2020 (7) TMI 219 - AT - Income Tax

Denying claim of deduction u/s 80P(2)(a)(i) - assessee are co-operative societies registered under the Kerala Co-operative Societies Act, 1969 - denial of claim assessee were essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule - HELD THAT - AO s concluded that the assessee are not entitled to deduction u/s 80P(2) of the I.T.Act. AO after perusing the narration of the loan extracts for the financial periods under consideration, came to the conclusion that out of the total loan disbursement, only a minuscule portion has been advanced for agricultural purposes. The narration in loan extracts / 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 s 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 s. Further, the A.O s has not examined to what extent loans, if any, has been disbursed to non-members. 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 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. The A.O. shall list out the instances where loans have disbursed to nonmembers of assessee-societies, 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.

Summary

Issues Involved:
1. Whether the CIT(A) is justified in confirming the Assessing Officer’s order in denying the claim of deduction u/s 80P(2)(a)(i) of the I.T. Act.

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Denying Deduction u/s 80P(2)(a)(i):
The primary issue in the appeals is whether the CIT(A) was justified in confirming the Assessing Officer’s decision to deny the claim of deduction under section 80P(2)(a)(i) of the Income Tax Act. The assessees, co-operative societies registered under the Kerala Co-operative Societies Act, 1969, had their claims for deduction u/s 80P disallowed by the Assessing Officer on the grounds that they were engaged in the business of banking. The Assessing Officer cited section 80P(4) of the I.T. Act, effective from 01.04.2007, which excludes co-operative banks from claiming deduction under section 80P.

The CIT(A) upheld the Assessing Officer's decision, relying on the Full Bench judgment of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT. The CIT(A) concluded that the agricultural credit provided by the assessees was minimal and that they could not be classified as primary agricultural credit societies. Consequently, the disallowance of the deduction claim u/s 80P was upheld.

Appeal to Tribunal:
The assessees appealed to the Tribunal, arguing that they were eligible for the deduction under section 80P(2)(a)(i) and that the CIT(A)’s reliance on specific cases without considering all grounds raised was erroneous. They contended that the denial of deduction u/s 80P(4) was illegal and unsustainable, and that their classification as co-operative credit societies should entitle them to the deduction. They also argued for the application of the doctrine of mutuality and raised objections to their classification as an Association of Persons (AOP) by the Assessing Officer.

Tribunal's Findings:
The Tribunal examined the submissions and referenced the Hon’ble jurisdictional High Court’s decisions in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT and The Mavilayi Service Co-operative Bank Ltd. v. CIT. The Tribunal noted that the Full Bench of the Hon’ble Kerala High Court in Mavilayi had reversed the findings in Chirakkal, emphasizing that the Assessing Officer must conduct an inquiry into the factual activities of the assessee society to determine eligibility for deduction u/s 80P. The Tribunal observed that the Assessing Officer had not conducted a detailed examination of the nature and purpose of each loan disbursement, nor had they sufficiently investigated the extent of loans disbursed to non-members.

Conclusion and Remand:
The Tribunal concluded that a fresh examination by the Assessing Officer was necessary to determine the nature of each loan disbursement and whether it was for agricultural purposes. The Assessing Officer was directed to list instances where loans were disbursed to non-members and for non-agricultural purposes before denying the deduction claim u/s 80P(2). The appeals were allowed for statistical purposes, and the stay applications were dismissed as infructuous. The Tribunal ordered that the assessees cooperate with the Assessing Officer and provide necessary details without seeking unnecessary adjournments.

Order Pronouncement:
The order was pronounced on the 07th day of July, 2020.