2014 (8) TMI 1008 - AT - Income Tax

Disallowance of claim u/s.80P(4) - income earned for the activity of credit society to grant finance to its members is parallel to Banking Business - Held that - On perusal of the orders of authorities below, it is evident that they did not have the benefit of the precedents. Due to this reason, we are restoring this issue back to the file of the AO to be decided de novo after ascertaining that the facts of this assessee are identical with the facts of these precedents. Specially the AO shall examine the profit and loss account of the assessee along with balance sheet to exactly ascertain the nature of business of this assessee and if found that the same is matching with the business activity of the cited cases then the ratio laid down can be applied. The AO is also directed to verify the aims and objects of this assessee.- Decided in favour of assessee only for statistical purpose.

Summary

Issues:
1. Interpretation of Section 80P(4) of the Income Tax Act regarding the eligibility of a credit society for deduction.
2. Application of legal precedents and CBDT circulars in determining the eligibility of the assessee for deduction under Section 80P(4).

Analysis:
1. The primary issue in this case revolves around the interpretation of Section 80P(4) of the Income Tax Act concerning the eligibility of the appellant, a credit society, for deduction. The appellant contended that their credit society is not engaged in banking business and therefore should be eligible for deduction under Section 80P(2)(a)(I) of the IT Act. The Assessing Officer (AO) had initially denied the deduction under Section 80P(2) on the grounds that the appellant society was engaged in banking activities. This denial was upheld by the CIT(A), who determined that the appellant fell under the definition of a Cooperative Bank, making Section 80P(4) applicable to them, thus disallowing the claim.

2. The second issue involved the application of legal precedents and CBDT circulars in determining the eligibility of the appellant for deduction under Section 80P(4). The ITAT Ahmedabad referred to a previous case involving a Cooperative Credit Society where it was held that Section 80P(2)(a)(i) provides for deduction for cooperative societies engaged in banking activities. The court clarified that while Section 80P(4) excludes certain cooperative banks from deduction, it also exempts cooperative banks primarily engaged in agricultural credit or rural development. Additionally, the CBDT circular clarified that Section 80P(4) would not apply to entities not classified as cooperative banks. Subsequent court decisions in similar cases further supported the appellant's position, emphasizing that the exclusion clause of Section 80P(4) does not apply to credit cooperative societies that are not cooperative banks.

3. Ultimately, the ITAT Ahmedabad decided in favor of the appellant, allowing the appeal for statistical purposes only. The case was remanded back to the AO for a fresh assessment, considering the precedents and directions provided, including a detailed examination of the appellant's financial statements and business activities to ensure alignment with the cited cases. The court's decision was based on the clarification that the appellant, being a credit cooperative society and not a cooperative bank, was entitled to the deduction under Section 80P(2)(a)(i) of the Income Tax Act.