Sri.Basaveshwar Souhard Pattina Sahakari Niyyamit , Talikoti V. Income Tax Officer ward-2 , Bijapur

ITA 374/BANG/2018

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5472 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 07-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: L V BHASKAR REDDY
• Keywords: Search and seizure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-A BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 374 / BANG/201 8 ASSESSMENT YEAR : 20 1 0 - 11 M/S. SHRI BASAVESHWAR SOUHARDA PATTINA SAHAKARI NIYAMIT, M S SARASHETTY BUILDING, APMC MARKET, MAIN ROAD, TALIKOTI, TQ-MUDDEBIHAL, DIST. BIJAPUR. PAN: AACAS8157M VS. THE INCOME TAX OFFICER, WARD -2, BIJAPUR. APPELLANT RESPONDENT APPELLANT BY : SHRI SANDEEP .C, CA RESPONDENT BY : SHRI L.V. BHASKAR REDDY, ADDL. CIT (DR) DATE OF HEARING : 2 0 . 0 3 .2018 DATE OF PRONOUNCEMENT : 20 . 0 3 .201 8 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THIS IS DI RECTED AGAINST THE ORDER OF LD. CIT (A), GULBARGA DATED 23.11.2017 FOR ASSESSMENT Y EAR 2010-11. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. 1. THAT THE ORDER OF THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) IS PREJUDICIAL TO THE INTERESTS OF THE AP PELLANT, IS BAD AND ERRONEOUS IN LAW AND AGAINST THE FACTS AND CIRCUMST ANCES OF THE CASE. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE OF D EDUCTION U/S 80P(2)(A)(I) AMOUNTING TO RS. 8,79,220/- ON THE GRO UND THAT THE APPELLANT IS A CO-OPERATIVE BANK AND SUCH FINDING I S PERVERSE AND CONTRARY TO THE MATERIALS AVAILABLE ON RECORD. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS IN UPHOLDING THE DISALLOWANCE U/S. 80P(2)(A)(I) OF THE ACT ON A NEW GROUND ALTOGETHER WHICH WAS NOT THE BA SIS FOR DISALLOWING THE DEDUCTION U/S. 80P(2)(A)(I) BY THE ASSESSING OFFICER. 4. THAT THE ACTION OF THE LEARNED COMMISSIONER OF I NCOME TAX ITA NO. 374/BANG/2018 PAGE 2 OF 7 (APPEALS) IN DENYING THE DEDUCTION ON AN ENTIRELY N EW GROUND AMOUNTS TO ENHANCEMENT AND THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS IN ENHANCIN G THE ASSESSMENT WITHOUT ESTABLISHING THE FACTUAL FOUNDATION AND WIT HOUT FOLLOWING THE PROCEDURE U/S 250(2) OF THE ACT. 5. WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THAT THE APPELLANT IS A CO- OPERATIVE SOCIETY REGISTERED UNDER THE KARNATAKA ST ATE CO-OPERATIVE SOCIETIES ACT, 1959 AND THAT ACT ALLOWS THE CO-OP S OCIETIES TO ADMIT NOMINAL AND ASSOCIATE MEMBERS AND THEREFORE, THE DE CISION OF HON. SUPREME COURT IS NOT APPLICABLE TO THE FACTS OF PRE SENT CASE. 6. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT THE SUM OF RS.4,000/- DISALLOWED U/S. 43B OF THE ACT IS NOT ALLOWABLE U/S 80P(2) OF THE ACT. 7. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) OUGHT TO HAVE APPRECIATED THAT WHATEVER INCOME WHICH IS DETE RMINED IN ACCORDANCE WITH THE PROVISIONS OF INCOME TAX ACT IS TO BE ALLOWED AS A DEDUCTION U/S 80P(2) OF THE ACT. EACH OF THE ABOVE GROUNDS IS WITHOUT PREJUDICE TO O NE ANOTHER, THE APPELLANT SEEKS THE LEAVE OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL, BANGALORE TO ADD, DELETE, AMEND OR MODIFY OTHERWISE ANY OF THE ABOVE GROUNDS EITHER BEFORE OR AT THE TIME OF H EARING OF THIS APPEAL. 3. THE APPEAL WAS FILED AFTER A DELAY OF 9 DAYS AND THE ASSESSEE HAS FILED AN APPLICATION FOR CONDONATION OF DELAY. IN APPLICATI ON FOR THE CONDONATION OF DELAY, THIS IS THE SUBMISSION THAT ASSESSEE THAT HE WAS TRAVELLING DURING THE RELEVANT PERIOD AND FOR THIS REASON, THERE WAS A DE LAY OF 9 DAYS IN FILING THE APPEAL BEFORE THE TRIBUNAL. THE ASSESSEE HAS ALSO SUBMITTED AN AFFIDAVIT OF THE PRESIDENT OF THE ASSESSEE SOCIETY IN SUPPORT OF ITS CONTENTIONS. CONSIDERING THESE FACTS, THE SMALL DELAY OF 9 DAYS IS CONDONED IN THE INTEREST OF JUSTICE AND THE APPEAL IS ADMITTED. 4. IT IS SUBMITTED BY LD. AR OF ASSESSEE THAT THE L D. CIT(A) HAS FOLLOWED THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF THE CITIZEN CO- OPERATIVE SOCIETY LTD. VS. ACIT AS REPORTED IN 397 ITR 1, COPY AVAILABLE ON PAGES 304 TO 312 OF THE PAPER BOOK. MY ATTENTION WA S DRAWN TO PAGE 311 OF THE PAPER BOOK AND IT WAS SUBMITTED THAT IN PARA 25 OF THIS JUDGMENT, IT WAS HELD BY ITA NO. 374/BANG/2018 PAGE 3 OF 7 HONBLE APEX COURT THAT THE MAIN REASON FOR DISENTI TLING THE ASSESSEE FROM GETTING THE DEDUCTION PROVIDED U/S. 80P OF THE ACT IS NOT SUB-SECTION (4) THEREOF. WHAT HAS BEEN NOTICED BY THE AO, AFTER DISCUSSING I N DETAIL THE ACTIVITIES OF THE ASSESSEE, IS THAT THE ACTIVITIES OF THE ASSESSEE AR E IN VIOLATION OF THE PROVISIONS OF THE MACSA UNDER WHICH IT IS FORMED. IT IS ALSO NOTED BY HONBLE APEX COURT THAT IT IS POINTED OUT BY THE AO THAT THE ASSESSEE IS CATERING TO TWO DISTINCT CATEGORIES OF PEOPLE. THE FIRST CATEGORY IS THAT O F RESIDENT MEMBERS OR ORDINARY MEMBERS. THERE MAY NOT BE ANY DIFFICULTY AS FAR AS THIS CATEGORY IS CONCERNED. HOWEVER, THE ASSESSEE HAD CARVED OUT ANOTHER CATEGO RY OF NOMINAL MEMBERS. THESE ARE THOSE MEMBERS WHO ARE MAKING D EPOSITS WITH THE ASSESSEE FOR THE PURPOSE OF OBTAINING LOANS, ETC AN D, IN FACT, THEY ARE NOT MEMBERS IN REAL SENSE. MOST OF THE BUSINESS OF THE ASSESSEE WAS WITH THIS SECOND CATEGORY OF PERSONS WHO HAVE BEEN GIVING DEP OSITS WHICH ARE KEPT IN FIXED DEPOSITS WITH A MOTIVE TO EARN MAXIMUM RETURN S. THIS IS ALSO THE FINDING OF HONBLE APEX COURT THAT A PORTION OF THESE DEPOS ITS IS UTILISED TO ADVANCE GOLD LOANS, ETC. TO THE MEMBERS OF THE FIRST CATEGO RY. IT IS FOUND, AS A MATTER OF FACT, THAT THE DEPOSITORS AND BORROWERS ARE QUITE D ISTINCT. IN REALITY, SUCH ACTIVITY OF THE ASSESSEE IS THAT OF FINANCE BUSINESS AND CAN NOT BE TERMED AS CO- OPERATIVE SOCIETY. IT IS ALSO FOUND THAT THE APPEL LANT IS ENGAGED IN THE ACTIVITY OF GRANTING LOANS TO GENERAL PUBLIC AS WELL AND ALL TH IS IS DONE WITHOUT ANY APPROVAL FROM THE REGISTRAR OF THE SOCIETIES AND THIS IS THE REMARK OF THE AO THAT INDULGENCE IN SUCH KIND OF ACTIVITY BY THE ASSESSEE IS IN VIOLATION OF THE CO- OPERATIVE SOCIETIES ACT AND THEREFORE, IT IS A CO-O PERATIVE CREDIT SOCIETY WHICH IS NOT ENTITLED TO DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT. HE SUBMITTED THAT IN THE PRESENT CASE, THE ASSESSEE SOCIETY IS FORMED UNDER THE KARNATAKA ACT AND UNDER THIS ACT, NOMINAL MEMBER IS ALSO A MEMBER A ND THEREFORE, THIS JUDGMENT OF HONBLE APEX COURT IS NOT APPLICABLE IN THE PRES ENT CASE. AT THIS JUNCTURE, IT WAS POINTED OUT BY THE BENCH THAT AS PER PARA 4.7 A T PAGE 9 OF THE ORDER OF CIT(A), THE CIT(A) DECIDED THE ISSUE BY FOLLOWING T HIS JUDGMENT OF HONBLE APEX COURT WITHOUT DISCUSSING AND COMPARING THE FACTS OF THE PRESENT CASE WITH FACTS OF THAT CASE AND RELEVANT BYLAWS OF ASSESSEE SOCIET Y IN THE PRESENT CASE AND THEREFORE, IN THE INTEREST OF JUSTICE, THE MATTER S HOULD GO BACK TO THE FILE OF CIT(A) FOR FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER. ITA NO. 374/BANG/2018 PAGE 4 OF 7 5. IN REPLY, THE LD. AR OF ASSESSEE ACCEPTED THIS P ROPOSITION PUT FORWARD BY THE BENCH. THE LD. DR OF REVENUE ALSO AGREED TO THIS P ROPOSITION. REGARDING GROUND NO. 6 OF THE ASSESSEES APPEAL, IT WAS SUBMI TTED BY LD. AR OF ASSESSEE THAT THIS GROUND IS NOT PRESSED AND ACCORDINGLY THI S GROUND IS REJECTED AS NOT PRESSED. HAVING REJECTED GROUND NO. 6 OF THE ASSESS EES APPEAL, I FIND THAT ALL THE REMAINING GROUNDS ARE REGARDING ONLY ONE ISSUE I.E. REGARDING ALLOWABILITY OF DEDUCTION U/S. 80P. THE CIT(A) HAS DECIDED THIS IS SUE AS PER PARA 4.7 OF THE ORDER OF CIT(A) WHICH IS REPRODUCED HEREINBELOW FOR THE SAKE OF READY REFERENCE. 4.7 IN LIGHT OF THE ABOVE DECISION ALL THE ARGUMENT S AND VARIOUS JUDICIAL PRONOUNCEMENTS AND RELIANCE PLACED BY THE APPELLANT DURING APPEAL PROCEEDINGS STANDS ON A WEAK FOOTING AND LAC KS MERITS. THE APPELLANT HAS TO CLEARLY PROVE THAT THE CONDITIONS DISCUSSED IN SUPREME COURT JUDGMENT DID NOT EXIST IN HIS CASE. T HE AO HAD GIVEN A DETAILED ORDER AND ALSO MENTIONED THAT ANY PERSON A BOVE 18 YRS OF AGE LIVING PERMANENTLY WITHIN THE AREA OF OPERATION CAN BECOME A MEMBER BY PAYING SHARE FEE OF100. THE AO IN REMAND REPORT BROUGHT OUT AS FOLLOWS. THUS, IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE SOCIETY IS NOT ONLY DEALING WITH MEMBERS BUT ALSO WITH THE NOMINAL MEMB ERS WHO ARE GENERAL PUBLIC FOR ACCEPTANCE OF DEPOSITS AND THUS, DOING BANKING BUSINESS. THE APPELLANT WAS NOT ABLE TO PROVE THAT IT IS PURE LY A CO-OPERATIVE SOCIETY WITH NO NOMINAL MEMBERS AND NO FINANCING TO PUBLIC AND HENCE THE LATEST DECISION OF SUPREME COURT AS ABOVE SQUARELY APPLIES. THE APPELLANT HAS NOT BEEN ABLE TO EXPLAIN THAT HIS CASE IS NOT COVERED BY THE JUDGMENT OF APEX COURT AS ABOVE. THE APPELLA NT IS SOLELY RELYING ON THE FAVORABLE JUDGEMENT OF ITAT BUT HE A LSO HAD TO PROVE THAT HIS CASE IS NOT COVERED BY THE LATEST SUPREME COURT JUDGMENT WHICH WAS DELIVERED ALMOST THREE YEARS AFTER THE OR DER OF ITAT HE HAD TO DISTINGUISH HIS CASE FROM THE LATEST JUDGEME NT OF SUPREME COURT AND PROVE HIS ELIGIBILITY FOR DEDUCTION AND T HAT THE VIOLATIONS MENTIONED IN SUPREME COURT JUDGMENT DID NOT EXIST I N HIS CASE. THEREFORE, I DO NOT FIND ANY NEED TO INTERFERE WITH THE A0'S ORDER. AND IT IS FELT THAT THE JUDGMENT OF HONBLE SUPREME COU RT IS APPLICABLE IN APPELLANT'S CASE. THEREBY THE AO IS JUSTIFIED IN RE JECTING THE ASSESSEE CLAIM DEDUCTION U/S 80P(2)(A)(I) OF THE INCOME TAX ACT. THE RELEVANT GROUNDS OF APPEAL ARE HEREBY DISMISSED. 6. I ALSO REPRODUCE PARAS 25 TO 27 OF JUDGMENT OF H ONBLE APEX COURT RENDERED IN THE CASE OF THE CITIZEN CO-OPERATIVE SOCIETY LTD. V S. ACIT (SUPRA) AS PER PAGE NO. 311 OF THE PAPER BOOK. ITA NO. 374/BANG/2018 PAGE 5 OF 7 25) SO FAR SO GOOD. HOWEVER, IT IS SIGNIFICANT TO POINT OUT THAT THE MAIN REASON FOR DISENTITLING THE APPELLANT FROM GETTING THE DEDUCTION PROVIDED UNDER SECTION 80P OF THE ACT IS NOT SUB-SECTION (4) THEREOF. WHAT HAS BEEN NOTICED BY THE ASSESSING OFFICER, AFTER DISCUSSING IN DETAIL THE ACTIVITIES OF THE APPELLANT, IS THAT THE ACTIVITIES OF THE APPELL ANT ARE IN VIOLATIONS OF THE PROVISIONS OF THE MACSA UNDER WHICH IT IS FORMED. I T IS POINTED OUT BY THE ASSESSING OFFICER THAT THE ASSESSEE IS CATERING TO TWO DISTINCT CATEGORIES OF PEOPLE. THE FIRST CATEGORY IS THAT OF RESIDENT MEMB ERS OR ORDINARY MEMBERS. THERE MAY NOT BE ANY DIFFICULTY AS FAR AS THIS CATEGORY IS CONCERNED. HOWEVER, THE ASSESSEE HAD CARVED OUT ANO THER CATEGORY OF NOMINAL MEMBERS. THESE ARE THOSE MEMBERS WHO ARE MAKING DEPOSITS WITH THE ASSESSEE FOR THE PURPOSE OF OBTAINING LOAN S, ETC. AND, IN FACT, THEY ARE NOT MEMBERS IN REAL SENSE. MOST OF THE BUSINESS OF THE APPELLANT WAS WITH THIS SECOND CATEGORY OF PERSONS WHO HAVE BEEN GIVING DEPOSITS WHICH ARE KEPT IN FIXED DEPOSITS WITH A MOTIVE TO EARN MA XIMUM RETURNS. A PORTION OF THESE DEPOSITS IS UTILISED TO ADVANCE GO LD LOANS, ETC. TO THE MEMBERS OF THE FIRST CATEGORY. IT IS FOUND, AS A MA TTER OF FACT, THAT HE DEPOSITORS AND BORROWERS ARE QUIET DISTINCT. IN REA LITY, SUCH ACTIVITY OF THE APPELLANT IS THAT OF FINANCE BUSINESS AND CANNOT BE TERMED AS CO-OPERATIVE SOCIETY. IT IS ALSO FOUND THAT THE APPELLANT IS ENG AGED IN THE ACTIVITY OF GRANTING LOANS TO GENERAL PUBLIC AS WELL. ALL THIS IS DONE WITHOUT ANY APPROVAL FROM THE REGISTRAR OF THE SOCIETIES. WITH INDULGENCE IN SUCH KIND OF ACTIVITY BY THE APPELLANT, IT IS REMARKED BY THE ASSESSING OFFICER THAT THE ACTIVITY OF THE APPELLANT IS IN VIOLATION OF THE CO -OPERATIVE SOCIETIES ACT. MOREOVER, IT IS A CO-OPERATIVE CREDIT SOCIETY WHICH IS NOT ENTITLED TO DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. 26) IT IS IN THIS BACKGROUND, A SPECIFIC FINDING IS ALSO RENDERED THAT THE PRINCIPLE OF MUTUALITY IS MISSING IN THE INSTANT CA SE. THOUGH THERE IS A DETAILED DISCUSSION IN THIS BEHALF IN THE ORDER O F THE ASSESSING OFFICER, OUR PURPOSE WOULD BE SERVED BY TAKING NOTE OF THE F OLLOWING PORTION OF THE DISCUSSION: AS VARIOUS COURTS HAVE OBSERVED THAT THE FOLLOWING THREE CONDITIONS MUST EXIST BEFORE AN ACTIVITY COULD BE BROUGHT UNDER THE CONCEPT OF MUTUALITY; THAT NO PERSON CAN EARN FROM HIM; THAT THERE A PROFIT MOTIVATION; AND THAT THERE IS NO SHARING OF PROFIT. IT IS NOTICED THAT THE FUND INVESTED WITH BANK WHIC H ARE NOT MEMBER OF ASSOCIATION WELFARE FUND, AND THE INTEREST HAS BEEN EARNED ON SUCH INVESTMENT FOR EXAMPLE, ING MUTUAL FUND [AS SAID BY THE MD VIDE HIS STATEMENT DATED 20.12.2010]. [THOUGH THE BANK FORME D THE THIRD PARTY VIS- A-VIS THE ASSESSEE ENTITLED BETWEEN CONTRIBUTOR AND RECIPIENT IS LOST IN SUCH CASE. THE OTHER INGREDIENTS OF MUTUALITY ARE ALSO F OUND TO BE MISSING AS DISCUSSED IN FURTHER PARAGRAPHS]. IN THE PRESENT CASE BOTH THE PARTIES TO THE TRANSAC TION ARE THE CONTRIBUTORS TOWARDS SURPLUS, HOWEVER, THERE ARE NO PARTICIPATOR S IN THE SURPLUSES. THERE IS NO COMMON CONSENT OF WHATSOEVER FOR PARTIC IPATORS AS THEIR IDENTITY IS NOT ESTABLISHED. HENCE, THE ASSESSEE FA ILS TO SATISFY THE TEST OF MUTUALITY AT THE TIME OF MAKING THE PAYMENTS THE NU MBER IN REFERRED AS ITA NO. 374/BANG/2018 PAGE 6 OF 7 MEMBERS MAY NOT BE THE MEMBER OF THE SOCIETY AS SUC H THE AOP BODY BY THE SOCIETY IS NOT COVERED BY CONCEPT OF MUTUALITY AT ALL. 27) THESE ARE THE FINDINGS OF FACT WHICH HAVE REMAI NED UNSHAKEN TILL THE STAGE OF THE HIGH COURT. ONCE WE KEEP THE AFORESAID ASPECTS IN MIND, THE CONCLUSION IS OBVIOUS, NAMELY, THE APPELLANT CANNOT BE TREATED AS A CO- OPERATIVE SOCIETY MEANT ONLY FOR ITS MEMBERS AND PR OVIDING CREDIT FACILITIES TO ITS MEMBERS. WE ARE AFRAID SUCH A SOCIETY CANNOT CLAIM THE BENEFIT OF SECTION 80P OF THE ACT. 7. FROM THE ABOVE PARAS REPRODUCED FROM THIS JUDGME NT OF HONBLE APEX COURT, IT IS SEEN THAT IN THAT CASE, THIS WAS THE FINDING OF AO THAT THE ASSESSEE IS ENGAGED IN ACTIVITY OF GRANTING LOANS TO GENERAL PU BLIC. THIS IS ALSO THE FINDING IN THAT CASE THAT ASSESSEE HAS CARVED OUT A CATEGOR Y OF NOMINAL MEMBERS AND THESE ARE THOSE MEMBERS WHO ARE MAKING DEPOSITS WIT H THE ASSESSEE FOR THE PURPOSE OF LOAN ETC. AND IN FACT, THEY ARE NOT MEMB ERS IN REAL SENSE. THERE ARE SOME ASPECTS OF FACTS OF THAT CASE DISCUSSED BY HON BLE APEX COURT IN THESE PARAS OF JUDGMENT. IN THE RELEVANT PARA OF CIT(A), THERE IS NO DISCUSSION ABOUT THE FACTS OF THE PRESENT CASE AND ITS COMPARISON WI TH THE FACTS IN THAT CASE. HENCE I FEEL IT PROPER TO RESTORE THE MATTER BACK T O THE FILE OF CIT(A) FOR FRESH DECISION BY WAY OF A SPEAKING AND REASONED ORDER AF TER DISCUSSING THE FACTS OF THE PRESENT CASE AND COMPARING THE SAME WITH THE FA CTS OF THAT CASE AND PASS A SPEAKING ORDER AFTER PROVIDING ADEQUATE OPPORTUNI TY OF BEING HEARD TO BOTH SIDES. IN VIEW OF THIS DECISION, NO FURTHER ADJUDI CATION IS CALLED FOR ON MERIT OF THE CASE AT THIS STAGE. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- (ARUN KUMAR GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED, THE 20 TH MARCH, 2018. /MS/ ITA NO. 374/BANG/2018 PAGE 7 OF 7 COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.