Industrial Co. Operative Credit Society Ltd., Kheda V. The Pr. CIT-2, Vadodara

ITA 1064/AHD/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0453 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 01-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 263; 143(3); 80P; 251

Judgement Text

आयकर अपील य अ धकरण, अहमदाबाद यायपीठ - अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH ‘D’ BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No.1064/Ahd/2017 नधा रण वष /Asstt. Year: 2012-13 Industrial Co-operative Credit Society Ltd. At-Kanjari, Anand-Nadiad Road Ta. : Nadiad, Dist: Kheda PAN : AAAAI 7424 B Vs. The Pr.CIT-2 Vadodara. अपीलाथ / (Appellant) त ् यथ / (Respondent) Assessee by : Shri Aseem L. Thakkar, AR Revenue by : Shri Mohd Usman,CIT-DR स ु नवाई क तार ख/Date of Hearing : 06/12/2021 घोषणा क तार ख /Date of Pronouncement: 07/01/2022 आदेश/O R D E R PER RAJPAL YADAV, VICE-PRESIDENT Present appeal is directed at the instance of the assessee against order of Pr.Commissioner of IT-2, Vadodara dated 2.3.2017 passed under section 263 of the Income Tax Act, 1961 for the Asstt.Year 2012- 13. 2. The assessee has raised as many as seven grounds of appeal. However, main issue agitated before us is that the ld.Pr.CIT has erred in assuming jurisdiction under section 263 of the Act, and passing of the impugned order thereof. ITA No.1064/Ahd/2017 2 3. For adjudication of this issue, i.e. challenge to the order passed under section 263, we would take note of a short fact, as emerges out from relevant orders of the Revenue authorities. Assessee is a cooperative credit society engaged in providing credit facilities to its members. It has filed its return of income on 29.9.2012 declaring total income at Rs.NIL after claiming deduction of Rs.3,27,122/- under section 80P(2) of the Act. Thereafter, return of the assessee was selected for scrutiny assessment by issuance of notice under section 143(2) of the Act, which was duly served upon the assessee. During the scrutiny assessment, it was noticed by the AO that the assessee has earned a total interest income of Rs.19,66,179/-, out of which, an amount of Rs.5,50,983/- was earned by the assessee from the deposits made with nationalized bank. The ld.AO was of the view that the assessee was not entitled for claim of deduction under section 80P(2)(a) because said income falls under the category “income from other sources”. The ld.AO accordingly issued a show cause notice dated 22.01.2015 proposing as to why interest income of Rs.5,50,983/- earned from non-members should not be disallowed, and added to the income of the assessee. In response thereto, the assessee amongst other, submitted that the assessee is a cooperative credit society and engaged in the business of providing credit facility to its members. It also accepts deposits from the members. The assessee was required to pay interest on deposits accepted from the members. The surplus fund available with was kept in FDRs with nationalised banks, from which it also earned interest income. The activity of advancing money and depositing the surplus fund available with the assessee, was directly connected with main objects of the assessee-society, and therefore, the assessee is entitled to claim deduction under section 80P(2)(a)(i) of the Act. However, the ld.AO did not accept this submission of the assessee. He rejected claim of the assessee in respect of the claim qua interest income of Rs.5,50,983/- earned on fixed deposits in nationalized banks. He added back Rs.5,50,983/- to the gross total ITA No.1064/Ahd/2017 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 ITA No.1064/Ahd/2017 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. ITA No.1064/Ahd/2017 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 ITA No.1064/Ahd/2017 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 ?" 3. The issue pertains to the interpretation of section 80P(2) and section 80P(4) of the Income-tax Act, 1961 ("the Act" for short). The respondent-assessee is a co-operative credit society and claims the benefit of deduction under section 80P(1) of the Act by virtue of the ITA No.1064/Ahd/2017 7 provisions contained in section 80P(2)(a)(i) of the Act. As is well known under sub-section (1) of section 80P certain co-operative societies are granted deductions of the sum specified in sub-section (2) in computing the total income. As per section 80P(2)(a)(i), the sums referred in sub- section (1) would be in the case of a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members the whole of the amount of profits and gains of business attributable to any one or more of such activities. The Revenue, however, contends that by virtue of newly amended sub-section (4) of section 80P inserted with effect from April 1, 2007, by the Finance Act, 2006, section 80P would not apply to the respondent-assessee. Section 80P(4), in the present form, refers as under : "(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." 4. As per section 80P(4), the provisions of section 80P would not apply in relation to any co-operative bank other than primary agricultural credit society or primary co-operative agricultural and rural development bank. As per the Explanation, the terms "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. 5. The Assessing Officer held that by virtue of section 80P(4), the respondent-assessee would not be entitled to the benefits of deduction under section 80P. The Commissioner (Appeals) as well as the Tribunal reversed the decision of the Assessing Officer on the premise that the respondent-assessee not being a bank, exclusion provided in sub- section (4) of section 80P would not apply. This, irrespective of the fact that the respondent would not fall within the expression "primary agricultural credit society". 6. Had this been the plain statutory provisions under consideration in isolation, in our opinion, the question of law could be stated to have arisen. When, as contended by the assessee, by virtue of sub-section (4) only co-operative banks other than those mentioned therein were meant to be excluded for the purpose of deduction under section 80P, a question would arise why then the Legislature specified primary ITA No.1064/Ahd/2017 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. 1. Please refer to your letter No. DCUS/30688/2007, dated March 28, 2007, addressed to the Chairman, Central Board of Direct Taxes, on the above given subject. 2. In this regard, I have been directed to state that sub- section(4) of section 80P provides that deduction under the said section shall not be allowable to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. For the purpose of the said sub-section, co-operative bank shall have the meaning assigned to it in Part V of the Banking Regulation Act, 1949. 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." 7. From the above clarification, it can be gathered that sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank. In the case clarified by the Central Board of Direct Taxes, the Delhi Co-op. Urban Thrift and Credit Society Ltd. was under consideration. The circular clarified that the said entity not being a co- operative bank, section 80P(4) of the Act would not apply to it. In view of such clarification, we cannot entertain the Revenue's contention that section 80P(4) would exclude not only the co-operative banks other than those fulfilling the description contained therein but also credit societies, which are not co-operative banks. In the present case, the respondent-assessee is admittedly not a credit co-operative bank but a credit co-operative society. The exclusion clause of sub-section(4) of section 80P, therefore, would not apply. In the result, the tax appeals are dismissed.” 8. In view of our above observation qua validity of 263 order, and judgment of Hon’ble jurisdictional High Court in the case of Jafari Momin ITA No.1064/Ahd/2017 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. 9. Since we have quashed 263-order passed by the ld.Pr.CIT, other issues become irrelevant. 10. In the result, appeal of the assessee is allowed. Order pronounced in the Court on 7 th January, 2022 at Ahmedabad. Sd/- Sd/- (WASEEM AHMED) ACCOUNTANT MEMBER (RAJPAL YADAV) VICE-PRESIDENT Ahmedabad; Dated 07/01/2022