2020 (4) TMI 320 - AT - Income Tax

Deduction u/s 80P(2) - assessee was doing the business of banking, and therefore, in view of insertion of section 80P(4) of the I.T.Act with effect from 01.04.2007, the assessee will not be entitled to the deduction u/s 80P(2) - 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). 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 assessee-society. 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. In view of the dictum laid we restore the issue of deduction u/s 80P(2) to the files of the AO 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.

Summary

Issues:
- Disallowance of deduction u/s 80P(2) of the I.T.Act by Assessing Officer
- Appeal to CIT(A) allowed deduction u/s 80P
- CIT(A) issued notice u/s 154 to rectify order based on subsequent judgment
- CIT(A) passed order disallowing deduction u/s 80P(2) of the I.T.Act
- Appeal filed before ITAT challenging CIT(A) order

Analysis:

Issue 1: Disallowance of deduction u/s 80P(2) by Assessing Officer
The Assessing Officer disallowed the claim of deduction u/s 80P(2) of the I.T.Act for the assessee, a co-operative society engaged in banking activities. This disallowance was based on the insertion of section 80P(4) of the I.T.Act, which restricted the deduction for societies engaged in banking. The AO's reasoning was that the assessee's banking activities made them ineligible for the deduction u/s 80P(2) of the I.T.Act.

Issue 2: Appeal to CIT(A) allowed deduction u/s 80P
The assessee appealed to the CIT(A) against the AO's order, and the CIT(A) allowed the appeal, holding that the assessee was indeed eligible for the deduction u/s 80P of the I.T.Act. The CIT(A) relied on a judgment of the jurisdictional High Court to support the assessee's eligibility for the deduction.

Issue 3: CIT(A) issued notice u/s 154 to rectify order based on subsequent judgment
Subsequently, the CIT(A) issued a notice u/s 154 of the I.T.Act to rectify his earlier order, citing a subsequent judgment of the Full Bench of the jurisdictional High Court. The assessee objected to this notice, but the CIT(A) rejected the objections and passed an order disallowing the deduction u/s 80P(2) of the I.T.Act.

Issue 4: Appeal filed before ITAT challenging CIT(A) order
The assessee filed an appeal before the ITAT challenging the order of the CIT(A) disallowing the deduction u/s 80P(2) of the I.T.Act. The ITAT, after considering the submissions and relevant judgments, found that the CIT(A) should have examined the activities of the assessee society before disallowing the deduction. The ITAT directed the Assessing Officer to conduct an inquiry into the activities of the assessee society to determine their eligibility for the deduction u/s 80P(2) of the I.T.Act. The ITAT allowed the appeal for statistical purposes, emphasizing the need for a factual inquiry into the activities of the assessee society to ascertain their eligibility for the deduction.