Principal Commissioner of Income Tax, Kottayam v Valavoor Service Co-operative Bank Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI WEDNESDAY, THE 28[TH] DAY OF SEPTEMBER 2022 / 6TH ASWINA, 1944 ITA NO. 168 OF 2019 AGAINST THE ORDER ITA 2/2017 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM. BY ADVS. NAVNEETH N NATH P.K.RAVINDRANATHA MENON (SR.) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: VALAVOOR SERVICE CO-OPERATIVE BANK LIMITED VALAVOOR P.O., KOTTAYAM 686 635. BY ADVS. SRI.SUNIL CYRIAC; SMT.DONA AUGUSTINE THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA No.168/2019** **-2-** ## J U D G M E N T ## S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Senior Advocate Mr P K R Menon, and learned Counsel Mr Sunil Cyriac for parties. 2. The Principal Commissioner of Income Tax/Revenue is the appellant. M/s. Valavoor Service Co-operative Bank Ltd/assessee is the respondent. The appeal, at the instance of the Revenue, is directed against the order dated 04.01.2018 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA No.02/Coch/2017 & CO.08/Coch/2017. The appeal relates to the return filed by the assessee for the Assessment Year 2012-13. The tax effect in the subject appeal is below the ceiling limit. **ITA No.168/2019** **-3-** 3. Mr Navneeth N Nath canvasses that exceptions set out in the decisions are attracted, and invites our attention to the following decisions of the Apex Court: ## (1) _Commissioner of Income Tax v. Surya Herbal Ltd_[1] “Liberty is given to the Department to move the High Court pointing out that the Circular dated February 9, 2011, should not be applied ipso facto, particularly, when the matter has a cascading effect. There are cases under the Income-tax Act, 1961, in which a common principle may be involved in subsequent group of matters or a large number of matters. In our view, in such cases if attention of the High Court is drawn, the High Court will not apply the Circular ipso facto. For that purpose, liberty is granted to the Department to move the High Court in two weeks. The special leave petition is, accordingly, disposed of. ## (2) _Commissioner of Income Tax v. Tarun R. Tahliani_[2] “In these appeals, the tax effect is less than Rs. 1 Crore and are covered by Circular No. 3/2018 dated 11.07.2018 of the Central > 1 (2013) 350 ITR 300 (SC) 2 Order dated 04.10.2018 in Civil Appeal No.7526/2011 **ITA No.168/2019** **-4-** Board of Direct Taxes. These appeals are, accordingly, dismissed. However, it shall be open to the Income-Tax Department to seek review in any of these matters, if it is pointed out that the tax effect is more than Rs. 1 Crore. Pending applications, if any, stand disposed of. ## (3) _S.C. Naregal v. Commissioner of Income Tax_[3] “Similar question came up for consideration before this court in DIT v. S.R. M. B. Dairy Farming (P.) Ltd. reported in [2018] 13 SCC 239¹. This court after considering the decisions of different High Courts, including the Supreme Court decision on the question involved, namely, CIT v. Surya Herbal Ltd. reported in [2011] 15 SCC 4822 answered the question in favour of the assessee in the following words: "We are of the view that the matter needs to be put to rest and a clarity be obtained in view of the impact of this issue on pending cases before the High Courts as well as the cases which have been disposed of by various High Courts by applying the circular of 2011 to pending litigations. In our view the matter has been squarely put to rest taking further care of the interest of the Revenue by the order passed by the three-judges Bench of this court in Surya 3 (2019) 418 ITR (SC) **ITA No.168/2019** **-5-** Herbal Ltd. case, which had put two caveats even to the retrospective application of the circular. The subsequent orders have been passed by the two judges Bench without those orders being brought to the notice of the court, a duty which was cast on the Department to have done so to avoid the ambiguity which has arisen. Thus, the said view of the three-judges Bench would hold water and the circular would apply even to pending matters but subject to the two caveats provided in Surya Herbal Ltd. case." The same interpretation must apply to the instructions under consideration. In the present case, there is no possibility of cascading effect nor the issue is involved in group of matters, as such. Therefore, the appeals are allowed.” 3.1 He argues that the case comes under the second exception and therefore the appeal, at the instance of the Revenue, is maintainable and could be pursued. 4. _res_ The principal question for decision is no more _integra_ in view of the principle laid down by the Apex Court in _Mavilayi Service Co-operative Bank Ltd v. Commissioner of Income_ **ITA No.168/2019** **-6-** _Tax_[4] . The ancillary argument to bring the case under one or the other exceptions is regarding the includable interest earned by the assessee/Society either from members or non-members or income from registered Co-operative Society or from Treasury Bank etc. Examined from any standpoint, it cannot be said that the consideration of the subject appeal by referring to the Circular would in any way have either cascading effect or would limit the discretion of the Department in subsequent assessment years. The order of the Supreme Court in Civil Appeal No.7526/2011, while giving effect to Circular No.3/2019 dated 11.07.2018, has given liberty to the Revenue to seek review of the order made following the Circular. 4.1 The value in the appeal is less than the limit prescribed by CBDT Circular. The Supreme Court in the judgment reported in _S.C.Naregal v Commissioner of Income Tax[5]_ > 4 (2021) 431 ITR 1 (SC) 5(2019) 418 455 (SC) **ITA No.168/2019** **-7-** has considered the effect of CBDT Circular and dismissed the appeal coming within the purport of CBDT Circular. The valuation of the subject appeal since is less than the limit stipulated by CBDT Circular, the judgment of Apex Court in _S.C.Naregal_ (supra) is applicable to the appeal. By a combined reading of the reported decisions and the order of the Supreme Court dated 04.10.2018, we are of the view that the appeal could be dismissed as coming within the monetary limit prescribed in Circular No.3/2018, subject to the observations made in the order dated 04.10.2018 in Civil Appeal No.7526/2011. Sd/- S.V.BHATTI JUDGE Sd/- BASANT BALAJI JUDGE jjj **ITA No.168/2019** **-8-** ## APPENDIX OF ITA 168/2019 PETITIONER ANNEXURES ANNEXURE A TRUE COPY OF THE ASSESSMENT ORDER U/S. 143 (3) DATED 23.3.2015 ANNEXURE B TRUE COPY OF THE ORDER OF THE CIT(A) DATED 2.12.2016 ANNEXURE C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 4.1.2018