TMI Blog1992 (4) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... . A search was conducted under section 132 of the Act in the premises of the assessee society on the basis of certain publication on 2-4-1987. It came to notice that the District Co-operative Registrar had detected a major fraud amounting to Rs. 4 crores which allegedly involved the Chairman/General Manager of the Bank etc. It was made public that certain bank loans were sanctioned to the tune of Rs. 1.80 crores during the preceding 12 months from February 1983 to May 1984. It was also made public that the District Co-operative Registrar filed certain criminal complaints with the police against the Chairman and against 26 others. Taking into consideration the following points as mentioned in the audit report, the ITO came to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion on fixed deposits arranged by them which was neither recorded in the books of accounts nor admitted and in any case such payment was against the banking rules. Aggrieved by the above order the assessee preferred an appeal before the first appellate authority. 3. It was contended before the CIT (Appeals) that the ITO did not examine whether the income of the assessee was derived from the banking business or from activities of providing credit facilities to its members. The ITO merely took into consideration the irregularities as published by newspaper for denying the benefit as contemplated under section 80P of the Act. The assessee is a registered Co-operative Society, its main business is banking, it had obtained valid licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal rate applicable to an AOP. It was further directed that the maximum marginal rate would not be applicable in respect of its income. Therefore, he directed that the assessee is entitled for exemption under section 80P(2)(a)(i) of the IT Act. 1961. It is against this order that the department is in appeal before us. The main contention of the department can be summed up as under :--- (1) There was cheating by the Society to the tune of Rs. 12 crores. So the very purpose of the Co-operative Society is defeated and the conclusion of the ITO that the assessee is not entitled for exemption under section 80P is correct one. (2) The assessee as a consequence of illegal and malpractices lost the character of the Co-operative Society and, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry under section 86 or an inspection under section 87, or the winding up of a society, the Registrar is satisfied on the basis of the report made by the auditor or the person authorised to make inquiry under section 86, or the person authorised to inspect the books under section 87, or the liquidator under section 110, that any person who has taken any part in the organisation or management of the society or any deceased, or past or present officer of the society has, within a period of five years prior to the date of such audit, inquiry, inspection or order for winding up, supplied or retained, or become liable or accountable for, any money or property of the society, or has been guilty of misfeasance or breach of trust in relation to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel further submitted, in spite of irregularities the assessee is still continuing the banking business as granted by the RBI. 8. We heard both the parties and went through the relevant papers. We are not impressed by the arguments of the learned DR that due to Illegal sanctioning of loans to certain persons bypassing the normal procedure, the assessee has lost its character and, therefore, it is not entitled for the benefit of section 80P(2)(a)(i) of the IT Act. It is correctly submitted by the learned counsel for the assessee that it is not for the department to see whether the normal procedure is followed by the assessee while sanctioning the loans, etc. As noted by the counsel, section 93 of the Gujarat Co-operative Societies Act ve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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