2020 (6) TMI 266 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969 - AO had denied the claim of deduction u/s 80P for the reason that assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule AND concluded that the assessee cannot be treated as co-operative society - HELD THAT - Narration in loan extracts in the audit reports by itself may not conclusive to prove whether loan is a agricultural loan or a non-agricultural loan. The gold loans may or may not be disbursed for the purpose of agricultural purposes. Necessarily, the A.O. had to examine the details of each loan disbursement and determine the purpose for which the loans were disbursed, i.e., whether it is for agricultural purpose or non-agricultural purpose. In this case, such a detailed examination has not been conducted by the A.O. At the time of assessment, the judgment of the Hon ble jurisdictional High Court in the case of Chirakkal Service Cooperative Bank Ltd. 2016 (4) TMI 826 - KERALA HIGH COURT was ruling the roost and the certificate issued by the Registrar of Co-operative Society terming the assessee as a primary agricultural credit society would be sufficient for grant of deduction u/s 80P. Dictum laid down in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT view that there should be fresh examination by the Assessing Officer as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not. The A.O. shall list out the instances where loans have disbursed for non-agricultural purposes etc. and accordingly conclude that the assessee s activities are not in compliance with the activities of primary agricultural credit society functioning under the Kerala Co-operative Societies Act, 1969, before denying the claim of deduction u/s 80P(2) . There should be fresh examination by the AO as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not. A.O. shall list out the instances where loans have disbursed for non-agricultural purposes etc. and accordingly conclude that the assessee s activities are not in compliance with the activities of primary agricultural credit society functioning under the Kerala Co-operative Societies Act, 1969, before denying the claim of deduction u/s 80P(2) - Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
- Whether the CIT(A) was justified in confirming the Assessing Officer's order denying the claim of deduction u/s 80P(2)(a)(i) of the I.T. Act for the assessment year 2014-2015.

Analysis:
1. Background and Facts: The appellant, a cooperative society, filed a return for the assessment year 2014-2015 claiming a deduction u/s 80P of the I.T. Act. The Assessing Officer disallowed the deduction, considering the appellant's activities as banking, leading to the denial of the claim.

2. CIT(A) Decision: The CIT(A) upheld the Assessing Officer's decision based on the finding that the appellant's agricultural credit activities were minimal, and the society couldn't be classified as a primary agricultural credit society. This decision was influenced by the judgment of the Full Bench of the jurisdictional High Court.

3. Tribunal's Analysis: The Tribunal referred to conflicting judgments by the High Court. While a previous judgment favored granting deductions based on the classification by the Registrar of Co-operative Societies, a later Full Bench decision emphasized the need for the Assessing Officer to scrutinize the actual activities of the society. The Tribunal noted that the Assessing Officer's examination of loan disbursements was superficial and lacked a detailed analysis of whether loans were for agricultural purposes.

4. Fresh Examination Ordered: Considering the Full Bench's ruling, the Tribunal directed the Assessing Officer to conduct a thorough review of each loan disbursement to determine if they were for agricultural or non-agricultural purposes. The Tribunal emphasized the need for a detailed assessment following the guidelines set by the High Court's Full Bench decision in a similar case.

5. Decision and Conclusion: The Tribunal allowed the appeal for statistical purposes, instructing a fresh examination by the Assessing Officer in line with the Full Bench's directives. The case was restored to the Assessing Officer for a comprehensive review and a decision in accordance with the law.

In conclusion, the Tribunal's decision highlighted the importance of a detailed examination of loan disbursements to ascertain the nature of the society's activities and eligibility for deductions under section 80P of the I.T. Act.