Income Tax Appellate Tribunal - Rajkot
Rajkot Lodhikasahakari Kharid Vechan ... vs Deputy Commissioner Of Income Tax, ... on 30 September, 2024
आयकरअपील यअ धकरण,राजकोट यायपीठ,राजकोट।
IN THE INCOMETAXAPPELLATE TRIBUNAL, RAJKOT BENCH: RAJKOT BEFORE DR.ARJUN LAL SAINI, ACCOUNTANT MEMBER And SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./I.T.A. No.370/RJT/2023 - B y Revenue ( नधारणवष / Assessment Year :2020-21) & Cro ss Object io n No.01/RJT/2024 - By Assessee ( नधारणवष / Assessment Year :2020-21) Deput y Co mmissio ner o f बनाम/ Rajkot Inco me Tax Vs. Lodhik aSahakar iKhar idVechabn Cir cle-2(1), Rajko t Sang h Limit ed Sahkar, Go ndal Road Rajkot , Bes ide Bo mbay Pet ro l Pump, Rajkot -360 001 थायीले खासं . /जीआइआरसं . / PAN/ GIR No . : AAAAR 0531 J (अपीलाथ /Appellant) .. ( यथ / Respondent& Cross Objector) Assesseeby : Ms. A.D. Vyas, AR Revenueby: Shri Shramdeep Sinha, CIT-DR सन ु वाईक!तार ख/ Da t e of He a r i n g 30/09/2024 घोषणाक!तार ख /Da t e of P r on ou n c e me n t 30/09/2024 आदे श / O R D E R PER DINESH MONHAN SINHA, JUDICIALMEMBER :
Captioned Appeal and Cross Objection filed by the Revenue and Assessee respectively are directed against the order dated 06/09/2023 passed by the Ld. Commissioner of Income Tax (Appeals) - National Faceless Appeal Centre (NFAC), Delhi [in short 'the Ld.CIT(A)'] for Assessment Year (A.Y.) 2020-21.
2. The Assessee is a Co-operative Society and engaged in the business of supply of fertilizer, seeds, equipment etc. to its members. It is also engaged in ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -2- running oil mill and refinery and trading in edible oil. It is also engaged in renting godowns and oils tanks for storage of agriculture produces. The Assessee is also earning interest income and dividend income from their investments with Rajkot District Co- op Bank Ltd. The assessee has e-filed its return of income for the A.Y. 2020-21on 14.10.2020 declaring a total income of Rs.NIL. The Assessment took place under Section 143(3) of the Income Tax Act, 1961 (in short 'the Act) on 06.09.2022 by making an addition of Rs.14,28,90,412/- with the following observations:
Sl.No. Description Amount (in INR)
1. Income as per Return of Income filed NIL
2. Income as computed u/s.143(1)(a) NIL
3. Variation in respect of issue of -R- Rs.6,94,69,140/-
Deduction claimed u/s.80P(2)(d) for interest
income is disallowed.
4. Variation in respect of issue of -U- Deduction Rs.7,34,21,272/-
claimed u/s.80P(2)(d) for Dividend income is disallowed.
5. Total Income/Loss determined as per the Rs.14,28,90,412/-
above proposal 2.1. No exemption has been granted u/s.80P(2)(d) of the (hereinafter referred to as 'the Act') on Interest income and Dividend income. With a view in the case of Totgars Co-operative Sale Society Ltd. vs. ITO, wherein it was held on the facts and circumstances of the case that such interest and dividend income falls under the category of 'other income', which has been rightly been taxed by the Department under Section 56 of the Act.
3. Being aggrieved by the order of the Ld. AO, the assessee filed an appeal before the Ld.CIT(A). The CIT(A) while deciding the case vide order dated 06.09.2023, allowed the appeal of the assessee and granted benefit of section 80P(2)(d) of the Act and the interest income and the dividend income ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -3- mentioned by the Society was granted exemption. The Ld. CIT(A) observed that:
"6.2 Respectfully following the above decision of Hon'ble ITAT, Rajkot and Hon'ble Gujarat High Court, the appellant society is eligible for deduction u/s 80P(2)(a)(1) on the interest income and dividend income earned from Co-op Bank. Therefore, the grounds of appeal Nos. 1 & 2 filed by the appellant are allowed.
7. In ground of appeal No. 3, the appellant stated that the A.O. erred in Initiating penalty proceedings u/s 270A of The Income Tax Act. Since the penalty proceedings are separate proceedings, it is to be adjudicated separately. Hence, this ground of appeal is not adjudicated here."
4. Aggrieved with the order of Ld.CIT(A), now the Revenue is in appeal before us on 30.10.2023.
5. The Revenue has taken following grounds of appeal:
"a) Whether on the facts and circumstances of the case and in law the Ld CIT(A) was correct in allowing deduction w/s.80P(2)(d) of the Income Tax Act in respect of interest and dividend earned from deposits investment as cooperative bank ignoring that whether the deposits and investment of surplus funds of assessee not immediately required for its purposes made with co-operative Banks does not make a difference as far as the character of the income earned by assessee is concerned and thus it does not partake the character of its operational income from its activity as cooperative society but such interest income falls in the category of Other Income which needs to be taxed u/s. 56 of Income Tax Act and therefore the provision of 80P not applicable on it.
b) Whether on the facts and circumstances of the case and in law, the CIT(A) was correct in allowing deduction us 80P(2)(d) of the Income Tax Act in respect of interest and dividend earned from deposits/investment in cooperative bank ignoring the harmonious interpretation coming out from conjoined reading of various relevant sections ie. 80P(2)(d), 194(3)(v) and 80P(4).
c) "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing deduction S0P(2) (d) of the Income Tax Act in respect of interest and dividend earned from deposits investment in cooperative bank ignoring the amendment made by Finance Act, 2015 in section 194(3)(v) of the Act which excludes the Cooperative Banks from the definition of "Co operative Society and requiring them to deduct income tax at source under Section 194A of the Act that also makes the legislative intent clear that the Co-operative Banks are not that specie of genus co-operative society, which are entitled to claim deduction under the special provisions of Chapter VIA in the form of Section 80P of the Act."ITA No.370/RJT/2023 (By Revenue)
DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -4-
d) "Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was correct in allowing deduction u/s.80P(2)(d) of the Income Tax Act in respect of interest and dividend earned from deposits/investment in cooperative bank ignoring the fact that words used in section 80P(4) are "in relation to" that can include within its ambit and scope even the interest income earned by the co-operative Society from a Co-operative Bank and will also be applicable to provision of section 80P(2)(d)."
e) It is prays the order of the AO, may be vacated and that of the Assessing Officer be restored.
f) The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary."
6. The Ld. DR has argued that the assessee is not entitled for deduction under Section 80P(2)(d) of the Act, because of the interest and dividend earned from Co- operative Bank. The Ld. DR has relied upon the Finance Act, 2006, which is reproduced below:
"22 Withdrawal of tax benefits available to certain co-operative banks 22.1 Section 80P, inter alia provides for a deduction from the total income of the Co- operative societies engaged in the business of banking or providing credit facilities to its members, or business of a cottage industry, or of marketing of agricultural produce of its members, or processing, without the aid of power, of the agricultural produce of as members, etc. 22.2 The co-operative banks are functioning at par with other commercial banks, which do not enjoy any tax benefit. Therefore, section XOP has been amended and a new sub-section (4) has been inserted to provide that the provisions of the said 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 hank. The expressions "co-operative bank", "primary agricultural credit society" and "primary co- operative agricultural and rural development bank" have also been defined to lend clarity to them.
22.3 Further, a new sub-clause (vii) has been inserted in clause (24) of section 2 to provide that the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members shall be included in the definition of 'income'.
22.4 Applicability-From assessment year 2007-08 onwards."
7. On the contrary, Ld. AR submitted that the order of Ld. CIT(A) is correct in granting the exemption under Section 80P(2)(d) of the Act. The Ld.AR has ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -5- submitted the certificate of registration issued by the Joint Registrar, Co- operative Societies on 24.02.1960 enclosed. The Ld.AR has relied upon the judgment in the case of Rajkot Jilla Co-Op Cotton Marketing Union Ltd. vs. ITO in ITA No. 04/Rjt/ 2020, order dated 13.12.2022, ACIT vs. The Sardar Patel Co-op. Credit Society in ITA No. 1404/Ahd/2019, order dated 20.05.2022 & Rajkot Jilla SahakariKharidVechan Sangh Limited vs. PCIT in ITA No. 49/Rjt/2022, order dated 09.08.2023.
8. We have heard both the parties and perused the material available on record as well as the decisions relied upon by the Ld.DR. We note that the Co-ordinate Bench of this Tribunal has dealt with this issue in the case of Avadh Nagarik Sahkari Mandli Ltd., wherein the Tribunal in ITA No.126/RJT/2023 vide order dated 31/07/2024 dealt with the issue of section 80P(2)(d), whereby exemption was granted and interest income and dividend income earned from deposits/investments in Co- operative Bank. The Co-ordinate Bench has almost dealt with all issues and all the decisions related to the issue brought into the notice of the AO as well as during the course of argument and the same is reproduced hereunder for the sake of brevity.
"Findings of Learned Principal Commissioner of Income Tax:
5. However, Ld. PCIT rejected the contention of the assessee and noted that as per the relevant provisions of Section 80P(2)(d) of the Act, the assessee society is not eligible to claim the deduction, in respect of interest income received from Co-
operative banks, on account of fixed deposit made by the assessee with the said bank. Ld. PCIT then referred the provisions of section 80P(2)(d), of the Act, which reads as follows:
"80P.(1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assessee.ITA No.370/RJT/2023 (By Revenue)
DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -6- (2) The sums referred to in sub-section (1) shall be the following,namely :
(a) in the case of a co-operative society engaged in--
(i) carrying on the business of banking or providing creditfacilities to its members, or (ii) a cottage industry, or [(iii) the marketing of agricultural produce grown by its members,or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the agriculturalproduce of its members, or
(vi) the collective disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members,the whole of the amount of profits and gains of business attributable to any one or more of such activities:
......................
(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income"
Therefore, the Ld. PCIT observed that the provisions of Income Tax Act does not extend the deduction u/s 80P(2)(d) of the Act, to the interest income, earned from the investments, made with co-operative banks. From the plain reading of the above provision, it is clear that the section refers to interest and dividends, earned from investments in another cooperative society only. Thus, this deduction cannot be extended to the interest income and dividend income earned from the investment in any co-operative bank. Further, the conditions or restrictions contemplated by one statute having a different object and purpose should not be lightly and mechanically imported and applied to a fiscal statute for non-levy of taxes, thereby causing a loss of revenue. [See; Medley Pharmaceuticals Limited vs. Commissioner of Central Excise and Customs, Daman - (2011) 2SCC 601 2011(SC) and Commissioner of Central Excise, Nagpur vs. Shree Baidyanath Ayurved Bhavan Limited,2009 (237) ELT 225 (SC).It is pertinent to note here that vide Finance Act, 2006, deduction from income of Co-operative banks as per the provision of section 80P of the Act, has been withdrawn by way of insertion of section 80P(4) of the Act w.e.f. 01.04.2007 by way of differentiating a cooperative bank in "comparison to co-operative society". The co- operative banks are functioning at par with the other commercial banks, which do not enjoy any tax benefit. Therefore, section 80P of the Income tax Act was amended by inserting a new sub -section (4) so as to provide that the provisions of the said section shall not apply in relation to any co-operative bank other than a primary agricultural credit Society or aprimary cooperative agricultural and rural development bank. The legislative intent of distinguishing the Co-operative banks from the Co-operative societies is veryclear from the below part of speech given by the then Union minister of Finance Shri P. Chidambaram on28-02-2006 presenting the budget and proposing the said amendment;
"XIV Tax Proposals- direct Taxes
166. Co-operative banks, like any other bank are lending institutions and should pay tax on their profits."
Further, the PCIT noted that the exemption and the deduction clauses of the Act, cannot be interpreted liberally. The Hon'ble Apex Court rendered in the case of ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -7- Union of India v. Wood Papers Ltd (AIR 1991 SC 2049) and Hon'ble Andhra Pradesh High Court in the case of CIT v. Anakapalli Cooperative Marketing Society Ltd., [(2000) 245 ITR 616 (AP)], has held that the provisions relating to concessions are ordinarily expected to be rigidly interpreted.Theld PCIT also noted that very basis of functioning of any co-operative society would be the principle of mutuality. However, cooperative banks do not work on the principle of mutuality, hence, the deduction should not be allowed in case of interest earned from cooperative banks by the co-operative society (assessee).
6. The Ld. PCIT heavily relied on the judgement of the jurisdictional Hon`ble Gujarat High Court, in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd. Vs. ACIT,140 taxmann.com 602 (Gujarat), where in the Hon`ble Court, upheld the opinion of the assessing officer that the interest derived from surplus funds, invested by assessee, in nature of FDRs, in Co-operative Banks, other thanCo-operative Societies, will certainly not fall in the category to be entitled to claim deductions under section 80P(2)(i) and section 80P(2) (d) of the Act.Theld.PCIT observed that Hon'ble Gujarat High court has upheld the validity of reassessment notice issued u/s 148 of the Act and while upholding such notice, it has in principle held that interest income earned on Bank FDRs with Co-operative Bank is not eligible for deduction u/s 80P(2)(d) of the Act.Hon'ble Jurisdictional Gujarat High Court has further held that 'This Court further finds that by virtue of amendment in section 194A(3)(v) of the Income-tax Act, it has also excluded the co- operative banks from the definition of "co-operative society" by the Finance Act, 2015.'Therefore, the intention of legislation is clear that income from Co-operative banks which are co-operative societies who must possess a license from the RBI to do banking business is excluded from benefits of Section 80P.
7. The PCIT also noted that copy of old decisions of Hon`ble Gujarat High Court, filed by the Assessee, has been considered by the subsequent decision of Hon'ble Jurisdictional Gujarat High Court in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd. vs. Assistant Commissioner of Income-tax, [2022] 140 taxmann.com602, hence old decisions referred by assessee were not accepted by ld PCIT. Thus, Ld. PCIT noted that decision of Hon'ble Gujarat High court, in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd (supra) is direct on issue and this is later decision of Jurisdictional High Court, which clearly explains the provisions of Section 80P(2)(d) of the Act. The olddecisions relied upon by assessee, has not dealt with theratio laid down by Hon'ble High Court,in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd (supra), hence ratio of such decisions cannot be made applicable.
8. The Ld. PCIT further noted that with effect from 01/06/2015, Explanation - 2 to the section 263(1) has been inserted by which scope of section 263 of the Act has been expanded by incorporating the concept of "deemed to be erroneous". The same is reproduced as under:
Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner,
-ITA No.370/RJT/2023 (By Revenue)
DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -8-
(a) The order is passed without making inquiries or verification which should have been made;
(b) The order is passed allowing any relief without inquiring into the claim;
(c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.
The Ld. PCIT noted that the impugned order of assessing officer, under consideration, has not been passed in accordance with the decision, which is prejudicial to the assessee, rendered by the jurisdictional High Court in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd (supra). Thus, the argument that the assessing officer(AO) collected details/information during assessment proceedings, does not hold good any more. Once in the opinion of PCIT, the order is passed without making inquiries or verification which should have been done, is not done by assessing officer, and without considering the ratio laid down by the decision of Jurisdictional High Court, such order needs to be treated as 'erroneous'. The ld. PCT noted that it is apparent from assessment order that assessing officer(AO) has not applied his mind regarding claim of assessee for deduction u/s 80P(2)(d). Therefore, ld PCIT was of the opinion that the impugned order was passed by the then AO without making enquiries/ verification, which should have been made. Thus, assessee`s case is covered by clause (a) of Explanation 2 to section 263 of the Act. Further, Ld. PCIT relied on the judgement of the Hon'ble Supreme Court, in the case ofACIT v. Saurashtra Kutch Stock Exchange Ltd., in Civil Appeal No. 1171 of 2004 dated15.09.2008, held as under:
"A patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record and can be corrected while exercising certiorari jurisdiction; non-consideration of a decision of the Jurisdictional High Court or of the Supreme Court can be said to be a "mistake apparent from the record" which can be rectified under section 254(2)"
Therefore, ld. PCIT observed that non-consideration of a decision of the jurisdiction Gujarat High Court in the case of Katlary Kariyana Merchant SahkariSarafiMandali Ltd. vs. Assistant Commissioner of Income-tax, [2022] 140 taxmann.com 602 (Gujarat)wherein it had upheld the opinion of the Assessing Officer that theinterest derived from surplus funds invested by assessee in nature of FDRs in Co-operative Banks and Nationalized Bank, other than Co-operative Societies, will certainly not fall in category to be entitled to claim deductions under section 80P(2)(a)(i) and section 80P(2)(d) of the Act and thus have escaped assessment and will constitute Mistake apparent from record,rectifiable under section 254(2), as per the Hon'ble Supreme Court decision cited (supra), therefore, in the assessee`s case under consideration, the order passed by the assessing officer, will certainly erroneous and prejudicial to the interest of the revenue.The Ld. PCIT had held that the assessment order passed by the Assessing Officer u/s 143(3) of the Act, ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21 -9- dated 19.01.2021, is erroneous and prejudicial to the interest of the Revenue. Therefore, ld PCIT set aside the order u/s 143(3) of the Act, dated 19.01.2021, on the issues discussed above and directed the Assessing Officer to pass a fresh assessment order after denying deduction u/s 80P(2)(d), on Fixed Deposit interest income earned of Rs.16,52,694/- from Co-operative bank 'Amreli Jilla MadhyasthSahakari Bank'. It was further observed by ld PCIT that the assessee-society has claimed total deduction of interest income to the tune of Rs.18,41,436/- u/s 80P(2)(d) of the Act, therefore, the Assessing Officer was also directed to examine the balance interest income (Rs.18,41,436 - 16,52,694) claimed u/s 80P(2)(d) and if the same is from Co- operative Bank then disallow the same u/s 80P(2)(d) of the Act and the assessee has also claimed dividend income u/s 80P(2)(d) of the Act andif the dividend income is earned from Co-operative Bank, the Assessing Officer is directed to disallow the same as the assessee is not eligible for deduction u/s 80P(2)(d) of the Act. Therefore, ld. PCIT directed the assessing officer to examine interest from Co-operative bank of Rs.18,41,436/-, and dividend income from Co-operative Bank Rs.52,350/-.
9. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us.
Arguments of Learned Counsel for the assessee:
10. Shri D. M. Rindani, Learned Counsel for the assessee argued that Ld. PCIT has exercised his jurisdiction to examine the interest income received from Co- operative Bank, which is eligible deduction under section 80P(2)(d) of the Act. The Ld. PCIT exercised the jurisdiction in respect of the interest received from fixed deposits to the tune of Rs.16,52,694/- shown in the profit and loss account for the year ended 31.03.2013, in the income side and thereafter, the assessee derived the net profit to the tune of Rs.21,33,352.37/- vide paper book page no.28. The Ld. PCIT was of the view that interest received from fixed deposits to the tune of Rs.16,52,694/- is not eligible for deduction under section 80P(2)(d) of the Act. Therefore, Ld. Counsel for the assessee stated that since the assessee has never claimed deduction under section 80P(2)(d) of the Act, the assessee has merely shown the interest received from fixed deposits in its profit and loss account. No doubt, the assessee has received interest to the tune of Rs.16,52,694/- from Co-operative Bank and has offered for taxation and shown in the profit and loss account in the income side and thereafter computed the net profit for the year ending 31.03.2018, hence the item which was not the subject matter of examination by the Assessing Officer, in the scrutiny assessment under section 143(3) of the Act, should not be subject matter of revision proceedings under section 263 of the Act.
11. The Ld. Counsel submitted that during the assessment proceedings, the Assessing Officer issued notice under section 142(1) of the Act, dated 16.11.2020, which is placed in paper book page no.15, wherein the Assessing Officer especially asked the assessee on eligibility criteria of deduction claimed under section 80P(2)(d) of the Act. In response to the said notice of the Assessing Officer, the assessee has submitted the reply before the Assessing Officer, (vide reply dated ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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01.12.2020, of the assessee on page no.17 of paper book). The assessee stated in its reply that it has received interest income on fixed deposits/ or on investments from Co-operativebankthe tune of Rs.18,41,436/-, and dividend income of Rs.52,350/-, (vide paper book page no.19).
12. The Ld. Counsel contended that although the assessee has not claimed the deduction under section 80P(2)(d) of the Act, to the tune of Rs.16,52,694/-, however the Assessing Officer during the assessment proceeding was aware about this figure and the assessee has submitted before the Assessing Officer that it has received interest on investment/Fixed Deposits of Rs.16,52,694/-, therefore the interest income to the tune of Rs.16,52,694/- was in the knowledge of the Assessing Officer, however, the Assessing Officer took the plausible view considering the fact that since the assessee has shown the said interest on fixed deposits in its profit and loss account for the year ended 31.03.2018, as income received from fixed deposits from Co- operative bank and computed the net profit to the tune of Rs.32,76,731/-, therefore the interest received from fixed deposits from Co-operative bank to the tune of Rs.16,52,694/- was included in the net profit arrived by the Assessing Officer. Therefore, order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of the Revenue. The Ld. Counsel stated that assessee has claimed the deduction under section 80P(2)(a)(i) on account of banking/credit facilities to its members to the tune of Rs.24,42,937/- and which has been shown in the return of income also, and in this connection, the assessee submitted its reply before the assessing officer also.
13. On legal aspect of deduction under section 80P(2)(d) of the Act, the ld. Counsel relied on several judgments which were submitted before the Bench by way of case law compilations which we have gone through. The ld Counsel submitted that Hon`ble Gujarat High Court in the case of KatlaryKarayana Merchant SahkariSarafiMandali Ltd, 140 Taxmann.com 602 (Guj)held that interest from co- operative banks and other banks are not eligible for deduction u/s 80P(2) (d) of the Act. However, this decision is distinguished and is not followed by Rajkot Bench of ITAT in Kutch District Co-op. Milk Producers' Union Ltd., (2024) 159 taxmann.com.This decision refers to a specific definition meant for section 194A only; andit is in a different context of section 147 of the Act and hence not a binding precedent. The ld Counsel pointed out that following decisions of Hon`ble Gujarat High Court, favor the assessee, viz:(i) Sabarkantha District Cooperative Milk Producers Union Ltd. in Tax Appeal No. 473 of 2014 dated 16-06-2014 - (Guj - HC) and (ii) Surat VankarSahakari Sangh Ltd., 421 ITR 134 -(Guj - HC). The ld Counsel further stated that assessing officer(A.O) based on his, scrutiny, adopted a particular view and applied the law to facts of the case; and ld PCIT taking a different view by interpreting the same set of facts, differently, is not permissible u/s 263 of the Act. The reliance was placed by ld Counsel on the following decisions, viz:
(i)Shreeji Prints (P.) Ltd. (2021) 130 taxmann.com 294 (SC) - Page 41-45,(ii)Kutch District Co-op. Milk Producers' Union Ltd. (2024) 159 taxmann.com 347 (Rajkot Trib),(iii)Kansara Popatlal Tribhuvan Metal (P.) Ltd., (2023) 156 taxmann.com ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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433 (Guj - HC).Thus, ld Counsel contended that as majority of decisions are favoring to the assessee and the decision in the case of Katlary Kariyana (supra) is distinguishable on facts, and hence the majority decisions of Jurisdictional High Court should be followed and preferred, at least, until and unless earlier decisions are overruled by a larger Bench, which is not so at present. The ld Counsel also relied on the judgment of Hon`ble Supreme Court in the case of Vegetable Products (1973) 88ITR 192 (SC) wherein it was held even if two views are possible, the one that favours the assessee should be adopted. Therefore, ld. Counsel stated that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of revenue hence, order passed by the ld PCIT under section 263 of the Act may be quashed.
Arguments of Learned Departmental Representative
14. On the other hand, Learned Commissioner of Income Tax - Departmental Representative (Ld. CIT-DR) for the Revenue vehemently argued that just to call the details from the assessee by way of issuing notice under section 142(1) of the Act and to consider the reply of the assessee by assessing officer, in respect of the details called by the assessing officer, is not sufficient. Considering the facts of the case, the assessing officer cannot take a plausible view, especially, when there is a judgement of Hon`ble Gujarat High Court in the case of KatlaryKarayana Merchant SahkariSarafiMandali Ltd, 140 Taxmann.com 602 (Guj) wherein it was held that interest from co-operative banks and other banks are not eligible for deduction u/s 80P(2) (d) of the Act. Therefore, Ld DR stated that order passed by the assessing officer is not sustainable in the eye of law. Hence, the Ld PCIT has rightly exercised his jurisdiction, as per clause (d) of explanation-2 of section 263 of the Act. Therefore,order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of Revenue, as the Assessing Officer has not conducted any enquiry in respect of the interest income shown by the assessee in its profit and loss account, on account of interest received from fixed deposits from co-operative bank to the tune of Rs.18,41,436/- (this figure includes Rs.16,52,694/-, as mentioned by the ld PCIT in his order). The Assessing Officer ought to have conducted an enquiry in respect of interest received from fixed deposits from co-operative bank, which was shown in the profit and loss account of the assessee, for the year ended 31.03.2018, vide assessee's paper book page no.28 and later on, in the computation of total income, the assessee has reduced Rs.18,41,436/- from the head profits and gains from business and profession, and then same has been shown by the assessee under the head income from other sources, to the tune of Rs.18,41,436/- vide assessee`s paper book page number 25.The deduction under section 80P is not allowed in respect of income shown under the head income from other sources. The assessing officer did not consider the judgment of Hon`ble Gujarat High Court in the case of KatlaryKarayana Merchant SahkariSarafiMandali Ltd,140 Taxmann.com 602 (Guj)wherein it was held that interest from co-operative banks and other banks are not eligible for deduction u/s 80P(2) (d) of the Act. Therefore, the Ld PCIT has rightly exercised his jurisdiction, as per clause (d) of explanation-2 of section 263 of the Act.
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15. Therefore, Ld. CIT-DR contended that the deduction under section 80P(2)(d) of the Act is not allowable, on account of interest received from fixed deposits from co-operative bank, and therefore, view taken by the assessing officer is not legally sustainable in the eye of law. The Ld. DR for the Revenue heavily relied on the judgement of Hon`ble Gujarat High Court in the case of Katlary Kariyana (2022) 215 DTR 0125 (Guj), and also relied on the order of the Coordinate Bench of ITAT- Rajkot in the case of Lodhika Seva SahkariMandali, vide ITA No.184/RJT/2022, order dated 05.04.2024 and stated that deduction under section 80P(2) (d) of the Act is not available in respect of interest income received from fixed deposit from a cooperative bank, therefore order passed by the assessing officer is erroneous as well as prejudicial to the interest of the Revenue. The ld DR also relied on the following judgments:
(i) Hon. HC of Mumbai in CIT vs Thana Electricity Supply ltd. (1994) 206 ITR 727 (Bom.)
(ii) ACIT, Rajkot vs. Saurashtra Kutch Stock Exchange Ltd. Dated 15/09/2008 (2008) 173 Taxman 322 (SC)
(iii) Hon. SC in MavilayiSevice Cooperative Bank ltd. V CIT [2021] 123 taxmann.com 161 (SC)/[2021] 279 Taxman 75 (SC).
(iv) PRINCIPAL COMMISSIONER OF INCOME TAXAND ANOTHER vs. TOTAGARS CO-OPERATIVE SALE SOCIETY, (2017) 99 CCH 0126 Kar HC(2017).
(v)Secunderabad Club vs CIT in CIVL APPEAL NO(S). 5195- 5201 OF 2012, order Dated 17/08/2023(2023) 117 CCH 0114 ISCC, (2023).
16. The Ld. CIT-DR also pointed out that Hon'ble High Court of Bombay in the case of CIT vs. Thane Electricity Supply Ltd., (1994) 206 ITR 727 (Bom.) has explained the judicial discipline, that judgment of Jurisdictional High Court should be given importance and it should be followed. Therefore, by following the judgement of Jurisdictional Hon`ble Gujarat High Court in the case of Katlary Kariyana (Supra), the order passed by the Ld.PCIT under section 263 of the Act, may be upheld.
17. Learned Commissioner of Income Tax - Departmental Representative (Ld. CIT-DR) for the Revenue further stated that order passed by the Assessing Officer is erroneous as well as prejudicial to the interest of Revenue,as the Assessing Officer has not conducted any enquiry in respect of the interest income shown by the assessee, in its profit and loss account, on account of interest received from fixed deposits, from co-operative bank to the tune of Rs.16,52,694/-. The Assessing Officer ought to have conducted an enquiry in respect of interest received from fixed deposits from co-operative bank, which was shown in the profit and loss account of the assessee for the year ended 31.03.2018, vide assessee's paper book page no.28. However, the Assessing Officer has issued notice under section 142(1) of the Act to ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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conduct enquiry in respect of interest received from fixed deposits of Rs.16,52,694/- (Rs.18,41,436 shown in profit and loss account) which is not allowed under section 80P(2)(d) of the Act, as this claim of the assessee is not sustainable in the eye, law.
18. The Ld. CIT-DR for the Revenue heavily relied on the latest judgment of the jurisdictional High Court of Gujarat in the case of Katlary Kariyana, (2022) 327 CTR 0138 (Guj.),whereinthe Hon'ble Gujarat High Court clearly stated that assessee is not eligible for deduction under section 80P(2)(d) of the Act in respect of interest received from co-operative bank. Thereafter, Ld. CIT-DR for the Revenue heavily relied on the judgment of the Co-ordinate Bench of ITAT, Rajkot in the case of Lodhika Seva SahakariMandali vs. PCIT, in ITA No.184/Rjt/2022 for AY.2017- 18, order dated 05.04.2024 and stated that the jurisdictional Co-ordinate Bench of Rajkot in the above case has considered the judgement of Hon`able Gujarat High Court in the case of Katlary Kariyana (supra),140 taxmann.com 602 (Guj.). Therefore, Ld. CIT-DR contended that the issue is squarely covered in favour of Revenue by the judgment of jurisdictional High Court of Gujarat in the case of Katlery Kariyana (supra) and by the decision of jurisdictional ITAT, Rajkot in the case of Lodhika Seva Sahakari Mandli (supra).
19. The ld. DR for the revenue, again reiterated the argument advanced by him and stated that it is important to note that Hon`ble Gujarat High Court in the case of Katlary Kariyana (supra), has approved the decision of Hon`ble Karnataka High Court in the case of Totagars (supra) by clearly stating that "co-operative Banks are not species of Genus Cooperative Society." Though the issue has not yet travelled to Hon`ble Supreme Court, as far as GujaratHigh Court judgment is concerned, however, the issue is settled by the decision of Hon`ble Gujarat High Courtin the case of Katlary Kariyana (supra). Thus, the Tribunal is bound by the decision of Hon`ble Gujarat High Court, as the principal question is same, as stated in para 2.4 of the decision in KatlaryKariyana (supra), which is repeated for ready reference, as follows:
"as regards the deduction claimed by the assessee society in terms of provisions of Section 80P(2)(d) of the Income Tax Act, as not admissible being interest received on FDR's from the cooperative banks and nationalized banks."
Therefore, ld DR contended that the view of the Hon`ble High Court has been followed by ld. PCIT. However, the ITAT, Rajkot Bench in the case of Kutch District Co-operative Milk Producers Union Ltd, vide ITA No.176/Rjt/2022 has taken the contrary view, which is not correct; the said incorrect view of the Tribunal is reproduced below:
"....the Assessing Officer had taken a view which is a legally plausible view and it is a well settled law that 263 proceedings cannot be resorted to by the PCIT only with a view to supplant his own view with the view taken by Assessing Officer." (Para 3, page 11 of Kutch District Co-operative Milk Producer's Union Ltd. Vs PCIT)"
Thus, Ld. CIT-DR argued that above order of ITAT, Rajkotis in violation of judicial discipline. In this regard, learned DR for the revenue, relied on the decision of Hon`ble High Court of Mumbai in the case of CIT vs Thana Electricity Supply Ltd, ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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(1994) 206 ITR 727 (Bom.). Therefore, Ld. DRargued that Tribunal may consider it`s decision in Kutch District Co-op Milk producers Union Ltd; ITA No. 176/Rjt/2022,is erroneous u/s 254(2) of the Act, in accordance with the decision of Hon`ble Supreme Court in the case of ACIT, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd, dated 15/09/2008, (2008) 173 Taxman 322 (SC), wherein amongst others, it was held that non-adherence to orders of Jurisdictional High Court and Supreme Court is a mistake apparent on record.
20. The ld DR also invited our attention towards the decision of Rajkot Tribunal Bench, in the case of Rajkot Jilla SahakariKharidVechan Sangh, in ITA Nos. 49/Rjt/2022, order dated 09.08.2023, and stated that Tribunal has reached its conclusions with respect to the decision of Hon`ble Gujarat High Court in case of State bank of India Vs. CIT (2016) 389 ITR 578 (Guj), but has not taken into consideration the decision of Katlary Kariyana (supra)issued before the date of passing this order, thereby rendering the decision sub-silentio and hence per- incurium. The ld. DR pointed out that in the judgment in case of Katlary Kariyana (supra), the Hon`ble High Court of Gujarat has discussed and distinguished the decision in case of State bank of India (supra), vis -a -vis amendment in the Income Tax Act, 1961. Thus, this decision of Tribunal in the case of Rajkot Jilla SahakariKharidVechan Sangh(supra), contains a 'mistake apparent on record'.Theld.CIT-DR further pointed out that in this decision, the Tribunal referred the decision in the case of Surat VankarSahakari Sangh Ltd. (supra)which deals with assessment years(AY) 1991-92 to 1994, and this judgment does not deal with the reasoning adopted by Hon`ble Gujarat High Court in post amendments brought by Finance Act, 2015, in the binding decision of Katlary Kariyana (2022), on section 80(P)(2)(d) of the Act. The earlier decision referred by the Tribunal in the case of Rajkot Jilla SahakariKharidVechan Sangh (supra) was the decision of the Tribunal in Surendranagar District Co-operative Society, 111taxmann.com 69 (Rajkot-Trib),in which incorrect ratio was laid down by the Tribunal. The correct ratio is mentioned in the latest judgment of Hon'ble Gujarat High Courtin the case of Katlary Kariyana (supra), wherein it was held that Co-operative Banks are no more the species of genus Cooperative Society. Thus, this decision of Ld. ITAT in the case of Rajkot Jilla SahakariKharidVechan Sangh (supra), is a 'mistake apparent on record' in terms of ruling of Hon`ble Supreme Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Limited (supra).
21. The ld. DR also relied on the obiter dictumof Hon`ble Supreme Court in the case of ACIT vs Saurashtra Kutch Stock Exchange Limited (supra), which is reproduced below:
"42. In our judgment, it is also well-settled that a judicial decision acts retrospectively. According to Blackstonian theory, it is not the function of the Court to pronounce a 'new rule' but to maintain and expound the 'old one'. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the Court operated for quite some time, the decision rendered ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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later on would have retrospective effect clarifying the legal position which was earlier not correctly understood."
22. The ld. CIT-DR therefore, contended that fundamental principles of judicial discipline may be considered by this Tribunal and appeal of the assessee may be dismissed while upholding the order of Ld. PCIT u/s 263 of the Act. The Ld. CIT-DR relied on the decision of Katlary Kariyana(supra), which may be considered by this Tribunal and deduction under section 80P(2)(d)may not be allowed in respect of interest received/ dividend received from the Co-operative banks, hence Ld. CIT-DR contended that the order passed by the learned PCIT, under section 263 of the Act, dated 10th March 2023, is correct, which may be upheld.
"Analysis and Conclusion
23. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. We note that during the assessment proceedings, the Assessing Officer issued notice under section 142(1) of the Act, dated 16.01.2020, which is placed at paper book page no.15, wherein the Assessing Officer has especially asked the assessee, to furnish eligibility criteria of deduction claimed in different sections of Chapter VI-A, especially under section 80P(2)(a)(i) and under section 80P(2)(d) of the Act. The assessing officer, has also asked the assessee to furnish the documentary evidence in support of its claim of deduction under Chapter VI-A. In response to the said notice under section 142(1) of the Act, the assessee has submitted its reply, dated 01.12.2020 (vide paper book page nos. 17 to 21),before the Assessing Officer, the relevant part of the assessee`s reply dated ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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01.12.2020, is reproduced below:
ITA No.370/RJT/2023 (By Revenue)DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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From the above computation of total income and explanation of the total income submitted by the assessee, before the assessing officer, we find that assessee has shown, interest received from cooperative bank on fixed deposit, as income in profit and loss account, at Rs.18,41,436/-, (Vide assessee`s paper book page No.28), however the assessee has deducted, the said interest of fixed deposit of Rs.18,41,436/- , from its business income, in the computation of total income, (vide assessee`s computation of total income on page No. 25 of the assessee`s paper book),and the amount of Rs.18,41,436/- is show by the assessee, in the computation of total income, under the head income from other sources, and claimed the deduction u/s 80P(2)(d) of the Act, at Rs.18,41,436/-. The assessee has also shown, under the head income ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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from other sources, amount of Rs.52,350/-, as dividend received from Co-operative Bank and claimed the deduction u/s 80P(2)(d) of the Act.
24. During the course of hearing, ld Counsel for the assessee, clarified the Bench that assessee, by mistake, wrongly submitted, in the written submission, before the ld.
PCIT, as if, the assessee claimed deduction under section 80P(2) (a) (i) of the Act, in respect of amount ofRs.18,41,436/- and Rs.52,350/-, in fact, the assessee has claimed the deduction u/s 80P(2)(d) of the Act, amounting to Rs.18,41,436/- and amounting toRs.52,350/-, respectively, as stated above. Thus, we note that ld. PCIT has exercised his jurisdiction under section 263 of the Act, mainly on the amount of Rs.Rs.18,41,436/-and Rs.52,350/-, as narrated above, andld. PCIT directed the assessing officer to examine the dividend income, if the dividend income is earned by the assessee from Co-operative Bank. Therefore, ld. PCIT directed the assessing officer to disallow the interest and dividend income earned from Co-operative Bank, which, as per ld PCIT, are not eligible for deduction under section 80P(2)(d) of the Act.
25. We note that the assessee's case was selected for limited scrutiny to examine investments, advances, loans, unsecured loans, deduction from total income under Chapter VI-A of the Act. The findings of the Assessing Officer under section 143(3) of the Act,are reproduced below:
"1. The case was selected for Limited Scrutiny assessment under the E-assessment Scheme, 2019 on the following issues:
S. No. Issues
i. Investments/Advances/Loans
ii. Unsecured Loans
iii. Deduction from Total Income under Chapter VI-A
The assessee society has filed Return of Income for AY.2018-19 on 13.08.2018, vide acknowledgment no.108456181130818, reflecting Gross Total Income Rs.43,36,723/- and after claiming deduction u/s 80P(2) of the I.T. Act, 1961 Returned income is declared NIL. The same is processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter mentioned Act).
2. Notice u/s 143(2) of the Act issued on 22.09.2019 and thereafter notices u/s 142(1) of the Act along with questionnaire were issued.
3. In response to the notices issued, the assessee society has furnished all the relevant details called for. The same has been perused carefully and found to be in order.
4. In view of the above facts of the case and after considering the details furnished, the total income returned by the assessee is accepted."
26. From the above assessment order, it is vivid with that during the assessment proceedings, the assessing officer issued notice under section 142(1) of the Act, dated 16.11.2020, which is placed at assessee`s paper page No.15, and response to the said notice of 142(1) of the Act, the assessee submitted its reply, dated 01.12.2020, which is placed at paper book page No. 17 to 23. Therefore, no doubt, that during the assessment proceedings, the assessing officer called the details from the assessee to ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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examine the deduction claimed by the assessee, under section 80P(2)(a)(i) of the Act and under section 80P (2) (d) of the Act, hence, details has been called by the assessing officer during the assessment proceedings, and these details were examined by the assessing officer, pertaining to issue raised by the ld PCIT, relating to deduction under section80P (2) (d) of the Act, that is, the solitary issue raised by the ld PCIT, that interest received from Co-operative Banks are not allowed under section 80P(2)(d) of the Act. In this regard, the ld Counsel for the assessee submitted that since during the assessment proceedings, the assessing officer had examined the issue raised by the ld PCIT and has taken the plausible view, therefore, order passed by the assessing officer, is neither erroneous nor prejudicial to the interest of revenue, hence order passed by the ld PCIT, under section 263 of the Act, may be quashed.
27. However, we do not agree with the arguments advanced by the ld. Counsel for the assessee, to the effect that the assessing officer has examined the issue raised by the ld PCIT, by calling the details from the assessee, and has taken the plausible view. We note that just to call the details by issuing notice under section 142(1) of the Act and in response to that notice submission made by the assessee and assessing officer, having examined the details filed by the assessee, took the plausible view, is not sufficient. Over and above, such exercise narrated above, the order passed by the assessing officer, should be sustainable in the eye of law.
28. Hence, we have to examine, whether order passed by the assessing officer, in the assessee's case under consideration is sustainable in the eye law.Therefore, we find merit in the submissions of the ld. D.R. for the Revenue to the effect that by way of issuing notice u/s. 142(1) of the Act and reply of the assessee against the notice u/s 142(1) of the Act, and then examination by the assessing and taking the plausible view, is not sufficient. The ld. D.R. for the Revenue stated that in the assessee's case under consideration, assessing officer cannot take a plausible view specially when there is a judgement of Hon'ble Gujarat High Court in the case of Katlary Karyana Merchant Sahkari Sarafi Mandali Ltd. (2022) 140 taxmann.com 602 (Gujarat), wherein it was held that interest received from co-operative banks and other banks are not eligible for deduction u/s. 80P(2)(d) of the Act. The reason being, the assessing officer ignored the judgement of the jurisdictional High Court of Gujarat, in the case of Katlary Karyana (Supra). Therefore, ld. D.R. stated that the order passed by the assessing officer is not sustainable in the eyes of law and hence the ld. PCIT has rightly exercised his jurisdiction as per clause (d) of explanation 2 of section 263 of the Act. Therefore, as per ld. DR. for the Revenue the order passed by the assessing officer is erroneous as well as prejudicial to the interest of the Revenue. We note that arguments advanced by the ld. D.R. for the Revenue carries weight and he has rightly stated that order passed by the assessing officer is not sustainable in the eyes of law. We also agree that during the assessment proceedings just to call the details by issuing notice u/s. 142(1) of the Act and in response to that submission of the details by the assessee and then examining the same by assessing officer(AO) and having examined the same, assessing officer takes plausible view, is not sufficient.
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However, that plausible view should be sustainable in the eyes of law, as there is direct judgement on the issue under consideration by the jurisdictional High Court of Gujarat, in the case of Katlary Karyana (Supra).
29. In order to find the answer of the question that plausible view taken by the assessing officer (AO) should be sustainable in the eye of law, we have to take guidance from the judgement of the Hon`ble Supreme Court, and for that, let us take the guidance of judicial precedents laid down by the Hon'ble SupremeCourt in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the CIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is (i) if the Assessing Officer's order was passed on incorrect assumption of fact; or (ii) incorrect application of law; or (iii)Assessing Officer's order is in violation of the principle of natural justice; or (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him; then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to theinterest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue"unless the view taken by the Assessing Officer is unsustainable in law".
30. Taking note of the aforesaid dictum of law laid down by the Hon'ble Apex Court, let us examine the issue under consideration. We agree with the ld. D.R. for the Revenue that just to collect the details during the assessment proceedings by issuing notice 142(1) of the Act, and furnishing of the details by the assessee, in response to that notice, and then after examination of the issue by AO and then to take a plausible view, by assessing officer is not sufficient, as we have noted that Hon'ble Apex Court in the case of Malavar Industries Ltd. (supra) has clearly pointed out that the view taken by the assessing officer, should be sustainable in the eyes of law. Therefore, in these circumstances, we have to examine whether it was necessary for the assessing officer to accept the ratio laid down by the Hon'ble Jurisdictional High Court in the case of KatlaryKarayana (supra), wherein the Hon'ble Court has noted that interest from Co-operative banks and other banks are not eligible for deduction under section 80P(2)(d) of the Act. Since it is the judgement ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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of the Jurisdictional High court of Gujarat, therefore, assessing officer should not take a plausible view specially when there is a judgment of jurisdictional High Court.Therefore, we have to examine whether judgement of Hon'ble Jurisdictional Gujarat High Court in the case of KatlaryKarayana(supra),is applicable to the assessee's case under consideration or not.
31. We find that in section 80P(2)(d) of the Income Tax Act,1961, there is no special exclusion that interest received from co-operative bank is not eligible for deduction. We have noted that definition of "co-operative society" as mentioned in section 2(19) of the Income Tax Act, 1961 does not make any exclusion about co- operative bank. We note that in order to become a co-operative bank, the first condition is that it should be a co-operative society. Therefore, a co-operative society, later on decides to take license from the Reserve Bank of India to do banking business wherein the Co-operative society may lend the money and borrow the money, and for that purpose, the co-operative society has to take a license from the Reserve Bank of India and after taking license from the Reserve Bank of India said Co-operative society, becomes a co-operative bank also, which wasfirst a co- operative society. We also find that the decision rendered by the Hon'ble Jurisdictional High Court of Gujarat in the case of KatlaryKarayana (supra), is in the context of a specific definition mentioned in section 194A of the Act, therefore, the judgement delivered by the Jurisdictional High Court in the case of KatlaryKarayana (supra), is in a different context. Besides the judgement of Hon'ble High Court of Gujarat in the case of KatlaryKarayana(supra) is in the context of reopening of assessment u/s 147/148 of the Act wherein the Hon'ble Court has examined whether income has escaped assessment or not. Hence, this judgment is not binding precedent on the assessee where there are other direct judgments of the Hon'blejurisdictionalGujarat High Court on the 'issue' under consideration, which we are going to discuss in the subsequent paragraphs of this order.
32. We note that the Hon'ble Jurisdictional Gujarat High Court in the case of Sabarkantha District Co-operative Milk Producers Union Ltd. In Tax Appeal No.473 of 2014 dated 16-06-2014 (Guj HC) held that interest received from the co- operative bank is allowable as a deduction u/s.80P(2)(d) of the Act.We also find that there is another judgment of the Hon'ble Gujarat High Court in the case of Surat VankarSahakari Sangh Ltd. 421 ITR 134 (Guj HC) wherein the Hon'ble Gujarat High Court held that interest received from co-operative bank is allowable deduction u/s. 80P(2)(d) of the Act. Therefore, we find that the above judgments i.e. in case of Sabarkantha District Co-operative Milk Producers Union Ltd (supra) and in case of Surat VankarSahakari Sangh Ltd. (supra), the Hon'ble Jurisdictional High Court clearly held that interest received from Co-operative banks, are allowable as a deduction u/s. 80P(2)(d) of the Act. These two old judgments were not distinguished by the Hon'ble Jurisdictional High court in the case of KatlaryKarayana(supra) i.e. the Hon'ble Jurisdictional High Court of Gujarat did not overrule and did not distinguish and reject the earlier judgments delivered by it in case of Sabarkantha District Co-operative Milk Producers Union Ltd (supra) and Surat VankarSahakari Sangh Ltd. (supra), in the case of the latest judgement of Hon'ble Gujarat High Court in the case of KatlaryKarayana (supra). Therefore, the Hon'ble jurisdictional High ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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Court of Gujarat in the case of KatlaryKarayana (supra) has not overruled the ratio decided by it in the earlier judgments namely; (i)Sabarkantha District Co-operative Milk Producers Union Ltd (supra) and, (ii) Surat VankarSahakari Sangh Ltd. (supra). Therefore, ratio of these old judgments namely;(i) Sabarkantha District Co- operative Milk Producers Union Ltd (supra) and, (ii) Surat VankarSahakari Sangh Ltd. (supra) will still be applicable to the assessee under consideration as these judgements never distinguished and never overruled by constituting a larger Bench by the Hon'ble Jurisdictional Gujarat High Court.
33. We also find that the Hon'ble jurisdictional High Court in the case of State Bank of India v. CIT 2016 389 ITR 578 (Guj. HC) has also held that any income by way of interest derived by a Co-operative society from its investment with any other Co-operative bank would be deductible u/s. 80P(2)(d) of the Act.
34. We also find that Hon'ble Gujarat High Court has recently modified the judgement delivered by it in KatlaryKarayana (supra) on 26th April, 2024 by removing error in the judgment of KatlaryKarayana (supra). The ld DR for the Revenue, informed the Bench that Hon`ble High Court has only removed the word "co-operative" from the reproduction of reasons recorded by the assessing officer. Hence it does not impact on the ratio laid down by the Hon`ble Court. Learned Counsel for the assessee, has also argued before the Bench and submitted written submission that there is no material modification done by the Hon`ble Gujarat High Court in the case of KatlaryKarayana (supra).
35. Therefore, we find that the assessing officer has taken the plausible view which is sustainable in the eyes of law i.e. the view taken by the assessing officer is not against the judgment of the Jurisdictional High Court of Gujarat in the case of KatlaryKarayana(supra). Because, the assessing officer has taken the plausible view based on the old judgements of the jurisdictional, Hon`ble High Court of Gujarat, namely; (i) Sabarkantha District Co-operative Milk Producers Union Ltd (supra) and, (ii) Surat VankarSahakari Sangh Ltd. (supra) and the ratio of these old judgments namely; (i) Sabarkantha District Co-operative Milk Producers Union Ltd (supra) and, (ii) Surat VankarSahakari Sangh Ltd. (supra) would still be applicable to the assessee under consideration, as these judgements never distinguished and never overruled by constituting a larger Bench by the Hon'ble Jurisdictional Gujarat High Court.Hence, we find that the assessing officer has definitely taken a plausible view after examination of the issue under consideration which cannot be subject to revision by the ld. PCIT u/s. 263 of the Act because the view taken by the assessing officer is sustainable in law. Therefore, the argument advanced by the ld. D.R. for the Revenue, to the effect that assessing officer has failed to make compliance of the judgment of Hon'ble Jurisdictional High Court of Gujarat in the case of KatlaryKarayana(supra), is not acceptable, as the assessing officer, has taken the view which is sustainable in the eye of law, based on the old judgements of the jurisdictional High Court of Gujarat, which are direct judgements on the issue under consideration, hence, there is no violation of judicial discipline by the assessing officer.
36. Now, we have to deal other arguments of the ld. D.R. for the revenue one by one, are as follows:
ITA No.370/RJT/2023 (By Revenue)DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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(i) The ld. D.R. for the Revenue argued that recently the Jurisdictional Tribunal, Rajkot in the case of Lodhika Seva SahakariMandali vs. PCIT, in ITA No. 184/Rjt/2022 for assessment year 2017-18 vide order dated 5th April, 2014 wherein the Jurisdictional Co-ordinate Bench of Rajkot has considered the judgement of Hon'ble Gujarat High Court in the case of KatlaryKarayana (supra) and adjudicate the issue in favour of the assessee. In this context, we state that the decision of the Co-ordinate Bench of Rajkot in the case of Lodhika Seva SahakariMandali (supra), no doubt, it is against the assessee and in favour of the Revenue, however, we note that it is not a speaking order. We find that the Co-ordinate Bench, in Lodhika Seva SahakariMandali (supra) did not narrate the facts properly and the facts narrated in Lodhika Seva SahakariMandali (supra) are not similar to the facts as that of the assessee under consideration. We also find that in the decision of the Co-ordinate Bench in case of Lodhika Seva SahakariMandali (supra), there was no assistance from the A.R. of the assessee, as this order was heard by the Co-ordinate Bench ex parte and there is no representation by the A.R. of the assessee, therefore, the Bench was not informed about the correct ratio laid down by the Hon'ble Jurisdictional High Court of Gujarat in the case of KatlaryKarayana (supra). The adjudication was done by the Co-ordinate Bench, based on written submission of assessee. Therefore, the judgment of the Co-ordinate Bench in the case of Lodhika Seva SahakariMandali (supra) is distinguishable on these facts, hence we do not accept the ratio laid down in the said decision.
(ii) The second argument made by Ld. CIT-DR that one has to follow the judicial discipline and judgment of the Jurisdictional High Court should be given importance and it should be followed invariably, for that, the ld. D.R. for the Revenue relied on the judgment of Hon'ble Bombay High Court in the case of CIT vs. Thane Electricity Supply Ltd.(1994) 206 ITR 727. In this context, we state that assessing officer has thoroughly followed the judicial discipline, as we have explained above that the judgment of the Hon'ble Jurisdictional High Court of Gujarat in the case of KatlaryKarayana (supra) does not apply to the assessee under consideration and therefore the view taken by the assessing officer is plausible view and sustainable in law.Therefore, in fact, the assessing officer has followed the judicial discipline as mentioned in the judgement of Thane Electricity Supply Ltd. (supra), therefore, the plea raised by the ld. D.R. for the Revenue is hereby rejected.
(iii) The third argument advanced by Ld. CIT-DR for the Revenue is that assessing officer, no doubt, issued the notice u/s. 142(1) of the Act to conduct inquiry and assessee has submitted the reply in response to that notice, however, the assessing officer has not applied his mind that deduction u/s 80P(2)(d) of the Act is not available in respect of interest received from co-operative bank. In this context, we state that assessing officer after taking the details and evidences from the assessee, has examined thoroughly and taken a plausible view that deduction u/s. 80P(2)(d) of the Act is available to the assessee under consideration in view of the old decisions of the Hon'ble Gujarat High Court in the case of Sabarkantha District Co-operative Milk Producers Union Ltd (supra) and in the case of Surat VankarSahakari Sangh Ltd. (supra), as these judgments were not overruled by the Hon'ble Gujarat High ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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Court by constituting larger Bench and not distinguished in the latest judgment in the case of KatlaryKarayana(supra).
(iv) The fourth argument of Ld. CIT-DR is that Hon'ble Gujarat High Court in the case of KatlaryKarayana (supra) has followed the judgment of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd., 108 Taxman 282 (SC) which clearly states that co-operative banks are not species of genus of co-operative society. In this context, we note that the judgment of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd(supra) is in the context of where the assessee retained sale proceeds of members whose produce was marketed by it and since funds created by such retention were not required immediately for business purpose, it invested same in specified securities and earned interest thereon. Therefore, interest earned by assessee would come in category of 'Income from other sources' and taxable under section 56 of the Act and would not qualify for deduction as business income under section 80P(2)(a)(i) of the Act. Therefore, the above judgement, of Hon'ble Supreme Court in the case of Totgars Co-operative Sale Society Ltd (supra) does not relate to section 80P (2) (d) of the Act, rather it relates to section 80P(2)(a)(i) of the Act, hence, does not apply to the assessee under consideration.Therefore,we find that the above decision in the case of Totgars Co- operative Sale Society Ltd(supra) is in the context of Section 80P(2)(a)(i) of the Act and is distinguishable and has been distinguished by lower courts in many judgements which are reproduced below:
(a) Peroorkada Service Co-operative Bank Ltd. (2022) 442 ITR 141 (Kerala HC)
(b) Totagars Co-operative Sale Society (2017) 392 ITR 74 (Karnataka HC)
(c) Vavveru Co-operative Rural Bank Ltd. (2017) 88 taxmann.com 728 (Andhra Pradesh and Telangana HC)
(d) State Bank of India vs Commissioner of Income-tax (2016) 389 ITR 578 (Guj. HC);
(e) The Uttar Gujarat Uma Co-op. Credit Society Ltd. in ITA Nos. 1670, 1671/A/2018 dated 28-02-2019 (Ahmedabad Trib.)
(v) The fifth argument advanced by Ld. CIT-DR, is that the Co-ordinate Bench of ITAT, Rajkot, (Tribunal) has not considered the ratio of the Hon'ble jurisdictional High Court in the case of Katlery Karyana (supra), in the following recent judgments of ITAT, Rajkot, which are reproduced below:
(i) Kutch District Co-operative Milk Producers Union Ltd., 159 taxmann.com 347, order dated 29.01.2024
(ii) Rajkot Jilla SahakariKharidVechan Sangh Limited, in ITA No.49/Rjt/2022, order dated 09.208.2023
(iii) Shree Keshav Co-operative Credit Society Ltd., in ITA No.26/Rjt/2022, order dated 31.05.2022 The ld DR pointed out that in accordance with the decision of Hon`ble Supreme Court in the case of ACIT, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd, dated ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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15/09/2008, (2008) 173 Taxman 322 (SC), wherein amongst others, it was held that non-adherence to orders of Jurisdictional High Court and Supreme Court is a mistake apparent on record, therefore, the above orders of the jurisdictional Tribunal require rectification under section 254 (2) of the Act.In this regard, we find that the Co-ordinate Bench of Rajkot, in the above decisions, has clearly considered the oldjudgments rendered by the Hon'ble Jurisdictional, Gujarat High Court, namely,
(i) Surat Vandar Sahakari Sangh Ltd(Supra) and (ii) Sabarkantha District Co- operative Milk Producers' Union Ltd. (supra), these two old judgements, were not overruled and distinguished by the jurisdictional High Court of Gujarat, in the latest judgement of Hon`ble Gujarat High Court in the case of KatlaryKarayana(supra), therefore, ratio of these two old judgements are equally applicable to the assessee under consideration. Moreover, the latest judgement of Hon`ble Gujarat High Court, in the case of KatlaryKarayana (supra) is in the context of section 194A of the Act and section 147 of the Act, wherein the Hon'ble High Court has examined whether income has escaped assessment or not. Therefore, we note that above decisions of the Co-ordinate Bench, are speaking and reasoned decisions and hence, do not require rectification under section 254(2) of the Act, as judicial discipline has been observed in these above decisions, by following the old jurisdictional, Gujarat High Court judgements(supra), which are direct on the issue under consideration, hence we reject the plea taken by ld DR for the revenue.
37. We also state that the Co-ordinate Bench of ITAT, Banglore and Co-ordinate Bench of ITAT, Jaipur, have also followed the old judgments of the Hon'ble Gujarat High Court, as noted above, and held that interest received from Cooperative Banks are allowable deduction under section 80P(2) (d) of the Act:
(i) Totagars Co-operative Sale Society Ltd., in ITA No.376 to 379/Bang/2023, dated 18.07.2023
(ii) Jhunjhunu KaryaVikryaSahakari Samiti Ltd., ITA No.150/Jp/2022 We also note that the other Hon'ble High Courts, in the following cases, have upheld the same view, as the view taken by the Hon'ble Gujarat High Court in the old Judgments (supra), that interest received from Cooperative Banks are allowable deduction under section 80P(2) (d) of the Act:
(i) Totagars Co-operative Sale, 79 taxmann.com 169 (Karnataka)
(ii) Thorapadi Urban Co-operative Credit Society Ltd., 156 taxmann.com 419 (Mad.)
38. Final word:
Thus, we note that the judgement of the Hon'ble Supreme Court in the case of Tatgars Society Ltd. (supra) does not apply to the assessee under consideration, as this judgment is in the context of Section 80P(2)(a)(i) of the Act. We find that the assessing officer, during the assessment proceedings has followed the judgment of the Hon'ble Jurisdictional Gujarat High Court in the case of Sabarkantha District Co- operative Milk Producers Union Ltd (supra) and in the case of Surat VankarSahakari Sangh Ltd, (supra) has taken a plausible view, which is sustainable in the eye, law. The assessing officer has not considered the judgement of Hon'ble Gujarat High Court in the KatlaryKarayana (supra), as the ratio laid down by the Hon'ble Gujarat High Court in the case of KatlaryKarayana(supra)is not applicable to the assessee, ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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under consideration and hence there is no violation of the principles laid down by the Hon'ble Supreme Court in the case of Saurastra Kutch Stock Exchange Ltd. (supra).We are of the view that the judgement of the Hon'ble Jurisdictional High Court of Gujarat in the case of KatlaryKarayana(supra), is not binding on the assessing officer, as we have stated that this judgement is in different context of section 194A of the Act and specially it is in the context of income escaped assessment u/s 147 of the Act, therefore, the ratio of the judgement does not apply to the assessee, under consideration. So far as the judicial discipline is concerned, there is no violation of the judicial discipline, by the assessing officer. Considering the above facts and circumstances, we state that during the assessment proceedings, the assessing officer made enough inquiry by issuing notice u/s 142(1) of the Act and in response to the notice of the assessing officer, the assessee submitted details, documents and explanation before the assessing officer and the assessing officer having examined the details and documents of the assessee, has taken the plausible view, which is sustainable in the eyes of law, as we have explained above. The Ld. PCIT while exercising the jurisdiction u/s 263 of the Act, also referred Clause (d) of Explanation - 2 of Section 263 of the Act wherein it is stated that if the order has not been passed by the Assessing Officer in accordance with any decision which is prejudicial to the assessee and rendered by the jurisdictional High Court or Supreme Court in the case of assessee or any other person.However, as we have explained above that the said judgment delivered by the Hon'ble jurisdictional Gujarat High Court in the case of KatleryKarayana (supra), does not apply to the assessee under consideration, hence Clause (d) of Explanation - 2 of Section 263 of the Act, does not apply to the assessee. Therefore, considering these facts, the Assessing Officer has taken a plausible view which is sustainable in the eye of law, as per the ratio laid down by the Hon'ble Apex Court in the case of Malabar Industries (supra).Since the order of the Assessing Officer cannot be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances, narrated above, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT is ''null'' in the eyes of law and, therefore, we are inclined to quash the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we quash the order of the Principal CIT dated 10.03.2023, being ab initio void.
39. In the result, appeal filed by the assessee is allowed."
9. As the issue is squarely covered by the decision of this Co-ordinate Bench in the case of Shri Avadh Nagarik Sahakari Mandli Ltd. (supra) and there is no change in facts and law and Ld. Sr-DR for the Revenue was not able to distinguish the ratio laid down by the Co-ordinate Bench, therefore respectfully following the decision of the Co-ordinate Bench ITA No.370/RJT/2023 (By Revenue) DCIT vs. Rajkot LodhikaSahakariKharidVechan Sangh Limited and CO No.1/RJT/2024 (By Assessee) Asst.Year-2020-21
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(supra) we dismiss the ground raised by the Revenue in respect of deduction u/s 80P(2)(d) of the Act.
Assessee's Cross Objection No.01/RJT/2024
10. The cross-objection filed by the assessee has been withdrawn during the course of hearing of the case.
11. In the result, the appeal filed by the Revenue is dismissed and that of Assessee's cross-objection is also dismissed as withdrawn.
Order pronounced in the Open Court on 30 September, 2024 at Rajkot.
Sd/- Sd/-
(DR. ARJUN LAL SAINI) (DINESH MOHAN SINHA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
RAJKOT; Dated 30/ 09 /2024
ट .सी.नायर, व.*न.स./T.C. NAIR, Sr. PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आय-
ु त / Concerned CIT
4. आयकर आय-
ु त(अपील) / The CIT(A)-concerned
5. 1वभागीय *त*न ध, आयकर अपील य अ धकरण,राजोकट/DR,ITAT, Rajkot
6. गाड? फाईल / Guard file.
आदे शानुसार/BY ORDER,
स या1पत *त //True Copy//
उप/सहायक पंजीकार (Dy./Asstt.Registrar)
आयकर अपील%य अ&धकरण,राजोकट / ITAT, Rajkot