M/s Bangalore Credit Co-operative Society Ltd , Bangalore V. The Principal Commissioner of Income Tax Bangalore-7, Bangalore

ITA 1194/BANG/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9917 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C H SUNDAR RAO
• Assessee Lawyers: L BHARATH
• Keywords: Opportunity of being heard; Onus to prove
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI N.V VASUDEVAN, VICE PRE SIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1194/BANG/2017 ASSESSMENT YEAR : 2012-13 M/S BANGALORE CREDIT CO- OPERATIVE SOCIETY LTD., NO.723, 10 TH MAIN, 4 TH BLOCK, JAYANAGAR, BENGALURU. PAN AAAAB 1598 B. VS. THE PRINCIPAL COMMISSIONER OF INCOME- TAX, BENGALURU. APPLICANT RESPONDENT ITA NO.1718/BANG/2017 ASSESSMENT YEAR : 2014-15 THE INCOME-TAX OFFICER, WARD-7(2)(1), BENGALURU. VS. M/S BANGALORE CREDIT CO- OPERATIVE SOCIETY LTD., NO.723, 10 TH MAIN, 4 TH BLOCK, JAYANAGAR, BENGALURU. PAN AAAAB 1598 B. APPLICANT RESPONDENT REVENUE BY : SHRI C.H SUNDAR RAO, CIT ASSESSEE BY : SHRI L BHARATH, C.A ITA NOS.1194 & 1718/B/17 2 DATE OF HEARING : 26.11.2018 DATE OF PRONOUNCEMENT : 07.12.2018 O R D E R PER SHRI N.V VASUDEVAN, VICE PRESIDENT : ITA NO.1194/BANG/2017 IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 28.3.2017 PASSED BY THE COMMISSIONE R OF INCOME-TAX [CIT], BENGULURU-7, BENGULURU, U/S. 263 OF THE INCO ME-TAX ACT, 1961 [ THE ACT] IN RELATION TO AY 2012-13. 2. THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY. IT FILED RETURN OF INCOME FOR THE A.Y. 2012-13 DECLARING INCOME OF RS. NIL AFTER CLAIMING DEDUCTION OF RS.1,46,79,403/- U/S. 80P(2)( A)(I) OF THE ACT. THE ASSESSMENT WAS COMPLETED ACCEPTING THE RETURN O F INCOME FILED BY THE ASSESSEE BY ORDER DATED 27.8.2014. 3. THE CIT, IN EXERCISE OF HIS POWERS U/S. 263 OF T HE ACT, WAS OF THE VIEW THAT THE AFORESAID ORDER OF AO WAS ERRONE OUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASON THAT THE AO ACCEPTED THE CLAIM OF THE ASSESSEE WITHOUT PROPER VERIFICATION O F THE CLAIM FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THE CIT WAS OF THE VIEW THAT AFTER THE INTRODUCTION OF SECTION 80P(4) OF THE ACT , DEDUCTION WAS NOT AVAILABLE TO CO-OPERATIVE BANKS. THE ASSESSEE WAS AKIN TO A CO- OPERATIVE BANK AND THEREFORE DEDUCTION U/S. 80P(2)( A)(I) OF THE ACT OUGHT NOT TO HAVE BEEN ALLOWED TO THE ASSESSEE. SI NCE THE AO FAILED ITA NOS.1194 & 1718/B/17 3 TO LOOK INTO THE AFORESAID ASPECTS, THE CIT SET ASI DE THE ORDER OF THE AO AND DIRECTED HIM TO FRAME FRESH ASSESSMENT IN AC CORDANCE WITH LAW, AFTER DUE OPPORTUNITY TO THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE CIT, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS FAR AS DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT IS CONCERNED, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT U/S. 263 OF THE ACT HAS TO BE UPHELD. TH E CONCLUSION OF THE CIT IN THE IMPUGNED ORDER REGARDING ABSENCE OF ENQU IRY BY THE AO BEFORE ACCEPTING THE CLAIM FOR DEDUCTION U/S.80P(2) (A)(I) OF THE ACT ARE AS FOLLOWS: 6. 1 HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO EXAMINE THE CASE RECORDS ALONG WI TH WRITTEN SUBMISSION FILED BY THE ASSESSEE BEFORE ME. IN THE FIRST INSTANCE IT IS NOTICED THAT THE ASSESS EE HAS CLAIMED THAT ASSESSING OFFICER HAD VERIFIED THE DETAILS THAT HAD BEEN PLACED BEFORE HIM AND THEREFO RE IT CANNOT BE STATED THAT NO VERIFICATION HAD BEEN DONE . THE ASSESSEE HAS ALSO RELIED ON A NUMBER OF CASE LAWS T O SUPPORTS ITS CASE. I HAVE CAREFULLY CONSIDERED THIS POINT AS RAISED HOWEVER I FIND THAT IT CANNOT BE ACCEPTED . RECORDS IN ORDER SHEET AS AVAILABLE SHOW THAT THE NOTINGS RELATE TO ISSUE AND SERVICE OF NOTICE AND T HE ATTENDANCE IN COMPLIANCE BY THE AR OF THE ASSESSEE. THE DETAILS AVAILABLE ON FILE ARE SIMPLY THE AUDITED PR OFIT AND LOSS ACCOUNT AND BALANCE SHEET OF THE ASSESSEE CONC ERN. THERE IS NO NOTE REGARDING THE OPERATION OF THE SOC IETY IN THE SAID DETAILS. FURTHER THERE ARE NO QUERIES R AISED REGARDING THE LINKING OF THE INCOME AS SHOWN IN THE P&L ITA NOS.1194 & 1718/B/17 4 ACCOUNT TO THE ACTIVITIES OF THE SOCIETY. THERE ARE NO DISCUSSIONS HOLDING THAT THE ACTIVITIES OF THE SOCI ETY FALL IN THE PURVIEW OF THE DEDUCTION CLAIMED BY THE SOCI ETY AND ARE COVERED BY THE JUDICIAL RULINGS IN THIS YEA R. IT THEREFORE STANDS THAT THE CLAIM OF THE ASSESSEE THA T AO HAS NOT ACCEPTED THE DEDUCTION ON A MECHANICAL MANN ER BUT AFTER INQUIRIES, WOULD NOT STAND. NO QUERIES RA ISED OR ENQUIRIES MADE BY THE ASSESSEE WHILE SCRUTINISIN G THE CASE FOR ASSESSMENT ESPECIALLY WHEN A MAJOR AMOUNT OF THE PROFIT IS DECLARED AS EXEMPT FROM TAX MAKES THE ORDER LIABLE TO BE TERMED AS A MECHANICAL ACCEPTANC E. THIS BY ITSELF LEAVES IT OPEN TO THE INVOCATION OF SECTION 263 SPECIALLY WHEN IT IS REQUIRED THAT IT BE VERIFI ED THAT THE INCOME CLAIMED TO BE EXEMPT IS INCIDENTAL TO TH E ACTIVITIES OF THE ASSESSEE SOCIETY AND LIABLE FOR EXEMPTION CLAIMED FOR SECTION AS PER LAW. THE STATEMENT OF THE ASSESSEE THAT ALL DETAILS HAD BEEN SUBMITTED BY IT TO THE ASSESSING OFFICER TO ES TABLISH ITS CLAIM REGARDING THE DEDUCTION CLAIMED IS INCORR ECT. IT IS ALSO SEEN THAT BESIDES PLACING THE ABOVE MENTION ED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET ON FILE T HE RECORDS ARE SILENT REGARDING FURTHER ENQUIRY/VERIFI CATION DONE BY THE ASSESSING OFFICER WHILE ASSESSING THE C ASE UNDER SECTION143 (3) OF THE INCOME TAX ACT 1961 TO ESTABLISH THE FACT WHETHER THE CLAIM AS MADE BY THE ASSESSEE WAS ALLOWABLE OR NOT. IN FACT AS STATED EA RLIER THE ASSESSMENT ORDER IS ABSOLUTELY SILENT ON THIS I SSUE. THE ASSESSMENT HAS BEEN MADE IN A ROUTINE MANNER AS FAR AS THIS ISSUE IS CONCERNED. AS THERE HAS BEEN N O PROPER INQUIRY MADE OR FACTS VERIFIED IT IS CLEAR T HAT THERE HAS BEEN NO APPLICATION OF MIND TO RELEVANT MATERIAL AVAILABLE AND THIS ACT ION OF THE ASSESSIN G OFFICER IS DEFINITELY AN ACT ION WHICH IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. A CLAIM HAS BEEN ALLOWED IN A ROUTINE MANNER. THE ASSESSING OFFICER HAS NOT CALLED UPON THE ASSESSEE TO ESTABLISH/PROVE THE DEDUCTION CLAIM. NEITHER HAS THE ASSESSING OFFICER MADE ITA NOS.1194 & 1718/B/17 5 ANY EFFORT TO VERIFY OR ENQUIRE OR ASK FOR PROOF FR OM THE ASSESSEE TO DISCHARGE THE BURDEN OF PROOF PLACED ON THE ASSESSEE TO ESTABLISH THE CLAIM MADE FOR DEDUCTION. THE ASSESSING OFFICER BEFORE ACCEPTING THE STATEMENT OF THE ASSESSE OUGHT TO HAVE REQUESTED THE ASSESSEE TO DISCHARGE THE ONUS THAT WAS PLACED UPON IT TO ESTAB LISH ITS CLAIM AND SHOULD HAVE CONDUCTED FURTHER ENQUIRY BEFORE ACCEPTING THE CLAIM OF THE ASSESSEE THAT THE INCOME EARNED BY IT IS LIABLE FOR DEDUCTION UNDER S ECTION 80 P (2) (A)(I) OF THE INCOME TAX ACT ESPECIALLY AS THE SAID SECTION IS BOUND BY CONDITIONS OF LIMITATIONS. 6. THE ABOVE FINDING IN THE IMPUGNED ORDER HAVE NOT BEEN CHALLENGED AS INCORRECT BY THE ASSESSEE EITHER IN T HE GROUNDS OF APPEAL BEFORE THE TRIBUNAL NOR ANY ARGUMENTS WERE ADVANCED ON THE ABOVE FINDINGS. THE LAW IS WELL SETTLED THAT FAILURE TO MAKE ENQUIRIES WHICH THE AO WAS DUTY BOUND TO MAKE IN THE GIVEN FACTS AN D CIRCUMSTANCES OF A CASE RENDERS THE ORDER OF ASSESSMENT PASSED BY HIM WITHOUT MAKING SUCH ENQUIRIES RENDERS HIS ORDER ERRONEOUS A ND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THEREFORE THE ORDER O F THE CIT IN THIS REGARD IS UPHELD. 7. AS FAR AS THE DEDUCTION U/S.80P(2)(A)(I) OF THE ACT IS CONCERNED, WE DIRECT THE AO TO EXAMINE THE CLAIM OF THE ASSESS EE IN THE LIGHT OF THE DIRECTIONS WHICH WE PROPOSE TO GIVE WHILE DECID ING THE APPEAL OF THE REVENUE FOR AY 2014-15 IN ITA NO.1718/BANG/2017 AND TO THIS EXTENT ITA NO.1194/BANG/2017 IS TREATED AS PARTLY A LLOWED FOR STATISTICAL PURPOSE. ITA NOS.1194 & 1718/B/17 6 ITA NO. 1718/BANG/2017 : 8. THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORD ER DATED 26.5.2017 PASSED BY THE COMMISSIONER OF INCOME-TAX [CIT], BENGULURU-7, BENGULURU, IN RELATION TO AY 2014-15 . 9. THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY. IT FILED RETURN OF INCOME FOR THE A.Y. 2009-10 DECLARING INCOME OF RS. NIL AFTER CLAIM- ING DEDUCTION OF RS.2,12,32,529/- U/S. 80P(2)(A)(I) OF THE INCOME TAX ACT, 1961 (ACT). 10. UNDER SEC.80P(2)(I) OF THE ACT, WHERE THE GROSS TOTAL INCOME OF A CO-OPERATIVE SOCIETY INCLUDES INCOME FROM CARRYIN G ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS ME MBERS, THE SAME IS ALLOWED DEDUCTION. BY THE FINANCE ACT, 2006 W.E.F. 1-4-2006, SUB- SECTION (4) WAS INSERTED IN SEC.80-P WHICH PROVIDES AS FOLLOWS: (4) THE PROVISIONS OF THIS SECTION SHALL NOT APPLY IN RELATION TO ANY CO-OPERATIVE BANK OTHER THAN A PRIM ARY AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATI VE 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 RESPECTIVEL Y ASSIGNED TO THEM IN PART V OF THE BANKING REGULATIO N ACT, 1949 (10 OF 1949); ITA NOS.1194 & 1718/B/17 7 (B) 'PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' MEANS A SOCIETY HAVING ITS AREA O F OPERATION CONFINED TO A TALUK AND THE PRINCIPAL OBJ ECT OF WHICH IS TO PROVIDE FOR LONG-TERM CREDIT FOR AGRICULTURAL AND RURAL DEVELOPMENT ACTIVITIES. 11. ACCORDING TO THE AO, THE ASSESSEE WAS A CO-OPER ATIVE BANK AND THEREFORE THE DEDUCTION U/S. 80P(2)(A)(I) CANNOT BE ALLOWED. IN COMING TO THE ABOVE CONCLUSION, THE AO NOTICED THAT THE NATURE OF THE ACTIVITY OF THE ASSESSEE, THOUGH REGISTERED AS A CR EDIT CO-OPERATIVE SOCIETY, IS THAT OF A BANKING INSTITUTION NOTWITHST ANDING THE FACT THAT RECEIPT OF AND LENDING MONEY IS LIMITED TO ITS MEMB ERS. THE AO FURTHER NOTICED THAT CLAUSE (VIIA) IN SECTION 2(24) OF THE ACT WAS INSERTED BY THE FINANCE ACT 2006 EFFECTIVE FROM 1/4 /2007, WHICH PROVIDES THAT PROFITS AND GAINS OF ANY BUSINESS (IN CLUDING PROVIDING CREDIT FACILITIES) CARRIED ON BY A CO-OPERATIVE SOC IETY WITH ITS MEMBERS THE ASSESSEES ACTIVITY WAS ALSO INCOME. THAT TH E DEDUCTION FROM GROSS TOTAL INCOME OF CERTAIN RECEIPTS IS AVAILABLE ONLY TO PRIMARY AGRICULTURAL CREDIT SOCIETIES OR PRIMARY CO-OPERATI VE AGRICULTURAL AND RURAL DEVELOPMENT BANKS; AND THAT THE BENEFIT OF SU CH DEDUCTION IS NOT AVAILABLE TO INSTITUTIONS LIKE THE ASSESSEE SOCIETY . THE AO ALSO REFERRED TO SECTION 5(B) OF THE BANKING REGULATION ACT TO HO LD THAT, IF ONE OF THE TWO CONDITIONS OF THE APPELLANT I.E. ITS PRIMAR Y OBJECT SHOULD BE BANKING OR ITS PRINCIPAL BUSINESS MUST BE TRANSACTI ON IN BANKING BUSINESS, IS SUFFICIENT TO BRING THE APPELLANT INTO THE CONCEPT OF A BANKING INSTITUTION. THE AO REFERRED TO THE OBJECTS OF THE ASSESSEE SOCIETY AND HELD THAT ACCEPTING DEPOSITS AND LENDIN G TO ITS MEMBERS ITA NOS.1194 & 1718/B/17 8 ARE IN THE NATURE OF TRANSACTION OF BANKING ACTIVIT Y. ACCORDING TO THE AO, THE FOLLOWING FEATURES MAKE THE ASSESSEE INELIG IBLE TO EXEMPTION CONTEMPLATED IN SECTION 80P OF THE ACT: I) SINCE MEMBERSHIP IS OPEN TO ANYONE PAYING A SUM OF RS.10/- TO RS.100/- FOR MEMBERSHIP AND NO OTHER CONDITION IS IMPOSED. IN OTHER WORDS, MEMBERSHIP AS IS AVAILABLE IN ANY BANKING INSTITUTION IS AVAILABLE I N THE CASE OF THE APPELLANT SOCIETY. II) THE PURPOSE OF ACCEPTING DEPOSITS FROM THE PUB LIC IS FOR MAKING INVESTMENTS AND FOR LENDING TO MEMBER S. CONFINING THE LENDING ONLY TO MEMBERS MAKES NO DIFFERENCE. III) DEPOSITS COLLECTED FROM THE DEPOSITORS ARE REPAYABLE ON DEMAND AND DO NOT GO INTO THE CORPUS O F THE APPELLANT. IV) THE ASSESSEE SOCIETY CAME WITHIN THE EXPLA NATION TO SUB-SECTION (4) OF SECTION 80P OF THE ACT AS A B ANKING INSTITUTION. 12. IN THE LIGHT OF THE ABOVE-MENTIONED OBSERVATION S, THE AO HELD THAT THE APPELLANT WAS NOT ENTITLED TO EXEMPTION IN RESPECT OF THE AMOUNT U/S 80P(2)(A)(I) OF THE ACT AND BROUGHT THE SAME TO TAX. 13. ON APPEAL BY THE ASSESSEE, THE CIT(A) NOTICED T HAT THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI BILURU GURUBASAVA PATTINA SAHAKARI SANGHA NIYAMITHA, BAGALKOT, ITA NO .5006/2013 HAS HELD THAT A CREDIT CO-OPERATIVE SOCIETY GIVING CRED IT TO ITS MEMBERS IS NOT HIT BY THE PROVISIONS OF SEC.80P(4) OF THE ACT AS IT DOES NOT POSSESS A LICENCE FROM RBI TO CARRY ON BUSINESS AND IS NOT A CO- ITA NOS.1194 & 1718/B/17 9 OPERATIVE BANK. THE OBJECT OF INTRODUCING SEC.80P( 4) OF THE ACT WAS NOT TO EXCLUDE THE BENEFIT EXTENDED U/S.80P(1) TO C O-OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CR EDIT FACILITIES TO ITS MEMBERS. FOLLOWING THE SAID DECISION, THE CIT(A) H ELD THAT THE ASSESSEE WAS ENTITLED TO DEDUCTION U/S.80P(2)(A)(I) OF THE ACT ON THE SUM OF RS.96,26,666/-. 14. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE FOLLOWING ARE THE GROUNDS OF APPEAL OF THE REVENUE: 1. THE ORDER OF THE LEARNED CIT(A) IS OPPOSED TO LA W AND FACTS OF THE CASE. 2. 'WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE C!T(A) WAS JUSTIFIED IN LAW IN ALLOWING DEDUCTI ON U/S. 80P(2)(A)(I) OF THE ACT TO THE CO-OPERATIVE SO CIETY CARRYING ON THE BUSINESS OF BAK