Income Tax Appellate Tribunal - Ahmedabad
Asstt. Commissioner Of Income-Tax vs Navdeep Co. Op. Bank Ltd. on 20 April, 1992
Equivalent citations: [1992]43ITD697(AHD)
ORDER
K.P.T. Thangal, Judicial Member
1. This appeal by the department is for the assessment year 1985-86. The only ground taken up by the department is a under :-
The learned CIT (Appeals) has erred in allowing the deduction under Section 80P(2)(a)(i) of the IT Act, 1961.
2. The assessee is a co-operative society carrying on the business of banking. The assessee claimed exemption under Section 80P(2)(a)(i). The assessee filed its return declaring Nil income on 30-9-1985. A search was conducted under Section 132 of the Act in the premises of the assessee society on the basis of certain publication on 2-4-1987. It came to notice that the District Co-operative Registrar had detected a major fraud amounting to Rs. 4 crores which allegedly involved the Chairman/ General Manager of the Bank etc. It was made public that certain bank loans were sanctioned to the tune of Rs. 1.80 crores during the preceding 12 months from February 1983 to May 1984. It was also made public that the District Co-operative Registrar filed certain criminal complaints with the police against the Chairman and against 26 others. Taking into consideration the following points as mentioned in the audit report, the ITO came to the conclusion that the assessee bank was not following the prescribed rules and regulations which governed the activities of the co-operative bank and directions of the Reserve Bank of India, and, therefore, not entitled for the benefit under Section 80P :-
(i) excess loan was sanctioned amounting to Rs. 93,51,439 over and above the sanctioned amount and the capacity and the powers of the bank;
(ii) no action had been taken to recover the bad and doubtful debts;
(iii) loans advanced to the members were without security and if security was taken, it was not in order;
(iv) loan had been granted to certain non-members without application and that the dates on which such loans were sanctioned, those persons were not members and that they became members subsequently;
(v) certain proceedings and rules were not followed in making loans and advances and without verifying the repayment capacity of the loanees;
(vi) loans advanced on inadequate security on higher valuation and monopoly of Shri K.C. Shah, Ex-chairman of the bank;
(vii) certain R.B.I. rules and regulations were violated in the matter of sanction of loans to Ganesh Group;
(viii) donation was made without permission of the District Co-operative Sangh;
(ix) no approval of District Registrar of Co-operative Societies have been taken for purchase of computer;
(x) the ITO further observed that on the basis of seized materials there was indication that certain employees and senior officers were paid commission on fixed deposits arranged by them which was neither recorded in the books of accounts nor admitted and in any case such payment was against the banking rules.
Aggrieved by the above order the assessee preferred an appeal before the first appellate authority.
3. It was contended before the CIT (Appeals) that the ITO did not examine whether the income of the assessee was derived from the banking business or from activities of providing credit facilities to its members. The ITO merely took into consideration the irregularities as published by newspaper for denying the benefit as contemplated under Section 80P of the Act. The assessee is a registered Co-operative Society, its main business is banking, it had obtained valid licence from R.B.I, and it is subject to the guidelines of the RBI as issued from time to time. The ITO was not correct just examining the assets side of the balance-sheet and the credit side of the profit and loss account for coming to the conclusion whether monies and investments are stock-in-trade of the assessee and whether the income earned from various sources were earned in the course of carrying on the banking business. Further the assessee contended that the assessee's main income are from-
(i) interest and dividend;
(ii) commission and exchange; and
(iii) dividend, etc. It was contended that even if certain loans were advanced to non-members on certain dates without proper security or before becoming members of the society or adopting some improper method and if some irregularities are committed by some of its office bearers the Registrar has got wide powers under Gujarat Co-operative Societies Act and he is the competent authority to deal with such situation. The revenue authorities cannot invoke the powers vested with the Registrar. Until and unless the registration is cancelled under Section 20 of the Gujarat Co-operative Society Act, 1961, the assessee is entitled for the benefit of Section 80P of the IT Act, 1961.
4. In view of the above facts the learned CIT (Appeals) held that the assessee is entitled for exemption of the entire income and as regards the status of the assessee it would be a co-operative society and its income is subject to tax at normal rate applicable to an AOP. It was further directed that the maximum marginal rate would not be applicable in respect of its income. Therefore, he directed that the assessee is entitled for exemption under Section 80P(2)(a)(i) of the IT Act, 1961. It is against this order that the department is in appeal before us. The main contention of the department can be summed up as under :-
(1) There was cheating by the Society to the tune of Rs. 12 crores. So the very purpose of the Co-operative Society is defeated and the conclusion of the ITO that the assessee is not entitled for exemption under section 80P is correct one.
(2) The assessee as a consequence of illegal and malpractices lost the character of the Co-operative Society and, therefore, is not entitled for the benefit.
(3) The findings of the earlier year that it is a true co-operative society and the exemption given in that year does not bind the ITO as principle of res judicata does not apply for faxing statutes.
5. Against this, the learned counsel for the assessee contended-
Firstly that so long the registration remains, the ITO cannot go beyond the registration as given by the recognised authority;
Secondly it is for the RBI and the Registrar of Societies to look the sanctioning modalities of the loans and whether the method adopted for sanctioning of the loan was regular or not; and Thirdly the learned counsel contended that while computing the income of the assessee the Co-operative Society Act should be followed. Even otherwise the irregularities are said to be committed during the year 1975-84 and, therefore, for the assessment year 1985-86, the status of the assessee cannot be changed. The main factor to be seen is the source of income and the credit and liability sides of the books of account of the society. There is no scope for the revenue authorities to go beyond this.
6. By virtue of section 86 the Registrar has got very vast powers to enquire into the constitutional working and financial condition of the society. The learned counsel for the assessee also brought section 93 of the Act to our attention so as to impress the powers vested upon the Registrar by this section which runs as under :-
93(1) Where, in the course of or as a result of an audit under Section 84, or an inquiry under Section 86 or an inspection under Section 87, or the winding up of a society, the Registrar is satisfied on the basis of the report made by the auditor or the person authorised to make inquiry under Section 86, or the person authorised to inspect the books under section 87, or the Liquidator under Section 110, that any person who has taken any part in the organisation or management of the society or any deceased, or past or present officer of the society has, within a period of five years prior to the date of such audit, inquiry, inspection or order for winding up, misapplied or retained, or become liable or accountable for, any money or property of the society, or has been guilty of misfeasance or breach of trust in relation to the society, the Registrar or a person authorised by him in that behalf may investigate the conduct of such person or persons and after framing charges against such person or persons, and after giving reasonable opportunity to the person concerned and in the case of a deceased person to his representative who inherits his estate, to answer the charges, make an order requiring him to repay or restore the money or property or any part thereof, with interest at such rate as the Registrar or the person authorised under this section may determine, or to contribute such sum to the assets of the society by way of compensation in regard to the misapplication, retention, misfeasance or breach of trust, as he-'may determine.
(2) The Registrar or the person authorised under Sub-section (1) in making any order under this section, may provide therein for the payment of the costs or any part thereof of such investigation, as he thinks just, and he may direct that such costs or any part thereof shall be recovered from the person against whom the order has been issued.
(3) This section shall apply, notwithstanding that the act is one for which the person concerned may be criminally responsible....
The learned counsel has further stressed the fact that even as on today the registration granted by the Gujarat Co-operative Society Act, is valid and continuing.
7. In the result the assessee is a co-operative society as defined by section 219 of the Act for the taxing purposes. The learned counsel further submitted, in spite of irregularities the assessee is still continuing the banking business as granted by the RBI.
8. We heard both the parties and went through the relevant papers. We are not impressed by the arguments of the learned DR that due to illegal sanctioning of loans to certain persons bypassing the normal procedure, the assessee has lost its character and, therefore, it is not entitled for the benefit of section 80P(2)(a)(0 of the IT Act. It is correctly submitted by the learned counsel for the assessee that it is not for the department to see whether the normal procedure is followed by the assessee while sanctioning the loans, etc. As noted by the counsel, section 93 of the Gujarat Cooperative Societies Act vests wide power to the Registrar to deal with such situation, and in spite of the fact that such irregularities committed by, neither the RBI nor the Registrar has cancelled the registration granted to the assessee. This is a fact that cannot be brushed aside. The powers of the revenue authorities are limited. They cannot overlook the fact that the registration granted by the RBI and the Society is still continuing. If irregularities exist or existed, there are other competent authorities to deal with it.
9. In the result we are of the opinion that the assessee is entitled for the benefit under Section 80P(2)(a)(i) of the IT Act and, therefore, we uphold the order of the first appellate authority.
10. In the result, the appeal is dismissed.