KATLARY KARIYANA MERCHANT SAHKARI SARAFI MANDALI LTD V. ASST. COMMR. OF INCOME TAX

SCA/20585/2019

AI Insights

The case revolves around the reopening of an income tax assessment for the assessment year 2015-16 concerning KATLARY KARIYANA MERCHANT SAHKARI SARAFI MANDALI LTD, a cooperative society. The society had initially claimed deductions under Section 80P of the Income Tax Act, 1961, which were accepted in the original assessment. However, the Assistant Commissioner of Income Tax issued a notice for reassessment, questioning the deductions claimed on interest income from FDRs with banks, which was not considered part of the business activities of the society. The society challenged this notice, arguing it was based on a mere change of opinion and lacked tangible material. The court, however, upheld the reassessment notice, emphasizing the need for a thorough examination of the nature of the income and the activities of the society.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 679350 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 04-01-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd., Deepakbhai Ramjibhai Patel vs. Income Tax Officer, Principal Commissioner of Income Tax and ors. Vs. Totagars co-operative sale Society, State Bank of India Vs. CIT
• Laws Referred To: Income Tax Act, 1961, Gujarat Cooperative Societies Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: M R BHATT
• Assessee Lawyers: S N DIVATIA
• Keywords: Cooperative Society; Deduction under section 80P; Income Tax; Interest on FDRs; Reassessment
• Section: 147; 148; 143(3); 143(1); 80P(2)(d); 226

Judgement Text

"C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20585 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== KATLARY KARIYANA MERCHANT SAHKARI SARAFI MANDALI LTD Versus ASST. COMMR. OF INCOME TAX ========================================================== Appearance: MR SN DIVATIA(1378) for the Petitioner(s) No. 1 MR MR BHATT FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 04/01/2022 ORAL JUDGMENT (PER : HONOURABLE MS. JUSTICE NISHA M. THAKORE) 1. The writ applicant is a Cooperative Society incorporated under the Gujarat Cooperative Societies Act, 1961, and has invoked extraordinary writ jurisdiction of this Court under Article Page 1 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 226 of the Constitution of India and has thereby challenged the notice dated 12.03.2019 issued by the Assistant Commissioner of Income Tax Circle, Himmatnagar, in exercise of powers conferred under Section 147 of the Income Tax Act, 1961. 2. Brief facts which emerges from the record are summarized as under: 2.1 The writ applicant is a Cooperative Society incorporated under the Gujarat Cooperative Societies Act, 1961, bearing registration no. S/27649/1997 dated 16.06.1997. The main object of the writ applicant is accepting deposits and providing credit facilities to its members. 2.2 The original return of the income for A.Y. 2015-16 was filed by the writ applicant Cooperative Society on 24.09.2015 and e-file return of income was submitted on 24.02.2016, whereby the writ applicant Cooperative Society had declared total income of Rs.NIL after claiming deduction under Section 80P for an amount of Rs. 21,17,354/-, which was processed under Section 143(1) of the Income Tax Act. The assessment proceedings were finalized under Section 143(3) of the Income Tax Act on 20.07.2017, Page 2 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 whereby the respondent Authority had accepted the return filed by the writ applicant Cooperative Society. 2.3 The case of the writ applicant Cooperative Society was taken up for reopening for regular assessment under Section 147 of the Income Tax Act. The reasons for reopening of the assessment was served upon the writ applicant along with the notice dated 13.06.2019, issued under section 148 of the Income Tax act. 2.4 The principal ground which was taken into consideration was as regards the deduction claimed by the assessee society in terms of provisions of Section 80P(2)(d) of the Income Tax Act, as not admissible being interest received on FDR’s from the cooperative banks and nationalized banks. 2.5 The writ applicant Society had submitted objections for reopening vide letter dated 17.06.2019, whereby specific contentions were raised by the writ applicant Society that reopening of the assessment is on incorrect belief as assessee had never claimed deduction under section 80P(2)(d) and is not based on tangible material and it is only a change of opinion, which is not permissible under the Income Tax Act. It was Page 3 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 therefore, requested to drop reassessment proceedings under Section 148 of the Income Tax Act. 2.6 Subsequently, the respondent Authority vide letter dated 28.02.2019 had called upon the writ applicant Cooperative Society for inspection and production of all records. In response to the said letter, the writ applicant Cooperative Society had addressed a letter dated 05.11.2019 thereby reiterating it’s earlier stand. However, the respondent Authority vide order dated 18.07.2019 was pleased to dispose of the said objections. Hence, the writ applicant cooperative society is before this Court challenging the reopening notice. 3. This Court, upon hearing the writ applicant Cooperative Society, had issued notice vide order dated 22.11.2019. The same is produced as under: “1.Mr. S.N. Divatia, learned advocate for the petitioner invited the attention of the court to the reasons recorded for reopening the assessment to submit that the Assessing Officer seeks to reopen the interest on the ground that the petitioner was not entitled to claim deduction of interest on FDRs received from co- operative and nationalised banks under section 80P of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). Page 4 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 2.It was pointed out that during the course of scrutiny assessment the Assessing Officer had issued notice under section 143(2) for limited scrutiny out of which one of the issues related to deduction under chapter VI-A of the Act. Moreover, the Assessing Officer issued notice under section 142(1) of the Act calling upon the petitioner to justify deduction claimed under section 80P of the Act. 4. It was submitted that in response to such notices, the petitioner had furnished its explanation. Thereafter, the Assessing Officer had framed assessment under section 143(3) of the Act and had allowed the claim of deduction under section 80P of the Act. It was submitted that therefore, the issue in question has been gone into at the time of original assessment and that the Assessing Officer seeks to reopen the assessment on a mere change of opinion. 5. Having regard to the submissions advanced by the learned counsel for the petitioner, issue notice, returnable on 6th January, 2020. By way of ad-interim relief, further proceedings pursuant to the impugned notice dated 12th March, 2019 issued by the respondent under section 148 of the Income Tax Act, 1961 for assessment year 2015- 2016 are hereby stayed. 6. Direct service is permitted, today.” 4. Learned advocate Mr. S.N. Divatia for the petitioner has drawn attention of this Court to the earlier proceedings of limited scrutiny assessment undertaken by the respondent Authority and has submitted that at the relevant stage, the Authority had called upon the writ applicant Cooperative Society to respond to mainly two issues (i) Sales Turnover Mismatch and (ii) Deduction under Chapter VI-A. Notice under Section 143(2) of the Income Tax Act Page 5 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 was followed by another notice under Section 142(1) of the Act dated 16.05.2017 whereby the writ applicant Cooperative Society was called upon to produce the details as reflected in the list appended at Annexure A, which also includes the details sought for with regard to the deduction claimed under Section 80P of the Income Tax Act. Learned advocate for the writ applicant had further taken this Court through the reply submitted by the writ applicant Cooperative Society vide letter dated 23.06.2017 and 13.07.2017, had thereby submitted that the issue with regard to the deduction claimed by the writ applicant cooperative society under Section 80P of the Income Tax Act has been considered by the respondent herein and in fact, upon detailed examination of the entire material so furnished as well as from the material available on record, the respondent had completed the regular assessment under Section 143(3) of the Act on 20.7.2017, whereby the total income of Rs.NIL determined, after allowing the deduction under Section 80P of the Act as claimed in the ITR , was accepted. Learned advocate for the writ applicant has therefore, vehemently objected and has prayed for quashing and setting aside the impugned notice dated 12.03.2019 by submitting that this is a fit case to quash and set aside the impugned notice, more particularly, in absence of tangible material, the Assessing Officer Page 6 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 has no power to reopen the assessment on the basis of “mere change of opinion” as condition precedent for invoking powers under Section 147 as reflected in the words “reason to believe” has not been fulfilled. 5. In response to the notice issued by this Court, learned senior advocate Mr. M.R. Bhatt assisted by learned advocate Mr. Munjal Bhatt had entered appearance on behalf of respondent department. An affidavit-in-reply has been placed on record duly affirmed by the Assistant Commissioner of Income Tax, Circle 2(1) (1), Ahmedabad. Learned senior advocate for the Department has vehemently objected to the entertainment of petition at pre mature stage or grant of any relief in favour of the petitioner assessee and has strongly relied upon Section 80P(2)(d) of the Income Tax Act as well as amended Section 147 of the Income Tax Act, which has come into force w.e.f. 01.04.1989. Learned senior advocate for the Department has submitted that in view of amended Section 147 which has come into force w.e.f. 01.4.1989, the Assessing Officer has power to reopen the assessment on the basis of tangible material to come to the conclusion that there is escapement of income from the assessment. It is further submitted that in a given situation, when the transaction appeared to be on the basis of Page 7 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 subsequent information having found bogus, disclosure made at the original stage cannot be termed as “fully and truly” as contemplated under the act. It is further submitted that the assessment year under consideration is of 2015-16 and the impugned notice is dated 12.03.2019, which is within a period of 4 years and therefore, the proviso to Section 148 would not be attracted in the facts of the case. Learned senior advocate for the Department has strongly objected to the contention of the assessee that there is no new material and the Assessing Officer has proceeded on pre-exist document, however, the same is immaterial. Learned senior advocate Mr. Bhatt has tried to justify the action of the respondent Authority by referring to Section 80P(2)(a)(i) as well as Section 80P(2)(d) of the Income Tax Act. 6. Learned senior advocate Mr. Bhatt has further taken this Court to the order passed by the Assistant Commissioner of Income Tax Circle, Himmatnagar, while disposing of the objections filed by the assessee against the reassessment proceedings under Section 147 and has strenuously submitted that the Assessing Officer has rightly observed that the interest derived from the credit provided to its member is deductable under Section 80P(2)(a)(i) of the Act, however, on verification of the case record at the stage of Page 8 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 scrutiny assessment, it was noticed that the assessee had received interest on FDR’s from the Cooperative banks and Nationalized banks amounting to Rs.18,08,444/-. The Assessing Officer was therefore, right in holding that the interest derived by depositing surplus fund with the bank was not attributable to the business carrying on by assessee which could be considered for deduction under Section 80P(2)(a)(i) of the Act. In fact, such interest derived from the FDRs from the Cooperative Bank and Nationalized Bank are not admission for deduction in view of Section 80P(2)(d) of the Act. Learned senior advocate therefore, prayed to dismiss the petition at threshold as the respondent Assessing Officer has power to reopen the assessment having satisfied the condition precedent “reason to believe” for invoking power under Section 147 read with Section 148 of the Income Tax Act. 7. Objecting the aforesaid submissions of the Department, learned advocate Mr. Divatia for the writ applicant had taken this Court to the rejoinder affidavit placed on record and has emphasized that the interest received on fixed deposit with other cooperative bank was exempted under section 80P(2)(d). It was further reiterated that in absence of any tangible material, the Page 9 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 opinion once formed under section 80P, the action of reopening is nothing but change of opinion, which is not permissible. The Learned Advocate Mr. Divatia has relied upon the decision of Hon’ble Supreme Court in the case of Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd., reported in (2010) 2 SCC 723. The reliance is also placed upon the decision of this Court in the case of Deepakbhai Ramjibhai Patel vs. Income Tax Officer, reported in (2014) 366 ITR 134(Guj) for the proposition of law that once assessee had presented all facts before AO and on the basis of such facts during the original proceedings once AO has accepted the claim, then AO could not have revisited on a new ground. The Learned Advocate Mr. Divatia has further submitted that the original proceedings has rightly been concluded by considering section 80P(2)(a)(i), by emphasizing term “gross total income” which includes “any income” ie. Even earned by way of Interest derived from FDR’s from other cooperative banks and nationalized banks provided it is engaged in such activities as described under the provision. 8. The aforesaid submission of the writ applicant has been strongly objected by the Learned Senior Counsel Mr. Bhatt who has submitted to read section 80P of the Income Tax act as a Page 10 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 whole. It is submitted that the term “gross total income” appearing in section 80P(1) has to be read in reference to “any income” referred to in sub section (2) which has to be read in conjunction with the term “such activities”, as appearing under clause (a) of sub section (2) of section 80P, which includes carrying on business of banking or providing credit facilities to its members etc. The learned Senior Counsel Mr. Bhatt has further argued that in original assessment proceedings there was no application of mind by the AO, more particularly, to examine the nature of income derived vis-à-vis section 80P(2)(d). The emphasis was laid on term “other cooperative society” appearing in section 80P(2)(d). It was further submitted that in absence of any opinion being formed by AO regarding applicability of section 80(2)(d), the case will not fall in the category of “mere change of opinion” , so as to preclude AO from exercising powers conferred under section 147 read with section 148 of the Income Tax act. It was submitted that since the business of Cooperative Society was limited to provide credit to its members, investment of surplus funds in the banks cannot be said to be part of business of the assessee and therefore, it was only interest which is derived from credit provided to its members, which would be admissible for deduction under Section 80P(2)(a) (i) of the Income Tax Act and interest derived by depositing surplus Page 11 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 fund with the bank will not fall under Section 80P(2)(a)(i) of the Act. Learned advocate for the Department further emphasizes that interest derived from the surplus funds deposited with the bank is not admissible in terms of Section 80P(2)(d). Countering the submission of writ applicant, the Learned Senior Counsel for the Department has drawn attention of this Court to submissions, more particularly para 4 and 5, made by the writ applicant Cooperative Society ( @ page no. 34), at the stage of original assessment, which is reproduce as under : “4. We received the interest only from our members. No interest received from non member. 5. We paid the interest only to the members. We had not accepted deposit from other than members.” The learned Senior Counsel Mr. Bhatt by relying upon the aforesaid paras, has submitted that the AO has been misguided by incorrect submissions of afore said facts made by the writ applicant Cooperative Society. In such peculiar facts and circumstances, has prayed for not to entertain the petition. 9. We have extensively heard both the learned Counsels appearing for the respective parties and have perused the record, examined relevant provisions as well as also carefully gone Page 12 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 through the judgments relied upon. 10. Before this Court dwells into the issue on hand, it would be apt to reproduce section 80P of the Income Tax act, 1961, which reads as under : “Section 80P : Deduction in respect of income of co-operative societies 80P.(1) Where, in the case of an assessee being a co-operative society, the gross total income in- cludes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providing credit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce of its members, or (iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or (v) the processing, without the aid of power, of the agricultural produce of its members, the whole of the amount of profits and gains of business attribut- able to any one or more of such activities ; (b) in the case of co-operative society, being a pri- mary society engaged in supplying milk raised by its members to a federal milk co-operative society, the Page 13 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 whole of the amount of profits and gains of such business; (c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause(b) [either independently of, or in addition to, all or any of the activities so specified], so much of its profits and gains attributable to such activities as does not exceed 1[fifteen thousand rupees]; (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income; (e) in respect of any income derived by the co-oper- ative society from the letting of godowns or ware- houses for storage, processing or facilitating the marketing of commodities, the whole of such in- come; (f) in the case of a co-operative society, not being a housing society or an urban consumers' society, or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand ru- pees, the amount of any income by way of interest on securities chargeable under section 18 or any in- come from house property chargeable under sec- tion 22. Explanation.—For the purposes of this section, an urban consumers' co-operative society means a so- ciety for the benefit of the consumers within the lim- its of a municipal corporation, municipality, munici- pal committee, notified area committee, town area, or cantonment. (3) In a case where the assessee is entitled also to the deduction under section 80H or section 80J, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in Page 14 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 those clauses included in the gross total income, as reduced by the deductions under section 80H and- section 80J. [(4) Nothing contained in this section shall apply to a co-operative society carrying on insurance business in respect of the profits and gains of that business computed in accordance with sec- tion 44.] For the words 'fifteen thousand rupees' this words, 'twenty thousand rupees' shall be substituted w.e.f. 1-4-1970 as per Finance Act, 1969. As per Finance Act, 1969 sub-section (4) shall stand omitted w.e.f. 1-4-1970.” 11. In this context, when we look at the facts of the case on hand, it is not in dispute that the writ applicant cooperative Society is in- corporated as Cooperative Society under the Gujarat Cooperative Societies act, 1961 with the main object of accepting deposits and providing credit facilities to its members. Thus, there is no doubt that the writ applicant being society engaged in providing credit fa- cilities is entitled to the deductions available in terms of section 80P(2)(a)(i) of the Income Tax act, 1961. The writ applicant has placed on record the original computation of Income along with au- dit report. Bare perusal of the same reveals that the writ applicant has disclosed Gross total income of Rs.2117353 as against that the writ applicant has disclosed deductions under Chapter VI-A of Rs. 2117353 , thereby declaring Net taxable income ‘NIL’. Now, Page 15 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 under head of Gross Total Income, the deductions ( Chapter VI-A) refers to section 80P providing credit facilities to its members is shown Rs. 2121935 whereby the assessee writ applicant has claimed eligible deductions of Rs.2121935 by pressing Allowable deductions of Rs. 2117353. The Audit report of the writ applicant further explains return of Income wherein amount of Rs. 18,08,444:00 is shown under the head of interest derived from in- vestment and Rs. 69,33,052 under the head of income derived from credit. The record of limited scrutiny reveals that under origi- nal assessment , the AO has mainly examined two issues viz. (a) Sales Turnover Mismatch (b) Deduction under Chapter VI-A, wherein vide letter dated 16.05.2017, the assessee- writ applicant was called upon to justify the deductions claimed under section 80P of the IT act. That the assessee- writ applicant had submitted details on 23.06.2017, wherein in unequivocal terms clarified that “No interest received from non member”. Further, it mentions : “9. We have deposit more than 30% of the deposit ac- cepted from the members with the other banks according to Co Operative society Act. We accepted deposit of Rs. 7,94,71,817 from the members. We have to maintain fix deposit of Rs. 2,38,41,545 with other banks. As against we deposited Rs.2,96,63,500. Difference of Rs. 58,21,955 is deposited against reserve Rs.1,04,75,974.So, we deposited less amount of Rs. 46,54.019 as per requirement under the Co operative Page 16 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 Society Act. In other words no interest received from the surplus deposit with the banks FDR.” Further, vide letter dated 13.07.2017, the assessee- writ ap- plicant has claimed such FDR of Banks as part of business activity and had prayed for deductions under section 80P (2) of the In- come Tax act. 12. It is in light of this limited details furnished during original as- sessment, the AO while processing return under section 143(1) of the IT act, found interest income of Rs. 87.41 lacs and interest ex- pense of Rs. 54.11 lac acceptable for deductions in terms of sec- tion 80P(2)(a)(i) of Chapter VI-A the Income tax act. Now, it is worth to note that the assessee for reasons best known has not truly explained the interest derived from the investment of surplus funds in other cooperative banks, which otherwise falls under the head of “income from other sources” and in no manner can be re- lated to ‘attributable to the activities of the society’, and therefore, this Court finds that it will in no manner falls under the category to be qualified for deductions under section 80P(2)(a)(i) of the act. 13. Similar issue arose for consideration before the Hon’ble High court of Karnataka ( Dharwad Bench) in the case of Principal Com- missioner of Income Tax and ors. Vs. Totagars co-operative sale Page 17 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 Society, reported in (2017) 395 ITR 611(KAR). The substantial questions of law which arose for consideration as recorded in Para 1 are reproduced as under : “(I) Whether the assessee, Totagar Co-operative Sale Society, Sirsi, is entitled to 100% deduction under Section 80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') in respect of whole of its income by way of interest earned by it during the relevant Assessment Years from 2007-2008 to 2011-2012 on the deposits or investments made by it during these years with a Co-operative Bank, M/s.Kanara District Central Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of the present respondent assessee, Totgar Co-operative Sale So- ciety Limited itself rendered on 08th February 2010, in Tot- gar's Co-operative Sale Society Limited v.ITO , reported in MANU/SC/0095/2010: (2010) 322 ITR 283 SC : (2010) 3 SCC 223 for the preceding years, namely Assessment Years 1991-1992 to 1999-2000 (except Assessment Year 1995-1996) holding that such interest income earned by the assessee was taxable under the head 'Income from Other Sources' under Section 56 of the Act and was not 100% de- ductible from the Gross Total Income under Section 80P of the Act, is not applicable to the present Assessment Years 2007-2008 to 2011-2012 involved in the present appeals and therefore, whether the Income Tax Appellate Tribunal as well as CIT (Appeals) were justified in holding that such interest income was 100 percent deductible under section 80P(2)(d) of the Act?” That while holding the aforesaid issues in favour of the rev- enue department, the Court followed the decision of the Hon’ble Supreme Court in the case of same assessee which was later on followed by this Court in the case of State Bank of India Vs. CIT, Page 18 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 reported in MANU/GJ/1053/2016 : (2016) 389 ITR 578 (Guj), rele- vant paras are reproduced as under : “16. In case where the co-operative society is a bank, one of its objects would be to carry on the general busi- ness of banking. Like other banks, money would be its stock-in-trade or circulating capital and its normal busi- ness is to deal in money and credit. The business of such a bank does not consist only of receiving deposits and lending money to its members or such other soci- eties as are mentioned in the objects. When such a soci- ety lends out its monies so that they may be readily available to meet the demands of its depositors if and when they arise, it is a legitimate mode of carrying on its banking business. In case of a credit society like the present one, the business of the society is limited to pro- viding credit to its members and the income that is earned from providing such credit facilities to its mem- bers is deductible under section 80P(2)(a)(i) of the Act. However, investing its surplus funds with the State Bank of India is no part of the business of the appellant of pro- viding credit to its members and hence, it cannot be said that the interest income derived from depositing surplus funds with the State Bank of India is profits and gains of business attributable to the activities of the appellant so- ciety. The character of the interest is different from the income attributable to the business of the society of pro- viding credit facilities to its members. The interest in- come derived from investing surplus funds with the State Bank of India must be closely linked with the business of providing credit facilities for it to be held that it is attribut- able to the business of the assessee. Therefore, the profits and gains can be said to be directly attributable to the business of providing credit facilities to its members if there is a direct and proximate connection between the profits gains and the business of the appellant. In the present case there is no obligation upon the appellant to invest its surplus funds with the State Bank of India. In- vesting surplus funds in a bank is no part of the business of the assessee of providing credit facilities to its mem- bers. Therefore, it is only the interest derived from the Page 19 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India not being attributable to the business carried on by the ap- pellant, cannot be deducted under section 80P(2)(a)(i) of the Act. If the appellant wants to avail of the benefit of deduction of such interest income, it is always open for it to deposit the surplus funds with a co-operative bank and avail of deduction under section 80P(2)(d) of the Act. 17. Section 71 of the Gujarat Co-operative Societies Act, 1961 permits a society to invest or deposit its fund in the State Bank of India. Therefore, while investment in the State Bank of India is permissible under section 71 of that Act, there is no statutory obligation cast upon the ap- pellant to deposit funds as a part of its business. The said provision also permits investment of funds in any co-operative bank or any banking company approved for this purpose by the Registrar on such conditions as the Registrar may from time to time impose. However, inso- far as the provisions of the Income Tax Act are con- cerned, under section 80P(2)(d) thereof, it is only the in- come by way of interest or dividends derived by a coop- erative society from its investments with any other coop- erative society which is required to be deducted while computing the total income of the assessee.” Thus, following the decision of the Hon’ble Supreme Court in the case of Totagar’s Co-operative Sale Society ltd., (2010) 322 ITR 283(SC) it was held that interest earned from investments made in any bank, not being co-operative society, is not deductible under section 80P(2) (d) of the act. 14. This Court further finds that by virtue of amendment in sec- tion 194A(3)(v) of the Income tax act, it has also excluded the co- Page 20 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 operative banks from the definition of “co-operative society” by the Finance act, 2015. The High Court of Karnataka has taken note of this amendment in the case of Totagars Co-op/sale society ( Supra) (2017) 395 ITR (KAR) thereby holding that the effect of the aforesaid amendment explicitly makes clear intention of legis- lation that co-operative banks are not specie of genus co-operative society, which would entitled to exemption or deduction under the special provisions of Chapter VI-A in the form of section 80P of the Act. 15. In view of aforesaid settled legal position, and having held that the allowance of deduction of the income derived by way of inter- est from the investment in the form of FDR’s with other banks was incorrect, the only question which arises for our consideration is whether wrong claim made by the assessee on which no opinion is formed by the Assessing Officer could be considered valid ground for the Assessing Officer to assume jurisdiction in reopening the case for reassessment proceedings under section 147 of the In- come Tax act? 16. At this stage, it would be apt to considered section 147 of the Income Tax act, as amended w.e.f. 01.04.1989, which reads as under : Page 21 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 “Section 147 : 147. 1 Income escaping assessment If the Assessing Officer 3 has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year : Provided further that nothing contained in the first proviso shall apply in a case where any income involving in relation to any assest ( including financial interest in any entity ) located outside india, chargeable to tax, has escaped assessment for any assessment year : Provided also that the Assessing Officer may assess or reassess such income other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.- For the purposes of this section, the following Page 22 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income- tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but- (i) income chargeable to tax has been under- assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.] Issue of notice where income has escaped assessment 2” (ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. Explanation 4.—For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Page 23 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.” The bare reading of the amended section 147 explicitly pro- vides that the only pre condition or requirement for the Assessing Officer to assume jurisdiction for reopening is to have “reason to believe”. It is settled legal position as held by the Hon’ble Supreme Court as well as various High Courts that Explanation 2 to section 147 of the Act is required to be read with section 147 in its entirety, including the proviso. If one reads Explanation 2 to section 147, in- cluding the proviso, then it is clear that in cases where the Depart- ment reopens the assessment within a period of four years, it can do so, on the ground of income having escaped assessment. How- ever, in cases of reopening after four years, the AO must have rea- son to believe that income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all ma- terial facts. On scanning of the anatomy of the aforesaid provi- sions, it is clear as crystal that the formation of believe as regards the escapement of tax pertaining to A.Y. by Assessing Officer, the Assessing Officer is required to form an opinion before he proceed to issue a notice. Thus, the Courts have on number of occasions held that prima facie reasonable grounds to believe that the in- Page 24 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 come has escape assessment is enough to give jurisdiction to in- voke powers under section 147. 17. However, the validity of the reasons which are supposed to suspend the formation of an opinion, is challengeable. The reasons to believe are to be recorded by the Assessing Officer. On plain reading of the reasons recorded for reopening the assessment, this Court finds that the Assessing Officer has relied upon the assessment records. Further, on bare perusal of the reasons recorded for reopening as supplied to the assessee, the Assessing Officer has mainly recorded two reasons viz. (1) that the assessee has received interest on FDRs from Cooperative Banks and Nationalised Bank amounting to Rs.18,08,444/- on which deduction under Section 80P(2)(d) is not admissible in view of the judgment of the Karnataka High Court in the case of Togagar Co- op. Sale Society (Supra) and (2) that the assessee has received such interest other than Cooperative Societies and the same is not admissible for deduction under Section 80P. Having recorded aforesaid reasons, the Assessing Officer has formed opinion and believed that the provisions of Clause (b) of Explanation 2 to Section 147 are attracted in the given case Page 25 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 and has therefore, proceeded with reopening, as income chargeable has escaped assessment. 18. Learned counsel Mr. Divatia appearing for the writ applicant has drawn attention of this Court to the decision of the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited reported in (2010) 320 ITR 561 (SC) and has submitted that post 01.04.1989, the power to reopen though had been wider still the Court is required to observe schematic interpretation to the words ‘reason to believe’ failing which Section 147 would give arbitrary powers to Assessing Officer to reopen the assessment on the basis of mere ‘change of opinion’. The Assessing Officer has no inherent powers to review its own order though certainly he has power to reassess but such powers of reassessment has to be passed on fulfilling certain preconditions and if the concept of ‘change of opinion’ is removed then in garb of reopening of the assessment, the power of review would come into play which is otherwise not permissible. 19. We are conscious of the settled legal position of law that post 01.04.1989, the Assessing Officer has power provided there is ‘tangible material’ to come to the conclusion that there is Page 26 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 escapement of income from the assessment and in absence of the same, the concept ‘change of opinion’ may come into play which may preclude the Assessing Officer to reopen the assessment. However, in the given case, from plain reading of the reasons recorded for reopening the assessment, we find that the Assessing Officer has rightly formed opinion that the interest derived from the surplus funds invested by the assessee in the nature of FDRs other than the Cooperative Societies i.e. other Cooperative Banks and Nationalized Bank, will certainly not fall in the category to be entitled to claim the deductions under Section 80P (2)(i) and Section 80P(2)(d). We find that the reasons recorded by the AO are self explanatory, clear and unambiguous. Thus, prima facie the AO has been able to establish a vital link to belief that there is escapement of income chargeable to tax. However, on threadbare examination of the reasons recorded by the Assessing Officer for reopening, the order disposing of the objections filed by the writ applicant against the notice under Section 148 of the Act, this Court finds that the respondent Authority in no uncertain terms have mentioned that the writ applicant had failed to produce ‘fully and truly’ material facts necessary for assessment. Subsequently, in the affidavit in reply filed by the respondent Authority, more particularly, the Page 27 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 relevant para (v) and (vi), which read as under: “(V) With reference to para 4.2 and 4.3, it is submitted that after introduction of amendment to Section 147 of the Act w.e.f. 1.4.1989 the scope of re- assessment is widened. The only requirement is to have ‘reason to believe’. The reason has to be a reason of prudent person and should be fair and necessarily to be recorded on account of failure of the assessee to disclose fully and truly all material facts relevant for the assessment. If any item has escaped assessment which was otherwise includable in the assessment and if the AO noticed it subsequently by his own investigation or by way of reason of some information, it cannot be stated to be change of opinion. Moreover, in the present case no opinion in relation to the deduction under Section 80P was formed at the original assessment stage. Moreover, the assessment being reopened within the period of four years from the end of the relevant assessment year proviso to section 147 shall have no application. (VI) It is submitted that in view of the amendment to Section 147 w.e.f. 1.04.1989, the AO has power to reopen if there is a tangible material to come to conclusion that there is escapement of income from the assessment. Acquiring fresh opinion, specific in nature and reliable character relating to concluded assessment which goes to prove the falsity of statement by assessee at the time of original assessment is different from drawing fresh inference from some facts and material available on record. Thus, two situations are different when transaction itself on the basis of subsequent information found to be bogus, the disclosure made at original stage cannot be stated to be fully and truly. In this case, assessment was reopened within a period of four years and therefore, proviso to Section 147 has no application. The only requirement is to see the escapement of income which is there in this case, therefore, notice issued under section 148 is a valid notice. ” Page 28 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 20. It is true that the Assessing Officer has drawn inference from the examination of the record that the original order of assessment is erroneous which has probably resulted due to the failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment. We have consciously applied our mind to the relevant facts and material available. We find that it is true that the once assessment made on material available or existing at the relevant point of time while making assessment and again on same material, if different or divergent view is sought, it would tantamount to “change of opinion’’, but at the same time even in the case of existing material, if no conscious attempt has been made by the AO, it would at the most tantamount to mistake in not considering the relevant point or proposition and it would not certainly not fall in category of “change of opinion”. 21. On bare appreciation of the audit report, one cannot overlook sight of the fact that the assessee has very conveniently mentioned under the head of deduction by referring to Section 80P and the reply which was submitted on record at the stage of scrutiny assessment. At first instance, it gives an impression that the writ applicant assessee has derived interest from it’s own members. This Court finds that the writ applicant had failed to Page 29 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 disclose ‘fully and truly’ all material facts necessary for assessment, more particularly, to examine the nature of transaction vis-a-vis the deduction under Section 80P (a)(i) and Section 80P(2)(d). The Court further finds that in fact it was the duty of the assessee to make fully and truly material disclosure at the time of assessment. Mere production of the audit report without further reference of the interest derived from other than Cooperative Societies would not fall in the category of material evidence which the Assessing Officer with due diligence could have discovered and therefore, the Assessing Officer has rightly invoked proviso to Section 147 of the Act having satisfied for formation of belief which has bearing on the question of escape of income of the assessee from the assessment because of his failure or omission to disclose fully and truly all material facts. 22. So far as the submission of learned advocate Mr. Divatia for the writ applicant regarding in absence of ‘tangible material’ reopening as regards escapement of income from the assessment amounting to ‘change of opinion’ is concerned, this Court agrees with the submission of learned senior counsel Mr. M.R. Bhatt appearing for the Department that the original assessment is on the basis of the information subsequently found to be bogus or Page 30 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 rather disclosure made at the original stage cannot be said to be ‘fully and truly’, which precludes the jurisdiction of AO for reassessment. In the given case, the assessment has been reopened within a period of 4 years and therefore, the proviso to Section 147 has no application. This Court finds that the reasons recorded by the Assessing Officer which led to the formation of the belief contemplated by the proviso to Section 147 of the Act has material bearing on the question of escapement of income of the assessee from the assessment because of failure of the assessee or omission to disclose the fully and truly all material facts. We are of the view that though the material was available on record, at the time of first assessment, when no conscious consideration of the material is made and a mistake has been committed, it would not, in any case create an embargo on the power of the Assessing Officer to exercise powers under amended section 147 of the Income Tax act, 1961, as there could not be “change of opinion”, in the factual scenario. The only requirement is to see that the escapement of income which the Court finds in the given case and therefore, we hold that the notice issued under Section 148 is a valid notice. In the result, the petition fails. The Assessing Officer is Page 31 of 32 C/SCA/20585/2019 JUDGMENT DATED: 04/01/2022 permitted to proceed further in accordance with law. Notice is discharged. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) Y.N. VYAS Page 32 of 32 "