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2020 (10) TMI 1121 - AT - Income TaxTDS u/s 194A - Non-deduction of TDS on interest paid to the members - disallowance u/s 40(a)(ia) - HELD THAT - As decided in KODUNGALLUR TOWN CO-OPERATIVE BANK LTD. 2018 (5) TMI 1794 - ITAT COCHIN and KADACHIRA SERVICE CO-OP. BANK LTD 2013 (2) TMI 208 - ITAT COCHIN assessee are not cooperative society but co-operative bank carrying on banking business with the approval of the Reserve Bank of India and as such, the assessee are not liable to deduct TDS under section 194A of the I.T. Act on the interest paid to its own members. Denying the claim of deduction u/s 80P(2)(a)(i) - HELD THAT - In the case of The Mavilayi Service Co-operative Bank Ltd. 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 been disbursed for non-agricultural purposes etc. and accordingly conclude that the assessees 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). The issue raised in these appeals is restored to the files of the AO. AO shall examine the activities of the assessee-societies - Appeals filed by the assessee are allowed for statistical purposes.
Issues Involved:
1. Reopening of assessment under Section 147. 2. Non-deduction of TDS on interest payments under Section 194A. 3. Eligibility for deduction under Section 80P. Issue-wise Detailed Analysis: 1. Reopening of Assessment under Section 147: The assessee contended that the reasons recorded for initiating proceedings under Section 147 were not communicated to them, making the assessment liable to be set aside. However, this ground was not argued by the learned Counsel for the assessee and was subsequently dismissed by the Tribunal. 2. Non-deduction of TDS on Interest Payments under Section 194A: The Assessing Officer disallowed the assessee's claim under Section 40(a)(ia) for not deducting tax at source from interest paid to its members. The Tribunal found that the issue was covered in favor of the assessee by the ITAT Cochin Bench's decision in the case of Kadachira Service Co-op. Bank Ltd. v. ITO, which held that co-operative societies registered under the Kerala Co-operative Societies' Act are exempt from the provisions of Section 194A. The Tribunal also referenced the case of ACIT v. Kodungallur Town Co-operative Bank Ltd., which supported the assessee's position that they are not liable to deduct TDS on interest paid to their own members. Consequently, the Tribunal held that the assessee is not liable to deduct TDS under Section 194A on the interest paid to its members and ordered accordingly. 3. Eligibility for Deduction under Section 80P: The issue was whether the CIT(A) was justified in confirming the Assessing Officer’s order denying the claim of deduction under Section 80P(2)(a)(i). The assessee, a co-operative society registered under the Kerala Co-operative Societies Act, claimed deduction under Section 80P, which was disallowed by the Assessing Officer on the grounds that the assessee was essentially doing the business of banking. The CIT(A) upheld this disallowance, relying on the Full Bench judgment of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT, which required an inquiry into the factual situation of the assessee's activities to determine eligibility for deduction under Section 80P. The Tribunal noted that the Full Bench of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT had reversed the earlier judgment in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT, which had granted deductions based on the certificate issued by the Registrar of Co-operative Societies. The Tribunal emphasized that the Assessing Officer must conduct a detailed examination of each loan disbursement to determine whether it was for agricultural purposes or not. Since such an examination was not conducted by the Assessing Officer, the Tribunal restored the issue to the files of the Assessing Officer for a fresh examination in light of the Full Bench judgment. Conclusion: The Tribunal partly allowed the appeal for statistical purposes, directing a fresh examination by the Assessing Officer regarding the nature of each loan disbursement and its purpose to determine the eligibility for deduction under Section 80P, following the guidelines laid down by the Full Bench of the Kerala High Court in The Mavilayi Service Co-operative Bank Ltd. v. CIT. The appeal was partly allowed for statistical purposes.
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