2017 (1) TMI 766 - AT - Income Tax

Benefit of exemption u/s 80P(2)(a)(i) - denial of claim holding that the assessee society was engaged in the business of cooperative banking - Held that - As decided in Asstt. Year 2009-10 the assessee society is maintaining operational funds and to meet any eventuality towards repayment of deposit the cooperative society is maintaining some liquidated funds as short term deposits with banks. Hence adhering to the doctrine stair desises, we hold that the assessee should be granted benefit of deduction under section 80P(2)(a)(i). - Decided in favour of assessee

Summary

Issues:
1. Denial of exemption u/s 80P(2)(a)(i) to a cooperative credit society.
2. Disallowance of deduction u/s 80P of ?1784272.
3. Dismissal of appeal for non-prosecution by CIT(Appeals).

Analysis:

Issue 1: Denial of exemption u/s 80P(2)(a)(i) to a cooperative credit society:
The Assessing Officer (AO) denied the exemption under section 80P(2)(a)(i) to the assessee, considering it as engaged in cooperative banking. The AO emphasized that the expression "providing credit facilities" is linked to the "business of banking." The AO noted the acceptance of deposits, lending money, and other banking activities by the assessee. However, the ITAT found that the deduction under section 80P is specific to Primary Agricultural and Rural Development Banks, excluding other financial institutions. The ITAT emphasized that legislative intent must be derived from unambiguous statutory language. The ITAT concluded that a cooperative credit society is not eligible for the deduction under section 80P.

Issue 2: Disallowance of deduction u/s 80P of ?1784272:
The AO disallowed the deduction claimed by the assessee under section 80P. The ITAT observed that the CIT(Appeals) dismissed the appeal for non-prosecution without adjudicating on the merits, despite the availability of facts on record. The ITAT referred to a similar case where the Tribunal had ruled in favor of the assessee, granting the benefit of deduction under section 80P(2)(a)(i). The ITAT held that the assessee, maintaining operational funds and short-term deposits for repayment purposes, should be granted the deduction under section 80P(2)(a)(i). Consequently, the ITAT set aside the lower authorities' orders and decided in favor of the assessee.

Issue 3: Dismissal of appeal for non-prosecution by CIT(Appeals):
The CIT(Appeals) declined to adjudicate on the issue raised by the assessee and dismissed the appeal for non-prosecution. However, the ITAT found that the CIT(Appeals) erred in not considering the merits of the case, especially when all facts were available. The ITAT referred to a precedent where a similar issue was decided in favor of the assessee. The ITAT reversed the adverse decision of the CIT(Appeals) and held that the assessee was eligible for the deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

In conclusion, the ITAT allowed the appeal by the assessee, granting the benefit of deduction under section 80P(2)(a)(i) and setting aside the orders of the lower authorities.