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2020 (2) TMI 832 - AT - Income TaxDeduction u/s 80P - CIT(A) rejected the objections raised by the assessee and passed orders u/s 154 disallowing the claim of the assessee u/s 80P(2) - HELD THAT - CIT(A) had initially allowed the appeals of the assessee and granted deduction u/s 80P(2) of the I.T.Act. Subsequently, the CIT(A) passed orders u/s 154 wherein the claim of deduction u/s 80P was denied, by relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT The CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) of the I.T.Act without examining the activities of the assesseesociety. The Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. In view of the dictum laid we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer to examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Co-operative Banks and other Banks - Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as income from business instead of income from other sources . However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. Appeals filed by the assessee are partly allowed for statistical purposes.
Issues Involved:
1. Disallowance of deduction claimed under Section 80P of the Income Tax Act. 2. Classification of the appellant as a Primary Agricultural Credit Society (PACS). 3. Applicability of Section 80P(4) and its explanations. 4. Addition of bad debts under Section 36(1)(viia) of the Income Tax Act. 5. Eligibility for deduction under Section 80P(2)(d) of the Income Tax Act for interest income from investments with other co-operative societies. Detailed Analysis: 1. Disallowance of Deduction Claimed Under Section 80P of the Income Tax Act: The assessee, a co-operative society, filed returns for the assessment years 2012-13 and 2013-14, claiming deductions under Section 80P of the Income Tax Act. The Assessing Officer disallowed these claims, reasoning that the assessee was engaged in banking activities, making it ineligible for deductions under Section 80P(2) due to the insertion of Section 80P(4) effective from 01.04.2007. The CIT(A) initially allowed the deduction but later rectified the order under Section 154, following the Full Bench judgment in The Mavilayi Service Co-operative Bank Ltd. v. CIT, which required examining the actual activities of the society to determine eligibility. 2. Classification of the Appellant as a Primary Agricultural Credit Society (PACS): The assessee argued that it was classified as a PACS by the Registrar of Co-operative Societies, which should automatically grant it the deduction under Section 80P(2). However, the Full Bench in The Mavilayi Service Co-operative Bank Ltd. v. CIT ruled that the Assessing Officer must conduct an inquiry into the actual activities of the society, and the registration certificate alone is not sufficient for granting deductions. 3. Applicability of Section 80P(4) and Its Explanations: The appellant contended that Section 80P(4) only restricts deductions for co-operative banks and not for PACS or Primary Co-operative Agricultural and Rural Development Banks (PCARD). The Tribunal noted that the Full Bench judgment requires the Assessing Officer to verify the activities of the society each assessment year to determine eligibility, regardless of the classification by the Registrar. 4. Addition of Bad Debts Under Section 36(1)(viia) of the Income Tax Act: The assessee raised an issue regarding the addition of ?70,696 as bad debts under Section 36(1)(viia). The Tribunal dismissed this ground as it did not arise from the CIT(A)'s order. 5. Eligibility for Deduction Under Section 80P(2)(d) of the Income Tax Act for Interest Income from Investments with Other Co-operative Societies: The Tribunal noted that the CIT(A) had not examined whether the interest income from investments with co-operative banks and other banks qualifies for deduction under Section 80P(2)(d). The Tribunal directed the Assessing Officer to examine this aspect, following the Full Bench judgment, to determine if the interest income is part of the business activity and eligible for deduction. Conclusion: The Tribunal restored the issue of deduction under Section 80P(2) to the files of the Assessing Officer, instructing them to examine the activities of the assessee to determine eligibility. The Tribunal also directed the Assessing Officer to consider the assessee's claim for deduction under Section 80P(2)(d) for interest income from investments with other co-operative societies. The appeals were partly allowed for statistical purposes.
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