2020 (1) TMI 965 - 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.

Issues:
1. Disallowance of deduction u/s 80P of the Income Tax Act by Assessing Officer.
2. Appeal to CIT(A) and subsequent rectification order u/s 154 of the Income Tax Act.
3. Interpretation of judgments by Hon'ble jurisdictional High Court regarding eligibility for deduction u/s 80P.
4. Assessing Officer's duty to conduct an inquiry into the activities of the assessee society for determining eligibility for deduction u/s 80P.
5. Treatment of interest income earned from investments with Co-operative Banks and other Banks.

Analysis:

1. The Assessing Officer disallowed the claim of deduction u/s 80P of the Income Tax Act for the assessee, a co-operative society, stating that it was engaged in banking activities and thus ineligible for the deduction. The AO also disallowed deduction on interest income received from investments made with District Co-operative Banks.

2. The CIT(A) allowed the appeal, stating that the assessee was eligible for deduction u/s 80P. However, the CIT(A) later 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. Despite objections from the assessee, the CIT(A) passed an order disallowing the deduction u/s 80P.

3. The Hon'ble jurisdictional High Court judgments, including Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT and The Mavilayi Service Co-operative Bank Ltd. v. CIT, were crucial in determining the eligibility for deduction u/s 80P. The Full Bench held that the Assessing Officer must conduct an inquiry into the activities of the assessee society for each assessment year to ascertain eligibility.

4. The Tribunal emphasized that the Assessing Officer must examine the activities of the assessee society to determine compliance with the Kerala Co-operative Societies Act, 1969, before granting deduction u/s 80P. This duty was reinforced by the Full Bench's ruling, necessitating a detailed assessment of the society's activities.

5. Regarding interest income from investments with Co-operative Banks and other Banks, the Tribunal directed the Assessing Officer to follow the law laid down by the Full Bench of the jurisdictional High Court. The AO was instructed to evaluate the activities of the assessee-society before granting deduction u/s 80P on such interest income, considering it as part of the banking activity.

In conclusion, the appeal by the assessee was allowed for statistical purposes, emphasizing the importance of a thorough examination of the society's activities by the Assessing Officer to determine eligibility for deductions under the Income Tax Act.

← Previous Next →