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2019 (5) TMI 1387 - AT - Income TaxBenefits of section 80P - HELD THAT - The issue was considered by the Jurisdictional High Court in the case of Mavilayi Service Co-operative Bank Ltd. vs. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT wherein it was held that the AO is not obliged to grant deduction by merely looking at the certificate of registration issued by the competent authority under the Co-operative Societies Act. Instead, he has to conduct an enquiry into the factual situation as to the activities of the assessee and arrive at a conclusion whether the benefits of section 80P can be extended or not. Thus, the Full Bench overruled the earlier judgment of the Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. vs. CIT 2016 (4) TMI 826 - KERALA HIGH COURT . The Full Bench had followed the judgment of the Supreme Court in the case of Citizen Co-operative Society Ltd. vs. ACIT 2017 (8) TMI 536 - SUPREME COURT . In view of the latest judgment of the Jurisdictional High Court cited supra, this issue is remitted to the file of the Assessing Officer with the direction to examine the actual activities carried on by the assessee so as to grant deduction u/s. 80P of the Act. Accordingly, the issue in dispute is remitted to the file of the AO for fresh consideration in accordance with the above direction. This ground of appeals of the Revenue is partly allowed for statistical purposes. Deduction u/s. 80P(2)(a)(i) - HELD THAT - With regard to the interest income earned by the assessee from other Banks and Treasury on which deduction u/s. 80P(2)(i)(a) is to be granted, there is no dispute that the assessee has made investments in the course of banking activities and such interest income was received on investments made with cooperative banks and other scheduled banks. The co-ordinate bench of the Tribunal in the case of Kizhathadiyoor Co-operative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN had held that such interest income received by the assessee should be assessed as income from business instead of income from other sources . In view of the order of the co-ordinate bench, we hold that the CIT(A) is justified in holding that interest income received by the assessee should be assessed as income from business . Unexplained cash credits u/s. 68 - HELD THAT - CIT(A) has taken a different view for this assessment year 2014-15 which is not proper. Judicial discipline requires consistency in its proceedings. Being so, we are inclined to remit this issue to the file of the AO for this assessment year in conformity with the order of the CIT(A) with a direction to the assessee to provide details of the depositors along with the proof of identity to the Assessing Officer. The Assessing Officer is directed to verify the identity of the depositors and if the assessee proves the identity of the parties, then the addition is to be deleted in view of the order of the Tribunal in the case of This ground of appeal of the assessee is partly allowed for statistical purposes. Non granting of deduction u/s. 80P(2) - treating the unexplained credits as income from other sources - HELD THAT - This issue was considered by the Jurisdictional High Court in the case of Kerala Sponge Iron Ltd. 2015 (9) TMI 233 - KERALA HIGH COURT wherein the income had been treated as unexplained cash credit u/s 68. Once it was so done for the purpose of set off or any other purpose, the unexplained income could not be treated as business income under any one of the heads provided under section 14 in which case the question of set off did not arise. Therefore, the order of the Tribunal to the extent it had set aside the order of the Commissioner (Appeals) directing the Assessing Officer to allow the set off of the current year s business loss as well as brought forward business loss and unabsorbed depreciation against income assessed u/s 68 was to be set aside. In view of this, we are of the opinion that deduction u/s 80P(2) cannot be allowed for the unexplained income assessed as u/s 68 of the Act and the said income cannot be treated as business income. With this observation, we remit this issue to the file of the Assessing Officer with reference to the addition made u/s. 68 - Ground of appeal of the assessee is partly allowed for statistical purposes.
Issues Involved:
1. Eligibility for deduction under section 80P(2)(a)(i) of the Income Tax Act. 2. Classification of the assessee as a Cooperative Bank or a Primary Agricultural Credit Society. 3. Treatment of interest income from investments in Treasury and Banks. 4. Addition of deposits received from members as unexplained cash credits under section 68. 5. Deduction under section 80P(2) for income treated as unexplained cash credits. Detailed Analysis: 1. Eligibility for Deduction under Section 80P(2)(a)(i): The Revenue contested the CIT(A)'s decision granting the assessee, a Primary Agricultural Credit Co-operative Society, exemption under section 80P(2)(a)(i) of the Income Tax Act. The CIT(A) relied on the Kerala High Court's judgment in Chirakkal Service Cooperative Bank Ltd. vs. CIT, which held that such societies are entitled to the deduction. However, the Tribunal noted that the Full Bench of the Jurisdictional High Court in Mavilayi Service Co-operative Bank Ltd. vs. CIT overruled this decision, stating that the Assessing Officer must conduct a factual inquiry into the activities of the assessee to determine eligibility for section 80P benefits. Consequently, the Tribunal remitted the issue back to the Assessing Officer for fresh consideration. 2. Classification as Cooperative Bank or Primary Agricultural Credit Society: The Revenue argued that the assessee should be classified as a Cooperative Bank, not merely a Primary Agricultural Credit Society, thereby disqualifying it from section 80P benefits. The Tribunal, referencing the Mavilayi Service Co-operative Bank Ltd. decision, directed the Assessing Officer to examine the actual activities of the assessee to ascertain the correct classification and eligibility for the deduction. 3. Treatment of Interest Income from Investments: The CIT(A) allowed the deduction for interest income earned from investments in Treasury and Banks, treating it as part of the banking activity. The Tribunal upheld this decision, citing the co-ordinate bench's ruling in Kizhathadiyoor Co-operative Bank Limited, which classified such interest income as "income from business" rather than "income from other sources." However, the Tribunal instructed the Assessing Officer to reassess this in light of the Mavilayi Service Co-operative Bank Ltd. judgment and the assessee's activities. 4. Addition of Deposits as Unexplained Cash Credits under Section 68: The Assessing Officer added deposits received from members as unexplained cash credits under section 68 due to the assessee's failure to provide satisfactory details. The CIT(A) upheld this addition, emphasizing the need to establish the identity, genuineness, and creditworthiness of the creditors. The Tribunal noted the inconsistency in the CIT(A)'s approach for different assessment years and remitted the issue back to the Assessing Officer, directing the assessee to provide the necessary details for verification. 5. Deduction under Section 80P(2) for Unexplained Cash Credits: The CIT(A) denied the deduction under section 80P(2) for income treated as unexplained cash credits, classifying it as "income from other sources." The Tribunal referenced the Kerala High Court's decision in Kerala Sponge Iron Ltd., which held that unexplained income under section 68 cannot be treated as business income eligible for set-off or deduction. The Tribunal remitted the issue back to the Assessing Officer, affirming that such income cannot be treated as business income for section 80P(2) purposes. Conclusion: The Tribunal's decision resulted in the remittance of key issues back to the Assessing Officer for fresh consideration, emphasizing the need for a detailed factual inquiry into the assessee's activities and adherence to judicial precedents. Both the Revenue's and the assessee's appeals were partly allowed for statistical purposes.
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