Ahmednagar Zilla Prathamik Shikshak Sahakari Bank, Ahmednagar V. ITO, Wd -3, Ahmednagar,

ITA 481/PUN/2010

• Counselvise Citation: 48124514 RSA 2010
• Duration Of Justice: 1 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 30-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H C LEUVA
• Section: 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER I.T.A. NO. 481/PN/2010 : A.Y. 2006-07 AHMEDNAGAR ZILLA PRATHAMIK SHIKSHAK SAH. BANK, AIKYA MADIR, ANANDI BAZAR, AHMEDNAGAR PAN AAAJA 0961 E APPELLANT VS. I.T.O. WARD 3, AHMEDNAGAR RESPONDENT APPELLANT BY: SHRI NIKHIL PATHAK RESPONDENT BY: SHRI H.C. LEUVA ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT-(A)-I PUNE DATED 30-10-2009 FOR A.Y. 2006-07 CH ALLENGING THE ACTION OF THE CIT(A) IN DISALLOWING THE DEDUCTION U /S 80P(2)(A)(I) OF THE ACT AMOUNTING TO RS. 3,35,820/-. 2. THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERE D UNDER THE MAHARASHTRA CO-OP. SOCIETY ACT AND ENGAGED IN THE B USINESS OF BANKING. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE BANK HA D VOLUNTARY RESERVES AND THAT THE PROFIT OF THE ASSESSEE INCLUD ED INTEREST FROM INVESTMENTS MADE OUT OF SUCH VOLUNTARY RESERVES. T HE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE BANK HAD EARMARKED AN AMOUNT OF RS. 28.95 LAKHS TOWARDS THE DISTRIBUTION OF DIVIDEND OUT PAGE 2 OF 4 ITA NO. 481/PN/2010 AHMEDNAGAR ZILLA PRATHAMIK SHIKSHAK SAH. BANK A.Y. 2006-07 OF THE PROFIT INCLUDING INTEREST EARNED ON VOLUNTAR Y RESERVES. ACCORDING TO THE ASSESSING OFFICER, DISTRIBUTION OF DIVIDEND IS NOT A BANKING ACTIVITY AND SINCE THE PROFIT UTILIZED FOR DISTRIBUTION OF DIVIDEND ALSO INCLUDED INTEREST EARNED ON INVESTMEN T IN VOLUNTARY RESERVES, SUCH INTEREST INCOME WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THE ASSESSING OFFICER DIS ALLOWED THE INTEREST INCOME EARNED ON VOLUNTARY RESERVES TO THE EXTENT E ARMARKED FOR DIVIDEND DISTRIBUTION. ON APPEAL, THE CIT(A) HELD T HAT THE DIVIDEND DISTRIBUTED BY THE ASSESSEE BANK IS OUT OF THE INTE REST EARNED BY THE ASSESSEE FROM INVESTMENTS MADE OUT OF VOLUNTARY RES ERVES AND HENCE THE SAME WAS NOT UTILIZED FOR THE BUSINESS OF BANKING AND HENCE TO THAT EXTENT THE INTEREST EARNED ON INVESTM ENTS MADE OUT OF VOLUNTARY RESERVES DID NOT QUALIFY FOR DEDUCTION U/ S 80P(2)(A)(I) OF THE ACT. SO, THE ASSESSEE IS IN APPEAL BEFORE THE T RIBUNAL. 3. ON HEARING THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE ISSUE INVO LVED IN THIS CASE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMEN TS OF THE SUPREME COURT IN THE FOLLOWING CASES: I) CIT VS. NAWASHAHAR CENTRAL CO-OP. BANK LTD. (2007 2 89 ITR 6 (SC) II) CIT VS. RAMANATHAPURAM DIST. CO-OP. CENTRAL BANK LT D. (2002) 255 ITR 423 (SC) III) CIT VS. KARNATAKA STATE CO-OP. APEX BANK (2001) 251 ITR 194 (SC) SIMILARLY, IN THE CASE OF CIT VS. SOLAPUR NAGARI A UDYOGIC SAHAKARI BANK LTD. AND OTHERS (2010) 229 CTR (BOM) 73, THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER : PAGE 3 OF 4 ITA NO. 481/PN/2010 AHMEDNAGAR ZILLA PRATHAMIK SHIKSHAK SAH. BANK A.Y. 2006-07 INVESTMENT IN KVP/IVP BY A CO-OPERATIVE BANK IS A PERMISSIBLE BAKING BUSINESS AND FOR AVAILING DEDUCT ION UNDER SECTION 80P(2)(A)(I) THE CO-OPERATIVE BANK HAS ONLY TO SHOW THAT THE INVESTMENT IN KVP/IVP HAVE BEEN MADE FROM THE F UNDS GENERATED FROM THE BANKING BUSINESS. WHETHER THE INVESTMENTS IN KVP/IVP HAVE BEEN MADE OUT OF STATUT ORY RESERVES OR NON-STATUTORY RESERVES IS WHOLLY IRRELE VANT, SO LONG AS THE FUNDS IN THE STATUTORY RESERVES OR THE NON-S TATUTORY RESERVES ARE THE FUNDS GENERATED FROM THE BANKING B USINESS. IT IS NOT THE CASE OF THE REVENUE THAT THE AMOUNTS IN THE NON- STATUTORY RESERVES OF THE CO-OPERATIVE BANKS WERE N OT THE AMOUNTS GENERATED FROM THE BANKING BUSINESS. IN FA CT, THE SPECIFIC CASE OF THE REVENUE IS THAT IN ALL THESE C ASES, THE SURPLUS FUNDS AVAILABLE WITH THE BANK WHICH WERE NO T IMMEDIATELY NEEDED FOR THE BANKING ACTIVITY WERE SE T APART IN THE VOLUNTARY RESERVES. IT IS NOT THE CASE OF THE REVENUE THAT THE AMOUNTS IN THE VOLUNTARY RESERVES DID NOT REPRE SENT THE FUNDS GENERATED FROM THE BANKING BUSINESS. IN THES E CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL IN HOLD ING THAT THE INTEREST INCOME FROM KVP/IVP WAS FROM THE BUSINESS OF BANKING ELIGIBLE FOR DEDUCTION UNDER SECTION 80P(2) (A)(I) CANNOT BE FAULTED - CIT VS. RATNAGIRI DISTRICT CENTRAL CO -OP. BANK LTD. (20021 254 ITR 697 (BOM) FOLLOWED; KARNATAKA S TATE CO- OP. APEX BANK (2001) 251 ITR 194 APPLIED, MEHSANA D ISTRICT CENTRAL CO-OP. BANK LTD. (2001) 251 ITR 522 (SC) DISTINGUISHED. CONCLUSION: WHERE THE SURPLUS FUNDS NOT IMMEDIATEL Y REQUIRED FOR DAY TO DAY BANKING WERE KEPT IN VOLUNT ARY RESERVES AND INVESTED IN KVP/IVP THE INTEREST INCOM E RECEIVED FROM KVP/IVP WOULD BE INCOME FROM BANKING BUSINESS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) 4. RESPECTFULLY FOLLOWING THE SAID DECISIONS, THE G ROUND RAISED IS DECIDED IN FAVOUR OF THE ASSESSEE I.E. INTEREST EAR NED BY APPELLANT BANK FROM INVESTMENT MADE OUT OF VOLUNTARY RESERVE FUND QUALIFY FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. IT IS PE RTINENT TO MENTION THAT AS PER THE CIT(A), INCOME FROM VOLUNTARY RESER VES RELATABLE TO DISTRIBUTION OF DIVIDEND CANNOT BE CONSIDERED AS UT ILIZATION OF INCOME FOR THE PURPOSE OF THE BUSINESS OF BANKING A ND THE SAME IS NOT ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT. IN THIS REGARD, IT IS PAGE 4 OF 4 ITA NO. 481/PN/2010 AHMEDNAGAR ZILLA PRATHAMIK SHIKSHAK SAH. BANK A.Y. 2006-07 NOTED THAT SIMILAR ARGUMENT HAS BEEN DEALT WITH THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF COSMOS CO-OP. BANK LTD. , PUNE (ITA NO. 1301/PN/2005 DATED 23-7-2007) FOR THE A.Y. 2001-02. AS PER THE TRIBUNAL ONCE THE INCOME ITSELF IS HELD TO BE EXEMP T THE DISTRIBUTION OF DIVIDEND WHICH IS A SUBSEQUENT DEVELOPMENT, CANN OT ALTER THE SITUATION. FURTHER AT THE TIME OF HEARING, THE LEA RNED COUNSEL FOR THE ASSESSEE ALSO STATED THAT THE SAID DECISION OF THE TRIBUNAL HAS SINCE BEEN APPROVED BY THE HONBLE BOMBAY HIGH COUR T VIDE ITS ORDER IN IT (L) NO. 1150-1156 OF 2008 DATED 19-6-20 09. THE AFORESAID ARGUMENT HAS NOT BEEN CONTROVERTED BY THE LEARNED DR. ACCORDINGLY, THE ARGUMENT OF THE CIT(A) DOES NOT DI SENTITLE THE ASESSEE FROM EXEMPTION U/S 80P OF THE ACT WITH RESP ECT TO THE IMPUGNED INCOME. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH APRIL 2011 SD/- SD/- (G.S. PANNU) ACCOUNTANT MEMBER (SHAILENDRA KUMAR YADAV) JUDICIAL MEMBER PUNE DATED THE 8 TH APRIL 2011 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT- (A) I PUNE 4. THE CIT- I PUNE 5. THE D.R, B BENCH, PUNE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE