Nagar Urban Co -Op. Bank Ltd.,, Ahmednagar v. ITO, Wd.-1,, Ahmednagar

ITA 1312/PUN/2007 | 2004-2005
Pronouncement Date: 29-04-2014 | Result: Allowed

Appeal Details

RSA Number 131224514 RSA 2007
Assessee PAN AAAAA1281G
Bench Pune
Appeal Number ITA 1312/PUN/2007
Duration Of Justice 6 year(s) 6 month(s) 21 day(s)
Appellant Nagar Urban Co -Op. Bank Ltd.,, Ahmednagar
Respondent ITO, Wd.-1,, Ahmednagar
Appeal Type Income Tax Appeal
Pronouncement Date 29-04-2014
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 29-04-2014
Date Of Final Hearing 05-11-2013
Next Hearing Date 05-11-2013
Assessment Year 2004-2005
Appeal Filed On 08-10-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B PUNE BEFORE: SHRI R.S. PADVEKAR JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO . 938 / P N/ 20 06 ASSESSMENT YEAR : 200 3 - 04 AHMEDNAGAR DIST. CENTRAL CO - OP. BAN K LTD. SATARA ROAD AHMEDNAGAR VS. THE INCOME TAX OFFICER WARD - 4 AHMEDNAGAR (APPELLANT) (RESPONDENT) PAN NO. AAAAA1281 G ITA NO . 1312/ PN/20 07 ASSESSMENT YEAR : 2004 - 05 NAGAR URBAN CO - OP. BANK LTD. POST BOX NO. 7 CENTRAL BANK ROAD AHMEDNAG AR VS. INCOME TAX OFFICER WARD - 1 AHMEDNAGAR (APPELLANT) (RESPONDENT) PAN NO. AAAAN0509L ITA NO . 1313/ PN/20 07 ASSESSMENT YEAR : 2004 - 05 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. SATARA ROAD AHMEDNAGAR VS. INCOME TAX OFFICER WARD - 1 AHMEDNA GAR (APPELLANT) (RESPONDENT) PAN NO. AAAAA1281G APPELLANT BY: SHRI C.H. NANIWADEKAR RESPONDENT BY: SHRI S.P. WALIMBE DATE OF HEARING : 04 - 0 3 - 201 4 DATE OF PRONOUNCEMENT : 29 - 04 - 201 4 ORDER PER R.S . PADVEKAR JM : - THIS BATCH OF THREE APPEALS PERTAINS TO DIFFERENT ASSESSEES WHICH ARE CO - OPERATIVE BANKS FOR THE A.YS. 2003 - 04 & 2004 - 05. ALL THE THREE APPEALS ARE R EMANDED BY THE HON'BLE HIGH COURT OF BOMBAY 2 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR AURANGABAD BENCH FOR FRESH CONSIDERATION ON THE ISSUE WHETHER THE INTEREST EARNED ON INVESTMENT OUT OF VOLUNTARY RESERVES WOULD QUALIFY FOR DEDUCTIONS U/S. 80P(2)(A)(I) OF THE INCOME - TAX ACT. 2. WE FIRST TAKE THE APPEAL OF THE AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. BEING ITA NO. 938/PN/2006 AND ITA NO. 1313/PN/2007 FOR THE A.YS. 20 03 - 04 AND 2004 - 05 RESPECTIVELY. THE ASSESSEE IS A CO - OPERATIVE BANK AND ASSESSMENTS OF THE ASSESSEE BANK HAVE BEEN COMPLETED BY THE ASSESSING OFFICER U/S. 143(3) OF THE ACT. 3. SO FAR AS A.Y. 2003 - 04 IS CONCERNED IT WAS NOTICED BY THE ASSESSING OFFICE R THAT THE ASSESSEE BANK HAS VOLUNTARY RESERVES TO THE EXTENT OF RS.93 68 53 637/ - AND AS NOTED BY THE ASSESSING OFFICER THE NET PROFIT OF THE ASSESSEE BANK INCLUDED INTEREST FROM INVESTMENT OUT OF VOLUNTARY RESERVES TO THE EXTENT OF RS.9 98 68 598/ - . TH E ASSESSEE BANK HAS EARMARKED PROFIT FOR THE DISTRIBUTION OF THE DIVIDEND TO THE EXTENT OF RS.5 28 40 000/ - . THE ASSESSING OFFICER HAS OBSERVED THAT THE INCOME BY WAY OF INTEREST FROM INVESTMENT OUT OF VOLUNTARY RESERVES WAS FINDING ITS WAY INTO DIVIDEND DISTRIBUTION. HE FURTHER OBSERVED THAT AS DIVIDEND DISTRIBUTION IS NOT A BANKING ACTIVITY THE ASSESSEE HAS TO PROVE AS TO HOW DOES IT SATISFY THE TEST AS LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL CO - OPERATIVE BANK LTD. 251 ITR 522 SO AS TO QUALIFY FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE INCOME - TAX ACT 1961 TO THE EXTENT OF RS.5 28 40 000/ - WHICH WAS THE PROFIT EARMARKED FOR DISTRIBUTION OF THE DIVIDEND BY THE ASSESSEE BANK. THE ASSESSING OFFICER HELD THAT THE ASSESSEE BANK HAS FAILED TO CONCLUSIVELY SATISFY THE TESTS/CONDITIONS LAID DOWN IN THE CASE OF MEHSANA DISTRICT CENTRAL CO - OPERATIVE BANK LTD. (SUPRA). H E THEREFORE DECLINE D TO TREAT THE AMOUNT OF RS.5 28 40 000/ - AS AN INCOME OUT OF THE BANKING ACTIVITY NOT COV ERED FOR THE DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT BUT AT THE SAME TIME 3 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR PROPORTIONATELY ALLOWED THE EXPENDITURE AND MADE THE FINAL DISALLOWANCE/ ADDITION OF RS.69 37 892/ - . 4 . IN THE A.Y. 2004 - 05 AS NOTED BY THE ASSESSING OFFICER THE ASSESSEE HAS EARMAR KED FUND OUT OF ITS PROFIT FOR DISTRIBUTION OF DIVIDEND TO THE EXTENT OF RS.5 17 70 000/ - . THE ASSESSING OFFICER HAS ALSO NOTED THAT THE ASSESSEE BANK HAD VOLUNTARY RESERVES TO THE EXTENT OF RS.1 15 03 43 545/ - AND THE NET PROFIT OF THE ASSESSEE BANK INC LUDED INTEREST FROM INVESTMENT OUT OF VOLUNTARY RESERVES TO THE EXTENT OF RS.8 39 75 078/ - . FOR THE REASONS GIVEN IN THE A.Y. 2003 - 04 AFTER ALLOWING THE PROPORTIONATE EXPENSES THE ASSESSING OFFICER MADE THE NET DISALLOWANCE/ ADDITION TO THE EXTENT OF RS.91 32 228/ - WHICH WAS IN RESPECT OF THE PROFIT EARMARKED FOR THE PURPOSE OF DISTRIBUTION OF THE DIVIDEND AS PER THE RESOLUTION PASSED IN THE AGM . 5 . IN THE FIRST ROUND OF APPEAL THE TRIBUNAL HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE REVENUE CARRIED THE IS SUE BEFORE THE HON'BLE HIGH COURT OF BOMBAY AURANGABAD BENCH AND THE HON'BLE HIGH COURT REMITTED THE ISSUE TO THE FILE OF THE TRIBUNAL FOR FRESH ADJUDICATION. THE RELEVANT DISCUSSION S AND DIRECTIONS OF THE HON'BLE HIGH COURT WHICH ARE COMMON IN ALL THE T HREE APPEALS AS UNDER: 05. IN MEHSANA DISTRICT COOPERATIVE BANK ONE OF THE ISSUES THE SUPREME COURT WAS CONCERNED WAS WHETHER THE ASSESSEE BANK IS ENTITLED TO CLAIM DEDUCTION UNDER SECTION 80P(2)(A)(I) IN RESPECT OF THE INCOME EARNED FROM UTILISATION OF ITS VOLUNTARY RESERVES OTHER THAN THE STATUTORY RESERVES WHILE CONSIDERING THIS ISSUE THE COURT OBSERVED; TO BE ABLE TO ANSWER THE QUESTION IT IS NECESSARY TO ASCERTAIN AS A FACT WHETHER THE INCOME DERIVED BY THE ASSESSEE FROM THE INVESTMENT OF ITS VOLUNTARY RESERVES HAS BEEN UTILISED BY IT IN THE COURSE OF ITS ORDINARY BANKING BUSINESS.' 4 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR SINCE NO MATERIAL WAS PLACED ON RECORD BY THE ASSESSEE AND THE ISSUE WAS NOT CONSIDERED AT ANY STAGE THE COURT REMANDED THE MATTER TO THE COMMISSIONER (APPEALS) FO R BEING DECIDED AFRESH AS THE INTEREST OF JUSTICE REQUIRED THAT THE ASSESSEE SHOULD HAVE AN OPPORTUNITY TO LEAD EVIDENCE BEFORE THAT AUTHORITY. BASED ON THE AFORESAID OBSERVATIONS OF THE SUPREME COURT THE LEARNED ASSISTANT SOLICITOR GENERAL FOR THE REVENU E HAS CONTENDED THAT THE TRIBUNAL HAS COMMITTED AN ERROR BY ALLOWING THE APPEAL. 06. THE TRIBUNAL IN THE PRESENT CASE HAS RELIED ON THE DECISIONS' OF THE COORDINATE BENCHES OF THE INCOME TAX APPELLATE TRIBUNAL AND HELD THAT THE DISALLOWANCE OF PROP ORTIONATE INTEREST EARNED ON THE INVESTMENTS MADE OUT OF VOLUNTARY RESERVES QUALIFIED FOR DEDUCTIONS AS THEY WERE MADE IN THE COURSE OF ASSESSEE'S BANKING ACTIVITY 07. THE TRIBUNAL UNFORTUNATELY IN ALL THESE CASES HAS PASSED A CRYPTIC ORDER RELY ING ON SOME OF THE JUDGMENTS OF THE SUPREME COURT. HOWEVER THE ORDER DOES NOT INDICATE HOW THE TRIBUNAL HAS DISTINGUISHED THE JUDGMENT IN THE CASE OF MEHSANA DISTRICT CENTRAL COOPERATIVE BANK. THERE CAN BE NO DOUBT THAT THE INTEREST EARNED ON INVESTMENTS OR VOLUNTARY RESERVES WOULD FALL UNDER THE HEAD PROFITS AND GAINS OF BUSINESS AND IS THUS DEDUCTIBLE UNDER SECTION 80P(2)(A)(I) OF THE ACT. HOWEVER THE ISSUE STILL REMAINS AS TO WHETHER THIS INCOME CAN BE APPLIED FOR PAYING DIVIDEND TO THE MEMBERS OF THE CO - OP. BANK. THE TRIBUNAL HAS NOT DWELT UPON THIS ISSUE AT ALL AND THEREFORE IN OUR OPINION IT WOULD BE NECESSARY TO REMAND THE MATTERS TO THE TRIBUNAL TO DECIDE THEM AFRESH. 09. IN THESE CIRCUMSTANCES THE MATTERS ARE REMANDED TO THE TRIBUNAL TO DECIDE THEM AFRESH. 5 .1. AS PER THE DIRECTIONS OF THE HON'BLE COURT THE APPEALS WERE FIXED FOR HEARING AND WE HAVE HEARD THE PARTIES. 6 . IN THE CASE OF MEHSANA DISTRICT CENTRAL CO - OPERATIVE BANK LTD. VS. ITO 251 ITR 522 (SC) ONE OF THE FOLLOWING QUE STION S OF LAW WAS BEFORE THEIR LORDSHIPS ( 2 ) WHETHER THE ASSESSEE BANK IS ENTITLED TO CLAIM 5 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR DEDUCTION U/S. 80P(2)(A)(I) IN RESPECT OF INCOME EARNED FROM UTILIZATION OF ITS VOLUNTARY RESERVES OTHER THAN THE STATUTORY RESERVES MENTIONED ABOVE? THE HON'B LE SUPREME COURT RESTORE D THE ISSUE ARISING FROM THE ABOVE QUESTION OF LAW TO FILE OF THE COMMISSIONER (APPEALS) AND RELEVANT DIRECTIONS ARE AS UNDER: NOW AS TO THE SECOND QUESTION WE HAVE HEARD LEARNED COUNSEL AND BEEN REFERRED TO VARIOUS DECISIONS INC LUDING THE DECISION OF THIS COURT IN BIHAR STATE CO - OPERATIVE BANK LIMITED V. CIT [1960] 39 ITR 114. TO BE ABLE TO ANSWER THE QUESTION IT IS NECESSARY TO ASCERTAIN AS A FACT WHETHER THE INCOME DERIVED BY THE ASSESSEE FROM THE INVESTMENT OF ITS VOLUNTARY RESERVES HAS BEEN UTILIZED BY IT IN THE COURSE OF ITS ORDINARY BANKING BUSINESS. THOUGH THE ASSESSEE PLACED BEFORE THE ASSESSING AUTHORITY ITS BOOKS OF ACCOUNT AND BALANCE - SHEETS THE FACT AFORESTATED WAS NOT CONSIDERED AT ANY STAGE FOR ONE OR OTHER REAS ON ON WHICH IT IS NOT NECESSARY FOR US TO DILATE. WE THINK THAT IT IS IN THE INTERESTS OF JUSTICE THAT THE ASSESSEE SHOULD HAVE THE OPPORTUNITY TO LEAD EVIDENCE BEFORE THE COMMISSIONER (APPEALS) TO ESTABLISH AS A FACT WHAT IS STATED ABOVE. SO FAR AS THE SE COND QUESTION IS CONCERNED THEREFORE THE MATTER IS STAND RESTORED TO THE COMMISSIONER (APPEALS) FOR BEING DECIDED AFRESH. HE SHALL ALSO DECIDE ANY CONSEQUENTIAL ISSUE THAT MAY ARISE. 7 . THE HON'BLE HIGH COURT HAS DIRECTED THE TRIBUNAL TO VIEW THE FIND ING IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE HON'BLE SUPREME COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL CO - OPERATIVE BANK LTD. (SUPRA) WHETHER THE INCOME DERIVED BY THE ASSESSEE FROM THE INVESTMENT OF ITS VOLUNTARY RESERVES HAVE BEEN UTILIZED BY IT I N THE COURSE OF ORDINARY BANKING BUSINESS. IN THIS CASE THERE IS NO DISPUTE IN RESPECT OF THE STATUTORY RESERVES BUT THE CONTROVERSY IS LIMITED TO THE INVESTMENT MADE OUT OF THE VOLUNTARY RESERVES ON WHICH THE ASSESSEE BANK HAS EARNED THE INCOME AND WHETH ER THE SAID INCOME HAS BEEN UTILIZED BY THE ASSESSEE BANK IN THE ORDINARY COURSE OF BANKING BUSINESS. 6 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR 8 . WE MAY LIKE TO QUOTE HERE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. KARNATAKA STATE C0 - OPERATIVE APEX BANK 251 ITR 194 IN WHICH I T IS HELD AS UNDER: THE QUESTION IS WHETHER WE AGREE WITH THE REASONING IN MADHYA PRADESH CO - OPERATIVE BANK LTD. [1996] 218 ITR 438 (SC). THERE IS NO DOUBT AND IT IS NOT DISPUTED THAT THE ASSESSEE - CO - OPERATIVE BANK IS REQUIRED TO PLACE A PART OF ITS FU NDS WITH THE STATE BANK OR THE RESERVE BANK OF INDIA TO ENABLE IT TO CARRY ON ITS BANKING BUSINESS. THIS BEING SO ANY INCOME DERIVED FROM FUNDS SO PLACED ARISES FROM THE BUSINESS CARRIED ON BY IT AND THE ASSESSEE HAS NOT BY REASON OF SECTION 80P(2)(A)(I ) TO PAY INCOME - TAX THEREON. THE PLACEMENT OF SUCH FUNDS BEING IMPERATIVE FOR THE PURPOSES OF CARRYING ON THE BANKING BUSINESS THE INCOME DERIVED THEREFROM WOULD BE INCOME FROM THE ASSESSEE'S BUSINESS. WE ARE UNABLE TO TAKE THE VIEW THAT FOUND FAVOUR W ITH THE BENCH THAT DECIDED THE CASE OF MADHYA PRADESH CO - OPERATIVE BANK LTD. [1996] 218 ITR 438 (SC) THAT ONLY INCOME DERIVED FROM CIRCULATING OR WORKING CAPITAL WOULD FALL WITHIN SECTION 80P(2)(A)(I). THERE IS NOTHING IN THE PHRASEOLOGY OF THAT PROVISI ON WHICH MAKES IT APPLICABLE ONLY TO INCOME DERIVED FROM WORKING OR CIRCULATING CAPITAL. IN THE PREMISES WE TAKE THE VIEW THAT THE DECISION OF THIS COURT IN THE CASE OF MADHYA PRADESH CO - OPERATIVE BANK LTD. [1996] 218 ITR 438 (SC) DOES NOT SET DOWN THE CO RRECT LAW AND THAT THE LAW IS AS WE HAVE PUT IT ABOVE. THE QUESTION ACCORDINGLY IS ANSWERED IN THE AFFIRMATIVE AND IN FAVOUR OF THE ASSESSEE. 9 . AS WE UNDERSTAND IN OUR HUMBLE OPINION THE OBSERVATION OF THEIR LORDSHIPS THAT ONLY INCOME DERIVED FROM CI RCULATING OR WORKING CAPITAL WOULD FALL WITHIN SEC. 80P(2)(A)(I) IS MADE IN THE BACKGROUND OF THE FACT THAT IN CASE OF STATUTORY RESERVES OR COMPULSORY RESERVES WHEN THE INVESTMENT S ARE MADE AS PER THE DIRECTIONS OF THE GOVT. IT IS BE HELD THAT THE PLACEME NT OF THE FUND IN SUCH SITUATION ARE TO BE TREATED AS IMPERATIVE FOR THE PURPOSE OF CARRYING ON THE BANKING BUSINESS. 10. THE DECISION IN THE CASE OF MEHSANA DISTRICT CENTRAL CO - OPERATIVE BANK LTD. (SUPRA) HAS BEEN EXPLAINED BY THE HON'BLE HIGH COURT OF 7 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR G UJARAT IN THE CASE OF CIT VS. BARODA PEOPLES CO - OP. BANK LTD. 280 ITR 282 (GUJ) AND HELD AS UNDER: 45. THE LEGAL POSITION THUS IS THAT AN ORDER OF THE APEX COURT CANNOT BE UNDERSTOOD AS LAYING DOWN A PROPOSITION CONTRARY TO LAW. THE ORDER OF THE APEX COU RT CANNOT AND SHOULD NOT BE CONSTRUED IN A MANNER SO AS TO BE INCONSISTENT WITH THE PROVISIONS OF THE STATUTE AS THE APEX COURT COULD NOT HAVE CONTEMPLATED PASSING AN ORDER CONTRARY TO THE PROVISIONS OF THE ACT. THE CONTENTION ON BEHALF OF THE REVENUE THE REFORE TO THE EXTENT THAT THE DESTINATION OR THE APPLICATION OF THE INCOME HAS TO BE ASCERTAINED FOR THE PURPOSES OF DETERMINING THE DEDUCTIBILITY OF THE INCOME BASED ON THE AFORESAID DIRECTION OF THE APEX COURT IN THE CASE OF MEHSANA DISTRICT CENTRAL COO PERATIVE BANK LTD. [2001] 251 ITR 522 CANNOT BE ACCEPTED FOR THE AFORESTATED REASONS. THE SCHEME OF THE ACT AS TO ACCRUAL OF INCOME CHARGE OF TAX AT THE POINT OF ACCRUAL ; WHETHER A PARTICULAR RECEIPT IS OF THE NATURE OF REVENUE - OF THE NATURE OF INCOME GETS DETERMINED ONCE AND FOR ALL WHEN THE INCOME IS EARNED ; AND IS NOT DEPENDENT UPON ITS DESTINATION OR MANNER OF UTILISATION. ALL EXPENSES ALLOWANCES AND DEDUCTIONS ARE ALREADY TAKEN INTO CONSIDERATION BEFORE THE INCOME FORMS PART OF TOTAL INCOME. IT IS AT THIS STAGE THAT THE ELIGIBILITY TO DEDUCTION UNDER SECTION 80P OF THE ACT COMES UP FOR DETERMINATION. THE DIRECTION OF THE APEX COURT CANNOT BE READ TO HAVE MEANT AS BEING INCONSISTENT WITH THE BASIC STATUTORY SCHEME OF THE ACT. 46. THEN IT BECOMES NECESSARY TO READ AND UNDERSTAND THE DIRECTION MADE BY THE APEX COURT. IT IS STATED THAT FACTUALLY IT MAY BE ASCERTAINED WHETHER THE INCOME DERIVED BY THE ASSESSEE FROM THE INVESTMENTS OF ITS VOLUNTARY RESERVES HAS BEEN UTILISED BY IT IN THE COURSE OF IT S ORDINARY BANKING BUSINESS. CONSIDERING THE SCHEME OF THE ACT THE ONLY MEANING THAT ONE CAN MAKE OF THE DIRECTION IS TO READ THE DIRECTION TO INTEND TO CONVEY SO AS TO ASCERTAIN THAT INCOME EARNED BY AN ASSESSEE IN EARLIER YEARS FROM INVESTMENT OF FUNDS CONSTITUTING VOLUNTARY RESERVES HAS BEEN UTILISED BY THE ASSESSEE FOR THE PURPOSE OF MAKING FURTHER INVESTMENTS WHICH ARE IN EASILY REALISABLE SECURITIES IN PERMISSIBLE MODES OF INVESTMENTS AND ANY INCOME ATTRIBUTABLE TO SUCH INVESTMENTS WOULD BE ELIGIBL E FOR DEDUCTION UNDER SECTION 80P(2)(A)(I) OF THE ACT. ONE CANNOT SAY THAT 8 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR THE DIRECTION TO ASCERTAIN UTILISATION IS FOR THE PURPOSE OF DETERMINATION OF ACCRUAL OF INCOME OR FOR DETERMINING ITS ELIGIBILITY TO DEDUCTION CONSIDERING THE SCHEME OF THE ACT WHI CH IS SET OUT HEREINBEFORE. THE EXPENSES WHICH A BANK IS REQUIRED TO INCUR IN THE COURSE OF ITS ORDINARY BANKING BUSINESS HAVE ALREADY GONE INTO CONSIDERATION BEFORE THE NET FIGURE IS WORKED OUT FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 80P(2)( A)(I) OF THE ACT. HENCE TO REITERATE THE DIRECTION CAN ONLY MEAN ASCERTAINMENT OF UTILISATION OF NET INCOME OF EARLIER YEARS WHICH FORMS PART OF THE FUNDS WHICH ARE INVESTED AND GIVEN THE NOMENCLATURE OF VOLUNTARY RESERVES . 1 1 . AS PER THE PAPER BOOK FILED BEFORE US THE ASSESSEE HAS FILED THE DETAILS OF THE INCOME FOR THE F.Y. 2002 - 03 RELEVANT TO THE A.Y. 2003 - 04 (PAGE NO. 35 OF THE P.B.). THE ASSESSEE HAS SHOWN THE INTEREST ON THE INVESTMENT AT RS. 53 08 04 250/ - BUT THERE IS NO BREAK UP IN RESPECT O F THE INTEREST RECEIVED ON THE INVESTMENT OUT OF THE STATUTORY RESERVES AND THE INTEREST RECEIVED FROM THE INVESTMENT OF THE VOLUNTARY RESERVES. IN PARA NO. 7 OF THE JUDGMENT IN ASSESSEES OWN CASE THE HON'BLE HIGH COURT HAS HELD THAT THERE CAN BE NO D OUBT THAT THE INTEREST EARNED ON INVESTMENT OR VOLUNTARY RESERVES WOULD FALL UNDER THE HEAD PROFITS AND GAINS OF THE BUSINESS AND IS THUS DEDUCTIBLE U/S. 80P(2)(A)(I) OF THE ACT BUT THE ISSUE IS IN RESPECT OF THE INTEREST WHICH IS INCLUDED INTO THE INTERES T ON THE INVESTMENT MADE FROM THE VOLUNTARY RESERVES TO THE EXTENT TO BE UTILIZED FOR THE PAYMENT OF DIVIDEND TO THE MEMBERS CAN STILL SAID TO BE THE PART OF THE INCOME EARNED FROM THE BANKING BUSINESS. NOWHERE IT IS DISPUTED THAT IN THE COURSE OF INTERE ST DECLARED BY THE ASSESSEE THE INTEREST FROM THE VOLUNTARY RESERVES AS WELL AS STATUTORY RESERVES IS INCLUDED. THE ASSESSEE HAS FILED THE COPY OF THE RESOLUTION NO. 2 PASSED IN THE AGM ON 10 - 08 - 2003 (PAGE NO. 57A) IN WHICH THE DIVIDEND AT 12% TO THE EXTE NT OF RS.5 28 40 000/ - HAS BEEN EARMARKED OUT OF THE NET PROFIT. THE RESERVATION OF THE ASSESSING OFFICER IS THAT THE INTEREST EARNED FROM THE INVESTMENT OUT OF THE VOLUNTARY RESERVES IS 9 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR FINDING ITS WAY INTO THE DIVIDEND DISTRIBUTION . I N OTHER WORDS THE SAID INCOME HAS IN DIRECTLY GONE INTO THE HANDS OF THE MEMBERS AND SAID INCOME HAS NOT BEEN UTILIZED BY THE ASSESSEE BANK IN THE COURSE OF ITS ORDINARY BANKING BUSINESS. NOTHING HAS BEEN PLACED BEFORE US TO PROVE THAT THE INTEREST DERIVED OR EARNED FROM T HE INVESTMENT OUT OF THE VOLUNTARY RESERVES HAS BEEN UTILIZED BY IT IN THE ORDINARY COURSE OF ITS BANKING BUSINESS. WE ACCORDINGLY CONSIDER IT FIT TO RESTORE BOTH THE APPEALS TO THE FILE OF THE CIT(A) ON THIS ISSUE FOR FRESH ADJUDICATION. THE ASSESSEE HAS TO FILE REQUIRE DETAILS BY GIVING THE BREAK UP OF THE FACTS AND FIGURES WHETHER THE INTEREST FROM THE INVESTMENT MADE OUT OF THE VOLUNTARY RESERVES IS USED IN ITS ORDINARY BANKING BUSINESS. ACCORDINGLY THE GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED FO R THE STATISTICAL PURPOSES IN BOTH THE ASSESSMENT YEARS I.E. A.YS. 2003 - 04 & 2004 - 05. 1 2 . NOW WE TAKE UP THE APPEAL OF THE NAGAR URBAN CO - OP. BANK LTD. BEING ITA NO. 1312/PN/2007 FOR THE A.Y. 2004 - 05. IN THIS CASE ALSO THE FACTS ARE IDENTICAL AS IN THE CASE OF AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. BEING ITA NO. 938/PN/2006 AND ITA NO. 1313/PN/2007 FOR THE A.YS. 2003 - 04 AND 2004 - 05 RESPECTIVELY. THE ASSESSING OFFICER MADE THE DISALLOWANCE IN RESPECT OF INTEREST EARNED ON THE INVESTMENTS MADE OUT OF THE VOLUNTARY RESERVES TO THE EXTENT OF THE AMOUNT EARMARKED FOR THE DISTRIBUTION OF THE DIVIDEND OF RS.1 21 70 458/ - . THE ASSESSING OFFICER ALLOWED THE PROPORTIONATE EXPENDITURE AND THEREBY MADE THE NET ADDITION OF RS.25 95 959/ - . IN THIS CASE THE ASSE SSEE HAS NOT PLACED BEFORE US THE REQUIRED INFORMATION AND THE DETAILS TO ARRIVE AT A FINDING WHETHER THE INCOME EARNED FROM THE INVESTMENT OUT OF THE VOLUNTARY RESERVES WAS IN FACT USED BY THE ASSESSEE BANK IN ITS ORDINARY COURSE OF BANKING BUSINESS. WE THEREFORE IN THIS CASE ALSO RESTORE THE ISSUE TO THE FILE OF THE LD. CIT(A) . WE MAKE IT CLEAR THAT THE ASSESSEE BANK 10 ITA NO . 938/PN/2006 AND ITA NOS. 1312 & 1313/PN/2007 AHMEDNAGAR DIST. CENTRAL CO - OP. BANK LTD. AHMEDNAGAR HAS TO FILE THE REQUIRED DETAILS BEFORE THE CIT(A) THAT IN FACT THE INCOME EARNED OR DERIVED FROM THE INVESTMENT OUT OF THE VOLUNTARY R ESERVES THOUGH IT IS ROUTED THROUGH THE PROFIT AND LOSS ACCOUNT HAS BEEN UTILIZED IN THE ORDINARY COURSE OF ITS BANKING BUSINESS. ACCORDINGLY THE RELEVANT GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED FOR THE STATISTICAL PURPOSES. 1 3 . IN THE RESULT ALL T HE APPEAL S FILE BY THE ASSESSEE ARE ALLOWED FOR THE STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29 - 04 - 201 4 SD/ - SD/ - ( R.K. PANDA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PU NE DATED : 29 TH APRIL 2014 COPY TO 1 DEPARTMENT 2 ASSESSEE 3 THE CIT(A) - I PUNE 4 THE CIT - I PUNE 5 THE DR ITAT B BENCH PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL PUNE