ITO, Salem V. M/s. S-6608 Narasingapuram PACCS Ltd., Salem

ITA 3001/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8111 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 24-10-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Co-operative Credit Society; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 260A; 80P; 143(2); 43

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , ' # BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NO. 3001/MDS/2016 / ASSESSMENT YEAR : 2013-14 INCOME TAX OFFICER, WARD - 2(3), SALEM - 7. VS. M/S. S - 6608 NARASINGAPURAM PACCS LTD., NARASINGAPURAM POST, ATTUR TALUK, SALEM - 636 112. [PAN: AAAAP 3472C] ( / APPELLANT) ( / RESPONDENT) ./ I.T.A. NO. 2999/MDS/2016 / ASSESSMENT YEAR : 2013-14 INCOME TAX OFFICER, WARD - 3, NAMAKKAL. VS. M/S. SL (SPL) 151, KARKOODALPATTY PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY, KARKOODALPATTY, KAMARAJ NAGAR POST, RASIPURAM TALUK - 636 202. [PAN: AAAJK0601K] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI A.V. SREEKANTH, JCIT )*% & / RESPONDENT BY : SHRI M. NARAYANAN, (RTD. ADDTL. CIT) & /DATE OF HEARING : 06.01.2017 & /DATE OF PRONOUNCEMENT : 30.01.2017 :-2-: I.T.A. NOS. 2999 & 3001/MDS/2016 /O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THESE TWO APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST DIFFERENT ASSESSES AGAINST DIFFERENT ORDERS OF COMMISSIONER O F INCOME TAX (APPEALS), SALEM DATED 18.08.2015 FOR THE ASSESSMENT YEAR 2013-14. SINCE THE ISSUE IN THESE TWO APPEALS IS COMMON IN NATURE, HENCE THESE APPEALS AR E COMBINED, HEARD TOGETHER, AND DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF C ONVENIENCE. WE CONSIDER THE FACTS AS NARRATED IN ITA NO. 3001/MDS/2016 FOR THE ASSESSMENT YEAR 2013-14 2. THE FOLLOWING ARE THE GROUNDS OF APPEAL RAIS ED BY THE REVENUE: 2.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE CONSIDERED THAT THE HON'BLE ITAT, PANAJI BENCH IN SHRI CHANDRAPRABH U URBEN CO.OPERATIVE CREDIT SOCIETY LTD. (2014)(45 TAXMANN 14) CLEARLY B ROUGHT OUT THE DEFINITION OF 'BANKING BUSINESS'. 2. 2 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE CONSIDERED THAT THE HON'BLE ITAT 'B' BENCH, CHENNAI IN THE CASE OF M/S. SL(SPL) 151 KARKUDALPATTY PACCS LTD. VS ITO WHICH HAS BEEN RELI ED UPON BY HIM HAS NOT BECOME FINAL AS AN APPEAL HAS BEEN FILED U/S 260A B EFORE THE HON'BLE MADRAS HIGH COURT. 2.3 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO H AVE CONSIDERED THAT IN THE TAMILNADU CO-OPERATIVE SOCIETIES ACT, 1983 THE TERM 'MEMBER' IS DEALT IN SECTIONS 4,5,6,8,13,14,15, 20,21,23,24,25,26,27, 28,29,30,31,32, 33, 34,35,38,40,41,42, 44,46,51,66,69,72,81 AND 85. IN ALL THESE SECTION THE :-3-: I.T.A. NOS. 2999 & 3001/MDS/2016 TERM MEMBER' MEANS ONLY SHARE HOLDER- MEMBER. HENC E THE INTENTION OF THE LEGISLATURE IS THAT ASSOCIATE MEMBER WILL NO T BE TREATED AS MEMBER. 2.4 THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE CONSIDERED THAT THE STATUTORY AUDITOR FOR CO-OPERATIVE SOCIETY, IN HIS REPORT, DISCLOSES ONLY SHARE HOLDER - MEMBERS AS MEMBERS AND DID NOT INCLU DE THE ASSOCIATE MEMBER IN THE REPORT. 3. THE BRIEF FACTS OF THE CASE, THE ASSESSEE IS A C O-OPERATIVE SOCIETY ENGAGED IN THE BUSINESS OF BANKING AND TRADING DDS COMMUNIC ATIONS AND FILED RETURN OF INCOME ON 31.05.2014 ADMITTING NIL INCOME AFTER CLA IM OF DEDUCTION U/S. 80P OF THE ACT. THE RETURN OF INCOME WAS PROCESSED U/S. 143(1 ) OF THE ACT AND SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND N OTICE U/S. 143(2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOTICE, THE LD. AR AND SE CRETARY OF THE SOCIETY APPEARED FROM TIME TO TIME FILED DETAILS AND PRODUCED BOOKS OF ACCOUNTS FOR EXAMINATION. THE LD. AO ON VERIFICATION OF BOOKS OF ACCOUNTS FOUND T HE ASSESSEE SOCIETY ENGAGED IN COMMERCIAL BANKING ACTIVITIES AND DERIVING INTEREST INCOME FROM OTHER BUSINESS ACTIVITIES REFERRED PAGE NO.3 OF THE ORDER: NATURE OF LOAN RATE OF INTEREST AMOUNT OF LOANS CROP LOAN 7% 56,82,500 CROP LOANS (JEWELL AGRI.) 12.50% 76,84,000 JEWELL LOAN (GENERAL) 14.25% 36,94,46,000 JOINT LIABILITY GROUP 12.50% 36,64,000 SELF HELP GROUP LOAN 12.50% 4,80,000 MT AND LT LOAN 12.50% 3,72,500 NSC/KVP PLEDGE LOAN 12.50% 4,22,500 :-4-: I.T.A. NOS. 2999 & 3001/MDS/2016 DEPOSIT LOANS 12.50% 3,02,93,000 TOTAL LOAN 41,80,45,100 FURTHER IN ADDITION TO THE AGRICULTURAL FARM SECTOR LOANS, THE ASSESSEE IS HAVING OTHER INCOMES WHICH ARE NOT COVERED UNDER FARM SECTOR. UP ON PERUSAL OF THE AMENDMENT TO PROVISIONS TO SEC.80P(4) OF THE ACT AND CBDT CIR CULAR NO.14/2006, DATED 28.12.2006. THE BENEFITS AVAILABLE TO CO-OPERATIVE BANKS ARE WITHDRAWN FROM ASSESSMENT YEAR 2007-08 AS COOPERATIVE BANKS ARE FU NCTIONING ON PAR WITH COMMERCIAL BANKS. THE AMENDED PROVISIONS SHALL NOT APPLY TO ANY CO-OPERATIVE BANK OTHER THAN PRIMARY AGRICULTURAL CREDIT SOCIETY OR P RIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANKS. AND THE PROFIT AND GAI NS OF ANY BUSINESS OF BANKING INCLUDING CREDIT FACILITIES CARRIED ON BY THE CO-OP ERATIVE SOCIETY WITH ITS MEMBERS IS INCLUDED AS INCOME. THE ASSESSING OFFICER PRESUMED THAT ACTIVITIES OF THE SOCIETY ARE NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC. 80P(4 ) OF THE ACT. FURTHER, THE LD. AO PERUSED THE PROVISIONS AND SUBMISSIONS FOUND THE FA RM SECTOR AGRICULTURAL CROP LOANS AND AGRICULTURAL JEWEL LOANS ARE LESS COMPARED WITH OTHER LOANS. THE ASSESSING OFFICER MADE ELABORATE FINDINGS ON THE WORKING SYST EM OF SOCIETY ACTIVITIES AND DEALT ON DEFINITION AND PROVISIONS APPLICABLE TO CO-OPERA TIVE BANK AND PRIMARY AGRICULTURAL SOCIETY. THE CO-OPERATIVE SOCIETY, PRIMARY OBJECT O R PRINCIPAL BUSINESS IS TO PROVIDE FINANCIAL ACCOMMODATION TO ITS MEMBERS FOR AGRICULT URAL PURPOSES OR FOR PURPOSES CONNECTED WITH AGRICULTURAL ACTIVITIES INCLUDING MA RKETING OF CROPS. THE LD. ASSESSING OFFICER ASSUMED THAT THE ASSESSEE CANNOT ENJOY THE BENEFIT OF DEDUCTION U/S.80P OF THE ACT BY NAMING AS PRIMARY AGRICULTURAL CO-OPERAT IVE SOCIETY AND SHALL FULFIL THE CONDITIONS OF PROVISIONS OF SEC.80P(4) OF THE ACT. THE LD. ASSESSING OFFICER FOUND THAT THE SOCIETY COULD NOT COMPLY THE CONDITIONS AN D CLAIMED DEDUCTION U/S.80P OF :-5-: I.T.A. NOS. 2999 & 3001/MDS/2016 THE ACT AND PERUSED THE ACTIVITIES OF SOCIETY ON PA R WITH COMMERCIAL BANK AND RELIED ON JUDICIAL DECISIONS AND LIMITED THE DEDUCTION U/S .80P OF THE ACT TO THE EXTENT OF INCOME EARNED FROM FARM SECTOR OUT OF BANKING BUSIN ESS AND INCOME FROM CREDIT FACILITIES EXTENDED TO ITS MEMBERS BY CALCULATING P ROPORTIONATE PROFIT AND ALLOWED PROPORTIONATE DEDUCTION U/S.80P OF THE ACT AND ASSE SSED TOTAL INCOME OF RS. 62,08,770/- AND RAISED DEMAND. AGGRIEVED BY THE ORD ER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISE D REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND DEMONSTRATED THE APPLICABILITY OF PROVISIONS TO THE ASSESSEE SOCIETY PROVIDING AGRICULTURAL CROP LOANS AND JEWELRY LOANS TO ITS ME MBERS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS DEALT ON THE CO-ORDINATE B ENCH DECISION AT PAGE 3 PARA 4 OF THE ORDER AND HAVING SATISFIED WITH COMPLIANCE O F PROVISIONS OF SEC. 80P OF THE ACT RELIED ON THE DECISION IN CIT VS. PUNJAB STATE CO-O PERATIVE BANK LTD 300 ITR 24 (P & H) AND CO-ORDINATE BENCH DECISION IN THE CASE OF M/S. SL(SPL) 151, KARKUDALPATTY PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY LT D VS. ITO IN ITA NO.292/MDS/2014, DATED 17.03.2014. THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) ON THE BASIS OF THE SUBMISSIONS OF LD. AU THORISED REPRESENTATIVE AND THE ORDERS OF THE TRIBUNAL FOUND THE ASSESSEE SOCIETY I S ELIGIBLE FOR DEDUCTION U/SEC.80P(2)(A)(I) OF THE ACT AND ALLOWED THE APPEA L. AGGRIEVED BY THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE H AS ASSAILED AN APPEAL BEFORE THE TRIBUNAL. :-6-: I.T.A. NOS. 2999 & 3001/MDS/2016 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE REITERATED HIS SUBMISSIONS ON THE GROUNDS OF APPEAL AND CONTESTED THE JUDICIAL DE CISIONS RELIED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WERE THE DEPAR TMENT HAS FILED AN APPEAL IN JURISDICTIONAL HONBLE HIGH COURT U/S. 260A OF THE ACT AGAINST TRIBUNAL ORDER AND PRAYED FOR SET ASIDE OF THE ORDER OF COMMISSIONER O F INCOME TAX (APPEALS). 6. CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIE D ON THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND JUDICIAL DECISIONS AND OPPOSED TO THE GROUNDS OF THE REVENUE. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. DEPARTMENTAL REPRESENTA TIVE CONTESTED THE DECISIONS RELIED BY THE COMMISSIONER OF INCOME TAX (APPEALS) AS THEY HAVE NOT REACHED FINALITY AND APPEAL IS PENDING IN JURISDICTIONAL HIGH COURT, DOE S NOT HAVE MERIT BY MERE FILING THE PROCEEDINGS BEFORE THE TRIBUNAL CANNOT BE STOPPED A ND ALSO URGED ON DEFINITION OF THE MEMBER BASED ON THE AUDIT REPORT AS MEMBER MEAN S SHARE HOLDER AND DOES NOT INCLUDE ASSOCIATE MEMBER. THE ASSESSEE SOCIETY IS E NGAGED IN THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS AND ACTI VITIES OF PRIMARY AGRICULTURE CO- OPERATIVE CREDIT SOCIETY ARE NOT ON PAR WITH CO-OPE RATIVE BANKS AND RELY ON CO- ORDINATE BENCH DECISION OF TRIBUNAL IN ITO VS M/S. SL (SPL) 151, KAROODALPATTY PRIMARY AGRICULTURAL CO-OPERATIVE CREDIT SOCIETY IN ITA NO. 2273/MDS/2016 VEERAKERALAM PRIMARY AGRICULTURAL CO-OPERATIVE CRED IT SOCIETY IN ITA NO.197/MDS/2016, DATED 10.11.2016, WHERE THE TRIBUN AL HAS OBSERVED AT PAGE 4 PARA 8 & 9 WHICH READ AS UNDER: :-7-: I.T.A. NOS. 2999 & 3001/MDS/2016 ' 8. WE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL PLACED BEFORE US. THE ISSUE REGARDING JEWEL LOAN GIVEN TO ASSOCIATE MEMBERS WAS CONSIDERED BY THE CO-ORDINATE BENCH IN THE CASE OF M/S S-39 GAJALNAICKENPATTY PACCS LTD, SALEM IN ITA NO.1079/M DS/2016 DATED 30TH SEPTEMBER 2016 BY ITATA BENCH AND ALLOWED THE APP EAL PLACING RELIANCE ON THE ON THE JUDGMENT OF MADRAS HIGH COURT IN THE CAS E OF CIT VS TIRUCHENGODE AGRICULTURAL PRODUCERS COOPERATIVE MARKETING SOCIET Y LTD AND IN S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERATIVE BANK LTD I N TAX CASE APPEAL NOS. 484 TO 487 AND 490 OF 2016, DATED 2.8.2016, WHEREIN THE HIGH COURT AS HELD AS UNDER: 9. IN THE INSTANT CASE, WHILE ALLOWING THE APPEAL S FILED BY THE ASSESSEE, THE COMMISSIONER OF INCOME TAX (APPEALS), HAD RELIED UPON, THE FOLLOWING PORTION OF THE DECISION OF THE TRIBUN AL ARRIVED IN I.T.A.NO. 292/CHNY/2014: 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CASE FILE. AS STATED IN THE PRECEDING PARAGRAPH S, THE CIT(A) HAS PROCEEDED TO ENHANCE THE ASSESSMENT (SUPRA) ON LY ON THE GROUND THAT THE ASSESSEES CREDIT AND VARIOUS OTHER LOAN FACILITIES HAVE BEEN ALLOWED TO BE AVAILED BY B CL ASS NOMINAL MEMBERS WHOSE LIABILITY IS LIMITED, AT THE BEST, TO THE EXTENT OF LOAN REPAYABLE INSTEAD OF A CLASS MEMBERS WHO HAV E VOTING RIGHTS AND DIVIDEND CLAIM, AND ALSO THAT THE LATTER MEMBERS ARE JOINTLY AND SEVERELY LIABLE. IN THIS BACKDROP, WHEN WE PERUSE THE RELEVANT PROVISIONS OF THE STATE CO-OPERATIVE SOCIE TIES ACT, 1983, GOVERNING THE ASSESSEE-SOCIETY IT IS EVIDENT FROM THE DEFINITION OF MEMBER U/S 2(16) THAT THE SAME INCL UDES AN ASSOCIATE MEMBER RECOGNITION AS PER THE ACT. THE NET RESULT IS THAT ONCE THE NOMINAL MEMBERS ALSO ENJOY STATUARY CONDITION IMPOSED BY THE LEGISLATURE U/S 90P(2)(A)(I). WE MAK E IT CLEAR THAT WE ARE DEALING WITH THE DEDUCTION PROVISION TO BE INTERPRETED LIBERALLY. IN OUR CONSIDERED OPINION, T HE OBJECTIONS OF THE REVENUE THAT THE MEMBERS DEFINED IN SUB CLAUS E(I) OF :-8-: I.T.A. NOS. 2999 & 3001/MDS/2016 SECTION 80P SHOULD ONLY INCLUDE VOTING MEMBERS WOUL D AMOUNT TO A CLASSIFICATION WITHIN CLASSIFICATION WHICH IS BEYOND THE PURVIEW OF TAX STATUTE; UNLESS PROVIDED SPECIFICALL Y BY THE LEGISLATURE. MOREOVER, WE FIND THAT THE CASE LAW OF HON'BLE PUNJAB AND HARYANA HIGH COURT (SUPRA) ALSO SUPPORTS THE ASSESSEES CASE WHEREIN IT HAS BEEN HELD UNDER THE VERY PROVISION THAT FOR THE PURPOSE OF IMPUGNED DEDUCTIO N, IT IS IRRELEVANT SO FAR AS CLASSIFICATION OF THE MEMBERS IN A OR B CATEGORY IS CONCERNED. FOLLOWING THE DECISION OF TH E PUNJAB AND HARYANA HIGH COURT, THE APPELLATE AUTHORITY AS WELL AS THE INCOME TAX APPELLATE TRIBUNAL, HAS PASSED THE ORDER IMPUGNED. 10. THE APPELLATE AUTHORITY, NAMELY, THE COMMISSION ER OF INCOME TAX (APPEALS) AND THE INCOME TAX APPELLATE TRIBUNAL HAS CLEARLY HELD THAT THE ASSESSEES ARE NOT COOPERATIVE BANK AND THAT THE IR ACTIVITIES IN THE NATURE ACCEPTING DEPOSITS, ADVANCING LOANS ETC., CA RRIED ON BY THE ASSESSEES ARE CONFINED TO ITS MEMBERS ONLY AND THAT TOO IN A PARTICULAR GEOGRAPHICAL AREA. THEREFORE, THE RESPONDENT SOCIET IES ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. TH E CONTENTION OF THE APPELLANTS THAT THE MEMBERS OF THE ASSESSEE SOCIETI ES ARE NOT ENTITLED TO RECEIVE ANY DIVIDEND OR HAVING ANY VOTING RIGHT OR NO RIGHT TO PARTICIPATE IN THE GENERAL ADMINISTRATION OR TO ATT END ANY MEETING ETC. BECAUSE THEY ARE ADMITTED AS ASSOCIATE MEMBERS FOR AVAILING LOAN ONLY AND WAS ALSO CHARGING A HIGHER RATE OF INTEREST AT THE RATE OF 14%, IS NOT A GROUND TO DENY THE EXEMPTION GRANTED UNDER SE CTION 80P (2)(A) (I) OF THE ACT. 11. THE DECISION RENDERED BY THIS COURT IN TCA 735, 755 OF AND 460 OF 2015 DATED 05.07.2016, SQUARELY COVERS THE PRESENT FACTS OF THE CASE, SO FAR AS IT RELATES TO THE INELIGIBILITY OF THE RE SPONDENT SOCIETIES, UNDER SECTION 80P (2)(A)(I). IN THE LIGHT OF THE ABOVE DI SCUSSION AND THE :-9-: I.T.A. NOS. 2999 & 3001/MDS/2016 DECISIONS, WE ARE OF THE VIEW THAT THE SUBSTANTIAL QUESTIONS OF LAW RAISED IN THE INSTANT APPEALS ARE ANSWERED AGAINST THE REVENUE. 9. WE HAVE ALSO GONE THROUGH THE JUDGMENT OF THE MA DRAS HIGH COURT IN THE CASE OF S-1308 AMMAPET PRIMARY AGRICULTURAL COOPERA TIVE BANK LTD.(SUPRA) AND IT IS SQUARELY APPLICABLE TO THE ASSESSEES CAS E. THE LD.D.R DID NOT PLACE ANY MATERIAL CONTROVERTING THE DECISIONS RELIED UP ON BY THE LD.CIT(A) IN HIS ORDER AND THE CITBLE MADRAS HIGH COURT JUDGMENT CI TED SUPRA. THEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. C IT(A) AND ACCORDINGLY, UPHOLD THE SAME.' WE RESPECTFULLY FOLLOW THE CO-ORDINATE BENCH DECISI ON AND DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) WHO HAS DEALT ON THE PROVISIONS OF LAW AND CO-ORDINATE BENCH DECISION AND WE ACCORDINGLY UPHOLD THE CIT(A) ORDER AND DISMISS THE REVENUE APPEAL. 8. SIMILARLY, THE APPEAL OF REVENUE IN ITA NO. 2999 /MDS/2016 FOR THE ASSESSMENT YEAR 2013-14 IS ALSO DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 30TH DAY OF JANUARY , 2017 AT CHENNAI. SD/- ( . ) ( A. MOHAN ALANKAMONY ) # / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) ) # /JUDICIAL MEMBER /CHENNAI, 0 /DATED: 30TH JANUARY, 2017 JPV & )'23 43 /COPY TO: 1. APPELLANT 2. )*% /RESPONDENT 3. 5 ( )/CIT(A) 4. 5 /CIT 5. 3 )'' /DR 6. 9 /GF