M/s. Kadakkarapally Service Co-op Bank Ltd, Alappuzha V. The ITO, Alappuzha

CO 27/COCH/2016

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2474 (ITAT-COCHIN)
• Duration Of Justice: 3 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 15-11-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A DHANRAJ
• Keywords: Unexplained cash credit; Business income; Deemed to accrue or arise in india; Question of law; Competent authority
• Section: 68

Judgement Text

ITA NO. 361 /C/2016 & CO 7/C/201 6 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH KOCHI BEFORE S/SHRI B P JAIN, AM & GEORGE GEORGE K, JM ITA NO 3 61 /COCH/2016 (ASST YEAR 2012 - 13 ) & CROSS OBJECTION NO. 27/COCH/2016 THE INCOME TAX OFFICER WARD 5 ALAPPUZHA VS THE KADAKKARAPPALLY SERVIC E COOP BANK LTD . KADAKKARAPPALLY PO ALLAPUZHA ( APPELLANT /RESPONDENT ) (RESPONDENT /CROSS OBJECTOR ) PAN NO. AAIFK7914P ASSESSEE BY SH JOJO, CA REVENUE BY SH A DHANRAJ, SR DR DATE OF HEARING 1 7 TH NOV 2016 DATE OF PRONOUNCEMENT 1 8 TH NOV 2016 ORDER PER GEORGE GEORGE K, JM; THIS APPEAL, AT THE INSTANCE OF THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE, ARE DIRECTED AGAINST THE CIT(A)S ORDER DATED 2 ND JUNE 2016. THE RELEVANT ASSESSMENT YEAR IS 2012 - 13. 2 THE GROUNDS RAISED IN THIS APPE AL READ AS FOLLOWS: THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), KOTTAYAM IN SO FAR AS THE POINTS STATED BELOW ARE CONCERNED, IS OPPOSED TO LAW ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE LD. COMMISSIONER OF INCOME TAX ( APPEALS) HAS ERRED IN ALLOWING DEDUCTION OF RS.2,96, 19,669/ - UNDER SECTION 80P(2)(A)(I) OF THE ACT IN RESPECT OF THE UNEXPLAINED CASH CREDIT ASSESSED U/S 68 OF THE ACT. ITA NO. 361 /C/2016 & CO 7/C/201 6 2 3. THE LD. CIT (A) OUGHT TO HAVE APPRECIATED THE FACT THAT DEEMED INCOME U/S 68 OF TH E INCOME TAX ACT CANNOT BE TREATED AS INCOME FROM PROVIDING CREDIT FACILITIES TO THE MEMBERS OF THE SOCIETY, AS ENVISAGED IN SECTION 80P(2)(A)(I) OF THE INCOME TAX ACT. 4. THE LD. CIT (A) OUGHT TO HAVE FURTHER APPRECIATED THAT THE ORDER OF THE KERALA HIG H COURT IN THE CASE OF THE CHIRAKKAL SERVICE CO - OPERATIVE BANK LTD IN ITA NO.212 OF 2013 RELIED UPON BY HIM, IS NOT APPLICABLE TO THE FACTS OF THIS CASE. FOR THESE AND OTHER GROUNDS THAT MAY BE ADVANCED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) ON THE ABOVE POINTS MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3 BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A PRIMARY AGRICULTURAL COOPERATIVE S OCIETY REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13 WAS FILED ON 26.10.2013 DECLARING A LOSS OF RS. 1,25,284/ - . WHILE COMPLETING THE ASSESSMENT U /S 143(3), THE ASSESSING OFFICER DENIED THE CLAIM OF DEDUCTION U/S 8 0P BY STATING THAT THE ASSESSEE IS NOT A PRIMARY AGRICULTURAL CREDIT SOCIETY; BUT A PRIMARY COOPERATIVE BANK. FURTHER, THE ASSESSING OFFICER HAD MADE AN ADDITION OF RS . 2,96,19,669/ - U/S 68 OF THE I T ACT. THE ASSESSING OFFICE R HAD CALLED FOR CERTAIN DETAILS OF THE DEPOSITS. SINCE THE ENTIRE DETAILS CALLED BY THE ASSESSING OFFICER WERE NOT FURNISHED, THE DEPOSITS RECEIVED FROM VARIOUS MEMBERS WERE ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S 68 OF THE ACT. 4 AGGRIEVED BY THE ADDITION MADE BY THE ASSESSING OFFICER, THE ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) BY FOLLOWING THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF T HE CHIRAKKAL SERVICE COOPERATIVE BANK LTD VS CIT REPORT ED IN 384 ITR 490 HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S ITA NO. 361 /C/2016 & CO 7/C/201 6 3 80P(2) OF THE I T ACT. AS REGARDS THE ADDITION MADE U/S 68, THE CIT HELD THAT SINCE ASSESSEE COULD NOT FURNISH THE FULL DETAILS OF THE DEPOSIT , THE ADDITION MADE BY THE ASSESSING OFFICE R IS JUSTIFIED . THE CIT(A), HOWEVER, WITH REGARD TO THE ADDITION MADE U/S 68, HELD THAT DEDUCTION U/S 80P TO THE EXTENT OF ENHANCED INCOME IS ELIGIBLE. 5 AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE US. THE LD DR RELIED ON THE G ROUND RAISED IN THE APPEAL MEMO. ON THE OTHER HAND, THE LD COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND SUPPORTED THE ORDER OF THE CIT(A). 6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE CHIRAKKAL SERVICE COOPERATIVE BANK LTD & OTHERS (SUPRA) HAS HELD THAT THE PRIMARY AGRICULTURAL CREDIT SOCIETY REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969 IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2). THE HONBLE HIGH COURT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE UNDER CONSIDERATION, THE TRIBUNAL IS CORRECT IN LAW IN DECIDING AGAINST THE ASS ESSEE, THE ISSUE REGARDING ENTITLEMENT FOR EXEMPTION UNDER SECTION 80P, IGNORING THE FACT THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY? 6 .1 IN CONSIDERING THE ABOVE QUESTION OF LAW, THE HONBLE HIGH COURT RENDERED THE FOLLOWING FINDINGS: ITA NO. 361 /C/2016 & CO 7/C/201 6 4 15 . APPELLANTS IN THESE DIFFERENT APPEALS ARE INDISPUTABLY SOCIETIES REGISTERED UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT, 1969, FOR SORT, KCS ACT AND THE BYE - LAWS OF EACH OF THEM, AS MADE AVAILABLE TO THIS COURT AS PART OF THE PAPER BOOKS, CLEARLY SHOW TH AT THEY HAVE BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE PROVISIONS OF THAT ACT. THE PARLIAMENT, HAVING DEFINED THE TERM 'CO - OPERATI VE SOCIETY' FOR THE PURPOSES OF THE BR ACT WI TH REFERENCE TO, AMONG OTHER THINGS, THE REGISTRATION OF A SOCIETY U N DER ANY STATE LAW RELATING TO CO - OPERATIVE SOCIETIES FOR THE TIME BEING; IT CANNOT BUT BE TAKEN THAT THE PURPOSE OF THE SOCIETIES SO REGISTERED UNDER THE STATE LAW AND ITS OBJECTS HAVE TO BE UNDERSTOOD AS THOSE WHIC H HAVE BEEN APPROVED BY THE COMPETENT AUTHORITY UNDER SUCH STATE LAW. THIS, WE VISUALISE AS DUE RECIPROCATIVE LEGISLATIVE EXERCISE BY THE PARLIAMENT RECOGN I SING THE PREDOMINANCE OF DECISIONS RENDERED UNDER THE RELEVANT STATE LAW. IN TH I S VIEW OF THE MATTER , ALL THE APPELLANTS HAV I NG BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CRED I T SOC I ET I ES B Y THE COMPETENT AUTHOR I TY UNDE R TH E KCS ACT , I T HAS NECESSAR IL Y TO BE HELD THAT THE PRINCIPAL OBJECT OF SUCH SOCIETIES IS TO UNDERTAKE AGR I CULTURAL CREDIT ACTIVITIES AND TO PROVIDE LOANS AND ADVANCES FOR AGRICULTURAL PURPOSES , THE RATE ' OF INTEREST ON SUCH LOANS AND ADVANCES TO BE AT THE RATE FIXED BY THE REGISTRAR OF CO - OPERATIVE SOCIETIES UNDER THE KCS ACT AND HAV I NG I TS AREA OF OPERATION CONFINED TO A VILLAGE, PANCHA YAT OR A MUNICIPALITY. THIS IS THE CONSEQUENCE OF THE DEFINITION CLAUSE IN SECTION 2(OAA) OF THE KCS ACT. THE AUTHORITIES UNDER THE IT ACT CANNOT PROBE INTO ANY ISSUE OR SUCH MATTER RELATING TO SUCH APPLICANTS. 16. THE POSITION OF 1 AW BEING AS ABOVE WITH REFERENCE TO THE STATUTORY PROVISIONS, THE APPELLANTS HAD SHOWN TO THE AUTHORITIES AND THE TRIBUNAL THAT THEY ARE PRIMARY AGRICULTURA L CREDIT SOCIETIES IN TERMS OF CLAUSE (CCIV) OF SECTION 5 OF THE BR ACT, HAVING REGARD TO THE PRIMARY OBJECT OR PRINCIPAL B USINESS OF EACH OF THE APPELLANTS. IT IS ALSO CLEAR FROM THE MATERIALS ON RECORD THAT THE BYE - LAWS OF EACH OF THE APPELLANTS DO . NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS MEMBER, EXCEPT MAY BE, IN ACCORDANCE WITH THE PROVISO TO SUB - CLAUSE 2 OF SECTION 5(CCIV) OF THE BR ACT. THE DIFFERENT ORDERS OF THE TRIBUNAL WHICH ARE IMPEACHED IN THESE APPEALS DO NOT CONTAIN ANY FINDING OF FACT TO THE EFFECT THAT THE BYE - 1AWS OF ANY OF THE APPELLANT OR ITS CLASS I FICATION BY THE COMPETENT AUTHORITY UNDER THE KCS ACT IS ANYTHING DIFFERENT FROM WHAT WE HAVE STATED HEREIN ABOVE. FOR THIS REASON, IT CANNOT BUT BE HELD THAT THE APPELLANTS ARE ENTITLED TO EXEMPTION FROM THE PROVISIONS OF SECTION 80P OF THE IT ACT BY VIRTUE OF SUB - SECTION 4 OF THAT SECT; ON. IN THIS VIEW OF THE MATTER, THE APPEALS SUCCEED. 17. IN THE LIGHT OF THE AFORESAID, WE ANSWER SUBSTANTIA 1 QUESTION 'A' IN FAVOUR OF THE APPELLANTS AND ITA NO. 361 /C/2016 & CO 7/C/201 6 5 HOLD THAT THE TRIBUNAL ERRED IN LAW IN DECIDING THE ISSUE REGARDING THE ENTITLEMENT OF EXEMPTION UNDER S ECTION 80P AGAINST THE APPELLANTS. WE HOLD THAT THE PRIMARY AGRICULTURAL CREDIT SOCIETIES, REGISTERED AS SUCH UNDER THE KCS ACT; AND CLASSIFIED SO, UNDER THAT ACT, INCLUDING THE APPELLANTS AR E ENTITLED TO SUCH EXEMPTION. 6 .2 IN THE INSTANT CASE, THE ASSE SSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969. THE CERTIFICATE, WHICH HAS BEEN ISSUED BY THE REGISTRAR OF COOPERATIVE SOCIETIES, TO THE ABOVE EFFECT, IS PLACED ON RECORD. THE HONBLE JURISDICTIO NAL HIGH COURT HAD HELD THAT PRIMARY AGRICULTURAL CREDIT SOCIETIES REGISTERED UNDER THE KERALA COOPERATIVE SOCIETIES ACT, 1969 ARE ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2) (I)(A) OF THE ACT. SINCE THERE IS A CERTIFICATE ISSUED BY THE REGISTRAR O F COOPERATIVE SOCIETIES STATING THAT THE ASSESSEE IS A PRIMARY AGRICULTURAL CREDIT SOCIETY, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2)(A) OF THE I T ACT. IT IS ORDERED ACCORDINGLY. 7 THE CIT(A) WHILE GRANTING DEDUCT ION U/S 80P(2) FOR THE ADDITION MADE U/S 68 OF THE ACT HAD RENDERED THE FOLLOWING FINDING: 1 2 . THE ADDITION MADE U/S 68 HAS BEEN SUSTAINED. HOWEVER, A QUESTION ARISES, WHETHER THE SAID ADDITION MADE UNDER SECTION 68 IS ALLOWABLE AS DEDUCTION U/S 80P OF T HE INCOME TAX ACT. THE FOLLOWING CASE LAWS ARE RELEVANT HERE. I) BULDANA URBAN COOP CREDIT SOCIETY LTD VS ACIT IT APPEAL NOS 151 TO 153 AND 179 TO 181(ITAT NAGPUR) 0F 2012 II) KARAD MERCHANT SAH. CREDIT SANSTHA VS ITO ITA NO. 159/PN/09 (AY2005 - 06) OF ITAT PUNE. 1 3 IN THE ABOVE REFERRED CASES THE ITATS, NAGAPUR AND PUNE HAD ALLOWED THE ISSUE IN FAVOUR OF ASSESSEE. BASED ON THE ABOVE CITED ORDERS OF THE ITATS, THE ARGUMENT OF THE AR IS UPHELD AND DEDUCTION U/S 80P IS ALLOWED FOR THE AMOUNT OF ADDITION MADE U/S 68 OF THE I T ACT. ITA NO. 361 /C/2016 & CO 7/C/201 6 6 7.1 WE NOTICE THAT THE ASSESSING OFFICER WHILE MAKING THE ADDITION U/S 68 OF THE ACT HAD BROUGHT THE SAME TO TAX UNDER THE HEAD INCOME FROM BUSINESS. ONCE THE SAME IS BROUGHT TO TAX AS INCOME FROM BUSINESS, THE SAID INCO ME IS ENTITLED TO THE BENEFIT OF DEDUCTION U/S 80P(2)(I)(A) OF THE ACT. IN TAKING THE ABOVE VIEW, WE PLACED RELIANCE ON THE ON THE FOLLOWING ORDERS OF THE TRIBUNAL: I) BULDANA URBAN COOP CREDIT SOCIETY LTD VS ACIT IT APPEAL NOS 151 TO 153 AND 179 TO 1 81(ITAT NAGPUR) 0F 2012 II) KARAD MERCHANT SAH. CREDIT SANSTHA VS ITO ITA NO. 159/PN/09 (AY2005 - 06) OF ITAT PUNE. 7.2 THE CBDT, IN THE RECENT CIRCULAR NO.37/2016 DATED 2 ND NOV 2016 HAS CONSIDERED HIGHER DEDUCTION U/S 80P ON THE ENHANCED PROFIT AS A RESU LT OF DISALLOWANCE OF EXPENDITURE. THE CBDT HAD CLARIFIED THAT, AS A RESULT OF EXPENDITURE DISALLOWANCE, THERE IS A ENHANCED PROFIT AND THE SAME IS BROUGHT TO TAX AS BUSINESS INCOME, DEDUCTION UNDER CHAPTER VI - A NEED TO BE ALLOWED ON THE ENHANCED PROFIT. 7.3 IN LIGHT OF THE ABOVE REASONING, WE HOLD THAT THE CIT(A) IS JUSTIFIED IN GRANTING BENEFIT OF DEDUCTION U/S 80P(2)(I)(A) OF THE ACT, AS REGARD TO ADDITION U/S 68 OF THE ACT AMOUNTING TO RS . 2,96,19,669/ - . CROSS OBJECTION NO. 27/COCH/2016 (BY THE ASSESSE E) 8 SINCE THE APPEAL FILED BY THE REVENUE IS DISMISSED, THE CROSS OBJECTION FILED BY THE ASSESSEE HAS BECOME I N FRUCTUOUS AND THE SAME IS DISMISSED. ITA NO. 361 /C/2016 & CO 7/C/201 6 7 9 TO SUM - UP, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 18 TH DAY OF NOV 2016. SD/ - SD/ - (B P JAIN) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 18 TH NOV 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSIST ANT REGISTRAR ITAT, COCHIN