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2019 (12) TMI 452 - AT - Income TaxEligibility of deduction u/s 80P - CIT(A) passed order u/s 154 wherein the claim of deduction u/s 80P of the I.T.Act was denied, by relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2016 (4) TMI 826 - KERALA HIGH COURT - HELD THAT - Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P. In view of the dictum laid down by the Full Bench of the Hon ble jurisdictional High Court (supra), we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. AO shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Cooperative Banks and other Banks , the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank Limited 2016 (7) TMI 1405 - ITAT COCHIN had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as income from business instead of income from other sources . However, as regards the grant of deduction u/s 80P on such interest income, the Assessing Officer shall follow the law laid down in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It is ordered accordingly.
Issues involved:
1. Disallowance of deduction u/s 80P of the I.T.Act by Assessing Officer. 2. Appeal to CIT(A) allowing deduction u/s 80P. 3. CIT(A) issuing notice u/s 154 proposing to rectify the order. 4. Appeal to Tribunal challenging CIT(A) order. 5. Interpretation of judgments by High Court on deduction u/s 80P. 6. Assessment of interest income from investments with Cooperative Banks. 7. Dismissal of Stay Application by the assessee. Analysis: 1. The Assessing Officer disallowed the deduction u/s 80P of the I.T.Act for the assessee, a co-operative society, stating that the society was engaged in banking activities, making it ineligible for the deduction. The AO also disallowed the deduction for interest income received from investments with District Co-operative Banks. 2. The CIT(A) allowed the appeal filed by the assessee, stating that the society was eligible for the deduction u/s 80P. The interest income from other banks and treasuries was also considered deductible u/s 80P(2)(a)(i) of the I.T.Act. The CIT(A) relied on the judgment of the Hon’ble jurisdictional High Court in a similar case. 3. Subsequently, the CIT(A) issued a notice u/s 154 proposing to rectify the order based on a subsequent judgment of the Full Bench of the Hon’ble jurisdictional High Court. The assessee objected to the notice, but the CIT(A) rejected the objections and disallowed the deduction u/s 80P(2) of the I.T.Act. 4. Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Tribunal challenging the disallowance of the deduction. The grounds raised by the assessee included objections to the initiation of proceedings u/s 154 and the rejection of the exemption claimed u/s 80P. 5. The Tribunal considered the conflicting judgments of the High Court regarding the deduction u/s 80P. While one judgment favored granting the deduction based on the classification by the Registrar of Co-operative Societies, another judgment emphasized the need for the Assessing Officer to verify the activities of the society for each assessment year. The Tribunal restored the issue of deduction u/s 80P(2) to the Assessing Officer for further examination. 6. Regarding interest income from investments with Cooperative Banks, the Tribunal directed the Assessing Officer to follow the law laid down by the Full Bench of the High Court and examine the activities of the assessee-society before granting deduction u/s 80P on such income. 7. Finally, the Tribunal allowed the appeal filed by the assessee for statistical purposes and dismissed the Stay Application as the appeal was disposed of. This detailed analysis of the legal judgment highlights the issues involved, the arguments presented by the parties, and the Tribunal's decision based on the interpretation of relevant laws and judgments.
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