2021 (9) TMI 1450 - HC - Income Tax

Assessment u/s 144B - Deduction u/s 80P - violation of the principles of natural justice - Petitioner is a primary agricultural credit co-operative society registered under the Kerala Co-operative Societies Act 1967 - HELD THAT - As per the decision in Mavilayi Service Co-operative Bank and Others v. Commissioner of Income Tax, Calicut and Others 2021 (1) TMI 488 - SUPREME COURT the income tax authority cannot go behind the classification accorded to the society under the Cooperative Societies Act and merely because the word bank is included in the name of the society, the same would not be sufficient to deprive a primary agricultural credit society of the benefits of deduction u/s 80P of the Act. Contrary to the findings in the assessment order mentioned earlier, it is seen from Ext. P4 acknowledgement from the Income tax department itself that the Department received petitioner s reply along with relevant case law as a response on 28-07-2021. Thus there is merit in the petitioner s contention that the impugned order is bad on account of violation of the principles of natural justice. It is relevant to refer to the Division Bench Judgment of this Court in Poonjar Service Cooperative Bank Ltd. v. Income Tax Officer 2021 (6) TMI 1084 - KERALA HIGH COURT . In the afore cited judgment, the learned single Judge had refused to interfere with an order of assessment and relegated the assessee to the remedy of a statutory appeal. However in appeal, noticing that the assessing officer had failed to apply the law laid down by the Supreme Court in Mavilayi s Case 2021 (1) TMI 488 - SUPREME COURT the Division Bench set aside the order of the learned single Judge and quashed the assessment order and directed the assessing authority to redo the assessment. The assessment order is liable to be set aside on the aforesaid reason also since the assessing officer had clearly failed to apply the dictum laid down Mavilayi s Case. Ext.P5 order of assessment for the year 2018-19 is quashed and the first respondent is directed to re-do the assessment of the petitioner society for the said assessment year afresh after issuing notice to the petitioner and after affording him an opportunity of being heard.

Summary

Issues:
Challenge to assessment order for the year 2018-19 under Article 226 of the Constitution of India based on violation of natural justice and failure to apply Supreme Court law on deduction under section 80P of the Income Tax Act.

Analysis:

Issue 1: Violation of Natural Justice
The petitioner, a primary agricultural credit co-operative society, claimed deduction under section 80P of the Income Tax Act based on a Supreme Court decision. The assessing officer completed the assessment without considering the petitioner's objection and alleged that the petitioner had not filed any objection. However, evidence showed that the petitioner did submit objections and relevant case law within the specified time frame, as acknowledged by the Income tax department. This failure to consider the petitioner's response violated the principles of natural justice.

Issue 2: Failure to Apply Supreme Court Law
The assessing officer's conclusion in the impugned assessment order contradicted the Supreme Court's decision in Mavilayi Service Co-operative Bank case. The officer found that the petitioner did not provide documentary evidence supporting its claim as a service co-operative agricultural bank under the Kerala Co-operative Societies Act, 1969. This assessment was in direct contradiction to the Supreme Court's ruling that the classification under the Cooperative Societies Act cannot be disregarded. Additionally, the officer assumed that the petitioner did not reply to the show cause notice, despite evidence showing otherwise. This failure to apply the law laid down by the Supreme Court led to an erroneous assessment.

Judgment
In light of the above issues, the High Court quashed the assessment order for the year 2018-19 and directed the assessing authority to redo the assessment after affording the petitioner an opportunity to be heard. The Court emphasized that it did not express any opinion on the merits of the case, leaving all contentions open for the petitioner to argue before the assessing authority. The assessing authority was instructed to complete the reassessment within six months, considering the Supreme Court's decision cited in the case. The writ petition was allowed accordingly.