Janseva Sahakari Bank Ltd., V. I.t.o. wARD 11(2) pUNE,

ITA 538/PUN/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3149 (ITAT-PUNE)
• Duration Of Justice: 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 19-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Section: 80P

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH: A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI G.S. PANNU, AM ITA NO. 538/PN/2010 : A.Y. 2006-07 JANSEVA SAHAKARI BANK LTD., 156 GANDHI CHOWK, HADAPSAR PUNE 411 028 PAN AAAAJO620Q . APPELLANT VS. I.T.O. WARD 11(2) PUNE . RESPONDENT APPELLANT BY : SHRI SUNIL GANOO RESPONDENT BY : SHRI ABHAY DAMLE ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A) I PUNE DATED 2-11-2009 FOR A.Y . 2006-07. THE GROUNDS RAISED BY THE REVENUE IN THE APPEAL READ AS UNDER: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS GROSSLY ERRED IN HOLDING THAT THE DIVIDEND DISTRIBUTED BY THE APPELLANT BANK FOR THE YEAR UNDER CONSIDERATION IS OUT OF THE INTEREST EARNED BY THE APPELLANT BANK FROM INVESTMENTS MADE OUT OF VOLUNTARY RESERVES AND HENCE THE SAME IS NOT UTILIZED FOR THE BUSINESS OF BANKING AND HENCE TO THAT EXTENT THE INTEREST EARNED ON INVESTMENTS MADE OUT OF VOLUNTARY RESERVES DOES NOT QUALIFY FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THE AFORESAID FINDING BEING ARBITRARY, PERVERSE, PATENTLY ILLEGAL AND DEVOID OF MERITS, THE SAME DESERVES TO BE VACATED AND I.T.A. NO. 538/PN/10 JANSEVA BANK LTD. A.Y. 2006-07 2 THE ADDITION OF RS. 9,49,520.00 MADE ON THIS GROUND BY THE LEARNED A.O AND AS SUSTAINED BY THE LEARNED CIT(A) MAY PLEASE BE DELETED. 2. THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERE D UNDER THE MAHARASHTRA CO-OP. SOCIETY ACT AND ENGAGE D IN THE BUSINESS OF BANKING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE BANK HAD VOLUNTARY RESERVES AND T HAT THE PROFIT OF THE ASSESSEE INCLUDED INTEREST FROM INVESTMENTS MADE OUT OF SUCH VOLUNTARY RESERVES. T HE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSE E BANK HAD EARMARKED AN AMOUNT OF RS. 83 LAKHS TOWARDS THE DISTRIBUTION OF DIVIDEND OUT OF THE PROFIT INCLUDIN G INTEREST EARNED ON VOLUNTARY RESERVES. ACCORDING T O THE ASSESSING OFFICER, DISTRIBUTION OF DIVIDEND IS NOT A BANKING ACTIVITY AND SINCE THE PROFIT UTILIZED FOR DISTRIBUTION OF DIVIDEND ALSO INCLUDED INTEREST EAR NED ON INVESTMENT IN VOLUNTARY RESERVES, SUCH INTEREST INC OME WAS NOT ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. THE ASSESSING OFFICER DISALLOWED THE INTEREST INCOM E EARNED ON VOLUNTARY RESERVES TO THE EXTENT EARMARKE D FOR DIVIDEND DISTRIBUTION. ON APPEAL, THE CIT(A) HELD T HAT THE DIVIDEND DISTRIBUTED BY THE ASSESSEE BANK IS OUT OF THE INTEREST EARNED BY THE ASSESSEE FROM INVESTMENTS MA DE OUT OF VOLUNTARY RESERVES AND HENCE THE SAME WAS NO T UTILIZED FOR THE BUSINESS OF BANKING AND HENCE TO T HAT I.T.A. NO. 538/PN/10 JANSEVA BANK LTD. A.Y. 2006-07 3 EXTENT THE INTEREST EARNED ON INVESTMENTS MADE OUT OF VOLUNTARY RESERVES DID NOT QUALIFY FOR DEDUCTION U/ S 80P(2)(A)(I) OF THE ACT. SO, THE ASSESSEE IS IN APP EAL BEFORE THE TRIBUNAL. 3. ON HEARING THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE I SSUE INVOLVED IN THIS CASE IS COVERED IN FAVOUR OF THE A SSESSEE BY THE JUDGMENTS OF THE SUPREME COURT IN THE FOLLOW ING CASES: I) CIT VS. NAWASHAHAR CENTRAL CO-OP. BANK LTD. (2007 289 ITR 6 (SC) II) CIT VS. RAMANATHAPURAM DIST. CO-OP. CENTRAL BANK LTD. (2002) 255 ITR 423 (SC) III) CIT VS. KARNATAKA STATE CO-OP. APEX BANK (2001) 251 ITR 194 (SC) 4. SIMILARLY, IN THE CASE OF CIT VS. SOLAPUR NAGARI AUDYOGIC SAHAKARI BANK LTD. AND OTHERS (2010) 229 C TR (BOM) 73, THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD AS UNDER: INVESTMENT IN KVP/IVP BY A CO-OPERATIVE BANK IS A PERMISSIBLE BAKING BUSINESS AND FOR AVAILING DEDUCTION UNDER SECTION 80P(2)(A)(I) THE CO-OPERATI VE BANK HAS ONLY TO SHOW THAT THE INVESTMENT IN KVP/IVP HAVE BEEN MADE FROM THE FUNDS GENERATED FROM THE BANKING BUSINESS. WHETHER THE INVESTMENTS IN KVP/IVP HAVE BEEN MADE OUT OF STATUTORY RESERVES OR NON-STATUTORY RESERVES IS WHOLLY IRRELEVANT, SO LONG AS THE FUNDS IN THE STATUTORY RESERVES OR THE NON-STATUTORY RESERVES AR E THE FUNDS GENERATED FROM THE BANKING BUSINESS. IT IS NOT THE CASE OF THE REVENUE THAT THE AMOUNTS IN THE NON-STATUTORY RESERVES OF THE CO-OPERATIVE BANK S WERE NOT THE AMOUNTS GENERATED FROM THE BANKING I.T.A. NO. 538/PN/10 JANSEVA BANK LTD. A.Y. 2006-07 4 BUSINESS. IN FACT, THE SPECIFIC CASE OF THE REVENU E IS THAT IN ALL THESE CASES, THE SURPLUS FUNDS AVAILABL E WITH THE BANK WHICH WERE NOT IMMEDIATELY NEEDED FOR THE BANKING ACTIVITY WERE SET APART IN THE VOLUNTARY RESERVES. IT IS NOT THE CASE OF THE REVE NUE THAT THE AMOUNTS IN THE VOLUNTARY RESERVES DID NOT REPRESENT THE FUNDS GENERATED FROM THE BANKING BUSINESS. IN THESE CIRCUMSTANCES, THE DECISION OF THE TRIBUNAL IN HOLDING 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 STATE CO-OP. APEX BANK (2001) 251 ITR 194 APPLIED, MEHSANA DISTRICT CENTRAL CO- OP. BANK LTD. (2001) 251 ITR 522 (SC) DISTINGUISHED. CONCLUSION: WHERE THE SURPLUS FUNDS NOT IMMEDIATELY REQUIRED FOR DAY TO DAY BANKING WERE KEPT IN VOLUNTARY RESERVES AND INVESTED IN KVP/IVP THE INTEREST INCOME RECEIVED FROM KVP/IVP WOULD BE INCOME FROM BANKING BUSINESS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) RESPECTFULLY FOLLOWING THE SAID DECISIONS, THE GROU ND RAISED IS DECIDED IN FAVOUR OF THE ASSESSEE I.E. IN TEREST EARNED BY APPELLANT BANK FROM INVESTMENT MADE OUT O F VOLUNTARY RESERVE FUND QUALIFY FOR DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. IT IS PERTINENT TO MENTION THAT AS PER THE CIT(A), INCOME FROM VOLUNTARY RESERVES RELA TABLE TO DISTRIBUTION OF DIVIDEND CANNOT BE CONSIDERED AS UTILIZATION OF INCOME FOR THE PURPOSE OF THE BUSINE SS OF BANKING AND THE SAME IS NOT ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT. IN THIS REGARD, IT IS NOTED THAT S IMILAR ARGUMENT HAS BEEN DEALT WITH THE PUNE BENCH OF THE I.T.A. NO. 538/PN/10 JANSEVA BANK LTD. A.Y. 2006-07 5 TRIBUNAL IN THE CASE OF COSMOS CO-OP. BANK LTD., PU NE (ITA NO. 1301/PN/2005 DATED 23-7-2007) FOR THE A.Y. 2001-02. AS PER THE TRIBUNAL ONCE THE INCOME ITSEL F IS HELD TO BE EXEMPT THE DISTRIBUTION OF DIVIDEND WHIC H IS A SUBSEQUENT DEVELOPMENT, CANNOT ALTER THE SITUATION. FURTHER AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE ALSO STATED THAT THE SAID DECISION OF THE TRIBUNAL HAS SINCE BEEN APPROVED BY THE HONBLE BOM BAY HIGH COURT VIDE ITS ORDER IN IT (L) NO. 1150-1156 O F 2008 DATED 19-6-2009. THE AFORESAID ARGUMENT HAS NOT BE EN CONTROVERTED BY THE LEARNED DR. ACCORDINGLY, THE ARGUMENT OF THE CIT(A) DOES NOT DISENTITLE THE ASES SEE FROM EXEMPTION U/S 80P OF THE ACT WITH RESPECT TO T HE IMPUGNED INCOME. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT ON 19 TH NOVEMBER 2010. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE DATED THE 19 TH NOVEMBER 2010 ANKAM COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A) I PUNE 4. THE CIT I PUNE 5. THE D.R. ITAT A BENCH TRUE COPY I.T.A. NO. 538/PN/10 JANSEVA BANK LTD. A.Y. 2006-07 6 BY ORDER ASSTT. REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCH, PUNE.