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2020 (3) TMI 712 - AT - Income TaxDeduction 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 Involved:
1. Eligibility for deduction under Section 80P of the Income Tax Act. 2. Classification of interest income from investments with Co-operative Banks and other Banks. 3. Validity of rectification orders passed under Section 154 of the Income Tax Act. Detailed Analysis: 1. Eligibility for Deduction under Section 80P of the Income Tax Act: The assessees, co-operative societies registered under the Kerala Co-operative Societies Act, 1969, claimed deductions under Section 80P of the Income Tax Act for the assessment years 2010-2011 and 2013-2014. The Assessing Officer disallowed these claims on the grounds that the assessees were engaged in banking activities, making them ineligible for 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 deduction, referencing the Kerala High Court's judgment in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT. However, following the Full Bench decision in The Mavilayi Service Co-operative Bank Ltd. v. CIT, the CIT(A) issued rectification orders under Section 154, disallowing the deductions. The Tribunal restored the issue to the Assessing Officer to examine the activities of the assessees and determine eligibility for deduction under Section 80P(2), in line with the Full Bench's directive that the Assessing Officer must investigate the factual situation of the assessee's activities. 2. Classification of Interest Income from Investments with Co-operative Banks and Other Banks: The interest income received by the assessees from investments with District Co-operative Banks was initially disallowed by the Assessing Officer. The Tribunal referred to the co-ordinate Bench's decision in Kizhathadiyoor Service Co-operative Bank Limited, which held that such interest income should be classified as 'income from business' rather than 'income from other sources'. However, the Tribunal directed the Assessing Officer to apply the Full Bench's ruling in The Mavilayi Service Co-operative Bank Ltd. v. CIT to determine if the interest income qualifies for deduction under Section 80P, based on the nature of the assessee's activities. 3. Validity of Rectification Orders Passed under Section 154 of the Income Tax Act: The CIT(A) issued rectification orders under Section 154, reversing the initial allowance of deductions under Section 80P following the Full Bench judgment in The Mavilayi Service Co-operative Bank Ltd. v. CIT. The Tribunal noted that the CIT(A) should not have summarily rejected the deduction claims without examining the activities of the assessees. The Tribunal restored the matter to the Assessing Officer for a detailed inquiry into the assessees' activities to determine the eligibility for deductions under Section 80P, as mandated by the Full Bench decision. Conclusion: The Tribunal allowed the appeals for statistical purposes, directing the Assessing Officer to re-examine the eligibility for deductions under Section 80P based on the assessees' activities. The Stay Applications filed by the assessees were dismissed as infructuous. The order emphasized the necessity for a factual inquiry into the nature of the assessees' activities to determine eligibility for the claimed deductions. Order Pronounced: Order pronounced on this 10th day of January, 2020.
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