2020 (9) TMI 670 - AT - Income Tax

Deduction u/s 80P - assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee - AO concluded that the assessee cannot be treated as co-operative society - HELD THAT - After perusing the narration of the loan extracts in the statutory audit report for assessment years under consideration, came to the conclusion that out of the total loan disbursement, only a minuscule portion has been advanced for agricultural purposes. 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 these cases, such a detailed examination has not been conducted by the A.O. At the time of assessment, the judgment 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 of the I.T.Act. 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 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). Appeals filed by the assessee are 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 appeals were filed by the assessee against the CIT(A)'s order confirming the Assessing Officer's denial of deduction u/s 80P of the I.T.Act. The Assessing Officer disallowed the deduction, stating that the assessee, a cooperative society, was essentially engaged in banking activities, making it ineligible for the deduction. The CIT(A) upheld this disallowance based on the finding that the agricultural credit provided by the assessee was minimal, and it did not qualify as a primary agricultural credit society. The assessee then appealed to the Tribunal, raising various grounds challenging the CIT(A)'s decision.

The Tribunal considered the conflicting judgments of the Hon'ble Kerala High Court in the cases of Chirakkal Service Co-operative Bank Ltd. and The Mavilayi Service Co-operative Bank Ltd. The Chirakkal case held that if a cooperative society is classified as a primary agricultural credit society, it is entitled to deduction u/s 80P. However, the Mavilayi case reversed this decision, stating that each assessment year requires a separate inquiry into the activities of the society to determine eligibility for the deduction. The Tribunal noted that the Assessing Officer had not conducted a detailed examination of the purpose of each loan disbursement to ascertain if they were for agricultural or non-agricultural purposes.

Consequently, the Tribunal ordered a fresh examination by the Assessing Officer to determine the nature of each loan disbursement and whether they were for agricultural purposes. The Assessing Officer was directed to follow the Mavilayi case's dictum and make a decision based on a thorough assessment of the activities of the assessee-society. The issue was remanded to the Assessing Officer for further review in accordance with the law.

As a result of the decision, the appeals by the assessee were allowed for statistical purposes, and the stay applications were dismissed as infructuous. The Tribunal's order was pronounced on September 16, 2020.

This comprehensive analysis highlights the key legal issues, the arguments presented by the parties, and the Tribunal's decision based on the interpretation of relevant legal precedents and provisions.