TaxTMI 
TaxTMI 
2023 (12) TMI 1254
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....me Tax Officer, Ward 1(2), Kozhikode, denying the assessee deduction u/s. 80P(1) r/ws. 80P(2)(a)(i) of the Act, claimed on it's entire income of Rs. 80.69 lakhs, adding another Rs. 31.10 lakhs qua inadmissible provisions. The basis for the same, accepting the assessee's claim of being a primary agricultural society under the Kerala Act, was absence of mutuality; the assessee also admitting nominal members who have no right to vote; participate in the surplus; right to be part of management, etc., with the assessment order discussing in detail the rights of each of the four (A, B, C, & D) category of members, of whom only category 'A' members had the relevant rights and, accordingly, regarded by him as real members. Reliance was placed by him on The Citizen Co-operative Society Ltd. v. Asst. CIT[2017] 397 ITR 1 (SC), extracting from para 26 thereof, whereat the Hon'ble Court noticed the detailed discussion by the assessing authority qua mutuality. Violation of sections 269SS and 269T of the Act, proscribing acceptance as well as repayment of loans and deposits other than by way of account payee cheque or account payee bank draft or electronic clearing system through a ....
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....limitation that the order of penalty should have been passed within 6 months from the end of the month in which the assessment was completed. On this premise, it was held that since all the penalty orders were passed beyond 6 months from the end of the month in which assessments were completed, the penalty orders were barred by time. It did not agree with the contention of the Revenue that the limitation for completing the penalty proceedings was governed by Section 275(1)(a) and not by Section 275(1)(c) because the assessment proceedings for each of the assessment years in question have been subjected to appeal. The Tribunal opined that since the penalty proceedings are independent of the assessment proceedings, the filing of the appeal against the assessment orders during the course of which penalty proceedings were initiated was irrelevant." He would then take us through the order by the Hon'ble Apex Court confirming the same, which reads as under: - "On perusing the judgment of the High Court, it is found that penalty imposed on the respondent herein was also set aside on the ground that the provisions of Section 271-D and 271-E of the Income Tax Act were invoke....
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....f which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, whichever is later; (b) in a case where the relevant assessment or other order is the subject-matter of revision under section 263 or section 264, after the expiry of six months from the end of the month in which such order of revision is passed; (c) in any other case, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later. (1A) .... Explanation.-In computing the period of limitation for the purposes of this section,- (i) the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129; (ii) any period during which the immunity granted under section 245H remained in force; and ....
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....d law; it being admitted position before us that the Joint/Addl. CIT only is competent to levy penalty (u/ss. 271D/E of the Act) and, thus, initiate penalty there-under by issue of notice u/s. 274 of the Act; with, further, there being nothing in the decision in Hissaria Bros (supra), i.e., both by the Hon'ble High Court and the Hon'ble Apex Court, to contradict it? True, the words employed by the statute, and which are to be read meaningfully, and sought to be given effect to, are: 'action for the imposition of penalty has been/is initiated', and not 'penalty initiated', as emphasised by Shri Raghunathan before us. We agree. The relevant date, therefore, is neither the date of assessment order, as contended by the appellant in Grihalakshmi Visions (supra), or the date of initiation of penalty proceedings by issue of notice under section 274 - which though can only be by a competent authority, as contended by the Revenue in that case. But the date on which action for imposition of penalty stands initiated. This action is to be understood as the date on which reference is made to the competent authority for initiation of penalty proceedings. In the instant case/s, this is on....
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....hat case, the assessee having appealed against the assessment, notice u/s. 274 of the Act for relevant year by the Jt. CIT, was after only 4 years of the reference to him by the AO. The Hon'ble Court was, accordingly, called upon to decide whether clause (a) or (c) of section 275(1) of the Act, as being contended by the assessee and the Revenue respectively, applied. The Hon'ble Court traversed the legislative history of section 275, discussing the relevance of each of the limbs, i.e., (a), (b) and (c) of section 275(1) of the Act. While clauses (a) and (b) relate to penalties where the relevant assessment is subject to appeal and revision proceedings respectively, the residuary clause (c)is for a case not falling under either. 4.7 Though the assessment for the relevant years, i.e., qua penalty u/ss. 271D/E of the Act, as explained, may be in appeal, levy of penalty is independent thereof and, in fact, not linked with the assessment proceedings, as is the case of penalty u/s. 271(1)(c) of the Act, where it is inextricably linked with the quantum proceedings, which may be subject matter of appeal/revision, necessitating keeping in abeyance the penalty proceedings, which o....
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....1 (SC). Reference therein is also made to the decision in State of Orissa v. Sudhanshu Sekhar Misra [1968] 2 SCR 15 for the proposition that a decision must be read as applicable to the facts proved or assumed to be proved, and the generality of the expressions are not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which the expressions are to be found. A decision, thus, cannot be viewed divorced from its background facts and the context in which it is rendered. The cited decisions would thus be of little assistance to the parties. We may here hasten to add that despite our clear view, we would have yet readily adopted the decision in Grihalakshmi Visions (supra), if we discerned any inconsistency between the same and that expressed by the Hon'ble jurisdictional High Court which, as afore-noted, has only opined on the initiation of penalty, i.e., as being on the issue of notice u/s. 274 inasmuch as the same could only be by the competent authority. Why, it, at para 10 of it's decision, clarifies that the statement in the assessment order that penalty u/ss. 271D/E is being initiated is of no consequence. 4.10 T....
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....ing out the Revenue's case, accepted throughout, by reproducing the following lines from the said order: 'It is found, as a matter of fact, that the depositors and borrowers are quite distinct. In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well.' This, in fact, has been referred to time and again, and is the constant refrain of the Revenue in all such cases, and not without merit inasmuch as it is a matter of fact, borne out both by conduct and record, that cooperative societies, though registered as a PACS, are so only in name; their agricultural lending being negligible, and being primarily in the business of banking, albeit without licence from RBI. And, further, are not PACSs - which are outside the purview of BRA, both in terms of its definition there-under as well as the Kerala Act. This factual position, i.e., acceptance of deposits from it's customers, drawn from members of the public, upon being enrolled as members, including nominal, and repayment thereto, would not stand altered when it co....
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.... a Bank. The question therefore is if such an Institution could be penalized when it, and surely technically mistakenly, accepts deposits from its members and repays them, in cash? Why, as indeed non-members; the only debility being that the corresponding income would be taxable. Raising again the same larger question of thus in effect dealing with public at large. We may here clarify that the actual dealing with non-members, which may well be asserted as absent in view of the claim for deduction u/s. 80-P for the relevant year extending to the entire business income, is not relevant, but the legal competence to do so (Delhi Stock Exchange Association Ltd. v. CIT [1997] 225 ITR 235 (SC)).This, further, brings us to examine if there is a restriction on the area of it's operations. The assessee is operating with 9 branches in the district of Kozhikode. The restriction on the area of it's operations, i.e., to village panchayat or a municipality, being applicable only to societies registered after the commencement of the Kerala Act (s. 2(oa)) by the Kerala Co-operative (Amendment) Act, 1999 is, thus, also not applicable to the assessee. 5.4 The cumulative effect of all this, the pri....
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....rned by the Banking Regulation Act. Therefore, the society being a coop. bank providing banking facilities to members is not eligible to claim the deduction under section 80P(2)(a)(i) after the introduction of sub-section (4) of section 80P.' (emphasis, ours) We may though clarify that the assessee, in our clear view, in accepting deposits from it's members, or lending thereto or otherwise to non-members, in cash, is acting within the frame-work of law, i.e., legally. This is relevant as it is impermissible in law for one to take advantage of it's own wrong (B.M. Malani v. CIT[2008] 306 ITR 196 (SC)). Even as observed by the Tribunal in Santimadom Herbal City Trust v. Asst. CIT (in ITA Nos. 920, 921/Coch/2022, dated 14/11/2023), one violation of law cannot be a justification for violating another law. The Apex Court in CIT v. Prakash Chand Lunia v. CIT [2023] 454 ITR 61 (SC) again clarified, with reference to it's earlier decisions, this aspect in the context of deductibility of expenditure of an illegal business (also refer Apex Laboratories (P.) Ltd. v. Dy. CIT [2022] 442 ITR 1 (SC)). We are, with respect, therefore not in agreement with the Tribunal in The Citizen CS....