2020 (7) TMI 280 - AT - Income Tax

Deduction u/s 80P - claim denied as assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule - HELD THAT - 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 these cases, such a detailed examination has not been conducted by the A.O. A.O. has not examined to what extent loans, if any, has been disbursed to non-members. There is a passing statement in the assessment order that there have been disbursement of loans to non-members as well. In the light of the dictum laid down by the Full Bench of the Hon ble Kerala High Court 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 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. A.O. shall list out the instances where loans have disbursed to non-members of assessee-societies, 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.

Analysis:
The case involved a co-operative society registered under the Kerala Co-operative Societies Act, 1969, appealing against the denial of deduction u/s 80P of the I.T.Act for the assessment year 2016-2017. The Assessing Officer disallowed the deduction, citing that the society was primarily engaged in banking activities, making it ineligible for the deduction under section 80P(4) of the I.T.Act. The CIT(A) upheld this disallowance based on the society's minimal agricultural credit activities and its classification as a non-primary agricultural credit society. The society, aggrieved by this decision, appealed to the Tribunal.

The Tribunal noted conflicting judgments by the Hon'ble Kerala High Court in the cases of Chirakkal Service Co-operative Bank Ltd. v. CIT and The Mavilayi Service Co-operative Bank Ltd. v. CIT. While the former emphasized granting deduction based on the society's classification by the Registrar of Co-operative Societies, the latter required the Assessing Officer to independently verify the society's activities each assessment year to determine eligibility for deduction u/s 80P. The Tribunal found that the Assessing Officer had not sufficiently examined the purpose of loan disbursements, especially regarding agricultural versus non-agricultural loans and loans to non-members.

In light of the Mavilayi judgment, the Tribunal directed the Assessing Officer to conduct a fresh examination of the society's loan disbursements to ascertain the nature and purpose of each loan, specifically focusing on agricultural activities. The Tribunal instructed the society to cooperate fully with the Assessing Officer during this process. Consequently, the issue was remanded back to the Assessing Officer for a thorough review in accordance with the law laid down by the High Court.

As a result of the decision to remand the issue for further examination, the Tribunal allowed the appeal for statistical purposes, dismissing the stay application as infructuous. The Tribunal emphasized the need for a detailed assessment of the society's activities to determine the eligibility for deduction u/s 80P(2) of the I.T.Act, ordering the society to provide necessary details without unnecessary delays.

In conclusion, the Tribunal's decision highlighted the importance of a comprehensive assessment by the Assessing Officer to determine the society's eligibility for the deduction under section 80P, based on the specific nature of its loan disbursements and compliance with the activities of a primary agricultural credit society as per the Kerala Co-operative Societies Act, 1969.