SWARNA SOUHARDA CREDIT CO-OPERATIVE LTD V. COMMISSIONER OF INCOME TAX (APPEALS)

WP/4840/2020

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The case involves Swarna Souharda Credit Co-operative Ltd., which challenged the assessment order and demand notice issued by the Income Tax Department. The petitioner argued that the profits of the society were eligible for deduction under Section 80P of the Income Tax Act, 1961, and contested the re-assessment that treated previously deductible income as taxable under 'Income from other Sources'. The Income Tax Officer had disallowed certain deductions and additions were made, leading to a demand for tax. The petitioner sought a stay on this demand, which was denied due to non-payment of 20% of the disputed demand as required by a departmental circular. The court allowed the petitioner to approach the Principal Commissioner of Income Tax for a review of the stay order.

• Counselvise Citation: [2020] 140 COUNSELVISE.COM (IT) 754825 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 03-03-2020
• Assessment Year: misc
• Other Referred Cases: M/s.Guttigedarara Credit Co-operative Society Ltd. v. The Income Tax officer (ITA No.29/2015)
• Laws Referred To: Constitution of India, Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: JEEVAN NEERALGI
• Assessee Lawyers: MAHESH UPPIN
• Keywords: Assessment Order; Co-operative Society; Deduction; Income Tax; Stay of demand; Writ petition
• Section: 263; 80P; 226; 220(6); 227; 246 A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF MARCH 2020 BEFORE THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV WRIT PETITION No.4840/2020 (T-IT) Between: Swarna Souharda Credit Co-operative Ltd. Karkera Towers, Kannangaru Bypass, Padubidri, Udupi Taluk, Udupi District – 574 111. Rep. by its Secretary Mr.Bhaskar N. Amin … Petitioner (By Sri Mahesh R. Uppin, Advocate) And: 1. Commissioner of Income Tax (Appeals) Aayakar Bhavan, C.R.Building, N.G.Road, Attavara, Mangaluru- 575 001. 2. Income Tax Officer, Ward-3, Aayakar Bhavan, Adi-Udupi, Malpe Road, Udupi- 576 103. … Respondents (By Sri Jeevan J. Neeralgi, Advocate) 2 This Writ Petition is filed under Articles 226 & 227 of the Constitution of India, praying to quash the Assessment Order dated 15.12.2019 passed in Order No.ITBA/AST/S/143(3)/2019-20/1022367068(1)passed by the second respondent vide Annexure-‘A’ or in the alternative quash the notice dated 13.02.2020 issued by the R2 marked as Annexure-F and etc. This Writ Petition coming on for hearing this day, the Court made the following: ORDER The petitioner is a credit Co-operative Society registered under the provisions of Karnataka Souharda Sahakari Act, 1997. The petitioner is engaged in the business of providing credit facilities to its members for their financial needs. 2. It is stated that the petitioner had filed its return of income for the Assessment Year 2017-2018 declaring an amount of Rs.16,68,267/- as being profits and gains of its business after having claimed deduction of Rs.16,54,031/- under Section 80P of the Income Tax Act, 1961 (“the Act”, for short). 3 3. It is further submitted that in the assessment proceedings, the second respondent has disallowed deduction with respect to interest on investment of Rs.13,72,228/- and has also disallowed the provision for interest payable on deposits and has made certain additions. It is held that no deduction could be allowed under Section 80P of the Act on the ground that the petitioner has transacted with nominal members and that its interest on investments was taxable under the head ‘Income from other Sources’. 4. As against the assessment order and demand notice, the petitioner has preferred an appeal before the first respondent under Section 246-A of the Act and has also filed an application for stay of the demand. 5. The petitioner has filed an application under Section 220(6) of the Act requesting to keep the demand 4 of tax in its entirety in abeyance till dispose of appeal by the first respondent. 6. It is submitted that the Assessing Authority as per the order at Annexure-‘F’ has stated that the question of considering the application for stay of demand could be considered only if 20% of the total disputed demand is paid, failing which, coercive steps will be taken for collection of demand outstanding without giving any further opportunity. 7. The petitioner submits that the profits of petitioner–Society is eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (‘I.T. Act’ for brevity). It is further submitted that the petitioner’s assessment was concluded allowing the benefit of deduction as contemplated under Section 80P of the I.T. Act for the year 2014-2015, which was however reopened by the Department under Section 263 of the I.T. Act on the ground that the original assessment 5 order was prejudicial to the interests of Revenue and fresh assessment proceedings were initiated. 8. It is submitted that the entire sum of Rs.16,54,031/- that was permitted as deduction under Section 80P of the I.T. Act on the earlier occasion was now treated as ‘income from other source’ and was brought under the purview of tax as per the order dated 15.12.2019 and subsequently the demand notice came to be raised. 9. It is submitted that the petitioner has preferred an appeal before respondent No.1 under Section 246A of the I.T. Act, which is pending disposal. It is further submitted that the application for stay of demand was made before respondent No.2 and the respondent No.2 as per the order at Annexure-F has declined to consider the petition for stay by ordering that the petitioner had to pay 20% of the demand and 6 as such demand was not met, the application was rejected. 10. The petitioner has challenged the said order at Annexure-F and has raised various contentions on merits of the matter, including that the income that is derived from fixed deposit is allowed as permissible deduction and reliance is placed on the judgment of this Court in the case of M/s.Guttigedarara Credit Co-operative Society Ltd. v. The Income Tax officer (ITA No.29/2015 disposed off on 9.6.2015) to contend that a wide meaning ought to be assigned to the word ‘attributable to’ as found in the said Section (Section 80P of I.T. Act). 11. Learned counsel appearing for respondents would however contend that the appeal is still pending adjudication and the order that is passed is a reasoned order. Once the application for stay has been disposed off on the ground that 20% deposit of the demand as 7 required has not been made as per the Circular No.1914 as modified by subsequent circular No.F 404/72/93, the assessee has a right to approach the jurisdictional Administrative Principal Commissioner of Income Tax (PCIT)/ Commissioner of Income Tax (CIT) for review of decision of the officer. This is in light of the fact that Senior Administrative Officer has been conferred with power to look into the imposition of condition relating to deposit. This Court in the order dated 23.02.2017 passed in W.P.No.1339-1342/2017 at para-16 has further observed that PCIT is also to examine as to whether the grounds as made out by the assessee that assessment is “unreasonably highpitched” or the requirement of deposit would lead to genuine hardship being caused to the assessee. 12. In light of the procedure that is provided for in the circular referred to above and noting that in the present case the application for stay has been rejected 8 primarily on the inability of the petitioner to have deposited 20% of the demand, keeping all the contentions open, the petitioner is at liberty to explore the procedure provided for under the circular by approaching the Administrative Senior Authority as provided for in the circular and seek for review of the order including the direction relating to deposit and PCIT/CIT would dispose of the said application of the petitioner, if made within a period of one week from the date of release of this order expeditiously. 13. Sri Jeevan J. Neeralgi, the learned standing counsel appearing for respondents submits that after affording an opportunity of hearing to the petitioner on the application to be submitted by him, necessary orders would be passed within a period of two weeks of receipt of the representation of the petitioner. 14. During this whole process, it is needless to state that no coercive measures would be taken to 9 recover the demand which is a matter still pending consideration. It is also open for the Appellate Authority to dispose of the appeal expeditiously. Subject to the above, this petition is disposed off. Sd/- JUDGE Np/- "