2022 (3) TMI 123 - AT - Income Tax

Deduction u/s 80P - assessee is a Primary Agricultural Co-operative Society duly registered under the Karnataka Co-operative Societies Act,1959 established with the main object of providing credit facilities to its members by collecting funds from its members, marketing agricultural produce and agricultural implements, sale of fertilizers / pesticides etc. and purchase sale of domestic requisites and grocery etc.- AO denied entire deduction of Section 80P to the assessee thereby making an addition merely because of the fact that the assessee had admitted Nominal Members - HELD THAT - The Hon'ble Supreme Court has settled many issues in the decision rendered by it in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT and since the facts prevailing in the instant case needs to be examined afresh in the light of the principles enunciated by Hon'ble Supreme Court in the above said case, we are of the view that the issue of deduction u/s 80P(2)(a)(i) of the Act requires fresh examination at the end of the A.O. We set aside the order passed by Ld. CIT(A) for the year under consideration and restore them to the file of the A.O. for examining it afresh based on the principles laid down by Hon ble Supreme Court in case of Mavilayi Service Co-operative Bank Ltd. (supra). Eligibility of the assessee to claim deduction u/s 80P(2)(d) - As relying on KARKALA CO-OP S. BANK LTD. VERSUS ITO WARD-3 UDUPI 2021 (2) TMI 854 - ITAT BANGALORE we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to allow deduction of proportionate cost, administrative and other expenses, if the A.O. proposes to assess the interest income earned from bank deposits as income under the head -other sources.

Summary

Issues Involved:
1. Disallowance of deduction under section 80P(2)(a)(i) by the Assessing Officer and confirmation by the First Appellate Authority.
2. Treatment of interest and dividend received from a cooperative bank as income from other sources instead of business income.
3. Interpretation of the term "members" in section 80P(2)(a)(i) and eligibility of a cooperative society to claim deductions.
4. Eligibility of a cooperative society to claim deduction under section 80P(2)(d) for interest and dividends received from cooperative banks.
5. Denial of benefits under section 80P without legal provision.
6. Appeal against the orders of the Assessing Officer and the CIT(A) regarding the denial of deductions under section 80P.

Detailed Analysis:

1. The appellant challenged the disallowance of deduction under section 80P(2)(a)(i) by the Assessing Officer and its confirmation by the First Appellate Authority. The appellant argued that the law on this deduction has been settled by the Supreme Court in the case of Mavilayi Service Cooperative Bank Ltd. vs. CIT, where the definition of "members" was crucial. The Tribunal set aside the CIT(A)'s order, directing a fresh examination based on the Supreme Court's principles.

2. The issue of treating interest and dividend received from a cooperative bank as income from other sources was raised. The Tribunal referred to a previous decision allowing deduction of expenses incurred for earning interest income, directing the Assessing Officer to allow such deductions if the interest income is assessed under the head "other sources."

3. The interpretation of the term "members" in section 80P(2)(a)(i) was crucial for determining the eligibility of a cooperative society to claim deductions. The Tribunal emphasized the need for a fresh examination based on the Supreme Court's decision in the Mavilayi Service Cooperative Bank Ltd. case.

4. The eligibility of a cooperative society to claim deduction under section 80P(2)(d) for interest and dividends received from cooperative banks was discussed. The Tribunal directed the Assessing Officer to allow deductions for proportionate costs and expenses related to interest income earned from bank deposits.

5. The denial of benefits under section 80P without a legal provision was contested, emphasizing that all available benefits should be granted to a cooperative society unless there is a specific legal provision to the contrary.

6. The appellant appealed against the orders of the Assessing Officer and the CIT(A) regarding the denial of deductions under section 80P, seeking relief and emphasizing the cooperative nature of the society to support their claims. The Tribunal allowed the appeal for statistical purposes, setting aside the previous orders and directing a fresh examination based on relevant legal principles.