2020 (7) TMI 371 - 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 - whether loan is a agricultural loan or a non-agricultural loan? - 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 deduction u/s 80P(2)(a)(i) of the I.T.Act?

Analysis:
The appeal in question was against the CIT(A)'s order upholding the Assessing Officer's decision to disallow the deduction claimed u/s 80P of the I.T.Act for the assessment year 2015-2016. The Assessing Officer had disallowed the deduction on the grounds that the assessee, a cooperative society, was primarily engaged in banking activities, rendering it ineligible for the deduction under section 80P(2)(a)(i) of the I.T.Act. The CIT(A) relied on the judgment of the Full Bench of the jurisdictional High Court to affirm the disallowance, stating that the assessee did not qualify as a primary agricultural credit society. Consequently, the appeal was rejected by the CIT(A).

The appellant raised multiple grounds challenging the CIT(A)'s decision, asserting their eligibility for the deduction u/s 80P(2)(a)(i) of the Income Tax Act. The appellant argued that the denial of the deduction by the lower authorities was illegal and unsustainable, emphasizing their entitlement to the deduction based on a comprehensive reading of the relevant provisions. The appellant also contended that the CIT(A) failed to consider crucial grounds raised by them, violating principles of natural justice and legality.

Upon hearing the arguments, the Tribunal referred to conflicting judgments by the High Court regarding the eligibility for deduction u/s 80P of the I.T.Act. While one judgment favored granting the deduction based on the society's classification by the Registrar of Co-operative Societies, another emphasized the need for a factual inquiry by the Assessing Officer to determine eligibility each assessment year. In light of these conflicting interpretations, the Tribunal directed the Assessing Officer to conduct a detailed examination of the loan disbursements to ascertain whether they were for agricultural purposes or not. The Tribunal emphasized the importance of a thorough assessment to establish compliance with the activities of a primary agricultural credit society under the Kerala Co-operative Societies Act, 1969.

Consequently, the Tribunal remanded the issue back to the Assessing Officer for a fresh examination in accordance with the Full Bench judgment, instructing the assessee to cooperate and provide necessary details without seeking unnecessary adjournments. The Tribunal allowed the appeal for statistical purposes and dismissed the stay application as infructuous. The decision was pronounced on July 9, 2020.