Gujarat State Co. Op. Agricultural And Rural Development Bank Ltd. Vs ITO (Gujarat High Court)
Summary: The Gujarat High Court allowed the writ petition filed by The Gujarat State Co. Op. Agricultural and Rural Development Bank Ltd. and quashed the notice dated 16/12/2019 issued under Section 148 of the Income-tax Act, 1961 for Assessment Year 2014-15. The Court held that the reopening was nothing but a change of opinion. The judgment also records that the reopening was required to be quashed and set aside on merits in light of Diamond Jubilee Co Operative Bank Limited Vs Union of India & Ors..
The petitioner, a co-operative Bank, filed its return for A.Y. 2014-15 on 17/11/2014 declaring total income at Rs.NIL after claiming exemption of Rs.28,91,29,255/- under Section 80P. The return was selected for scrutiny. During the scrutiny proceedings, the Assessing Officer issued a show cause notice dated 21/11/2016 concerning, among other matters, “interest income” claimed exempt under Section 80P(2)(d) and “other income” claimed exempt under Section 80P(2)(c). The petitioner supplied details concerning interest from co-operative banks and nationalized banks and furnished justification for its exemption claims.
After considering the material furnished, the Assessing Officer framed the scrutiny assessment under Section 143(3) on 02/12/2016. The assessment made two additions: Rs.11,28,91,418/- under Section 80P(2)(d) in respect of interest income from nationalized banks and Rs.32,61,000/- under Section 80P(2)(c) in respect of miscellaneous income and rental income. The assessed income was determined at Rs.11,61,52,425/-. The petitioner challenged the assessment before the Commissioner of Income Tax (Appeals), which dismissed the appeal on 17/02/2018. No further appeal was preferred against that appellate order.
Thereafter, the respondent issued the impugned Section 148 notice dated 16/12/2019 seeking to reopen the assessment. The petitioner filed a return in response on 23/01/2020 and requested the reasons for reopening and the sanction obtained from the Pr.CCIT. The reasons supplied on 07/02/2020 stated, broadly, that Rs.5,93,32,466/- representing interest earned from various co-operative banks had been exempted under Section 80P(2)(d), whereas, according to the respondent, such interest did not arise from the business operations of the petitioner and was therefore not eligible for exemption. The respondent accordingly recorded that income of Rs.5,93,32,466/- chargeable to tax had escaped assessment.
The petitioner objected to the reopening on 18/02/2020, raising factual and legal submissions. The respondent disposed of those objections by order dated 04/03/2020 and held that the reopening was justified.
Before the High Court, the petitioner relied upon the Gujarat High Court decision in Diamond Jubilee Cooperative Bank Limited vs. Union of India, reported in [2025] 181 taxmann.com 177 (Gujarat), and submitted that deduction under Section 80P(2)(d) was available to co-operative societies on income earned as interest or investment made with a co-operative Bank, which in turn was a co-operative society itself. The petitioner also contended that the reopening amounted to a change of opinion because all relevant material had been supplied during the scrutiny assessment and no fresh or tangible material had come into the possession of the Assessing Officer.
The Revenue opposed interference at the reopening stage and submitted that the action was undertaken in view of Section 147. According to the Revenue, the petitioner had claimed deduction of Rs.5,93,32,466/- in respect of interest income earned from various co-operative Banks and such income could not be regarded as arising from the business operation of the assessee for purposes of Section 80P(2)(d).
The High Court accepted the petitioner’s challenge on the ground of change of opinion. The Court noted that the return had been subjected to scrutiny and that the Assessing Officer had found the petitioner’s explanation concerning exempt interest income under Section 80P(2)(d) satisfactory while passing the scrutiny assessment under Section 143(3) on 02/12/2016. The Court further noted that the Assessing Officer had already made an addition under Section 80P(2)(d) concerning interest from nationalized Banks.
According to the Court, the reopening through the Section 148 notice was premised on the same material and the same issue that had already been examined by the Assessing Officer during the scrutiny assessment. The Court therefore held that the reopening was “nothing but a change of opinion.”
The Court additionally found that the reopening was required to be quashed and set aside on merits in light of the decision in Diamond Jubilee Cooperative Bank Limited. In that case, after analysing Section 80P and considering settled legal precedent, the Court had held that deduction under Section 80P(2)(d) is available to co-operative societies on income earned as interest on investment made with a co-operative Bank which itself is a co-operative Society.
The judgment also records the precedent of Apex Co-operative Bank of Urban Bank of Maharashtra & Goa Ltd. Vs. The Maharashtra State Co-operative Bank Ltd. & Ors., reported in 2003 (11) SCC 66, and Kerala State Co-operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officer, reported in [2023] 154 taxmann.com 305, as authorities referred to in the Diamond Jubilee Cooperative Bank Limited decision.
Consequently, the Gujarat High Court held that the writ petition succeeded and quashed and set aside the impugned notice dated 16/12/2019 and the action of reopening the assessment for A.Y. 2014-15.
Cases Discussed
- Diamond Jubilee Cooperative Bank Limited vs. Union of India, [2025] 181 taxmann.com 177 (Gujarat) — relied upon on the issue of deduction under Section 80P(2)(d) in respect of interest on investments made with a co-operative Bank and referred to as an additional ground for quashing the reopening on merits. :contentReference[oaicite:2]{index=2}
- Apex Co-operative Bank of Urban Bank of Maharashtra & Goa Ltd. Vs. The Maharashtra State Co-operative Bank Ltd. & Ors., 2003 (11) SCC 66 — referred to in the quoted reasoning from Diamond Jubilee Cooperative Bank Limited as a Supreme Court precedent considered in relation to Section 80P.
- Kerala State Co-operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officer, [2023] 154 taxmann.com 305 — referred to in the quoted reasoning from Diamond Jubilee Cooperative Bank Limited as settled legal precedent considered in relation to Section 80P.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. In the present writ petition, the petitioner has assailed the notice dated 16/12/2019 issued under Section 148 of the Income Tax Act, 1961 (for short ‘the Act’) seeking to reopen the assessment of the petitioner for the Assessment Year (for short ‘A.Y.’) 2014-15.
2. The petitioner is a co-operative Bank which filed its return of income for A.Y. 2014-15. During the year under consideration, the petitioner earned certain interest income which included “interest income earned from co-operative banks”. The petitioner filed return of income for the year under consideration on 17/11/2014 declaring total income at Rs.NIL after claiming exemption of Rs.28,91,29,255/- under Section 80P(2) of the Act.
2.1. The case of the petitioner for the year under consideration was selected for scrutiny assessment. The then Assessing Officer, vide show cause notice dated 21/11/2016, called upon the petitioner to show cause as to why “interest income” claimed exempt under Section 80P(2)(d) of the Act and “other income” (i.e. Misc. income and rental income) claimed exempt under Section 80P(2)(c) of the Act should not be exempted. The petitioner, vide letter dated 28/11/2016, furnished details including details pertaining to “Interest from Co-operative banks” as well as “Interest from Nationalized banks” along with justification for the claim under Section 80P(2)(c) of the Act in respect of interest income. The petitioner further, vide letter dated 28/11/2016, also furnished justification as to why no disallowance of exemption is called for under Section 80P(2)(c) of the Act.
2.2. The then Assessing Officer, after perusing the details so furnished from time to time, consciously chose not to disturb the claim of exemption under Section 80P(2)(d) of the Act qua “interest income earned from co-operative bank” while framing assessment under Section 143(3) of the Act vide order dated 02/12/2016. Instead, the assessment was framed by the then Assessing Officer after making following two additions only:
Rs.11,28,91,418/- being addition under Section 80P(2)(d) of the Act in respect of “interest income from nationalized banks” (i.e. other than co-operative banks);
Rs.32,61,000/- being addition under Section 80P(2)(c) of the Act in respect of “Misc. income and rental income”;
Resultantly, the assessed income of the petitioner was determined at Rs.11,61,52,425/-.
2.3. The petitioner challenged the assessment order before the Commissioner of Income Tax (Appeals) who, vide order dated 17/02/2018, dismissed the Appeal. At this stage, it is clarified that no further Appeal has been preferred by the petitioner against the appellate order dated 17/02/2018 passed by the First Appellate Authority.
2.4. Thereafter, the respondent issued the impugned notice dated 16/12/2019 under Section 148 of the Act seeking to reopen the case of the petitioner for the year under consideration.
2.5. The petitioner filed return of income in response to the impugned notice issued under Section 148 of the Act on 23/01/2020 and brought the said fact to the notice of the respondent vide letter dated 27/01/2020. The petitioner, vide the very same letter, also requested for a copy of “reasons for reopening” and a copy of “sanction obtained from the Pr.CCIT”. The petitioner, vide letter dated 07/02/2020, again requested the respondent herein to supply copy of reasons recorded for reopening.
2.6. The respondent supplied copy of reasons for reopening vide letter dated 07/02/2020. Perusal of reasons recorded for reopening reveals that the case of the petitioner has been reopened broadly the count that deduction of Rs.5,93,32,466/- claimed under Section 80P(2)(d) of the Act in respect of interest earned from various co-operative banks is not exempt. Briefly, the case of the respondent is that on verification of the case records, it was found that out of exemption of Rs.28,91,29,255/- claimed under Section 80P(2)(a)(i) of the Act, of which Rs.5,93,32,466/- represents interest income earned from various co-operative banks which was exempted by the then assessing officer while framing the assessment. Since such interest income was not arising out of business operations of the petitioner, the same was not required to be exempted under Section 80P(2)(d) of the Act. Accordingly, the respondent has reason to believe that income of Rs.5,93,32,466/- chargeable to tax has escaped assessment in the hands of the petitioner for the year under consideration. Hence, the case of the petitioner for the year under consideration has been reopened.
2.7. The petitioner, vide letter dated 18/02/2020, raised objections against reopening wherein various factual as well as legal submissions were made. However, the respondent, vide order dated 04/03/2020, disposed off such objections raised by the petitioner against reopening and, inter alia, held that the action of reopening is justified in the eye of law.
3. Learned advocate Ms.Vaibhavi K. Parikh at the outset, while placing reliance on the judgment of this Court in the case of Diamond Jubilee Cooperative Bank Limited vs. Union of India [2025] 181 taxmann.com 177 (Gujarat) has submitted that the reopening of the assessment is required to be quashed and set aside, since the deduction under Section 80P(2)(d) of the Act was available to the cooperative societies on income earned as interest or investment made with a co-operative Bank, which in turn was a co-operative society itself.
4. The second ground which has been urged before us is, that reopening is nothing but a change of opinion, as all the relevant material as demanded by the Assessing Officer was supplied during the scrutiny assessment and ultimately the assessment order under Section 143(3) of the Act has been passed. It is submitted that, no fresh material or tangible material has come into the possession of the Assessing Officer, which can invite reopening of the assessment.
5. Responding to the aforesaid submissions, learned Senior Standing Counsel Mr.Maunil Yajnik has submitted that, at this stage, the reopening of the assessment may not be interfered with, as the same is precisely done in view of the provision of Section 147 of the Act. It is submitted that, in the instant case, it was found that the petitioner has claimed a deduction of Rs.5,93,32,466/- being interest income earned from various co-operative Banks and hence, as per the provision of Section 80P(2)(d) of the Act, the said income cannot be said to be arising from business operation of the assessee and is not entitled to the same. Thus, it is urged that the writ petition may not be entertained.
6. We are inclined to set aside the impugned notice and the action of the reopening of the assessment for the year under consideration, only for the sole reason that, the reopening is nothing but a change of opinion by the Assessing Officer.
7. It is not in dispute that the petitioner filed the return of income on 17/11/2014 which was subjected to scrutiny assessment, and ultimately, after the Assessing Officer found the explanation tendered by the petitioner with regard to the exempt income on interest under Section 80P(2)(d) of the Act satisfactory, the scrutiny Assessment Order under Section 143(3) of the Act was passed on 02/12/2016. The Assessing Officer made the two additions; (I) Rs.11,28,91,418/- being an addition under Section 80P(2)(d) of the Act in respect of interest income from nationalized Banks, and (II) Rs.32,61,000/- being an addition under Section 80P(2)(c) of the Act in respect of miscellaneous income and rental income. Thus, in the scrutiny assessment, the Assessing Officer has already made the addition under Section 80P(2)(d) of the Act with regard to the interest from co-operative Banks. However, the reopening of the assessment by issuing the Notice under Section 148 of the Act on 23/01/2020 is also premised on the same material and the issue which has already been examined by the Assessing Officer in the scrutiny assessment. Hence, the reopening is nothing but a change of opinion. Moreover, we also find that the reopening is also required to be quashed and set aside on the ground of merits, in light of the decision of this Court in the case of Diamond Jubilee Cooperative Bank Limited (supra), wherein, on an identical issue, after analysis of the provision of Section 80P of the Act and considering the settled legal precedent, this Court has held thus:
“5 Thus, as held by the Supreme Court in the case of Apex Co-operative Bank of Urban Bank of Maharashtra & Goa Ltd. Vs. The Maharashtra State Co-operative Bank Ltd & Ors., reported in 2003 (11) SCC 66 for which the reliance is placed by the Co-ordinate Bench, and also in case of Kerala State Co-operative Agricultural & Rural Development Bank Ltd vs. Assessing Officer., reported in [2023] 154 taxmann.com 305, the present writ petition is allowed as the petitioner is not a Co-operative Bank but a Co-operative Society.
6 Hence, as per the settled legal precedent, deduction under Section 80P(2)(d) is available to Co-operative societies on income earned as interest on investment made with Co-operative Bank which in turn, is a Co-operative Society itself and as the observations recorded by the respondent are incorrect and thus contrary to the judgment of this Court.”
8. Thus the present writ petition succeeds. The impugned notice dated 16/12/2019 and the action of reopening for the assessment for A.Y. 2014-15 is hereby quashed and set aside.
