TMI Blog2020 (12) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... , so the view of AO is a plausible view and therefore Ld. PCIT erred in invoking the revisional jurisdiction u/s 263 without satisfying the condition precedent essential to invoke revisional jurisdiction. PCIT ought not to have invoked the power u/s 263 and therefore, the invoking of the revisional jurisdiction itself is held to be bad in law and therefore quashed. - Appeal of the assessee is allowed. - I.T.A. No. 271/Kol/2018 - - - Dated:- 3-12-2020 - Shri J. Sudhakar Reddy, AM And Shri A. T. Varkey, JM For the Appellant : Shri Soumitra Chowdhury, Advocate For the Respondent : Shri Imokaba Jamir, CIT DR ORDER PER SHRI A.T. VARKEY, JM: This is an appeal preferred by the assessee- co-operative bank against the order of Ld. Principal Commissioner of Income Tax-8, Kolkata (hereinafter referred to as PCIT ) passed u/s 263 of Income Tax Act, 1961 (hereinafter referred to as the Act ) dated 22.02.2017 for A.Y. 2012-13. 2. At the outset it is noted that there was a delay of 293 days in filing this appeal and the assessee has filed condonation petition. An affidavit has been filed by the chairman of assessee bank wherein it has been stated that due to neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd both the parties and perused the records. At the outset it was pointed out by the Ld. A.R Shri Soumitra Chowdhury that the Ld PCIT erred in relying on the decision of Hon ble Supreme Court in the case of Totgar s Co- operative Sales Society Ltd. (supra). According to Ld. A.R, this case law [Totgar s Co-operative Sales Society Ltd. (supra)] is not applicable in the case of assessee because that was a society providing credit facilities to its members and not a bank like assessee. Further, according to ld. A.R, during the assessment proceedings the Assessing Officer asked the assessee to bring the documents pertaining to the claim of assessee in respect of deduction under section 80P of the Act, and after perusing the same only the Assessing Officer has accepted that the amount of interest received from the Bond of NABARD as eligible for deduction u/s 80P of the Act along with interest on the deposit with West Bengal Co-operative Bank/Hooghly District Co-operative Bank/Government Securities to the tune of ₹ 5,23,157/- which is discernible from perusal of page 2 of assessment order. According to ld. A.R, the issue whether co-operative bank i.e. the assessee is eligible for Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the assessee reiterated the submissions made before the authorities below specified vide sub-clause (i) to (vii). In the event of a co-operative society carrying on any one or more such activities the whole of the amount of profits and gains of business attributable to any one or more activities shall be deducted. Thus, the provision itself gives an inherent indication that for the purpose of constituting the sum deductible while computing the total income of the assessee, the sum has to be the amount of profits and gains of business. It is necessary to take note of the fact that in sub-section (2) of section 80P of the Act the word income is not used but the word used is sum which is the whole of the amount of profits and gains of business . Therefore, under sub-section (1) the gross total income has to include income from any of the specified activities and for the purpose of deduction the sums specified in sub-section (2) shall be deducted in computing the total income of an assessee, namely, a co-operative society. Before analysing sub-clause (i) of clause (a) of sub-section (2) of section 80P of the Act it is necessary to take note that under sub-section (3) of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operative society. Therefore, a twofold inquiry is contemplated : firstly, what is the meaning to be assigned to the phrase business of banking; and secondly, what would be the profits and gains attributable to business of banking. . 58. . Therefore, on the one hand, an entity carrying on the business of banking is required to accept deposits which are repayable on demand or permitting withdrawal in any of the specified modes, and on the other hand, the funds generated by acceptance of deposits are available for the purpose of lending or investment. In a given case, a bank may accept deposits and merely invest them, and earn profits from the difference between the rates of interest paid on the deposits and earned on the investments. Or, the bank may accept deposits and lend the funds, and again earn profits on the basis of difference in rate of interest on the borrowings made and advances given. Or a third situation, which clearly a prudent banker would engage himself in, would be where deposits are accepted, and certain portion thereof is invested and the balance advanced. Under the provisions of the BR Act every banking company, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eys lie idle. It cannot be said that the funds of the bank which were not lent to borrowers but were laid out in the form of deposits in another bank to add to the profit instead of lying idle necessarily ceased to be a part of the stock-in-trade of the bank, or that the interest arising therefrom did not form part of its business profits.(emphasis supplied) . 69. The question therefore would arise as to whether any distinction can be drawn between so-called surplus funds / idle funds and statutory investments. It is necessary to bear in mind that a reserve per se does not yield any income. It is the investment of the fund backing a reserve which would yield income. Therefore, whatever be the nomenclature of a particular reserve, the funds of an assessee in totality are conglomerate of the total amount of deposits / investments, profits and other realizations. Money has no colour and the nomenclature used to segregate different funds is only for the sake of administrative convenience. Otherwise it is not possible to state that a particular portion of the fund emanates from the deposits received or from the profits earned in the earlier years. Thus, these funds are ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious modes, including in securities of different kinds to carry on the business of banking. It is in this context that the concept of easily realizable securities, investments wherefrom moneys are readily available, comes into the sphere of banking. The business is not only to be transacted by a banker alone. The customer is an equally vital component of such a business and it is the trust that he has in a particular establishment which ultimately permits the establishment to carry on the business of banking. Thus, all investments, even if one accepts the Revenue s artificial distinction, surplus or not, are essential and conducive to the promotion or advancement of the business of banking. . 6. Thereafter the Hon ble Gujrat High Court after summarizing the order had held that : (i) .. (ii) . (iii) (iv) As per the scheme of the Income Tax Act, the net income relatable to a particular head or item has to go in as a component of the gross total income before any deduction under Chapter-VI A is allowed; (v) In the case of an assessee carrying on the business of banking income under Section 28 is computed in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er realizations; (xxi) The requirement of investment being in easily realizable securities or money being readily available for meeting the demand made by the depositor is taken as the touchstone of the business of banking to ensure that the depositor gets good returns accompanied by safety and liquidity; (xxii) All investments, surplus or not, are essential and conducive to the promotion or advancement of the business of banking when considered from the view point of a depositor. [Emphasis given by us] 7. In the light of the ratio laid by the Hon ble High Court in CIT vs. Baroda Peoples Co-operative Bank (supra) we find merit in the submission of the ld. A.R that the Ld PCIT has erred in relying on the decision of Hon ble Supreme Court in Totgar s Co-operative Sales Society Ltd. (supra) since it was in respect of society providing credit facilities to its members and not an assessee which is a bank. Therefore we find that the Ld PCIT erred in relying on the decision of Hon ble Supreme Court in Totgar s Co-operative Sales Society Ltd. (supra) and his decision that the assessment order is erroneous and prejudicial to the interest of justice cannot be accepted. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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