M/s.Chathannoor Service Co-op Bank Ltd, Kollam V. The iTO, Kollam

ITA 664/COCH/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8098 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-01-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 20-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRITUNJAYA SHARMA
• Assessee Lawyers: IYPE MATHEW
• Keywords: Business income; Rectification of order; Competent authority
• Section: 54; 154; 143(3); 80P; 250; 201; 251; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN SMC BENCH, COCHIN BEFORE SHRI GEORGE GEORGE K , JUDICIAL MEMBER ITA NO. 664 /COCH/201 9 : ASST.YEAR 201 5 - 16 M/S. CH ATHANOOR SERVICE CO - OPERATIVE BANK LTD., 2544, CHATHANOOR, KOLLAM - 691 572. PAN : AAA AC 1371K] . VS. THE INCOME TAX OFFICER WARD 1 & TPS, KOLLAM. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI IYPE MATHEW, FCA RESPONDENT BY : S HRI MRITUNJAYA SHARMA , J R.DR DATE OF HEARING : 2 2 . 01 .20 20 DATE OF PRONOUNCEMENT : 2 2 . 01.2020 O R D E R THIS APPEAL AT THE INSTANCE OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) , TRIVANDRUM DATED 03/09/2019 PASSED U/S . 1 54 R.W.S. 250 OF THE I.T.ACT . THE RELEVANT ASSESSMENT YEAR IS 201 5 - 16 . 2. THE BRIEF FACTS OF THE CASE ARE AS FOLLOW: THE ASSESSEE IS A CO - OPERATIVE SOCIETY REGISTERED UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT, 1969. FOR THE ASSESSMENT YEAR 201 5 - 16, THE RETURN OF INCOME WAS FILED ON 2 7.11.2015 , DECLARING TOTAL INCOME OF NIL AFTER CLAIMING DEDUCTIO N U/S 80P OF THE I.T.ACT. THE ASSESSING OFFICER PASSED AN ORDER U/S 143(3) OF THE I.T.ACT VIDE ORDER DATED 28/12/2017 DISALLOWING THE CLAIM OF DEDUCTION U/S 80P OF THE I.T.ACT. THE REASONING OF THE ASSESSING OFFICER TO DISALLOW THE CLAIM OF DEDUCTION U/S 8 0P(2) OF THE I.T.ACT WAS THAT THE ASSESSEE WAS DOING THE BUSINESS OF BANKING, AND THEREFORE, IN ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 2 VIEW OF INSERTION OF SECTION 80P(4) OF THE I.T.ACT WITH EFFECT FROM 01.04.2007, THE ASSESSEE WILL NOT BE ENTITLED TO THE DEDUCTION U/S 80P(2) OF THE I.T.ACT. TH E ASSESSING OFFICER ALSO DISALLOWED THE CLAIM OF DEDUCTION WITH REGARD TO INTEREST INCOME RECEIVED BY THE ASSESSEE ON INVESTMENTS MADE WITH DISTRICT CO - OPERATIVE BANKS. 3. AGGRIEVED BY THE ORDER OF ASSESSMENT DENYING THE CLAIM OF DEDUCTION U/S 80P(2) OF THE I.T.ACT, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) ALLOWED THE APPEAL BY HOLDING THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION U/S 80P OF THE I.T.ACT. THE INTEREST INCOME RECEIVED FROM OTHER BANKS AND TREASURY ALSO WA S ALLOWED AS DEDUCTION U/S 80P(2)(A)(I) OF THE I.T.ACT. IN ALLOWING THE APPEAL OF THE ASSESSEE, THE CIT(A) FOLLOWED THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE CO - OPERATIVE BANK LTD. V. CIT [(2016) 38 4 ITR 490 (KER.). 4. SUBSEQUENTLY, THE CIT(A) ISSUED NOTICE U/S 154 OF THE I.T.ACT PROPOSING TO RECTIFY HIS ORDER PASSED, IN VIEW OF THE SUBSEQUENT JUDGMENT OF THE FULL BENCH OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE MAVILAYI SERVICE CO - OPERATIVE BANK LTD. V. CIT [ITA NO.97/2016 ORDER DATED 19 TH MARCH, 2019]. THE ASSESSEE OBJECTED TO THE ISSUANCE OF NOTICE. HOWEVER, THE CIT(A) REJECTED THE OBJECTIONS RAISED BY THE ASSESSEE AND PASSED AN ORDER U/S 154 OF THE I.T.ACT, DISALLOWING THE CLA IM OF THE ASSESSEE U/S 80P(2) OF THE I.T.ACT. ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 3 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS: - 1. THE RECTIFICATION ORDER OF THE CIT (A) PASSED U/S. 154 R.W.S. 250 OF THE I.T. ACT IS AGAINST LAW, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE ASSESSMENT ORDER IN THIS CASE WAS PASSED ON 28/12/2017 WHEN THE FULL BENCH DCECISION OF THE KERALA HIGH COURT WAS NOT PRONOUNCED. THIS DECISION WAS DA TERD 19/03/2019 AND THEREFORE THE ASSESSING OFFICER DID NOT CARRY OUT ANY ENQUIRY OR REQUIRED THE APPELLANT TO PRODUCE CERTIFICATE FROM THE REGISTRAR OF CO - OPERATIVE SOCIETIES CERTIFYING THEIR MAIN ACTIVITIES, WHICH WAS A PRE CONDITION LAID DOWN BY THE KER ALA HIGH COURT IN PARA 31 IF THEIR JUDGMENT 19/03/2019. 3. IN VIEW OF THE ABOVE THE CIT APPEALS HAS ERRED IN HOLDING THAT THE AO HAS CONDUCTED SUFFICIENT ENQUIRY INTO THE ACTIVITIES OF THE SOCIETY AND CONCLUDED THAT IT IS NOT A PRIMARY AGRICULTURAL CREDI T SOCIETY AND THEREFORE NOT ELIGIBLE FOR DEDUCTION U/S. 80P. 4. THE CIT APPEALS HAS ALSO ERRED IN HOLDING THAT THE INTEREST INCOME EARNED FROM CO - OPERATIVE BANKS AND TREASURIES ARE NOT INCOME FROM BUSINESS BUT INCOME FROM OTHER SOURCES. HE SHOULD HAVE F OLLOWED THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. KARNATAKA STATE CO - OPERATIVE APEX BANK LTD. 251 ITR 194 INSTEAD OF THE DECISION REPORTED IN 322 ITR 283. 5. THE CIT APPEALS SHOULD HAVE NOTED THAT THE INTEREST INCOME OF RS.42,14,162/ - WAS EARNED FROM DEPOSIT WITH DISTRICT CO - OPERATIVE BANK, WHICH WAS A STATUTORY DEPOSIT AS PER THE PROVISIONS OF THE KERALA CO - OPERATIVE SOCIETIES ACT. 6. THE INTEREST ON TREASURY DEPOSIT WAS ALSO BUSINESS INCOME SINCE THE TREASURY DEPOSITS WERE SECURITY DEP OSITS IN RESPECT OF THE CHITS CONDUCTED BY THE SOCIETY ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 4 UNDER THE KERALA CHITTY ACT. SO INTEREST ON TREASURY DEPOSIT WAS ALSO BUSINESS INCOME. 7. THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL GROUNDS AT THE TIME OF HEARING. 6. THE LEARNED AR RELIED ON THE GROUNDS RAISED. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, STRONGLY SUPPORTED THE ORDERS OF THE INCOME - TAX AUTHORITIES. 7. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE CO - OPERATIVE BANK LTD. V. CIT [(2016) 384 ITR 490 (KER.)] HAD HELD THAT WHEN A CERTIFICATE HAS BEEN ISSUED TO AN ASSESSEE BY THE REGISTRAR OF CO - OPERATIVE SOCIETIES CHARACTERIZING IT AS PRIMARY AGRICULTURAL CREDI T SOCIETY, NECESSARILY, THE DEDUCTION U/S 80P(2) OF THE I.T.ACT HAS TO BE GRANTED TO THE ASSESSEE. HOWEVER, THE FULL BENCH OF THE HONBLE KERALA HIGH COURT IN THE CASE OF THE MAVILAYI SERVICE CO - OPERATIVE BANK LTD. V. CIT (SUPRA) HAD REVERSED THE ABOVE FIN DINGS OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CHIRAKKAL SERVICE CO - OPERATIVE CO - OPERATIVE BANK LTD. V. CIT (SUPRA) . THE LARGER BENCH OF THE HONBLE KERALA HIGH COURT IN THE CASE OF THE MAVILAYI SERVICE CO - OPERATIVE BANK LTD. V. CIT (SUPRA) HELD THA T THE ASSESSING OFFICER HAS TO CONDUCT AN INQUIRY INTO THE FACTUAL SITUATION AS TO THE ACTIVITIES OF THE ASSESSEE SOCIETY TO DETERMINE THE ELIGIBILITY OF DEDUCTION U/S 80P OF THE I.T.ACT. IT WAS HELD BY THE HONBLE HIGH COURT THAT THE ASSESSING OFFICER IS NOT BOUND BY THE REGISTRATION CERTIFICATE ISSUED BY THE REGISTRAR OF ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 5 KERALA CO - OPERATIVE SOCIETY CLASSIFYING THE ASSESSEE - SOCIETY AS A CO - OPERATIVE SOCIETY. THE HONBLE HIGH COURT HELD THAT EACH ASSESSMENT YEAR IS SEPARATE AND ELIGIBILITY SHALL BE VERIFIED BY THE ASSESSING OFFICER FOR EACH OF THE ASSESSMENT YEARS. THE FINDING OF THE LARGER BENCH OF THE HONBLE HIGH COURT READS AS FOLLOWS: - 33. IN VIEW OF THE LAW LAID DOWN BY THE APEX COURT IN CITIZEN CO - OPERATIVE SOCIETY [397 ITR 1] IT CANNOT BE CONTENDE D THAT, WHILE CONSIDERING THE CLAIM MADE BY AN ASSESSEE SOCIETY FOR DEDUCTION UNDER SECTION 80P OF THE IT ACT, AFTER THE INTRODUCTION OF SUB - SECTION (4) THEREOF, THE ASSESSING OFFICER HAS TO EXTEND THE BENEFITS AVAILABLE, MERELY LOOKING AT THE CLASS OF THE SOCIETY AS PER THE CERTIFICATE OF REGISTRATION ISSUED UNDER THE CENTRAL OR STATE CO - OPERATIVE SOCIETIES ACT AND THE RULES MADE THEREUNDER. ON SUCH A CLAIM FOR DEDUCTION UNDER SECTION 80P OF THE IT ACT, THE ASSESSING OFFICER HAS TO CONDUCT AN ENQUIRY INTO THE FACTUAL SITUATION AS TO THE ACTIVITIES OF THE ASSESSEE SOCIETY AND ARRIVE AT A CONCLUSION WHETHER BENEFITS CAN BE EXTENDED OR NOT IN THE LIGHT OF THE PROVISIONS UNDER SUB - SECTION (4) OF SECTION 80P. 33. IN CHIRAKKAL [384 ITR 490] THE DIVISION BENCH H ELD THAT THE APPELLANT SOCIETIES HAVING BEEN CLASSIFIED AS PRIMARY AGRICULTURAL CREDIT SOCIETIES BY THE COMPETENT AUTHORITY UNDER THE KCS ACT, IT HAS NECESSARILY TO BE HELD THAT THE PRINCIPAL OBJECT OF SUCH SOCIETIES IS TO UNDERTAKE AGRICULTURAL CREDIT ACT IVITIES AND TO PROVIDE LOANS AND ADVANCES FOR AGRICULTURAL PURPOSES, THE RATE OF INTEREST ON SUCH LOANS AND ADVANCES TO BE AT THE RATE TO BE FIXED BY THE REGISTRAR OF CO - OPERATIVE SOCIETIES UNDER THE KCS ACT AND HAVING ITS AREA OF OPERATION CONFINED TO A V ILLAGE, PANCHAYAT OR A MUNICIPALITY AND AS SUCH, THEY ARE ENTITLED FOR THE BENEFIT OF SUB - SECTION (4) OF SECTION 80P OF THE IT ACT TO EASE THEMSELVES OUT FROM THE COVERAGE OF SECTION 80P AND THAT, THE AUTHORITIES UNDER THE IT ACT CANNOT PROBE INTO ANY ISSU ES OR SUCH MATTERS RELATING TO SUCH SOCIETIES AND THAT, PRIMARY AGRICULTURAL CREDIT SOCIETIES REGISTERED AS SUCH UNDER THE KCS ACT AND CLASSIFIED SO, UNDER THE ACT, INCLUDING THE APPELLANTS ARE ENTITLED TO SUCH EXEMPTION. 34. IN CHIRAKKAL [384 ITR 490] T HE DIVISION BENCH EXPRESSED A DIVERGENT OPINION, WITHOUT NOTICING THE LAW LAID DOWN IN ANTONY PATTUKULANGARA [2012 (3) KHC 726] AND PERINTHALMANNA [363 ITR 268]. MOREOVER, THE LAW LAID DOWN ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 6 BY THE DIVISION BENCH IN CHIRAKKAL [384 ITR 490] IS NOT GOOD LAW, SINCE, IN VIEW OF THE LAW LAID DOWN BY THE APEX COURT IN CITIZEN CO - OPERATIVE SOCIETY [397 ITR 1], ON A CLAIM FOR DEDUCTION UNDER SECTION 80P OF THE INCOME TAX ACT, BY REASON OF SUB - SECTION (4) THEREOF, THE ASSESSING OFFICER HAS TO CONDUCT AN ENQUIRY INTO THE FACTUAL SITUATION AS TO THE ACTIVITIES OF THE ASSESSEE SOCIETY AND ARRIVE AT A CONCLUSION WHETHER BENEFITS CAN BE EXTENDED OR NOT IN THE LIGHT OF THE PROVISIONS UNDER SUB - SECTION (4) OF SECTION 80P OF THE IT ACT. IN VIEW OF THE LAW LAID DOWN BY THE APE X COURT IN CITIZEN CO - OPERATIVE SOCIETY [397 ITR 1] THE LAW LAID DOWN BY THE DIVISION BENCH PERINTHALMANNA [363 ITR 268] HAS TO BE AFFIRMED AND WE DO SO. 35. IN VIEW OF THE LAW LAID DOWN BY THE APEX COURT IN ACE MULTI AXES SYSTEMS CASE (SUPRA), SINCE EA CH ASSESSMENT YEAR IS A SEPARATE UNIT, THE INTENTION OF THE LEGISLATURE IS IN NO MANNER DEFEATED BY NOT ALLOWING DEDUCTION UNDER SECTION 80P OF THE IT ACT, BY REASON OF SUB - SECTION (4) THEREOF, IF THE ASSESSEE SOCIETY CEASES TO BE THE SPECIFIED CLASS OF SO CIETIES FOR WHICH THE DEDUCTION IS PROVIDED, EVEN IF IT WAS ELIGIBLE IN THE INITIAL YEARS. 7.1 THE CIT(A) HAD INITIALLY ALLOWED THE APPEAL OF THE ASSESSEE AND GRANTED DEDUCTION U/S 80P(2) OF THE I.T.ACT. SUBSEQUENTLY, THE CIT(A) PASSED ORDER U/S 154 OF T HE I.T.ACT, WHEREIN THE CLAIM OF DEDUCTION U/S 80P OF THE I.T.ACT WAS DENIED, BY RELYING ON THE JUDGMENT OF THE LARGER BENCH OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE MAVILAYI SERVICE CO - OPERATIVE BANK LTD. V. CIT (SUPRA). THE CIT(A) OUGH T NOT TO HAVE REJECTED THE CLAIM OF DEDUCTION U/S 80P(2) OF THE I.T.ACT WITHOUT EXAMINING THE ACTIVITIES OF THE ASSESSEE - SOCIETY. THE FULL BENCH OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE MAVILAYI SERVICE CO - OPERATIVE BANK LTD. V. CIT (SUP RA) HAD HELD THAT THE A.O. HAS TO CONDUCT AN INQUIRY INTO THE FACTUAL SITUATION AS TO THE ACTIVITIES OF THE ASSESSEE SOCIETY TO DETERMINE THE ELIGIBILITY OF DEDUCTION U/S 80P OF THE I.T.ACT. IN VIEW OF THE DICTUM LAID DOWN BY THE FULL BENCH OF THE HONBLE JURISDICTIONAL HIGH COURT (SUPRA), I ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 7 RESTORE THE ISSUE OF DEDUCTION U/S 80P(2) TO THE FILES OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL EXAMINE THE ACTIVITIES OF THE ASSESSEE AND DE TERMINE WHETHER THE ACTIVITIES ARE IN COMPLIANCE WITH THE ACTIVITIES OF A CO - OPERATIVE SOCIETY FUNCTIONING UNDER THE KERALA CO - OPERATIVE SOCIETIES ACT, 1969 AND ACCORDINGLY GRANT DEDUCTION U/S 80P(2) OF THE I.T.ACT. 7.2 AS REGARDS THE INTEREST ON THE INVESTMENTS WITH CO - OPERATIVE BANKS AND OTHER BANKS, THE CO - ORDINATE BENCH ORDER OF THE TRIBUNAL IN THE CASE OF KIZHATHADIYOOR SERVICE CO - OPERATIVE BANK LIMITED IN ITA NO.525/COCH/2014 (ORDER DATED 20.07.2016), HAD HELD THAT INTEREST INCOME EARNED FROM INVESTMENTS WITH TREASURIES AND BANKS IS PART OF BANKING ACTIVITY OF THE ASSESSEE, AND THEREFORE, THE SAID INTEREST INCOME WAS ELIGIBLE TO BE ASSESSED AS `INCOME FROM BUSINESS INSTEAD OF `INCOME FROM OTHER SOURCES. HOWEVER, AS REGARDS THE GRANT OF DEDUCTION U/S 80P OF THE I.T.ACT ON SUCH INTEREST INCOME, THE ASSESSING OFFICER SHALL FOLLOW THE LAW LAID DOWN BY THE LARGER BENCH OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF THE MAVILAYI SERVICE CO - OPERATIVE BANK LTD. V. CIT (SUPRA) AND EXAMINE THE ACTIVITIES OF THE ASSESSEE - SOCIETY BEFORE GRANTING DEDUCTION U/S 80P OF THE I.T.ACT ON SUCH INTEREST INCOME. IT IS ORDERED ACCORDINGLY. ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 8 8 . IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED ON THIS 2 2 ND DAY OF JANUARY, 2020 . SD/ - ( GEORGE GEORGE K ) JUDICIAL MEMBER COCHIN ; DATED : 2 2 ND J ANUARY, 2020 . GJ COPY OF THE ORDER FORWARDED TO : BY ORDER (ASSTT. REGISTRAR) ITAT, COCHIN 1. M/S.CHATHANOOR SERVICE CO - OPERATIVE BANK LTD., 2544, CHATHANOOR, KOLLAM - 691 572. 2. THE INCOME TAX OFFICER, WARD - 1 & TPS,KOLLAM. 3. THE CIT (A) , TRIVANDRUM. 4. THE PR.CIT , TRIVANDRUM . 5. THE DR, ITAT, COCHIN 6. GUARD FILE. ITA NO. 664/ COCH /201 9 M/S. CHATHANOOR SCB LTD. 9