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2020 (4) TMI 721 - AT - Income TaxDeduction u/s 80P - assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969 - 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 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) - Appeal filed by the assessee allowed for statistical purposes.
Issues Involved:
1. Validity of proceedings initiated under section 154 of the Income Tax Act. 2. Eligibility for deduction under section 80P(2) of the Income Tax Act. 3. Classification of the assessee as a primary agricultural credit society. 4. Treatment of interest income from investments with cooperative banks and other banks. Detailed Analysis: 1. Validity of Proceedings Initiated Under Section 154: The assessee challenged the initiation of proceedings under section 154 based on a subsequent decision of the jurisdictional High Court. The assessee argued that the appellate authority invoked jurisdiction under section 154 without verifying whether the department had filed an appeal against the original order. The Tribunal noted that the Kerala High Court in Kil Kotagiri Tea & Coffee Estates Co. Ltd. v. ITAT held that if an authority’s decision is based on a High Court judgment that is later reversed, it constitutes a rectifiable mistake under section 154. Therefore, the CIT(A) was justified in recalling the earlier order granting deduction under section 80P(2) based on the revised legal position. 2. Eligibility for Deduction Under Section 80P(2): The CIT(A) initially allowed the assessee’s claim for deduction under section 80P(2), following the Kerala High Court's judgment in Chirakkal Service Cooperative Co-operative Bank Ltd. v. CIT. However, the Full Bench of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT reversed this position, holding that the Assessing Officer must examine the activities of the assessee to determine eligibility for deduction under section 80P. The Tribunal restored the issue to the Assessing Officer to conduct an inquiry into the factual activities of the assessee, as mandated by the Full Bench decision. 3. Classification of the Assessee as a Primary Agricultural Credit Society: The Tribunal noted that the Full Bench of the Kerala High Court held that the Assessing Officer is not bound by the registration certificate issued by the Registrar of Cooperative Societies. The eligibility for deduction under section 80P must be determined based on the actual activities of the assessee. The Tribunal directed the Assessing Officer to examine whether the assessee’s activities align with those of a cooperative society under the Kerala Co-operative Societies Act, 1969, before granting the deduction under section 80P(2). 4. Treatment of Interest Income from Investments: The Tribunal referred to a co-ordinate Bench decision in the case of Kizhathadiyoor Service Cooperative Bank Limited, which held that interest income from investments with treasuries and banks should be assessed as 'income from business' rather than 'income from other sources.' However, the Tribunal emphasized that the Assessing Officer must follow the Full Bench decision in The Mavilayi Service Co-operative Bank Ltd. v. CIT to determine the eligibility for deduction under section 80P on such interest income. Additionally, the Assessing Officer should examine if the assessee is entitled to deduction under section 80P(2)(d), provided the necessary facts are available on record. Conclusion: The appeal filed by the assessee was allowed for statistical purposes, and the matter was remanded to the Assessing Officer to re-examine the eligibility for deduction under section 80P(2) in light of the Full Bench decision of the Kerala High Court. The Assessing Officer was also directed to assess the interest income from investments with banks and treasuries as 'income from business' and determine the eligibility for deduction under section 80P(2)(d) based on the available facts.
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