THE VISNAGAR NAGRIK SAHAKARI BANK LTD.,MEHSANA V. THE ACIT, CIRCLE-GANDHINAGAR (PREVIOUSLY DCIT, PATAN CIRCLE, PATAN), GANDHINAGAR

ITA 738/AHD/2025

AI Insights

The case involves The Visnagar Nagarik Sahakari Bank Ltd., a co-operative bank under liquidation, appealing against the denial of deduction under section 80P of the Income-tax Act, 1961 for the assessment years 2013-14, 2014-15, and 2015-16. The Assessing Officer had disallowed the deduction on the grounds that the provisions of section 80P(4) specifically exclude co-operative banks from claiming such deductions. The Tribunal considered the financial status of the bank under liquidation and the statutory liabilities towards the Deposit Insurance and Credit Guarantee Corporation (DICGC), and decided that a fresh examination of the facts was necessary to determine the real income of the bank for tax purposes.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772654 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2013-2014
• Other Referred Cases: ITA No. 2251/Ahd/2015
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RIGNESH DAS
• Assessee Lawyers: A P NANAVATY; AGAIN UPHOLDING TAXABLE INCOME
• Keywords: Condonation of delay; Set aside; Opportunity of being heard; Revised return; Diversion of income; Initiation of penalty proceedings; Liquidation
• Section: 143(3); 142(1); 271(1)(c); 37

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद Ɋायपीठ “ A”, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ A ” BENCH, AHMEDABAD ] ] BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER आयकर अपील सं /ITA Nos.738, 1414 & 1415/Ahd/2025 िनधाŊरण वषŊ /Assessment Years : (2013-14, 2014-15 & 2015-16) The Visnagar Nagarik Sahakari Bank Ltd.,(Under Liquidation) Market Yard, Visnagar, Mehsana-384315, बनाम / v/s. The Assistant Commissioner of Income Tax, Circle Gandhinagar. (Previously DCIT, Patan Circle, Patan) ̾थायी लेखा सं./PAN: AAAFT8764C अपीलाथŎ/ (Appellant) Ů̝ यथŎ/ (Respondent) Assessee by : Shri A P Nanavaty, AR Revenue by : Shri Rignesh Das, CIT-DR सुनवाई की तारीख/Date of Hearing : 19/08/2025 घोषणा की तारीख /Date of Pronouncement: 26/08/2025 आदेश/O R D E R PER MAKARAND V. MAHADEOKAR, AM: ] ] These three appeals by the assessee are directed against the separate orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the CIT(A)”], all passed under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], arising from the assessments framed by the Assistant / Deputy Commissioner of Income-tax, Circle, Patan [hereinafter referred to as “the Assessing Officer or AO”] under section 143(3) of the Act. Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 2 2. In all these appeals, the central issue relates to the assessee’s claim of deduction under section 80P of the Act, which was denied by the AO on the ground that the assessee is a co-operative bank hit by the provisions of section 80P(4), and the action of the AO was confirmed by the learned CIT(A). Since the issue involved in these appeals is common, arising out of substantially identical facts and grounds, these appeals were heard together and are being disposed of by this consolidated order for the sake of convenience. Facts of the Case 3. The assessee, a co-operative bank registered under the Gujarat Co-operative Societies Act, 1961, was placed under liquidation by the Reserve Bank of India in the year 2003. The Government of Gujarat appointed a liquidator, under whose supervision the assessee continued to carry on recovery operations from borrowers, deposit management and incidental functions required under the liquidation proceedings. The chronology of return filing, deduction claimed, and assessment orders for the three years under appeal is tabulated as under: Particulars A.Y. 2013–14 A.Y. 2014–15 A.Y. 2015–16 Date of filing original return 16.09.2013 17.09.2014 30.09.2015 Returned income Original as well as revised Nil Nil Nil Revised return 31.03.2014 and 31.03.2015 — — Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 3 Income assessed by AO Rs. 10,19,72,904/- Rs. 32,58,14,133/- Rs. 22,31,74,924/- Date of AO’s order u/s 143(3) 14.03.2016 13.12.2016 29.11.2017 Date of CIT(A)’s order u/s 250 19.06.2025 19.06.2025 19.06.2025 4. For the lead year, i.e. A.Y. 2013–14, the assessee filed its return of income on 16.09.2013 declaring total income at Nil. Subsequently, revised returns were filed on 31.03.2014 and 31.03.2015, each time declaring Nil income. The return was initially processed under section 143(1). The case was selected for scrutiny. Notice under section 143(2) dated 15.09.2014 was duly served, followed by notices under section 142(1) dated 08.05.2015 and 18.09.2015, along with questionnaire. In response, the Authorised Representative of the assessee appeared and filed written submissions with supporting details. 5. During the course of assessment, the Assessing Officer noted certain points and a show-cause notice dated 02.03.2016 was issued to the assessee, pointing out that in view of the provisions of section 80P(4), deduction under section 80P is not available to a co- operative bank, and requiring the assessee to explain why the claim should not be disallowed. 6. In reply dated 10.03.2016, the assessee submitted that the bank was under liquidation and was continuing its activities under Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 4 the supervision of a liquidator. It was submitted that the bank remained a registered co-operative society under the Gujarat Co- operative Societies Act, and carried on recovery operations, maintained staff, incurred administrative and legal expenses, and earned interest on recoveries from borrowers as well as on investments. The assessee contended that, being a co-operative society, it was entitled to deduction under section 80P of the Act. 7. The Assessing Officer, after considering the reply of the assessee, held that the same was not acceptable. He observed that the provisions of section 80P are not applicable to a co-operative bank, irrespective of whether it is functioning or under liquidation. According to him, section 80P is meant only for co-operative societies carrying out specified activities. He further noted that section 80P(4) specifically excludes co-operative banks from the ambit of deduction. The assessee’s contention that it was a co- operative society registered under the Gujarat State Co-operative Societies Act and therefore eligible for deduction was also rejected on the ground that all co-operative banks are registered under the respective State Co-operative Societies Acts, and mere registration as a co-operative society does not alter the legal position created by section 80P. AO disallowed the deduction of Rs. 10,19,72,904/- claimed under section 80P and added the same to the total income of the assessee. He also directed initiation of penalty proceedings under section 271(1)(c) for concealment of income. 8. For A.Y. 2013-14 the assessee preferred appeal before CIT(A). The appeal before CIT(A) was delayed by more than 6 months. The Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 5 CIT(A) rejected the condonation of delay however also examined the matter on merit and dismissed the appeal. For other two assessment years also the CIT(A) dismissed the appeal of the assessee on merit. The assessee raised multiple grounds before CIT(A). In the first ground, it was contended that the AO had erred in disallowing deduction under section 80P amounting to Rs. 10,19,72,905/-, and that on facts as well as in law, the claim of deduction ought to have been allowed. In the second ground, the assessee argued that being a co-operative society bank under liquidation, its crystallised liability towards depositors ought to have been allowed against the interest income earned, and after such set-off the income was liable to be assessed at Nil. The third ground raised a grievance against the disallowance of deduction under section 37 in respect of accrued interest payable to depositors, contending that such liability towards depositors and the Deposit Insurance and Credit Guarantee Corporation of India (DICGCI) was real and had to be allowed as deduction, especially since accrued interest on deposits was liable to be set-off against interest earned from fixed deposits and recovery from borrowers. In the fourth ground, the assessee submitted that the AO had erred in not applying settled commercial principles while assessing the income of a bank under liquidation and that, applying the doctrine of real income, the income should have been assessed at Nil. 9. In addition to the above, the assessee submitted that by virtue of the provisions of the DICGCI Act, 1961 and the regulations framed thereunder, the amounts realised during liquidation proceedings belonged to DICGCI and not to the assessee bank. Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 6 Accordingly, no income was taxable in the hands of the assessee on the principle of diversion of income by overriding title. In support, the assessee placed reliance on the decision of the ITAT Ahmedabad in its own case for A.Y. 2011-12 (ITA No. 2251/Ahd/2015, order dated 30.09.2021), wherein the Co-ordinate Bench had upheld the principle of diversion of income by overriding title in favour of DICGCI. 10. The contentions advanced by the assessee were rejected by the CIT(A). The CIT(A) discussed various issues and held that deduction under section 80P is restricted only to co-operative societies engaged in the activities specified in section 80P(2). A co-operative bank, whether in operation or under liquidation, is expressly barred by section 80P(4) from claiming such deduction. The CIT(A) further observed that the assessee’s income was derived only from interest on fixed deposits and recovery of advances. Such income could not be regarded as arising from eligible activities contemplated in clause (a) of section 80P(2). Therefore, even on this ground, the assessee failed to qualify. Relying on the plain language of section 80P(4), the CIT(A) noted that deduction is not available to any co-operative bank other than PACS and PCARDBs. 11. The assessee further relied on an order of the ITAT in its own case for an earlier assessment year (ITA No.2251/Ahd/2015 for A.Y. 2011-12). The CIT(A), however, rejected this plea by observing that each assessment year is a separate and independent unit of assessment, and the findings of the Tribunal in an earlier year could not govern the outcome in the present year. Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 7 12. Aggrieved by the orders of CIT(A) the assessee is in appeals before us raising following revised grounds before us:  In Appeal No. ITA 738/Ahd/2025 for A.Y. 2013-14 1. Ld. NFAC has erred in dismissing the appeal on facts and in law on the ground of non-condonation of delay and on merits confirming addition of Rs. 10,19,72,904/- as taxable income. 2. Assessee being bank under liquidation administered by official liquidator being official of Cooperation Department holds more than one charge and therefore appeal was filed without Miscellaneous Application for Condonation of Delay by bonafide and inadvertent mistake, such fact ought to have been brought to the notice of officiating official liquidator and appellate order was passed dismissing the appeal without specific notice of non-filing of Miscellaneous Application for Condonation of Delay. 3. Assessee now files application for condonation of delay and earnestly pray to consider miscellaneous application for condonation of delay and after admitting such miscellaneous application for condonation of delay; delay in filing appeal before NFAC may be condoned. 4. Ld. NFAC has failed to appreciate that appellant has judgment in his own case being appeal no. ITA No.2251/Ahd/2015 DATED 30/09/2021 against which no appeal has been filed before High Court and therefore said appellate order dated 30/09/2021 has become final and binding therefore NFAC has ought to have given effect to appellate order dated 30/09/2021 upholding diversion of income by overriding title due to statutory liability to DICCI causing grievous injustice to assessee by again upholding taxable income of Rs. 10,19,72,904/-. 5. Ld. NFAC has reproduced additional ground in Para-4 in appellate order u/s 250 of the Act and thereby noticed appellate order ITA No.2251/Ahd/2015 dated 30/09/2021 of Hon'ble ITAT Ahmedabad Bench and failed to apply principle of diversion of income by overriding title on such order on minor technical issue causing severe injustice to assessee which is under liquidation and being under administration of official of Government of Gujarat and thereby erred in confirming taxable income of Rs. 10,19,72,904/-. Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 8  In Appeal No. ITA 1414/Ahd/2025 for A.Y. 2014-15 1. LD NFAC has erred in dismissing the appeal on facts and in law. 2. LD NFAC has failed to appreciate that appellant has judgment in his own case being appeal no. ITA No.2251/Ahd/2015 DATED 30/09/2021 against which no appeal has been filed before High Court and therefore said appellate order dated 30/09/2021 has become final and binding therefore NFAC has failed to apply to appellate order dated 30/09/2021 upholding application of principle of diversion of income by overriding title and erred in confirming taxable income of Rs. 32,58,14,133/- causing grievous injustice to assessee. 3. LD NFAC has no reason to deviate from appellate order of Hon'ble ITAT Ahmedabad Bench in appeal no. ITA No.2251/Ahd/2015 DATED 30/09/2021 and apply judgement in the case of Associated Power Company Ltd 218ITR195(SC) without distinguishing facts with the judgement of appellate order of Hon'ble ITAT Ahmedabad Bench as well as without considering DICCI Act and its regulations as well as Sec. 115A of the Gujarat Cooperative Societies Act 1961. 4. LD NFAC has failed to appreciate that facts in the Associated Power Company Ltd is pertaining to statutory direction for utilization of funds in certain contingencies till then funds are at the disposal and under ownership of such power company which facts do not apply at all in the case of appellant because appellant is statutorily under obligation to apply funds only for payment of liabilities of DICCI and pending such liabilities such amounts are deposited with bank without any discretion to apply such fund for any purpose and such deposit and interest are also diverted at source because bank under liquidation has no discretion to apply funds available with bank under liquidation for purpose of satisfying only liability of DICCI and after satisfaction of liabilities of DICCI other liabilities can be paid. 5. NFAC has grievously erred in confirming taxable income of Rs. 32,58,14,133/-  In Appeal No. ITA 1415/Ahd/2025 for A.Y. 2015-16 1. LD NFAC has erred in dismissing the appeal on facts and in law. Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 9 2. LD NFAC has failed to appreciate that appellant has judgment in his own case being appeal no. ITA No.2251/Ahd/2015 DATED 30/09/2021 against which no appeal has been filed before High Court and therefore said appellate order dated 30/09/2021 has become final and binding therefore NFAC has failed to apply to appellate order dated 30/09/2021 upholding application of principle of diversion of income by overriding title and erred in confirming taxable income of Rs. 22,31,74,924/- causing grievous injustice to assessee. 3. LD NFAC has no reason to deviate from appellate order of Hon'ble ITAT Ahmedabad Bench in appeal no. ITA No.2251/Ahd/2015 DATED 30/09/2021 and apply judgement in the case of Associated Power Company Ltd 218/TR195(SC) without distinguishing facts with the judgement of appellate order of Hon'ble ITAT Ahmedabad Bench as well as without considering DICCI Act and its regulations as well as Sec. 115A of the Gujarat Cooperative Societies Act 1961. 4. LD NFAC has failed to appreciate that facts in the Associated Power Company Ltd is pertaining to statutory direction for utilization of funds in certain contingencies till then funds are at the disposal and under ownership of such power company which facts do not apply at all in the case of appellant because appellant is statutorily under obligation to apply funds only for payment of liabilities of DICCI and pending such liabilities such amounts are deposited with bank without any discretion to apply such funds for any purpose and such deposit and interest are also diverted at source because bank under liquidation has no discretion to apply funds available with bank under liquidation for purpose of satisfying only liability of DICCI and after satisfaction of liabilities of DICCI other liabilities can be paid. 5. NFAC has grievously erred in confirming taxable income of Rs. 22,31,74,924/- 13. Since the grounds raised by the assessee in all three appeals are common and interconnected, they are consolidated into the following common issue for adjudication: The issue that arises for our adjudication in these appeals is whether the amounts in question, being Rs. 10,19,72,904/-, Rs. 32,58,14,133/-, and Rs. 22,31,74,924/- for A.Ys. 2013-14, 2014-15, Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 10 and 2015-16 respectively, represent real income chargeable to tax in the hands of the assessee-bank under liquidation, or whether such amounts stand diverted at source by overriding statutory title in favour of the Deposit Insurance and Credit Guarantee Corporation (DICGC) under the scheme of the DICGC Act, 1961 and section 115A of the Gujarat Co-operative Societies Act, 1961, in view of the binding precedent of the Tribunal in assessee’s own case for earlier year. 14. During the course of hearing, the learned Authorised Representative (AR) of the assessee submitted that the claim of deduction under section 80P of the Act was not made in the original return of income. The assessee had subsequently revised the return on the misleading advice of a local tax consultant. The AR explained that the assessee, being a co-operative bank under liquidation, is saddled with substantial liability towards repayment of depositors through the Deposit Insurance and Credit Guarantee Corporation (DICGC) in terms of the scheme framed under section 18 of the DICGC Act, 1961. It was therefore urged that the income reflected in the accounts does not represent real income in the hands of the assessee but is only an amount statutorily earmarked for discharge of the overriding liability towards DICGC. On this basis, the AR contended that the amount cannot be brought to tax in the hands of the assessee. 15. The learned Departmental Representative (DR) relied upon the orders of the lower authorities. Referring to the Balance Sheet and the Profit and Loss Account of the assessee as placed at pages 124 to 126 of the paper book, the DR pointed out that the assessee is holding substantial funds which have been parked in fixed deposits with banks and has earned income thereon. According to the DR, Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 11 such income has clearly accrued to the assessee and is chargeable to tax in accordance with law. 16. In response, the learned AR reiterated that although the assessee has deposits with banks, the outstanding statutory liabilities far exceed the available funds. It was further submitted that as per the Profit and Loss Account, the expenditure incurred towards settlement under the One Time Settlement (OTS) scheme is higher than the interest income earned from bank deposits and advances. Therefore, in substance, the assessee has no real income at its disposal, and all receipts stand absorbed by overriding statutory obligations towards DICGC. 17. The learned DR further submitted that the Assessing Officer had not verified the factual details now being relied upon by the assessee before arriving at the conclusion in the assessment order. According to the DR, the assessee’s plea regarding excess liabilities over deposits and the expenditure under the One Time Settlement (OTS) scheme vis-à-vis the interest income earned from deposits and advances has not been subjected to proper examination or verification at the assessment stage. It was therefore contended that these aspects require thorough factual verification by the Assessing Officer before any conclusion can be drawn as to whether the assessee is left with any real income. 18. We have carefully considered the rival submissions and perused the material available on record, including the computation of income and the financial statements placed in the paper book. At the outset, we note from the computation of income for the Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 12 assessment years under consideration that the assessee has not claimed any deduction under section 80P of the Act. Therefore, the question of disallowance of such claim does not arise in these appeals. 19. We further note that the assessee is a co-operative bank under liquidation. The balance sheet and profit and loss account indicate that the assessee has substantial deposits and advances on which interest income has been credited. At the same time, the liabilities of the assessee, particularly towards DICGC under the statutory scheme, are substantial and in fact exceed the available deposits and assets. The profit and loss account also shows that the expenditure towards One Time Settlement (OTS) and other liquidation-related obligations exceeds the interest income earned. On a perusal of the consolidated balance sheet and profit and loss account placed on record for the A.Y. 2013-14, we further observe that the assessee is having a debit balance in its Profit and Loss Account aggregating to Rs. 441.97 crore, reflecting accumulated losses. The balance sheet also discloses that the DICGC claim outstanding is to the tune of Rs. 374.40 crore, far exceeding the realizable assets. The net worth of the assessee stands completely eroded and is in the negative. These financial indicators, coupled with the assessee being under liquidation, clearly demonstrate that the assessee is not carrying on normal banking business and is functioning only as a statutory vehicle for realisation of assets and repayment of creditors in accordance with law. Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 13 20. The learned DR, while relying on the orders of the lower authorities, fairly pointed out that the Assessing Officer has not verified the factual position of the assessee’s claim in the light of the concept of real income and the principle of diversion of income by overriding title. Thus, the issue has not been properly examined at the assessment stage. 21. We may clarify that under the scheme of the Income-tax Act, tax can be levied and recovered only on income which has in fact accrued or arisen to the assessee. If, upon verification, it is found that no real income has accrued to the assessee in view of its statutory obligations and liquidation status, no tax shall be recovered merely on the basis of notional entries in the accounts. 22. In our considered view, the issue of taxability of the income in the hands of the assessee, particularly when it is under liquidation and saddled with overriding statutory obligations under the DICGC Act and the Gujarat Co-operative Societies Act, requires proper verification and fresh adjudication. The determination of taxable income has to be made on the touchstone of real income theory. 23. Accordingly, in the interest of justice, we deem it appropriate to set aside the impugned orders of the ld. CIT(A) for all three years under appeal and restore the matters to the file of the Assessing Officer for de novo assessment. The Assessing Officer shall verify the factual details from the perspective of whether the assessee has in reality earned any income capable of taxation, keeping in view the judicial precedents including the order of Co-ordinate Bench in Printed from counselvise.com ITA Nos.738,1414 &1415/Ahd/2025 The Visnagar Nagrik Sahakari Bank Vs. ACIT Assessment Years 2013-14, 2014-15 & 2015-16 14 assessee’s own case for earlier year. Needless to say, the assessee shall be afforded due opportunity of being heard and to place on record all relevant facts, documents, and judicial authorities in support of its claim. 24. In the result, the appeals filed by the assessee are allowed for statistical purposes. Order pronounced in the Open Court on 26th August, 2025 at Ahmedabad. Sd/- Sd/- (SANJAY GARG) JUDICIAL MEMBER (MAKARAND V.MAHADEOKAR) ACCOUNTANT MEMBER (True Copy) Ahmedabad, Dated 26.08.2025 19/08/2025 Manish, Sr. PS आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ ) अपील ( / The CIT(Exemption)-Ahmedabad 5. िवभागीय Ůितिनिध , आयकर अपीलीय अिधकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाडŊ फाईल /Guard file. आदेशानुसार/ BY ORDER, सȑािपत Ůित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad Printed from counselvise.com "