2021 (3) TMI 812 - AT - Income Tax

Denying the deduction under section 80P to the society in respect of interest paid - HELD THAT - As provisions of section 80P(2)(4), a co-operative bank as such does not mean a cooperative society. The Ld. Counsel for the assessee in this respect has submitted that the intention of the legislature is to deny deduction to the cooperative bank and not to the cooperative society. We are not convinced with the above argument of the assessee. As per the provisions of section 80P(2)(d), what has been allowed is interest or dividend derived by the co-operative society with investment in any another co-operative society. The meaning of co-operative society cannot be taken differently for the investor and for the Institution (investee). The provisions of section 80P(4) specifically states that the provisions of this section will not apply to any co-operative bank. The plain meaning of which is that the same interpretation is to be given in case of an investor co-operative society and to the bank in which the investment is made. The Co-operative Bank cannot be given a different interpretation as an investee Bank. Two different meanings cannot be ascribed to the same word in the same provision. We hold that the assessee is not entitled to any deduction on interest income as per the provisions of section 80P(2)(d) of the Act. However, so far as the claim of the assessee that the assessee is entitled to deduction us 80P(2)(a) is concerned, the said issue has not been looked into by the Ld. CIT(A) despite a ground in this respect taken by the assessee before the Ld. CIT(A). Matter is restored to the file of the Ld. CIT(A) for the limited purpose of adjudicating on the plea of the assessee regarding its eligibility of deduction of interest income u/s. 80P(2)(a) - CIT(A) will give proper opportunity to the assessee to present its case and address on this issue by way of a speaking order. - Appeal of the assessee is treated as allowed for statistical purposes.

Issues:
1. Validity of proceedings under Section 147 of the Income Tax Act, 1961.
2. Denial of deduction under Section 80P to the society for interest paid.
3. Classification of funds as surplus funds of the society.
4. Determination of a Co-operative bank as a Co-operative Society under Section 2(19) of the Act.
5. Eligibility of the assessee for deduction under Section 80P(2)(a) and Section 80P(2)(d) of the Act.
6. Validity of the reopening of assessment under Section 147 of the Act.

Analysis:

1. The assessee appealed against the order of the Ld. Commissioner of Income Tax (Appeals)-2, Chandigarh, challenging the validity of proceedings under Section 147 of the Income Tax Act, 1961. The Tribunal found no infirmity in invoking Section 147 read with Section 148 of the Act, as the Assessing Officer observed an escapement of income due to the assessee not being entitled to deduction under Section 80P(2)(d) of the Act. Hence, the Tribunal dismissed this ground of the assessee.

2. The assessee claimed deduction under Section 80P for interest income, arguing that the surpluses invested in a cooperative bank generated interest linked to providing credit facilities to its members. However, the Tribunal held that as per Section 80P(2)(4), a cooperative bank is not considered a cooperative society, thus denying the deduction under Section 80P(2)(d) to the assessee. The Tribunal directed the matter to be reconsidered by the Ld. CIT(A) regarding the eligibility of deduction under Section 80P(2)(a) for interest income.

3. The Tribunal addressed the issue of classifying funds as surplus funds of the society. The Ld. CIT(A) and A.O. were criticized for not properly deciding on the plea made by the assessee in this regard. The Tribunal emphasized the need for a comprehensive examination of the claim and directed the Ld. CIT(A) to provide the assessee with a fair opportunity to present its case on this matter.

4. The Tribunal analyzed the classification of a Co-operative bank as a Co-operative Society under Section 2(19) of the Act. It was clarified that the provisions of Section 80P(2)(d) do not apply to a Co-operative bank, as specified in Section 80P(4). The Tribunal rejected the argument that the legislative intent was to deny deduction to the bank and not the society, emphasizing that the same interpretation of "co-operative society" applies to both the investor and investee.

5. The eligibility of the assessee for deductions under Section 80P(2)(a) and Section 80P(2)(d) was thoroughly examined. The Tribunal concluded that the assessee was not entitled to a deduction under Section 80P(2)(d) due to the nature of the cooperative bank not meeting the criteria of a cooperative society. However, the Tribunal directed a reassessment of the eligibility for deduction under Section 80P(2)(a) by the Ld. CIT(A) to ensure a fair and proper determination.

6. The Tribunal considered the issue of the validity of the reopening of assessment under Section 147 of the Act. It was noted that the Assessing Officer's decision was based on the statutory provisions rather than a change of opinion, justifying the invocation of Section 147 read with Section 148. Consequently, the Tribunal dismissed this ground of the assessee, treating the appeal as allowed for statistical purposes.

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