2020 (9) TMI 625 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - Assessee were 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 - 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. 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 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.

Summary

Issues involved:
Whether the CIT(A) was justified in denying the claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.

Detailed Analysis:
The appeals were filed by the assessees against orders of the CIT(A) denying deduction u/s 80P of the I.T.Act. The Assessing Officer disallowed the deduction claiming that the assessees were essentially engaged in banking activities. The CIT(A) upheld the disallowance based on findings that the assessees did not qualify as primary agricultural credit societies. The assessees contended that they were eligible for the deduction and raised various legal grounds challenging the decisions of the lower authorities.

The Tribunal considered the conflicting judgments of the Hon’ble Kerala High Court in the Chirakkal and Mavilayi cases regarding the eligibility for deduction u/s 80P of the I.T.Act. The Chirakkal case held that if a society is classified as a primary agricultural credit society, it is entitled to the deduction. However, the Mavilayi case emphasized that each assessment year requires a separate examination by the Assessing Officer to determine eligibility for the deduction. The Tribunal noted that the Assessing Officer did not conduct a detailed examination of the loan disbursements to ascertain if they were for agricultural purposes.

The Tribunal concluded that a fresh examination by the Assessing Officer was necessary to determine the nature of each loan disbursement and whether they were for agricultural purposes. The Assessing Officer was directed to follow the guidelines set by the Full Bench of the Hon’ble Kerala High Court in the Mavilayi case and make a decision based on a thorough evaluation of the activities of the assessees.

As a result, the appeals were allowed for statistical purposes, and the stay applications were dismissed as infructuous. The Tribunal ordered a re-examination by the Assessing Officer to determine the eligibility of the assessees for the deduction u/s 80P of the I.T.Act.

The judgment highlights the importance of a detailed assessment by the Assessing Officer to determine the eligibility of cooperative societies for deductions under the I.T.Act. The conflicting judgments of the High Court emphasize the need for a case-by-case evaluation of the activities of the societies to ascertain their qualification for deductions. The Tribunal’s decision underscores the requirement for a thorough examination of loan disbursements to establish compliance with the criteria for claiming deductions under section 80P.