement of income, the re-opening of the assessment made u/s 143(1) is bad in law. In that case, in para-18 of the judgment, it is observed by the Hon’ble Delhi High Court that in that case, the reasons disclosed that the AO reached the belief that there was escapement of income on going through the return of income filed by the assessee after he accepted the return under section 143(1) without scrutiny and nothing more. Under these facts, it was held by the Hon’ble Delhi High Court that this is nothing but a review of the earlier proceedings and an abuse of power by the AO. But in the present case, sufficient reasons has been given by the AO and material has been indicated on the basis of which the AO was of the belief that there is escapement of income by saying that the deduction claimed by the assessee u/s 80P(2) of the IT Act in respect of income of Rs.44,53,500/- on sale of securities Is not allowable because this is not an income from banking business. Hence, I feel that this judgment of the Hon’ble Delhi High Court is also not rendering any help to the assessee in the present case.

The third judgment on which the ld. AR of the assessee placed reliance was the judgment of the Hon’ble Karnataka High Court rendered in the case of Ramkrishna Hegde (Supra). In that case, the ITO found certain fixed deposit receipt in the name of the assessee were found in the course of recovery proceedings and he re-opened the assessment of the assessee for the year 2000-01 being of the view that the source of investment for issue of the fixed deposit receipts was required to be explained properly. In that case, the Tribunal found that the FDRs figured in the course of the assessments of the assessee in the earlier years and the interest earned from the FDs having already been offered to tax. Under these facts, it was held by the tribunal that the re-opening of the assessment was bad in law and thereafter, it was held by the Hon’ble Karnataka High Court that mere detection of the FDR would not in any way constitute information for re-opening of the order for under assessment. Therefore, the assessment proceedings were held to be invalid. In the present case, the facts are totally different and therefore, this judgment of the Hon’ble Karnataka High Court is also not rendering any help to the assessee in the present case.

As per the above discussion, I have seen that none of the judgment cited by the ld. AR of the assessee is rendering any help to the assessee in the present case and I also found that there is no merit in the contention of assessee that re-opening is on the basis of change of opinion and accordingly, all these grounds being Ground no.1 to 4 are rejected.

Ground no.5 & 6 are as under;

The ld. AR of the assessee submitted that the CBDT Circular No.18/2015 dated 02-11-2015 is available on page 188 of the paper book and as per the same, the judgment of the Hon’ble Apex Court rendered in the case of CIT Vs Nawanshahar Central Co-op. Bank Ltd.,(2007) 160 Taxman 48(SC) was referred in which it was held by the Hon’ble Apex Court that the investments made by a banking concern are part of the business of banking. Therefore, the income arising from such investments is attributable to the business of banking falling under the head” Profits and Gains of Business and Profession”. He submitted that as per this Board Circular and this judgment of the Hon’ble Apex Court, it should be accepted that the activity of the assessee of purchasing and selling of securities and earning capital gain there from is business activity and therefore, this income is eligible for deduction u/s 80P of the IT Act, 1961. He also placed reliance on the judgment of the Hon’ble Karnataka High Court rendered in the case of Karnataka Bank Ltd., Vs ACIT 356 ITR 549. He also placed reliance on the judgment of the Hon’ble Apex Court rendered in the case of CIT Vs Cocanada Radhaswami Bank Ltd., 57 ITR 306(SC). Reliance was also placed on the judgment of the Hon’ble Gujarat High Court rendered in the case of CIT Vs Baroda Peoples Co-Op. Bank Ltd., 280 ITR 282 (Guj.)

The ld. DR of the revenue supported the orders of the authorities below.

I have considered the rival submissions. I find that the dispute in the present case is regarding the allowability of deduction u/s 80P of the Act in respect of income earned by the assessee of Rs.44,53,500/- on account of its activities of purchase and sale of securities. The AO held that this income is taxable under the head “Income from short term capital gains” and therefore, the assessee is not eligible for deduction u/s 80P of the Act in respect of this income.

There is no dispute regarding the facts. On page -17 of his order, the ld. CIT(A) has reproduced the date wise details of purchase and sale of securities and from the same, it is seen that the investments are sold within two months of purchase for profit. In the light of these facts, in the present case, I examine the applicability of various judgments and the Boards Circular cited by the ld. AR of the assessee.

The next judgment on which reliance has been placed by the ld. AR of the assessee is the judgment of the Hon’ble Karnataka High Court rendered in the case of Karnataka Bank Ltd., Vs ACIT (Supra). In this case, the issue in dispute before the Hon’ble High Court was regarding the valuation of investments shown as stock in trade. In the present case, the dispute is entirely different and therefore, this judgment of the Hon’ble Karnataka High Court is not relevant in the present case.

The next judgment on which reliance has been placed by the assessee is the judgment of the Hon’ble Ape Court rendered in the case of CIT Vs Cocanada Radhaswami Bank Ltd., (Supra). In this case, the dispute was this as to whether the securities held as part of the trading asset and losses incurred under the head “Business” can be carried forward and set off against income from securities. In fact, in this case, the dispute was regarding set off of brought forward business loss against income under the head “ income from securities”. It was held by the Hon’ble Apex Court that business income is broken-up under different heads only for the purpose of computation of total income and by that break-up, the income does not loose the character of the income of the business.

In my considered opinion, this judgment is not relevant in the present case because. I have already stated above that even if the impugned income of Rs.44,53,500/- is held to be business income, this income is not an income from banking business because the regular purchase and sale of securities cannot be said to be banking business and hence, such income is not eligible for deduction u/s 80P. Case may be different if the investment in securities is primarily for earning interest income and some incidental income is earned on its sale when the investment is sold to switch over to some other investment giving better yield or to advance loans etc. but when the investments are being sold in such a short time without any reason such as swithching over to some other investment for better yield or for advancing of loan etc., such purchase and sale of securities may be a business of the assessee but this cannot be a banking business eligible for deduction u/s 80P.

The next judgment cited by the ld. AR of the assessee is the judgment of the Hon’ble Gujarat High Court rendered in the case of CIT Vs Baroda Peoples Co-Op. Bank Ltd., (Supra). In that case, the facts were that the assessee, a co-operative bank earned interest from investments in i) IDBI Bonds, ii) SBI Bonds, iii) Sardar Sarovar Narmada Bonds and iv) Kisan Vikas Patra. The AO disallowed the claim of the assessee for deduction u/s 80P in respect of such interest income but the Tribunal held that such income is eligible for deduction u/s 80P and on further appeal by the revenue before the Hon’ble Gujarat High Court, it had approved the Tribunal order in that case. Hence, it is seen that in that case, the issue is dispute was regarding interest income on investments whereas in the present case, the issue in dispute is for income arising on purchase and sale of securities and not interest income and therefore, in my considered opinion, this judgments is also not relevant in the present case.

In the result, the appeal of the assessee is dismissed.