2019 (12) TMI 501 - AT - Income Tax

Deduction u/s 80P(2) - CIT(A) passed order u/s 154 of the I.T.Act, wherein the claim of deduction u/s 80P of the I.T.Act was denied - HELD THAT - In the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT 2016 (4) TMI 826 - KERALA HIGH COURT had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) of the I.T.Act has to be granted to the assessee. Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT 2016 (4) TMI 826 - KERALA HIGH COURT 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.

Summary

Issues:
1. Disallowance of deduction u/s 80P of the Income Tax Act.
2. Rectification order u/s 154 of the Income Tax Act.
3. Appeal against the order of the CIT(A) regarding deduction u/s 80P.
4. Examination of interest income from investments with Co-operative Banks and other Banks for deduction u/s 80P.

Issue 1: Disallowance of deduction u/s 80P of the Income Tax Act:
The assessee, a co-operative society, filed a return for the assessment year 2012-2013 claiming deduction u/s 80P of the Income Tax Act. The Assessing Officer disallowed the deduction, citing the business of banking and insertion of section 80P(4) of the Act. The CIT(A) allowed the appeal, following a judgment of the Hon'ble jurisdictional High Court. However, the CIT(A) later issued a rectification order disallowing the deduction. The Tribunal referred to a subsequent judgment by the Full Bench of the High Court, emphasizing that each assessment year requires an inquiry into the activities of the assessee to determine eligibility for deduction u/s 80P. The issue was restored to the Assessing Officer for examination.

Issue 2: Rectification order u/s 154 of the Income Tax Act:
The CIT(A) issued a notice u/s 154 proposing to rectify the order granting deduction u/s 80P based on a subsequent judgment. Despite objections from the assessee, the CIT(A) passed an order disallowing the deduction. The Tribunal held that the CIT(A) should have examined the activities of the assessee society before rejecting the claim of deduction u/s 80P(2) of the Act. The issue was remanded to the Assessing Officer for further examination in accordance with the Full Bench judgment.

Issue 3: Appeal against the order of the CIT(A) regarding deduction u/s 80P:
The assessee appealed against the order of the CIT(A) disallowing the deduction u/s 80P of the Income Tax Act. The Tribunal considered conflicting judgments of the High Court and directed the Assessing Officer to conduct an inquiry into the activities of the assessee society to determine eligibility for deduction u/s 80P. The appeal was allowed for statistical purposes, and the Stay Application was dismissed as infructuous.

Issue 4: Examination of interest income from investments with Co-operative Banks and other Banks for deduction u/s 80P:
Regarding interest income from investments with Co-operative Banks and other Banks, the Tribunal referred to a previous order holding such income as part of the banking activity. However, the Tribunal directed the Assessing Officer to examine the activities of the assessee-society before granting deduction u/s 80P of the Act on such interest income, following the Full Bench judgment. The Assessing Officer was instructed to assess the interest income accordingly.

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