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2020 (2) TMI 881 - AT - Income TaxRectification u/s 154 - Deduction u/s 80P(2) denied relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT - HELD THAT - CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) without examining the activities of the assessee society. The 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) 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, subject to jurisdiction granted to the assessee as per the certificate of registration issued by the Registrar of Co-operative Societies, and accordingly, consider the allowabillity of deduction u/s 80P(2) of the I.T.Act. - Decided in favour of assessee for statistical purposes.
Issues Involved:
1. Applicability of Section 154 for rectification of the CIT(A)'s order. 2. Eligibility of the assessee for deduction under Section 80P(2) of the I.T. Act. 3. Interpretation and application of Section 80P(4) of the I.T. Act. 4. Examination of the activities of the assessee society as per the Kerala Co-operative Societies Act, 1969. 5. Jurisdiction of the Assessing Officer vis-à-vis the registration certificate issued by the Registrar of Co-operative Societies. Issue-wise Detailed Analysis: 1. Applicability of Section 154 for Rectification: The assessee contended that the provisions of Section 154 were not applicable in their case, making the rectification order illegal. However, the Tribunal found this argument to be misconceived. It referenced the judgment of the Kerala High Court in Kil Kotagiri Tea & Coffee Estates Co. Ltd. v. ITAT, which held that an authority could rectify an order under Section 154 if a subsequent judgment of a higher court reversed the basis of the original decision. Hence, the CIT(A) was justified in rectifying the earlier order based on the subsequent judgment in The Mavilayi Service Co-operative Bank Ltd. v. CIT. 2. Eligibility for Deduction under Section 80P(2): Initially, the CIT(A) allowed the assessee's appeal, granting the deduction under Section 80P(2) by following the judgment in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT. However, this was later rectified in light of the Full Bench decision in The Mavilayi Service Co-operative Bank Ltd. v. CIT, which mandated an inquiry into the actual activities of the society to determine eligibility for the deduction. 3. Interpretation and Application of Section 80P(4): The Assessing Officer disallowed the deduction under Section 80P(2) citing Section 80P(4), which excludes co-operative banks from claiming this deduction. The Tribunal upheld the CIT(A)'s rectification order, stating that the Full Bench of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT clarified that an inquiry into the factual activities of the society is essential to determine whether it qualifies as a co-operative society or a co-operative bank under Section 80P(4). 4. Examination of Activities as per Kerala Co-operative Societies Act, 1969: 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. The Larger Bench of the Kerala High Court ruled that the Assessing Officer is not bound by the registration certificate alone and must conduct a factual inquiry to ascertain the nature of the activities. 5. Jurisdiction of the Assessing Officer: The Tribunal noted that the Assessing Officer has the jurisdiction to examine the activities of the society and is not limited by the classification provided by the Registrar of Co-operative Societies. Each assessment year is a separate unit, and eligibility for deduction must be verified annually. The Tribunal directed the Assessing Officer to reassess the activities of the assessee society in compliance with the Kerala Co-operative Societies Act, 1969, and determine the allowability of the deduction under Section 80P(2) accordingly. Conclusion: The Tribunal dismissed the grounds raised by the assessee against the CIT(A)'s rectification order under Section 154. It restored the issue of deduction under Section 80P(2) to the Assessing Officer for a detailed examination of the assessee's activities. The appeal was partly allowed for statistical purposes, emphasizing the need for a thorough inquiry into the factual situation of the assessee's activities to determine eligibility for the deduction.
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