2018 (3) TMI 806 - AT - Income Tax

Deduction u/s 80P disallowed - assessee is a Cooperative Society - eligibility criteria - Held that - The claim of assessee under section 80P(2)(a)(i) would be available to the assessee and the same could not have been denied to the assessee by insertion of Section 80P(4) of the I.T. Act. The Hon ble Gujarat High Court in the case of CIT v. Jafari Momin Vikas Co-op Credit Society Ltd. 2014 (2) TMI 28 - GUJARAT HIGH COURT held that Section 80P(4) of the I.T. Act will not apply to assessee which is not a Cooperative Bank. The assessee being a Cooperative Society as per overriding provisions contained in Section 22 of the RRB Act, 1976, there is no bar for assessee to claim exemption under these provisions. Considering the above discussion in the light of various provisions contained under the Regional Rural Bank Act, 1976, we are of the view that assessee is entitled for exemption/deduction under section 80P(2)(a)(i) of the I.T. Act. The orders of the authorities below are, therefore, liable to be set aside. - Decided in favour of assessee. Section 80P deduction claim - issue belatedly raised before A.O. through a non-est return - Held that - In the present case, the assessee has raised the issue of claim of exemption under section 80P before A.O. which have been discussed and considered by the A.O. Therefore, there was no bar on the powers of the ld. CIT(A) to consider the same issue even if such issue would not have raised before A.O. Ld. CIT(A) was entitled to consider this issue at the First Appellate Stage. There is no merit in the cross objection and the same is liable to be dismissed. Orders of the authorities below are set aside and matter is restored to the A.O. to re-frame the assessment in accordance with law by granting benefit to the assessee under section 80P(2)(a)(i) of the I.T. Act because the A.O. has not examined the conditions of above provisions. The A.O. shall give reasonable, sufficient opportunity of being heard to the assessee.

Summary

Issues Involved:
1. Entitlement of the assessee to claim deduction under section 80P of the Income Tax Act.
2. Validity of the assessee's status as a Cooperative Society for the purpose of the Income Tax Act.
3. Applicability of Section 80P(4) of the Income Tax Act to the assessee.
4. Authority of the Appellate Tribunal to consider claims not made in the original return.

Detailed Analysis:

1. Entitlement of the Assessee to Claim Deduction under Section 80P of the Income Tax Act:
The core issue revolves around whether the assessee, a Regional Rural Bank (RRB), is eligible for deduction under section 80P of the Income Tax Act. The assessee initially filed a return declaring an income of ?9.91 crores but later revised it, claiming exemption under section 80P(1) as a Cooperative Society. The Assessing Officer (A.O.) disallowed this claim, stating that the assessee is not registered under the Cooperative Societies Act, 1912, and that post the insertion of Section 80P(4), the deeming status of RRBs as Cooperative Societies stands dissolved.

2. Validity of the Assessee's Status as a Cooperative Society:
The assessee argued that as per Section 22 of the RRB Act, 1976, an RRB is deemed to be a Cooperative Society for the purposes of the Income Tax Act. This claim was supported by Circular No. 319 dated 11th January 1982, issued by the Central Board of Direct Taxes (CBDT), which clarified that RRBs should be treated as Cooperative Societies for the purpose of section 80P. The assessee maintained that despite not being registered as a Cooperative Society, its status as such is conferred by Section 22 of the RRB Act, which has an overriding effect as per Section 32 of the same Act.

3. Applicability of Section 80P(4) of the Income Tax Act:
The introduction of Section 80P(4) by the Finance Act, 2006, effective from 1-4-2007, specifically excluded Cooperative Banks from the benefits of Section 80P. However, the assessee contended that it is not a Cooperative Bank but a Cooperative Society as per the RRB Act. The Tribunal noted that the assessee's claim for exemption originated from the statutory provisions of the RRB Act and not merely from the CBDT Circular No. 319. Consequently, the insertion of Section 80P(4) does not affect the assessee's status or its eligibility for deduction under section 80P(2)(a)(i).

4. Authority of the Appellate Tribunal to Consider Claims Not Made in the Original Return:
The Revenue's Cross Objection argued that the CIT(A) erred in discussing the issue of Section 80P as it was raised belatedly through a non-est return. The Tribunal cited several judicial precedents, including decisions from the Allahabad High Court and the Bombay High Court, affirming that appellate authorities possess the power to consider legal claims not made in the original return. The Tribunal held that there was no bar on the CIT(A) to consider the issue of exemption under section 80P, even if it was not initially raised before the A.O.

Conclusion:
The Tribunal concluded that the assessee, being an RRB, is deemed a Cooperative Society under Section 22 of the RRB Act and is thus entitled to deduction under section 80P(2)(a)(i) of the Income Tax Act. The orders of the lower authorities were set aside, and the matter was remanded to the A.O. to reframe the assessment in accordance with the law, granting the benefit to the assessee under section 80P(2)(a)(i). The Revenue's Cross Objection was dismissed, and the appeals of the assessee for the assessment years 2009-2010, 2010-2011, and 2011-2012 were allowed.