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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI SANJAY ARORA, AM & MS. KAVITHA RAJAGOPAL, JM
O R D E R Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the impugned order passed by the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2008-09. The assessee has also filed a Stay Application in this matter for stay of the demand of Rs.90,988/-.
2. The assessee has challenged the appeal on the following grounds:
1 The order of the Commissioner is erroneous, arbitrary and against settled in principles of law. The Honourable CIT(A), upheld the decision of the Learned Assessing Officer (Ld. AO) and thereby dismissed the Appeal primarily on the premise that the Appellant had failed to SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO furnish its ITR within the due dates as required ws 148 and 139(1) of the Act and thereby relied on the provisions of Section 80A(5) to disallow deduction u/s 80P of the Act. However, the Ld. Assessing Officer ('A.O.' for short) has erred in his order as the Appellant had already filed their ITR belatedly (post the due date stated in the notice u/s 148 of the Act viz. 30/04/2015) vide Ack. No.: 924513631060116 dated December 06, 2016, before the completion of Assessment Proceedings u/s 147 of the Act.
The Hon,ble Kerala HC in the case no.: 212 of 2013 between The Chirakkal Service Co- Operative Bank Ltd v The Commissioner Of Income Tax Aykar Bhavan, Mananchira, Kozhikode - 1 held that a return filed by the assessee beyond the period stipulated under Section 139(1) or 139(4) or under section 142(1) or section I48 can also be accepted and acted upon provided further proceedings in relation to such assessments are pending in the statutory hierarchy of adjudication in terms of the provisions of the IT Act and further stated that in all such situations, it cannot be treated that a return filed at any stage of such proceedings could be treated as non- est in law and invalid for the purpose of deciding exemption under Section 80P of the IT Act.
That in the instant case the Ld. AO has rejected the ITR filed belatedly and the deduction u/s 80P of the Act claimed by the Appellant as per the same primarily on account of delayed filing of the ITR, though based on a plain reading of the judgement by the Hon'ble HC as discussed above, it may be reasonably inferred that deduction has to be allowed on ITRs even though filed belatedly. 4. Further, the Appellant wishes to draw your attention to the order passed by the Honourable ITAT "SMC-C" Bench, Bangalore in the ITA No.: 614/Bang/2021 that Section 80A(5) cannot be invoked for denying Deduction u/s 80P even if ITR is not filed. Further, the Appellant wishes to place its reliance on the decision of ITAT Delhi in the case of Fibrefill Engineers Vs. CIT (2017) 177 TTJ 556 (Del.) wherein it was held that the provision of Sec. 804(5) are directory in nature and not mandatory. Hence, it may be reasonably inferred that 804(5) cannot be used to deny the deduction u/s 80P of the Act.
5. The Honorable CIT(A), upheld the decision of the Learned Assessing Officer (LdAO) and thereby dismissed the Appeal primarily on the premise that the proportion of agro-loans advanced by the Appellant to the total loans disbursed to its members & the same being only to the tune of 2.43%, the Ld, CIT(A) stated that the majority of the loans disbursed by the Appellant was for purposes other than Agricultural activities, and accordingly treated the Appellant as a Co-operative Bank in agreement with the claim raised in the Assessment Order u/s 144 of the Act issued by the Ld. AO.
The Appellant affirms that they are a Primary Agricultural Co-operative Society registered under the KCS Act, 1969 primarily engaged in extending credit facilities to their members and the Appellant wishes to place its reliance on the Judgment by the Hon'ble Supreme Court of India in the Civil Appeal Nos. 7343-7350 of 2019 as regards the Mavilayi Service Cooperative Bank Ltd. and Ors v Commissioner of Income Tax, Calicut and Anr., wherein it was held that the Co-operative Societies providing credit facilities to its members including for purposes other than agriculture are entitled to deductions under Section 80P(2) (a) () of the Income-Tax Act. The Honorable Supreme Court held that the impugned Full Bench judgment was wholly incorrect in its reading the judgment of the Hon'ble Supreme Court. Clearly, therefore, onceSection 80P(4) was out of harms way, all the assessees in the present case were entitled to the benefit of the deduction contained in Section 80P(2)(a)(i).
7. That as per the aforesaid decision of the Hon'ble SC, the Appellant is entitled to the benefit of the deduction contained in Section 80P(2)(a)(i). The Appellant hereby prays that the SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO deduction u/s 80P be allowed in full and the income tax demanded to the tune of Rs. 90,990/- be deleted fully. The Appellant craves leave to add, amend, alter., vary and or withdraw any or all the above grounds of Appeal
3. The brief facts are that the assessee is a Service Co-operative Bank registered under the Kerala Co-operative Societies Act dated 28.09.1955 and is engaged mainly in banking activities. The assessee had not filed its return of income during the year under consideration. The assessee’s case was reopened u/s. 147 of the Act vide notice u/s. 148 of the Act dated 30.03.2015 which was duly issued and served upon the assessee.
The ld. Assessing Officer ('A.O.' for short) then issued the notice u/s. 142(1)(ii) of the Act seeking for details and in response to which the assessee had filed audit report.
The ld. A.O. then passed the assessment order dated 31.12.2015 u/s. 144 of the Act as best judgment assessment for the reason that the assessee has failed to furnish the return of income along with the complete details pertaining to the interest payments exceeding Rs.10,000/-, thereby determined the total income at Rs.1,15,140/- after making the disallowance u/s. 80P of the Act on the ground that the assessee is a Co-operative Bank and post insertion of section 80P(4) w.e.f 01.04.2007 Co-operative Banks are not eligible for deduction u/s. 80P of the Act.
Aggrieved the assessee was in appeal before the first appellate authority who vide order dated 29.05.2023 upheld the disallowance made by the ld. A.O. on the ground that the assessee has failed to file a valid return by relying on the decision of Hon'ble Jurisdictional High Court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham vs. CIT [2023] 459 ITR 730/152 taxmann.com 347 (Ker)(HC).
SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO 6. The assessee is in appeal before us, challenging the order of the ld. CIT(A).
The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee is not a Co-operative Bank but only a Primary Agricultural Credit Society (PACS) as it is prevented from giving loan to non members as per its byelaws. The ld. AR further states that the assessee is not in any of the activities carried out by the Co-operative Banks, thereby distinguishing it from a Co-operative Bank. The ld. AR relied on the decision of the Hon'ble Apex Court in the case of The Mavillayi Service Co-operative Bank Ltd. and others vs. CIT, Calicut and others 431 ITR 1 (SC).
The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact stating that the assessee has failed to file a valid return and that the assessee is not entitled to claim the deduction u/s. 80P of the Act. The ld. DR relied on the decision of the Hon'ble Jurisdictional High Court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (supra) which was relied upon by the ld. CIT(A). The ld. DR prayed that the lower authorities order be upheld.
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee has not filed its return of income for several years including the year under consideration u/s. 139(1) of the Act and has also not complied with the notice u/s. 148 of the Act. The ld. A.O. then proceeded to pass the assessment order u/s. 144 of the Act as best judgment assessment. The ld. A.O. in the assessment order has held that the assessee’s primary object or the principal business was not to provide financial assistance to its members for agricultural purpose or for any purpose
SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO connected with agricultural activities as required by section 5(cc)(i)(v) of the Banking Regulation Act to categorise the same as Primary Agricultural Credit Society (PACS for short). The ld. AO further held that only in the second clause of the assessee’s bye law the objective was stated to be for facilitating financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities. This according to the ld. A.O. was not the primary objective of the assessee and having held so stated that the assessee was not entitled to claim deduction u/s. 80P of the Act post insertion of sub section (4) by Finance Act, 2006 w.e.f. 01.04.2007 and held the assessee to be a Co-operative Bank rather than a Primary Agricultural Credit Society or a Primary Agricultural Co-operative and Rural Development Bank which are only eligible to claim deduction under the amended provision of section 80P of the Act. The ld. A.O. also justified her decision by stating that the assessee has been carrying out activities such as:
Providing various kinds of loans (Gold loan, MDS loan, Deposit Loan etc.) 2. Accepting deposits from members as well as non members 3. Maintaining Savings Bank A/c., Current A/c, Daily deposit, RD, FD, etc. 4. Providing cheque facility 5. Providing locker facility It is also observed by the ld. A.O. that out of the total loan extended by the assessee aggregating to Rs.10,02,00,291/- only Rs.24,31,063/- was sanctioned for the purpose of agricultural loan which is merely 2.43% of the total sanctioned loan. The ld. A.O. treated the impugned income as taxable income derived from banking business.
The First Appellate Authority, on the other hand, has held that since the assessee had not filed its return of income u/s. 139(1) or 148 of the Act for which reason the ld.
SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO A.O. assessed the income of the assessee u/s. 144 of the Act, the return filed by the assessee on 06.01.2016 was held to be not a valid return as per the provisions of the Act thereby holding that the assessee was not eligible for deduction u/s.80P of the Act. The ld. CIT(A) relied on the decision of Hon’ble Jurisdictional High Court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (supra) which held that return filed by a cooperative society after the prescribed due date but before completion of the assessment is nonest and that deduction u/s. 80P of the Act could be claimed only based on a valid return. The ld. CIT(A) upheld the disallowance made by the ld. A.O. on this ground. It is pertinent to point out that the first appellate authority has not decided the section 80P deduction on the merits as to whether the assessee is a Co-operative Bank or a PACS as claimed by the assessee. The assessee, on the other hand, contended that as per the bye laws it is prevented from giving loan to non members, cannot operate current account for traders, manufactures and others like cooperative bank for their business purposes, cannot accept cheques neither is a clearing house, cannot issue bank guarantees on behalf of members/non members and various other activities distinguishing it from a co-operative bank. The assessee further contended that they are not governed by the RBI unlike the Banking Institutions. The assessee’s activities are extended to Kadavlur Panchayat which is a rural area in Thrissur District.
The assessee further contended that the ld. A.O. has denied the PACS classification without duly considering the submission of the assessee and the ld. CIT(A) has not decided this issue inspite of a specific ground raised by the assessee. The assessee relied on the decision of The Mavillayi Service Co-operative Bank Ltd. and others (supra) where the Hon’ble Apex Court has held that the Co-operative Societies are entitled to SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO deduction u/s. 80P(2)(a)(i) of the Act to credit facilities provided to its members which includes for purposes other than agricultural activities also.
In the above factual matrix and after duly considering the rival contentions, we are of the opinion that the issue pertaining to the non filing of the return of income u/s. 139(1) or in compliance to section 148 of the Act and in the absence of a valid return consequently a valid claim, whether or not the assessee is eligible for deduction u/s. 80P has to be decided prima facie before getting into the merits of the case as the said legal ground would go to the very root of the case. We, therefore, deem it fit to decide this issue.
The ld. AR has not produced any documentary evidence to controvert the fact that the assessee has not filed a valid return nor has he substantiated the fact that the assessee has raised a valid claim of deduction u/s. 80P of the Act. The ld. A.O. has also proceeded to assess the income of the assessee u/s. 144 of the Act which is evident that the assessee has failed to file a valid return prior to the initiation of assessment proceeding and also during the assessment proceeding as prescribed by the law u/s. 139(1), 139(4), 142(1) or 148 of the Act. In such a scenario, the applicable provision would be section 80A(5) of the Act which denies the claim of the deduction in absence of the assessee making such claim in its return of income. The relevant extract of the said provision is cited hereunder for ease of reference:
Deductions to be made in computing total income. 80A(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.
SA No.150/Coch/2023 (A.Y.2008-09) The Kadavalur Service Co-operative Bank Limited vs. ITO 13. It is a settled proposition of law that in the absence of a valid claim in the return of income, the assessee is not entitled to claim even after the return has been filed on subsequent occasion, here in this case on 06.01.2016, being non-est. The Revenue has extensively relied on the decision of the Hon’ble Jurisdictional High Court in the case of Nileshwar Range Kallu Chethu Vyavasaya Thozhilali Sahakarana Sangham (supra) which on identical facts have decided this issue in favour of the Revenue. We, therefore, are inclined to dismiss this ground raised by the assessee by respectfully following the said decision. As this issue has been decided against the assessee, we do not find any requirement to get into the other grounds raised by the assessee on the merits of the case and are, therefore, held to be infructuous.
The assessee has also filed a Stay Application in this matter which stands dismissed as infructuous as the said appeal has been disposed off by us as aforementioned.
In the result, the appeal and Stay Application filed by the assessee are dismissed.
Order pronounced on 29.04.2024 under rule 24 of the Income Tax (Appellate Tribunal) Rules, 1963.