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

ITA 135/CTK/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6443 (ITAT-CUTTACK)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 14-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Competent authority; Tax effect; TDS; Set aside
• Section: 43B; 40A(3); 143(3); 40(a)(ia); 80P; 201; 251; 13; 22; 56

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 . 13 5 /CTK/20 1 9 ( / ASSESSMENT YEAR : 20 13 - 20 1 4 ) KENDRAPARA CREDIT CO - OPERATIVE SOCIETY LTD., AT: NEW BUS STAND, PO: KENDRAPARA, DIST : KENDRAPARA - 754211 VS. ITO KENDRAPARA WARD, KENDRAPARA PAN NO. : A ABAK 6558 P AND . / ITA NO. 162 /CTK/201 9 ( / ASSESSMENT YEAR : 201 4 - 201 5 ) KENDRAPARA CREDIT CO - OPERATIVE SOCIE TY LTD., AT: NEW BUS STAND, PO: KENDRAPARA, DIST : KENDRAPARA - 754211 VS. PR.CIT, CUTTACK PAN NO. : AABAK 6558 P AND . / ITA NO S . 206 /CTK/201 9 ( / ASSESSMENT YEAR : 2013 - 2014 ) ITO KENDRAPARA WARD, KENDRAPARA VS. KENDRAPARA CREDIT CO - OPERATIVE SOCIETY LTD., AT: NEW BUS STAND, PO: KENDRAPARA, DIST : KENDRAPARA - 754211 PAN NO. : AABAK 6558 P ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI D.PARIDA & C.PARIDA, AR /REVENUE B Y : SHRI M.K.GAUTAM, CIT - DR / DATE OF HEARING : 09 / 0 9 /20 20 / DATE OF PRONOUNCEMENT : 11 / 0 9 /20 20 / O R D E R PER L.P.SAHU , A M : THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE ARE AGAINST THE ORDER OF CIT(A), CUTTACK, DATED 25.03.2019 FOR THE ASSESSMENT YEAR ITA NO S . 13 5, 206 & 162 /CTK/2019 2 2013 - 2014 AND ANOTHER APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER PASSED BY THE PR.CIT, CUTTACK, DATED 30.03.2019 FOR THE ASSESSMENT YEAR 2014 - 2015. 2. AT THE OUTSET, LD. AR DREW O UR ATTENTION TO AN APPLICATION OF THE ASSESSEE DATED 08.09.2020, WHEREIN THE HE HAS REQUESTED TO WITHDRAW THE APPEAL FOR THE ASSESSMENT YEAR 2014 - 2015 WHICH HAS BEEN FILED AGAINST THE ORDER PASSED BY THE PR.CIT, CUTTACK. ACCORDINGLY, WE ALLOW THE APPLICATION OF THE ASSESSE E AND DISMISS THE APPEAL OF THE ASSESSEE FILED FOR THE ASSESSMENT YEAR 2014 - 2015 IN ITA NO.162/CTK/2019 AS WITHDRAWN. 3. NOW, WE SHALL DECIDE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE. 4 . SINCE THE ISSUE INVOLVED IN BOTH THE APPEALS ARE IDENTICAL , THEREFORE, FOR THE SAKE OF BREVITY, BOTH THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY THIS CONSOLIDATED ORDER. 5 . GROUNDS RAISED BY THE ASSESSEE IN ITS APPEAL FOR A.Y.20 13 - 201 4 READ AS UNDER : - 1. THAT THE ORDER PASSED BY THE LEARNED CIT(A] IS A RBITRARY, 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 AND PROVISION FOR INTEREST AMOUNTING TO RS. 1,36,00,000 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 IN LAW AND ON FACTS OF THE CASE BY DISALLOWING THE PROVISION FOR GRATUITY AMOUNTING TO RS. 1, 36 , 824 TO WHICH THE LD. CIT(APPEALS) HAS WRONGLY ITA NO S . 13 5, 206 & 162 /CTK/2019 3 CONFIRMED THE SAME ADDITION AND WITHOUT CONSIDERING THE FACT THAT THE PROVISIONS ARE MADE AS PER THE STATUTE. 4. THAT THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AND ON FACTS OF THE CA SE BY DISALLOWING THE PROVISION FOR BUILDING FUND AMOUNTING TO RS.30,00,000 TO WHICH THE CIT(APPEALS) HAS WRONGLY CONFIRMED THE SAME AND WITHOUT CONSIDERING THE FACT THAT THE PROVISIONS ARE MADE AS PER THE STATUTE. 4. THAT THE LD. CIT ( APPEALS) HAS CONFI RMED 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 MO DIFY ANY OF THE GROUNDS AT THE TIME OF HEARING OF THE MATTER WITH THE LEAVE OF THE HON'BLE ITAT. 6 . GROUNDS RAISED BY THE REVENUE IN ITS APPEAL I.E. ITA NO.206/CTK/2019 READ AS UNDER : - GROUND NO. 1 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE ASSESSEE - SOCIETY IS A 'COOPERATIVE SOCIETY', WHEREAS, IN REALITY, IT IS A 'PRIMARY COOPERATIVE BANK' WITHIN THE MEANING OF SECTION 80P(4) OF THE IT. ACT READ WITH SECTION 56(CCI) AND SECTION 56(CCV) OF THE B ANKING REGULATION ACT, 1949 & THEREFORE, ITS INCOME IS LIABLE TO TAX. GROUND NO. 2: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THAT THE ASSESSEE - SOCIETY DOES NOT SATISFY ALL THE CONDITIONS OF DEFINITION OF A 'CO - OPERATIVE BANK' GIVEN IN PART - V OF THE BANKING REGULATION ACT, 1949, IGNORING CLAUSE - 9 OF THE BYE - LAWS OF THE ASSESSEE - SOCIETY. (ENCLOSED HEREWITH AS ANNEXURE - 1) GROUND NO. 3 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(APPEALS) HAS ERRED IN GRANTING DEDUCTION U/S 80P(2)(A)(I) TO THE ASSESSEE, WHICH IS AVAILABLE ONLY TO 'CO - OPERATIVE SOCIETY', BUT NOT TO A 'CO - OPERATIVE BANK', WITHOUT CONSIDERING THE PROVISIONS OF SECTION 80P(4) INSERTED BY THE FINANCE ACT, 2006 W.E.F. 01.04.2007 I.E. FROM A.Y. 2007 - 08 ONWARDS AND IN CLEAR DISREGARD TO THE HON'BLE SUPREME COURT'S DECISION IN THE CASE OF THE CITIZEN CO - OPERATIVE SOCIETY LTD V. ACIT [2017] 397 ITR 1 (SC), WHOSE FACTS WERE MORE OR LESS SIMILAR TO THAT OF THE ASSESSEE. GROUND NO.4 : ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER MAY BE RESTORED. GROUND NO. 5 : THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND ONE OR MORE GROUNDS OF APPEAL BEFO RE THE APPEAL IS HEARD. ITA NO S . 13 5, 206 & 162 /CTK/2019 4 7 . 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 DER IVES INCOME FROM DOING BUSINESS OF BANKING OPERATING IN THE DISTRICT OF KENDRAPARA, JAGATSINGHPUR, JAJPUR AND CUTTACK. THE ASSESSEE FILED ITS RETURN OF INCOME FOR A.Y.2013 - 2014 ON 03.02.2015 SHOWING TOTAL INCOME AT RS.NIL. THEREAFTER CASE OF THE ASSESSEE W AS SELECTED FOR SCRUTINY AND STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE. ON PERUSAL OF THE RETURN OF INCOME, THE AO FOUND THAT THE ASSESSEE GOT ITS ACCOUNTS AUDITED ON 25.12.2014 AND HAS SHOWN GROSS RECEIPTS OF RS.9,27,34,960/ - . AFTER DEBITING EXPENSES UNDER VARIOUS HEADS ARRIVED AT NET PROFIT OF RS.25,52,940/ - . BUT IN PART - B TI, AFTER CLAIMING DEDUCTION UNDER CHAPTER VI - A OF RS.25,52,940/ - , TOTAL INCOME HAS BEEN SHOWN AT RS.NIL. ON FURTHER VERIFICATION OF BOOKS OF ACCOUNTS OF THE ASSESSEE, THE AO FOUND THAT NO BAD DEBT LOAN HAS BEEN WRITTEN OFF DURING THE YEAR, THEREFORE, THE AO DISALLOWED RS.1,36,00,000/ - CLAIMED BY THE ASSESSEE AS PROVISIONS FOR BAD DEBT LOAN AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER THE AO ADDED RS.1,36,824/ - AND RS.30,00,000/ - ON ACCOUNT OF PROVISION FOR GRATUITY AND PROVISION FOR BUILDING FUND. LASTLY, THE AO ON GOING THROUGH THE STATUTORY AUDIT REPORT, BOOKS OF ACCOUNTS, BYELAW S OF THE SOCIETY AND THE MEANING ASSIGNED IN PART V OF THE BANKING REGULATION ACT, 19 49 AS REFERRED TO IN ITA NO S . 13 5, 206 & 162 /CTK/2019 5 SUB - SECTION (4) OF SECTION 80P OF THE ACT AND NATURE OF BUSINESS OF THE ASSESSEE, HELD THAT THE ASSESSEE SOCIETY IS NOT ELIGIBLE FOR DEDUCTION U/S.80P (2) OF THE ACT. 8 . AGGRIEVED FROM THE ABOVE ORDER OF ASSESSING OFFICER, THE ASSESSEE APPEALED BEFORE THE CIT(A) AND THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FINDINGS OF AO, ALLOWED THE LEGAL GROUNDS OF ASSESSEE HOLDING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTIONS ENVISAGED U/S.80P(2) OF THE ACT. FURTHER THE CIT(A) U PHELD THE ADDITIONS MADE BY THE AO ON MERITS. 9 . AGAINST THE ADDITIONS CONFIRMED BY THE CIT(A), THE ASSESSEE IS IN APPEAL, WHEREAS THE REVENUE HAS COME IN APPEAL BEFORE THE INCOME TAX APPELLATE TRIBUNAL AGAINST THE LEGAL GROUND ALLOWED BY THE CIT(A) HOLD ING THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTIONS U/S.80P(2) OF THE ACT. 10 . AT THE OUTSET, LD. AR FILED PAPER BOOK AND RELIED ON THE ORDER OF COORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009 - 2010 & 2010 - 2011 PASSED IN ITA N OS.133&134/CTK/2019, VIDE ORDER DATED 14.08.2020. LD.AR ALSO RELIED ON THE ORDER OF SMC BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2014 - 2015 PASSED IN ITA NO.35/CTK/2020 VIDE ORDER DATED 14.02.2020 AND SUBMITTED THAT THE PRESENT C ASE OF THE ASSESSEE IS SQUARELY COVERED BY THE ABOVE DECISIONS OF THE TRIBUNAL, THEREFORE, ITA NO S . 13 5, 206 & 162 /CTK/2019 6 APPEAL OF THE ASSESSEE DESERVES TO BE ALLOWED. HE FURTHER STATED THAT ON THE ALLOWABILITY OF DEDUCTION U/S.80P(2) OF THE ACT ALLOWED BY THE CIT(A) IN THE LAST YEAR W ERE ACCEPTED BY THE REVENUE BUT IN THE IMPUGNED YEAR THE REVENUE IS IN APPEAL IN THIS REGARD. 11 . LD. DR, ON THE OTHER HAND, RELIED ON THE ORDERS OF ASSESSING OFFICER IN RESPECT OF NON - ALLOWABILITY OF DEDUCTION U/S.80P(2) OF THE ACT. HE ALSO RELIED ON THE FACTS OF CASE SUBMITTED ALONG WITH FORM NO.36 WHICH READS AS UNDER : - THE ASSESSEE - SOCIETY IS ENGAGED IN THE BUSINESS OF BANKING IN THE DISTRICTS OF KENDRAPARA, JAGATSINGHPUR, JAJPUR, CUTTACK IN ODISHA. THE RETURN OF INCOME FOR THE A.Y. 2013 - 14 WAS FILED O N 03.02.2015 DISCLOSING TOTAL INCOME AT NIL BY VIRTUE OF CLAIM OF DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT, 1961 (HEREINAFTER REFERRED AS 'THE ACT'). 2. REGULAR ASSESSMENT IN THE CASE OF THE ASSESSEE - SOCIETY WAS COMPLETED U/S 143(3) OF THE ACT ON 31.03.2016 DETERMINING TOTAL INCOME AT RS.1,92,89,760/ - AS THE ASSESSEE - SOCIETY WAS DENIED DEDUCTION U/S 80P(2)(A)(I) OF THE ACT & BY ADDING THE FOLLOWING ITEMS TO THE PROFIT DISCLOSED AT RS.25,52.940/ - FOR THE YEAR UNDER CONSIDERATION. (A)PROVISIONS FOR BAD DEBT - RS. 1,36,00,000/ - (B)PROVISION FOR GRATU ITY FUND - RS. 1,36,824/ - (C)PROVISION FOR BUILDING FUND - RS. 30,00,000/ - 3. THE ASSESSEE - SOCIETY, BEING AGGRIEVED WITH THE ABOVE ORDER OF THE ASSESSI NG OFFICER (HEREINAFTER REFERRED AS 'THE AO'), CHALLENGED THE SAID ORDER BEFORE THE CIT(A) VIDE ITA NO.0166/2016 - 17. THE CIT(A) IN HIS ORDER DATED 25.03.2019, UPHELD THE ADDITIONS MADE BY THE AO ON THE ABOVE COUNTS, BUT AT THE SAME TIME, HE HAS HELD THAT T HE ASSESSEE - SOCIETY IS ELIGIBLE FOR CLAIM OF DEDUCTION U/S 80P(2)(A)(I) OF THE ACT, WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE IN A FAIR AND JUDICIOUS MANNER. THE CIT(A) HAS BASED HIS DECISION UPON THE FACT THAT THE ASSESSEE - SOCIETY DOES NOT FULFIL ALL THE FOLLOWING THREE CONDITIONS OF THE PROVISIONS OF SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949, WHEREIN IT IS ENSHRINED THAT A 'PRIMARY CO - OPERATIVE BANK' MEANS A 'CO OPERATIVE SOCIETY' FULFILLING THE SAID THREE CONDITIONS CUMULATIVE LY, NAMELY : - (I) THE PRIMARY OBJECT OF PRINCIPAL BUSINESS OF THE CO - OPERATIVE SOCIETY IS THE TRANSACTION OF BANKING BUSINESS; ITA NO S . 13 5, 206 & 162 /CTK/2019 7 (II) THE PAID UP CAPITAL AND RESERVES OF THE CO - OPERATIVE SOCIETY ARE NOT LESS THAN ONE LAKH OF RUPEES; AND (III) T HE BYE - LAWS OF THE CO - OPERATIVE SOCIETY DO NOT PERMIT ADMISSION OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER. 4. THUS, THE ONLY ISSUE IN THIS APPEAL IS TO DECIDE WHETHER THE ASSESSEE IS A 'COOPERATIVE SOCIETY' OR A 'COOPERATIVE BANK'. THE CIT(A)'S DECISION TO THE EFFECT THAT THE ASSESSEE - SOCIETY IS NOT A 'COOPERATIVE BANK' IS DEVOID OF MERIT AND IS NOT LEGALLY SUSTAINABLE FOR THE REASONS AS DISCUSSED IN THE FOLLOWING PARAGRAPHS. 5. A CO - OPERATIVE SOCIETY IS OTHERWISE TAXABLE ENTITY UNDER THE IT. ACT, 1961. A COOPERATIVE SOCIETY IS TREATED AS AN ASSOCIATION OF PERSONS (AOP), WHICH IS INCLUDED IN THE DEFINITION OF 'PERSON' GIVEN AT SECTION 2(31) OF THE IT ACT. IN THIS INSTANT CASE, THE ASSESSEE IS A CO - OPERATIVE SOCIETY, HAVING THE FOLLOWING OB JECTIVES AS PER ITS BYE - LAWS APPROVED BY REGISTRAR OF COOPERATIVE SOCIETIES ON 19.08.2000. OBJECTIVES: - I) TO ENCOURAGE THRIFT, SELF - HELP AND CO - OPERATION AMONG MEMBERS. II) TO ACCEPT FOLLOWING TYPES OF DEPOSITS OF MONEY FROM ITS MEMBERS REPAYA BLE ON DEMAND OR OTHERWISE AND WITHDRAWAL, WITHDRAWABLE BY CHEQUE, DRAFT, ORDER OR OTHERWISE FOR THE PURPOSE OF LENDING OR INVESTMENT WITH PERMISSION OF COMPETENT AUTHORITY SAVINGS BANK DEPOSIT, DAILY DEPOSITS (DHANA SAMBRUDI < YOJANA) TERM DEPOSITS , CURRENT ACCOUNTS DEPOSITS BIJU PATTNAIK BIKASH PATRA. HI) TO BORROW OR RAISE MONEY IV) TO LEND OR TO ADVANCE MONEY WITH SECUR ITY TO MEMBERS AS PER SUBSIDIARY RULES TO BE APPROVED BY TH E D.R.C.S., CUTTACK. V) TO ACQUIRE TO CONSTRUCT TO MAINTAIN AND T ) ALTER ANY BUILDING OR WORKS NECESSARY OR CONVENIENT FOR THE PURPOSE OF THE SOCIETY. 6. IN ITS RETURN OF INCOME, THE ASSESSEE HAD CHIMED THAT ITS ENTIRE INCOME IS DEDUCTIBLE U/S 80P(2)(A)(I) OF THE IT ACT OR THE GROUND THAT IT IS A 'COOPERAT IVE SOCIETY' ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE SECTION 80P(2)(A)(I) STIPULATES AS UNDER: - '80P. (1) WHERE, IN THE CASE OF AN ASSESSEE BEING A CO - OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLU DES ANY INCOME REFERRED TO IN SUB - SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORDANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB SECTION (2), IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. (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) ITA NO S . 13 5, 206 & 162 /CTK/2019 8 2. (III).. (IV) (VI) (VII) THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES : 7. FROM THE ABOVE, IT IS EVIDENT THAT A COOPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS IS ELIGIBLE TO GET DEDUCTION OF THE WHOLE OF ITS INCOME FROM BUSINESS ATTRIBUTABLE TO SUCH ACTIVITIES. HOWEVER, SECTION 80P(2)(A)(I) IS SUBJECT TO THE PROVISIONS OF SECTION 80P(4), WHICH HAS BEEN INSERTED BY THE FINANCE ACT, 2006 WITH EFFECT FROM 01.04.200 7, I.E. FROM A.Y. 2007 - 08 ONWARDS. THE SAID SECTION 80P(4) READS AS UNDER - SEC 80P(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 AG RICULTURAL 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 A CTIVITIES.] 8. FROM THE READING OF THE ABOVE, IT IS CLEAR THAT THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) WOULD NOT BE AVAILABLE WITH EFFECT FROM ASSESSMENT YEAR 2007 - 08 ONWARDS TO ANY 'CO - OPERATIVE BANK' OTHER THAN A 'PRIMARY AGRICULTURAL CREDIT SOCIETY' O R A 'PRIMARY COOPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK'. EXPLANATION TO SECTION 80P(4) PROVIDES THAT FOR THE PURPOSE OF THAT SECTION 'COOPERATIVE BANK' AND 'PRIMARY AGRICULTURAL CREDIT SOCIETY'(PACS) SHALL HAVE THE MEANING ASSIGNED TO IT IN PART V OF THE BANKING REGULATION ACT, 1949. SECTION 56(CCI) OF PART V OF BANKING REGULATION ACT, 1949, DEFINES 'COOPERATIVE BANK' AS UNDER: 'CO - OPERATIVE BANK' MEANS A STATE CO - OPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK. 9. SIMILARLY SECTION 56(CCV) APPEARING UNDER PART V OF THE BANKING REGULATION ACT, 1949 DEFINES 'PRIMARY CO - OPERATIVE BANK' AS UNDER: SECTION 56 (CCV) READS AS UNDE R - 'PRIMARY CO - OPERATIVE BANK' MEANS A CO - OPERATIVE SOCIETY, OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY, - (I) THE PRIMARY OBJECTS OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKING BUSINESS; (II) THE PAID - UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN 1 LAKH OF RUPEE; AND (HI) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSI ON OF ANY OTHER CO - OPERATIVE SOCIETY AS A MEMBER: PROVIDED THAT THIS SUB - CLAUSE SHALL NOT APPLY TO THE ADMISSION OF A CO - OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO - OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO - OPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE ; ITA NO S . 13 5, 206 & 162 /CTK/2019 9 10. EXPLANATION (B) TO SECTION 80P(4) DEFINES 'PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK' AS UNDER: EXPLANATION (B): 'PRIMARY CO - OPERATIVE AGRICULTURAL AND RURAL DEVELOP MENT 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. 11. AFTER HAVING REPRODUCED THE DEFINITION OF VARIOUS TER MS USED IN SECTION 80P(2)(A)(I) & SECTION 80P(4) OF THE IT. ACT AND SECTION 56 OF THE BANKING REGULATION ACT, 1949, IT IS WORTHWHILE TO EXAMINE THE CLAIM OF DEDUCTION OF ASSESSEE - SOCIETY U/S 80P(2)(A)(I) ON THE GROUND THAT IT IS PURELY A 'COOPERATIVE SOCIE TY' ENGAGED IN CARRYING ON THE BUSINESS OF BANKING AND OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS, BUT NOT A 'COOPERATIVE BANK'. 12. ON EXAMINATION OF THE ABOVE CLAIM OF THE ASSESSEE WITH REFERENCE TO PROVISIONS OF THE INCOME TAX ACT, 1961 AND BANKI NG REGULATION ACT, 1949, IT IS FOUND THAT THE ASSESSEE ITSELF ADMITS THAT IT IS A 'CO - OPERATIVE SOCIETY' ENGAGED IN 'CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS'. IN THAT VIEW OF THE MATTER, IT FITS INTO THE DEFINITION OF A 'CO - OPERATIVE BANK' AS DEFINED IN PART V OF THE BANKING REGULATION ACT, 1949. TO BE SPECIFIC, IT IS A 'PRIMARY CO - OPERATIVE BANK' WHICH IS ONE OF THE CATEGORIES OF 'COOPERATIVE BANKS' DEFINED IN SECTION 56(CCI) OF PART - V OF THE BANKING REGULATION A CT. THE SAID PROVISION READS AS UNDER: 'CO - OPERATIVE BANK' MEANS A STATE CO - OPERATIVE BANK, A CENTRAL CO - OPERATIVE BANK AND A PRIMARY CO - OPERATIVE BANK. 13. AS MENTIONED EARLIER, SECTION 56(CCV) OF PART - V OF THE BANKING REGULATION ACT DEFINES A 'PRIM ARY COOPERATIVE BANK' AS UNDER: SECTION 56(CCV) READS AS UNDER: - 'PRIMARY CO - OPERATIVE BANK' MEANS A CO - OPERATIVE SOCIETY, OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY, - (I) THE PRIMARY OBJECTS OR PRINCIPAL BUSINESS OF WHICH IS THE TRANSACTION OF BANKI NG BUSINESS; (II) THE PAID - UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN HAKH OF RUPEE; AND (HI) THE BYE - LAWS OF WHICH DO NOT PERMIT ADMISSION OF ANY OTHER COOPERATIVE SOCIETY AS A MEMBER: PROVIDED THAT THIS SUB - CLAUSE SHALL NOT APPLY TO THE ADMISSION OF A CO - OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO OPERATIVE BANK SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO OPERATIVE SOCIETY OUT OF FUNDS PROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE'; 14. THE ASSESSEE - SOCIETY CLEARLY FITS INTO THE ABOVE DEFINITION OF 'PRIMARY CO - OPERATIVE BANK' AS ITS PRINCIPAL BUSINESS IS TO ENGAGE IN BANKING BUSINESS. MOREOVER, THE PAID UP SHARE CAPITAL OF THE ASSESSEE SOCIETY AS ON 31.03.2014 WAS RS. 4,96,68,570/ - , WHICH IS MORE THAN RS. 1,00,000/ - . THIR DLY, CLAUSE 9(AT PAGE 4 TO 6) OF THE ASSESSEE - SOCIETY'S BYE - LAWS DO NOT PERMIT ADMISSION OF ANY OTHER COOPERATIVE SOCIETY AS ITS MEMBER. THUS ALL THE 3 CONDITIONS ATTACHED TO THE DEFINITION OF 'PRIMARY COOPERATIVE BANK' ARE FULFILLED BY THE ASSESSEE SOCIET Y. 15. OF COURSE, CLAUSE 9 (PAGE 5) OF THE BYE - LAWS DOES PERMIT THE ORISSA STATE COOPERATIVE BANK LTD. AND CUTTACK CENTRAL COOPERATIVE BANK LIMITED TO BECOME MEMBERS OF THE ASSESSEE SOCIETY, BUT NEITHER OF ITA NO S . 13 5, 206 & 162 /CTK/2019 10 THEM IS A 'CO - OPERATIVE SOCIETY'. HOWEVER, THE SAME IS ALLOWED IN VIEW OF PROVISO TO SUB CLAUSE (3) OF CLAUSE (CCV) OF SECTION 56 TO PART V OF THE BANKING REGULATION ACT, 1949. HENCE, THE ASSESSEE IS A 'PRIMARY COOPERATIVE BANK' AND THUS, ALSO BECOMES A 'COOPERATIVE BANK', AS DEFINED IN SECTION 56(CCI ) OF PART - V OF THE BANKING REGULATION ACT, 1949. 16. ALTHOUGH A FEW COOPERATIVE SOCIETIES SUCH AS FARMERS DEVELOPMENT COOPERATIVE LIMITED AND REGULATED MARKETING COOPERATIVE SOCIETIES ARE APPEARING AS MEMBERS, IT IS FOUND THAT THEY HAVE BEEN ADMITTED AS MEMBERS IN VIOLATION OF CLAUSE 9 OF THE BYE - LAWS (ANNEXED HEREWITH AS ANNEXURE - 1) OF THE ASSESSEE SOCIETY. CLAUSE 9 OF THE BYE - LAWS DEALS WITH THE MEMBERSHIP CRITERIA OF THE SOCIETY. 9. MEMBERS : A) AN INDIVIDUAL MAY ADMITTED AS A MEMBER OF HE IS AN ADU LT, COMPETENT TO CONTRACT AND RESIDES WITHIN THE AREAS OF OPERATION OF THE SOCIETY AS SPECIFIED IN THE BYE - LAWS AND THE STATE OR CENTRA/ GOVERNMENT, OR BOTH SUCH GOVT, AS THE CASE MAY BE PROVIDED; FURTHER THAT NOT MORE THAN 3 INDIVIDUALS FROM THE SAME FAMI LY SHALL BE ACCEPTED AS MEMBER. I) THE SOCIETY SHALL NOT WITHOUT SUFFICIENT CAUSE, REFUSE ADMISSION AS A MEMBER TO ANY PERSON WHO IS DULY QUALIFIED THEREOF AND THE DECISION REFUSING ADMISSION SHALL BE COMMUNICATED BY THE SOCIETY TO THE PERSON CONCERNED WIT H REASONS FOR SUCH REFUSAL WITHIN 90 DAYS FROM THE DATE OF THE APPLICATION FOR MEMBERSHIP FAILING WHICH SUCH PERSON SHALL BE DEEMED TO HAVE ADMITTED AS A MEMBER OF THE SOCIETY WITH EFFECT FROM THE DATE FOLLOWING THE EXPIRATION OF THE SAID PERIOD OF THIRTY DAYS. WHERE A PERSON IS DEEMED TO HAVE BEEN ADMITTED AS A MEMBER OF A SOCIETY AND THE SOCIETY MAY FILE AN APPLICATION BEFORE THE REGISTRAR WITHIN SIXTY DAYS FROM THE DATE WITH EFFECT FROM WHICH SUCH PERSON IS DEEMED TO HAVE BEEN ADMITTED AS A MEMBER FOR CA NCELLATION OF MEMBERSHIP, WHEREUPON THE REGISTRAR SHALL AFTER MAKING SUCH ENQUIRY AS HE DEEMS FIT, PASS SUCH ORDER AS THE THINKS PROPER, B) ANY OTHER PERSON AS DEFINED UNDER BYE - LAWS 4(IV) HAVING ITS REGISTERED OFFICE WITHIN THE AREA OF OPERATION OF THE SO CIETY AND CONDUCTING BUSINESS WITH SUCH AREA MAY BE ADMITTED AS A MEMBER PROVIDED THAT. I) THE INDIVIDUAL IS NOT OF UNSOUND MIND, DEAF - MUTE OR NOT SUFFERING FROM LEPROSY. II) HAS MAY FAILED TO PAY ANY AMOUNT DUE, WHETHER IN CASH OR KIND TO THE SOCIETY ITS FINANCING BANK OR ANY OTHER SOCIETY ON ACCOUNT OF ANY LOAN OR OTHERWISE WITHIN THREE MONTHS FROM THE DATE OF NOTICE BY THE SOCIETY, OR THE FINANCING BANK CONCERNED FOR PAYMENT OF SUCH DUES. III)THE INDIVIDUAL OR ANY PARTNER OF A PARTNERSHIP FIRM IS NOT CON VICTED OF ANY CRIMINAL OFFENCE INVOLVING MORAL TURPITUDE. IV)THE INDIVIDUAL OR THE PERSON IS NOT ENGAGED IN A BUSINESS COMPETING WITH OR CONFLICTING WITH THE BUSINESS CARRIED BY THE SOCIETY. V) THE INDIVIDUAL IS NOT AN EMPLOYEE OF THE SOCIETY. VI) THE INDI VIDUAL OR THE PERSON HAS SUBSCRIBED TO ANY FULLY PAID FOR AT LEAST ONE SHARE OF THE SOCIETY AND HIS APPLICATION HAS BEEN DULY APPROVED BY THE COMMITTEE OF MANAGEMENT. C) THE GOVERNMENT OF ORISSA. D) THE ORISSA STATE CO - OPERATIVE BANK LIMITED. E) CUTT ACK CENTRAL CO - OPERATIVE BANK LIMITED. ITA NO S . 13 5, 206 & 162 /CTK/2019 11 NO RIGHT OF MEMBERSHIP SHALL BE EXERCISABLE UNTIL A PERSON HAS MADE SUCH PAYMENTS TO THE SOCIETY IN RESPECT OF MEMBERSHIP OR ACQUIRED SUCH INTEREST IN THE SOCIETY AS MAY BE PRESCRIBED BY THE ACT OF RULES OR THE BYE - LA WS. 20. FROM A READING OF THE ABOVE, IT IS EVIDENT THAT THERE ARE ONLY 5 CATEGORIES OF ELIGIBLE MEMBERS. THEY ARE (I) INDIVIDUALS WITH CERTAIN QUALIFICATION, (II) THE GOVERNMENT OF ORISSA, (III) THE CENTRAL GOVERNMENT, (IV) THE ORISSA STATE COOPERATIVE BANK LTD. AND (V) CUTTACK CENTRAL CO OPERATIVE BANK LTD. NEITHER ORISSA STATE CO - OPERATIVE BANK LTD., NOR CUTTACK CENTRAL CO - OPERATIVE BANK LTD ARE COOPERATIVE SOCIETIES. IT IS REALLY SURPRISING THAT IN SPITE OF SUCH CLEAR MEMBERSHIP CRITERIA PROVIDED IN ITS BYE - LAWS, THE ASSESSEE SOCIETY HAS TAKEN OTHER COOPERATIVE SOCIETIES LIKE FARMERS DEVELOPMENT COOPERATIVE LIMITED AND REGULATED MARKETING COOPERATIVE SOCIETIES, AS ITS MEMBERS IN VIOLATION OF ITS OWN BYE - LAWS. 21. THUS IT IS CLEAR THAT THE ASSESSEE SOCIETY IS A 'PRIMARY CO - OPERATIVE BANK', THEREBY SATISFYING THE DEFINITION OF A 'CO - OPERATIVE BANK' GIVEN IN PART V OF THE BANKING REGULATION ACT, 1949. AS THE ASSESSEE SOCIETY IS A 'CO - OPERATIVE BANK', IT IS DEBARRED FROM ENJOYING THE BENEFIT OF SECTION 80P(2)(A)(I) IN VIEW OF CLEAR BAR PROVIDED IN SECTION 80P(4) WITH EFFECT FROM A.Y. 2007 - 08 ONWARDS. ACCORDINGLY, THE CLAIM OF DEDUCTION U/S 80P(2)(A)(I) HAS BEEN RIGHTLY DENIED TO THE ASSESSEE BY THE AO. THE CIT(A) HAS IGNORED THE VITAL FACTUAL ASPECT WHI LE DECIDING THE APPEAL OF THE ASSESSEE. THE CIT(A) HAS IGNORED THESE VITAL FACTUAL ASPECT WHILE DECIDING THE APPEAL OF THE ASSESSEE. 22. RELIANCE IS ALSO PLACED ON THE DECISION OF THE SUPREME COURT IN THE CASE OF THE CITIZEN CO - OPERATIVE SOCIETY LTD V. ASSISTANTCOMMISSIONER OF INCOME TAX [2017] 397 ITR 1(SC). IN THAT CASE ALSO, IT HAD BEEN CLAIMED BEFORE THE AO THAT THE SOCIETY WAS ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) ON THE GROUND THAT IT WAS A CO OPERATIVE SOCIETY CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS. SINCE THE MATTER RELATED TO A.Y. 2009 - 10, THE AO HAD REFERRED TO SECTION 80P(4) OF THE IT ACT TO DENY THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I). THE AO HAD ALSO FOUND THAT THE ASSESSEE SOCIETY HAD VIOLATED IT S OWN BYE - LAWS AND HAD GIVEN LOANS AND WAS TAKING DEPOSITS FROM A CATEGORY OF MEMBERS, NAMELY, 'NOMINAL MEMBERS', WHICH HAD NOT BEEN PROVIDED FOR IN ITS BYE - LAWS AND WAS IN VIOLATION OF THE PROVISIONS OF MUTUALLY ADDED COOPERATIVE SOCIETIES ACT, 1995 (MACS A) UNDER WHICH IT WAS REGISTERED. FOR SUCH VIOLATIONS, THE SUPREME COURT DENIED THE CLAIM OF BENEFIT OF SECTION 80P OF THE ACT TO THE APPELLANT. 23. THE FACTS OF THE PRESENT CASE ARE ALSO OF SIMILAR NATURE. IN THE PRESENT CASE ALSO, THE ASSESSEE HAS T AKEN OTHER CO - OPERATIVE SOCIETIES AS ITS MEMBERS IN VIOLATION OF ITS OWN BYE - LAWS. HENCE THE FACTS OF THE PRESENT CASE ARE SIMILAR TO THE FACTS OF THE SUPREME COURT'S DECISION IN CITIZEN CO - OPERATIVE SOCIETY'S CASE CITED SUPRA. THEREFORE, THE DEDUCTION U/S 80P(2)(A)(I) HAD BEEN CORRECTLY DENIED TO THE ASSESSEE SOCIETY. 24. WITH THE ABOVE BACKGROUND NOTE ON THE STATUS OF THE ASSESSEE SOCIETY AS A 'COOPERATIVE BANK', THE CIT(A)'S ASSERTION THAT THE ASSESSEE - SOCIETY IS NOT A 'PRIMARY CO - OPERATIVE BANK' IS DEVOID OF MERIT & IS ITA NO S . 13 5, 206 & 162 /CTK/2019 12 INCONSISTENT WITH THE FACTS AVAILABLE ON RECORD. HENCE, THE FINDINGS OF THE CIT(A) SHOULD BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 25. THE OVERALL TAX EFFECT INVOLVED IN THIS CASE IS RS.59,57,446/ - , WHICH IS MORE THAN THE PRESCRIBED MONETARY LIMIT OF RS.20 LAKHS. 26. IN VIEW OF THE FOREGOING DISCUSSIONS, THE PRESENT APPEAL IN THE CASE OF THE ASSESSEE - SOCIETY MAY BE DECIDED AS PER THE GROUND OF APPEAL ENCLOSED SEPARATELY. HE RELIED ON THE ORDER OF CIT(A) IN RE SPECT OF ASSESSEES APPEAL. 12 . AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSING THE ORDERS OF AUTHORITIES BELOW, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL HAS ALREADY BEEN DECIDED BY US IN ASSESSEES OWN CASE FOR THE ASSESSME NT YEAR 2009 - 2010 & 2010 - 2011 PASSED IN ITA NOS.133&134/CTK/2019, VIDE ORDER DATED 14.08.2020, WHEREIN IT HAS BEEN OBSERVED AS UNDER : - 11. AFTER HEARING BOTH THE SIDES AND PERUSING THE MATERIAL AVAILABLE ON RECORD AND THE ORDERS OF AUTHORITIES BELOW, FIR ST 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 ELIGIBLE 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 ASSESSEE, 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 ENVISAG ED 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 EARNED BY A CO - OPERATIVE SOCIETY FROM CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS. FURTHER, THE ASSESSEE TENDERED DETAILED SUBMISSIONS EXPLAINING THAT THE ASSESSEE WAS NOT A 'CO - OPERATIVE BANK' WITHIN THE MEANING OUTLINED UNDER PART V OF THE BANKING REGULATION ACT, 1949. I HAVE PERUSED THE FACTS OF THE CASE AND ALS O 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 PRINCIPAL QUESTION THAT NEEDS TO BE ADDRESSED IN THIS APPEAL IS WHETHER THE ITA NO S . 13 5, 206 & 162 /CTK/2019 13 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 - OPERAT IVE SOCIETY FULFILLING THE FOLLOWING CONDITIONS CUMULATIVELY - : (I) THE PRIMARY OBJECT OF PRINCIPAL BUSINESS OF THE CO - OPERATIVE SOCIETY IS THE TRANSACTION OF BANKING BUSINESS. (II) THE PAID UP CAPITAL AND RESERVES OF THE CO - OPERATIVE SOCIETY ARE NOT LE SS 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 SECOND AND THIRD CONDITIONS AS LAID DOWN IN SECTION 5(CCV) OF THE BANKING REGULATION ACT, 1949 DO A PPLY 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 CONDITIONS, 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 THE TIME BEING IN FORCE EXCEPT A CO - OPERATIVE SOCIETY REGISTERED UNDER THE CO - OPERATIVE SOCIETIES A CT. 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 UNDERSTOOD IN TERMS OF SECTION 80P(4) CAN ACCEPT DEPOSITS, MAKE LOANS AND CARRYING OUT ALL BANKING OP ERATIONS 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 BENEFIT 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 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 THE COMMENTS OF THE STATUTORY AUDITOR OF THE ASSESSEE. TO REPHRASE THE ABOVE ARGUMENT, THE FIRST C ONDITION 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 REGULATION 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 ITA NO S . 13 5, 206 & 162 /CTK/2019 14 NON - MEMBERS AND WOULD ACCEPT DEPOSITS FROM THE PUBLIC AT LA RGE. 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 SOCIETY. 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 EVI DENT 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. NEITHER 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 ASSERTION 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 CLAUSE 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 PARAGRAPHS, 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 ACTIVITIES. 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. 12. FROM THE ABOVE DISCUSSION BY THE CIT(A), IT IS ALSO PERTINENT TO MENTION HERE THAT THE ASSESSEE IS NOT CARRYING ON BANKING BUSI NESS 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 THE ASSESSEE IS ACCEPTING DEPOSITS OF MONEY FROM ITS MEMBERS AND ADVANCING MONEY TO MEMBERS. IN VI EW 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 MENTIONED THAT THE ASSESSEE IS ENGAGED IN BANKING ITA NO S . 13 5, 206 & 162 /CTK/2019 15 BUSINESS AND HAS DISALLOWED THE CLAIM OF THE ASSESSE E 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 BUSINESS . BEFORE THE CIT(A) THE ASSESSEE HAD SUBMITTED THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.8 0P(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 AGRICULTURE FOR THE PURPOSE OF SUPPLYING THEM TO ITS MEMBERS, OR ( V ) THE PROCESSING, WITHOUT THE AID O F 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 PURC HASE 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 BUSINESS ATTRIBUTABLE TO ANY ONE OR MORE OF SUCH ACTIVITIES : PROVIDED THAT IN THE CASE OF A CO - OPERAT IVE 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 ITS MEMBERS, NAMELY: ( 1 ) THE INDIVIDUALS WHO CONTRIBUTE THEIR LABOUR OR, AS THE CASE MAY BE, CARR Y 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, OILSE EDS, 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, OILSEEDS, FRUITS, OR VEGETABLES, AS THE CASE MAY BE; OR ITA NO S . 13 5, 206 & 162 /CTK/2019 16 ( 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 PROVINCIAL ACT (BEING A COMPANY OR CORPORATION ENGAGED IN SUPPLYING MILK, OILSEEDS, FRUITS OR VEGE TABLES, 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 IN 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 SUCH 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; ( 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 COMMOD ITIES, 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 ON 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 CO MMITTEE, 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 SO CIETY 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 BANKING 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 ITA NO S . 13 5, 206 & 162 /CTK/2019 17 FACILITIES HAS BEEN DECIDED BY THE VARIOUS FORUMS/COURTS IN THE FOLLOWING MANNER : - MEANINGS OF EXPRES SIONS 'FACILITIES' - THE EXPRESSION 'FACILITIES' USED IN THE PROVISION IS AN INCLUSIVE TERM OF WIDE IMPORT EMBRACING ANYTHING WHICH AIDS OR MAKES EASIER THE PERFORMANCE 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 BUT ALSO THE BUSINESS OF LENDING SERVICES FOR GUARANTEEING PAYMENTS - C/JV. U.P. CO - OP. CANE UNION FEDERATION LTD [1980] 122ITR913 (ALL.). 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 FAC ILITY 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 BUSINESS OF BANKING OR PROVIDING CREDIT FACILITY TO ITS MEMBERS CIT V. CO - OPERATIVE SUPPLY & COMMISS ION SHOP LTD [1993] 204 ITR 713 (RAJ.). CONSIDERED IN THE CONTEXT AND COLLOCATION OF WORDS, THE WORDS 'PROVIDING CREDIT FACILITIES TO ITS MEMBERS' MEAN PROVIDING 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 DIRECTIVES CANNOT BE TREATED AS INVESTMENT OF THE STOCK - IN - TRADE OR CIRCULATING CAPITAL. THE INCOME DE RIVED 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 INTENDED 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 FACILITIES 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, ITA NO S . 13 5, 206 & 162 /CTK/2019 18 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 HAS USED THE WORD 'MEMBERS', IT HAS USED IT IN THE NORMAL SENSE OF A MEMBER OF A CO - OPERATIVE SOCIE TY. THE INTENTION WAS TO EXTEND THE EXEMPTION TO CO - OPERATIVE SOCIETIES DIRECTLY EXTENDING CREDIT FACILITIES TO THEIR MEMBERS. THERE IS NOTHING IN THE SAID PROVISION TO SHOW THAT THE INTENTION WAS TO GRANT EXEMPTION TO CO - OPERATIVE SOCIETIES WHICH WERE EXT ENDING 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 - OPERATIVE SOCIETY SEEKING EXEMPTION. THE MEANING OF THE EXPRESSION 'MEMBER' CANNOT THEREFORE BE EXTEN DED 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 LIFTING THE CORPORATE VEIL CANNOT HAVE ANY APPLICATION IN THE CONTEXT OF THE PROVISIONS CONTAINED IN SE CTION 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 THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THE AO HAS DISALLOWED TWO AD DITIONS 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 RESULTING TO ENHANCEMENT OF PROFIT OF THE ASSESSEE SOCIETY WHICH ARE SPECIFIC DISALLOWANCE S RELATED TO T HE 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 GOVERNMENT OF INDIA MINISTRY OF FINANCE, DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, DA TED 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 DEDUCTIONS IN RESPECT OF CERTAIN INCOMES. IN COMPUTING THE PROFITS AND GAINS OF A BUSINESS ACTIVITY, THE A SSESSING OFFICER MAY MAKE CERTAIN DISALLOWANCES, SUCH AS DISALLOWANCES PERTAINING TO SECTIONS 32, 40(A)(IA) , 40A(3), 43B ETC., OF THE ACT. AT TIMES DISALLOWANCE OUT OF SPECIFIC EXPENDITURE CLAIMED MAY ALSO BE MADE. THE EFFECT OF SUCH DISALLOWANCES IS AN I NCREASE IN THE PROFITS. DOUBTS HAVE BEEN RAISED AS TO ITA NO S . 13 5, 206 & 162 /CTK/2019 19 WHETHER SUCH HIGHER PROFITS WOULD ALSO RESULT IN CLAIM FOR A HIGHER PROFIT - LINKED DEDUCTION UNDER CHAPTER VI - A. 2. THE ISSUE OF THE CLAIM OF HIGHER DEDUCTION ON THE ENHANCED PROFITS HAS BEEN A CONTENTI OUS HOWEVER, THE COURTS HAVE GENERALLY HELD THAT IF THE EXPENDITURE DISALLOWED IS RELATED TO THE BUSINESS ACTIVITY AGAINST WHICH THE CHAPTER VI - A DEDUCTION HAS BEEN CLAIMED, THE DEDUCTION NEEDS TO BE 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 OF 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 FOR DEDUCTION UNDER SECTION 80 - IB OF THE ACT. THIS VIEW WAS TAKEN BY THE COURTS IN THE FOLLOWING CAS ES: 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) COMMISSIONER 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 PROFITS OF THE UNDERTAKING ON WHICH THE ASSESSEE WOULD BE ENTITLED FOR DEDUCTION UNDER SECTION 80 - IB O F 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, ALLAHABAD HIGH COURT. (NJRS - 2016 - LL - 0503 - 77) THE ABOVE VIEWS HAVE ATTAINED FINALITY AS THESE JUDGMENTS O F 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 THE ELIGIBLE BUSINESS, AND THAT DEDUCTION UNDER CHAPTER VI - A IS ADMISSIBLE ON THE PROFITS SO ENHANC ED 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 CONC ERNED. (K. VAMSI KRISHNA) ACIT (OSD) (ITJ) ITA NO S . 13 5, 206 & 162 /CTK/2019 20 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 IS CLARIFICATORY IN NATURE. THEREFORE, IT WOULD BE PRESUM ED 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 MENTIONED ADDITIONS ARE ELIGIBLE FOR DEDUCTION UNDER CHAPTER - VIA AND UNDER SECTION 80P OF THE ACT. IN SUPP ORT 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/2015, 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 AP PEAL 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. 13. RESPECTFULLY FOLLOWING THE ABOVE OBSERVATIONS OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE SOCIETY IS ELIGIBLE FOR DEDUCTION U/S.80P(2)(A)(I) OF THE ACT AND THE ASSESSEE WILL GET THE BENEFIT OF CIRCULAR ISSUED BY THE CBDT NO.37/2016, DATED 02.11.2016 AS QUO TED ABOVE . SINCE WE HAVE ALLOWED THE LEGAL GROUND OF ASSESSEE, OTHER GROUNDS RAISED BY THE ASSESSEE ON MERITS ARE FOR ACADEMIC PURPOSES. THUS, APPEAL OF THE ASSESSEE IS ALLOWED ON LEGAL GROUND. 14. THE REVENUE IN ITS APPEAL HAS RAISED THE LEGAL GROUND THAT THE CIT(A) IS NOT JUSTIFIED IN GRANTING DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. WE HAVE ALREADY DISCUSSED THIS ISSUE IN DETAIL IN THE FOREGOING PARAGRAPHS WHEREIN WE HAVE HELD THAT THE ASSESSEE IS ELIGIBLE FOR ITA NO S . 13 5, 206 & 162 /CTK/2019 21 DEDUCTION U/S.80P(2)(A)(I) OF THE ACT. THUS, THE STAND TAKEN BY THE REVENUE IN ITS APPEAL IS DISMISSED AND CONSEQUENTLY APPEAL OF THE REVENUE IS DISMISSED. 15 . IN THE RESULT, APPEAL S OF THE ASSESSEE I.E. ITA NO.162/CTK/2019 IS DISMISSED, ITA NO.135/CTK/2019 IS ALLOWED AND APPEAL OF THE REVENUE IN IT A NO.206/CTK/2019 IS DISMISSED. . ORDER PRONOUNCED IN THE OPEN COURT ON 11 / 0 9 / 20 20 . SD/ - ( C.M.GARG ) SD/ - (L.P.SAHU) / JUDICIAL MEMBER / ACCOUNTANT MEMBER CUTTACK ; DATED 11 / 0 9 /20 20 PRAKASH KUMAR MISHRA, SR.P.S. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - KENDRAPARA CREDI T 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//