Kendrapara Credit Co-operative Soceity Limited, Kendrapara V. ITO, Kendrapara Ward, Kendrapara

ITA 134/CTK/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9305 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 14-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K GAUTAM
• Assessee Lawyers: D PARIDA; C PARIDA
• Keywords: Depreciation; Bad and doubtful debts; Competent authority; TDS
• Section: 43B; 40A(3); 40(a)(ia); 80P; 201; 251; 44AB; 13; 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH CUTTACK BEFORE SHRI C.M. GARG, JM & SHRI L.P. SAHU, AM . / ITA NO S . 133&134 /CTK/20 1 9 ( / ASSESSMENT YEAR : 20 09 - 20 10 & 20 1 0 - 201 1 ) KENDRAPARA CRE DIT CO - OPERATIVE SOCIETY LTD., AT: NEW BUS STAND, PO: KENDRAPARA, DIST : KENDRAPARA - 754211 VS. ITO KENDRAPARA WARD, KENDRAPARA PAN NO. : A ABAK 6558 P ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI D.PARIDA & C.PARIDA, AR /REVENUE BY : SHRI M.K.GAUTAM, CIT - DR / DATE OF HEARING : 11 / 0 8 /20 20 / DATE OF PRONOUNCEMENT : 14 / 0 8 /20 20 / O R D E R PER L.P.SAHU , A M : THESE TWO APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDER PASSED BY THE CIT(A), CUTTACK, DATED 25.03.2019, FOR THE ASSESSMENT YEARS 2009 - 2010 & 2010 - 2011. 2. SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF BREVITY, BOTH THE APPEALS ARE HEA RD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. 3. GROUNDS RAISED FOR A.Y.2009 - 2010 READ AS UNDER : - 1. THAT THE ORDER PASSED BY THE LEARNED CIT(A] IS ARBITRARY, EXCESSIVE, CONTRARY TO FACTS AND BAD IN LAW. 2. THAT THE LEARNED ASSESSING OFFI CER HAS ERRED IN LAW AND ON FACTS OF THE CASE BY DISALLOWING THE PROVISION FOR BAD - DEBTS AND PROVISION FOR INTEREST AMOUNTING TO RS. 10,00,000 TO WHICH THE LD. CIT(APPEALS) HAS WRONGLY CONFIRMED THE SAME ADDITION AND WITHOUT CONSIDERING THE FACT THAT THE PR OVISIONS ARE MADE AS PER THE STATUTE. ITA NO. 133&134 /CTK/2019 2 3. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS OF THE CASE BY DISALLOWING THE PROVISION FOR GRATUITY AMOUNTING TO RS. 1,47,351 TO WHICH THE LD. CIT(APPEALS) HAS WRONGLY CONFIRMED THE SAME ADDITIO N AND WITHOUT CONSIDERING THE FACT THAT THE PROVISIONS ARE MADE AS PER THE STATUTE. 4. THAT THE LD. CIT ( APPEALS) HAS CONFIRMED THE ADDITION ON ACCOUNT OF PROVISION FOR BAD - DEBTS, PROVISION FOR INTEREST AND PROVISION FOR GRATUITY WITHOUT APPRECIATION OF FACT THAT ALL THESE ARE INFRUCTUOUS WHEN SECTION 80P COMES INTO EFFECT. 5. THAT THE APPELLANT MAY ADD, ALTER, DELETE OR MODIFY ANY OF THE GROUNDS AT THE TIME OF HEARING OF THE MATTER WITH THE LEAVE OF THE HON'BLE ITAT. 4. GROUNDS RAISED FOR A.Y.2010 - 20 11 READ AS UNDER : - 1. THAT THE ORDER PASSED BY THE LEARNED C1T(A ) IS ARBITRARY, EXCESSIVE, CONTRARY TO FACTS AND BAD IN LAW. 2. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS OF THE CASE BY DISALLOWING THE PROVISION FOR BAD - DEBTS AN D PROVISION FOR INTEREST AMOUNTING TO RS. 10,50,0 00 TO WHICH THE LD. CIT(APPEALS) HAS WRONGLY CONFIRMED THE SAME ADDITION AND WITHOUT CONSIDERING THE FACT THAT THE PROVISIONS ARE MADE AS PER THE STATUTE. 3. THAT THE LEARNED ASSESSING OFFICER HAS ERRED I N LAW AND ON FACTS OF THE CASE BY DISALLOWING THE PROVISION FOR GRATUITY AMOUNTING TO RS. 51,952 TO WHICH THE LD. C I T(APPEALS) HAS WRONGLY CONFIRMED THE SAME ADDITION AND WITHOUT CONSIDERING THE FACT THAT THE PROVISIONS ARE MADE AS PER THE STATUTE. 4. T HAT THE LD. C I T(APPEALS) HAS CONFIRMED THE ADDITION ON ACCOUNT OF PROVISION FOR BAD - DEBTS, PROVISION FOR INTEREST AND PROVISION FOR GRATUITY WITHOUT APPRECIATION OF FACT THAT ALL THESE ARE INFRUCTUOUS WHEN SECTION 80P COMES INTO EFFECT. 5. THAT THE APP ELLANT MAY ADD, ALTER, DELETE OR MODIFY ANY OF THE GROUNDS AT THE TIME OF HEARING OF THE MATTER WITH THE LEAVE OF THE HON'BLE ITAT. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE KENDRAPARA CREDIT CO - OPERATIVE SOCIETY LIMITED REGISTERED UNDER THE ODISHA COOPERATIVE SOCIETY REGISTRATION ACT, 1962 BEARING REGISTRATION NO.158KE, DATED 19.08.2000. THE SOCIETY DERIVES INCOME FROM DOING BANKING BUSINESS. FROM THE INFORMATION AVAILABLE BEFORE THE AO, THE AO NOTICED THAT THE TOTAL PROFIT OF THE ASSESSEE SOCIETY FOR THE ASSESSMENT YEAR 2009 - 2010 ITA NO. 133&134 /CTK/2019 3 WAS RS.18,16,784/ - BUT THE ASSESSEE HAD NOT FILED ANY RETURN OF INCOME, THEREFORE, THE AO AFTER RECORDING REASONS AND OBTAINING NECESSARY APPROVALS THE REOPENED BY ISSUING NOTICE U/S.148 OF THE ACT, DATED 30.03.2015, WHICH WAS SERVED TO THE ASSESSEE AND NOTICE U/S.142(1) OF THE ACT WAS ALSO SERVED UPON THE ASSESSEE. IN RESPONSE TO THE STATUTORY NOTICES, THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED NECESSARY DETAILS AS REQUIRED BY THE AO. HE ALSO FILED AUDIT REPORT U/S. 44AB OF THE ACT IN THE FORM NO.3CA & 3CD. ON PERUSAL OF THE TRADING PROFIT AND LOSS ACCOUNT, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAD DISCLOSED TOTAL TURNOVER OF RS.1,68,27,294.20 WHICH CONSISTS OF INTEREST ON LOAN RS.1,38,85,864/ - INTEREST RECEIVED FROM BANK DEPOSIT RS.19,10,639/ - AND OTHER RELATED CHARGES OF RS.10,30,791/ - AFTER DEBITING EXPENSES UNDER VARIOUS HEADS ARRIVED AT NET PROFIT OF RS.18,16,783.95. FURTHER ON PERUSAL OF THE TRADING PROFIT AND LOSS ACCOUNT, THE AO NOTICED THAT THE ASSESSEE H AS DEBITED TOWARDS PROVISIONS FOR BAD AND DOUBTFUL DEBTS OF RS.10 LAKHS. ON FURTHER PERUSAL OF THE BOOKS OF ACCOUNTS, THE AO NOTICED THAT NO DEBT/OVERDUE PRINCIPAL HAS BEEN WRITTEN OFF DURING THE YEAR. IT WAS CONFIRMED FROM THE SECRETARY OF THE SOCIETY AND HE ALSO STATED THAT NO OVERDUE PRINCIPAL HAS BEEN WRITTEN OFF. ACCORDINGLY, THE AO MADE DISALLOWANCE OF PROVISION FOR OVER DUE PRINCIPAL MADE BY THE ASSESSEE U/S.36(1)(VII) OF THE ACT AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON FURTHER PERU SAL OF THE PROFIT AND LOSS ITA NO. 133&134 /CTK/2019 4 ACCOUNT THE AO FOUND THAT THE ASSESSEE HAD DEBITED A SUM OF RS.1,47,351/ - UNDER THE HEAD PROVISION FOR GRATUITY FUND. IT WAS ALSO NOTICED BY THE AO THAT IT WAS NOT AS PER THE PROVISIONS OF SECTION 36(1)(V) OF THE ACT, THEREFORE, HE ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 6. ON FURTHER SCRUTINY THE AO DISALLOWED CLAIM OF DEDUCTION U/S.80P OF THE ACT AS CLAIMED BY THE ASSESSEE BY HOLDING AS UNDER : - 5.1. DEDUCTION U/S.80P: THE SOCIETY IN ITS PROFIT & LOSS ACCOUNT ARRIVED AT NET PROFIT OF RS.18,16,783.95. HOWEVER, IN THE AUDITED REPORT U/S.44AB DATED 17.11.2015 IN FORM NO.3CD AT PARA NO.26, SECTION - WISE DETAILS OF DEDUCTIONS IF ANY ADMISSIBLE UNDER CHAPTER VIA, REPORTED DEDUCTION U/S.80P AT RS.18,00,560/ - . IN THE PR OFIT & LOSS ACCOUNT DEPRECIATION HAS BEEN CLAIMED AT RS.70,284.25 AND ARRIVED NET PROFIT OF RS.18,16,784. BUT IN SCHEDULE BP OF THE RETURN OF INCOME, PROFIT AFTER ADJUSTMENT OF DEPRECIATION HAS BEEN ARRIVED AT RS.18,00,560/ - . AND CLAIMED DEDUCTION OF RS.18 ,00,560/ - U/S.80P OF THE ACT. HOWEVER, IN ANNEXURE - I, PART - BTO AUDIT REPORT U/S.44AB, THE AUDITED HAS STATED NET PROFIT BEFORE TAX AT RS.18,16,784/ - . AS EVIDENT, THE STATUTORY AUDIT (COOPERATIVE AUDIT) HAS BEEN COMPLETED ON 31.03.2010* THE AUDIT U/S.44AB H AS BEEN MADE ON 17.11.2015. THE RETURN OF INCOME HAS BEEN FILED ON 10.03.2016, AFTER EXPIRY OF 30 DAYS FROM THE DATE OF RECEIPT OF NOTICE U/S.148 OF THE ACT. (INITIATED PROCEEDING U/S.271B OF THE ACT.) 5.2. THE STATUTORY AUDITOR HAS AT PARA NO.L OF PART - II(A) HAS REPORTED 'IN',THE FIELD OF COOPERATIVE MOVEMENT IN THE DISTRICT, THE KENDRAPARA COOP. SOCIETY CAME INTO EXISTENCE ON 19.08.2000 WITH ITS MAIN OBJECTIVES OF TAPPING DEPOSIT AND FINANCING TO THE CUSTOMERS OF THE AREA OF OPERATION WITH A VIEW T O AUGMENTING THE ECONOMIC CONDITIONS BY UNDERTAKING SUCH OTHER ACTIVITIES AS WELL AS TO PROMOTE TO ACHIEVE THE GOAL. THE SOCIETY HAS ALSO EXPANDED ITS AREA OF ACTIVITIES IN THE SPHERE OF INVESTMENT IN VARIOUS DIVERSIFIED SCHEME FOR GENERAL BENEFITS. THUS T HE SOCIETY HAS SPREAD OUT THE NETWORK OF ITS 10 NUMBERS OF BRANCHES OVER IMPORTANT COMMERCIAL PLACES IN THE URBAN AND SEMI URBAN AREAS OF KENDRAPARA, JAGATSINGHPUR, JAJPUR AND CUTTACK REVENUE DISTRICTS. THE SOCIETY IS COMPETING WITH THE COMMERCIAL BANKS FU NCTIONING WITHIN THE AREA OF OPERATION.,,' 5.3. ON GOING THROUGH THE STATUTORY AUDIT REPORT, BOOKS OF ACCOUNTS PRODUCED, BYE LAW OF THE SOCIETY AND THE MEANING ASSIGNED IN PART V OF THE BANKING REGULATION ACT, 1949 AS REFERRED TO IN SUB - SECTION (4) OF SECTION SOP OF THE ACT AND NATURE OF BUSINESS, IT IS FOUND THAT THE SOCIETY IS NOT ELIGIBLE FOR DEDUCTION U/S.80P OF THE ACT. ITA NO. 133&134 /CTK/2019 5 5.4. IN VIEW OF THE REASONS MENTIONED AT PARA NO,5.1. TO PARA NO.5.3., THE DEDUCTION CLAIMED U/S.80P IS DISALLOWED AND A DDED TO THE INCOME OF THE SOCIETY. ACCORDINGLY, THE AO ASSESSE D THE TOTAL TAXABLE INCOME OF THE ASSESSEE AT RS.29,64,140/ - 7. FEELING AGGRIEVED FORM THE ABOVE ORDER, THE ASSESSEE APPEALED BEFORE THE CIT(A) AND THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE A SSESSEE BY HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER CHAPTER VI UNDER SECTION 80P(2) OF THE ACT AND DISMISSED THE APPEAL OF THE ASSESSEE ON MERITS. 8. AGGRIEVED FROM THE ORDER OF DISMISSAL BY THE CIT(A), THE ASSESSEE IS IN APPEALS BEFORE US FOR THE ABOVE MENTIONED ASSESSMENT YEARS. 9. LD. AR SUBMITTED THAT THE CIT(A) HAS WRONGLY ENDORSED THE ORDER OF AO THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.36(1)(VII) OF THE ACT AND FURTHER THE CIT(A) ALSO DISALLOWED THE PROVISION FOR GRATUITY OF RS.1,4 7,351/ - WITHOUT VERIFYING THE ACTUAL FACTS WHEREAS THESE GRATUITY AMOUNTS HAVE BEEN TRANSFERRED TO LIC OF INDIA ON THE APPROVED GRATUITY FUND MAINTAINED BY THE LIC. FURTHER HE ALSO SUBMITTED THAT ONCE THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(I) OF THE ACT, THEN THE ENTIRE EXERCISE DONE BY THE AO AND CIT(A) WILL BE FUTILE. THE CIT(A) HAS HELD THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.80P(2) OF THE I.T.ACT. HAD THESE TWO DISALLOWANCE BEEN CLAIMED BY THE ASSESSEE AS ITA NO. 133&134 /CTK/2019 6 EXPENDITURE THEN PROFIT W OULD BE INCREASED AND THE SAME AMOUNT WILL BE CLAIMED BY THE ASSESSEE AS DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. 10. ON THE OTHER HAND, LD. DR SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND HE SUBMITTED THAT THE ASSESSEE DID NOT FULFIL THE REQUIREMENTS AS PROV IDED U/S.36(1)(VI I ) FOR DEBITING THE AMOUNT OF PROVISION FOR BAD DEBTS AND HE ALSO DID NOT SUBMIT THE DETAILS OF THE AMOUNT OF RS.10 LAKHS BEFORE THE CIT(A) AS WELL AS THE AO. HE FURTHER SUBMITTED THAT THE PROVISION FOR GRATUITY AMOUNTING TO RS.1,47,351/ - HAS ALSO NOT BEEN DEPOSITED IN THE APPROVED GRATUITY FUND. IN THIS REGARD, NO ANY EVIDENCES WERE SUBMITTED BY THE ASSESSEE BEFORE THE AO AS WELL AS THE CIT(A), THEREFORE, IN BOTH THE COUNTS THE ORDER OF THE CIT(A) SHOULD BE RESTORED. 11. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF AUTHORITIES BELOW, FIRST BEFORE DECIDING THE ENTIRE ISSUE , IT WOULD BE APPROPRIATE TO DISCUSS THE OBSERVATIONS OF THE CIT(A) REGARDING DEDUCTION AS TO WHETHER THE ASSESSEE IS ELIGIB LE FOR DEDUCTION U/S.80P(2) OF THE ACT OR NOT . THIS ISSUE HAS ALREADY BEEN DEALT BY THE CIT(A) IN HIS ORDER WHICH READ S AS UNDER : - AFTER PERUSING THE AFOREMENTIONED COMMENTS OF THE CREDITOR, THE BYE LAWS OF THE SOCIETY AND THE BOOKS OF ACCOUNT OF THE ASS ESSEE, THE AO CONCLUDED THAT THE BENEFIT OF SECTION 80P(2) WILL BE DENIED TO THE ASSESSEE AS ITS CASE WAS FALLING UNDER SECTION 80P(4) OF THE I.T. ACT, 1961. THE AO HELD THAT THE ASSESSEE ENJOYS THE STATUS OF A 'CO - OPERATIVE BANK' AS EXPLAINED IN PART V OF THE BANKING REGULATION ACT, 1949 AND WOULD, THEREFORE, NOT BE ELIGIBLE FOR THE DEDUCTION ENVISAGED U/S. 80P(2). DURING THE COURSE OF THE APPELLATE PROCEEDINGS, THE ASSESSEE ARGUED THAT SECTION 80P(2)(A)(I) SPECIFICALLY STIPULATES A DEDUCTION OF PROFITS EA RNED ITA NO. 133&134 /CTK/2019 7 BY A CO - OPERATIVE SOCIETY FROM CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. FURTHER, THE ASSESSEE TENDERED DETAILED SUBMISSIONS EXPLAINING THAT THE ASSESSEE WAS NOT A 'CO - OPERATIVE BANK' WITHIN THE MEANING OUTLINE D UNDER PART V OF THE BANKING REGULATION ACT, 1949. I HAVE PERUSED THE FACTS OF THE CASE AND ALSO EXAMINED THE ASSESSMENT ORDER OF 143(33/147 FOR THE AY. - 2010 - 11 DT. 30.03.2016. THE DETAILED SUBMISSIONS OF THE ASSESSEE HAVE ALSO BEEN PERUSED BY ME. THE P RINCIPAL QUESTION THAT NEEDS TO BE ADDRESSED IN THIS APPEAL IS WHETHER THE ASSESSEE SOCIETY IS A 'CO - OPERATIVE BANK' WITHIN THE MEANING PRESCRIBED U/S. 80P (4) OF THE I.TACT, 1961 AND PART V OF THE BANKING REGULATION ACT, 1949. NOW AS PER THE PROVISIONS OF SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949 A PRIMARY CO - OPERATIVE BANK MEANS A CO - OPERATIVE SOCIETY FULFILLING THE FOLLOWING CONDITIONS CUMULATIVELY - : (I) THE PRIMARY OBJECT OF PRINCIPAL BUSINESS OF THE CO - OPERATIVE SOCIETY IS THE TRANSACTION O F BANKING BUSINESS. (II) THE PAID UP CAPITAL AND RESERVES OF THE CO - OPERATIVE SOCIETY ARE NOT LESS THAN ONE LAKH OF RUPEES; AND (III) THE BYE - LAWS OF THE CO - OPERATIVE SOCIETY DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. THE SE COND AND THIRD CONDITIONS AS LAID DOWN IN SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949 DO APPLY TO THE ASSESSEE'S CASE. THE PAID UP SHARE CAPITAL AS ON 31.03.2013 STANDS AT RS.3,70,04,045/ - WHICH THUS MEETS THE REQUIREMENT OF THE PAID UP CAPITAL OF THE CO - OPERATIVE SOCIETY NOT BEING LESS THAN ONE LAKH OF RUPEES. AS REGARDS THE THIRD CONDITION, IT IS OBSERVED THAT CLAUSE 9 OF THE BYE - LAWS GOVERNS THE MEMBERSHIP RULES OF THE SOCIETY. THIS CLAUSE STATES THAT ANY 'PERSON', SUBJECT TO CERTAIN CONDITION S, CAN BECOME A MEMBER OF THE CO - OPERATIVE SOCIETY. THE BYE - LAWS THEN GO ON TO DEFINE 'PERSON' IN CLAUSE 4 AND STATE THAT 'PERSON' MEANS AN ADULT INDIVIDUAL, PROPRIETARY CONCERN, PARTNERSHIP FIRM OR ANY OTHER BODY CORPORATE CONSTITUTED UNDER THE LAW FOR TH E TIME BEING IN FORCE EXCEPT A CO - OPERATIVE SOCIETY REGISTERED UNDER THE CO - OPERATIVE SOCIETIES ACT. HENCE, THE BYE - LAWS OF THE ASSESSEE SPECIFICALLY PROHIBITE ANY OTHER CO - OPERATIVE SOCIETY FROM BECOMING A MEMBER. COMING NOW TO THE FIRST CONDITION THAT A CO - OPERATIVE SOCIETY NEEDS TO SATISFY, AS PER THE PROVISIONS OF THE BANKING REGULATION ACT, 1949 IT IS SEEN THAT A CO - OPERATIVE BANK IS NOT DEBARRED FROM EXTENDING ITS BANKING FACILITIES TO THE GENERAL PUBLIC. IN OTHER WORDS A CO - OPERATIVE SOCIETY AS UNDE RSTOOD IN TERMS OF SECTION 80P(4) CAN ACCEPT DEPOSITS, MAKE LOANS AND CARRYING OUT ALL BANKING OPERATIONS EVEN IN RESPECT OF PERSONS WHO ARE NOT MEMBERS OF THE CO - OPERATIVE SOCIETY. THIS IS IN SHARP CONTRAST TO THE PROVISIONS OF SECTION 80P (2) WHERE THE B ENEFIT OF THE DEDUCTION CAN BE AVAILED ONLY BY A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THIS IS A CRUCIAL DISTINCTION THAT SETS APART A CO - OPERATIVE SOCIETY FROM A CO - OPERATIVE BANK. HOWEVER, IN THE ASSESSMENT ORDER U / S .143(3)/147 FOR A.Y. - 2010 - 11 DT. 30.03.2016, THE ITO, KENDRAPARA ITA NO. 133&134 /CTK/2019 8 WARD HAS NOT GIVEN ANY FINDING IN THIS REGARD AND HAS BASED HIS DECISION OF WHETHER THE CO - OPERATIVE SOCIETY IN QUESTION IS A CO - OPERATIVE BANK SOCIETY SOLELY ON T HE COMMENTS OF THE STATUTORY AUDITOR OF THE ASSESSEE. TO REPHRASE THE ABOVE ARGUMENT, THE FIRST CONDITION OF SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949 ENTAILS THE ASSESSEE TO BE ENGAGED IN THE BUSINESS OF BANKING. NOW, SECTION 5B OF THE BANKING RE GULATION ACT, 1949 DEFINES 'BANKING' TO MEAN ACCEPTING OF DEPOSITS, FOR THE PURPOSE OF LENDING OR INVESTMENT, FROM THE PUBLIC WHICH WILL BE REPAYABLE ON DEMAND OR OTHERWISE. IN OTHER WORDS, A CO - OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF 'BANKING' WOULD NOT DIFFERENTIATE BETWEEN MEMBERS AND NON - MEMBERS AND WOULD ACCEPT DEPOSITS FROM THE PUBLIC AT LARGE. IF WE EXAMINE THE BYE - LAWS OF THE ASSESSEE IT WILL BE SEEN THAT CLAUSE 5 SPECIFICALLY RESTRICTS THE SCOPE OF BANKING ACTIVITIES TO THE MEMBERS OF THE SOCI ETY. THE RELEVANT PORTION OF CLAUSE 5 OF THE BYE - LAWS IS REPRODUCED AS UNDER: '5. OBJECTIVES - (I) .... (II) TO ACCEPT FOLLOWING TYPES OF DEPOSITS OF MONEY FROM ITS MEMBERS REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL, WITHDRAWAL BY CHEQUE, DRAFT, ORDER OR OTHERWISE FOR THE PURPOSE OF LENDING OR INVESTMENT WITH PERMISSION OF COMPETENT AUTHORITY: 1. SAVINGS BANK DEPOSIT, 2. DAILY DEPOSITS (DDHANA SAMBRUDHI YOJANA, 3. TERM DEPOSITS, 4. CURRENT ACCOUNT DEPOSITS, 5. BIJU PATTNAIK BIKAS PATRA. (III) . ........... (IV) TO LEND OR TO ADVANCE MONEY WITH SECURITY TO MEMBERS. THEREFORE, IT IS EVIDENT THAT THE BYE - LAWS OF THE ASSESSEE CO - OPERATIVE SOCIETY DO NOT MAKE AN ALLOWANCE FOR EXTENDING BANKING FACILITIES TO NON - MEMBERS OR THE GENERAL PUBLIC. NEI THER IS THERE ANY FINDING IN THE ASSESSMENT ORDER U/S.L43(3 ) /147 FOR A.Y. - 2010 - 11 DT. 30.03.2016 TO THE EXTENT THAT THE ASSESSEE SOCIETY HAS BEEN ACCEPTING DEPOSITS OR LENDING MONEY FROM/TO THE PUBLIC AT LARGE. UNDER THESE CIRCUMSTANCES, THE AO'S ASSERTIO N THAT THE ASSESSEE CO - OPERATIVE SOCIETY IS ENGAGED IN THE BUSINESS OF BANKING IS PERVERSE AS IT IS NOT SUPPORTED BY ANY EVIDENCE. NOW, IN ORDER FOR A CO - OPERATIVE SOCIETY TO BE CALLED A PRIMARY CO - OPERATIVE BANK, ALL THE THREE CONDITIONS LAID DOWN IN CLA USE 5(CCV) OF THE BANKING REGULATION ACT, 1949 HAVE TO BE SATISFIED CUMULATIVELY. FAILURE TO MEET ANY ONE CONDITION WOULD IMPLY THAT THE CO - OPERATIVE SOCIETY IN QUESTION IS NOT A PRIMARY CO - OPERATIVE BANK. AS HAS BEEN ESTABLISHED IN THE PRECEDING PARAGRAPH S, THE ASSESSEE IS NOT ENGAGED IN THE BUSINESS OF 'BANKING' AS UNDERSTOOD WITHIN THE SCOPE OF THE BANKING REGULATION ACT, 1949. FURTHER, THE ASSESSEE DOES NOT POSSESS A BANKING LICENSE FROM THE RBI WHICH IS ESSENTIAL FOR AN ENTITY TO ENGAGE IN BANKING ACTI VITIES. HENCE, WITH THESE OBSERVATIONS, IT IS HELD THAT THE ASSESSEE. SOCIETY IS NOT A PRIMARY CO - OPERATIVE BANK AND THAT, THEREFORE, IT WOULD BE ELIGIBLE FOR THE DEDUCTIONS ENVISAGED U/S. 80P (2) OF THE I.T. ACT, 1961. ITA NO. 133&134 /CTK/2019 9 12 . FROM THE ABOVE DISCUSSION BY T HE CIT(A), IT IS ALSO PERTINENT TO MENTION HERE THAT THE ASSESSEE IS NOT CARRYING ON BANKING BUSINESS ACTIVITY BUT AS PER CLAUSE 5 SPECIFICALLY RESTRICTS THE SCOPE IN THE BANKING ACTIVITIES, THE MEMBERS OF THE SOCIETY AS NARRATED ABOVE. IT IS CLEAR THAT T HE ASSESSEE IS ACCEPTING DEPOSITS OF MONEY FROM ITS MEMBERS AND ADVANCING MONEY TO MEMBERS. IN VIEW OF THIS THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2) OF THE ACT . 13 . WE NOTICED FROM THE ORDER OF AO THAT THE AO, AT THE OUTSET, OF THE ORDER HAS MENTI ONED THAT THE ASSESSEE IS ENGAGED IN BANKING BUSINESS AND HAS DISALLOWED THE CLAIM OF THE ASSESSEE U/S.80P. FROM THE ABOVE ORDER OF THE CIT(A), IT IS CLEAR THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2) OF THE ACT AND NOT ENGAGED IN BANKING BUSINES S . BEFORE THE CIT(A) THE ASSESSEE HAD SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT AND THE CIT(A) HAS ALSO HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2) OF THE ACT . 14. THE PROVISION OF SECTION 80P(2) OF THE ACT, READS AS UNDER : - DEDUCTION IN RESPECT OF INCOME OF CO - OPERATIVE SOCIETIES. 80P. (2) THE SUMS REFERRED TO IN SUB - SECTION (1) SHALL BE THE FOLLOWING, NAMELY : ( A ) IN THE CASE OF A CO - OPERATIVE SOCIETY ENGAGED IN ( I ) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS, OR ( II ) A COTTAGE INDUSTRY, OR ( III ) THE MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS, OR ( IV ) THE PURCHASE OF AGRICULTURAL IMPLEMENTS, SEEDS, LIVESTOCK OR OTHER ARTICLES INTENDED FOR AGRIC ULTURE FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS, OR ITA NO. 133&134 /CTK/2019 10 ( V ) THE PROCESSING, WITHOUT THE AID OF POWER, OF THE AGRICULTURAL PRODUCE OF ITS MEMBERS, OR ( VI ) THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS, OR ( VII ) FISHING OR ALLIED ACTIVITIES, THAT IS TO SAY, THE CATCHING, CURING, PROCESSING, PRESERVING, STORING OR MARKETING OF FISH OR THE PURCHASE OF MATERIALS AND EQUIPMENT IN CONNECTION THEREWITH FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS, THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSIN ESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES : PROVIDED THAT IN THE CASE OF A CO - OPERATIVE SOCIETY FALLING UNDER SUB - CLAUSE ( VI ), OR SUB - CLAUSE ( VII ), THE RULES AND BYE - LAWS OF THE SOCIETY RESTRICT THE VOTING RIGHTS TO THE FOLLOWING CLASSES OF IT S MEMBERS, NAMELY: ( 1 ) THE INDIVIDUALS WHO CONTRIBUTE THEIR LABOUR OR, AS THE CASE MAY BE, CARRY ON THE FISHING OR ALLIED ACTIVITIES; ( 2 ) THE CO - OPERATIVE CREDIT SOCIETIES WHICH PROVIDE FINANCIAL ASSISTANCE TO THE SOCIETY; ( 3 ) THE STATE GOVERNMENT; ( B ) IN THE CASE OF A CO - OPERATIVE SOCIETY, BEING A PRIMARY SOCIETY ENGAGED IN SUPPLYING MILK, OILSEEDS, FRUITS OR VEGETABLES RAISED OR GROWN BY ITS MEMBERS TO ( I ) A FEDERAL CO - OPERATIVE SOCIETY, BEING A SOCIETY ENGAGED IN THE BUSINESS OF SUPPLYING MILK, O ILSEEDS, FRUITS, OR VEGETABLES, AS THE CASE MAY BE; OR ( II ) THE GOVERNMENT OR A LOCAL AUTHORITY; OR ( III ) A GOVERNMENT COMPANY AS DEFINED IN SECTION 617 OF THE COMPANIES ACT, 1956 (1 OF 1956), OR A CORPORATION ESTABLISHED BY OR UNDER A CENTRAL, STATE OR P ROVINCIAL ACT (BEING A COMPANY OR CORPORATION ENGAGED IN SUPPLYING MILK, OILSEEDS, FRUITS OR VEGETABLES, AS THE CASE MAY BE, TO THE PUBLIC), THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF SUCH BUSINESS; ( C ) IN THE CASE OF A CO - OPERATIVE SOCIETY ENGAGED I N ACTIVITIES OTHER THAN THOSE SPECIFIED IN CLAUSE ( A ) OR CLAUSE ( B ) (EITHER INDEPENDENTLY OF, OR IN ADDITION TO, ALL OR ANY OF THE ACTIVITIES SO SPECIFIED), SO MUCH OF ITS PROFITS AND GAINS ATTRIBUTABLE TO SUCH ACTIVITIES AS DOES NOT EXCEED, ( I ) WHERE SU CH CO - OPERATIVE SOCIETY IS A CONSUMERS' CO - OPERATIVE SOCIETY, ONE HUNDRED THOUSAND RUPEES; AND ( II ) IN ANY OTHER CASE, FIFTY THOUSAND RUPEES. EXPLANATION. IN THIS CLAUSE, 'CONSUMERS' CO - OPERATIVE SOCIETY' MEANS A SOCIETY FOR THE BENEFIT OF THE CONSUMERS; ( D ) IN RESPECT OF ANY INCOME BY WAY OF INTEREST OR DIVIDENDS DERIVED BY THE CO - OPERATIVE SOCIETY FROM ITS INVESTMENTS WITH ANY OTHER CO - OPERATIVE SOCIETY, THE WHOLE OF SUCH INCOME; ITA NO. 133&134 /CTK/2019 11 ( E ) IN RESPECT OF ANY INCOME DERIVED BY THE CO - OPERATIVE SOCIETY FROM THE LETTING OF GODOWNS OR WAREHOUSES FOR STORAGE, PROCESSING OR FACILITATING THE MARKETING OF COMMODITIES, THE WHOLE OF SUCH INCOME; ( F ) IN THE CASE OF A CO - OPERATIVE SOCIETY, NOT BEING A HOUSING SOCIETY OR AN URBAN CONSUMERS' SOCIETY OR A SOCIETY CARRYING O N TRANSPORT BUSINESS OR A SOCIETY ENGAGED IN THE PERFORMANCE OF ANY MANUFACTURING OPERATIONS WITH THE AID OF POWER, WHERE THE GROSS TOTAL INCOME DOES NOT EXCEED TWENTY THOUSAND RUPEES, THE AMOUNT OF ANY INCOME BY WAY OF INTEREST ON SECURITIES OR ANY INCOME FROM HOUSE PROPERTY CHARGEABLE UNDER SECTION 22 . EXPLANATION. FOR THE PURPOSES OF THIS SECTION, AN 'URBAN CONSUMERS' CO - OPERATIVE SOCIETY' MEANS A SOCIETY FOR THE BENEFIT OF THE CONSUMERS WITHIN THE LIMITS OF A MUNICIPAL CORPORATION, MUNICIPALITY, MUNICIPAL COMMITTEE, NOTIFIED AREA COMMITTEE, TOWN AREA OR CANTONMENT. 15. DURING THE COURSE OF ARGUMENTS, LD. AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION AS PER SECTION 80P(2)( A )(I) OF THE ACT. IN THE ABOVE SECTIONS, IF THE COOPERATIVE SOCIETY IS CARRYING BUSINESS OF BANKING OR PROVIDED CREDIT FACILITY TO ITS MEMBERS. 16. LD. CIT(A) HAS STATED IN HIS ORDER THAT THE ASSESSEE IS NOT ENGAGED IN B ANKING BUSINESS ACTIVITY WHICH HAS NOT BEEN AGITATED BY THE ASSESSEE BUT THE ASSESSEE IS PROVIDING CREDIT FACILITY TO ITS MEMBERS, THIS FACT HAS ALSO NOT BEEN CONTROVERTED BY THE LD. DR BEFORE US AS WELL AS BY THE REVENUE AUTHORITIES. PROVIDING CREDIT FACI LITIES HAS BEEN DECIDED BY THE VARIOUS FORUMS/COURTS IN THE FOLLOWING MANNER : - MEANINGS OF EXPRESSIONS 'FACILITIES' - THE EXPRESSION 'FACILITIES' USED IN THE PROVISION IS AN INCLUSIVE TERM OF WIDE IMPORT EMBRACING ANYTHING WHICH AIDS OR MAKES EASIER THE P ERFORMANCE OF A DUTY - ARTDHRA PRADESH CO - OP. CENTRAL LAND MORTGAGE BANK LTD V. CIT[L 975] 100 ITR 472 (AP). 'PROVIDING CREDIT FACILITIES' - THE EXPRESSION 'PROVIDING CREDIT FACILITIES' WOULD COMPREHEND NOT ONLY THE BUSINESS OF LENDING MONEY ON INTEREST B UT ALSO THE BUSINESS OF LENDING SERVICES FOR GUARANTEEING PAYMENTS - C/JV. U.P. CO - OP. CANE UNION FEDERATION LTD [1980] 122ITR913 (ALL.). ITA NO. 133&134 /CTK/2019 12 WHERE THE ASSESSEE - SOCIETY WAS ENGAGED IN THE BUSINESS OF PURCHASING AUTORICKSHAWS AND RESELLING THEM TO ITS MEMBERS ON HIRE - PURCHASE TERMS, THE SAID ACTIVITY COULD NOT BE TREATED AS PROVIDING 'CREDIT FACILITIES' TO ITS MEMBERS, UNDER SECTION 80P(2)(A)(F) OF THE ACT - MADRAS AUTO RICKSHAW DRIVERS' CO - OP. SOCIETY V. C/T[2001] 117 TAXMAN 370 (SC). THE FACILITY OF SELLING GOODS ON CREDIT TO MEMBERS IS AN ACTIVITY OF BUSINESS OF SELLING OF GOODS, OF WHICH THE CREDIT FACILITY IS ONLY AN INCIDENCE; IT WILL NOT AMOUNT TO PROVIDING CREDIT FACILITIES IN THE NATURE OF THE BUSINESS OF BANKING SO AS TO AMOUNT TO CARRYING ON THE BUSI NESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS CIT V. CO - OPERATIVE SUPPLY & COMMISSION SHOP LTD [1993] 204 ITR 713 (RAJ.). CONSIDERED IN THE CONTEXT AND COLLOCATION OF WORDS, THE WORDS 'PROVIDING CREDIT FACILITIES TO ITS MEMBERS' MEAN PROVI DING CREDIT BY WAY OF LOANS AND NOT SELLING GOODS ON CREDIT - KERALA CO - OP. CONSUMERS' FEDERATION LTD V. CIT[1988] 170 ITR 455 (KER.). INVESTMENT IN GOVERNMENT SECURITIES OF THE RESERVE FUND MADE BY CO - OPERATIVE SOCIETIES IN COMPLIANCE WITH STATUTORY DIRE CTIVES CANNOT BE TREATED AS INVESTMENT OF THE STOCK - IN - TRADE OR CIRCULATING CAPITAL. THE INCOME DERIVED FROM SUCH INVESTMENT CANNOT QUALIFY FOR DEDUCTION AS INCOME FROM BANKING ACTIVITY - MADHYA PRADESH CO - OP. BANK LTD. V. ADDL CIT '[1996] 84 TAXMAN 640 (SC ). [MATTER REFERRED TO LARGER BENCH : CIT V. KARNATAKA STATE CO - OPERATIVE APEX BANK [2001] 251 ITR 13 (SC)]. 'ATTRIBUTABLE TO' - THE EXPRESSION 'ATTRIBUTABLE TO' IS MUCH WIDER THAN THE EXPRESSION 'DERIVED FROM', AND IT SUGGESTS THAT THE LEGISLATURE INTEND ED TO COVER RECEIPTS FROM SOURCES OTHER THAN THE ACTUAL CONDUCT OF THE BUSINESS OF THE ASSESSEE - CIT V. CO - OP. CANE DEVELOPMENT UNION LTD. [1979] 118 ITR 770 (ALL.). WHEN SECTION 80P( 1 )(A)( I ) REFERS TO A CO - OPERATIVE SOCIETY ENGAGED IN PROVIDING CREDIT F ACILITIES TO ITS MEMBERS, IT REALLY REFERS TO A CREDIT SOCIETY WHOSE PRIMARY OBJECT IS TO PROVIDE LOANS OR OTHER CREDIT FACILITIES TO ITS MEMBERS; IT DOES NOT INCLUDE ANY SOCIETY WHOSE PRIMARY OBJECT IS SOMETHING OTHER THAN THE PROVISION OF LOANS OR OTHER CREDIT FACILITIES, SUCH AS A CONSUMER CO OPERATIVE SOCIETY - RODIER MILL EMPLOYEES' CO - OP. STORES LTD. V. CIT (SUPRA). BANKING BUSINESS CO - OPERATIVE SOCIETY WHICH IS A MEMBER OF A FEDERATED CO - OPERATIVE SOCIETY - IN SECTION 80P(2)(#)(Z), WHEN PARLIAMENT H AS USED THE WORD 'MEMBERS', IT HAS USED IT IN THE NORMAL SENSE OF A MEMBER OF A CO - OPERATIVE SOCIETY. THE INTENTION WAS TO EXTEND THE EXEMPTION TO CO - OPERATIVE SOCIETIES DIRECTLY EXTENDING CREDIT FACILITIES TO THEIR MEMBERS. THERE IS NOTHING IN THE SAID PR OVISION TO SHOW THAT THE INTENTION WAS TO GRANT EXEMPTION TO CO - OPERATIVE SOCIETIES WHICH WERE EXTENDING CREDIT FACILITIES TO PERSONS, WHO, THOUGH NOT MEMBERS OF THE SAID SOCIETY, WERE MEMBERS OF ANOTHER CO - OPERATIVE SOCIETY WHICH IS A MEMBER OF THE CO - ITA NO. 133&134 /CTK/2019 13 OPE RATIVE SOCIETY SEEKING EXEMPTION. THE MEANING OF THE EXPRESSION 'MEMBER' CANNOT THEREFORE BE EXTENDED TO INCLUDE THE MEMBERS OF A PRIMARY CO - OPERATIVE SOCIETY WHICH IS A MEMBER OF THE FEDERATED CO - OPERATIVE SOCIETY SEEKING EXEMPTION. THE PRINCIPLE OF LIFTI NG THE CORPORATE VEIL CANNOT HAVE ANY APPLICATION IN THE CONTEXT OF THE PROVISIONS CONTAINED IN SECTION 80P(2)(A)(Z) OF THE ACT - U.P. CO - OPERATIVE CANE UNION FEDERATION LTD V. CIT [1999] 103 TAXMAN 370 (SC). 17. IT IS CLEAR FROM THE ABOVE DISCUSSION THA T THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THE AO HAS DISALLOWED TWO ADDITIONS I.E. PROVISION FOR BAD & DOUBTFUL DEBTS AMOUNTING TO RS.10 LAKHS AND PROVISION FOR GRATUITY AMOUNTING TO RS.1,47,351/ - . THESE TWO ADDITIONS ARE RESULT ING TO ENHANCEMENT OF PROFIT OF THE ASSESSEE SOCIETY WHICH ARE SPECIFIC DISALLOWANCE S RELATED TO THE BUSINESS OF THE ASSESSEE. 18. THE CBDT HAS ISSUED CIRCULAR NO.37/2016, WHICH READS AS UNDER : - CIRCULAR NO. 37/2016 F.NO.279 /MISC/140/2015/ITJ GOVERNMEN T OF INDIA MINISTRY OF FINANCE, DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, DATED 2ND NOVEMBER 2016 SUBJECT: CHAPTER VI - A DEDUCTION ON ENHANCED PROFITS - REG . CHAPTER VI - A OF THE INCOME - TAX ACT, 1961 (THE ACT), PROVIDES FOR DEDUCTIO NS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE ASSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA) , 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWA NCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN INCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT - LINKED DEDUCTION UNDER CHAPTE R VI - A. 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON THE ENHANCED PROFITS HAS BEEN A CONTENTIOUS HOWEVER, THE COURTS HAVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI - A DEDUCTION HA S BEEN CLAIMED, THE DEDUCTION NEEDS TO BE ITA NO. 133&134 /CTK/2019 14 ALLOWED ON THE ENHANCED PROFITS. SOME ILLUSTRATIVE CASES UPHOLDING THIS VIEW ARE AS FOLLOWS: (I) IF AN EXPENDITURE INCURRED BY ASSESSEE FOR THE PURPOSE OF DEVELOPING A HOUSING PROJECT WAS NOT ALLOWABLE ON ACCOUNT O F NON - DEDUCT ION OF TDS UNDER LAW, SUCH DISALLOWANCE WOULD ULTIMATELY INCREASE ASSESSEES PROFITS FROM BUSINESS OF DEVELOPING HOUSING PROJECT. THE ULTIMATE PROFITS OF ASSESSEE AFTER ADJUSTING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT WOULD QUALIFY FO R DEDUCTION UNDER SECTION 80 - IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CASES: INCOME - TAX OFFICER WARD 5(1) KEVAL CONSTRUCTION, TAX APPEAL NO. 443 OF 2012, DECEMBER 10, 2012, GUJARAT HIGH COURT. (NJRS - 2012 - LL - 1210 - 45) COMMISSIONE R OF INCOME - TAX - IV, NAGPUR VS. SUNIL VISHWAMBHAMATH TIWARI, IT APPEAL NO. 2 OF 2011, SEPTEMBER 11, 2015, BOMBAY HIGH COURT.(NJRS - 2015 - LL - 0911 - 22) (II) IF DEDUCTION UNDER SECTION 40A(3) OF THE ACT IS NOT ALLOWED, THE SAME WOULD HAVE TO BE ADDED TO THE PROF ITS OF THE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80 - IB OF THE THIS VIEW WAS TAKEN BY THE COURT IN THE FOLLOWING CASE: PRINCIPAL CIT, KANPUR VS. SURYA MERCHANT S , I.T. APPEAL NO. 248 OF 2015, MAY 03, 2016, ALLAHAB AD HIGH COURT. (NJRS - 2016 - LL - 0503 - 77) THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUDGMENTS OF THE HIGH COURTS OF BOMBAY, GUJARAT AND ALLAHABAD HAVE BEEN ACCEPTED BY THE DEPARTMENT. 3. IN VIEW OF THE ABOVE, THE BOARD HAS ACCEPTED THE SETTLED POSITION THAT THE DISALLOWANCES MADE UNDER SECTIONS 32, 40(A)(IA), 40A(3) , 43B, ETC. OF THE ACT AND OTHER SPECIFIC DISALLOWANCES, RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI - A DEDUCTION HAS BEEN CLAIMED, RESULT IN ENHANCEMENT OF THE PROFITS OF T HE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI - A IS ADMISSIBLE ON THE PROFITS SO ENHANCED BY THE DISALLOWANCE. 4. ACCORDINGLY, HENCEFORTH, APPEALS MAY NOT BE FILED ON THIS GROUND BY OFFICERS OF THE DEPARTMENT AND APPEALS ALREADY FILED IN COURTS / TRIBUNALS MAY BE WITHDRAWN/ NOT PRESSED UPON. THE ABOVE MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. (K. VAMSI KRISHNA) ACIT (OSD) (ITJ) CBDT, NEW DELHI 19. FURTHER, THE CIRCULAR ISSUED ON 02.11.2016, WHEREAS THE CASE OF THE ASSESSEE IS PERTAINING TO A.Y.2009 - 2010 & 2010 - 2011. THE CIRCULAR ITA NO. 133&134 /CTK/2019 15 IS CLARIFICATORY IN NATURE. THEREFORE, IT WOULD BE PRESUMED THAT THE BENEFIT OF CIRCULAR WILL APPLY TO THE ASSESSEE. IT IS ALSO CLEAR THAT THE ADDITIONS MADE BY THE AO IS COVERED BY THIS CIRCULAR. THE ABOVE MENTIONE D ADDITIONS ARE ELIGIBLE FOR DEDUCTION UNDER CHAPTER - VIA AND UNDER SECTION 80P OF THE ACT. IN SUPPORT OF OUR ABOVE VIEW, WE ALSO RELY ON THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF OZONE PHARMACEUTICAL LTD., ITA NOS.2935 - 2937/DEL/20 15, ORDER DATED 15.04.2019, WHEREIN THE ASSESSEE HAS GOT DEDUCTION UNDER CHAPTER VIA IF THE PROFIT FROM BUSINESS HAS BEEN INCREASED BY THE AO BY MAKING CERTAIN DISALLOWANCE. ACCORDINGLY, WE ALLOW THE APPEAL OF THE ASSESSEE. 20. SINCE, THE GROUNDS TAKEN BY THE ASSESSEE IN APPEAL FOR THE ASSESSMENT YEAR 2010 - 2011 IN ITA NO.134/CTK/2019 ARE SAME TO THE APPEAL DECIDED BY US FOR ASSESSMENT YEAR 2009 - 2010 IN ITA NO.133/CTK/2019 , THEREFORE, OUR VIEW MADE IN THE ABOVE APPEAL SHALL BE APPLIED MUTATIS MUTANDIS TO THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 20 10 - 201 1 . THUS, ITA NO.134/CTK/2019 IS ALLOWED. 21. IN THE RESULT, BOTH APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 / 0 8 / 20 20 . SD/ - ( C.M.GARG ) SD/ - ( L.P.SAHU) / JUDICIAL MEMBER / ACCOUNTANT MEMBER CUTTACK ; DATED 14 / 0 8 /20 20 PRAKASH KUMAR MISHRA, SR.P.S. ITA NO. 133&134 /CTK/2019 16 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , /ITAT, CUTTACK 1. / THE APPELLANT - KENDRAPARA CRE DIT CO - OPERATIVE SOCIETY LTD., AT: NEW BUS STAND, PO: KENDRAPARA, DIST : KENDRAPARA - 754211 2. / THE RESPONDENT - ITO KENDRAPARA WARD, KENDRAPARA 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. / GUARD FILE. //TRUE COPY//