Prabhat Credit & Thrift Co.Op.Society, Mehsana V. The Dy.CIT.,Mehsana Circle, Mehsana

ITA 2445/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9772 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 02-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALA PHILIPS
• Assessee Lawyers: S N DIVETIA
• Keywords: Principle of natural justice
• Section: 143(3); 6; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE S/SHRI RAJPAL YADAV, JM, & MANISH BORAD, AM. ITA NO.2445/AHD/2012 ASST. YEAR: 2008-09 PRABHAT CREDIT & THRIFT CO-OP. SOCIETY, E-BLOCK, 1 ST FLOOR, MARKET YARD, SHOPPING CENTER, MEHSANA. VS. DCIT, MEHSANA CIRCLE, MEHSANA. APPELLANT RESPONDENT PAN - AAAJS 1630C APPELLANT BY SHRI S. N. DIVETIA, AR RESPONDENT BY MR. LALA PHILIPS, SR.DR DATE OF HEARING: 17/11/2015 DATE OF PRONOUNCEMENT: 21/01/2016 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A), GANDHINAGAR, AHMEDABAD, DATED 8/8/2012 IN A PPEAL NO.CIT(A)/GNR/54/2010-11, FOR ASST. YEAR 2008-09. A SSESSMENT WAS FRAMED U/S 143(3) OF THE I.T. ACT, 1961 (IN SHO RT THE ACT) ON 30.8.2010 BY DCIT, MEHSANA CIRCLE, MEHSANA. FOLLOWI NG GROUNDS HAVE BEEN RAISED IN THIS APPEAL :- 1. THE ORDER PASSED U/S 250 ON 8.8.2012 FOR AY 2008 -09 BY CIT(A)-GNR, AHMEDABAD UPHOLDING THE DISALLOWANCE OF DEDUCTION U/S 80P(2)(A)(I) OF THE ACT TO THE EXTENT OF RS.1,42,963 IS WHOLLY ILLEGAL, UNLAWFUL AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE. ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 2 2. THE LD. AO HAS GRIEVOUSLY ERRED IN LAW AND OR ON FACTS IN RESTRICTING THE DEDUCTION U/S 80P(2)(A)(I) TO R.2,2 3,877 ON THE GROUND THAT INTEREST INCOME EARNED ON SURPLUS FUNDS DID NOT CONSTITUTE THE OPERATIONAL INCOME. SINCE THE AO HAD NOT MADE ANY SUCH DISALLOWANCE ON THIS GROUND, THE ACTION ON PART OF CIT(A) WAS ILLEGAL AND UNLAWFUL. 3.1 THE LD. CIT(A) HAS ERRED IN LAW AND OR ON FACTS IN HOLDING THAT THE INTEREST INCOME WAS EARNED FROM KEEPING TH E SURPLUS FUNDS IN BANKS SO THAT IT WAS TAXABLE U/S 5 6 AND DID NOT QUALIFY FOR DEDUCTION U/S 80P(2)(A)(I). 3.2 WITHOUT PREJUDICE TO THE ABOVE, THE WORKING OF INTEREST INCOME AT RS.1,47,963/- ON PRO-RATA BASIS IS INCORR ECT AND EXCESSIVE SO THAT IT MAY BE REDUCED. 2. BRIEFLY STATED FACTS AS CULLED OUT FROM THE MATE RIAL ON RECORD ARE THAT THE ASSESSEE IS A CO-OPERATIVE SOCIETY ENGAGED IN THE ACTIVITY OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND IT E -FILED ITS RETURN OF INCOME ON 30/9/2008 DECLARING TOTAL INCOME AT RS.NI L AFTER CLAIMING DEDUCTION U/S 80P AT RS.2,42,211/-. THE CASE WAS SE LECTED FOR SCRUTINY ASSESSMENT ON CASS AND NOTICE U/S 143(2) O F THE ACT WAS ISSUED ON 29/09/2009 AND SERVED UPON THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER CAME TO THE CONCLUSION THAT ASSESSEE IS A CO-OP. BANK FALLING U NDER THE PROVISIONS OF SECTION 80P(4) OF THE ACT AND, THEREF ORE, NOT ELIGIBLE TO CLAIM DEDUCTION U/ 80P(1) AND ACCORDINGLY DISALLOWE D THE DEDUCTION U/S 80P OF THE ACT CLAIMED BY THE ASSESSEE AND ASSE SSED THE TOTAL INCOME AT RS.2,42,211/-. ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 3 3. AGGRIEVED, ASSESSEE WENT IN APPEAL BEFORE CIT(A) WHO HAS DEALT THE ISSUE AS TO WHETHER THE ASSESSEE IS CO-OP . BANK U/S 80P(4) OR IT IS A CREDIT CO-OP. SOCIETY ENGAGED IN PROVIDI NG CREDIT FACILITIES TO ITS MEMBERS. WE FIND THAT CIT(A) HAS HELD THAT THE ASSESSEE SOCIETY IS A CREDIT CO-OP. SOCIETY FALLING UNDER THE PROVIS IONS OF SECTION 80P(2)(A)(I) AND IS NOT A CO-OP. BANK AND THEREFORE , SECTION 80P(4) IS NOT APPLICABLE TO THE ASSESSEE. TO ARRIVE AT THIS C ONCLUSION LD. CIT(A) HAS OBSERVED AS UNDER :- 6. ALL THE GROUNDS ARE RELATED TO THE DISALLOWANCE OF CLAIM OF DEDUCTION OF INCOME U/S 80P(2)(A)(I). I HAVE GONE T HROUGH THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE SUBMISSIONS. AS PER THE DEFINITION OF BANKING AS PER SEC.5(B) OF BANKING RE GULATION ACT, BANKING MEANS THE ACCEPTING FOR THE PURPOSE OF LE NDING OR INVESTMENT OF DEPOSITS OF MONEY FROM THE PUBLIC REP AYABLE ON DEMAND OR OTHERWISE, AND WITHDRAWAL BY CHEQUE, DRAF T, ORDER OR OTHERWISE. THE DEFINITION IS BASIC LAW TO BE CONSID ERED TO DECIDE WHETHER A CREDIT SOCIETY IS A CO-OPERATIVE BANK OR NOT. ONLY, THOSE CREDIT SOCIETIES WHICH ARE ALLOWED TO TAKE DEPOSITS OF MONEY FROM THE PUBLIC AND DO OTHER BANKING ACTIVITIES AS DEFINED I N THE SEC.5(B) OF BANKING REGULATION ACT WOULD QUALIFY TO BE A CO-OP. BANK. I AGREE THAT TAKING DEPOSITS FROM PUBLIC CANNOT BE EQUIVALE NT TO TAKING DEPOSITS FROM MEMBERS OF THE SOCIETY ONLY WHICH HAS GOT A MUCH RESTRICTED MEANING AND THE RELATIONSHIP BETWEEN A S OCIETY AND A PUBLIC HAS TO BE UNDERSTOOD IN A MUCH LARGER SENSE. IN THIS CONNECTION, IT WOULD BE USEFUL TO REFER TO THE DECI SION OF THE HONBLE JURISDICTIONAL HIGH COURT WHEREIN THEIR LORDSHIPS O F GUJARAT HIGH COURT HAVE CONSIDERED THE ABOVE PROVISIONS OF S.80P(2)(A) (I) IN THE CASE OF CIT VS. BARODA PEOPLES CO-OP. BANK LTD. 280 ITR 282 (GUJ). THEIR LORDSHIPS HAVE HELD AT PARA 28 OF SAID JUDGMENT AS UNDER :- 28. SECTION 80P(2)(A)(I) OF THE ACT PERMITS A CO-OPERATIVE SOCIETY ENGAGED IN CARRYING ON THE BUSINESS OF BANKING OR P ROVIDING CREDIT FACILITIES TO ITS MEMBERS TO CLAIM DEDUCTION OF THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO SUCH ACTIVITY VIZ., BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBE RS. ON A PLAIN READING ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 4 IT BECOMES APPARENT THAT THE TWO ACTIVITIES ARE DIS TINCT AND SEPARATE ACTIVITIES. THE FIRST ACTIVITY VIZ., CARRYING ON TH E BUSINESS OF BANKING CONNOTES A LARGER ACTIVITY THAN THE ACTIVITY OF PRO VIDING CREDIT FACILITIES TO ITS MEMBERS. THE LATTER IS RESTRICTED QUA THE MEMBE RS OF THE SOCIETY WHILE THE FORMER IS WIDE ENOUGH TO TAKE WITHIN ITS SWEEP AS ITS POTENTIAL CUSTOMERS, BOTH THE MEMBERS AND NON MEMBERS. TO UNDERSTAND THE ISSUE BETTER, I WENT THROUGH THE RBI WEBSIDE AND FOUND THAT IT HAS BEEN EXPLAINED IN A REPORT OF A HIGH LEVEL COMMITTEE APPOINTED BY THE RESERVE BANK OF INDIA IN MAY, 1999 UNDER THE CHAIRMANSHIP OF SHRI MADHAVA RAO, EX-CHIE F SECRETARY, GOVT. OF ANDHRA PRADESH TO REVIEW THE PERFORMANCE O F URBAN CO- OPERATIVE BANKS (UCBS) AND SUGGEST NECESSARY MEASUR ES TO STRENGTHEN THIS SECTOR. THE REPORT WAS PUBLISHED ON 14/01/2000 AND IN PARA 7.1. & 7.2 OF THE REPORT, THE FOLLOWING HAS BEEN NARRATED : '7.1 COOPERATIVE CREDIT STRUCTURE IN INDIA IS CHARA CTERIZED BY A PLETHORA OF INSTITUTIONAL SEGMENTS. LEAVING ASIDE THE AGRICULTU RAL COOPERATIVE CREDIT INSTITUTIONS, IN THE URBAN COOPERATIVE CREDIT FOLD ITSELF, THERE ARE 3 TYPES OF INSTITUTIONS RECOGNIZED BY THE BANKING REGULATION ACT 1949 (AS APPLICABLE TO COOPERATIVE SOCIETIES). AS DISCUSSED ELSE WHERE IN THE REPORT, THESE ARE (I) PRIMARY CREDIT SOCIETIES, WHO VIRTUALLY FUNCTIO N LIKE BANKS. BUT WHOSE NET WORTH IS LESS THAN RS.L LAKH; WHO ARE NOT MEMBE RS OF THE PAYMENT SYSTEM AND TO WHOM DEPOSIT INSURANCE IS NOT EXTENDE D, (II) PRIMARY COOPERATIVE BANKS, POPULARLY CALLED UR BAN COOPERATIVE BANKS, WHOSE NET WORTH IS RS.1 LAKH AND ABOVE; WHO ARE RE COGNIZED AS BANKS, ARE MEMBERS OF PAYMENT SYSTEM AND WHO ENJOY DEPOSIT INS URANCE (III) COOPERATIVE CREDIT SOCIETIES, WHO CONFINE THE IR ACTIVITIES TO THEIR_MEMBERS ALONE AND WHO DO NOT PERFORM BANKING FUNCTIONS. IN THIS CHAPTER, THE COMMITTEE DEALS WITH THESE COOPERATIVE CREDIT SOCIETY. 7.2 UNDER THE PROVISIONS OF SECTION 5(CCII) OF BANKING REGULATION ACT, 1949 (AACS), A COOPERATIVE CREDIT SOCIETY IS DEFINED AS A COOPERATIVE SOCIETY, 'THE PRIMARY OBJECT OF WHICH IS_TO PROVIDE FINANCIAL ACC OMMODATION TO ITS MEMBERS AND INCLUDES_A COOPERATIVE LAND MORTGAGE BANK.' THI S TYPE OF INSTITUTIONS ARE THRIFT SOCIETIES. THE DISTINCTION BETWEEN A PRIMARY CREDIT SOCIETY AND A COOPERATIVE CREDIT IS WITH REFERENCE TO THEIR NATUR E OF BUSINESS. THE PRIMARY OBJECT OR PRINCIPAL BUSINESS OF A PRIMARY CREDIT SO CIETY IS THE TRANSACTION OF BANKING BUSINESS. WHEN ITS UP CAPITAL AND RESERVES ATTAIN THE LEVEL OF RS,L LAKH, A PRIMARY CREDIT SOCIETY AUTOMATICALLY BECOMES A PRIM ARY COOPERATIVE BANK. HOWEVER, EVEN AFTER A PRIMARY CREDIT SOCIETY BECOME S A COOPERATIVE BANK, IT HAS ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 5 TO APPLY TO RBI FOR A LICENSE TO CARRY ON BANKING B USINESS. BUT IT CAN CARRY ON BANKING BUSINESS UNTIL IT IS GRANTED A LICENSE OR N OTIFIED THAT A LICENSE CANNOT BE GRANTED TO IT. THE ABOVE REPORT CLEARLY DEFINES THE CIRCUMSTANCES IN WHICH A CREDIT SOCIETY CAN BE ALLOWED TO CARRY ON BANKING B USINESS. THESE ARE PRIMARY CREDIT SOCIETY, WHICH CAN CARRY ON BUSINESS OF BANKING UNTIL IT IS GRANTED A LICENSE OR NOTIFIED THAT A LICENSE CAN NOT BE GRANTED TO IT. THESE CREDIT SOCIETIES WOULD NOT GET THE BENEFIT OF THE DEDUCTION U/S *)P(2)(A)(I). CONSIDERING THE ABOVE FACTS, IT IS CLEAR THAT THE A PPELLANT IS NOT ALLOWED TO DO BANKING BUSINESS AS DEFINED UNDER BAN KING REGULATION ACT AND THEREFORE, IS NOT A CO-OPERATIVE BANK. THER EFORE, IT IS NOT EXCLUDED FROM THE BENEFIT OF DEDUCTION U/S 80P(2)(A )(I) OF THE IT ACT AS IT DOES NOT FALL UNDER THE EXCEPTIONS AS PROVIDE D U/S 80P(4). I HAVE ALSO NOTED THE DECISION OF HONORABLE ITAT MUMBAI BE NCH IN THE CASE OF SALGAON SANMITRA SAHAKARI PATHPED LTD. 12 TAXMAN N.COM 246; WHERE BOTH THE CIT (APPEALS) AND THE ITAT HAVE HELD THAT THE CORPORATIVE CREDIT SOCIETY IN THAT CASE WAS NOT A C O-OPERATIVE BANK. I ALSO RESPECTFULLY AGREE WITH THE DECISION OF THE IT AT BANGLORE B BENCH IN THE CASE OF ACIT VS. M/S BANGALORE COMMERC IAL TRANSPORT CREDIT CO-OP. SOCIETY LTD. IN ITA NO.1069/BANG/2010 FOR AY 2007-08 DATED 8/4/2011 WHICH HAS DECIDED THE ISSUE IN FAVOU R OF THE APPELLANT. THEREFORE, IT IS HELD THAT THE APPELLANT IS ENTITLE D TO THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) OF THE IT ACT. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. FROM GOING THROUGH THE ASSESSMENT ORDER, WE FIND THAT ASSESSING OFFICER HAS TOUCHED UPON ONLY ONE ISSUE A ND HAS FRAMED THE ASSESSMENT ORDER BY TREATING THE ASSESSEE AS A CO-OPERATIVE BANK AND ACCORDINGLY DENIED THE DEDUCTION U/S 80P O F THE ACT. THE ASSESSING OFFICER HAS NOT DEALT WITH ANY OTHER ISSU E RELATING TO TYPE OF INTEREST INCOME EARNED I.E. INCOME EARNED FROM INTE REST FROM ITS MEMBERS OR INTEREST INCOME FROM BANK FDR OR OTHER I NTEREST INCOME. ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 6 WE WILL, THEREFORE, DEAL ONLY WITH THE ISSUE THAT W HETHER THE ASSESSEE IS A CO-OPERATIVE BANK OR WHETHER IT IS A CREDIT CO -OP. SOCIETY. AFTER GOING THROUGH THE FINDING OF LD. CIT(A) WE FIND THA T FOR A CO-OP. SOCIETY TO BE COVERED U/S 80P(4) OF THE ACT, IT IS NECESSAR Y THAT ASSESSEE NEEDS TO OBTAIN LICENSE FROM RESERVE BANK OF INDIA (RBI) FOR RUNNING THE ACTIVITIES AS CO-OP. BANK AS PER BANKING REGULA TION ACT, 1949. FROM GOING THROUGH THE SUBMISSIONS OF LD. AR WE FIN D THAT ASSESSEE SOCIETY IS DULY REGISTERED UNDER THE GUJARAT CO-OP. SOCIETIES ACT AND IS PROVIDING CREDIT FACILITIES ONLY TO ITS MEMBERS AND THE AIMS AND OBJECTIVES OF THE SOCIETY AS ENUMERATED IN THE RULE S AND REGULATIONS ARE (1) AS MEMBERS MAY BE ENCOURAGED TO DO THRIFT AND M UTUAL COOPERATION AND (2) AS MEMBERS OF SOCIETY MAY COLLECT FUND SO THAT LOAN MAY BE PROVIDED AT GENERAL RATE OF INTEREST, HENCE ACCORDING TO THIS, AND AS SHOWN BELOW. (3) .. (4) PURPOSE TO PURCHASE COMMODITIES ITEMS OR OTHER REQUIREMENTS, BY INDENTS, WITH OWN COST OR THROUGH OTHER MEANS AND P URPOSE TO SALE MEMBERS AND OTHER CUSTOMERS AT REASONABLE RATES TO OPEN STORES MAKE ARRANGEMENT AND FOLLOWING RULES CONSTRUCTED BY MANA GEMENT COMMITTEE AS WELL AS RECOGNIZED RULES BY HON. REGISTRAR, PROV IDE DEBIT FACILITIES TO MEMBERS. 4.A AS ITS OWN MEMBERS OCCUPATION EMPLOYMENT BUSINE SS AND GRUH UDHYOG MAY BE GET ENCOURAGEMENT PROVIDE LOAN ADVANCE FACIL ITIES AGAINST THE FORM OF THAT GOODS AND IN THAT RELATED IF REQUIRED NEED IN THAT CONNECTION PURPOSE TO MAKE WHOLE SALE PURCHASING TAKE AGENCY O R AND FOR OTHER ENTIRE NECESSARY REQUIREMENTS MAKE NECESSARY ARRANG EMENTS AND PREPARE RULES. ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 7 5. FROM GOING THROUGH THE AIMS AND OBJECTIVES OF TH E SOCIETY WE FIND THAT ASSESSEE IS NOT COMING UNDER THE PURVIEW OF CO-OPERATIVE BANK AND ITS ACTIVITIES ARE CONFINED TO ITS MEMBERS WHEREAS IN CASE OF CO-OPERATIVE BANK DEALINGS ARE DONE WITH MEMBERS AS WELL AS NON- MEMBERS AND THE OPERATIONAL ACTIVITIES OF CO-OPERAT IVE BANK IS QUITE SIMILAR WITH THE OTHER SCHEDULED BANK WORKING UNDER THE STRICT GUIDELINES AND NORMS OF RBI AS MENTIONED IN THE BAN KING REGULATION ACT, 1949. 6. WE, THEREFORE, ARE OF THE CONFIRMED VIEW THAT AS SESSEE CO- OPERATIVE SOCIETY DOES NOT FALL IN THE EXCEPTION ME NTIONED IN SECTION 80P(4) OF THE ACT AND FALLS UNDER THE CATEGORY OF C O-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILIT IES TO ITS MEMBERS; MENTIONED UNDER THE PROVISIONS OF SECTION 80P(2)(A) (I) OF THE ACT. FURTHER AS THE ASSESSING OFFICER HAS NOT DEALT ANY OTHER ISSUES ON MERITS, WE FIND IT JUSTIFIED TO REMAND THE MATTER B ACK TO THE FILE OF ASSESSING OFFICER WITH A CLEAR FINDING TO ASSESS TH E ASSESSEE CO- OPERATIVE SOCIETY AS A CO-OP. SOCIETY FALLING UNDER THE CATEGORY OF PROVISIONS OF SECTION 80P(2)(A)(I) OF THE ACT AND N OT UNDER THE PROVISIONS OF SEC.80P(4) OF THE ACT AND ACCORDINGLY FRAME FRESH ASSESSMENT ORDER AFTER PROVIDING REASONABLE OPPORTU NITY OF BEING HEARD TO THE ASSESSEE WHO WILL FILE FINANCIAL STATE MENT AND DETAILS OF INCOME EARNED AND THEN DECIDE THE QUANTUM OF DEDUCT ION AVAILABLE, IF ANY, TO ASSESSEE U/S 80P(1) OF THE ACT. 7. OTHER GROUNDS NEED NOT BE ADJUDICATED BEING INFR ACTUOUS AS THE MATTER HAS BEEN SET ASIDE TO THE FILE OF ASSESSING OFFICER. THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 2445/AHD/2012 ASST. YEAR2008-09 8 8. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 JANUARY, 2016 SD/- SD/- (RAJPAL YADAV) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 21/01/2016 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD 1. DATE OF DICTATION:19/01/2016 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 20/01/2016 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 21.1.2016 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: