2019 (12) TMI 689 - AT - Income Tax

Deduction u/s 80P(2) - CIT(A) passed order u/s 154 wherein the claim of deduction u/s 80P 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) 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:
Appeal against CIT(A) orders denying deduction u/s 80P of the I.T.Act, Stay applications for recovery of tax arrears, Assessment years 2010-2011 to 2014-2015.

Analysis:
1. The assessee, a co-operative society, filed returns declaring income of Rs.Nil, claiming deduction u/s 80P of the I.T.Act. The Assessing Officer disallowed the deduction citing the business of banking and section 80P(4) of the I.T.Act. CIT(A) allowed the appeals based on the judgment of the jurisdictional High Court.

2. CIT(A) issued notices u/s 154 proposing to rectify orders due to a subsequent judgment by the Full Bench of the High Court. The assessee objected, but CIT(A) disallowed the deduction u/s 80P(2) of the I.T.Act.

3. The appeals raised grounds including illegality of orders, exemption of interest income, lack of inquiry by the Assessing Officer, and detrimental impact on the society's foundation and members. The AR supported the grounds, while the Departmental Representative backed the tax authorities' orders.

4. The High Court judgments in Chirakkal and The Mavilayi cases were crucial. The Larger Bench held that the Assessing Officer must conduct an inquiry into the factual situation of the society to determine eligibility for deduction u/s 80P. Each assessment year requires separate verification of eligibility.

5. The Tribunal restored the issue of deduction u/s 80P(2) to the Assessing Officer for reexamination of the society's activities to ensure compliance with co-operative society norms. Interest income treatment was also subject to the same scrutiny for deduction u/s 80P.

6. The Stay Applications were dismissed as the appeals were allowed for statistical purposes. The judgment emphasized the need for Assessing Officer's detailed inquiry into the society's activities for determining eligibility for deductions under section 80P of the I.T.Act.

This detailed analysis of the judgment highlights the legal nuances and the application of precedents in deciding the issues raised by the assessee against the CIT(A) orders.