2020 (7) TMI 247 - AT - Income Tax

Deduction u/s 80P - assessee are co-operative societies registered under the Kerala Co-operative Societies Act, 1969 - Disallow the claim of deduction as the assessees were essentially doing the business of banking, and in view of insertion of section 80P(4) with effect from 01.04.2007, the assessee will not be entitled to deduction u/s 80P - HELD THAT - After perusing the narration of the loan extracts for the financial periods under consideration, came to the conclusion that out of the total loan disbursement, only a minuscule portion has been advanced for agricultural purposes. The narration in loan extracts / 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 s 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 these cases, such a detailed examination has not been conducted by the A.O s. In the light of the dictum laid down in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT we are of the view that 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 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) - Decided in favour of assessee for statistical purposes.

Summary

Issues:
- Whether the CIT(A) was justified in denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act?

Analysis:
The appeals were filed by different assessees against orders of the CIT(A) denying deduction u/s 80P of the I.T.Act. The Assessing Officer disallowed the deduction claiming that the assessees were essentially engaged in banking activities and thus ineligible for the deduction post the insertion of section 80P(4) of the I.T.Act. The CIT(A) upheld this disallowance based on factual findings that the assessees were not primary agricultural credit societies. The assessees contended that they were entitled to the deduction under section 80P. The Tribunal noted conflicting decisions by the Kerala High Court regarding the eligibility for deduction under section 80P. The Full Bench of the High Court in a recent judgment emphasized that each assessment year requires a fresh examination by the Assessing Officer to determine eligibility for the deduction. The Tribunal, aligning with this view, directed the Assessing Officer to conduct a detailed inquiry into the purpose of each loan disbursement by the assessees to ascertain if they qualify as primary agricultural credit societies. The issue was remanded back to the Assessing Officer for fresh consideration in line with the Full Bench judgment.

The Tribunal highlighted that the Assessing Officer must scrutinize individual loan disbursements to distinguish between agricultural and non-agricultural loans. The Tribunal emphasized that the mere narration in loan extracts may not be conclusive evidence of the loan purpose. The Tribunal underscored the need for a thorough examination by the Assessing Officer to determine if the loans were disbursed for agricultural purposes. The Tribunal directed the Assessing Officer to list instances of non-agricultural loans to assess compliance with the activities of primary agricultural credit societies under the Kerala Co-operative Societies Act, 1969. The Tribunal instructed the assessees to cooperate with the Assessing Officer and furnish necessary details without seeking unnecessary adjournments.

The Tribunal allowed the appeals for statistical purposes and dismissed the stay applications filed by the assessees as infructuous since the appeals were disposed of. The decision was pronounced on July 8, 2020, by the Tribunal.