Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd v. Asst. Commr. Of Income Tax

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/SPECIAL CIVIL APPLICATION NO. 20585 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA andHONOURABLE MS. JUSTICE NISHA M. THAKORE ========================================================== 1Whether Reporters of Local Papers may be allowedto see the judgment ?to see the judgment ?2To be referred to the Reporter or not ?3Whether their Lordships wish to see the fair copyof the judgment ?3Whether their Lordships wish to see the fair copyof the judgment ?4Whether this case involves a substantial questionof law as to the interpretation of the Constitutionof India or any order made thereunder ?of law as to the interpretation of the Constitutionof India or any order made thereunder ? ==========================================================KATLARY KARIYANA MERCHANT SAHKARI SARAFI MANDALI LTD KATLARY KARIYANA MERCHANT SAHKARI SARAFI MANDALI LTD Versus ASST. COMMR. OF INCOME TAX ==========================================================Appearance:MR SN DIVATIA(1378) for the Petitioner(s) No. 1MR MR BHATT FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 04/01/2022 ORAL JUDGMENT (PER : HONOURABLE MS. JUSTICE NISHA M. THAKORE) 1.The writ applicant is a Cooperative Society incorporated under the Gujarat Cooperative Societies Act, 1961, and hasinvoked extraordinary writ jurisdiction of this Court under Article 226 of the Constitution of India and has thereby challenged thenotice dated 12.03.2019 issued by the Assistant Commissioner ofIncome Tax Circle, Himmatnagar, in exercise of powers conferredunder Section 147 of the Income Tax Act, 1961. 2.Brief facts which emerges from the record are summarizedas under: 2.1The writ applicant is a Cooperative Society incorporatedunder the Gujarat Cooperative Societies Act, 1961, bearingregistration no. S/27649/1997 dated 16.06.1997. The main objectof the writ applicant is accepting deposits and providing creditfacilities to its members. 2.2The original return of the income for A.Y. 2015-16 was filedby the writ applicant Cooperative Society on 24.09.2015 and e-filereturn of income was submitted on 24.02.2016, whereby the writapplicant Cooperative Society had declared total income of Rs.NILafter claiming deduction under Section 80P for an amount of Rs.21,17,354/-, which was processed under Section 143(1) of theIncome Tax Act. The assessment proceedings were finalizedunder Section 143(3) of the Income Tax Act on 20.07.2017, whereby the respondent Authority had accepted the return filed bythe writ applicant Cooperative Society. 2.3The case of the writ applicant Cooperative Society was takenup for reopening for regular assessment under Section 147 of theIncome Tax Act. The reasons for reopening of the assessmentwas served upon the writ applicant along with the notice dated13.06.2019, issued under section 148 of the Income Tax act. 2.4The principal ground which was taken into consideration wasas regards the deduction claimed by the assessee society in termsof provisions of Section 80P(2)(d) of the Income Tax Act, as notadmissible being interest received on FDR’s from the cooperativebanks and nationalized banks. 2.5The writ applicant Society had submitted objections forreopening vide letter dated 17.06.2019, whereby specificcontentions were raised by the writ applicant Society thatreopening of the assessment is on incorrect belief as assesseehad never claimed deduction under section 80P(2)(d) and is notbased on tangible material and it is only a change of opinion,which is not permissible under the Income Tax Act. It was therefore, requested to drop reassessment proceedings underSection 148 of the Income Tax Act. 2.5The writ applicant Society had submitted objections forreopening vide letter dated 17.06.2019, whereby specificcontentions were raised by the writ applicant Society thatreopening of the assessment is on incorrect belief as assesseehad never claimed deduction under section 80P(2)(d) and is notbased on tangible material and it is only a change of opinion,which is not permissible under the Income Tax Act. It was therefore, requested to drop reassessment proceedings underSection 148 of the Income Tax Act. 2.6Subsequently, the respondent Authority vide letter dated28.02.2019 had called upon the writ applicant Cooperative Societyfor inspection and production of all records. In response to the saidletter, the writ applicant Cooperative Society had addressed aletter dated 05.11.2019 thereby reiterating it’s earlier stand.However, the respondent Authority vide order dated 18.07.2019was pleased to dispose of the said objections. Hence, the writapplicant cooperative society is before this Court challenging thereopening notice. 3.This Court, upon hearing the writ applicant CooperativeSociety, had issued notice vide order dated 22.11.2019. The sameis produced as under: “1.Mr. S.N. Divatia, learned advocate for the petitionerinvited the attention of the court to the reasons recordedfor reopening the assessment to submit that theAssessing Officer seeks to reopen the interest on theground that the petitioner was not entitled to claimdeduction of interest on FDRs received from co-operative and nationalised banks under section 80P ofthe Income Tax Act, 1961 (hereinafter referred to as “theAct”). 2.It was pointed out that during the course of scrutinyassessment the Assessing Officer had issued noticeunder section 143(2) for limited scrutiny out of which oneof the issues related to deduction under chapter VI-A ofthe Act. Moreover, the Assessing Officer issued noticeunder section 142(1) of the Act calling upon thepetitioner to justify deduction claimed under section 80Pof the Act. 4. It was submitted that in response to such notices, thepetitioner had furnished its explanation. Thereafter, theAssessing Officer had framed assessment under section143(3) of the Act and had allowed the claim of deductionunder section 80P of the Act. It was submitted thattherefore, the issue in question has been gone into at thetime of original assessment and that the AssessingOfficer seeks to reopen the assessment on a merechange of opinion. 5. Having regard to the submissions advanced by thelearned counsel for the petitioner, issue notice,returnable on 6th January, 2020. By way of ad-interimrelief, further proceedings pursuant to the impugnednotice dated 12th March, 2019 issued by the respondentunder section 148 of the Income Tax Act, 1961 forassessment year 2015- 2016 are hereby stayed. 6. Direct service is permitted, today.” 4.Learned advocate Mr. S.N. Divatia for the petitioner hasdrawn attention of this Court to the earlier proceedings of limitedscrutiny assessment undertaken by the respondent Authority andhas submitted that at the relevant stage, the Authority had calledupon the writ applicant Cooperative Society to respond to mainlytwo issues (i) Sales Turnover Mismatch and (ii) Deduction underChapter VI-A. Notice under Section 143(2) of the Income Tax Act 4.Learned advocate Mr. S.N. Divatia for the petitioner hasdrawn attention of this Court to the earlier proceedings of limitedscrutiny assessment undertaken by the respondent Authority andhas submitted that at the relevant stage, the Authority had calledupon the writ applicant Cooperative Society to respond to mainlytwo issues (i) Sales Turnover Mismatch and (ii) Deduction underChapter VI-A. Notice under Section 143(2) of the Income Tax Act was followed by another notice under Section 142(1) of the Actdated 16.05.2017 whereby the writ applicant Cooperative Societywas called upon to produce the details as reflected in the listappended at Annexure A, which also includes the details soughtfor with regard to the deduction claimed under Section 80P of theIncome Tax Act. Learned advocate for the writ applicant hadfurther taken this Court through the reply submitted by the writapplicant Cooperative Society vide letter dated 23.06.2017 and13.07.2017, had thereby submitted that the issue with regard tothe deduction claimed by the writ applicant cooperative societyunder Section 80P of the Income Tax Act has been considered bythe respondent herein and in fact, upon detailed examination of theentire material so furnished as well as from the material availableon record, the respondent had completed the regular assessmentunder Section 143(3) of the Act on 20.7.2017, whereby the totalincome of Rs.NIL determined, after allowing the deduction underSection 80P of the Act as claimed in the ITR , was accepted.Learned advocate for the writ applicant has therefore, vehementlyobjected and has prayed for quashing and setting aside theimpugned notice dated 12.03.2019 by submitting that this is a fitcase to quash and set aside the impugned notice, moreparticularly, in absence of tangible material, the Assessing Officer has no power to reopen the assessment on the basis of “mere change of opinion” as condition precedent for invoking powersunder Section 147 as reflected in the words “reason to believe”has not been fulfilled. 5.In response to the notice issued by this Court, learned senioradvocate Mr. M.R. Bhatt assisted by learned advocate Mr. MunjalBhatt had entered appearance on behalf of respondentdepartment. An affidavit-in-reply has been placed on record dulyaffirmed by the Assistant Commissioner of Income Tax, Circle 2(1)(1), Ahmedabad. Learned senior advocate for the Department hasvehemently objected to the entertainment of petition at pre maturestage or grant of any relief in favour of the petitioner assessee andhas strongly relied upon Section 80P(2)(d) of the Income Tax Actas well as amended Section 147 of the Income Tax Act, which hascome into force w.e.f. 01.04.1989. Learned senior advocate for theDepartment has submitted that in view of amended Section 147which has come into force w.e.f. 01.4.1989, the Assessing Officerhas power to reopen the assessment on the basis of tangiblematerial to come to the conclusion that there is escapement ofincome from the assessment. It is further submitted that in a givensituation, when the transaction appeared to be on the basis of subsequent information having found bogus, disclosure made at the original stage cannot be termed as “fully and truly” ascontemplated under the act. It is further submitted that theassessment year under consideration is of 2015-16 and theimpugned notice is dated 12.03.2019, which is within a period of 4years and therefore, the proviso to Section 148 would not beattracted in the facts of the case. Learned senior advocate for theDepartment has strongly objected to the contention of theassessee that there is no new material and the Assessing Officerhas proceeded on pre-exist document, however, the same isimmaterial. Learned senior advocate Mr. Bhatt has tried to justifythe action of the respondent Authority by referring to Section80P(2)(a)(i) as well as Section 80P(2)(d) of the Income Tax Act. the original stage cannot be termed as “fully and truly” ascontemplated under the act. It is further submitted that theassessment year under consideration is of 2015-16 and theimpugned notice is dated 12.03.2019, which is within a period of 4years and therefore, the proviso to Section 148 would not beattracted in the facts of the case. Learned senior advocate for theDepartment has strongly objected to the contention of theassessee that there is no new material and the Assessing Officerhas proceeded on pre-exist document, however, the same isimmaterial. Learned senior advocate Mr. Bhatt has tried to justifythe action of the respondent Authority by referring to Section80P(2)(a)(i) as well as Section 80P(2)(d) of the Income Tax Act. 6.Learned senior advocate Mr. Bhatt has further taken thisCourt to the order passed by the Assistant Commissioner ofIncome Tax Circle, Himmatnagar, while disposing of the objectionsfiled by the assessee against the reassessment proceedings underSection 147 and has strenuously submitted that the AssessingOfficer has rightly observed that the interest derived from the creditprovided to its member is deductable under Section 80P(2)(a)(i) ofthe Act, however, on verification of the case record at the stage of scrutiny assessment, it was noticed that the assessee hadreceived interest on FDR’s from the Cooperative banks andNationalized banks amounting to Rs.18,08,444/-. The AssessingOfficer was therefore, right in holding that the interest derived bydepositing surplus fund with the bank was not attributable to thebusiness carrying on by assessee which could be considered fordeduction under Section 80P(2)(a)(i) of the Act. In fact, suchinterest derived from the FDRs from the Cooperative Bank andNationalized Bank are not admission for deduction in view ofSection 80P(2)(d) of the Act. Learned senior advocate therefore,prayed to dismiss the petition at threshold as the respondentAssessing Officer has power to reopen the assessment havingsatisfied the condition precedent “reason to believe” for invokingpower under Section 147 read with Section 148 of the Income TaxAct. 7.Objecting the aforesaid submissions of the Department,learned advocate Mr. Divatia for the writ applicant had taken thisCourt to the rejoinder affidavit placed on record and hasemphasized that the interest received on fixed deposit with othercooperative bank was exempted under section 80P(2)(d). It wasfurther reiterated that in absence of any tangible material, the opinion once formed under section 80P, the action of reopening is nothing but change of opinion, which is not permissible. TheLearned Advocate Mr. Divatia has relied upon the decision ofHon’ble Supreme Court in the case of Commissioner of IncomeTax, Delhi vs. Kelvinator of India Ltd., reported in (2010) 2 SCC723. The reliance is also placed upon the decision of this Court inthe case of Deepakbhai Ramjibhai Patel vs. Income Tax Officer,reported in (2014) 366 ITR 134(Guj) for the proposition of law thatonce assessee had presented all facts before AO and on the basisof such facts during the original proceedings once AO hasaccepted the claim, then AO could not have revisited on a newground. The Learned Advocate Mr. Divatia has further submittedthat the original proceedings has rightly been concluded byconsidering section 80P(2)(a)(i), by emphasizing term “gross totalincome” which includes “any income” ie. Even earned by way ofInterest derived from FDR’s from other cooperative banks andnationalized banks provided it is engaged in such activities asdescribed under the provision. 8. The aforesaid submission of the writ applicant has been strongly objected by the Learned Senior Counsel Mr. Bhatt whohas submitted to read section 80P of the Income Tax act as a 8. The aforesaid submission of the writ applicant has been strongly objected by the Learned Senior Counsel Mr. Bhatt whohas submitted to read section 80P of the Income Tax act as a whole. It is submitted that the term “gross total income” appearingin section 80P(1) has to be read in reference to “any income”referred to in sub section (2) which has to be read in conjunctionwith the term “such activities”, as appearing under clause (a) ofsub section (2) of section 80P, which includes carrying onbusiness of banking or providing credit facilities to its members etc.The learned Senior Counsel Mr. Bhatt has further argued that inoriginal assessment proceedings there was no application of mindby the AO, more particularly, to examine the nature of incomederived vis-à-vis section 80P(2)(d). The emphasis was laid on term“other cooperative society” appearing in section 80P(2)(d). It wasfurther submitted that in absence of any opinion being formed byAO regarding applicability of section 80(2)(d), the case will not fallin the category of “mere change of opinion” , so as to preclude AOfrom exercising powers conferred under section 147 read withsection 148 of the Income Tax act. It was submitted that since thebusiness of Cooperative Society was limited to provide credit to itsmembers, investment of surplus funds in the banks cannot be saidto be part of business of the assessee and therefore, it was onlyinterest which is derived from credit provided to its members,which would be admissible for deduction under Section 80P(2)(a)(i) of the Income Tax Act and interest derived by depositing surplus fund with the bank will not fall under Section 80P(2)(a)(i) of the Act. Learned advocate for the Department further emphasizes thatinterest derived from the surplus funds deposited with the bank isnot admissible in terms of Section 80P(2)(d). Countering thesubmission of writ applicant, the Learned Senior Counsel for theDepartment has drawn attention of this Court to submissions, moreparticularly para 4 and 5, made by the writ applicant CooperativeSociety ( @ page no. 34), at the stage of original assessment,which is reproduce as under : “4. We received the interest only from our members. Nointerest received from non member.5. We paid the interest only to the members. We had notaccepted deposit from other than members.” The learned Senior Counsel Mr. Bhatt by relying upon the aforesaid paras, has submitted that the AO has been misguided byincorrect submissions of afore said facts made by the writapplicant Cooperative Society. In such peculiar facts andcircumstances, has prayed for not to entertain the petition. 9.We have extensively heard both the learned Counsels appearing for the respective parties and have perused the record,examined relevant provisions as well as also carefully gone through the judgments relied upon. 10. Before this Court dwells into the issue on hand, it would be apt to reproduce section 80P of the Income Tax act, 1961, whichreads as under : “Section 80P : Deduction in respect of income ofco-operative societies 80P.(1) Where, in the case of an assessee being aco-operative society, the gross total income in-cludes any income referred to in sub-section (2),there shall be deducted, in accordance with andsubject to the provisions of this section, the sumsspecified in sub-section (2), in computing the totalincome of the assessee. (2) The sums referred to in sub-section (1) shall bethe following, namely :— (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providingcredit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce of itsmembers, or (iv) the purchase of agricultural implements, seeds,livestock or other articles intended for agriculture forthe purpose of supplying them to its members, or 80P.(1) Where, in the case of an assessee being aco-operative society, the gross total income in-cludes any income referred to in sub-section (2),there shall be deducted, in accordance with andsubject to the provisions of this section, the sumsspecified in sub-section (2), in computing the totalincome of the assessee. (2) The sums referred to in sub-section (1) shall bethe following, namely :— (a) in the case of a co-operative society engaged in- (i) carrying on the business of banking or providingcredit facilities to its members, or (ii) a cottage industry, or (iii) the marketing of the agricultural produce of itsmembers, or (iv) the purchase of agricultural implements, seeds,livestock or other articles intended for agriculture forthe purpose of supplying them to its members, or (v) the processing, without the aid of power, of theagricultural produce of its members, the whole ofthe amount of profits and gains of business attribut-able to any one or more of such activities ; (b) in the case of co-operative society, being a pri-mary society engaged in supplying milk raised by itsmembers to a federal milk co-operative society, the whole of the amount of profits and gains of suchbusiness; (c) in the case of a co-operative society engaged inactivities other than those specified in clause (a) orclause(b) [either independently of, or in addition to,all or any of the activities so specified], so much ofits profits and gains attributable to such activities asdoes not exceed [1][fifteen thousand rupees]; (d) in respect of any income by way of interest ordividends derived by the co-operative society fromits investments with any other co-operative society,the whole of such income; (e) in respect of any income derived by the co-oper-ative society from the letting of godowns or ware-houses for storage, processing or facilitating themarketing of commodities, the whole of such in-come; (f) in the case of a co-operative society, not being ahousing society or an urban consumers' society, ora society carrying on transport business or a societyengaged in the performance of any manufacturingoperations with the aid of power, where the grosstotal income does not exceed twenty thousand ru-pees, the amount of any income by way of intereston securities chargeable under section 18 or any in-come from house property chargeable under sec-tion 22. Explanation.—For the purposes of this section, anurban consumers' co-operative society means a so-ciety for the benefit of the consumers within the lim-its of a municipal corporation, municipality, munici-pal committee, notified area committee, town area,or cantonment. (3) In a case where the assessee is entitled also tothe deduction under section 80H or section 80J, thededuction under sub-section (1) of this section, inrelation to the sums specified in clause (a) or clause(b) or clause (c) of sub-section (2), shall be allowedwith reference to the income, if any, as referred to in those clauses included in the gross total income, asreduced by the deductions under section 80H and-section 80J. [(4) Nothing contained in this section shall applyto a co-operative society carrying on insurancebusiness in respect of the profits and gains ofthat business computed in accordance with sec-tion 44.] For the words 'fifteen thousand rupees' this words,'twenty thousand rupees' shall be substituted w.e.f.1-4-1970 as per Finance Act, 1969. As per Finance Act, 1969 sub-section (4) shallstand omitted w.e.f. 1-4-1970.” those clauses included in the gross total income, asreduced by the deductions under section 80H and-section 80J. [(4) Nothing contained in this section shall applyto a co-operative society carrying on insurancebusiness in respect of the profits and gains ofthat business computed in accordance with sec-tion 44.] For the words 'fifteen thousand rupees' this words,'twenty thousand rupees' shall be substituted w.e.f.1-4-1970 as per Finance Act, 1969. As per Finance Act, 1969 sub-section (4) shallstand omitted w.e.f. 1-4-1970.” 11. In this context, when we look at the facts of the case on hand,it is not in dispute that the writ applicant cooperative Society is in-corporated as Cooperative Society under the Gujarat CooperativeSocieties act, 1961 with the main object of accepting deposits andproviding credit facilities to its members. Thus, there is no doubtthat the writ applicant being society engaged in providing credit fa-cilities is entitled to the deductions available in terms of section80P(2)(a)(i) of the Income Tax act, 1961. The writ applicant hasplaced on record the original computation of Income along with au-dit report. Bare perusal of the same reveals that the writ applicanthas disclosed Gross total income of Rs.2117353 as against thatthe writ applicant has disclosed deductions under Chapter VI-A ofRs. 2117353 , thereby declaring Net taxable income ‘NIL’. Now, under head of Gross Total Income, the deductions ( Chapter VI-A)refers to section 80P providing credit facilities to its members isshown Rs. 2121935 whereby the assessee writ applicant hasclaimed eligible deductions of Rs.2121935 by pressing Allowabledeductions of Rs. 2117353. The Audit report of the writ applicantfurther explains return of Income wherein amount of Rs.18,08,444:00 is shown under the head of interest derived from in-vestment and Rs. 69,33,052 under the head of income derivedfrom credit. The record of limited scrutiny reveals that under origi-nal assessment , the AO has mainly examined two issues viz. (a)Sales Turnover Mismatch (b) Deduction under Chapter VI-A,wherein vide letter dated 16.05.2017, the assessee- writ applicantwas called upon to justify the deductions claimed under section80P of the IT act. That the assessee- writ applicant had submitteddetails on 23.06.2017, wherein in unequivocal terms clarified that“No interest received from non member”. Further, it mentions : “9. We have deposit more than 30% of the deposit ac-cepted from the members with the other banks accordingto Co Operative society Act. We accepted deposit of Rs.7,94,71,817 from the members. We have to maintain fixdeposit of Rs. 2,38,41,545 with other banks. As againstwe deposited Rs.2,96,63,500. Difference of Rs.58,21,955isdepositedagainstreserveRs.1,04,75,974.So, we deposited less amount of Rs.46,54.019 as per requirement under the Co operative Society Act. In other words no interest received from thesurplus deposit with the banks FDR.” Further, vide letter dated 13.07.2017, the assessee- writ ap-plicant has claimed such FDR of Banks as part of business activityand had prayed for deductions under section 80P (2) of the In-come Tax act. 12. It is in light of this limited details furnished during original as-sessment, the AO while processing return under section 143(1) ofthe IT act, found interest income of Rs. 87.41 lacs and interest ex-pense of Rs. 54.11 lac acceptable for deductions in terms of sec-tion 80P(2)(a)(i) of Chapter VI-A the Income tax act. Now, it isworth to note that the assessee for reasons best known has nottruly explained the interest derived from the investment of surplusfunds in other cooperative banks, which otherwise falls under thehead of “income from other sources” and in no manner can be re-lated to ‘attributable to the activities of the society’, and therefore,this Court finds that it will in no manner falls under the category tobe qualified for deductions under section 80P(2)(a)(i) of the act. 12. It is in light of this limited details furnished during original as-sessment, the AO while processing return under section 143(1) ofthe IT act, found interest income of Rs. 87.41 lacs and interest ex-pense of Rs. 54.11 lac acceptable for deductions in terms of sec-tion 80P(2)(a)(i) of Chapter VI-A the Income tax act. Now, it isworth to note that the assessee for reasons best known has nottruly explained the interest derived from the investment of surplusfunds in other cooperative banks, which otherwise falls under thehead of “income from other sources” and in no manner can be re-lated to ‘attributable to the activities of the society’, and therefore,this Court finds that it will in no manner falls under the category tobe qualified for deductions under section 80P(2)(a)(i) of the act. 13. Similar issue arose for consideration before the Hon’ble Highcourt of Karnataka ( Dharwad Bench) in the case of Principal Com-missioner of Income Tax and ors. Vs. Totagars co-operative sale Society, reported in (2017) 395 ITR 611(KAR). The substantial questions of law which arose for consideration as recorded in Para 1 are reproduced as under : “(I) Whether the assessee, Totagar Co-operative SaleSociety, Sirsi, is entitled to 100% deduction under Section80P(2)(d) of the Income Tax Act, 1961 (for short 'the Act') inrespect of whole of its income by way of interest earned by itduring the relevant Assessment Years from 2007-2008 to2011-2012 on the deposits or investments made by it duringthese years with a Co-operative Bank, M/s.Kanara DistrictCentral Co-operative Bank Limited? (II) Whether the Supreme Court decision in the case of thepresent respondent assessee, Totgar Co-operative Sale So-ciety Limited itself rendered on 08th February 2010, in Tot-gar's Co-operative Sale Society Limited v.ITO , reported inMANU/SC/0095/2010: (2010) 322 ITR 283 SC : (2010) 3SCC 223 for the preceding years, namely AssessmentYears 1991-1992 to 1999-2000 (except Assessment Year1995-1996) holding that such interest income earned by theassessee was taxable under the head 'Income from OtherSources' under Section 56 of the Act and was not 100% de-ductible from the Gross Total Income under Section 80P ofthe Act, is not applicable to the present Assessment Years2007-2008 to 2011-2012 involved in the present appealsand therefore, whether the Income Tax Appellate Tribunalas well as CIT (Appeals) were justified in holding that suchinterest income was 100 percent deductible under section80P(2)(d) of the Act?” That while holding the aforesaid issues in favour of the rev- enue department, the Court followed the decision of the Hon’bleSupreme Court in the case of same assessee which was later onfollowed by this Court in the case of State Bank of India Vs. CIT, reported in MANU/GJ/1053/2016 : (2016) 389 ITR 578 (Guj), rele- vant paras are reproduced as under : That while holding the aforesaid issues in favour of the rev- enue department, the Court followed the decision of the Hon’bleSupreme Court in the case of same assessee which was later onfollowed by this Court in the case of State Bank of India Vs. CIT, reported in MANU/GJ/1053/2016 : (2016) 389 ITR 578 (Guj), rele- vant paras are reproduced as under : “16. In case where the co-operative society is a bank,one of its objects would be to carry on the general busi-ness of banking. Like other banks, money would be itsstock-in-trade or circulating capital and its normal busi-ness is to deal in money and credit. The business ofsuch a bank does not consist only of receiving depositsand lending money to its members or such other soci-eties as are mentioned in the objects. When such a soci-ety lends out its monies so that they may be readilyavailable to meet the demands of its depositors if andwhen they arise, it is a legitimate mode of carrying on itsbanking business. In case of a credit society like thepresent one, the business of the society is limited to pro-viding credit to its members and the income that isearned from providing such credit facilities to its mem-bers is deductible under section 80P(2)(a)(i) of the Act.However, investing its surplus funds with the State Bankof India is no part of the business of the appellant of pro-viding credit to its members and hence, it cannot be saidthat the interest income derived from depositing surplusfunds with the State Bank of India is profits and gains ofbusiness attributable to the activities of the appellant so-ciety. The character of the interest is different from theincome attributable to the business of the society of pro-viding credit facilities to its members. The interest in-come derived from investing surplus funds with the StateBank of India must be closely linked with the business ofproviding credit facilities for it to be held that it is attribut-able to the business of the assessee. Therefore, theprofits and gains can be said to be directly attributable tothe business of providing credit facilities to its members ifthere is a direct and proximate connection between theprofits gains and the business of the appellant. In thepresent case there is no obligation upon the appellant toinvest its surplus funds with the State Bank of India. In-vesting surplus funds in a bank is no part of the businessof the assessee of providing credit facilities to its mem-bers. Therefore, it is only the interest derived from the credit provided to its members which is deductible undersection 80P(2)(a)(i) of the Act and the interest derived bydepositing surplus funds with the State Bank of India notbeing attributable to the business carried on by the ap-pellant, cannot be deducted under section 80P(2)(a)(i) ofthe Act. If the appellant wants to avail of the benefit ofdeduction of such interest income, it is always open for itto deposit the surplus funds with a co-operative bank andavail of deduction under section 80P(2)(d) of the Act. 17. Section 71 of the Gujarat Co-operative Societies Act,1961 permits a society to invest or deposit its fund in theState Bank of India. Therefore, while investment in theState Bank of India is permissible under section 71 ofthat Act, there is no statutory obligation cast upon the ap-pellant to deposit funds as a part of its business. Thesaid provision also permits investment of funds in anyco-operative bank or any banking company approved forthis purpose by the Registrar on such conditions as theRegistrar may from time to time impose. However, inso-far as the provisions of the Income Tax Act are con-cerned, under section 80P(2)(d) thereof, it is only the in-come by way of interest or dividends derived by a coop-erative society from its investments with any other coop-erative society which is required to be deducted whilecomputing the total income of the assessee.” Thus, following the decision of the Hon’ble SupremeCourt in the case of Totagar’s Co-operative Sale Society ltd.,(2010) 322 ITR 283(SC) it was held that interest earned frominvestments made in any bank, not being co-operative society,is not deductible under section 80P(2) (d) of the act. 14.This Court further finds that by virtue of amendment in sec-tion 194A(3)(v) of the Income tax act, it has also excluded the co- operative banks from the definition of “co-operative society” by theFinance act, 2015. The High Court of Karnataka has taken note ofthis amendment in the case of Totagars Co-op/sale society( Supra) (2017) 395 ITR (KAR) thereby holding that the effect ofthe aforesaid amendment explicitly makes clear intention of legis-lation that co-operative banks are not specie of genus co-operativesociety, which would entitled to exemption or deduction under thespecial provisions of Chapter VI-A in the form of section 80P of theAct. 15. In view of aforesaid settled legal position, and having held thatthe allowance of deduction of the income derived by way of inter-est from the investment in the form of FDR’s with other banks wasincorrect, the only question which arises for our consideration iswhether wrong claim made by the assessee on which no opinion isformed by the Assessing Officer could be considered valid groundfor the Assessing Officer to assume jurisdiction in reopening thecase for reassessment proceedings under section 147 of the In-come Tax act? 16. At this stage, it would be apt to considered section 147 of theIncome Tax act, as amended w.e.f. 01.04.1989, which reads asunder : “Section 147 : 147. [1] Income escaping assessment If the AssessingOfficer[ 3] has reason to believe that any income chargeable totax has escaped assessment for any assessment year, hemay, subject to the provisions of sections 148 to 153, assessor reassess such income and also any other incomechargeable to tax which has escaped assessment and whichcomes to his notice subsequently in the course of theproceedings under this section, or recompute the loss or thedepreciation allowance or any other allowance, as the casemay be, for the assessment year concerned (hereafter in thissection and in sections 148 to 153 referred to as the relevantassessment year): Provided that where an assessment under sub- section (3) ofsection 143 or this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of relevantassessment year, unless any income chargeable to tax hasescaped assessment for such assessment year by reason ofthe failure on the part of the assessee to make a return undersection 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fullyand truly all material facts necessary for his assessment, forthat assessment year : Provided further that nothing contained in the first provisoshall apply in a case where any income involving in relation toany assest ( including financial interest in any entity ) locatedoutside india, chargeable to tax, has escaped assessment forany assessment year : Provided also that the Assessing Officer may assess orreassess such income other than the income involvingmatters which are the subject matters of any appeal,reference or revision, which is chargeable to tax and hasescaped assessment. Explanation 1-Production before the Assessing Officer ofaccount books or other evidence from which materialevidence could, with due diligence, have been discovered bythe Assessing Officer will not necessarily amount todisclosure within the meaning of the foregoing proviso. Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeableto tax has escaped assessment, namely:- (a)where no return of income has been furnished by the Provided also that the Assessing Officer may assess orreassess such income other than the income involvingmatters which are the subject matters of any appeal,reference or revision, which is chargeable to tax and hasescaped assessment. Explanation 1-Production before the Assessing Officer ofaccount books or other evidence from which materialevidence could, with due diligence, have been discovered bythe Assessing Officer will not necessarily amount todisclosure within the meaning of the foregoing proviso. Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeableto tax has escaped assessment, namely:- (a)where no return of income has been furnished by the assessee although his total income or the total income of anyother person in respect of which he is assessable under thisAct during the previous year exceeded the maximum amountwhich is not chargeable to income- tax; (b)where a return of income has been furnished by the assessee but no assessment has been made and it is noticedby the Assessing Officer that the assessee has understatedthe income or has claimed excessive loss, deduction,allowance or relief in the return; (c)where an assessment has been made, but- (i)income chargeable to tax has been under- assessed; or (ii)such income has been assessed at too low a rate; or (iii)such income has been made the subject of excessiverelief under this Act; or (iv)excessive loss or depreciation allowance or any otherallowance under this Act has been computed.] Issue of notice where income has escaped assessment 2” (ca) where a return of income has not been furnished by theassessee or a return of income has been furnished by himand on the basis of information or document received fromthe prescribed income-tax authority, under sub-section (2)of section 133C, it is noticed by the Assessing Officer that theincome of the assessee exceeds the maximum amount notchargeable to tax, or as the case may be, the assessee hasunderstated the income or has claimed excessive loss,deduction, allowance or relief in the return; (d) where a person is found to have any asset (includingfinancial interest in any entity) located outside India. Explanation 3.—For the purpose of assessment orreassessment under this section, the Assessing Officer mayassess or reassess the income in respect of any issue, whichhas escaped assessment, and such issue comes to his noticesubsequently in the course of the proceedings under thissection, notwithstanding that the reasons for such issue havenot been included in the reasons recorded under sub-section(2) of section 148. Explanation 4.—For the removal of doubts, it is herebyclarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for anyassessment year beginning on or before the 1st day of April,2012.” The bare reading of the amended section 147 explicitly pro- Explanation 3.—For the purpose of assessment orreassessment under this section, the Assessing Officer mayassess or reassess the income in respect of any issue, whichhas escaped assessment, and such issue comes to his noticesubsequently in the course of the proceedings under thissection, notwithstanding that the reasons for such issue havenot been included in the reasons recorded under sub-section(2) of section 148. Explanation 4.—For the removal of doubts, it is herebyclarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for anyassessment year beginning on or before the 1st day of April,2012.” The bare reading of the amended section 147 explicitly pro- vides that the only pre condition or requirement for the AssessingOfficer to assume jurisdiction for reopening is to have “reason tobelieve”. It is settled legal position as held by the Hon’ble SupremeCourt as well as various High Courts that Explanation 2 to section147 of the Act is required to be read with section 147 in its entirety,including the proviso. If one reads Explanation 2 to section 147, in-cluding the proviso, then it is clear that in cases where the Depart-ment reopens the assessment within a period of four years, it cando so, on the ground of income having escaped assessment. How-ever, in cases of reopening after four years, the AO must have rea-son to believe that income has escaped assessment by reason offailure on the part of the assessee to disclose fully and truly all ma-terial facts. On scanning of the anatomy of the aforesaid provi-sions, it is clear as crystal that the formation of believe as regardsthe escapement of tax pertaining to A.Y. by Assessing Officer, theAssessing Officer is required to form an opinion before he proceedto issue a notice. Thus, the Courts have on number of occasionsheld that prima facie reasonable grounds to believe that the in- come has escape assessment is enough to give jurisdiction to in- voke powers under section 147. 17. However, the validity of the reasons which are supposed tosuspend the formation of an opinion, is challengeable. Thereasons to believe are to be recorded by the Assessing Officer. Onplain reading of the reasons recorded for reopening theassessment, this Court finds that the Assessing Officer has reliedupon the assessment records. Further, on bare perusal of thereasons recorded for reopening as supplied to the assessee, theAssessing Officer has mainly recorded two reasons viz. (1) that theassessee has received interest on FDRs from Cooperative Banksand Nationalised Bank amounting to Rs.18,08,444/- on whichdeduction under Section 80P(2)(d) is not admissible in view of thejudgment of the Karnataka High Court in the case of Togagar Co-op. Sale Society (Supra) and (2) that the assessee has receivedsuch interest other than Cooperative Societies and the same is notadmissible for deduction under Section 80P. Having recorded aforesaid reasons, the Assessing Officerhas formed opinion and believed that the provisions of Clause (b)of Explanation 2 to Section 147 are attracted in the given case and has therefore, proceeded with reopening, as income chargeable has escaped assessment. Having recorded aforesaid reasons, the Assessing Officerhas formed opinion and believed that the provisions of Clause (b)of Explanation 2 to Section 147 are attracted in the given case and has therefore, proceeded with reopening, as income chargeable has escaped assessment. 18. Learned counsel Mr. Divatia appearing for the writ applicanthas drawn attention of this Court to the decision of the Hon’bleSupreme Court in the case of Commissioner of Income Tax, DelhiVs. Kelvinator of India Limited reported in (2010) 320 ITR 561 (SC)and has submitted that post 01.04.1989, the power to reopenthough had been wider still the Court is required to observeschematic interpretation to the words ‘reason to believe’ failingwhich Section 147 would give arbitrary powers to AssessingOfficer to reopen the assessment on the basis of mere ‘change ofopinion’. The Assessing Officer has no inherent powers to reviewits own order though certainly he has power to reassess but suchpowers of reassessment has to be passed on fulfilling certainpreconditions and if the concept of ‘change of opinion’ is removedthen in garb of reopening of the assessment, the power of reviewwould come into play which is otherwise not permissible. 19.We are conscious of the settled legal position of law that post01.04.1989, the Assessing Officer has power provided there is‘tangible material’ to come to the conclusion that there is escapement of income from the assessment and in absence of thesame, the concept ‘change of opinion’ may come into play whichmay preclude the Assessing Officer to reopen the assessment.However, in the given case, from plain reading of the reasonsrecorded for reopening the assessment, we find that the AssessingOfficer has rightly formed opinion that the interest derived from thesurplus funds invested by the assessee in the nature of FDRsother than the Cooperative Societie