The Gujarat State Co. Op. Agriculture & Rural Development Bank, Ahmedabad V. The Pr. CIT, Ahmedabad

ITA 1079/AHD/2017

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 4976 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-09-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 03-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Depreciation; Earning of tax free income; Set aside
• Section: 263; 143(3); 142(1); 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “D” BENCH BEFORE: SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER ITA No. 1079/Ahd/2017 (Assessment Year: 2012-13) The Gujarat State Co.Op. Agriculture & Rural Development Bank (Kheti Bank) - 489, Ashram Road, Nr. Nehru Bridge, Navrangpura, Ahmedabad - 380009 V/S The Pr.CIT Ahmedabad-5, Room No.127, 1 st Floor, Narayan Chambers, B/h. Patang Hotel, Ashram Road, Ahmedabad (Appellant) (Respondent) PAN: AAAAG0281E Appellant by : Shri Tushar Hemani, Sr. Advocate & Shri Parimalsinh B. Parmar, A.R. Respondent by : Dr. Darsi Suman Ratnam, CIT. D.R. (आदेश)/ORDER Date of hearing : 06 -09-2023 Date of Pronouncement : 30-11-2023 PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER The above appeal has been filed by the assessee against the order passed by the ld. Pr.CIT, Ahmedabad-5 dated 20.03.2017 under section 263 of the Income Tax Act, 1961 (hereinafter referred to as the "Act"), for the assessment year 2012-13. ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 2 2. The grounds raised by the assessee are as under: “1. The learned CIT has grossly erred in law and on facts in assuming jurisdiction u/s 263 of the Act on the erroneous ground that the impugned assessment order is erroneous in so far as it is prejudicial to the interest of the revenue, 2. The learned CIT has grossly erred in not appreciating that in order to invoke S.263, two conditions must be fulfilled viz. the impugned assessment order must be erroneous and that error must be prejudicial to the interest of the revenue. In the present case, AO has passed the reasoned assessment order after analyzing all details and therefore there was no error in the impugned assessment order so as to justify action u/s 263 of the Act. Under the the very assumption of power u/s 263 of the Act is unjustified and bad in law and therefore, order u/s 263 of the Act deserved to be quashed. 3. The learned CIT has erred in law and on the facts of the case in holding that assessee has claimed deduction of Rs.41.31.31.877/- u/s 80P as against the correct amount of Rs.36,73,36,662, resulting into excess claim of Rs.4.57,95,215/- and accordingly, directing AO to frame the assessment afresh after proper examination, enquiry and verification of all the issues. 4. The learned CIT failed to appreciate that the figurative work given in Para 2.0 of the impugned order, on the basis of which the so called excess claim of deduction u/s 80P has been worked out, is itself baseless. 5. The learned CIT has further erred in law in not coming to any concrete conclusion and without conducting any inquiry or investigating the issue, merely directed the AO to frame the assessment order afresh. Without there being any positive finding about order being erroneous and prejudicial to the interest of the revenue, the action of Id. CIT is without jurisdiction and illegal and hence deserves to be deleted. 6. The learned CIT has erred in not considering various facts, submissions, explanations and clarifications as given by the appellant and further erred in not appreciating the facts and law in their proper perspective.” 3. Perusal of the order of the Ld.PCIT reveals that on scrutiny of the records of the assessee he noted that the assessee being a Co-operative Society engaged in providing credit facility to its members for agriculture it had been allowed excess claim of deduction under Section 80P of the Act in the assessment framed u/s 143(3) of the Act. 4. The Ld. PCIT noted that while the assessee had earned both exempt income and taxable income, the expenses had not been properly apportioned ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 3 between two sets of income and therefore while its eligible exempt income as per the Ld. PCIT was only to the tune of Rs.36,73,36,662/-, it had claimed and had been allowed deduction under Section 80P of the Act to the tune of Rs.41,31,31,877/-, resulting in excess deduction allowed to the tune of Rs.4,67,95,215/-. 5. Accordingly jurisdiction was assumed by the Ld.PCIT u/s. 263 of the Act for revision of the assessment order issuing show cause notice to the assessee. In response to the same the assessee contended that the claim of deduction under Section 80P of the Act had been duly examined during assessment proceedings and correctly allowed by the Assessing Officer (AO). The Ld. PCIT, however, rejected the contention of the assessee and held that since its income included interest earned from deposits kept in Nationalised Banks, it was not entitled to deduction of the said income under Section 80P(2)(a)(i) of the Act. He accordingly held that the assessee having been allowed excessive claim of deduction under Section 80P of the Act on account of failure of the AO to apply the law correctly on the issue, the assessment order was erroneous and prejudicial to the interest of the Revenue. Accordingly, he passed order u/s 263 of the Act setting aside the assessment proceeding with the direction to the Ld. AO to frame the assessment afresh after proper examination, enquiry and verification. 6. The impugned order of the Ld. PCIT has been challenged by the Ld. Counsel for the assessee before us on the following grounds: i. That the PCIT had assumed jurisdiction under Section 263 of the Act on the basis of incorrect facts. ii. That the issue was otherwise examined by the AO. iii. The Ld. PCIT’s charge that the assessee had been incorrectly allowed deduction under Section 80P of the Act on income which was otherwise not eligible ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 4 under law was not based on any fact coming out of records of the assessee and no show cause notice to this effect was given to the assessee while holding so. 7. The Ld. DR has controverted all the arguments raised by the Ld. Counsel for the assessee before us stating that: i. The assesse’s contention of claim of jurisdiction under Section 263 of the Act basis incorrect fact was never confronted or contended during revisionary proceeding before the Ld. PCIT and therefore cannot be raised before us. ii. That the Ld. PCIT has clearly brought out the fact that the AO’s allowance of claim of deduction to the assessee under Section 80P of the Act was not in accordance with law and therefore the assessee cannot claim any benefit by stating that the issue was examined during assessment proceedings. iii. That the assessee itself had pointed out during revisionary proceedings that it had earned income from deposits with Nationalized Banks and it was this interest income which the Ld. PCIT had held was not eligible to deduction under Section 80P of the Act i.e. assessee itself pointed out this fact to the PCIT during course of revisionary proceeding, therefore there was no need for any show cause notice to be issued to the assessee. 8. We have considered the arguments of both the parties and also gone through the order of the Ld. PCIT. For adjudicating the validity of the order impugned before us, passed under Section 263 of the Act, it is necessary to bring out facts pertinent to the issue on which revisionary jurisdiction was exercised by the Ld. PCIT. 9. The assessee is a co-operative society engaged in the business of providing credit facility to its members for agriculture & allied Activities and rural development. For the impugned it had declared Nil income after claiming deduction under Section 80P of the Act. The error noted by the Ld. PCIT on going ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 5 through the records of the assessee was that while the assessee had been allowed deduction under Section 80P(2)(a)(i) of the Act to the tune of Rs.41.31 Crores, it was eligible to claim deduction of Rs.36.73 Crore only .This figure of Rs.36.73 Crore was worked out by the Ld. PCIT noting the fact that while interest income of the assessee earned from members of its society was Rs.87.52 Crores , the relatable expenditure thereon was Rs.51.04 Crores resulting in profits of Rs.36.73 Crore , eligible for deduction under Section 80P(2)(a)(i) of the Act. This specific error was pointed out to the assessee in the show cause notice issued by the Ld. PCIT under Section 263 of the Act which is reproduced at para 2.1 of the order as under: “....On verification of the assessment order passed by the AQ u/s.143(3) of the Act, it is noticed that an amount of Rs. 41,31,31,877/- has been allowed u/s.80P(2)(a)(i) of the Act as claimed by you. However, on verification of the case records, it is noticed that you have earned interest income of Rs. 87,52,62,067/- from members of your society and relatable expenditure thereon works out to Rs. 51,04,48,688/- and hence, the profit thereon works out to Rs. 36,73,36,662/-only. The deduction of Rs. 41,31,31,877/-u/s.80(P) (2) (i) of the Act claimed and allowed by the AO is found to be incorrect. 3. From the above discussions, it appears that the said assessment order dated 30/10/2014 is erroneous and prejudicial to the interest of revenue to the extent mentioned above. You are, therefore, requested to show cause as to why the total income assessed u/s. 143(3) of the Act should not be enhanced or modified u/s.263 of the Act...” 10. The first contention of the assessee, that the jurisdiction was assumed by the Ld. PCIT basis incorrect facts ,rest on the fact that neither the records reveal any expenditure to the tune of Rs.51.04 Crore incurred by the assessee nor did the Ld. PCIT pointed out as to from where he picked up this figure of expenses of Rs.51.04 Crore so as to arrive at the profits of the business of the assessee at Rs.36.73 Crore. 11. To this effect, the Ld. Counsel for the assessee drew our attention to the P&L account of the assessee cooperative society placed before us at paper book Page No.31 pointing out therefrom that the total expenses booked for the year amounted to Rs.36 Crores only and there was no figure of Rs.51Crore which can ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 6 be derived as pertaining to expenses for the year from the said P&L account statement. Our attention was also drawn to the return of income filed by the assessee placed before us at paper book Page No.2 pointing out therefrom that the assessee had calculated its income from business and profession at Rs.41.28 Crores taking the net profit as per P&L account and making adjustments to it as per law resulting in the figure of net profit of Rs.41.28 Crores. The relevant portion of the computation of income from business and profession is reproduced herein below: “Profit & Gains of Business of Profession Net Profit/Loss as per Profit & Loss A/s Guj. St. Co.op. Agri. & Rural Dev. Bank Ltd. 372541978 Add: Disallowables/Additions Depreciation treated separately 6526966 BDDR 107992947 Gratuity 76849231 Revaluation Reserve 5984365 Loss on sale of vehical 216094 --------------- 197569603 Less: Income considered separately IT Provision Written Back 150000000 H.P. Income 494905 --------------- (-) 150494905 Less: Deduction/Expenses claimed Depreciation as per Statement (-) 6773672 ------------------- 41,28,43,004” 12. The Ld. Counsel for the assessee has also pointed out to us from the reply filed to the Ld. PCIT during revisionary proceedings placed before us at paper book No.59 that the assessee had pointed out that its income from business and profession computed as per provision of the Income Tax Act was Rs.41.31 Crores which had been rightly allowed by the Ld.AO. 13. The Ld. DR was unable to controvert the fact pointed out by the Ld. Counsel for the assessee that figure of Rs.51Crore of expenses allegedly incurred by the assessee for earning exempt income u/s 80P of the Act was not emanating from ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 7 the records. He was unable to point out from the records from where the figure of Rs.51Crore of expenses relatable to the earning of exempt income was derived by the Ld. PCIT neither do we find that the order of the Ld. PCIT reveals the said fact. 14. Therefore, we find merit in the contention of the Ld. Counsel for the assessee that the basic premise of Ld. PCIT for arriving at finding of excessive claim of deduction under Section 80P(2)(a)(i) of the Act by the assessee, rested on assumption of incorrect and unverifiable facts. It is not clear to us as to how the Ld. PCIT arrived at the finding that the income of the assessee eligible to deduction under Section 80P(2)(a)(i) of the Act was only Rs.36 Crore and not Rs.41 Crore as claimed and allowed to the assessee. We have noted that while the assesse claim of deduction of Rs.41 Crores of profit under Section 80P(2)(a)(i) of the Act emanated from the records including the financial statement, the tax audit report and computation of income filed by the assessee, all documents filed before us in Paper book, and was also examined during assessment proceedings by issuance of notice under Section 142(1) of the Act and replies filed by the assessee placed before us at paper book page Nos. 51 to 54 ,the basis of the Ld. PCIT for holding that the assessee was eligible to only Rs.36 Crores deduction under Section 80P(2)(a)(i) of the Act is not clear nor does it seen to arise from the records before us. 15. Therefore, we hold that the very basis for assumption of jurisdiction to revise assessment order fails on account of the error in the assessment order having been found by the Ld. PCIT on the basis of incorrect facts. Clearly, the records do not support the finding of the PCIT that the assessee had claimed excessive deduction under Section 80P(2)(a)(i) of the Act. And as long as the finding of error of PCIT is based on facts which palpably do not emanate from records, it is immaterial whether this fact is pointed out for the first time before us. ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 8 In view of the same there is no error in the assessment border vis a vis quantum of allowance of deduction to the assessee u/s 80 P of the Act. The revisionary order passed by the Ld. PCIT, therefore, needs to be set aside for having failed to fulfill one of the twin conditions , of the assessment order being both erroneous and prejudicial to the interest of the Revenue, necessary for invoking revisionary jurisdiction , as laid down by the Hon’ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs CIT (2000) 243 ITR 83 (SC0 this ground alone. 16. However, we have noted that subsequently, after noting that as per records the assessee was eligible to lesser claim of deduction under Section 80P(2)(a)(i) of the Act, the Ld.PCIT has gone on a different tangent after receiving the assessee’s reply to the show cause notice. We find from the reply filed by the assessee during revisionary proceedings that the assessee stated to have earned income by way of interest from deposits made in Nationalized Banks. Picking this information he held that the assessee was not eligible to claim deduction on this interest income as per the provisions of law and having been allowed deduction on the same, the assessment order was in error causing prejudice to the Revenue. Para 4.1 of the order brings out the above as under: “4.1 The assessee has submitted that the profit included interest on Government Security and also interest on short term deposit with bank for liquidity purpose of this society and they have to keep fund in Government security as per norms laid by NABARD. Hence, this whole profit and gain was attributable to business as specified in section 80P(2)(a)(i) of I.T. Act, and was hence eligible for deduction u/s. 80P of the Act. The contention of the assessee is not acceptable as it is not in accordance with the provisions of sec. 80P(2)(a)(i) of the I.T. Act. The section is very clear that deduction in respect of income of Co. Op. Societies shall be allowed in the case of a Co. Op. Society as per provisions of sub section 2(a)(i) of section 80P and the whole amount of profit and gains of business attributable to any one or more such activities only. The interest income earned out of FDs with banks other than co. op. societies is not admissible for deduction as per the provisions of sec. 80P of the Act, thus liable to be disallowed.” 17. Ld. Counsel for the assessee has pointed out that no show cause notice was issued to the assessee before holding so and the Ld. DR was unable to controvert ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 9 the same though he contended that since the assessee himself had pointed out this fact there was no need of any show cause notice. 18. We are not in agreement with the Ld. DR. Even if the Ld. PCIT had noted the fact of assessee having claimed deduction on an ineligible income from the assesses statement of facts before him, it was his bounden duty to confront the assessee that it was ineligible in law for deduction u/s 80P of the Act, before holding the assessment order being erroneous on having allowed the assessee’s claim of deduction under Section 80P(2)(a)(i) of the Act on the same. In the absence of any show cause notice being given to the assessee, the finding of error by the Ld. PCIT on account of the same is not sustainable in law and the revisionary order passed, therefore, is liable to be set aside for the same reason also. 19. Going forward, we find that having found the assessee to have been allowed an incorrect claim of deduction on incomes which otherwise were not eligible as per law the Ld. PCIT concludes his finding of error by reverting back to his original charge of excess claim of deduction allowed to the assessee under Section 80P(2)(a)(i) of the Act. This finding is at para 5.5 of the order of the Ld. PCIT. The same is reproduced hereunder: “5.5 In the reply the assessee has invited the attention towards mistake of calculation of profit in the show cause notice issued. The contention of the assessee found correct and interest income from members of society is Rs. 87,77,85,350/-and relatable expenditure shown as Rs.51,04,48,688/-, accordingly the profit calculated at Rs. 36,73,36,662/-. The assessee had claimed deduction at Rs. 41,31,31,877/- which resulted into excess claim of deduction at Rs. 4,57,95,215/- u/s 80P of the Act which was excessively allowed to this extent by the assessing officer.” 20. It appears that the Ld. PCIT is unclear and is not sure as what exactly is the error in the assessment order. He begins by noting error on account of excess claim of deduction under Section 80P(2)(a)(i) of the Act due to incorrect apportionment of expenditure to exempt income while assuming jurisdiction u/s ITA No. 1079/Ahd/2017, A.Y. 2012-13 (The Gujarat State Co. Op. Agriculture & Rural Development Bank vs. PCIT) 10 263 of the Act, but goes on to hold the error to pertain to allowance of claim of deduction u/s 80 P to income which was otherwise not eligible in law to such claim, and then concludes by reverting back to his original finding of error on account of excessive claim of deduction on account of incorrect appropriation of expenses. The powers of revision being exercisable on a categorically finding of error in assessment order causing prejudice to the Revenue, this uncertainty in the finding of the error by Ld. PCIT renders the revisional order completely unsustainable in law. For this reason also, we hold that the impugned order is not sustainable in law and liable to be set aside. 21. In view of the above detailed discussion , we hold that the order passed by the Ld. PCIT is not sustainable in law in the absence of a clear and categorical finding of error in the assessment order .The order passed u/s 263 of the Act is directed to be set aside. 22. In the result, the appeal preferred by the assessee is allowed. Order pronounced in Open Court on 30 -11- 2023 Sd/- Sd/- (T.R. SENTHIL KUMAR) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated True Copy Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) – 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER Deputy/Asstt.Registrar ITAT, Ahmedabad