2020 (3) TMI 680 - AT - Income Tax

Deduction u/s 80P - CIT(A) rejected the objections raised by the assessee and passed orders u/s 154 disallowing the claim of the assessee u/s 80P(2) - HELD THAT - CIT(A) had initially allowed the appeals of the assessee and granted deduction u/s 80P(2) of the I.T.Act. Subsequently, the CIT(A) passed orders u/s 154 wherein the claim of deduction u/s 80P was denied, by relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT 2019 (3) TMI 1580 - KERALA HIGH COURT The CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) of the I.T.Act without examining the activities of the assesseesociety. 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 of the I.T.Act. In view of the dictum laid we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer to 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 Co-operative Banks and other Banks - Tribunal in the case of Kizhathadiyoor Service Co-operative 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 of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon ble jurisdictional High Court 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. Appeals filed by the assessee are partly allowed for statistical purposes.

Issues:
- Delay in filing appeals and condonation of delay
- Disallowance of deduction u/s 80P of the Income Tax Act
- Rectification of orders by CIT(A) based on subsequent judgment
- Disallowance of interest income received by the assessees
- Dispute regarding classification as a Co-operative Bank
- Eligibility for deduction u/s 80P(2) of the Act
- Assessment of interest income from Co-operative Banks
- Dismissal of Stay Applications

Delay in filing appeals and condonation of delay:
The appeals were filed with a delay of 06 and 14 days, respectively. The assessees sought condonation of delay, which was granted by the Tribunal as there was sufficient cause for the delay and no latches could be attributed to the assessee. Consequently, the appeals were disposed of on merits.

Disallowance of deduction u/s 80P of the Income Tax Act:
The Assessing Officer disallowed the claim of deduction u/s 80P of the I.T. Act for the assessees, who were co-operative societies, on the grounds of engaging in banking activities. However, the CIT(A) allowed the appeals, citing eligibility for deduction u/s 80P and following a judgment of the Hon’ble High Court. Subsequently, the CIT(A) issued rectification notices proposing to disallow the deduction, leading to the assessees filing appeals before the Tribunal.

Rectification of orders by CIT(A) based on subsequent judgment:
The CIT(A) issued notices proposing to rectify the orders passed earlier in light of a subsequent judgment by the Full Bench of the Hon’ble jurisdictional High Court. Despite objections raised by the assessees, the CIT(A) passed orders disallowing the deduction u/s 80P of the I.T. Act.

Disallowance of interest income received by the assessees:
The Assessing Officer also disallowed the claim of deduction for interest income received by the assessees on investments made with District Co-operative Banks. This issue was a point of contention in the appeals filed before the Tribunal.

Dispute regarding classification as a Co-operative Bank:
The CIT(A) classified the assessees as Co-operative Banks, leading to disputes regarding this classification and the eligibility for deductions under the Income Tax Act.

Eligibility for deduction u/s 80P(2) of the Act:
The assessees contended that they were entitled to deduction u/s 80P(2) of the Act as they were co-operative societies providing credit facilities to members. The CIT(A) and the Assessing Officer had differing views on this matter, leading to the appeals.

Assessment of interest income from Co-operative Banks:
The Tribunal ordered the Assessing Officer to examine the activities of the assessees to determine the eligibility for deduction u/s 80P of the I.T. Act concerning interest income earned from investments with Co-operative Banks and other Banks.

Dismissal of Stay Applications:
As the appeals were disposed of, the Stay Applications filed by the assessees were deemed infructuous and dismissed. Ultimately, the appeals were allowed for statistical purposes.

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