Perinthalmanna Service Co-op Bank Ltd, Perinthalmanna V. ITO, Tirur

ITA 199/COCH/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68898 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Assessment Year: 2009-2010
• Appeal Filed On: 18-04-2013
• Court: TRIBUNAL
• Department Lawyers: SUSAN GEORGE VARGHESE
• Keywords: Depreciation; Principle of natural justice; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO.199/COCH/2013 ASSESSMENT YEAR : 2009-10 PERINTHALMANNA SERVICE CO-OP BANK LTD., HOSPITAL ROAD, PERINTHALMANNA. [PAN: AAATP 5698R] VS. THE INCOME TAX OFFICER, WARD-2, TIRUR. (ASSESSEE -APPELLANT) (REVENUE-R ESPONDENT) ASSESSEE BY SHRI SHAJI POULOSE, CA REVENUE BY SMT. SUSAN GEORGE VARGHESE, SR. DR DATE OF HEARING 24/06/2013 DATE OF PRONOUNCEMENT 02/08/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE REVISION ORDER DATED 15-02- 2013 PASSED BY THE LD. CIT, KOZHIKODE U/S. 263 OF T HE ACT FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE IS CHALLENGING THE VALIDITY OF THE REVISION PROCEEDINGS INITIATED IN ITS HANDS. 2. THE FACTS RELATING TO THE CASE ARE STATED IN BRI EF. THE ASSESSMENT IN THE HANDS OF THE ASSESSEE WAS COMPLETED U/S. 143(3) OF THE ACT O N 15-12-2011 FOR THE YEAR UNDER CONSIDERATION. THE LD. CIT, ON EXAMINATION OF THE RECORD, FOUND THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE FOR THE FOLLOWING REASONS: 2. IT IS OBSERVED FROM THE RECORDS THAT WHILE COMP LETING THE ASSESSMENT FOR THE A.Y. 2009-10, AN AMOUNT OF RS. 76,38,143/- WAS ALLOWED AS DEDUCTION U/S. 80P AFTER DISALLOWING INTEREST INCOME OF RS. 6 ,50,000/- EARNED FROM INVESTMENT MADE WITH TREASURY. THE ASSESSING OFFIC ER HAS TREATED THE ASSESSEE AS A PRIMARY AGRICULTURAL CREDIT SOCIETY ( PACS). HOWEVER, IT IS OBSERVED FROM THE RECORDS THAT THE AGRICULTURAL LOA NS CONSTITUTE LESS THAN 0.5% OF THE TOTAL LOANS ADVANCED DURING THE PREVIOU S YEAR RELEVANT TO A.Y. I.T.A. NO.199/COCH/2013 2 2009-10 AND THE BALANCE 99.5% WERE DISBURSED FOR NO N AGRICULTURAL PURPOSES. AS PER PART V OF THE BANKING REGULATION ACT, A CO-OP. SOCIETY IS TO BE TREATED AS PACS ONLY IF THE PRINCIPAL BUSINES S WAS PROVIDING FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULTURAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES. AS PER THE RECORDS IT IS APPARENT THAT THE ASSESSEE IS NOT A PRIMARY AGRI CULTURAL CREDIT SOCIETY SINCE THE PRINCIPAL BUSINESS CARRIED OUT WAS FOR NO N-AGRICULTURAL PURPOSES. IT IS EVIDENT FROM THE RECORDS THAT THE ASSESSING O FFICER HAS NOT CONDUCTED ANY ENQUIRY ON SUCH ASPECTS AND HAS ALLOWED THE CLA IM OF DEDUCTION U/S. 80P AND STATUS AS PACS WITHOUT PROPER VERIFICATION. 3. IT IS ALSO OBSERVED FROM THE RECORDS THAT THE NET PROFIT OF THE BANK FOR THE PREVIOUS YEAR RELEVANT TO A.Y. 2009-10 WAS ARRI VED AT RS. 82,88,143/- AFTER CLAIMING RESERVE FOR BAD AND DOUBTFUL DEBTS ( RS. 1,07,80,322/-) PROVISION FOR LEAVE SALARY (RS. 5,28,219), PROVISIO N FOR SHARE ON TOURISM CO- OP. SOCIETY (RS. 3,00,000/-), RESERVE FOR FURNITURE AND FITTINGS, COMPUTERS, VEHICLES ETC. (RS. 1,00,00,000/-), RESERVE FRO MOBI LE BANKING UNIT (RS. 25,00,000/-), RESERVE FOR LOW INTEREST LOANS FOR WO MEN MEMBERS (RS. 25,00,000/-), GENERAL RESERVE FRO BAD AND DEBTS (RS . 4,03,60,206/-), RESERVE FOR SHARE WITHOUT CC MALAPPURAM WHOLESALE STORE (RS. 1000/-), OVERDUE INTEREST OF THE YEAR (RS. 8,29,05,932/-) ET C. AS EXPENDITURE. THE ASSESSING OFFICER IS SEEN TO HAVE NOT CONDUCTED ANY ENQUIRY ABOUT THE ABOVE ITEMS WHICH ARE CLAIMED AS EXPENDITURE. THE RESERVE CREATED OR PROVISION MADE ARE NOT ALLOWABLE AS PER THE PROVI SIONS OF THE INCOME TAX ACT, UNLESS THEY ARE SPECIFICALLY PROVIDED UNDER TH E ACT. MOREOVER DEDUCTIBILITY TOWARDS BAD DEBTS ETC. ARE GOVERNED B Y VARIOUS PROVISIONS OF THE INCOME TAX ACT. THE ASSESSING OFFICER HAS FAIL ED TO CONDUCT ANY ENQUIRY WHAT SO EVER ABOUT THE NATURE OF THE CLAIM AND ALSO ABOUT ITS ALLOWABILITY. SIMILARLY CERTAIN ITEMS CREDITED IN THE PROFIT & LOSS ACCOUNT ARE TO BE EXCLUDED WHILE ARRIVING AT NET PROFIT FOR THE YEAR FOR TAXATION PURPOSES. THE ASSESSING OFFICER HAS ALSO NOT VERIFIED THE COR RECTNESS OF THE DEPRECIATION CLAIMED IN THE PROFIT & LOSS ACCOUNT A ND THE ALLOWANCE AS CLAIMED BY THE ASSESSEE WAS ALLOWED AS SUCH WITHOUT CONDUCTING ANY ENQUIRY. 4. THEREFORE IT IS OBVIOUS THAT THE ASSESSING OFF ICER HAS NOT APPLIED HIS MIND NOR CONDUCTED PROPER ENQUIRY/VERIFICATION AT T HE TIME OF SCRUTINY ASSESSMENT. IT IS SETTLED LAW THAT LACK OF ENQUIRY ON THE PART OF THE ASSESSING OFFICER RENDERS THE ORDER ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. I.T.A. NO.199/COCH/2013 3 3. AFTER HEARING THE ASSESSEE, THE LD. CIT HELD THA T THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE AND ACCORDINGLY SET ASIDE THE ASSESSMENT ORDER WITH A DIRECTION TO THE ASSESSING OFFICER TO PASS APPROPRIATE ORDER AS PER LAW AFTER GIVING SUFFICIENT OPPORTUNITY TO THE ASSESSEE . AGGRIEVED BY THE ORDER OF THE LD. CIT, THE ASSESSEE HAS FILED THIS APPEAL BEF ORE US. 4. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S. 80P OF THE ACT AND ALSO OTHER DEDUCT IONS MENTIONED IN PARA 3 OF THE ORDER OF THE LD. CIT. WHEN IT WAS POINTED OUT THAT THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS A CRYPTIC ONE WITHOUT ANY DISC USSIONS, THE LD. COUNSEL FAIRLY CONCEDED THAT THE ASSESSING OFFICER HAS FAILED TO M AKE ANY DISCUSSION ON VARIOUS ISSUES POINTED OUT BY THE LD. CIT(A). 5. THE LD D.R SUBMITTED THAT THE ASSESSMENT ORD ER IS CRYPTIC ONE AND THERE IS LACK OF APPLICATION OF MIND ON THE PART OF THE ASSESSING OF FICER ON THE ISSUES POINTED OUT BY LD CIT IN THE IMPUGNED REVISION ORDER. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERU SED THE RECORD. ADMITTEDLY, THE ASSESSMENT ORDER IS CRYPTIC AND IT DID NOT CONTAIN ANY DISCUSSION ABOUT THE INTEREST EXPENDITURE RELATING TO THE LOAN TAKEN BY THE PARTN ERS. IT IS WELL SETTLED PROPOSITION OF LAW THAT THE ASSESSMENT ORDER WOULD BE RENDERED ERR ONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IF THERE IS LACK OF ENQUI RY ON THE PART OF THE ASSESSING OFFICER ON ANY OF THE ISSUES HAVING TAX IMPACT. FOR THIS P ROPOSITION, A GAINFUL REFERENCE MAY BE MADE TO THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF MALABAR INDUSTRIAL CO. VS. CIT (243 ITR 83). WE FEEL IT PERTINENT TO REFER TO THE DECISION RENDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GRASIM INDUSTRIES LTD. V CIT (321 ITR 92), WHEREIN THE COURT HAS DISCUSSED ABOUT THE SCOPE OF PROVISIO NS OF SECTION 263 AS UNDER: SECTION 263 OF THE INCOME-TAX ACT, 1961 EMPOWERS TH E COMMISSIONER TO CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS UNDER THE ACT AND, IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN, BY THE ASS ESSING OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF THE REVENUE, TO PASS AN ORDER UPON HEARING THE ASSESSEE AND AFTER A N ENQUIRY AS IS I.T.A. NO.199/COCH/2013 4 NECESSARY, ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. THE KE Y WORDS THAT ARE USED BY SECTION 263 ARE THAT THE ORDER MUST BE CONSIDERE D BY THE COMMISSIONER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THIS PROVISION HAS BEEN INTERPRETED BY THE SUPREME COURT IN SEVERAL JUDGMENTS TO WHICH IT IS NOW NECESSARY TO TURN. IN MALABAR INDUSTRIAL CO. LTD. V. CIT [2000] 243 ITR 83, THE SUPREME COURT HELD THAT THE PROVISION CANNOT BE INVOKED TO CORRECT EACH AND EVERY TYPE OF MISTAKE OR ERROR COMMITTED BY THE ASSESSING OFFICER AND IT IS ON LY WHEN AN ORDER IS ERRONEOUS THAT THE SECTION WILL BE ATTRACTED. THE SUPREME COURT HELD THAT AN INCORRECT ASSUMPTION OF FACT OR AN INCORRECT APP LICATION OF LAW WILL SATISFY THE REQUIREMENT OF THE ORDER BEING ERRONEOUS. AN ORDER PASSED IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE OR W ITHOUT APPLICATION OF MIND, WOULD BE AN ORDER FALLING IN THAT CATEGORY . THE EXPRESSION PREJUDICIAL TO THE INTERESTS OF THE REVENUE, THE SUPREME COURT HELD, IT IS OF WIDE IMPORT AND IS NOT CONFINED TO A LOSS OF TAX. W HAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE IS EXPLAINED IN THE JUDGMEN T OF THE SUPREME COURT (HEAD NOTE) : THE PHRASE PREJUDICIAL TO THE INTERESTS OF THE RE VENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE A SSESSING OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER, CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE, FOR EXAMPLE, WHEN AN INCOME-TAX OFFICER ADOPTED ONE O F THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE INCOME-TAX OFFICER HAS TAKEN ONE VIEW WITH WHICH THE COMMISSIONER DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTERESTS OF T HE REVENUE UNLESS THE VIEW TAKEN BY THE INCOME-TAX OFFICER IS UNSUSTAINABLE I N LAW. THE PRINCIPLE WHICH HAS BEEN LAID DOWN IN MALABAR I NDUSTRIAL CO. LTD. [2000] 243 ITR 83 (SC) HAS BEEN FOLLOWED AND EXPLAI NED IN A SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN CIT V. MAX INDIA L TD. [2007] 295 ITR 282. THERE MAY NOT BE ANY DISPUTE THAT THE REVISION PROC EEDING SHALL NOT LIE ON THE ISSUES ON WHICH THE ASSESSING OFFICER HAS TAKEN A PLAUSIBLE V IEW AFTER EXAMINING AND APPLYING HIS MIND ON IT. IF THE AO DID NOT MAKE ANY ENQUIRY ON ANY OF THE PERTINENT ISSUE, IT WILL RESULT IN LACK OF APPLICATION OF MIND. 7. IN THE INSTANT CASE, THE ASSESSING OFFICER HAS PASSED A CRYPTIC ORDER AND IT DOES NOT CONTAIN ANY DISCUSSIONS ON THE ISSUES POINTED O UT BY THE LD CIT IN THE REVISION I.T.A. NO.199/COCH/2013 5 ORDER. THE HONBLE DELHI HIGH COURT, IN THE CASE O F TOYOTO MOTOR CORPORATION (306 ITR 49), HAS HELD THAT THE PROCEEDINGS BEFORE THE AO AR E QUASI JUDICIAL PROCEEDINGS AND A DECISION TAKEN BY THE AO IN THIS REGARD MUST BE SUP PORTED BY REASONS. IN THE CASE BEFORE THE DELHI HIGH COURT, THE ASSESSING OFFICER PASSED A CRYPTIC ORDER DROPPING THE PENALTY PROCEEDINGS WITHOUT GIVING ANY REASON AND H ENCE THE SAID ORDER WAS REVISED BY THE LD CIT U/S 263 OF THE ACT. THE ASSESSEE CHALLE NGED THE REVISION ORDER BEFORE THE TRIBUNAL AND COULD SUCCEED. THE DEPARTMENT CARRIED THE MATTER IN APPEAL BEFORE THE HONBLE DELHI HIGH COURT, WHICH UPHELD THE REVISION ORDER PASSED BY LD CIT U/S 263 OF THE ACT FOR THE REASONS STATED ABOVE. THE SAID ORD ER OF THE DELHI HIGH COURT HAS BEEN APPROVED BY THE HONBLE SUPREME COURT IN THE CASE O F TOYOTO MOTOR CORPORATION (306 ITR 52) WITH THE OBSERVATION THAT THE ASSESSING OFF ICER SHOULD PASS A REASONED ORDER. THESE DECISIONS CLEARLY BRING OUT THAT THE ASSESSME NT ORDER SHOULD BE PASSED WITH OR CONTAIN PROPER REASONS ON VARIOUS ISSUES. 8. THE IMPUGNED ISSUE POINTED OUT BY LD CIT WOULD HAVE IMPLICATION ON THE TAX COMPUTATION IF IT IS DECIDED AGAINST THE ASSESSEE, IN WHICH CASE THE IMPUGNED ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WO ULD BECOME PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 9. IN VIEW OF THE FOREGOING DISCUSSIONS, IN OUR VIEW, THE LD CIT WAS JUSTIFIED IN PASSING THE IMPUGNED REVISION ORDER AND HENCE WE DE CLINE TO INTERFERE WITH THE SAME. 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. PRONOUNCED ACCORDINGLY ON 02-08-20 13. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 2ND AUGUST, 2013 GJ I.T.A. NO.199/COCH/2013 6 COPY TO: 1.PERINTHALMANNA SERVICE CO-OP BANK LTD., HOSPITAL ROAD, PERINTHALMANNA. 2. THE INCOME TAX OFFICER, WARD-2, TIRUR. 3. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 4. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 5. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN