Wp(C)/9125/2018 Of Mundela Service Co-Operative Bank Limited v. The Income Tax Officer

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE P.B.SURESH KUMAR TUESDAY, THE 22ND DAY OF MAY 2018 / 1ST JYAISHTA, 1940 WP(C).No. 9125 of 2018 PETITIONER: MUNDELA SERVICE CO-OPERATIVE BANK LIMITED NO.2433, REPRESENTED BY ITS SECRETARY-IN-CHARGE GOPINATHAN NAIR.K, S/O.KRISHNAPILLA, MUNDELA P.O.,THIRUVANANTHAPURAM DISTRICT, KERALA, PIN: 695 543. BY ADVS.SRI.C.A.JOJO SRI.JACOB CHACKO SRI.MATHEWS JOSEPH RESPONDENT(S): 1. THE INCOME TAX OFFICER, INCOME TAX OFFICE, WARD 2(3), KOWDIAR, TRIVANDRUM -695 003. 2. COMMISSIONER OF INCOME TAX (APPEALS)-1, OFFICE OF THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM -695 003. R1 & R2 BY SRI.CHRISTOPHER ABRAHAM, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 22-05-2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: sts23/5/2018 WP(C).No. 9125 of 2018 (M) APPENDIX PETITIONER(S)' EXHIBITS EXHIBIT P1 A COPY OF THE CERTIFICATE ISSUED BY THE ASST. REGISTRAR OF CO-OPERATIVE SOCIETIES (GENERAL) NEDUMANGAD OF CO-OPERATIVE SOCIETIES (GENERAL) NEDUMANGAD DATED 28/12/2016 EXHIBIT P2 A TRUE COPY OF THE ASSESSMENT ORDER FOR AY 2011-12 DATED 29/11/2017 ISSUED BY THE FIRST RESPONDENT 2011-12 DATED 29/11/2017 ISSUED BY THE FIRST RESPONDENT EXHIBIT P3 A TRUE COPY OF THE DEMAND NOTICE FOR AY 2011-12 DATED 29/11/2017 ISSUED BY THE FIRST RESPONDENT DATED 29/11/2017 ISSUED BY THE FIRST RESPONDENT EXHIBIT P4 A TRUE COPY OF THE APPEAL FOR AY 2011-12 DATED 06/01/2018 FILED BEFORE THE 2ND RESPONDENT 06/01/2018 FILED BEFORE THE 2ND RESPONDENT EXHIBIT P5 A TRUE COPY OF THE STAY PETITION FOR AY 2011-12 DATED 06/01/2018 FILED BEFORE THE 2ND RESPONDENT DATED 06/01/2018 FILED BEFORE THE 2ND RESPONDENT EXHIBIT P6 A TRUE COPY OF THE JUDGMENT OF THIS HON'BLE COURT IN WPC NO.6668/2018 DATED 28/2/2018 COURT IN WPC NO.6668/2018 DATED 28/2/2018 EXHIBIT P7 A TRUE COPY OF THE ORDER IN STAY PETITION BY THE 2ND RESPONDENT DATED 8/3/2018 2ND RESPONDENT DATED 8/3/2018 EXHIBIT P8 A TRUE COPY OF THE ORDER OF THE HON'BLE ITAT, COCHIN BENCH AND ITA NO.361/COCH/2016 DATED 18/11/2016 COCHIN BENCH AND ITA NO.361/COCH/2016 DATED 18/11/2016 RESPONDENT'S EXHIBITS: NIL /TRUE COPY/ P.S.TO JUDGE P.B.SURESH KUMAR, J. --------------------------------------------- W.P.(C) No. 9125 of 2018 --------------------------------------------- Dated this the 22[nd] day of May, 2018 JUDGMENT Petitioner is a primary agricultural credit co- operative society, registered under the Kerala Co-operativeSocieties Act, 1969 and an assessee under the Income TaxAct (the Act) on the rolls of the first respondent. Thepetitioner filed return for the assessment year 2011-'12declaring nil income. The self assessment made by thepetitioner for the said year was revised by the firstrespondent under section 143(3) read with section 147 ofthe Act in terms of Ext.P2 order, determining the taxableincome of the petitioner at Rs.28,51,12,570/-. A demandwas also raised consequently on the petitioner for WPC 9125/18 Rs.17,76,92,090/-. Aggrieved by Ext.P2 order, the petitionerpreferred Ext.P4 appeal before the second respondent.Ext.P5 is the stay petition preferred by the petitioner inExt.P4 appeal. Ext.P5 stay petition now stands disposed ofin terms of Ext.P7 order granting the petitioner the staysought for, on condition that the petitioner shall pay 50% ofthe demand in six instalments. The condition imposed interms of Ext.P7 order is under challenge in the writ petition. WPC 9125/18 Rs.17,76,92,090/-. Aggrieved by Ext.P2 order, the petitionerpreferred Ext.P4 appeal before the second respondent.Ext.P5 is the stay petition preferred by the petitioner inExt.P4 appeal. Ext.P5 stay petition now stands disposed ofin terms of Ext.P7 order granting the petitioner the staysought for, on condition that the petitioner shall pay 50% ofthe demand in six instalments. The condition imposed interms of Ext.P7 order is under challenge in the writ petition. 2. Heard the learned counsel for the petitioner asalso the learned Standing Counsel for the respondents. 3. It is seen that the self assessment made by thepetitioner for the relevant assessment year was revised bythe assessing officer in terms of Ext.P2 order on threegrounds. The petitioner had claimed exemption frompayment of tax for their business income under Section80P(2)(a)(i), which was declined by the assessing officerwhile revising the assessment. Similarly, the benefit ofexemption claimed by the petitioner under Section 80P(2)(d)of the Act in respect of the interest income received by thepetitioner for their surplus funds deposited in the District Co- WPC 9125/18 operative Banks was also declined by the assessing officerwhile revising the assessment. In addition, the assessingofficer has brought to tax an amount of Rs.27,67,41,372/- asunexplained cash credits under Section 68 of the Act. InExt.P7 order, the appellate authority took the view that thepetitioner has made out in the appeal a prima facie caseonly as regards the first two grounds and it is on account ofthe said reason that the appellate authority confined thestay to 50% of the demand. In so far as Ext.P4 appeal is stillpending, the only point arises for consideration is whetherthe petitioner has made out a prima facie case as regardsthe decision of the assessing officer to bring to tax theunexplained cash credits amounting to Rs.27,67,41,372/-under section 68 of the Act. 4. The learned counsel for the petitioner, relyingon Ext.P8 decision of the ITAT, Cochin, the decision of theITAT, Pune in Karad Merechant Sah. Credit Sanstha v.Department of Income Tax dated 28.2.2011 and thedecision of the ITAT, Nagpur in Buldana Urban Co-operative Credit Society Limited v. Assistant Commissioner of Income Tax dated 23.11.2012,contended that the unexplained cash credits being depositsreceived by the petitioner in cash, even if assessable underSection 68 of the Act, the said addition is exempted underSection 80P of the Act. 5. Section 68 of the Act provides that where any sum is found credited in the books of an assesseemaintained for any previous year, and the assessee offersno explanation about the nature and source thereof or theexplanation offered by him is not, in the opinion of theassessing officer, satisfactory, the sum so credited may becharged to income tax as the income of the assessee of thatprevious year. The fact that the petitioner has credited intheir books of account cash receipts to the tune ofRs.27,67,41,372/- and the fact that despite several notices,the assessee has not divulged the source thereof, are factswhich are not in dispute. In the said circumstances, theassessing officer cannot be found fault with for havingbrought the said amount to tax under section 68 of the Act.The question to be considered therefore is as to whether the petitioner is entitled to the benefit of exemption in respectof the said income under section 80P(2)(a)(i). 6. Ext.P8, of course, is a decision rendered in an petitioner is entitled to the benefit of exemption in respectof the said income under section 80P(2)(a)(i). 6. Ext.P8, of course, is a decision rendered in an identical matter. Ext.P8 is seen rendered solely relying onthe decisions of ITAT, Nagpur and ITAT, Pune in the mattersreferred to by the learned counsel for the petitioner, ofwhich, the issue in the decision rendered by ITAT, Pune waswhether the income brought to tax on account of dis-allowance of expenditure is entitled to exemption undersection 80P(2)(a)(i) of the Act which has nothing to do withExt.P8 case. Of course the issue in the decision of the ITAT,Nagpur was almost identical. I am unable to agree with theview taken by the ITAT, Cochin in Ext.P8 decision as also theview taken by the ITAT, Nagpur in the decision relied on inExt.P8, for if the said view is accepted, assessees who areentitled to the benefit of exemption under section 80P(2)(a)(i) of the Act can bring in illicit money into business withoutfear of consequences. Further, profits and gains of businessis a matter covered by Chapter IV of the Act and Section 68of the Act is one falling under Chapter VI of the Act dealing WPC 9125/18 with aggregation of income. This also fortifies the view thathas been taken as above. The view taken by the appellateauthority in the impugned order that the petitioner has notmade out a prima facie case as regards the income broughtto tax by the assessing officer under section 68 of the Act istherefore to be accepted. Of course, the aforesaid viewexpressed is a prima facie view of the issue and the issueneeds to be seriously gone into at the time of final disposalof the appeal. It is relevant in this context to note that hadthe petitioner divulged the sources of the cash creditsreferred to by the assessing officer when called for, asituation of this nature would not have arisen. In thecircumstances, as I am unable to rule out the possibility ofthe appellate authority granting the petitioner anopportunity to disclose the sources of the cash creditsreferred to in the assessment order and if it is ultimatelyfound that the cash credits are deposits come fromexplainable sources, the petitioner may not have anyliability on this count. In the aforesaid background,according to me, if the petitioner is compelled to pay 50% of WPC 9125/18 the demand as ordered by the appellate authority, thebusiness of the petitioner is likely to be crippled and in thatevent, the customers of the petitioner including theirdepositors would also suffer. Having regard to all theaforesaid facts and circumstances, I deem it appropriate tomodify the impugned order directing the petitioner to pay20% of the demand in six equal monthly instalmentscommencing from 1.6.2018. Ordered accordingly. In thepeculiar facts of this case, there will also be a direction tothe appellate authority to dispose of the appeal preferred bythe petitioner on merits as expeditiously as possible. Sd/- vps 20/4 P.B.SURESH KUMAR, JUDGE /True Copy/PS to Judge