Income Tax Appellate Tribunal - Panji
Acit, Jaipur vs Jaipur Thar Gramin Bank, Jaipur on 21 June, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 801/JP/13
fu/kZkj.k o"kZ@Assessment Year : 2007-08
The ACIT, Circle-2, Jaipur cuke M/s Jaipur Thar Gramin
Vs. Bank, Kishan Bhawan,
Lal Kothi, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAAJJ 0519 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 802/JP/13
fu/kZkj.k o"kZ@Assessment Year : 2008-09
The ACIT, Circle-2, Jaipur cuke M/s Jaipur Thar Gramin
Vs. Bank, Kishan Bhawan,
Lal Kothi, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAAJJ 0519 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 803/JP/13
fu/kZkj.k o"kZ@Assessment Year : 2009-10
The ACIT, Circle-2, Jaipur cuke M/s Jaipur Thar Gramin
Vs. Bank, Kishan Bhawan,
Lal Kothi, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAAJJ 0519 R
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrhdh vksj ls@Assessee by : Shri S.L. Poddar, (Advocate)
jktLo dh vksj ls@Revenue by : Shri Vrinder Mehta (CIT)
lquokbZ dh rkjh[k@Date of Hearing : 01.05.2017
?kks"k.kk dh rkjh[k@Date of Pronouncement: 21/06/2017.
vkns'k@ORDER
PER SHRI VIKRAM SINGH YADAV, A.M.
ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank The Revenue has filed these appeals against the order of Ld. CIT(A)-1, Jaipur of even date i.e, 05.08.2013 for AY 2007-08, AY 2008-09 and AY 2009-10 respectively. These appeals having identical facts, were taken up for hearing together and are being disposed off by this consolidated order. For the sake of discussion, with the consent of both the parties, the facts of AY 2007-08 has been taken up as the lead case. The ground of appeal taken by the Revenue is as under:
"Whether on the facts and in the circumstances of the case and in law the ld. CIT(A) was justified in deleting the penalty of Rs. 4,20,00,000/- u/s 271(1)(c) imposed by the AO as the assessee has furnished inaccurate particulars of its income by claiming deduction u/s 80P which is not allowable to it as per IT law."
2. The brief facts of the case are that the assessee is a cooperative bank doing banking business and it has filed its return of income declaring NIL income, by claiming deduction u/s 80P of the IT Act, 1961. During the course of assessment proceedings, the Assessing officer asked the assessee to justify its claim for deduction under section 80P of the Act and in response, the assessee filed its submission which however didn't find favour with the Assessing officer and he disallowed the claim of deduction. The penalty proceedings u/s 271(1)(c) for concealment and furnishing inaccurate particulars of income were also initiated separately.
3. Being aggrieved, the assessee carried the matter in appeal before the ld CIT(A) who allowed the claim of deduction u/s 80P to the assessee bank. The Revenue took the matter before the Tribunal who reversed the order of ld CIT(A) and sustained the disallowance of deduction u/s 80P of the Act. The Revenue thereafter, issued a fresh show-cause notice to the assessee u/s 271(1)(c) of the Act. The explanation offered by the assessee was not found satisfactory by the AO and he thereafter levied penalty of Rs 4,20,00,000, being 100% of tax sought to be evaded for furnishing inaccurate particulars of 2 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank income. The ld CIT(A) has deleted the said penalty and against the said order, the Revenue is presently in appeal before us.
4. Before we refer to the contentions of both the parties, it would be relevant to refer to the findings of the ld. CIT(A) which are under challenge before us. The same are reproduced as under:
"4. I have considered submissions of the appellant and have also gone through the penalty order. The penalty has been levied by the AO on the ground that as per section 80P(4) the deduction was allowable to the bank only on the activities carried out within a "Taluk"or "tehsil".
The appellant bank on the other hand was carrying out its activities through many branches, quite a few of which were located in urban areas.The disallowance made by the AO has been confirmed by Hon'ble ITAT as well. The disallowance of the claim u/s 80P was treated by the AO as furnishing of inaccurate particulars of income and accordingly, penalty was levied. The AO has basically relied on the facts mentioned in the assessment order, observing that the pleas of the assessee have been elaborately discussed and rebutted in the assessment order.
4.1 It is noticed that the appellant is a regional bank engaged in the banking business in the status of a co-operative society. It had claimed deduction u/s 80P. At the time of assessment proceedingsthe bank had filed it audited and published balance sheet alongwith annexure thereof, showing the income of the bank clearly. On facts of the case, the deduction claimed by the appellant was disallowed and this disallowance has been confirmed by the Hon'ble ITAT also. The issue is whether this disallowance amounts to concealment of income or furnishing of inaccurate particulars of income also. A perusal of the computation of total income filed by the appellant shows that it had claimed deduction u/s 80P while filing the return. This claim was disallowed by the AO and the disallowance was sustained in the appeal as well. However, merely making a claim which is not found to be admissible does not amount to concealment of income or furnishing of inaccurate particulars of income. Although it has been mentioned in the penalty order that the appellant has furnished inaccurate particulars of income, it has not been explained as to how when all the necessary 3 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank details were made available in the return of income, there was a case of furnishing of wrong particulars of income. The AO has not brought out any fact in the order to establish that the appellant had furnished inaccurate particulars of its income or had concealed particulars of its income. As held by the Apex Court in the case of Reliance Petro Products Pvt. Ltd. (322 ITR 158), mere making of a claim which is not sustainable in law, by itself, does not amount to furnishing of inaccurate particulars of income. The present case does not appear to a case of concealment of income or furnishing of inaccurate particulars of income. The penalty, therefore, appears to be uncalled for and is, accordingly, cancelled."
5. The ld DR vehemently argued the matter and relied on the order of the AO and submitted that the ld CIT(A) was not correct in deleting the penalty. He submitted that there has been change in the eligibility condition for deduction under section 80P of the Act and the explanation offered by the assessee was rightly not found acceptable in view of the change in the eligibility conditions and the fact that the same has been confirmed in the quantum proceedings by the Hon'ble ITAT. He accordingly submitted that the AO was right in levying penalty for furnishing inaccurate particulars of income.
6. Per contra, the ld. AR has submitted that in the appeal before the CIT(A)-I, the respondent had submitted that the initiation of penalty and levy thereof is not automatic, and merely because the claim of the respondent was rejected, it does not establish concealment/furnishing of inaccurate details on the part of the respondent. The CIT(A) after considering the submissions of the respondent and various judicial pronouncements, appreciated the respondent's plea and deleted the penalty for the subject assessment year.
7. It was further submitted that the respondent is a primary co-operative, agriculture and rural development Bank. The audited accounts of the respondent were submitted along with its return of income. The income of 4 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank the respondent was already disclosed in the return, but the claim u/s 80P was disallowed and sustained by the Tribunal. The AO has imposed penalty only and only for the difference of opinion and disallowance of claim u/s 80P, which is by no means, concealment or furnishing of inaccurate particulars.
8. It was further submitted that the respondent bank is covered under the definition of Primary co-operative agriculture and rural development Bank which falls under the exclusion mentioned in proviso (4), to Sec. 80P inserted w.e.f. 1.4.2007. The proviso (4) inserted after sub-section 3 of sec. 80P by the finance Act, 2006, reads as under:
"(4) the provisions of this section shall not apply in relation to any co-
operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank:
Explanation: For the purpose of this sub-section, "a cooperative bank" and "Primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the banking regulation Act, 1949.
B) "Primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a Taluk and the principal object of which is to provide long term credit for agricultural and rural development activities."
9. It was further submitted that the main business of the respondent is as under:
(a) Granting of loans and advances particularly to small and marginal farmers and agricultural labourers, whether individually or in groups and to 5 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank co-operative societies, including agricultural marketing societies, agricultural processing societies, cooperative farming societies, primary agricultural credit societies or farmers service societies for agricultural purposes or agricultural operations or for other purposes connected herewith:
(b) Granting of loans and advances particularly to artisans, small entrepreneurs, and persons of small means engaged in trade, commerce or industry or other productive activities within the modified area in relation to the regional rural bank.
10. It was submitted that the ld. AO in his order, rejected the plea of the respondent on the ground that, the word "Taluk" appearing in the proviso (4) to sec. 80P, covers only a tehsil and hence the fact that the bank has branches in different places of Rajasthan, restrains it from being a "Primary co-operative agricultural and rural development bank" as defined in the act, and thus held the respondent not eligible for deduction u/s 80P whereas the respondent profusely argued that the word 'taluk' means a Rajputana Jagirdari/Riyasat which was a state at that time.
11. It was further submitted that the ld. Assessing Officer has held that retail trade, self employed persons, home loans to public and consumer loans are not covered by the terms"agricultural and rural development activities". The respondent humbly submits that the above contention of the AO is absolutely erroneous as these loans are given to villagers and purely used for rural development activities. In the explanation (b) above it is clearly mentioned that the rural development bank means, a bank whose major activity relates to providing of long term credit for agricultural and rural development activities. The respondent bank squarely satisfies the conditions laid in explanation (b) above and thus is entitled to deduction u/s 80P.
6ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank
12. It was submitted that though the above plea/explanation was not appreciated by the Hon'ble ITAT and the respondent's claim for deduction u/s 80P was disallowed, however the same cannot be the basis for levy of penalty u/s 271(1)(c) for concealment and furnishing of inaccurate particulars of income.
13. It was submitted that the expressions " has concealed the particulars of income" and "has furnished inaccurate particular of income have not been defined either in section 271(1)(c)or elsewhere in the Act. These two circumstances are not identical in details although they may leave the same effect namely keeping off certain portion of income. The former is direct and the matter may be indirect in its execution. The word 'conceal' is derived from the Latin word 'concolare' which implies 'to hide'. Webster New International Dictionary equates its meaning to hide or withdraw from observation; to cover or kept from sight; to prevent the discovery of; to withhold knowledge of. The offence of concealment is thus the direct attempt to hide an item of income or a portion thereof from the knowledge of Income Tax authorities. Explanation to section 271(1)(c) stipulates that in the case of difference between the returned and assessed income the burden of proof is on the tax payer to show that it has not concealed the particulars of income or furnished inaccurate particular of income. It has been clarified in the case of Musaddi Lal Rambharose 165 ITR(SC) that to escape penalty, difference in returned income and assessed income should not arise due to any gross or wilful negligence or on account of fraud. As long as assessee gives an explanation and give all documents without withholding any information, the assessee's explanation, unless false, will deserve acceptance for non levy of penalty whether otherwise acceptable for assessment or not. It is not that every addition warrants penalty. An income may be inferred 7 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank from circumstances, so as to justify the addition but where there is no decisive evidence that the inferred income was actually received by the assessee, penalty cannot be justified.
14. The ld AR placed heavy reliance on the decision of Hon'ble Supreme Court in case of CIT vs. Reliance Petro products 322 ITR 158 (SC). The Hon'ble Supreme Court has categorically held that merely because the claim of the assessee was not accepted by the Assessing Officer, that by itself would not, in our opinion, attract the penalty under s. 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by AO for any reason, the assessee will invite penalty under s. 271(1)(c. That is clearly not the intendment of the legislature.
Reliance was further placed on decision of CIT vs. Suresh Chandra Mittal (251 ITR 9 (SC), wherein it has been held that , "it is well settled that under s. 271(1)(c), initial burden lies on the Revenue to establish that assessee had concealed the income or had furnished inaccurate particulars of such income. The burden shifts to the assessee only if he fails to officer any explanation for the undisclosed income or offers explanation which is found to be false by the assessing authority.
Reliance was further placed on decision of Shivlal Tak vs. CIT (251 ITR 373 (Raj.) wherein it was held that "while the expression failure to return the total assessed income as not arising on account of any fraud or wilful negligence on the part of assessee" does not find place but cl. (b) R/w proviso (ii) makes it abundantly clear that where difference in the assessed income and returned income is not arising on account of any gross or wilful negligence on the part of assessee, still no penalty is leviable. The statute has clearly drawn distinction between furnishing a deliberate, false explanation by the assessee 8 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank and an explanation, which may not be false but is not accepted because assessee was not able to substantiate it. While there is no relaxation in the rigour of Explanation in raising presumption against the assessee in the former case, in the later class of cases, the statute itself relaxes its rigour by directing that wherein respect of any amount, added or disallowed and any explanation is offered by such person (assessee) which is not accepted because the assessee has failed to substantiate the same, but which explanation is bona fide and all the facts relating to same and material to the computation of total income has been disclosed by him, the Explanation shall not apply. In other words, the cases under cl. (A) of the Expln. 1 are those where explanation furnished by the assessee falls in the category of a fact 'disproved' whereas cases where an explanation so furnished falls in the category of fact 'not proved'. The expressions, 'proved' 'disproved' and 'not proved' have well known, distinct connotation in legal terminology, as may be apparent from the provisions of India Evidence Act. As per interpretation clause, a fact is said to be 'disproved' when after considering the matter before it, the Court either believes that it does not exist or considers its non- existence so probable that a prudent man ought under the circumstances of the particular case, to act upon the supposition that it does not exist. In contrast, a fact is said to be 'proved' when after considering the matter before it, the Court either believes it to exist or considers its existence so probable that a prudent man ought under the circumstances in particular case, to act upon the supposition that it exists. In juxtaposition, the expression 'not proved' denotes a fact is said to be 'not proved' when it is neither proved nor disproved." It was so held in CIT vs. Traders & Traders, 242 ITR 367 (Mad.)
15. It was further submitted that in the case of the respondent there is neither concealment of income nor furnishing of inaccurate particulars as the AO has disallowed the claim of Sec. 80P merely on difference of opinion as 9 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank the respondent could not substantiate its plea satisfactorily. Based on above submissions and the submissions made before the ld. CIT(A) the respondent humbly prays that the penalty has been rightly deleted by the ld. CIT(A) and the said order may kindly be sustained.
16. We have heard the rival submissions and pursued the material available on record. The issue under consideration relates to levy of penalty u/s 271(1)(c) on account of denial of claim of deduction under section 80P of the Act. The penalty has been levied on account of furnishing inaccurate particulars of income. Section 271(1)(c), being in the nature of penal provisions require a strict interpretation and it is to be seen whether the instant case falls within four corners of the said provisions. If the answer to the same is in affirmative, the penalty would be leviable and otherwise not.
17. The Hon'ble Supreme Court in case of Reliance Petroproducts (supra) has laid down the necessary legal proposition wherein it was held as under:
"We are not concerned in the present case with the mens rea. However, we have to only see as to whether in this case, as a matter of fact, the assessee has given inaccurate particulars. In Webster's Dictionary, the word "inaccurate" has been defined as:
"not accurate, not exact or correct; not according to trust; erroneous; as an inaccurate statement, copy or transcript."
We have already seen the meaning of the word "particulars" in the earlier part of this judgment. Reading the words in conjunction, they must mean the details supplied in the return, which are not accurate, not exact or correct, not according to truth or erroneous. We must hasten to add here that in this case, there is no finding that any details supplied by the assessee in its return were found to be incorrect or erroneous or false. Such not being the case, there would be no question of inviting the penalty under section 271(1)(c) of the Act. A mere making of the claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the 10 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank assessee. Such claim made in the return cannot amount to the inaccurate particulars.
It was tried to be suggested that section 14A of the Act specifically excluded the deductions in respect of the expenditure incurred by the asessee in relation to income which does not form part of the total income under the Act. It was further pointed out that the dividends from the shares did not form the part of the total income. It was, therefore, reiterated before us that the Assessing Officer had correctly reached the conclusion that since the assessee had claimed excessive deductions knowing that they are incorrect; it amounted to concealment of income. It was tried to be argued that the falsehood in accounts can take either of the two forms; (i) an item of receipt may be suppressed fraudulently; (ii) an item of expenditure may be falsely (or in an exaggerated amount) claimed, and both types attempt to reduce the taxable income and, therefore, both types amount to concealment of particulars of income. We do not agree, as the assessee had furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty under section 271(1)(c). if we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty under section 271(1)(c). That is clearly not the intendment of the Legislature."
18. In the instant case, it is not in dispute that the assessee has duly filed its return of income containing all relevant particulars of its income and the particulars of claim of deduction u/s 80P has been duly disclosed. The ld CIT(A) has also held that a perusal of the computation of total income filed by the appellant shows that it had claimed deduction u/s 80P while filing the return.
11ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank
19. The next issue which arise for consideration is where such a claim of deduction was disallowed by the AO and such disallowance was finally sustained by the Tribunal, in absence of any further appeal, would that, by itself, render the matter liable for penalty u/s 271(1)(c) of the Act. The Hon'ble Supreme Court has held in case of Reliance Petroproducts as noted above that mere making a claim which is not found sustainable in law will not amount to furnishing of inaccurate particulars of income. We accordingly confirm the following findings of the ld CIT(A) as under:
"A perusal of the computation of total income filed by the appellant shows that it had claimed deduction u/s 80P while filing the return. This claim was disallowed by the AO and the disallowance was sustained in the appeal as well. However, merely making a claim which is not found to be admissible does not amount to concealment of income or furnishing of inaccurate particulars of income. Although it has been mentioned in the penalty order that the appellant has furnished inaccurate particulars of income, it has not been explained as to how when all the necessary details were made available in the return of income, there was a case of furnishing of wrong particulars of income. The AO has not brought out any fact in the order to establish that the appellant had furnished inaccurate particulars of its income or had concealed particulars of its income. As held by the Apex Court in the case of Reliance Petro Products Pvt. Ltd. (322 ITR 158), mere making of a claim which is not sustainable in law, by itself, does not amount to furnishing of inaccurate particulars of income. The present case does not appear to a case of concealment of income or furnishing of inaccurate particulars of income."
20. Another contention raised by the ld CIT DR that the assessee has no basis for claim for deduction u/s 80P at first place as there was change in law effective from AY 2007-08 and hence, it is a clear case for levy of penalty u/s 271(1)(c). Per contra, the ld AR submitted that it is the case of the assessee bank that even after the amendment brought in by the Finance Act, 2006, the assessee bank continues to remain qualified for deduction under section 80P as it is covered under the definition of Primary co-operative agriculture and rural development Bank as define in explanation (b) to sub-section (4) to 12 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank section 80P of the Act. In order to address this contention, we refer to the amendment that has been brought in the statute and the explanation and the basis furnished by the assessee for claim of deduction u/s 80P of the Act.
21. By the Finance Act, 2006, sub-section (4) has been inserted after sub- section (3) to Section 80P which reads as under:
"(4) the provisions of this section shall not apply in relation to any co-
operative Bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank:
Explanation: For the purpose of this sub-section,
(a) "a cooperative bank" and "Primary agricultural credit society"
shall have the meanings respectively assigned to them in Part V of the banking regulation Act, 1949.
(b) "Primary co-operative agricultural and rural development bank" means a society having its area of operation confined to a Taluk and the principal object of which is to provide long term credit for agricultural and rural development activities."
22. The explanation and the basis for claim of deduction u/s 80P as submitted by the assessee bank and as noted by the Coordinate Bench in ITA No. 940/JP/2011 order dated 31.10.2011 in the context of quantum proceedings is as under:-
"2.3 In response to query raised by the AO, the assessee filed the following explanation before the AO.
''4. In Query No.5 your honour mentioned the definition of explanation (b) to Section 80P(4) is correct and our bank fulfill both the conditions of this explanation. Your honour said that our head office located at Sardar patel Marg, Jaipur which is capital city of Rajasthan is 13 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank correct, as it is necessary to run and fulfill the object clause of the bank, the head office of the bank is located at Jaipur. In respect of 10 urban branches, and 24 semi urban branches, we already submit in Point no. 1 that only three urban branches of our bank located at Tehsil headquarters which comes under the definition of Taluk and mainly doing agriculture and rural based advances.
It is no doubt that our client bank made 100% advances for rural development but it made more than 80% advances for rural development. We also clear that all the advances made by our bank for long term finance, not short term, as all the advances made by the bank for rural development more than period of 12 months. The other advances i.e. 20% advances made by the bank mainly to its employees and against FDR made by the bank and it is necessary to run the bank to make advances to its employees and against FDR made by us our customers who are agriculturists and rural people.
We replied in our letter dated 20-11-2009 that the bank made advances mainly to direct beneficiary not any other society. In this reply, we had not admitted any way that we made advances to non-entitled categories. We made all the advances as per our object clause.
Your honour also said that housing loan, consumption loan, cash loans, loan against deposit, vehicle loans, staff housing loan, NSC loan and festival advance to staff do not in any way contribute towards rural development. As housing loan made by our bank in the rural areas is 53% of total housing loan, cash loans 60.6% of total cash loan and consumption loan 47% of total consumption loan. Other loans are provide mentioned in this para are mainly to employees of the bank. It is the duty of the employer that he provide facilities to its employee and accordingly the bank made advances to its employees. We once again 14 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank submit that these types of advances form a very small part of advance portfolio which mainly consist of agriculture/ rural advances.
We again said that our main object are to provide advances for rural development and in rural areas situated in Talkuk for long term advance.
5. We further request that we have correctly claimed deduction u/s 80P of the Income Tax Act, 1961 as we fulfil both the conditions of explanation (b) to Section 80P(4) of the Income Tax Act, 1961 You are therefore, requested kindly allow the deduction u/s 80P of the Income Tax Act, 1961 and oblige.''
23. We now refer to the findings of the ld CIT(A) in the quantum proceedings where the above said explanation of the assessee bank has been accepted and the claim of deduction u/s 80P was allowed. This acceptance of the explanation of the assessee bank by the ld CIT(A) atleast shows that the assessee has a basis for claim of deduction under section 80P and it is not a case that post amendment, the deduction u/s 80P is prima facie disallowable on reading of the amended provisions and which it has been claiming in the earlier years as well. The relevant findings of ld CIT(A) in his order dated 11.05.2010 are as under:
"The appellant is a cooperative society doing banking business and has shown income of Rs. 188380400/- on which deduction u/s 80P has been claimed. The man business is accepting the deposits from the public, Govt. and corporate bodies and others, and making advances to its customers. It was claimed that the appellant is covered by explanation to sub section (4) of section 80P inserted w.e.f. 1.4.2007. To verify the claim of appellant the AO collected details of branch wise and category wise advances, income and categorization of branches into rural/urban and semi urban. The details of branches operating at 15 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank Taluk level were collected. Reference was made u/s 144A to the addl. CIT. After receiving directions u/s 144A the AO rejected the claim of appellant by making observation that the appellant bank does not fall within the scope of explanation (b) to section 80P(4). The AO has also quoted budget speech of Hon'ble F.M. which indicates legislative intent. The AO though rejected the claim of deduction u/s 80P but allowed alternate claim of deduction u/s 36(1) (viia) and allowed Rs. 47163425/-. The other claim of deduction u/s 36(1)(v) was rejected.
Contention of the AR is that the appellant bank is a Regional Rural bank which is established under the Regional Rural Bank Act, 1976. The Regional Rural Banks are covered under the definition of cooperative bank. That with the amendment through Finance Act, 2006, cooperative bank came under tax net though primary agricultural credit society or primary cooperative agricultural and rural development banks were excluded from 'primary cooperative agricultural and rural development bank", as the principal object of the appellant is to give advances for agriculture and rural development activities. The provisions of amendment shall not apply to the appellant as major area of operation is also confined to the state of Rajasthan only. The major branches are situated in villages. The appellant bank was started through Rural Regional Bank Act, 1976 wherein the main business of bank under this Act has been stated as under:
a) the granting of loans and advances, particularly to small and marginal farmers and agricultural labourers, whether individually or in groups, and to cooperative societies, including agricultural marketing societies, agricultural processing societies, cooperative farming societies, primary agricultural credit societies or farmers' service societies, for agricultural purposes or agricultural operations or for other purposes connected therewith;
b) the granting of loans and advances, particularly to artisans, small entrepreneurs and persons of small means engaged in trade, commerce or industry or other productive activities, within the notified area in relation to the Regional Rural Bank.
As per explanation (b), it is clear that rural development bank means whose major activity relates to providing for long term credit for agriculture and rural development activities. Annual report of the bank 16 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank gives category wise advances and area of operation, list of branches as list of branch wise advances was also submitted to the AO.
Contention of the AR is considered. The appellant bank is a creation of Regional Rural Bank Act, 1976 and, therefore, it is established that it is a Regional Rural Development Bank. The objective of the Regional Rural Bank Act is granting of loans and advances, particularly to small and marginal farmers and agriculture labourers for agriculture purposes or agriculture operations or for other connected purposes. The other objective is to grant loans and advances to Artisans, small entrepreneurs and persons of small means engaged in trade, commerce or industries or other productive activities within the notified area in relation to the Regional Rural Bank. As per the annual report of the bank the notified area is Jaipur, Dausa, Nagaur, Jodhpur, Jaisalmer and Barmer districts. The bank has 9 urban branches, 24 semi urban branches, 175 rural branches. Thus out of total 209 branches 175 branches are in rural area. As on 31.03.2007 the loans and advances outstanding are Rs. 5710245000/-. This includes crops advances of Rs. 2710802000/-, agricultural advances of Rs. 538958000/-, Arat agriculture of Rs. 432398000/-. Thus, agriculture advances of Rs. 3682158000/- constitutes more than 60% of the total advances. From area wise advances, one can see that the rural advances are of Rs. 40465737000/- and semi urban advances are only Rs. 3470893000/-. These urban areas basically rural areas but subsequently covered under the municipal limit. The urban areas are Amer, Jaisinghpur, Kher, Bhakrota, Harmada, Jhotwara, Sanganer, Sinwar and Sirsi which are all outskirt areas of Jaipur. The other urban areas is Jodhpur and Head office in Jaipur. From the above details, one can see that the area of operation of the appellant bank is primarily taluk and principal object/activities are to provide credit for agriculture and rural development activities. The appellant is thus a Rural Development Bank providing credit for agriculture and Rural Development activities. The appellant's case is thus covered by explanation (b) and, therefore, the amendment will not be effective in the appellant case. The appellant is a cooperative society and the income is from banking activities. Profit and loss account was perused and from the branch wise details, one can see that interest on loans earned by the appellant comes to Rs. 523185433/- out of total income of Rs. 582832093/-. The other incomes are from deposits with the bank which is also banking activity, 17 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank exchange and commission i.e. also banking activity. The AO is, therefore, directed to allow exemption u/s 80P for the income earned out of banking activities only. The ground of appeal is thus decided in favour of the appellant."
24. We now refer to the findings of the Coordinate Bench where the Bench has again considered the above explanations of the assessee bank and the findings of the ld CIT(A). The relevant findings of the Coordinate Bench are contained in para 2.8 to 2.12 which are reproduced below:
"2.8 We have heard both the parties. The issue before us is as to whether deduction u/s 80P is available to the assessee for the assessment year under consideration in view of insertion of Section 80P(4). It will be useful to reproduce Section 80P(4) of the Act as under:-
''4) The provisions of this section shall not apply in relation to any co- operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank.
Explanation.--For the purposes of this sub-section,--
(a) "co-operative bank" and "primary agricultural credit society" shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949) ;
(b) "primary co-operative agricultural and rural development bank"
means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.'' 2.9 The CBDT issued Circular no. 319 dated 11-01-1982. The circular which is available at 133 ITR 165 (St.) is reproduced as under:-
18ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank ''A question has arisen whether Regional Rural Banks (to which the provisions of the Regional Rural Banks Act, 1976, apply) can be treated as Co-operative Societies for the purpose of Section 80P of the Income Tax Act, 1961.
2. There is a specific provision, namely, Section 22 in that Act ,which is to the following effect:-
''For the purpose of the Income Tax Act, 1961, or any other enactment for the time being in force relating to only tax on income, profits or gains, a Regional Rural Bank, shall be deemed to be a Cooperative Society.''
3. Therefore, the provisions of Section 80P of Income Tax Act, 1961 will also be applicable in respect of Regional Rural Banks. In this view deductions admissible u/s 80P(2)(a)(i) have to be allowed in making income tax assessments of these banks.
4. This may be brought to the notice of all officers working in your charge.'' 2.10 Before, we proceed further, it will be useful to reproduce Circular No. 6/2010 dated 20-09-2010.
''Section 80 of the Income Tax Act, 1961 provides for a deduction from the income of cooperative societies referred to in that Section.
2. As Regional Rural Banks (RRB) are basically corporate entities (and not cooperative societies), they were considered to be not eligible for deduction u/s 80P when the Section was originally introduced. However, as Section 22 of the Regional Rural Bank Act provides that a RRB shall be deemed to be cooperative society for the purpose of Income Tax Act, 1961 in order to make such banks eligible for deduction u/s 80P, CBDT Circular issued a beneficial Circular No. 319 19 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank dated 11-01-1982 which stated that for the purpose of Section 80P, a Regional Rural Bank shall be deemed to be a cooperative society.
3. Section 80P was amended by the Finance Act, 2006 w.e.f. 1-04- 2007 introducing sub-section (4), which laid down specifically that the provisions of Section 80P will not apply to any Co-operative Bank other than a Primary Agricultural Credit Society or a Primary Cooperative Agricultural and Rural Development Bank. Accordingly deduction u/s 80P was no more available to any Regional Rural Bank from assessment year 2997-08 onwards.
An OM dated 25-08-2006 addressed to RBI was issued by the Board clarifying that Regional Rural Banks would not be eligible for deduction u/s 80P of the Income Tax Act, 1961 from the assessment year 2007- 08 onwards
4. It has been brought to the notice of the Board that despite the amended provisions, some Regional Rural Banks continue to claim deduction u/s 80P on the ground that they are cooperative societies covered by Section 80P(1) read with Boards Circular No. 319 dated 11- 01-1092.
5. It is therefore, reiterated that Regional Rural Banks are not eligible for deduction u/s 80P of the Income Tax Act, 1961 from the assessment year 2007-08 onwards. Furthermore, the Circular No. 319 dated 11-01-1982 deeming any Regional Rural Bank to be cooperative society stands withdrawn for application with effect from assessment year 2007-08.
The field officers may take note of this position and take remedial action, if required.'' 20 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank 2.11 Section 22 of the Regional Rural Banks Act 1976 is reproduced as under:-
''For the purpose of the Income Tax Act, 1961 or any other enactment for the time being in force relating to any tax on income, profits or gains, a Regional Rural Bank shall be deemed to be a cooperative society.'' 2.12 Hence, the CBDT vide Circular no. 319 clarified that deduction u/s 80P(2)(a)(i) is to be allowed to Regional Rural Bank (RRB) by considering such banks as cooperative societies. The deduction u/s 80P(2)(a)(i) is in respect of profit or gains or business attributable to the business of the baking or providing credit facilities to its members. By insertion of Section 80P(4), deduction is permissible to primary cooperative agricultural and Rural Development Banks. The definition of Primary Cooperative Agricultural and Rural Development Bank has been defined in explanation (b) to Section 80P(4) of the Act. The area of operation should be confined to Taluk and the principal object is to provide advances for agriculture and rural development activities. The word 'Taluq' is not defined in the Income Tax Act. As per law Lexicon (1997 addition), by P Ramanatha Aiyar, the word 'Taluq' is applied to the sub-division of the district used in Western South India as the Taluq is in Upper India. Taluq is also defined in U.P. Act, 1999 in which the word 'Taluq' means any local area for which a Taluq local board is established inclusive of the portion of such area, if any, for the time being within the Municipal or military cantonment. In the instant case, the bank is confined to a Taluq but is also operating in the area comprising of a corporation. We do agree that the beneficial circular is operative till the date it is withdrawn. Earlier circular has been recalled by Circular no. 6/2010 dated 20-09-2010. The Tribunal while deciding appeal in the case of Modern Insulator India TW magazine volume 46 held as under:-21
ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank ''We also agree with the view taken by the ld CIT(A) that the TDS was not required to be deducted at source on account of Circular no. 786 dated 7-2-2000. The Circular No. 7 of 22nd Oct. 09 cannot be considered retrospectively to make it applicable for payment. Before that date, this has been considered by the ITAT Luckow Bench in the case of DCIT vs Sanjeev Gupta, 50 DTR 225.
In that case, the beneficial circular was withdrawn in respect of deduction of tax at source and it was held that beneficial circular will apply till it is withdrawn by the Board. Thus the assessee will have to be considered as Co- operative Society but the requirement of deduction u/s 80P(4) in respect of Primary Cooperative Agricultural and Rural Development is that the principal object of such concern is to provide long term credit for Agricultural Rural Development activities and the operation is confined to a Taluq. Thus requirement of explanation (b) of Section 80P(4) is not satisfied. Hence, we hold that the ld CIT(A) was not justified in directing the AO to allow deduction u/s 80P (4) of the Act."
25. If we examine closely the decision of the Coordinate Bench, it refers to CBDT Circular no. 319 dated 11.01.1982 which clarified that deduction u/s 80P(2)(a)(i) is to be allowed to Regional Rural Bank (RRB) by considering such banks as cooperative societies. It further held that the said beneficial circular is operative till the date it is withdrawn and recalled by subsequent Circular no. 6/2010 dated 20-09-2010. And thereafter, it was held that "In the instant case, the bank is confined to a Taluq but is also operating in the area comprising of a corporation" and finally, it was held that "Thus the assessee will have to be considered as Co-operative Society but the requirement of deduction u/s 80P(4) in respect of Primary Cooperative Agricultural and Rural Development is that the principal object of such concern is to provide long term credit for Agricultural Rural Development 22 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank activities and the operation is confined to a Taluq. Thus requirement of explanation (b) of Section 80P(4) is not satisfied."
26. It shows that the explanation offered by the assessee bank though not accepted finally but at the same time, has not been found devoid of any basis.
It is not a case that the language of the amended statute was held so clear that the assessee was not eligible for claim of deduction on prima facie reading of the amended statute. The language involved in the statute involves interpretation and even the CBDT has admitted the same in its circular no. 6/2010 dated 20.09.2010 and has therefore, vide the said circular, has clarified that regional rural bank, such as the assessee in the present case, will not be eligible for deduction under section 80P from assessment year 2007-08. The assessee thus has some reasonable basis for claim of deduction u/s 80P of the Act even after the amendment by the Finance Act, 2006 and it has thus established its bonafide of such claim in its return of income. It is also a fact that the said explanation has not been finally accepted and disallowance of claim of deduction u/s 80P has been sustained by the Coordinate Bench and the assessee has not filed any further appeal, however the same cannot be a basis for levy of penalty which calls for strict interpretation as we have held above.
27. In the entirety of facts and circumstances of the case, respectfully following the decision of the Hon'ble Supreme Court in case of Reliance Petroproducts (supra), the fact that necessary disclosure has been made in the return of income in respect of claim of deduction under section 80P, the assessee has offered the necessary explanation and the basis in support of the said claim establishing its bonafide and the said explanation has not been found totally devoid of any basis, mere disallowance of claim of deduction u/s 80P of the Act cannot form the basis for levy of penalty for furnishing 23 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank inaccurate particulars of income. We accordingly confirm the order of ld CIT(A) deleting the levy of penalty and the ground taken by the Revenue is hereby dismissed.
ITA No. 802/JP/13 & ITA No. 803/JP/1328. In ITA No. 802/JP/13 and 803/JP/13 for AY 2008-09 and AY 2009-10, both parties agreed that the facts are pari-materia and similar ground of appeals have been raised by the Revenue against deleting of penalty u/s 271(1)(c) in relation to disallowance of claim of deduction u/s 80P to the assessee bank as in ITA No. 801/JP/13 decided supra. In view of the same, our findings and direction contained in ITA No. 801/JP/13 shall apply mutatis- mutandis to these two appeals as well.
In the result the appeals filed by the Revenue are dismissed.
Order pronounced in the open court on 21/06/2017.
Sd/- Sd/-
(KUL BHARAT) (VIKRAM SINGH YADAV)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Jaipur
Dated:- 21/06/2017
Santosh*
vkns'k dh izfrfyfi vxzfs "kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- The ACIT, Circle-2, Jaipur
2. izR;FkhZ@ The Respondent- M/s Jaipur Thar Gramin Bank, Jaipur
3. vk;dj vk;qDr@ CIT-I, Jaipur
4. vk;dj vk;qDr¼vihy½@The CIT(A)-I, Jaipur
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur 24 ITA Nos. 801 to 803/JP/13 ACIT, Circle-2, Jaipur vs. Jaipur Thar Gramin Bank
6. xkMZ QkbZy@ Guard File (ITA No. 801 to 803/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar.25