ACIT Non Corporate Circle 2 , CHENNAI V. Tamilnadu Cooperative State Agricultural & Rural Development Bank , CHENNAI

ITA 1552/CHNY/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 6866 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 19-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS SRI SHANMUGA PRIYA
• Assessee Lawyers: VISWANATHAN

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , .. , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI DUVVURU R.L.REDDY, JUDICIAL MEMBER ./ ITA NO.1552/CHNY/2017 ! ! /ASSESSMENT YEAR: 2010-11 THE ASST. COMMISSIONER OF- INCOME TAX, NON-CORPORATE CIRCLE-2, CHENNAI-600 034. VS. M/S.TAMILNADU CO-OPERATIVE- STATE AGRICULTURAL & RURAL DEVELOPMENT BANK, 181-183, LUZ CHURCH ROAD, MYLAPORE, CHENNAI-600 034. [PAN: AABAT 7344 J ] ( $ /APPELLANT) ( %&$ /RESPONDENT) DEPARTMENT BY : MRS.SRI SHANMUGA PRIYA, JCIT ASSESSEE BY : MR.VISWANATHAN, CA ( /DATE OF HEARING : 13.12.2018 ( /DATE OF PRONOUNCEMENT : 02.01.2019 / O R D E R PER INTURI RAMA RAO, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, CHENNAI , IN ITA NO.69/CIT(A)-2/2016-17 DATED 29.03.2017 FOR THE AY 2010-11. 2. THE REVENUE RAISED THE FOLLOWING GROUNDS OF APPE AL: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LA W, FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE AS SESSEE IS ELIGIBLE FOR DEDUCTION U/S. 80(P)(2) OF THE ACT. ITA NO.1552/CHNY/2017 :- 2 -: 2.2 THE LEARNED CIT(A) HAS NOT APPRECIATED THE FACT THAT THE ASSESSEE BANK MAY NOT FUNCTION AS A NORMAL SCHEDULED BANK. BUT IT FUNCTIO NS AS A BANK SPECIALIZED IN RE-FINANCE. THE BUSINESS OF BANKING CANNOT BE NARROWLY TAKEN TO THE DEFINITION OF BANKING AS PER THE BANKING REGULATIONS ACT. THE ASSESSEE BANK GETS LOA NS FROM NABARD, STATE GOVERNMENTS, RAISES DEBENTURES AND FINANCE TO ITS MEMBERS. 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE BANK CLAIMS THAT IT ONLY LENDS TO ITS MEMBERS. THE ANNUAL REPORT OF THE BANK STATE S THAT THE BANK HAS DISBURSED JEWEL LOANS BOTH DIRECTLY AND ALSO THROUGH ITS MEMBER PRI MARY BANKS, BUT THE BANK CLAIMS THAT THE MEMBERS OF ITS MEMBER BANKS BECOME ASSOCIATE ME MBERS AND AVAIL LOANS. SEC. 80P(2) SPEAKS ONLY ABOUT LENDING LOANS TO ITS MEMBER AND T HE SCOPE CANNOT BE WIDENED. 2.4 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE INTENTION OF LEGISLATURE IS THAT THE PROVISIONS OF SECTION 80P(2) CANNOT BE AGRICULTURAL CREDIT SOCIETY OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL LAND DEVELOPMENT BANK. 2.5 THE CIT(A) FAILED TO APPRECIATE THAT THE TAMIL N ADU COOPERATIVE STATE AGRICULTURAL & RURAL DEVELOPMENT BANK LIMITED IS THE APEX BANK TO ALL PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS IN THE STATE. ACCORDING TO EXPLANATION (B) TO SECTION 80P(4), THE PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL LAN D DEVELOPMENT BANKS CAN CLAIM THIS DEDUCTION ONLY IF ITS OPERATION IS S RESTRICTED TO A TALUK. IN THE INSTANT CASE, THE OPERATIONS ARE SPREAD ALL OVER THE STATE AND BEING THE APEX BA NK, THE ASSESSEE CANNOT CLAIM THE STAUS OF A PRIMARY BANK. 2.6 THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASS ESSEE BEING A CO-OPERATIVE BANK IS ELIGIBLE FOR DEDUCTION U/S.80P OF THE ACT, WITHOUT A PPRECIATING THE FACT THAT THE ASSESSEE BANK IS ENTITLED TO FLOAT DEBENTURES AND TO RECEIVE DEPOSITS AS PER CLAUSE 4 OF THE BYE LAWS AND FURTHER ENTITLED TO SUBSCRIPTION OF SHARES, DEB ENTURES AND OTHER BORROWINGS AS PER CLAUSE-13 OF THE BYE LAWS, MAKING IT CLEAR THAT THE ASSESSEE HAS ALL CHARACTERISTICS OF A BANK, AND NOT A PRIMARY AGRICULTURAL CREDIT SOCIETY . 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME O HEARING, IT IS PRAYED THAT THE ORDER OF THE LEARNED CIT(A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. AT THE OUTSET, THERE IS A DELAY OF 9 DAYS IN FIL ING OF THE PRESENT APPEAL. THE REVENUE HAS FILED A PETITION FOR CONDO NATION OF DELAY STATING THAT THE DELAY HAD OCCURRED IN OBTAINING THE ADMINI STRATIVE APPROVALS. THUS, THE REVENUE WAS PREVENTED BY SUFFICIENT CAUSE FOR THE DELAY IN FILING OF THE APPEAL HAS BEEN CAUSED ON ACCOUNT OF REASONS WHICH ARE BEYOND THE CONTROL OF THE AO. THUS, IT IS PRAYED THAT THE DELAY IN FILING OF THE PRESENT APPEAL TO BE CONDONED. ON THE OTHER HAND, LD. AR HAD NO OBJECTIONS FOR CONDONATION OF DELAY. UNDER THESE C IRCUMSTANCES, WE CONDONED THE DELAY AND ADMITTED THE APPEAL. ITA NO.1552/CHNY/2017 :- 3 -: 4. BRIEFLY, THE FACTS OF THE CASE ARE AS UNDER: THE RESPONDENT-ASSESSEE SOCIETY IS A COOPERATIVE S OCIETY REGISTERED UNDER TAMILNADU COOPERATIVE SOCIETIES ACT, 1983. I T IS FORMED BY THE STATE OF TAMILNADU FOR THE PURPOSE OF CATERING TO T HE AGRICULTURAL NEEDS OF THE FARMERS BY ADVANCING LONG TERM AGRICULTURAL LOA NS WITH RE-FINANCE FACILITY FROM NABARD. IT IS STATED THAT THE CREDIT FACILITY TO THE FARMERS PROVIDED TO THE PRIMARY COOPERATIVE AGRICULTURAL AN D RURAL DEVELOPMENT BANKS WHICH IN TURN PROVIDING THE CREDIT TO ITS FAR MERS. THE MAIN SOURCE OF INCOME WAS DERIVED BY WAY OF INTEREST ON THE LOA NS PROVIDED TO THE COOPERATIVE SOCIETIES. THE RETURN OF INCOME FOR TH E AY 2010-11 WAS FILED ON 10.11.2010 DECLARING A TOTAL INCOME OF RS.14,52, 960/-. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ACIT, CIRCLE- II, CHENNAI, VIDE ORDER DATED 15.03.2013 PASSED U/S .143(3) OF THE INCOME TAX ACT, 1961 AT A TOTAL INCOME OF RS.NIL AFTER S ETTING OFF OF THE BROUGHT FORWARD LOSSES OF RS.44,13,67,711/-. WHILE DOING S O, THE AO DISALLOWED THE PROVISION MADE ON INTEREST RECEIVABLE ON NFS OF RS.16,47,32,243/- AND DISALLOWANCE OF PROVISION FOR ORDINARY DEBENTUR ES OF RS.24,25,10,000/-. THE AO WAS OF THE OPINION THAT SINCE THE PROVISION IS ONLY CONTINGENT AND CANNOT BE ALLOWED AS A DEDUCTIO N, REJECTING THE CONTENTION OF THE APPELLANT THAT THE PROVISIONS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNTS. SUBSEQUENTLY, THE AO PASSED ORDER U/S .154 DATED 30.02.2016 AFTER GIVING AN OPPORTUNITY TO THE ASSES SEE NOT ALLOWING THE SET OFF OF BROUGHT FORWARD LOSSES OF RS.41,39,53,48 2/-. THE ALTERNATIVE ITA NO.1552/CHNY/2017 :- 4 -: SUBMISSION OF THE RESPONDENT-AASSESSEE THAT THE DED UCTION U/S.80P WAS NOT ALLOWED BY THE AO. 5. BEING AGGRIEVED BY THIS SEC.154 ORDER, AN APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) VIDE IMPUGNED ORDER ALLOWED TH E BENEFIT OF DEDUCTION U/S.80P PLACING RELIANCE ON THE DECISION OF THE TRI BUNAL IN THE ASSESSEES OWN CASE FOR THE AY 2009-10. BEING AGGRIEVED BY TH IS APPEAL, THE REVENUE IS IN APPEAL BEFORE US IN THE PRESENT APPEA L. THE LD.CIT(A) VEHEMENTLY ARGUED THAT THE APPELLANT SOCIETY NOT EL IGIBLE FOR DEDUCTION U/S.80P AS IT IS A COOPERATIVE BANK AND ALSO ENGAG ED IN ITS BUSINESS OPERATIONS, WHICH ARE NOT CONFINED TO ANY TALUK LEV EL. THUS, IT IS SUBMITTED THAT THE RESPONDENT-ASSESSEE IS HIT BY TH E PROVISIONS OF SUB- SEC.4 SEC.80P OF THE INCOME TAX ACT, 1961. IT IS F URTHER SUBMITTED THAT RESPONDENT-ASSESSEE SOCIETY HAD BUSINESS TRANSACTIO N WITH NON-MEMBERS ALSO. IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT REPOR TED IN 397 ITR 1 (SC), THE APPELLANT-SOCIETY IS NOT ELIGIBLE FOR DEDUCTIO N U/S.80P. ON THE OTHER HAND, LD.AR SUBMITTED THAT IT IS NOT A COOPERATIVE BANK, IT IS MERELY A COOPERATIVE SOCIETY AND THE PROVISIONS OF SUB-SEC.4 SEC.80P OF THE ACT, ARE NOT APPLICABLE TO THE RESPONDENT-SOCIETY. 6. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIALS PLACED ON RECORD. ITA NO.1552/CHNY/2017 :- 5 -: 7. THE ONLY ISSUE IN THE PRESENT APPEAL IS THAT WHE THER THE RESPONDENT-SOCIETY IS ENTITLED FOR DEDUCTION U/S.80 P OF THE ACT. THE PROVISIONS OF SEC.80P ENVISAGES EXEMPTION OF INCOME FROM TAX FOR A COOPERATIVE SOCIETY IN THE CASE OF COOPERATIVE SOCI ETIES ENGAGED IN THE BUSINESS BY PROVIDING CREDIT FACILITY TO ITS MEMBER S AND THE SUB SEC.4 OF THE SEC.80P CARVES OUT AN EXCEPTION TO THIS PROVISI ON BY PROVIDING THAT THE EXEMPTION U/S.80P SHALL NOT BE AVAILABLE TO A COOPE RATIVE BANK. HOWEVER, PRIMARY AGRICULTURAL COOPERATIVE SOCIETIES WHICH AR E ENGAGED IN AGRICULTURAL AND RURAL DEVELOPMENT BANK WHOSE BUSIN ESS OPERATIONS ARE CONFINED TO TALUK LEVEL, THE DEDUCTION WOULD BE AVA ILABLE. IN THE PRESENT CASE, THE AO HAD NOT GONE INTO THE QUESTION OF VERI FYING WHETHER THE RESPONDENT-ASSESSEE-SOCIETY IS A MERE COOPERATIVE S OCIETY OR A COOPERATIVE BANK. IN CASE, IT IS ENGAGED IN THE AC TIVITIES OF COOPERATIVE BANK, AND ACTIVITIES ARE NOT CONFINED TO THE TALUK LEVEL, IT IS CLEARLY HIT BY PROVISIONS OF SUB.SEC.4 OF SEC.80P OF THE ACT. FUR THER, IT IS ALSO REQUIRES TO BE VERIFIED WHETHER THE ACTIVITIES OF THE RESPON DENT-SOCIETY ARE CONFINED TO ITS MEMBERS AND NON-MEMBERS ALSO. IN T HESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE MATTER SH OULD BE RESTORED TO THE FILE OF THE AO FOR THE PURPOSE OF CARRYING OUT EXER CISE OF VERIFICATION OF BUSINESS ACTIVITIES OF THE APPELLANT ON THE ABOVE L INES AND ACCORDINGLY WE REMIT THE ISSUE TO THE FILE OF THE AO FOR EXAMINING THE APPLICABILITY OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF C ITIZEN CO-OPERATIVE SOCIETY LTD. VS. ACIT REPORTED IN 397 ITR 1 (SC). ITA NO.1552/CHNY/2017 :- 6 -: 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THE 2 ND JANUARY, 2019 IN CHENNAI. SD/- SD/- ( / 0 . . 3 ) ( DUVVURU R.L.REDDY ) 5 /JUDICIAL MEMBER ( ) ( INTURI RAMA RAO ) 5 /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED: 2 ND JANUARY, 2019. TLN ( % 78 98 /COPY TO: 1. $ /APPELLANT 4. : /CIT 2. %&$ /RESPONDENT 5. 8 % /DR 3. : ( ) /CIT(A) 6. ! /GF