ACIT, Chandigarh V. Pb. State Coop. Argl. Dev. Bank Ltd., Chandigarh

ITA 742/CHANDI/2011

• Counselvise Citation: 74221514 RSA 2011
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 08-09-2011
• Assessment Year: 2008-2009
• Appeal Filed On: 14-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Assessee Lawyers: SHARMA
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 742/CHD/2011 ASSESSMENT YEAR: 2008-09 THE ACIT, VS. THE PUNJAB STATE COOPERATIVE CIRCLE 2(1), AGRICULTURE DEVELOPMENT BANK LTD., CHANDIGARH CHANDIGARH PAN NO. AABFA9402A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY SHARMA RESPONDENT BY : SHRI M.R. SHARMA DATE OF HEARING : 08.09.2011 DATE OF PRONOUNCEMENT : 19.09.2011 ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE REVENUE IS AGAINST THE ORDER OF C IT(A), CHANDIGARH DATED 13.5.2011 RELATING TO ASSESSMENT Y EAR 2008-09 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. A CT, 1961. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE INTEREST OF RS. 2,12,46,106/- ARISING OUT OF SURPLUS FINDS IN RESERVE ACCOUNTS IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I). 2. THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE PROVISIONS OF NPA IF DISALLOWED IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I). 2 3. THE LD. CIT(A) HAS ERRED IN ALLOWING THE CLAIM OF RS. 1,28,36,746/- MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT. 3. SHRI AJAY SHARMA APPEARED FOR THE REVENUE AND SH RI M.R.SHARMA APPEARED FOR THE ASSESSEE AND PUT FORTH THEIR CONTE NTIONS. THE LD. DR FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF ASSESSI NG OFFICER. THE LD. COUNSEL FOR THE ASSESSEE POINTED THAT THE ISSUES RA ISED ABOVE ARE COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSE E ITSELF RELATING TO ASSESSMENT YEAR 2007-08. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT THE SIMILAR ISSUES AS RAISED VIDE GROUND NOS. 1 TO 3 WERE RAISED IN THE CASE OF ASSESSEE ITSELF IN ITA NO. 1113/CHD/ 2010 RELATING TO ASSESSMENT YEAR 2007-08 AND THE TRIBUNAL VIDE ITS O RDER DATED 9.2.2010 IN TURN RELYING ON ITS EARLIER ORDER IN ITA NO. 435/CH ANDI/2009 RELATING TO ASSESSMENT YEAR 2006-07 (ORDER DATED 24.9.2009) IN THE CASAE OF ASSESSEE ITSELF, DISMISSED THE APPEAL OF THE REVENUE. 5. THE ISSUE RAISED IN GROUND NO.1 IS AGAINST THE O RDER OF CIT(A) IN HOLDING THAT INTEREST OF RS. 2,12,46,106/- ARISING OUT OF SURPLUS FUNDS IN RESERVE ACCOUNTS IS ELIGIBLE FOR DEDUCTION U/S 80P( 2)(A)(I). SIMILAR ISSUE AROSE BEFORE THE TRIBUNAL AND IT WAS HELD BY THE TR IBUNAL THAT INCOME ARISING FROM DEPOSITS IN BANK WHICH COULD BE SAID TO BE READY FOR UTILIZATION BY THE ASSESSEE IN HIS BUSINESS OF PROV IDING CREDIT FACILITIES TO ITS MEMBERS WAS HELD TO BE ATTRIBUTABLE TO THE BUSI NESS OF PROVIDING CREDIT FACILITIES IN ORDER TO FALL WITHIN THE AMBIT OF SEC TION 80P(2)(A)(I) OF THE ACT. THE TRIBUNAL VIDE PARA 4 IN TURN RELYING ON TH E EARLIER ORDER OF THE TRIBUNAL HELD AS UNDER:- 3 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. WE FIND THAT THE ISSUE RAISED IN GROUND NO.1 REGARDING ALLOWANCE OF DEDUCTION U/S 80P(2)(A)(I) OF THE ACT OF INTEREST INCOME EARNED ON SURPLUS FUNDS IN ACCOUNTS AMOUNTI NG TO RS. 1,22,73,385/- IS COVERED BY THE ORDER OF THE TRIBUN AL IN ITA NO. 435/CHANDI/2009 RELATING TO ASSESSMENT YEAR 2006-07 DATED 24.9.2009 IN ASSESSEES OWN CASE. THE TRIBUNAL HAS ADJUDICATED THE ISSUE VIDE PARAS 7 & 8 OF ITS ORDER AND THE TRI BUNAL UPHOLDING THE ORDER OF CIT(A) DISMISSED THE GROUND OF APPEAL RAISED BY THE REVENUE BY OBSERVING AS UNDER:- 7. THE THIRD ISSUE RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE CIT(APPEALS) IN ALLOWIN G DEDUCTION U/S 80P(2)(A)(I) ON INTEREST INCOME ON RESERVE FUNDS AMOUNTING TO RS.74,19,803/-. ON THIS ASPECT ALSO, IN VIEW OF THE PRECEDENT DATED 25.3.20 09 (SUPRA), WHEREIN THE FOLLOWING DISCUSSION HAS BEEN MADE, THE ORDER OF THE CIT(APPEALS) DESERVES TO BE AFFIRMED :- 14. THE THIRD INCOME RELATES TO INTEREST INCOME ON RESERVE FUNDS AMOUNTING TO RS.3,98,94,432/-. THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE PLEA THAT THE SAID INTEREST INCOME WAS NOT EARNED FROM THE PROVIDING OF CREDIT FACILITIES TO THE MEMBERS. THE INCOME IN QUESTION WAS EARNED ON SURPLUS FUNDS KEPT BY THE ASSESSEE IN THE BANKS TO EARN INCOME. THE CIT(APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INTEREST INVESTED OUT OF RESERVE FUNDS IS TO BE TREATED AS FROM AN ACTIVITY ATTRIBUTABLE TO THE ASSESSEE'S BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THE CONTENTION OF THE LEARNED DR WAS ON THE SAME LINES AS MADE OUT BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. NO DOUBT, IN THIS CASE, THE DIRECT SOURCE OF INCOME IS NOT THE LOAN ADVANCED TO THE MEMBERS OF THE SOCIETY. SO HOWEVER, IN VIEW OF THE EXPRESSION ATTRIBUTABLE TO PRESENT IN SECTION 80P(2)(A)(I), THE SAID INCOME CAN BE SAID TO BE INCIDENTAL AND IN PROXIMITY TO THE BUSINESS OF THE ASSESSEE OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. QUITE NATURALLY, THE FUNDS AVAILABLE WITH THE ASSESSEE FOR ITS BUSINESS HAVE BEEN KEPT IN THE BANKS WHICH HAS RESULTED IN EARNING THE SUBJECT INTEREST INCOME. IN FACT, IN OUR VIEW THE PARITY OF REASONING ENUNCIATED IN THE CASE OF KARNATAKA STATE CO-OPERATIVE APEX BANK, 251 ITR 194 AND THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF 4 SURAT DISTRICT CO-OPERATIVE BANK, 85 ITD 1 (SB) (AHD) CLEARLY HELPS THE CASE OF THE ASSESSEE. IN OUR VIEW, THE ASSESSING OFFICER WAS NOT JUSTIFIED I N OBSERVING THAT THE SURPLUS FUNDS HAVE BEEN INVESTED NOT FOR PROVIDING FURTHER CREDIT TO THE MEMBERS BUT HAVE BEEN USED TO MAXIMIZING PROFIT OR UTILIZING IN OTHER AREAS. IN OUR VIEW, THE FUNDS KEPT IN THE BANK CAN BE SAID TO BE READY FOR UTILIZATION BY THE ASSESSEE IN ITS BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. IT IS ONLY TILL SUCH TIME THE SAME ARE NOT DEPLOYED OR ARE NOT REQUIRED FOR GIVING CREDIT FACILITIES TO IT S MEMBERS, THE SAME HAVE BEEN KEPT IN THE BANKS. THE INCOME FROM SUCH DEPOSITS, IN OUR CONSIDERED OPINION, CAN BE SAID TO BE ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES, SO AS TO F ALL WITHIN SECTION 80P(2)(A)(I) OF THE ACT. IN OUR VIEW, CIT(APPEALS) MADE NO MISTAKE ON THIS SCORE ALSO. HENCE, ON THIS GROUND, THE REVENUE HAS TO FAIL. 8. RESPECTFULLY CONCURRING WITH THE AFORESAID PRECEDENT, DECISION OF THE CIT(APPEALS) IS UPHELD A ND REVENUE FAILS ON THIS ASPECT ALSO. 6. THE ISSUE RAISED IN THE PRESENT GROUND IS IDENTI CAL TO THE ISSUE RAISED BEFORE TRIBUNAL IN EARLIER YEAR. ACCORDINGLY, FOLL OWING THE EARLIER ORDER OF THE TRIBUNAL (SUPRA) IN ASSESSEES OWN CASE, W E DISMISS THE GROUND OF APPEAL NO. 1 RAISED BY THE REVENUE. 7. THE ISSUE RAISED BY THE REVENUE IN GROUND NO. 2 IS AGAINST THE ORDER OF THE CIT(A) IN HOLDING DISALLOWANCE OF PROVISIONS OF NPA IS ELIGIBLE FOR DEDUCTION U/S 80(P)(2) (A)(I) OF THE ACT. . WE FIN D THAT THIS ISSUE HAS ALSO BEEN DELIBERATED UPON BY THE TRIBUNAL VIDE ITS ORDE AR DATED 9.12.2010 IN TURN RELYING UPON THE ORDER OF THE TRIBUNAL DATED 2 4.9.2009 (VIDE PARAS 5 & 6) WHICH IN TURN, FOLLOWED ITS OWN PRECEDENT OF O RDER DATED 25.3.2009 IN ITA NOS. 120/CHANDI/2007 AND OTHERS FOR ASSESSM ENT YEAR 1998-99 TO 2005-06, AFFIRMING THE STAND OF THE CIT(A) DISMISSE D THE GROUND OF APPEAL RAISED BY THE REVENUE BY HOLDING AS UNDER:- 5 5. THE SECOND GROUND RAISED BY THE REVENUE IS WITH REGARD TO THE ACTION OF THE CIT(APPEALS) IN DELETIN G THE DISALLOWANCE OF RS.41,20,183/- REPRESENTING PROVISI ON OF NON PERFORMING ASSETS (NPAS). ON THIS ASPECT ALSO, THE TRIBUNAL IN ITS ORDER DATED 25.3.2009 (SUPRA) HAS ADJUDICATED THE ISSUE IN FOLLOWING WORDS : 12. THE SECOND ASPECT IS IN RELATION TO INCOME RE SULTING ON ACCOUNT OF DISALLOWANCE OF RS.16,75,070/- REPRESENTING PROVISION OF NON-PERFORMING ASSETS (NPAS). THE FACTS ARE THAT THE ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS.16,75,070/- REPRESENTING THE PROVISION ON ACCOUNT OF NPAS. THE PROVISION OF NPAS WAS MADE IN THOSE CASES IN WHICH THE LOANEES STARTED MAKING DEFAULTS IN RE-PAYMENT OF LOANS. IN TERMS OF THE GUIDELINES ISSUED BY NABARD FOR CREATING PROVISIONS, DEPENDING UPON THE LENGTH OF DEFAULT, THE DEDUCTION OF RS.16,75,070/- WAS SOUGHT TO BE JUSTIFIED. THE ASSESSING OFFICER OBSERVED TH AT SUCH A CLAIM COULD ONLY BE ALLOWED IF THE ASSESSEE WAS ENGAGED IN A BUSINESS OF BANKING. SINCE, IT WA S HELD THAT ASSESSEE WAS NOT ENGAGED IN THE BANKING BUSINESS, THE CLAIM WAS DENIED. IN APPEAL, THE CIT(APPEALS) HELD THAT THOUGH THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE SAID CLAIM, BUT TH E CONSEQUENTIAL INCREASE IN INCOME WOULD RESULT IN A HIGHER CLAIM OF DEDUCTION U/S 80P(2)(A)(I) OF THE ACT. AGAINST SUCH DECISION, THE REVENUE IS IN APPEAL. 13. IN OUR CONSIDERED OPINION, THE DISALLOWANCE O F THE PROVISION FOR NPA HAS BEEN SUSTAINED BY THE CIT(APPEALS), BUT EVIDENTLY, THE INCOME RESULTING THEREOF HAS BEEN HELD TO BE ELIGIBLE FOR 80P(2)(A)( I) OF THE ACT. ON THIS ASPECT, WE FIND NO JUSTIFICATI ON FOR THE GROUND RAISED BY THE REVENUE. THERE IS NOTHING BROUGHT ON RECORD TO DISREGARD THAT THE INTEREST IRRECOVERABLE, WHICH IS EMBEDDED IN THE NPAS IS NOTHING BUT INTEREST RECEIVABLE FROM MEMBERS, THOUGH NOT REGULARLY RECEIVED. IT IS ONLY THE DEFAULTED INTEREST INCOME, WHICH IS SOUGHT TO B E CLAIMED AS A DEDUCTION. IF THE SAID DEDUCTION IS N OT ALLOWED, THE NATURAL COROLLARY IS THAT THE ENHANCED INCOME WOULD BECOME ELIGIBLE FOR 80P(2)(A)(I), TO WHICH THE ASSESSEE IS OTHERWISE ENTITLED. IN FACT, SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF H.P.STATE CO-OPRATIVE BANK LTD. (SUPRA) WHEREIN THE SAME CLAIM WAS HELD AS ELIGIBLE FOR BENEFIT U/S 80P(2)(A)(I) OF THE ACT FOR THE REASON THAT EVEN THE DEFAULTED INTEREST, WAS ALSO EARNED FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMBERS. THEREFORE, ON THIS ASPECT, WE FIND NO 6 JUSTIFIABLE GRIEVANCE FOR THE REVENUE AND THE REVENUE FAIL ON THIS ASPECT. 6. IN VIEW OF THE AFORESAID DISCUSSION, AS THE FACT S AND CIRCUMSTANCES ARE IDENTICAL IN THE YEAR UNDER CONSIDERATION, FOLLOWING THE PRECEDENT, THE ORDER O F THE CIT(APPEALS) ON THIS ASPECT IS ALSO HEREBY AFFIRMED . AS A RESULT, ON THIS GROUND ALSO, THE REVENUE FAILS. 8. THE ISSUE IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE RAISED IN THE EARLIER YEARS AND FOLLOWING THE AFORE SAID PRECEDENT, WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A). THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE IS DISMISSED. 9. THE ISSUE RAISED IN GROUND NO.3 IS AGAINST DELET ION OF ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT. T HE LD. AR ALSO POINTED OUT THAT THE SAID CLAIM OF THE ASSESSEE HAD BEEN AL LOWED BY ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 80P(2)(D) A ND THERE IS NO CLAIM OF EXEMPTION UNDER THE PROVISIONS OF SECTION 10(38) AN D HENCE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. THE CIT(A) DELETE D THE ADDITION VIDE PARA 5.3 OF HIS ORDER. 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ASSESSEE HAD NOT CLAIMED ANY EXEMPTION UNDER THE PR OVISIONS OF SECTION 10(38) OF THE ACT I.E. IN CONNECTION WITH THE INCOM E WHICH IS EXEMPT IN THE HANDS OF THE ASSESSEE. THE DEDUCTION WAS CLAIM ED UNDER CHAPTER VIA OF THE INCOME TAX ACT WHICH HAD BEEN ALLOWED BY THE ASSESSING OFFICER WHILE COMPUTING THE INCOME FOR THE YEAR UNDER CONSI DERATION. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES, WE FIND NO MER IT IN THE DISALLOWANCE COMPUTED BY ASSESSING OFFICER U/S 14A OF THE ACT. IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE WHERE THE ASSESS EE HAD NOT CLAIMED THE 7 DIVIDEND INCOME EXEMPT U/S 10(38) OF THE ACT, WE F IND SUPPORT FROM THE RATIO LAID DOWN BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT V KINGS EXPORTS [(2009) 318 ITR 100 (P&H)] . UPHOLDING THE ORDER OF CIT(A), WE DISMISS THE GROUND OF APPEAL RAISED B Y THE REVENUE. 11. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF SEPTEMBER, 2011. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19 TH SEPTEMBER, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH