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TMI Blog2016 (10) TMI 1280X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the internal transfer by way of such entries in the computation of taxable total income. (iii) The ld. CIT(A) has erred in sustaining the disallowance of Rs..79,85,573/- being the amounts relatable to the claim of bad debts in the computation of taxable total income. 3. At the time of hearing, by making endorsement in the grounds of appeal in ground No. (ii) above, the ld. Counsel for the assessee has submitted that the ground raised by the assessee is not pressed and accordingly dismissed as not pressed. 4. Brief facts of the case are that the assessee is a cooperative society and filed its return of income on 07.05.2009 admitting income of Rs..2,80,80,373/- while the due date of filing of return was 30.09.2008. The return of income filed by the assessee was processed under section 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 27.08.2010. In response thereto, the assessee has furnished details as called for. During the course of hearing, the AR of the assessee has filed revised statement of total income at Rs..2,61,55,270/- and explained that the decrease of Rs..19,25,103/- wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, the assessee was asked to file the details of inception of the society and its activities. By filing copy of the bye-laws of the society, the assessee has briefly explained the activities of the society, eligibility for exemption under section 80P of the Act and the correctness of the deduction claimed. After considering the submissions of the assessee and by considering the newly inserted provisions of section 80P(4) of the Act w.e.f. 01.04.2007, by holding that the assessee society is a cooperative bank within the meaning of Explanation (a) to section 80P(4) of the Act, the Assessing Officer disallowed Rs..2,80,80,373/- and added to the total income of the assessee. By considering the provisions of section 80P(4) of the Act, the ld. CIT(A) agreed to the conclusion arrived by the Assessing Officer and dismissed the ground raised by the assessee. On an identical issue in similar facts and circumstances, in the case of CIT v. M/s. Veerakeralam Primary Agricultural Cooperative Credit Society in T.C.A. Nos. 735, 755 of 2014 and 460 of 2015 vide order dated 05.07.2016, the Hon'ble Jurisdictional High Court has observed as under: "2. The facts of the case are as follows :- Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation of Section 80P (4), the benefit under Section 80P is denied. Aggrieved by the said orders, the assessee society, went before the Commissioner of Income Tax (Appeals)-I, Coimbatore, on appeal, raising the following grounds :- 1. The assessee "The Veerakeralam Primary Agricultural Cooperative Credit Society" is engaged with the prime objective of providing agricultural credit facilities to its members and also doing banking business. The status of the assessee, as a primary agricultural cooperative credit society, has been affirmed by the audit reports of the Co-operative Auditor of the Tamil Nadu Government. At the outset of the assessment order in question, the Assessing Officer treated as well, the status of the assessee as Primary Agricultural Cooperative Credit Society, for the reason of the facts of the case of the assessee. However, the Assessing Officer erred in disallowing the deduction claimed under Section 80P by the assessee for the reason that the assessee being primary cooperative society carrying on the business of banking. Such a disallowance is not based on the facts and circumstances of the case. 2. The Assessing Officer erred in treating its int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means the accepting, for the purpose of lending, or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise." 5. It is further submitted that without license from Reserve Bank of India, no person, other than the Primary Credit Society can carry on the business of banking. The assessee society is not a primary credit society and has not obtained any license from RBI and the business it carries is not banking as per the Banking Regulation Act. Further, the interest income is derived from Investment in a cooperative society and so claimed deduction under Section 80P(2)(d). Considering the above submissions, the appellate authority, in its order has clearly defined the difference between the Cooperative Bank and the Cooperative Society and decided the appeal in favour of the assessee and granted relief under Section 80P(2)(a)(i) of the Income Tax Act. Thus, the appeal was allowed by the Appellate Authority. 6. Against the aforesaid order, the Revenue filed an appeal before the Income Tax Appellate Tribunal and the said appeal was also dismissed, based on the provisions of the Banking Regulation Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rative Society registered under the Bank Regulation Act, 1949 and the aforesaid regulation is binding on the Co-operative banks. Whereas, the 'Co-operative societies' are governed by the Co-operative Societies Act, registered under the Cooperative Societies Act and the same will be governed by the Co-operative Societies Act, 1959. Therefore, the introduction of subsection (4) to Section 80Pis brought into the statue only to bring the cooperative banks on par with the commercial banks. Therefore, the assessee society is not a co-operative bank but a co-operative society extending credit facilities to its members. It is submitted that in view of the above, the Appellate Authority as well as the Appellate Tribunal, have rightly rejected the contention of the Revenue and passed orders in favour of the assessee society. 10. Heard Mr.T.R.Senthil Kumar, learned Senior Standing Counsel for the appellant and Mr. A.R. Sri Raman for Mr. S. Sridhar, learned counsel for the respondent. 11. At the time of admission, this Court admitted the instant appeals, framing the following substantial questions of law :- 1. Whether on the facts and circumstances of the case, the Appellate T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulation Act, 1949 (10 of 1949); (b) "primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities." It is seen that the primary object of the society is to provide financial accommodation to its members to meet all the agricultural requirements and to provide credit facilities to the members, as per the bye-laws and as laid down in Section 5 (cciv) of the Banking Regulation Act, 1949. Further, from the CPT Circular dated 12.03.2008, it is evident that a credit co-operative society is not a co-operative bank, as defined in Part V of the Banking Regulation Act, 1949. The object of a "Co-operative bank" is to accept deposits from the public, for lending or investment of money. On perusal of the findings of the Appellate Authority as well as the Appellate Tribunal, it is categorically made clear that the assessee society will not come under the object of the principal business of a co-operative bank, which is a banking business. The benefit of Section 80P is excluded for deductions by co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed." 9. Respectfully following the above decision of the Hon'ble Jurisdictional High Court, the disallowance made under section 80P(4) of the Act is hereby deleted. Thus, the ground raised by the assessee is allowed. 10. The next ground raised by the assessee is with regard to sustaining the disallowance of provision made for bad debts. The assessee made a provision for bad debts amounting to Rs..79,85,573/- and vide its letter dated 09.10.2010, the assessee has submitted before the Assessing Officer that it follows the guidelines issued by the Reserve Bank of India to be followed by all scheduled commercial banks for income recognition. However, the Assessing Officer made disallowance of the provision made for bad debts on the ground that it was not written off in the accounts. Before the ld. CIT(A), the assessee has submitted that as per the practice of cooperative societies, without altering the individual accounts, a provision is made instead of writing off in the accounts and pleaded that the addition under this head is not warranted. The ld. CIT(A) has observed that the assessee is Cooperative Society and not a scheduled commercial bank to follow RBI guidelines for inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order as to whether proper notices have been served on the assessee before reopening of assessment or assessee's objection, if any, has been considered by the Assessing Officer or not. 11.2 On appeal, before the ld. CIT(A), the assessee has raised various grounds, which was duly reproduced in the appellate order dated 08.09.2014, in which, specific ground has been raised by the assessee that "(1) the order of the learned Income tax Officer u/s 143(3) is not legal and proper considering the fact and circumstances of the case". However, the ld. CIT(A) has not adjudicated this legal issue of reopening of assessment and proceeded to decide the disallowance made under section 80P(4) of the Act. Under these facts and circumstances, we set aside the order passed by the ld. CIT(A) and remit the matter back to the file of the ld. CIT(A) to decide the legal issue after giving sufficient opportunities of hearing to the assessee. In pursuance to the decision of the Hon'ble Jurisdictional High Court in the case of CIT v. M/s. Veerakeralam Primary Agricultural Cooperative Credit Society in T.C.A. Nos. 735, 755 of 2014 and 460 of 2015 vide order dated 05.07.2016, the complete order is repro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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