2022 (8) TMI 958 - AT - Income Tax

Deduction u/s 80P - activities of the appellant extended to non-farm sector and also to non-members without giving any opportunity to the assessee - disallowing the deduction u/s 80P while recording a finding that the activities of the appellant extended to non-farm sector and also to non-members without giving any opportunity to the assessee - HELD THAT - While considering a claim of deduction u/s 80P AO has required to conduct inquiry into the factual situation as to the activities of the assessee society and arrived at the conclusion whether benefit can be extended or not in the light of the provisions of sub section 4 to section 80P of the Income Tax Act, in the instant case. We understand that it is appropriate and rather prerequisite to first ascertain the facts of the case before applying the principle laid down by the higher judicial forums as relied upon by both the sides. Considering the contention of the that the appellant assessee has not been granted adequate opportunity of being heard by the Ld. CIT(A), Bathinda while confirming the action of AO while rejecting the deduction u/s 80P and hold that the activities of the appellant extended to non-farm sector and also to non-members and by way of wrong interpretation to the definition of Primary Co-operative Agricultural Rural Development Bank as given in Explanation to section 80P(4) of the Act. In the alternative plea, the assessee required to restore the matter to the CIT(A) to adjudicate the issue of the claim of deduction u/s 80P of the appellant bank by recording a finding of fact afresh by passing speaking order by way of enquiry into the activities of the society bank in consonance to the objectives, law an byelaws as per mandate, particularly whether the activities of the appellant extended to non-farm sector and also the non-members by calling for a remand report from the AO and rebuttal to the appellant assessee. Accordingly, we consider that it is fit case to be remanded to the file of the CIT(A) to pass a fresh order after granting adequate opportunity of being heard to the assessee. The assessee shall cooperate in the fresh proceedings before the CIT(A). Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Assessment of income under section 143(3) for AY 2015-16.
2. Disallowance of deduction u/s 80P.
3. Interpretation of definition of Primary Co-operative Agricultural & Rural Development Bank under section 80P(4).

Issue 1: Assessment of income under section 143(3) for AY 2015-16:
The appeal was filed against the order passed by the Ld. Commissioner of Income Tax (Appeals) confirming the assessment of the assessee's income at Rs.2,46,13,931, which was previously declared as nil income after claiming deduction u/s 80P for AY 2015-16.

Issue 2: Disallowance of deduction u/s 80P:
The appellant, a Primary Coop. Agricultural Development Bank Ltd., was under scrutiny for claiming deduction under chapter VI-A. The AO disallowed the deduction of Rs.2,46,13,931 under section 80P(4) of the Income Tax Act, citing that the appellant's operations extended to two Talukas, violating the requirement of having operations confined to a single Taluka for claiming exemption under section 80P.

Issue 3: Interpretation of definition of Primary Co-operative Agricultural & Rural Development Bank under section 80P(4):
The Ld. CIT(A) confirmed the AO's findings, stating that the appellant's activities extended beyond the farm sector and to non-members, making it ineligible for deduction under section 80P(4). The CIT(A) rejected the alternative plea for a deduction of Rs.50,000 under section 80P(2)(c) and emphasized that once falling under section 80P(4), the appellant loses the claim for any deduction under section 80P.

The appellant challenged the CIT(A)'s decision, arguing that the AO and CIT(A) erred in assessing the income and disallowing the deduction under section 80P without providing adequate opportunity to present their case. The appellant relied on the judgment of the Hon'ble Apex Court in a similar case. The appeal was supported by the argument that the AO must consider factual inquiries into the activities of the society before denying benefits under section 80P(4).

In response, the ld. DR supported the CIT(A)'s order and cited a judgment of the Hon'ble Apex Court in another case. After hearing both sides and examining the material on record, the Tribunal found merit in the appellant's contention that they were not given a fair opportunity to present their case before the CIT(A). Therefore, the Tribunal remanded the matter back to the CIT(A) for a fresh order after granting adequate opportunity for the appellant to be heard and present their case effectively.

As a result, the appeal of the assessee was allowed for statistical purposes, emphasizing the importance of due process and fair opportunity in tax assessments and deductions under the Income Tax Act.