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2019 (7) TMI 657 - AT - Income TaxRevision u/s 263 - ineligibility of benefit of section 80P(4) - no enquiry - HELD THAT - In the present case, the AO was under obligation to determine income from other sources being deposits for which source was not explained. The assessee is not a co-operative Bank having the meaning assigned to it in part V of the Banking Regulation act, 1949. The AO should have called for details of deposits and anyalysed identity, genuineness and creditworthiness of the same. Even if the benefit of section 80P(4) of the Act is available to Primary Agricultural Co-operative Society, this does not imply that eligibility u/s. 80P(2) automatically flows to the assessee which has to be established. Further, the accounts were not subjected to audit u/s 44AB. In the present case, the profit and loss account and balance sheet were not filed either by an accountant or under co-operative audit. The assessee was liable to file further report by an accountant in the prescribed format as per the provisions of section 44AB. It appears that all these aspects were not enquired into and no proper efforts were made to find out whether the assessee was eligible for deduction u/s. 80P(2). Without making any enquiry into these issues, the AO accepted the assessee s claim. The failure on the part of the AO to make necessary enquiry rendered the assessment order erroneous which also resulted in loss to the revenue. The CIT had observed in his order that it is to be decided by the AO after fresh examination . Hence, the order of the CIT cannot be held as erroneous. The CIT s approach was correct. - Decided against assessee. Grant of deduction u/s. 80P - HELD THAT - In our opinion, the issue was considered by the Jurisdictional High Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT wherein it was held that the Assessing Officer is not obliged to grant deduction by merely looking at the certificate of registration issued by the competent authority under the Co-operative Societies Act. Instead, he has to conduct an enquiry into the factual situation as to the activities of the assessee and arrive at a conclusion whether the benefits of section 80P can be extended or not. Accordingly, the issue in dispute is remitted to the file of the AO for fresh consideration in accordance with the above direction. This ground of appeal of the Revenue is partly allowed for statistical purposes. Deduction u/s. 80P(2)(a)(i) - income from business OR income from other sources - HELD THAT - With regard to the interest income earned by the assessee from other Banks and Treasury on which deduction u/s. 80P(2)(i)(a) is to be granted, there is no dispute that the assessee has made investments in the course of banking activities and such interest income was received on investments made with cooperative banks and other scheduled banks. The co-ordinate bench of the Tribunal in the case of Kizhathadiyoor Co-operative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN had held that such interest income received by the assessee should be assessed as income from business instead of income from other sources . In view of the order of the co-ordinate bench, we hold that the CIT(A) is justified in holding that interest income received by the assessee should be assessed as income from business . As regards grant of deduction u/s. 80P(2)(i)(a), the Assessing Officer shall follow the law laid down by the Larger Bench of the Jurisdictional High Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT and examine the actual activities of the assessee so as to grant deduction u/s. 80P(2)(i)(a). Accordingly, we remit this issue to the file of the AOfor fresh consideration in accordance with the above direction. Thus, this ground of appeal of the Revenue is partly allowed for statistical purposes for both the assessment years. Unexplained credits u/s. 68 - HELD THAT - It is the duty of the assessee to prove the identity of the depositors to the satisfaction of the AO. It is seen that the assessee has not furnished the details of names and addresses and PAN Nos. of the concerned depositors. In our opinion, the assessee has to fulfil the above requirements. However, we make it clear that the assessee, being a Co-operative Society, need not prove the creditworthiness and genuineness of the deposits, but it has to prove the identity of the depositors by furnishing proof of address and PAN details of the depositors to the satisfaction of the Assessing Officer as held by the Hyderabad Bench of the Tribunal in the case of ACIT vs. Citizen Co-operative Society Ltd. 2012 (9) TMI 756 - ITAT HYDERABAD . Accordingly, we remit this issue to the file of the Assessing Officer with a direction to the assessee to furnish the identity of the depositors with PAN details before the AO and decide the issue in accordance with law. Thus, this ground of appeals of the assessee is partly allowed for statistical purposes. Disallowance of deduction u/s. 80P on addition of unexplained income u/s 68 - HELD THAT - Merely because the assessee is running a business in which are found certain unexplained cash credits, it does not necessarily follow that such credits represent suppressed business receipts and there would be no error of law in regarding the unexplained cash credits as income of the assessee from some independent and unknown sources unless there are strong reasons for connecting the unexplained cash credits with known sources of income of the assessee, there would be no alternative to treating them as income from other sources. Reliance is also placed on the judgment of Supreme Court in the case of CIT vs. Deviprasad Viswanath Prasad 1968 (8) TMI 5 - SUPREME COURT wherein it was held that when the assessee pleads that the impugned cash credits came out of suppressed profit, it is for him to prove that it is so. If these receipts are allowed by treating as business receipts, then the assessee will be entitled to set off of business expenditure against these receipts which is not permissible. The assessee's business is carrying on of export activities in granite slabs and not dealing in unexplained credits. Being so, we are inclined to hold that the assessee is not entitled for deduction u/s 80P on account of addition u/s. 68. This ground of appeals of the assessee is dismissed. Provision for bad and doubtful debts u/s 36 - HELD THAT - Admittedly, the CIT(A) gave a finding that exemption u/s. 80P(2)(a)(i) is available to the assessee on the part of disallowance made on account of provision of bad and doubtful debts and the disallowance made to that extent was deleted. Being so, the assessee cannot have any grievance against this finding of the CIT(A) on this issue. Hence, the ground raised by the assessee with regard to exemption u/s. 36(1)(viia) is misconstrued. Accordingly, this ground of appeal of the assessee is dismissed. Levy of penalty u/s. 271B for non-filing of audit report by an accountant within the prescribed format - HELD THAT - Assessee furnished documents such as Annual Report of the Financial year 2013-14 depicting the audited financial statements, copy of receipts and distribution statement etc. The audit report by the accountant in the prescribed format was not produced before the Assessing Officer. In our opinion, non production of audit report in the prescribed format can be a reason for levying penalty u/s. 271B. Thus, this is a fit case for levying penalty u/s. 271B as the assessee has not given explanation regarding reasonable cause for not filing the audit report within the prescribed time limit. Accordingly, we confirm the penalty levied u/s. 271B. Thus, the appeal of the assessee dismissed.
Issues Involved:
1. Legitimacy of the revision proceedings under Section 263 of the Income Tax Act. 2. Eligibility for deduction under Section 80P(2)(a)(i) of the Income Tax Act. 3. Classification of interest income from deposits. 4. Treatment of unexplained cash credits under Section 68 of the Income Tax Act. 5. Levy of penalty under Section 271B for non-filing of audit report. Issue-wise Analysis: 1. Legitimacy of the Revision Proceedings under Section 263: The CIT initiated revision proceedings under Section 263, directing the Assessing Officer (AO) to reframe the assessment order due to perceived errors and lack of proper enquiry, which were prejudicial to the interest of the Revenue. The CIT instructed the AO to verify various aspects, including the identity of persons to whom interest was payable, disallowance of provisions and reserves, compliance with Section 40A(3) and Section 195, and the eligibility for deduction under Section 80P. The Tribunal upheld the CIT’s order, emphasizing that the AO must conduct thorough enquiries and investigations to ascertain the genuineness of claims and protect the Revenue’s interests. The Tribunal confirmed the CIT’s approach and dismissed the assessee’s appeal. 2. Eligibility for Deduction under Section 80P(2)(a)(i): The Revenue challenged the CIT(A)’s decision to grant the assessee deduction under Section 80P(2)(a)(i), arguing that the assessee was a co-operative bank and not merely a primary agricultural credit society. The Tribunal remitted the issue to the AO for fresh consideration, directing the AO to examine the actual activities of the assessee to determine eligibility for deduction under Section 80P, in line with the Jurisdictional High Court’s judgment in Mavilayi Service Co-operative Bank Ltd. vs. CIT. The Tribunal partially allowed the Revenue’s appeal for statistical purposes. 3. Classification of Interest Income from Deposits: The issue of whether interest income from deposits should be classified as business income or income from other sources was contested. The Tribunal, following the co-ordinate bench’s decision in Kizhathadiyoor Co-operative Bank Limited, held that interest income from investments made in the course of banking activities should be assessed as business income. However, the Tribunal directed the AO to follow the Jurisdictional High Court’s judgment in Mavilayi Service Co-operative Bank Ltd. vs. CIT and examine the actual activities of the assessee for granting deduction under Section 80P. The issue was remitted to the AO for fresh consideration. 4. Treatment of Unexplained Cash Credits under Section 68: The AO treated the deposits received from members as unexplained cash credits under Section 68 due to the assessee’s failure to furnish details of the depositors. The CIT(A) upheld the AO’s decision, emphasizing the assessee’s onus to prove the identity of the depositors. The Tribunal agreed that the assessee must provide the identity of the depositors with proof of address and PAN details. The issue was remitted to the AO for fresh consideration, directing the assessee to furnish the required details. 5. Levy of Penalty under Section 271B for Non-filing of Audit Report: The AO levied a penalty under Section 271B for the assessee’s failure to file the audit report within the prescribed time limit. The CIT(A) confirmed the penalty, noting that the assessee had not provided a satisfactory explanation for the delay. The Tribunal upheld the penalty, stating that non-production of the audit report in the prescribed format justified the penalty under Section 271B, as the assessee did not demonstrate reasonable cause for the delay. Conclusion: The Tribunal’s judgment addressed multiple issues, including the legitimacy of revision proceedings under Section 263, eligibility for deduction under Section 80P, classification of interest income, treatment of unexplained cash credits, and the levy of penalty for non-filing of the audit report. The Tribunal upheld the CIT’s and CIT(A)’s orders on various grounds, remitted certain issues to the AO for fresh consideration, and emphasized the need for thorough enquiries and compliance with legal provisions.
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