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2020 (10) TMI 987 - AT - Income TaxDeduction u/s 80P(2) - Denial of claim as assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule - HELD THAT - 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. 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 this case, such a detailed examination has not been conducted by the A.O s. 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. A.O. shall list out the instances where loans have disbursed for non-agricultural purposes 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) - Appeal filed by the assessee is allowed for statistical purposes
Issues Involved:
1. Justification of CIT(A) in confirming the Assessing Officer’s order denying the claim of deduction under Section 80P(2) of the Income Tax Act (I.T. Act). Detailed Analysis: 1. Justification of CIT(A) in Confirming Assessing Officer’s Order: The sole issue in this appeal is whether the CIT(A) was justified in confirming the Assessing Officer’s order, which denied the claim of deduction under Section 80P(2) of the I.T. Act for the assessment year 2017-18. The assessee, a co-operative society registered under the Kerala Co-operative Societies Act, 1969, had claimed this deduction in its return. The Assessing Officer disallowed the claim on the grounds that the assessee was essentially engaged in the business of banking and, thus, not entitled to the deduction under Section 80P(2)(a)(i) of the I.T. Act, due to the insertion of Section 80P(4) effective from April 1, 2007. 2. CIT(A)’s Reliance on Jurisdictional High Court Judgment: The CIT(A) upheld the Assessing Officer's decision by 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 [(2019) 414 ITR 67 (Ker.) (FB) (HC)]. The CIT(A) noted that the agricultural credit provided by the assessee was minimal and concluded that the assessee could not be classified as a primary agricultural credit society. Consequently, the CIT(A) rejected the assessee's appeal for the assessment years 2014-2015 and 2015-2016. 3. Grounds Raised by the Assessee: The assessee raised several grounds, arguing that the CIT(A) erred in sustaining the gross total income assessed and in finding that the appellant was not eligible for deduction under Section 80P(2)(a)(i). The assessee contended that it is a Primary Agricultural Credit Society (PACS) governed by the Kerala Co-operative Societies Act, 1969, and that the exclusion from exemption under Section 80P(4) should not apply to it. The assessee emphasized its role in providing short-term and medium-term loans for agricultural purposes to its members and cited previous favorable decisions, including a 2016 ITAT Cochin Bench ruling. 4. Tribunal’s Analysis and Decision: The Tribunal reviewed the rival submissions and relevant material. It referred to the Hon’ble jurisdictional High Court’s judgment in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 490 (Ker.)], which initially supported the assessee’s claim. However, the Full Bench judgment in The Mavilayi Service Co-operative Bank Ltd. v. CIT reversed this position, mandating that the Assessing Officer must conduct a factual inquiry into the activities of the assessee society to determine eligibility for deduction under Section 80P. The Tribunal noted that the Assessing Officer had not conducted a detailed examination of each loan disbursement to ascertain whether they were for agricultural purposes. 5. Remand for Fresh Examination: The Tribunal concluded that a fresh examination by the Assessing Officer was necessary to determine the nature and purpose of each loan disbursement. It directed the Assessing Officer to follow the Full Bench judgment in The Mavilayi Service Co-operative Bank Ltd. v. CIT and to list instances where loans were disbursed for non-agricultural purposes before denying the deduction under Section 80P(2). The Tribunal restored the issue to the files of the Assessing Officer for this purpose, emphasizing the need for the assessee’s cooperation and timely furnishing of necessary details. 6. Dismissal of Stay Application: Since the appeal was disposed of, the stay application filed by the assessee was dismissed as infructuous. 7. Final Order: The appeal filed by the assessee was allowed for statistical purposes, and the stay application was dismissed. The order was pronounced on October 21, 2020.
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