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2020 (2) TMI 924 - AT - Income TaxDeduction u/s 80P(2) - assessee was doing the business of banking - AO disallowed the claim of deduction with regard to interest income received by the assessee on investments made with District Co-operative Banks - 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:
- Disallowance of deduction u/s 80P of the Income Tax Act - Interpretation of the judgment in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT - Rectification of orders u/s 154 based on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT - Examination of activities of the assessee society for eligibility of deduction u/s 80P - Treatment of interest income from investments with Co-operative Banks and other Banks Analysis: 1. Disallowance of deduction u/s 80P: The Assessing Officer disallowed the claim of deduction u/s 80P of the Income Tax Act for the assessee, a co-operative society, on the grounds of engaging in banking activities. However, the CIT(A) allowed the appeals, stating that the assessee was eligible for the deduction u/s 80P. The CIT(A) relied on the judgment of the Hon'ble jurisdictional High Court in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT. Subsequently, the CIT(A) issued notices u/s 154 proposing to rectify the orders based on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT. 2. Interpretation of Judgments: The judgment in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT held that a society classified as a primary agricultural credit society is entitled to deduction u/s 80P. However, the Full Bench in The Mavilayi Service Co-operative Bank Ltd. v. CIT reversed this, stating that the Assessing Officer must conduct an inquiry into the activities of the society each assessment year to determine eligibility for the deduction. The Full Bench emphasized that the registration certificate does not bind the Assessing Officer, and eligibility must be verified annually. 3. Examination of Activities for Deduction Eligibility: The Tribunal restored the issue of deduction u/s 80P to the Assessing Officer to examine the activities of the assessee society. The Assessing Officer must determine if the society's activities align with those of a co-operative society under the Kerala Co-operative Societies Act, 1969 to grant the deduction u/s 80P. 4. Treatment of Interest Income: Regarding interest income from investments with Co-operative Banks and other Banks, the Tribunal held that such income is part of banking activity and should be assessed as 'income from business.' However, the Assessing Officer must follow the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT to grant deduction u/s 80P on this interest income after examining the society's activities. In conclusion, the appeals filed by the assessee were allowed for statistical purposes, emphasizing the need for a detailed examination of the society's activities for the eligibility of deductions u/s 80P and the treatment of interest income from investments with banks.
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