2020 (4) TMI 92 - AT - Income Tax

Deduction 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.

Issues:
1. Denial of deduction u/s 80P of the Income-tax Act by Assessing Officer.
2. Appeal to CIT(A) and subsequent issuance of notice u/s 154 for rectification.
3. Disallowance of deduction u/s 80P(2) by CIT(A) and appeal to ITAT.
4. Interpretation of judgments by jurisdictional High Court regarding eligibility for deduction u/s 80P.
5. Assessment of interest income from investments with Cooperative Banks and other Banks.

Analysis:

1. The appeal was against the CIT(A)'s order denying deduction u/s 80P of the Income-tax Act. The Assessing Officer disallowed the deduction claiming the assessee was engaged in banking activities. The CIT(A) allowed the deduction based on the judgment of the Hon’ble jurisdictional High Court. However, the CIT(A) later issued a notice u/s 154 proposing to rectify the order based on a subsequent judgment of the Full Bench of the High Court.

2. The CIT(A) rejected the objections raised by the assessee and disallowed the deduction u/s 80P(2) of the Income-tax Act. The assessee appealed to the ITAT on grounds of the order being illegal and arbitrary, and the CIT(A) not appreciating the judgment of the Full Bench of the High Court. The ITAT considered the arguments presented by both parties.

3. The ITAT referred to conflicting judgments of the jurisdictional High Court regarding the eligibility for deduction u/s 80P. The Larger Bench held that the Assessing Officer must conduct an inquiry into the activities of the assessee society for each assessment year to determine eligibility. The ITAT directed the Assessing Officer to examine the activities of the assessee to grant deduction u/s 80P(2) accordingly.

4. Regarding interest income from investments with Cooperative Banks and other Banks, the ITAT followed a previous Tribunal order stating such income is part of banking activity. However, the Assessing Officer was instructed to examine the activities of the assessee-society before granting deduction u/s 80P on this interest income, in line with the Full Bench judgment of the High Court.

5. The Stay Application filed by the assessee was dismissed as the appeal was allowed for statistical purposes. The ITAT's decision was pronounced on January 10, 2020, resolving the issues raised in the appeal.

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