Allahabad UP Gramin Bank, V. DCIT, Kanpur

ITA 755/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9090 (ITAT-LUCKNOW)
• Duration Of Justice: 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income
• Section: 80HHC; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A : LUCKNOW BEFORE SHRI H. L. KARWA, HONBLE VICE PRESIDENT AND SHRI N. K. SAINI, ACCOUNTANT MEMBER I.T.A. NO.755/LUC/10 ASSESSMENT YEAR:2005-2006 ALLAHABAD UP GRAMIN BANK, VS. DY. C.I.T.-6, (FOR CHHTRASAL GRAMIN BANK) KANPUR. BANDA. PAN:AABAA5103E (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI RAJESH KUSHWAHA, C. A. RESPONDENT BY: SHRI PRAVEEN KUMAR, D. R. ORDER PER N. K. SAINI: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 14/09/2010 OF CIT(A)-I, KANPUR RELEVANT TO ASSESSME NT YEAR 2005-2006. THE REGISTRY HAS POINTED OUT THAT THE APPEAL IS BAR RED BY LIMITATION BY 23 DAYS. THE ASSESSEE FILED AN AFFIDAVIT OF THE LEARN ED COUNSEL FOR THE ASSESSEE FOR CONDONING THE DELAY. THE CONTENTS OF THE AFFIDAVIT DATED 15 TH DECEMBER, 2010 STATE AS UNDER: 1. THAT THE APPEAL FILED BY THE ASSESSEE BANK BEFO RE THE COMMISSIONER OF INCOME TAX (APPEALS)(I) KANPUR WAS DISPOSED OF BY ORDER DATED 14.09.2010 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS)(I) KANPUR. 2 2. THAT THE TIME FOR FILING OF THE APPEAL BEFORE TH E TRIBUNAL WAS TO EXPIRE ON 23.11.2010. 3. THAT I WAS COMING TO THE OFFICE OF THE TRIBUNAL FROM JHANSI TO LUCKNOW TO FILE MEMORANDUM OF APPEAL DULY SIGNED BY THE CHAIRMAN OF THE BANK BY PERSONAL CAR BEARING NO. UP 78 BJ 1124 AND THAT DUE TO ACCIDENT AND CONSEQUENT BREAKAGE OF THE CAR AND MILD INJURIES TO ME I COULD NOT REACH THE TRIBUNAL OFFICE AND THEREFORE APPEAL COULD NOT BE FILED. FURTHER DELAYS CAUSED DUE TO INJURIES AND ADVISE OF MY DOCTOR WHO ADVISED ME REST AND AVOID TRAVELLING FAR DISTAN CES. 4. THAT THE MEMO OF APPEAL IS BEING FILED IN THE OF FICE OF THE TRIBUNAL. SD/. (CA RAJESH KUSHWAHA) 2. THE AFORESAID CONTENTS OF THE AFFIDAVIT WERE NO T CONTROVERTED BY THE LEARNED D. R. WE, THEREFORE, CONSIDERING THE CONTE NTS GIVEN IN THE AFORESAID AFFIDAVIT, CONDONE THE DELAY AND THE APPE AL IS ADMITTED. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUND S: 1. THE ORDER PASSED BY ID CIT [A] IS ARBITRARY, AG AINST THE FACTS OF THE CASE, OPPOSED TO PRINCIPLE OF JUDICIAL DISCIPLINE AND BAD IN LAW. 2. THAT THE CIT [A] HAS GROSSLY ERRED IN LAW AND ON FACTS, WHILE DIRECTING THE ID AO TO ISSUE NOTICE OF DEMAND , CHARGE INTEREST AND INITIATE PENALTY PROCEEDINGS. 3. THE LD CIT [A] HAS GROSSLY ERRED BY EXCEEDING HI S JURISDICTION AND ENHANCING THE INCOME OF THE ASSESS EE 3 WHICH WAS BEYOND HIS POWER U/S 251 AND NOT PERMISSIBLE AS PER LAW. 4. THAT THE ID CIT[A] GROSSLY ERRED IN LAW AS WELL AS ON FACTS PLACED BEFORE HIM AND, ON RECORD IN CONCLUDIN G THAT THE ENTIRE INTEREST INCOME HAS BEEN CLAIMED AS DEDUCTION U/S 80P2(A)(I) WITHOUT REFERRING TO THE O RDER APPEALED AGAINST AND COMPUTATION OF INCOME AND DEDUCTION CLAIMED. 5. THAT THE ID CIT[A] GROSSLY ERRED IN LAW IN APPLY ING THE RATIO DECIDED IN OF THE TOTGARH COOPERATIVES VS. IT O SC CASE WHICH WAS NOT AT ALL APPLICABLE AND ERRED ON F ACTS BY NOT CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE. 6. THE APPELLANT RESERVES THE RIGHT OF ALTERATION, DELETION, ADDITION IN GROUNDS OF APPEAL AT THE TIME OF HEARIN G OF THE CASE. 3. FROM THE ABOVE GROUNDS IT IS CLEAR THAT THE GRIE VANCE OF THE ASSESSEE RELATES TO THE CLAIM OF DEDUCTION U/S 80P( 2)(A)(I) OF THE I.T. ACT. THE FACTS RELATED TO THIS ISSUE, IN BRIEF, ARE THAT THE ASSESSEE IS A REGIONAL RURAL BANK AND FILED THE RETURN OF INCOME ON 29/10/ 2004 DECLARING NIL INCOME AFTER CLAIMING THE DEDUCTION U/S 80P(2)(A)(I ) OF THE I.T. ACT. THE ASSESSING OFFICER HOWEVER, DID NOT ALLOW THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT AND CONS IDERED THE ENTIRE PROFIT OF THE ASSESSEE AS TAXABLE. ACCORDINGLY, THE TAXABLE INCOME WAS DETERMINED AT ` 3,33,95,870/-. 4 4. THE ASSESSEE CARRIED THE MATTER TO LEARNED CIT(A ) WHO ISSUED AN ENHANCEMENT NOTICE TO THE ASSESSEE ON ACCOUNT OF IN TEREST INCOME ON SURPLUS INVESTED IN SHORT TERM DEPOSIT CONSIDERING THE SAME AS NOT ATTRIBUTABLE TO THE BUSINESS. HE, THEREAFTER, CONS IDERED THE INTEREST INCOME OF ` 23,51,03,000/- AS INCOME FROM OTHER SOURCES AND NOT THE BUSINESS INCOME OF THE ASSESSEE. THE LEARNED CIT (A) ENHANC ED THE INCOME OF THE ASSESSEE CONSIDERING THE AFORESAID AMOUNT AS INCOME FROM OTHER SOURCES U/S 56 OF THE I.T. ACT AND DIRECTED THE ASSESSING O FFICER TO RECOMPUTE THE INCOME. THE LEARNED CIT (A) DID NOT ALLOW THE CLAI M OF THE ASSESSEE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT. THE RE LIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TO TGARS CO-OPERATIVE VS. INCOME TAX OFFICER, ORDER DATED 11 TH FEBRUARY, 2010 IN CIVIL APPEAL NO. 1622 OF 2010 ARISING OUT OF S.L.P. (C) NO. 7572 OF 2009. NOW THE ASSESSEE IS IN APPEAL. 4.1 THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS A REGIONAL RURAL BANK AND DOING THE BANKING BUSINES S. IT WAS FURTHER SUBMITTED THAT THE DETAILS OF THE INCOME EARNED AS WELL AS INVESTMENT UNDER SLR AND NON SLR WERE FURNISHED TO THE ASSESSI NG OFFICER AS WELL AS TO THE LEARNED CIT (A). THEREFORE, THE INCOME O F THE ASSESSEE FROM BANKING BUSINESS WAS ALLOWABLE FOR DEDUCTION U/S 80 P(2)(A)(I) OF THE I.T. 5 ACT. THE RELIANCE WAS PLACED ON THE JUDGMENT OF HO N'BLE SUPREME COURT IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL CO-OPERA TIVE BANK LTD. [2007] 289 ITR 6 (SC). 5. IN HIS RIVAL SUBMISSIONS, THE LEARNED D. R. STRO NGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND FURTHER SUBMITT ED THAT THE BENEFIT OF DEDUCTION U/S 80P(2)(A)(I) WAS AVAILABLE ONLY IN RE SPECT OF PROFITS AND GAINS ATTRIBUTABLE TO THE BANKING ACTIVITIES AND NOT ON T HE INCOME EARNED FROM NON SLR INVESTMENT, THEREFORE, THE LEARNED CIT (A) WAS FULLY JUSTIFIED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER FOR NOT ACCEPTING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT. THE RELIANCE WAS PLACED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF THE TOTGARS CO-OPERATIVE SALE SOCIETY LIMITED VS. INCO ME TAX OFFICER, KARNATAKA AND THE COPY OF THE SAID JUDGMENT WAS FUR NISHED, WHICH IS PLACED ON RECORD. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN T HE PRESENT CASE, IT IS NOT IN DISPUTE THAT THE ASSESSEE IS A COOPERATIVE SOCIE TY AND ENGAGED IN BANKING BUSINESS. THE TOTAL INCOME OF THE ASSESSEE AS WELL AS THE 6 INVESTMENT ARE MENTIONED IN PARA 8 OF THE ASSESSMEN T ORDER WHICH READ AS UNDER: 1. BALANCE WITH BANKS AND MONEY AT CALL 39,67,26,00 0 AND SHORT NOTICE 2. INVESTMENTS 83,03,86,000 3. ADVANCES 1,83,55,24,000 6.1 THE DETAIL OF INVESTMENT UNDER THE SEPARATE HEA D I.E. SLR AND NON SLR WAS AT ` 59,68,86,000/- AND ` 23,35,00,000/- RESPECTIVELY TOTALING TO ` 83,03,86,000/-. IN THE INSTANT CASE, THE BENEFIT O F DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT HAS BEEN DENIED TO THE ASSESSEE ON THE INCOME EARNED FROM NON SLR INVESTMENTS. THE SAID ISSUE HA S NOW BEEN SETTLED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. [2007] 289 ITR 6 (SC) WHERE IN THEIR LORDSHIPS HAVE OBSERVED AS UNDER: THIS COURT HAS CONSISTENTLY HELD THAT INVESTMENTS MADE BY A BANKING CONCERN ARE PART OF THE BUSINESS OF BA NKING. THE INCOME ARISING FROM SUCH INVESTMENTS WOULD, THEREFO RE, BE ATTRIBUTABLE TO THE BUSINESS OF BANK FALLING UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS' AND THUS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE INCOME-TAX ACT 1961. TH IS HAS BEEN SO HELD IN BIHAR STATE CO-OPERATIVE BANK LTD. V. CI T [1960] 39 ITR 114 (SC), CIT V. KARNATAKA STATE CO-OPERATIVE A PEX BANK [2001] SUPP. (2) SCR 35; [2001] 251 ITR 194 (SC) AN D CIT V. RAMANATHAPURAM DISTRICT CO-OPERATIVE CENTRAL BANK L TD. [2002] 255 ITR 423 (SC). 7 THE PRINCIPLE IN THESE CASES WOULD ALSO COVER A SITUATION WHERE A CO-OPERATIVE BANK CARRYING ON THE BUSINESS OF BANKING IS STATUTORILY REQUIRED TO PLACE A PART OF ITS FUNDS IN APPROVED SECURITIES. THE APPEALS ARE ACCORDINGLY DI SMISSED WITHOUT COSTS. 6.2 IN THE PRESENT CASE ALSO THE INCOME EARNED BY T HE ASSESSEE WAS ATTRIBUTABLE TO ITS ACTIVITY OF BANKING, SO IT WAS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(I) OF THE I.T. ACT. AS REGARDS TO THE CA SE LAW FOLLOWED BY THE LEARNED CIT (A) AND RELIED BY THE LEARNED D.R. IS C ONCERNED, IN THE SAID CASE, THEIR LORDSHIP HAVE OBSERVED AS UNDER: 'AN ALTERNATIVE SUBMISSION WAS ADVANCED BY THE ASSE SSEE(S) STATING THAT, IF INTEREST INCOME IN QUESTION IS HEL D TO BE COVERED BY SECTION 56 OF THE ACT, EVEN THEN, THE ASSESSEE-S OCIETY IS ENTITLED TO THE BENEFIT OF SECTION 80P(2)(A)(I) OF THE I.T. ACT IN RESPECT OF SUCH INTEREST INCOME. WE FIND NO MERIT IN THIS SUBMISSION. SECTION 80P (2) (A) (I) OF THE ACT CAN NOT BE PLACED AT PAR WITH EXPLANATION (BAA) TO SECTION 80H HC, SECTION 80HHD(3) AND SECTION 80HHE(5) OF THE ACT. EACH OF THE SAID SECTIONS HAS TO BE INTERPRETED IN THE CONT EXT OF ITS SUBJECT-MATTER. FOR EXAMPLE, SECTION 80HHC OF THE ACT, AT THE RELEVANT TIME, DEALT WITH DEDUCTION IN RESPECT OF PROFITS RETAINED FOR EXPORT BUSINESS. THE SCOPE OF SECTIO N 80HHC IS, THEREFORE, DIFFERENT FROM THE SCOPE OF SECTION 80P OF THE ACT, WHICH DEALS WITH DEDUCTION IN RESPECT OF INCOME OF COOPERATIVE SOCIETIES. EVEN EXPLANATION (BAA) TO SECTION 80HHC WAS ADDED TO RESTRICT THE, DEDUCTION IN RESPECT OF PROF ITS RETAINED FOR EXPORT BUSINESS. THE WORDS USED IN EXPLANATION (BAA) TO SECTION 80HHC, THEREFORE, CANNOT BE COMPARED WITH T HE WORDS USED IN SECTION 80P OF THE I.T. ACT WHICH GRA NTS DEDUCTION IN RESPECT OF THE WHOLE OF THE AMOUNT OF PROFITS, AND GAINS OF BUSINESS'. A NUMBER OF JUDGMENTS WERE CIT ED ON BEHALF OF THE ASSESSEE (S) IN SUPPORT OF ITS CONTEN TION THAT THE 8 SOURCE WAS IRRELEVANT WHILE CONSTRUING THE PROVISIO NS OF SECTION 80P OF THE ACT. WE FIND NO MERIT BECAUSE AL L THE JUDGMENTS CITED WERE CASES RELATING TO COOPERATIVE BANKS AND ASSESSEE-SOCIETY IS NOT CARRYING ON BANKING BUSINES S. WE ARE CONFINING THIS JUDGMENT TO THE FACTS OF THE PRE SENT CASE. TO SAY THAT THE SOURCE OF INCOME IS NOT RELEVANT FOR D ECIDING THE APPLICABILITY OF SECTION 80P OF THE I.T. ACT WOULD NOT BE CORRECT BECAUSE WE NEED TO GIVE WEIGHTAGE TO THE WORDS THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINESS' ATTRIB UTABLE TO ONE OF THE ACTIVITIES SPECIFIED IN SECTION 80P(2) ( A) OF THE ACT. AN IMPORTANT POINT NEEDS TO BE MENTIONED. THE WORD S THE WHOLE OF THE AMOUNT OF PROFITS AND GAINS OF BUSINES S' EMPHASISE THAT THE INCOME IN RESPECT OF WHICH DEDUC TION IS SOUGHT MUST CONSTITUTE THE OPERATIONAL INCOME AND N OT THE OTHER INCOME WHICH ACCRUES TO THE SOCIETY. IN THIS PARTICULAR CASE, THE EVIDENCE SHOWS THAT THE ASSESSEE SOCIETY EARNS INTEREST ON FUNDS WHICH ARE NOT REQUIRED FOR BUSINE SS PURPOSES AT THE GIVEN POINT OF TIME. THEREFORE, THE FACTS AN D CIRCUMSTANCES OF THIS CASE, IN OUR VIEW, SUCH INTER EST INCOME FALLS IN THE CATEGORY OF OTHER INCOME' WHICH HAS B EEN RIGHTLY TAXED BY THE DEPARTMENT U/S 56 OF THE I.T. ACT. 6.3 FROM THE ABOVE OBSERVATIONS IT IS CRYSTAL CLEAR THAT IN THE SAID CASE THE ASSESSEE WAS NOT ENGAGED IN THE BANKING BUSINES S ACTIVITY, THEREFORE, THE SOURCE OF INCOME WAS NOT RELEVANT FOR DECIDING THE APPLICABILITY OF SECTION 80P OF THE I.T. ACT. ON THE CONTRARY, THE FACTS OF THE ASSESSEES CASE ARE SIMILAR TO THE FACTS INVOLVED IN THE CASE OF CIT VS. NAWANSHAHAR CENTRAL CO-OPERATIVE BANK LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT THE INVESTMENTS MADE BY A BANKING CONCERN WERE PART OF THE BUSINESS OF BANKING AND THE INCOME ARISING FROM SUCH INVESTMENT S WOULD BE ATTRIBUTABLE TO THE BUSINESS OF BANK FALLING UNDER THE HEAD PROFITS AND 9 GAINS OF BUSINESS AND DEDUCTIBLE U/S 80P(2)(A)(I) OF THE I.T. ACT. IN THE INSTANT CASE ALSO THE ASSESSEE WAS ENGAGED IN THE B ANKING ACTIVITIES, THEREFORE, ITS INCOME FROM THE INVESTMENTS DURING T HE COURSE OF BUSINESS OF BANKING WAS ATTRIBUTABLE TO THE BUSINESS OF BANKING FALLING UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND THUS DEDUCTIBLE U/S 80P(2)(A)(I) OF THE I.T. ACT. CONSIDERING THE TOTALITY OF THE FACTS AS DISCUSSED HEREIN ABOVE, WE ARE OF THE VIEW THAT THE LEARNED CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT THE INCOME EARNED FROM NON SLR INVESTMENTS BY THE A SSESSEE WAS FROM OTHER SOURCES AND NOT FROM BANKING BUSINESS. WE, T HEREFORE, SET ASIDE THE IMPUGNED ORDER PASSED BY THE LEARNED CIT (A) AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE FOR DEDU CTION U/S 80P(2)(A)(I) OF THE I.T. ACT. 7. IN THE RESULT, THE APPEAL IS ALLOWED. (THE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 16/0 3/2011) SD/. SD/. ( H. L. KARWA ) (N. K. SAINI) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 16/03/2011 *SINGH 10 COPY FORWARDED TO THE: 1. APPELLANT. 2. RESPONDENT. 3. CIT (A) 4. CIT 5. DR. ASSISTANT REGISTRAR