The Principal Commissioner of Income Tax, Kottayam v Kadakkarappally 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. 26 OF 2017 AGAINST THE ORDER ITA 361/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: THE PRINCIPAL COMMISSIONER OF INCOME TAX KOTTAYAM. BY ADVS.MR NAVNEETH N NATH SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX ## RESPONDENT/S: THE KADAKKARAPPALLY SERVICE CO-OPERATIVE BANK LTD. KADAKKARAPPALLY P.O, ALAPPUZHA. BY ADVS. SRI.C.A.JOJO SRI.MATHEWS JOSEPH; SRI.SREENATH V.GOPAL THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 28.09.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: **ITA No.26/2017** **-2-** ## J U D G M E N T S.V. Bhatti, J. Heard Adv Navneeth N Nath, holding for learned Senior Counsel Mr P K R Menon, and learned Counsel Dr K P Pradeep for parties. 2. The Principal Commissioner of Income Tax/Revenue is the appellant. The Kadakkarappally Service Co-operative Bank Ltd/assessee is the respondent. The appeal, at the instance of the Revenue, is directed against the order dated 18.11.2016 of the Income Tax Appellate Tribunal (for short ‘Tribunal’) Cochin Bench in ITA No.106/Coch/2016. The subject matter of appeal relates to the return filed by the assessee for the Assessment Year 2012-13. 3. The controversy between the Revenue and the **ITA No.26/2017** **-3-** assessee is substantially centering around Section 80P of the Income Tax Act, 1961 (for short ‘the Act’). The Counsel appearing for the parties invited the attention of the Court to the judgment in _Mavilayi Service Co-operative Bank Ltd v._ that the issue is no more . _Commissioner of Income Tax_[1] _res integra_ The circumstances relevant for disposing of the appeal are stated in sufficient detail in the orders under appeal. Hence, are not reiterated. But a singular circumstance relevant for decision is noted _viz_ . the assessee is a Primary Agricultural Credit Society, a Society registered under the Kerala Societies Registration Act. Therefore, deduction eligible under Section 80P(2) is the issue for consideration. 4 In the above background, the following substantial questions are considered: > 1 (2021) 431 ITR 1 (SC) **ITA No.26/2017** **-4-** (1) Whether, on the facts and in the circumstances of the case and for the reasons highlighted in grounds B to D - i) Is not the decision reported in 384 ITR 490 against the relevant provisions of the Income Tax Act and the decision reported in 363 ITR 268? ii) Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act? iii) Is the Hon'ble Court right in intending in 384 ITR 490 that the Act which confers the benefit, is off after conferment/consideration of the benefit, and is not such an approach against the intention of the legislature? (2) Whether the Tribunal is right in holding that the unexplained cash credit assessed u/s 68 is entitled to deduction u/s 80P(2)(a)(i) of the Act? (3) Whether the issue of giving any deduction under section 80P(2)(a)(i) of the Act arises for consideration in the case in spite of the decision of this Hon'ble Court in 379 ITR 330 that addition u/s 68 cannot be classified as income derived from any of the sources falling under section 14 of the Act? (4) Whether, on the facts and in the circumstances of the case and since the circular relied on by the Tribunal speaks only **ITA No.26/2017** **-5-** about deductions under VI-A allowable on Chapter "disallowance of expenditure" and not about additions made under section 68 of the Act, and the decision of this Hon'ble Court in 379 ITR 330 being the law of the land, does the circular have any relevance in the light of the Constitutional Bench decision of the Supreme Court reported in 220 CTR (SC) 98 ? 5. The learned counsel appearing for the Revenue argues that the order of assessment mainly concentrated on the entitlement of deduction under Section 80P(2) of the Act and has not considered the consequential examination _i.e.,_ assuming that the assessee is a Co-operative Society and entitled to the benefit of Section 80P(2)(a) of the Act. But the deduction is restricted to the language of Section 80P(2) of the Act. In ITA No.22/2017, Revenue’s appeal, this Court has considered similar substantial questions of law in detail and the reasoning in ITA No.22/2017 squarely covers the question of law formulated in the instant appeal too. By applying the principle laid down by **ITA No.26/2017** **-6-** the Apex Court in _Mavilayi Service Co-operative Bank Ltd_ and this Court in _Peroorkada Service Co-operative Bank Ltd_ , the substantial questions raised in the appeal are answered thus: 6. Question nos.1(i) and (ii): (1) Whether, on the facts and in the circumstances of the case and for the reasons highlighted in grounds B to D - i) Is not the decision reported in 384 ITR 490 against the relevant provisions of the Income Tax Act and the decision reported in 363 ITR 268? ii) Is not the judgement in 384 ITR 490 vitiated in confining itself to the provisions of the State Co-operative Societies Act? 6.1 The above questions are covered by the principle laid down in _Mavilayi Service Co-operative Bank Ltd_ , both on the extent of entitlement of benefit under Section 80P(2) of the Act and also the obligation to independently consider whether the deduction is limited to such of the income which falls within the purview of in _Mavilayi Service Co-operative Bank Ltd_ and _Peroorkada Service Co-operative Bank Ltd_ . Hence, the questions are **ITA No.26/2017** **-7-** answered in favour of the Revenue for statistical purposes and the matter is remitted to the Assessing Officer for making fresh assessment order by keeping in view the judgments referred to above. 7. Question no.1(iii): iii) Is the Hon'ble Court right in intending in 384 ITR 490 that the Act which confers the benefit, is off after conferment/consideration of the benefit, and is not such an approach against the intention of the legislature? 7.1 In view of the answer to question nos: 1(i), (ii) question no.(iii) is also answered in favour of Revenue for statistical purposes. The matter is remitted to the Assessing Officer. 8. Question no.(2): (2) Whether the Tribunal is right in holding that the unexplained cash credit assessed u/s 68 is entitled to deduction u/s 80P(2)(a)(i) of the Act? 8.1 In view of the answer to question nos: 1(i) and (ii), question no.(2) is answered in favour of Revenue for statistical **ITA No.26/2017** **-8-** purposes. The matter is remitted to the Assessing Officer. 9. Question nos.(3) and (4): (3) Whether the issue of giving any deduction under section 80P(2)(a)(i) of the Act arises for consideration in the case in spite of the decision of this Hon'ble Court in 379 ITR 330 that addition u/s 68 cannot be classified as income derived from any of the sources falling under section 14 of the Act? (4) Whether, on the facts and in the circumstances of the case and since the circular relied on by the Tribunal speaks only about deductions under Chapter VI-A allowable on "disallowance of expenditure" and not about additions made under section 68 of the Act, and the decision of this Hon'ble Court in 379 ITR 330 being the law of the land, does the circular have any relevance in the light of the Constitutional Bench decision of the Supreme Court reported in 220 CTR (SC) 98 ? 9.1 The learned counsel appearing for the parties submit that question nos. 3 and 4 need not be independently considered having regard to the view taken in question numbers answered above. 10. Resultant to the above discussion, the Tribunal order, Appeal order and Assessment Order are set aside. The matter is remitted to Assessing Officer for disposal afresh, in accordance with law. **ITA No.26/2017** **-9-** ## The Income Tax Appeal is allowed as indicated above. Sd/S.V.BHATTI JUDGE Sd/BASANT BALAJI JUDGE jjj **ITA No.26/2017** **-10-** ## APPENDIX OF ITA 26/2017 PETITIONER ANNEXURES ANNEXURE A ASSESSMENT ORDER U/S.143(3) DT.27.03.2015. ANNEXURE B CIT (APPEALS) ORDER NO.A-17/ALP/CIT(A)/KTM/201516 DT.02.06.2016. ANNEXURE C ITAT'S ORDER NO.361/COCH/2016 DT.18.11.2016.