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2020 (10) TMI 649 - AT - Income TaxDeduction u/s 80P(2)(a)(i) - exemption shall not be available to co-operative banks (first part) other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank (PLD Banks) - CIT(A) considering that the deduction shall still be available to a co-operative society which is engaged in the business of providing credit facilities to its members - HELD THAT - The assessee is having nominal members and having nominal members in the Co-operative Society does not disentitle the assessee for getting exemption u/s. 80P - issue is covered by the above orders of the Co-ordinate Bench relied on by the AR and is required to be re-adjudicated by the AO after considering the above decisions. Accordingly KODAVOOR VYAVASAYA SEVA SAHAKARI SANGHA NIYAMITHA 2019 (8) TMI 1269 - ITAT BANGALORE remit this issue to the file of the Assessing Officer for fresh consideration on similar directions. Thus, this ground of appeal of the assessee is partly allowed for statistical purposes.
Issues Involved:
1. Violation of principles of natural justice. 2. Disallowance of deduction under Section 80P(2)(a)(i) of the Income Tax Act. 3. Classification of interest income from investments. 4. Eligibility of nominal members for benefits under Section 80P. Detailed Analysis: 1. Violation of Principles of Natural Justice: The assessee contended that the CIT(A) dismissed the appeal without providing sufficient opportunity to explain the additions/disallowances, thus violating the principles of natural justice. The Tribunal acknowledged this concern and emphasized the necessity of providing a fair hearing to the assessee. 2. Disallowance of Deduction under Section 80P(2)(a)(i): The assessee, a Primary Agricultural Co-operative Society, claimed a deduction under Section 80P(2)(a)(i) of the Income Tax Act, which was disallowed by the Assessing Officer and confirmed by the CIT(A). The Tribunal noted that the CIT(A) erred in not considering that the deduction should still be available to a co-operative society engaged in providing credit facilities to its members. The Tribunal referenced the decision in the case of Mahaveera Credit Co-op Society Ltd. vs. ITO, where it was held that the issue of deduction under Section 80P(2)(a)(i) should be re-examined by the Assessing Officer, considering whether the society possesses a banking license and the nature of its business. 3. Classification of Interest Income from Investments: The Tribunal discussed the treatment of interest income from investments, referencing the decision in the case of The Jayanagar Co-operative Society Vs. ITO. It was highlighted that interest income earned from investments in banks should be assessed under "Income from Other Sources" and not as business income, thus not qualifying for deduction under Section 80P(2)(a)(i). The Tribunal directed the Assessing Officer to re-examine this issue, considering the decisions of the Hon'ble Supreme Court in the case of Totgar’s Co-operative Sale Society Ltd. and the Hon'ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. 4. Eligibility of Nominal Members for Benefits under Section 80P: The Tribunal addressed the eligibility of nominal members for benefits under Section 80P. It referenced the decision in the case of Trapaj Vibhageeya Khet Udyog Mal Rupantar Food Processing Sahakari Mandali Ltd. vs. DCIT, where it was held that nominal members are considered members under the Co-operative Societies Act and are eligible for benefits. The Tribunal concluded that having nominal members does not disentitle the assessee from claiming exemption under Section 80P and directed the Assessing Officer to re-adjudicate this issue, considering the above decisions. Conclusion: The Tribunal partly allowed the appeals for statistical purposes, remanding the issues back to the Assessing Officer for fresh consideration, ensuring that the assessee is provided with a fair opportunity to present its case. The Tribunal emphasized the need for a detailed examination of the nature of income, the principle of mutuality, and the eligibility of nominal members for benefits under Section 80P, in light of relevant judicial precedents.
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