2020 (3) TMI 596 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - as per AO assessee was essentially doing the business of banking, and therefore, in view of insertion of section 80P(4) with effect from 01.04.2007, the assessee will not be entitled to deduction u/s 80P - HELD THAT - We are of the view that the narration in loan extracts in the audit reports by itself may not conclusive to prove whether loan is a agricultural loan or a non-agricultural loan. The gold loans may or may not be disbursed for the purpose of agricultural purposes. Necessarily, the A.O. had to examine the details of each loan disbursement and determine the purpose for which the loans were disbursed, i.e., whether it is for agricultural purpose or non-agricultural purpose. In these cases, such a detailed examination has not been conducted by the A.O. At the time of assessment, the judgment of the Hon ble jurisdictional High Court in the case of Chirakkal Service Cooperative Bank Ltd. 2016 (4) TMI 826 - KERALA HIGH COURT was ruling the roost and the certificate issued by the Registrar of Co-operative Society terming the assessee as a primary agricultural credit society would be sufficient for grant of deduction u/s 80P of the I.T.Act. In the light of the dictum laid down by the Full Bench of the Hon ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT we are of the view that there should be fresh examination by the Assessing Officer as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not. A.O. shall list out the instances where loans have disbursed for non-agricultural purposes etc. and accordingly conclude that the assessee s activities are not in compliance with the activities of primary agricultural credit society functioning under the Kerala Co-operative Societies Act, 1969, before denying the claim of deduction u/s 80P(2) - For the above said purpose, the issue raised in these appeals is restored to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee-society by following the dictum laid down by the Full Bench of the Hon ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) and shall take a decision in accordance with law.

Summary

Issues:
Whether the CIT(A) was justified in confirming the Assessing Officer's order denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act for the assessment years 2013-2014 to 2015-2016.

Analysis:
The appeals were directed against two orders of the CIT(A) denying the claim of deduction u/s 80P of the I.T.Act. The Assessing Officer disallowed the deduction, stating that the assessee was essentially engaged in banking activities and, therefore, not entitled to the deduction under section 80P(4) of the I.T.Act. The CIT(A) upheld the disallowance based on factual findings that the agricultural credit provided by the assessee was minimal, hence not qualifying as a primary agricultural credit society. The appeals were rejected by the CIT(A).

Legal Precedents:
The Hon'ble Kerala High Court in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT held that a certificate issued by the Registrar of Co-operative Societies characterizing the assessee as a primary agricultural credit society mandates granting deduction u/s 80P(2) of the I.T.Act. However, the Full Bench of the Hon'ble Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT reversed this, emphasizing the need for the Assessing Officer to inquire into the activities of the society for each assessment year to determine eligibility for the deduction.

Decision:
The Tribunal found that the Assessing Officer's denial of the deduction was based on insufficient examination of loan disbursements and their purposes. It was deemed necessary for the A.O. to conduct a detailed examination to determine if the loans were for agricultural or non-agricultural purposes. The Tribunal ordered a fresh examination by the Assessing Officer following the Full Bench's dictum in The Mavilayi case. The issue was restored to the A.O. for proper assessment in compliance with the law.

Conclusion:
The appeals were allowed for statistical purposes, and the stay applications were dismissed. The decision emphasized the importance of a thorough examination by the Assessing Officer to determine the eligibility of the assessee for the deduction u/s 80P(2) of the I.T.Act. The judgment highlighted the need for a detailed assessment of loan disbursements to ascertain compliance with the activities of a primary agricultural credit society.