2020 (6) TMI 670 - AT - Income Tax

Deduction u/s 80P(2) - reasoning of AO to disallow the claim of deduction was that the 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 - There is a passing statement in the assessment orders that there have been disbursement of loans to non-members as well. In the light of the dictum laid down 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 AO 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 to non-members of assessee-society, 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) of the I.T.Act. For the above said purpose, the issue raised in these appeals is restored to the files of the Assessing Officer. AO 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. Needless to state, the assessee shall co-operate with the A.O. and shall furnish the necessary details called for. Further, the assessee shall not seek unnecessary adjournment. Appeals filed by the assessee are allowed for statistical purposes

Summary

Issues:
- Denial of deduction u/s 80P(2)(a)(i) of the I.T.Act by the CIT(A).

Analysis:
1. The appeals were filed by the assessee against two orders of the CIT(A) denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act for the assessment years 2013-2014 to 2017-2018.

2. The primary issue raised in the appeals was whether the CIT(A) was justified in confirming the Assessing Officer's order denying the deduction u/s 80P(2)(a)(i) of the I.T.Act. The Assessing Officer disallowed the deduction, stating that the assessee was primarily engaged in banking activities, rendering them ineligible for the deduction.

3. The CIT(A) upheld the disallowance based on the finding that the agricultural credit provided by the assessee was minimal, and the society did not qualify as a primary agricultural credit society. The CIT(A) relied on the judgment of the Full Bench of the jurisdictional High Court to support this decision.

4. The Tribunal noted conflicting decisions by different benches of the Kerala High Court regarding the eligibility for deduction u/s 80P of the I.T.Act. While one bench held that a society classified as a primary agricultural credit society is entitled to the deduction, another bench emphasized the need for a detailed inquiry by the Assessing Officer into the nature of the society's activities.

5. In light of the conflicting precedents, the Tribunal directed the Assessing Officer to conduct a fresh examination of the loan disbursements made by the assessee to determine whether they were for agricultural purposes. The Tribunal stressed the importance of a detailed analysis to establish compliance with the activities of a primary agricultural credit society as per the Kerala Co-operative Societies Act, 1969.

6. The Tribunal ordered the assessee to cooperate with the Assessing Officer during the re-examination process and instructed against seeking unnecessary adjournments. The appeals were allowed for statistical purposes, and the stay applications were dismissed as infructuous.

This detailed analysis of the judgment highlights the key legal issues, the arguments presented by the parties, and the Tribunal's decision to remand the matter back to the Assessing Officer for a fresh examination in accordance with the precedents set by the High Court.