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2020 (1) TMI 957 - AT - Income TaxDeduction 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.
Issues Involved:
1. Condonation of delay in filing appeals. 2. Eligibility for deduction under Section 80P of the Income Tax Act. 3. Examination of activities of the assessee society for compliance with the Kerala Co-operative Societies Act, 1969. 4. Treatment of interest income from investments with Co-operative Banks and other Banks. Detailed Analysis: 1. Condonation of Delay in Filing Appeals: The appeals were filed with a delay of 10 days. The appellant submitted condonation petitions stating that the delay was due to the appellant being out of station, and there were no willful latches or omissions. The Tribunal found the reasons to be satisfactory and condoned the delay, allowing the appeals to be admitted for adjudication. 2. Eligibility for Deduction under Section 80P of the Income Tax Act: The assessee, a co-operative society registered under the Kerala Co-operative Societies Act, 1969, claimed deductions under Section 80P for the assessment years 2010-11 to 2014-15. The Assessing Officer disallowed these claims, arguing that the assessee was engaged in banking activities and thus not entitled to the deduction under Section 80P(2) due to the insertion of Section 80P(4) effective from 01.04.2007. The CIT(A) initially allowed the appeals, granting the deductions by relying on the Kerala High Court’s judgment in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT. 3. Examination of Activities of the Assessee Society: Subsequently, the CIT(A) issued notices under Section 154 to rectify his orders based on the Full Bench decision of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT. This judgment mandated that the Assessing Officer must conduct an inquiry into the actual activities of the assessee society to determine eligibility for deductions under Section 80P. The Tribunal restored the issue to the Assessing Officer, directing an examination of whether the assessee's activities complied with those of a co-operative society under the Kerala Co-operative Societies Act, 1969, before granting deductions under Section 80P(2). 4. Treatment of Interest Income from Investments: The Tribunal noted that the interest income from investments with treasuries and banks should be assessed as 'income from business' rather than 'income from other sources' as per the co-ordinate Bench order in Kizhathadiyoor Service Co-operative Bank Limited. However, for the deduction under Section 80P on such interest income, the Assessing Officer must follow the Full Bench judgment in The Mavilayi Service Co-operative Bank Ltd. v. CIT, examining the assessee's activities. For deductions under Section 80P(2)(d), the assessee must prove that the interest income was received from investments with other co-operative societies. Conclusion: The Tribunal allowed the appeals for statistical purposes, emphasizing the need for a detailed inquiry into the assessee's activities to determine eligibility for deductions under Section 80P. The Assessing Officer was directed to reassess the activities of the assessee society and the nature of the interest income before granting any deductions.
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