The Himachal Co-op Agriculture Thrift and Credit Society Ltd., Solan V. ITO, Solan

ITA 205/CHANDI/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1578 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 19-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Section: 143(3); 6; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MRS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO.205/CHD/2015 ASSESSMENT YEAR:2010-11 THE HIMACHAL CO-OP AGRICULTURE, VS. THE ITO THRIFT AND CREDIT SOCIETY LTD. WARD 1 LOWER BAZAR SOLAN SOLAN PAN NO. AAAJT2006R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. VISHAL MOHAN RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 19/08/2015 DATE OF PRONOUNCEMENT :22/09/2015 ORDER PER ANNAPURNA MEHROTRA A.M. THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A), SHIMLA, H.P. DT. 29/01/2015. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY AND HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED AY AT NIL CLAIMING DEDUCTION U/S 80P(2)(A)(I) OF RS. 24,14,50 3/- ASSESSMENT U/S 143(3) WAS FRAMED ON THE ASSESSEE AT AN INCOME OF R S. 25,28,503/- VIDE ORDER DT. 29/03/2013, DENYING DEDUCTION U/S 80 P(2)(A)(I) OF RS. 24,14,503/- AND EXPENDITURE OF RS. 1,14,000/- CLAIM ED ON ACCOUNT OF RENT PAID. THEREAFTER ASSESSEE FILED AN APPEAL BEFO RE LD. CIT(A), WHO VIDE HER ORDER DT. 29/01/2015, UPHELD THE ORDER OF THE AO , 2 CONFIRMING ALL THE ADDITIONS / DISALLOWANCES MADE T O THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE SAME, THE ASSESSEE FILED THIS A PPEAL BEFORE US RAISING THE FOLLOWING GROUNDS : 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN HOLDING TH AT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A) OF THE INCOME TAX ACT, 1961 AND AS SUCH UPHOLDING THE ADDITION OF RS. 24,14,503/- MADE TO T HE TAXABLE INCOME OF THE ASSESSEE. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 1,14,000/- ON ACCOUNT OF ALLEGED RENT PAID TO SMT SHASHI AGGARWAL FOR BRANCH OFFICE. 4. GROUND NO. 1 IS AGAINST DENIAL OF DEDUCTION CLAI MED U/S 80P(2)(A) OF THE INCOME TAX ACT, 1961, AMOUNTING TO RS. 24,14,503/- 5. THE FACTS OF THE CASE ARE THAT THE ASSESSSEE IS A CO-OPERATIVE SOCIETY AND HAD DURING THE IMPUGNED AY CLAIMED DEDUCTION U/S 80 P(2)(A)(I) OF RS. 24,14,503/-. DURING ASSESSMENT PROCEEDINGS THE AO F OUND THAT THE ASSESSEE HAD VIOLATED THE BYE LAWS OF THE SOCIETY BY ADMITTING M INORS AND NON-INDIVIDUALS AS ITS MEMBERS AND BY ADVANCING LOANS TO NON-MEMBERS. THE AO ALSO FOUND THAT THE ASSESSEE CO-OPERATIVE SOCIETY WAS WORKING FOR O NLY FAMILY MEMBERS. THE AO THEREFORE DENIED THE DEDUCTION CLAIMED BY THE ASSES SEE U/S 80P(2)(A)(I) OF THE INCOME TAX ACT 1961. 6. IN APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), THE ASSESSEE ARGUED THAT MINOR MEMBERS WERE ONLY 5 OUT OF TOTAL 680 MEMBERS OF THE SOCIETY AND THEIR CONTRIBUTION TO THE SHARE CAPITAL WAS ONLY RS. 25,0 00/- OUT OF TOTAL SHARE CAPITAL OF RS. 31,61,000/-. FURTHER THE ASSESSEE DENIED ANY NON-INDIVIDUAL BEING A MEMBER OF THE SOCIETY AND ALSO DENIED ADVANCING OF ANY LOAN TO NON- MEMBERS. THE ASSESSEE ARGUED THAT ITS ACCOUNTS WERE AUDITED BY THE EMPLOYEES AUTHORIZED BY THE REGISTRAR CO-OPERATIVE SOCIETIES AND NO ADVERSE INFERENCE HAD BEEN REPORTED BY THE INSPECTOR, CO-OP ERATIVE SOCIETIES SOLAN. THE ASSESSEE FURTHER STATED THAT THE INSPECTOR HAD ENDORSED THE FACT THAT LOANS 3 HAD BEEN ADVANCED ONLY TO MEMBERS. MOREOVER THE ASS ESSEE SUBMITTED DETAILS OF ADVANCEMENT OF LOANS AS EVIDENCE OF THE SAME. TH EREFORE, AS PER THE ASSESSEE, IT HAD BEEN WRONGLY DENIED DEDUCTION U/S 80P BY THE AO. THE LD. CIT(A) REJECTED THE CONTENTION OF THE ASSES SEEE AND STATED THAT THE ASSESSEE WAS INDULGING IN BANKING ACTIVITY SINC E THE ASSESSEE HAD FINANCIAL TRANSACTIONS WITH NON-MEMBERS ALSO. IN SUPPORT OF H IS CONTENTION THE LD. CIT(A) RELIED UPON THE REPORT OF THE TAX AUDITORS AT POINT NO. 5 WHICH STATED AS FOLLOWS: THAT IN THE ABSENCE OF MEMBERS REGISTER AND OTHER RELEVANT RECORDS, CONCERNING MEMBERSHIP OF THE SOCIETY FROM 01/04/200 9 TO 02/11/2009, IT IS NOT POSSIBLE FOR US TO ASCERTAIN WHETHER FINANCIAL TRAN SACTIONS DONE BY THE SOCIETY ARE ONLY WITH THE MEMBERS OF THE SOCIETY OR ALSO WITH N ON MEMBERS. THE LD. CIT(A) ALSO RELIED UPON THE FACT THAT THE A SSESSEE HAD ACCEPTED LOANS / DEPOSITS FROM NON MEMBERS AND HAD GIVEN LOA NS AND ADVANCES TO MEMBERS, WHO WERE NOT ELIGIBLE TO BE MEMBERS AS PER THE BYE-LAWS OF THE SOCIETY AND WHICH THEREFORE TANTAMOUNTED TO GIVING LOANS TO NON-MEMBERS. THE LD. CIT(A) THEREFORE HELD THAT THE CLAIM OF THE ASSESSEE U/S 80P(2)(A) HAD TO BE EXAMINED WITH REFERENCE TO THE PROVISIONS OF SECTION 80P(4) WHICH DENIED DEDUCTION U/S 80P TO ALL CO-OPERATIVE BANKS OTHER THAN PRIMARY AGRICULTURAL CREDIT SOCIETY OR PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK. SINCE, AS PER THE LD. CIT(A), THE ASSESSEE WAS A CO- OPERATIVE BANK BUT NOT A PRIMARY AGRICULTURAL CREDI T SOCIETY OR PRIMARY CO- OPERATIVE AGRICULTURE AND RURAL DEVELOPMENT BANK, I T WAS NOT ENTITLED TO DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. 7. BEFORE US THE LD. AR REFERRED TO THE CERTIFICATE OF REGISTRATION AT PAPER BOOK PAGE NO. 23 OF THE ASSESSEE SOCIETY AND ITS BY E-LAWS AT PAPER BOOK PAGE NO. 8 WHICH LISTED THE OBJECTS OF THE SOCIETY AS FO LLOWS: 4. THE OBJECTS OF THE SOCIETY SHALL BE:- (I) TO ENCOURAGE THRIFT AND SAVING AMONG ITS MEMBER S BY ACCEPTING DEPOSITS AND OFFERING OTHER SUITABLE FACILITIES; (II) TO PROVIDE CREDIT FACILITIES TO ITS MEMBERS ON CONVENIENT AND EASY TERMS AS PRACTICABLE AND TO RAISE FUNDS FOR THE PURPOSE; (III) TO ARRANGE FOR THE PURCHASE AND SALE OF HOUSE HOLD REQUIREMENTS OF MEMBERS; 4 (IV) TO UNDERTAKE MEASURES TO SPREAD KNOWLEDGE OF C O-OPERATIVE PRINCIPLES AND PRACTICES; AND (V) TO UNDERTAKE SUCH OTHER ACTIVITIES AS ARE CONDU CIVE TO THE ATTAINMENT OF THE ABOVE OBJECTS. THE LD. AR ARGUED THAT THE AFORESTATED DOCUMENTS CL EARLY PROVED THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED F OR CARRYING ON THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE LD. AR FURTHER DREW OUR ATTENTION TO THE LIST OF MEMBERS OF THE SOCIETY AT PAPER BOOK PA GE NO. 41-51, AND LIST OF PERSONS TO WHOM ADVANCES WERE GIVEN DURING THE YEAR AT PAPER BOOK PAGE NO. 66-73, TO PROVE THAT THE ASSESSEE HAD PROVIDED CRED IT FACILITIES ONLY TO ITS MEMBERS. THE LD. AR ARGUED THAT THE ASSESSEE BEING A CO-OPERATIVE SOCIETY INDULGING IN THE ACTIVITY OF PROVIDING CREDIT FACIL ITIES TO ITS MEMBERS WAS CLEARLY ENTITLED TO DEDUCTION U/S 80P(2)(A)(I). THE LD. AR FURTHER ARGUED THAT TAKING LOANS FROM NO N-MEMBERS DID NOT DEBAR THE ASSESSEE FROM CLAIMING DEDUCTION U/S 80P. THE LD. AR STATED THAT ONLY 5 MINORS WERE ADMITTED AS MEMBERS OF THE SOCIETY AG AINST 680 MEMBERS IN ALL AND THEIR SHARE OF CAPITAL WAS ONLY RS. 25,000/- AS AGAINST TOTAL CAPITAL OF RS. 31,61,000/-OF THE SOCIETY. 8. LD. DR ON THE OTHER HAND, PLACING RELIANCE ON TH E FINDINGS OF THE LD. CIT(A) HELD THAT THE ASSESSEE WAS INDULGING IN BANK ING ACTIVITY AND BEING A CO- OPERATIVE BANK WAS NOT ENTITLED TO DEDUCTION U/S 8 0P, BY VIRTUE OF SECTION 80P(4). 9. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLA CED BEFORE US. SECTION 80P GRANTS DEDUCTION TO THE PROFITS & GAINS OF CO-OPERA TIVE SOCIETIES, ENGAGED IN CERTAIN SPECIFIED ACTIVITIES AS LISTED IN SUB-SECTI ON 2. SUB-CLAUSE (A)(I) OF SUB SECTION 2 SPECIFIES CARRYING ON THE BUSINESS OF B ANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS AS ONE OF THE ACTIVITIES ENTITLED TO DEDUCTION U/S 80 P. 5 WE FIND, THAT IT IS NOT IN DISPUTE THAT THE ASSESSE ES CLAIM FOR DEDUCTION U/S 80 P IS WITH RESPECT TO THE ACTIVITIES MENTIONED IN SUB-CLA USE (2)(A)(I) OF SECTION 80P. BUT WHILE THE ASSESSEE CLAIMS THAT IT IS PROVIDING CRED IT FACILITIES TO ITS MEMBERS THE LD. CIT(A) STATES THAT THE ASSESSEE IS INDULGING IN BAN KING ACTIVITY AND IS HENCE A CO- OPERATIVE BANK. 10. THE COPY OF CERTIFICATE OF REGISTRATION AND THE BYE LAWS PLACED IN THE PAPER BOOK SHOW THAT THE ASSESSEE WAS REGISTERED FO R PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE LIST OF MEMBERS AND THE PERSONS TO WHOM CREDIT FACILITIES WERE EXTENDED WERE FURNISHED BEFORE ASSESSING OFFIC ER TO SHOW-THAT CREDIT FACILITIES HAVE BEEN EXTENDED TO THE MEMBERS ONLY. WE FIND THAT EXCEPT MAKING A GENERAL OBSERVATION BY LOWER AUTHORITIES THAT CRE DIT FACILITIES HAVE BEEN EXTENDED TO NON-MEMBERS NO EFFORT HAS BEEN MADE TO POINT OUT ANY SPECIFIC INSTANCE WHERE CREDIT FACILITY WAS EXTENDED TO NON- MEMBERS. THEREFORE SUCH VAGUE FINDINGS CANNOT BE UPHELD. HOWEVER WE REMIT T HIS ISSUE BACK TO THE FILE OF AO TO VERIFY WHETHER CREDIT FACILITIES HAVE BEEN PR OVIDED TO THE NON-MEMBERS AND IN CASE CREDIT FACILITIES HAVE NOT BEEN EXTENDE D TO NON-MEMBERS THE ASSESSEE WOULD BE ENTITLED TO THE DEDUCTION U/S 80 P. THE ISSUE OF MINORS BEING THE MEMBERS MAY BE AN ISSUE FOR THE PURPOSE OF REGI STRATION OF THE ASSESSEE AS CO-OPERATIVE SOCIETY, BUT SO LONG AS THE ASSESSEE I S REGISTERED AS CO-OPERATIVE SOCIETY IN OUR CONSIDERED OPINION DEDUCTION U/S 80P CANNOT BE DENIED FOR THAT REASON. 11. WE FIND THAT AS FAR AS THE CONTENTION OF THE CI T(A) FOR CLASSIFYING THE ASSESSEE AS INDULGING IN BANKING ACTIVITIES IS CONC ERNED, WE HAVE REMITTED THE ISSUE BACK TO THE FILE OF THE AO IN THE PARA ABOVE, TO DETERMINE WHETHER THE ASSESSEE HAD ENTERED INTO FINANCIAL TRANSACTIONS OF GIVING AND TAKING LOANS, WITH NON MEMBERS ALSO. THEREFORE UNTIL IT IS SO ESTABLIS HED THE FINDING BY THE CIT(A) DOES NOT HOLD. EVEN OTHERWISE SECTION 80P(4) DENIE S THE BENEFIT U/S 80P TO CO- 6 OPERATIVE BANKS WHICH HAVE BEEN DEFINED HOW THE MEA NING ASSIGNED TO THEM IN PART V OF THE BANKING REGISTRATION ACT, 1949, PA RT V OF THE BANKING REGISTRATION ACT DEFINES CO-OPERATIVE BANK AS : SECTION 56 . THE PROVISIONS OF THIS ACT, AS IN FORC E FOR THE TIME BEING, SHALL APPLY TO, OR IN RELATION TO, CO-OPERATIVE SOCIETIES AS THEY APPLY T O, OR IN RELATION TO, BANKING COMPANIES SUBJECT TO THE FOLLOWING MODIFICATIONS, NAMELY:- (A). (B). (C) IN SECTION 5,- (I) . (CCI) CO-OPERATIVE BANK MEANS A STATE CO-OPERAT IVE BANK, A CENTRAL CO- OPERATIVE BANK AND A PRIMARY CO-OPERATIVE BANK. (CCV) PRIMARY CO-OPERATIVE BANK MEANS A CO-OPERA TIVE SOCIETY, OTHER THAN A PRIMARY AGRICULTURAL CREDIT SOCIETY,- (1) THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF WHI CH IS THE TRANSACTION OF BANKING BUSINESS; (2) THE PAID-UP SHARE CAPITAL AND RESERVES OF WHICH ARE NOT LESS THAN ONE LAKH OF RUPEES; AND (3) THE BYE-LAWS OF WHICH DO NOT PERMIT ADMISSION O F ANY OTHER CO-OPERATIVE SOCIETY AS A MEMBER: PROVIDED THAT THIS SUB-CLAUSE SHALL NOT APPLY TO TH E ADMISSION OF A CO-OPERATIVE BANK AS A MEMBER BY REASON OF SUCH CO-OPERATIVE BAN K SUBSCRIBING TO THE SHARE CAPITAL OF SUCH CO-OPERATIVE SOCIETY OUT OF FUNDS P ROVIDED BY THE STATE GOVERNMENT FOR THE PURPOSE; (CCVII) CENTRAL CO-OPERATIVE BANK , PRIMARY RURA L CREDIT SOCIETY AND STATE CO- OPERATIVE BANK SHALL HAVE THE MEANINGS RESPECTIVEL Y ASSIGNED TO THEM IN THE NATIONAL BANK FOR AGRICULTURAL AND RURAL DEVELOPMEN T ACT, 1981 (61 OF 1981); SINCE THE PRIMARY OBJECT OF THE SOCIETY IS NOT TRAN SACTING BANKING BUSINESS NOR DOES IT QUALIFY AS A CENTRAL OR STATE CO-OPERATIVE BANKAS PER NABARD ACT, 1981, THE ASSESSEE CANNOT BE STATED TO BE A CO-OPERATIVE BANK. THUS THE PROVISIONS OF SECTION 80P(4) DO NOT APPLY TO THE ASSESSEE. 12. ON THE BASIS OF THE ABOVE DISCUSSION WE ARE OF THE VIEW THAT THE ASSESSEE CLAIM OF DEDUCTION U/S 80P IS TO BE GRANTED SUBJECT TO VERIFICATION OF THE CLAIM OF THE ASSESSEE THAT IT IS GRANTING LOANS ONLY TO ITS MEMBERS. FOR THIS LIMITED PURPOSE WE RESTORE THE ISSUE TO THE FILE OF THE AO. NEEDLES S TO SAY THAT THE ASSESSEE MAY BE GRANTED FULL OPPORTUNITY OF HEARING. 13. GROUND NO. 2 IS AGAINST THE ADDITION OF RS. 1,1 4,000/- ON ACCOUNT OF RENT. THE AO DENIED THE CLAIM BY HOLDING AT PARA 2 OF HIS ORDER AS FOLLOWS : 2. THE SOCIETY CAN NOT OPEN BRANCH OFFICE WITHOUT PERMISSION OF REGISTRAR OF CO-OP. SOCIETIES. THE ASSESSEE FAILED TO PRODUCE AN Y DOCUMENTARY EVIDENCE REGARDING SUCH OPENING OF BRANCH OFFICE. IT MEANS N O BRANCH OFFICE WAS OPENED. ON GOING THROUGH THE DETAIL OF RENT PAID, IT WAS NO TICE THAT RS. 1,14,000/- HAS BEEN PAID TO SMT. SHASHI AGGARWAL ON ACCOUNT OF REN T OF BRANCH OFFICE. THIS IS A 7 FICTITIOUS EXPENSE AND IS NOT GENUINE. HENCE, THE S AME IS DISALLOWED AND ADDED TO THE INCOME OF THE SOCIETY. 14. THE CIT(A) UPHELD THE DISALLOWANCE AT PARA 6 OF HIS ORDER : ASSESSEE HAS CHALLENGED ADDITION OF RS. 1,14,000/ - ON ACCOUNT OF RENT PAID TO SMT. SHASHI AGGARWAL FOR BRANCH OFFICE, A.O. DISALL OWED THE SAID EXPENSE DURING ASSESSMENT PROCEEDINGS AS ASSESSEE HAS FAILED TO PR ODUCE ANY DOCUMENTARY EVIDENCE REGARDING SUCH OPENING OF BRANCH OFFICE. T HE AUDIT REPORT FILED DURING THE APPELLATE PROCEEDINGS REVEALS THAT THE SAID PAY MENT HAS BEEN MADE TO SH. C.P. AGGARWAL. THUS THERE IS DISCREPANCY IN THE FAC TS STATED BY THE ASSESSEE DURING ASSESSMENT PROCEEDINGS AND AS REPORTED IN TH E AUDIT REPORT. NO STATEMENT OF FACTS HAS BEEN GIVEN IN THE FORM NO.35 , THUS FACTS STATED IN THE ASSESSMENT ORDER ARE CONSIDERED TO BE UNDISPUTED. S INCE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE IN SUPPORT OF PAYMENT OF RENT WHOLLY AND EXCLUSIVELY FOR ASSESSEES BUSINESS, THE ACTION OF AO IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 15. BEFORE US THE LD. AR ARGUED THAT RENT PAID OF R S. 1,14,000/- PERTAINED TO THE PREMISES ON WHICH THE SOCIETY WAS BEING RUN AND WHICH WAS OWNED BY ONE MR. C.P. AGARWAL. THE LD. AR ARGUED THAT THE SOCIET Y HAD NO BRANCH OFFICE AND NO RENT WAS PAID TO SMT. SHASHI AGGARWAL AS CLAIMED BY THE AO. 16. LD. DR RELIED UPON THE ORDER OF THE LD. CIT(A). 17. WE HAVE HEARD THE REPRESENTATIVES OF BOTH THE P ARTIES AND PERUSED THE ORDERS OF AUTHORITIES BELOW AND ALSO THE DOCUMENTS PLACED BEFORE US. 18. WE AGREE WITH THE FINDINGS OF THE LD. CIT(A), T HAT THERE IS DISCREPANCY IN THE FACTS STATED BY THE ASSESSEE BEFORE THE AO AND THE CIT(A). ALSO WE FIND THAT NO EVIDENCE HAS BEEN FURNISHED BY THE ASSESSEE REGA RDING THE IMPUGNED EXPENSES. THE ASSESSEE HAS NOT DISCHARGED ITS ONUS FOR CLAIMING EXPENSE. WE THEREFORE CONCUR WITH THE VIEW OF THE LD. CIT(A). T HE DISALLOWANCE MADE OF RS. 1,14,000/- ON ACCOUNT OF RENT IS THEREFORE UPHELD. 19. THE APPEAL OF THE ASSESSEE ON THIS GROUND IS TH EREFORE DISMISSED. 20. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED :22/09/2015 AG COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR