The Dabhoi Nagrik Sahakari Bank Ltd., Baroda V. The Income Tax Officer, Ward-3(2), Baroda

ITA 47/AHD/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9842 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Keywords: Business income
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH BEFORE: SHR I MAHAVIR PRASAD , JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER THE DABHOI NAGRIK SAHAKARI BANK LTD. SAHKAR BHAWAN, KANSARA BAZAR, DABHOI, BARODA - 391110 PAN: AAAAT1314K (APPELLANT) VS THE IT O , WARD - 3(2) , BARODA - 390007 (RESPONDENT) REVENUE BY : S H RI LA LIT P. JAIN , SR. D . R. ASSESSEE BY: MS. URVASHI SHODHAN, A.R. DATE OF HEARING : 30 - 04 - 2 019 DATE OF PRONOUNCEMENT : 06 - 05 - 2 019 / ORDER P ER BENCH : - THESE FI VE APPEALS FILED BY ASSESSEE FOR A.Y. 2007 - 08 TO 2009 - 10, 2011 - 12 & 2013 - 14 , ARI SE FROM ORDER OF THE CIT(A) - 5, VADODARA DATED 01 - 10 - 2 015 , IN PROCEEDINGS UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. AS THE FACTS AN D ISSUES IN THESE FIVE APPEALS FILED BY ASSESSEE ARE COMMON, SO, WE TAKE ITA NO. 47/AHD/2016 AS LEAD CASE AND ITS FINDING WILL I T A NO . 47 TO 50 & 3361 / A HD/20 1 6 A .Y. 200 7 - 08 TO 2009 - 10, 2011 - 12 & 2013 - 14 I.T.A NO S . 4 7 TO 50 & 3361 /AHD/20 16 A.Y. 2007 TO 2009 - 10, 2011 - 12 & 2013 - 14 PAGE NO THE DABHOI NAGRIK SAHAKARI BANK LTD. VS. IT O 2 BE ALSO BE APPLICABLE TO THE REMAINING FOUR APPEALS FOR THE SAKE OF CONVENIENCE. 3. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS O F APPEAL: - 47/AHD/2016 1. THE ASSESSEE IS A CO - OPERATIVE BANK ESTABLISHED IN THE YEAR 1934 AND HAS WORKED FOR MORE THAN 75 YEARS IN A CO - OPERATIVE SECTOR. IN INITIAL YEARS THE APPELLANT WAS REGISTERED AS A CO - OPERATIVE SOCIETY AND WAS GRANTED BANKING LICE NSE BY THE RESERVE BANK OF INDIA ON 31.12.1986 SINCE THEN APPELLANT WAS CONDUCTING BANKING BUSINESS. 2. RBI VIDE LETTER DATED 09.06.2004 ISSUED DIRECTIVES DATED 08.06.2004. IN TERMS OF DIRECTIVE, APPELLANT BANK IS PRECLUDED WITH EFFECT FROM THE CLOSE OF BU SINESS ON 14.06.2004 FROM INCURRING ANY LIABILITY (I.E. RESORTING TO BORROWING, ACCEPTING DEPOSITS ETC.) OR SANCTIONING / RENEWING LOANS /ADVANCES OR MAKING PAYMENTS OR DISCHARGING ANY LIABILITIES OR OBLIGATIONS EXCEPT IN ACCORDANCE WITH THE DIRECTIONS CON TAINED IN THE SAID DIRECTIVE. 3. THE ASSESSEE FILED RETURN OF INCOME ELECTRONICALLY ON 30.10.2007 DECLARING TOTAL INCOME OF RS. NIL. THE ASSESSEE HAS SHOWN NET PROFIT OF RS. 14,01,741/ - AND AFTER SETTING OFF BROUGHT FORWARD LOSS OF RS. 16,55,77,329/ - HAS SH OWN TOTAL INCOME OF RS. NIL. 4. THE CASE WAS REOPENED U/S 148 OF THE ACT AND WAS ISSUED NOTICE ON 30.03.2013. 4. THE BRIEF FACT IS THAT THE ASSESSE HAS FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 DECLARING TAXABLE INCOME AT RS. NIL. SUBSEQUE NTLY, CASE WAS REOPENED BY ISSUING OF NOTICE U/S.148 OF THE A CT ON 30TH MARCH, 2013. THE ASSESSEE IS A CO - OPERATIVE SOCIETY ESTABLISHED IN THE YEAR 1934 AND WAS GRANTED BANKING LICENSE BY THE RESERVE BANK OF INDIA ON 31 ST DECEMBER, 1986. THE ASSESSING O FFICER HAS STATED THAT THE RESERVE BANK OF INDIA VIDE ITS LETTER DATED 9 TH JUNE, 2014 , T HE ASSESSEE BANK WAS PRECLUDED WITH THE EFFECT FROM THE CLOSE OF BUSINESS ON14TH JUNE, 2004 F R O M INCURRING ANY LIABILITY OR SANCTION/REVIEWING OR MAKING PAYMENT OR DISC HARGING ANY LIABILITY OR OBLIGATION EXCEPT IN ACCORDANCE WITH DIRECTIONS CONTAINED IN THE SAID DIRECTIVE. IT IS FURTHER STATED THAT RESERVE BANK OF INDIA VIDE ITS ORDER DATED 1 ST MARCH, 2006 HAS CANCELLED THE LICENSE OF THE ASSESSEE BANK W.E.F. 01 - 04 - 2016 AND DEBARRED THE ASSESSEE BANK FROM CARRYING ON ANY BANKING BUSINESS IN INDIA U/S. 22 OF THE BANKING REGULATION ACT, 1949. AFTER I.T.A NO S . 4 7 TO 50 & 3361 /AHD/20 16 A.Y. 2007 TO 2009 - 10, 2011 - 12 & 2013 - 14 PAGE NO THE DABHOI NAGRIK SAHAKARI BANK LTD. VS. IT O 3 CANCELLATION OF BANKING LICENSE , REGISTRAR OF CO - OPERATIVE GUJARAT VIDE HIS ORDER DATED 8 TH MARCH, 200 6 HAS APPOINTED LIQUIDA TOR FOR LIQUIDATION PROCESS. DURING THE COURSE OF APPELLATE PROCEEDINGS ON VERIFICATION OF INCOME AND EXPENDITURE ACCOUNT , THE ASSESSING OFFICER HAS NOTICED THAT THE ASSESSEE HAS S HOWN INCOME OF R S. 47 , 95 , 218/ - EARNED FRO M INTEREST ON DEPOSIT WITH OTHER BANKS AND GOVT. SECURITIES AND OTHER INCOME DURING THE FINANCIAL YEAR 2006 - 07 AND AFTER DEDUCTING EXPENSES TO THE AMOUNT OF RS. 33, 93 , 477/ - . THE ASSESSEE HAS SHOWN NET SUR PLUS INCOME OF R S. 14011741/ - . ON FURTHER VERIFICATION FROM THE COMPUTATION OF INCO ME, THE ASSESSING OFFICER HAS NOTICED THAT ASSESSEE HAS SET OFF BROUGHT FORWARD LOSS OF RS. 165577329/ - AGAINST THE AFORESAID NET PROFIT OF RS. 1401741/ - . THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE BANKING LICENSE OF THE ASSESSEE CO - OPERATIVE BA NK HAS BEEN CANCELLED BY THE RBI W.E.F. 1 ST APRIL, 2006, T HEREFORE, THE ASSESSEE WAS NOT ENTITLED TO CARRY OUT ANY BUSINESS OF BANKING. THEREFORE, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CANNOT SHOW ITS INCOME UNDER THE HEAD PROFIT AND GAINS FRO M BUSINESS AND CLAIM SET OFF OF BROUGHT FORWARD LOSSES. IN VIEW OF THE ABOVE REASONING, THE ASSESSING OFFICER ST AT ED TH AT T H E NET SURPLUS INCOME OF THE ASSESEE WAS REQUIRED TO BE TREATED AS INCOME FROM OTHER SOURCES. THEREFORE, A SHOW CAUSE NOTICE WAS IS SUED TO THE ASSESSEE TO EXPLAIN WHY NOT ITS INCOME FOR FINANCIAL YEAR 2006 - 07 OF RS. 1401741/ - SHOULD NOT BE TREATED AS INCOME FROM OTHER SOURCES AND ALSO TO EXPLAIN WHY NOT THE CLAIM OF SET OFF BUSINESS LOSSES AGA INST T H E INCOME FROM OTHER SOURCES SHOULD NOT BE DISALLOWED. THE ASSE SSEE HAS EXPLAINED THAT THE BANKING LICENSE WAS CANCELLED BUT THE BANK WAS REQUIRED TO PERFORM BANKING ACTIVITY IN THE NATURE OF RECOVERY OF LOAN , PAYMENT OF LIABILITIES INCLUDING PAYMENT OF DEPOSIT. IT WAS FURTHER EXPLAINED T HAT BUSINESS LOSS CARRIED FORWARD WAS I.T.A NO S . 4 7 TO 50 & 3361 /AHD/20 16 A.Y. 2007 TO 2009 - 10, 2011 - 12 & 2013 - 14 PAGE NO THE DABHOI NAGRIK SAHAKARI BANK LTD. VS. IT O 4 AVAILABLE TO SET OFF AGAINST THE N ET PROFIT EARNED BY THE BANK WITHOUT P ERFORMING BANKING ACTIVITIES, B ANK WOULD NOT BE IN A POSITION TO RECOVER ITS DUE AND REPAY ITS LIABILITY. IT WAS ALSO EXPLAINED THAT MAJORITY INC OME CONSISTS OF INTEREST INCOME ON FDR INVESTMENT WHICH WAS OUT OF SURPLUS FUND TEMPORARILY AVAILABLE WHICH WERE REMAINED TO BE DISTRIBUTED TO THE DEPOSITORS. THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSE AND STATED THAT IN VIEW OF THE CANCELLATION OF LICENSE BY THE RESERVE BANK OF INDIA , THE ASSESSEE HAS CEASED TO CARRY ON BANKING BUSINESS W.E.F. 01 - 04 - 2006. THEREFORE, AFTER REDUCING THE AMOUNT OF INCOME TAX REFUND FROM THE INCOME OF RS. 14 , 01 , 741/ - , THE ASSESSING OFFICER HAS TREA TED THE INCOME OF RS. 2 , 49 , 272/ - AS INCOME EARNED FROM OTHER SOURCES AND SAME WAS ADDED TO THE TOTAL INCOME OF THE ASSSESSEE. 5. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE BY FOLLOWI NG THE DECISION OF LD. CIT(A) - IV, BARODA IN THE CASE OF ANAND CO - OPERATIVE LTD. STATING THAT LD. CIT(A) HAS HELD THAT THE INCOME EARNED WAS INCOME FROM OTHER SOURCES AFTER DIS - CONTINUATION OF THE ASSESSEE S BUSINESS. 6. D URING THE COURSE OF APPELLATE PRO CEEDINGS BEFORE US, THE LD. COUNSEL HAS FURNISHED PAPER BOOK CONTAINING COPIES OF SUBMISSION MADE BEFORE THE ASSESSING OFFICER AND LD. CIT(A) DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS. SHE HAS VEHEMENTLY CO NTENDED THAT EVEN IF BANKING BU SINESS IS CANCELLED, BANK IS REQUIRE D TO PERFORM BANKING ACTIVITIES IN THE NATURE OF RECOVERY OF LOAN , PAYMENT OF LIABILITIES INCLUDING THE PAYMENT OF DEPOSIT ETC. SHE HAS ALSO FURNISHED THE COPIES OF DECISION OF I.T.A NO S . 4 7 TO 50 & 3361 /AHD/20 16 A.Y. 2007 TO 2009 - 10, 2011 - 12 & 2013 - 14 PAGE NO THE DABHOI NAGRIK SAHAKARI BANK LTD. VS. IT O 5 CO - ORDINATE BENCH OF ITAT AHMED ABAD IN THE CASE OF ANAND PEOPLES CO - OPERATIVE BANK LTD. VS. ITO VIDE ITA NO. 3199 TO 3202/AHD2015 DATED 23 - 01 - 2018 AND ALSO IN THE CASE OF M/S CHAROTAR NAGARIK SAHAKA RI BANK LTD. VS. ITO VIDE ITA NO . 2678/AHD/2015, 786/AHD/2014 AND 186/AHD/2016 DATED 28 - 1 1 - 2017. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE IS A CO - OPERATIVE BANK AND VIDE DIRECTIVE DATED 8 TH JUNE, 2014 ISSUED VID E LETTER DATED 9 TH JUNE, 2014, T HE ASSESSEE BANK WAS PRECLUDED FROM INCURRING ANY LIABILITY I.E. RESORTING TO BORROWING ACCEPTING DEPOSIT ETC. OR SANCTIONING/REVIEWING LOAN/ADVANCES OR MAKING PAYMENT OR DISCHARGING ANY LIABILITIES OR OBLIGATIONS EXCEPT IN ACCORDANCE WITH THE DIRECTIONS CONTAINED IN THE SAID DIRECTIVE. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LD. COUNSEL HAS ALSO REFERRED DIRECTIONS OF RESERVE BANK OF INDIA GIVEN TO THE ASSESSEE BANK U/S. 35A OF THE BANKING R EGULATION ACT, 1949 VIDE LETTER DATED 8 TH JUNE, 2004 STATING THAT SERIAL NO. 3 OF THE DIRECTION STATE THAT RENEWAL OF THE EXITING TERM DEPOSITS MAY BE ALLOWED ON MATURITY IN THE SAME NAME AND SAME CAPACITY. T HEREFORE, THE LD. COUNSEL HAS SUBMITTED THAT SECTION 35 NEVER RESTRICTS THE BANK TO RECOVER OUTSTANDING DUES AS ON THE DAY OF INVOKING SECTION 35 OF THE BANKING REGULATION ACT, 1949 . IT IS FURTHER SUBMITTED THAT BANK HAS RECOVERED ITS OUTSTANDING ADVANCES WITH INTEREST AND HAS PAID INTEREST TO DEPOSITORS AND TO PAY FOR NECESSARY ESTABLISHMENT INCURRING EXPENSES OR CARRYING OUT BUSINESS ACTIVITIES. AFTER CANCELLATION OF BANKING LICENSE , REGISTRAR OF C O - OPERATIVE , GUJARAT S TATE VIDE HIS LETTER DATED 8 TH MARCH, 2006 PASSED ORDER FOR LIQUIDATION OF THE BANK AND APPOINT ED I.T.A NO S . 4 7 TO 50 & 3361 /AHD/20 16 A.Y. 2007 TO 2009 - 10, 2011 - 12 & 2013 - 14 PAGE NO THE DABHOI NAGRIK SAHAKARI BANK LTD. VS. IT O 6 LIQUIDATOR FOR LIQUIDATION PROCESS. IN THE LIGHT OF THE ABOVE FACTS AND CIRCUMSTANCES , WE HAVE GONE THROUGH THE DECISION OF CO - ORDINATE BENCH OF THE ITAT IN THE CASE OF ANAND PEOPLES CO - OPERATIVE BANK VS. ITO VIDE ITA NO. 3199 TO 3202/AHD/2015 DATED 23 - 01 - 2018 VIDE WHICH AFTER REFERRING THE DECISION OF CO - ORDINATE BEN CH OF THE ITAT VIDE ITA NO. 2678/AHD/2015 M/S. CHA ROTAR NAGARIK SAHAKARI BANK LTD. VS. ITO DATED 28 - 11 - 2017 WHEREIN A FTER CONSIDERING THAT THE ASSESSEE HAS RECEIVED BACK ITS BUSINESS ADVANC ES FROM ITS CUSTOMER S WITH INTEREST WHICH IN TURN STOOD DEPOSIT ED IN BANK FETCHING THE INTEREST INCOME, THEREFORE, IT WAS HELD THAT INTEREST RECEIVED FROM CUSTOMER AS WELL AS THE INTEREST INCOME PAID BY BANK ON THE SAME BEING DEPOSITED IN ITS BANKING ACCOU NT IS TO BE TAKEN AS BUSINESS INCOME AND THE REST OF THE INCOME WOULD BE TAKEN AS INCOME FROM OTHER SOURCES. THE RELEVANT PART OF THE DECISION OF THE CO - ORDINATE BENCH OF THE ITAT IS REPRODUCED AS UNDER: - 5. WE HAVE HEARD RIVAL CONTENTIONS. CASE FILE PER USED QUA THE INSTANT ISSUE ON MERITS. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY CONTENDS THAT THE ASSESSING OFFICER AS WELL AS THE CIT(A) HAVE RIGHTLY ASSESSED ASSESSEE'S INTEREST INCOME IN QUESTION UNDER THE HEAD 'INCOME FROM OTHER SOURCES' AS ASSESS EE'S BANKING LICENSE STANDS CANCELLED. HE ALSO QUOTES ABOVE JUDICIAL PRECEDENT IN SUPPORT OF THE SAID ACTION FOR URGING US TO FOLLOW JUDICIAL CONSISTENCY. WE HOWEVER FIND THAT HON'BLE JURISDICTIONAL HIGH COURT'S JUDGMENT HEREINABOVE DID NOT DEAL WITH THE C ASE WHEREIN THE INCOME IN QUESTION HAD BEEN REALIZED FROM THE RELEVANT BUSINESS CUSTOMERS. IT RATHER TRANSPIRES THAT THE SAID COOPERATIVE BANK LIQUIDATOR HAD REALIZED ITS ASSETS AND CONSEQUENTIAL INCOME THEREFROM HAD BEEN CLAIMED AS 'INCOME FROM BUSINESS'. IN VIEW OF THESE FACTS THAT THEIR LORDSHIPS SETTLED THE ISSUE TO UPHOLD REVENUE'S ACTION TREATING INCOME FROM SAID REALIZATION AS UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. WE FIND THAT THE SAME IS NOT THE CASE HERE. THE ASSESSEE'S PLEA THROUGHOUT IS THA T IT HAS RECEIVED BACK ITS BUSINESS ADVANCES FROM ITS CUSTOMERS WITH INTEREST WHICH IN TURN STOOD DEPOSITED IN BANK(S) FETCHING THE INTEREST INCOME IN QUESTION. WE FIND IN THE VERY BACKDROP THAT A CO - ORDINATE BENCH IN ITA NO.2678/AHD/2015 M/S. CHAROTAR NAG RIK SAHAKARI BANK LTD. VS. ITO DECIDED ON 28.11.2017 HAS REMITTED AN IDENTICAL ISSUE BACK TO THE ASSESSING OFFICER WITH NECESSARY DIRECTIONS TO THE ASSESSEE AS WELL TO SUBMIT NECESSARY BIFURCATION OF THE ORIGINAL INTEREST RECEIVED FROM CUSTOMERS AS WELL AS THE INTEREST INCOME PAID BY THE BANK ON THE SAME BEING DEPOSITED IN ITS BANK ACCOUNT. WE FOLLOW THE VERY COURSE OF ACTION HEREIN AS WELL TO LEAVE IT OPEN FOR THE ASSESSING OFFICER TO FINALIZE CONSEQUENTIAL COMPUTATION IN VIEW OF THE RELEVANT BIFURCATION D ETAILS SUBMITTED BY THE ASSESSEE IN CONSEQUENTIAL PROCEEDINGS. WE MAKE IT CLEAR THAT THE RELEVANT INTEREST INCOME PAID BY ASSESSEE'S CUSTOMERS WOULD BE TAKEN AS BUSINESS INCOME. THE REST OF THE INCOME AFTER THE SAME BEING DEPOSITED IN BANK ACCOUNTS WOULD B E TAKEN AS 'INCOME FROM OTHER SOURCES'. NEEDLESS TO SAY CORRESPONDING EXPENDITURE BOTH UNDER BUSINESS HEAD AS WELL AS THE ONE U/S.57 OF THE ACT WOULD ALSO BE COMPUTED AND ALLOWED AS PER LAW. THIS LATTER ISSUE IS ACCEPTED IN ASSESSEE'S FAVOR BUT FOR STATIST ICAL PURPOSES. I.T.A NO S . 4 7 TO 50 & 3361 /AHD/20 16 A.Y. 2007 TO 2009 - 10, 2011 - 12 & 2013 - 14 PAGE NO THE DABHOI NAGRIK SAHAKARI BANK LTD. VS. IT O 7 IT IS OBSERVED THAT THE CASE OF THE ASSESSEE IS ALSO COMPRISED OF IDENTICAL ISSUE ON SIMILAR FACTS AS INVOLVED IN THE CASE OF ANAND PEOPLE CO - OPERATIVE BANK REFERRED ABOVE. TH EREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH, WE RESTORE THE ISSUES IN APPEALS TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATING AFRESH AFTER AFFORDING NECESSARY OPPORTUNITY TO THE ASSESSEE AS PER THE DIRECTIONS LAID BY THE CO - ORDINATE BENCH OF THE ITAT IN THE AFORESAID CIT ED DECISION. ACCORDI NGLY, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, ALL THE FIVE APPEALS FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PR ONOUNCED IN THE OPEN C OURT ON 06 - 05 - 201 9 SD/ - SD/ - ( MAHAVIR PRASAD ) ( AMARJ IT SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD : DATED 06 /05 /2019 / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,