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2021 (5) TMI 406 - HC - Income TaxDeductions u/s 80P(2)(a) (i) - assessee with its lending and borrowing involving non-members, whether the society still retains its character as cooperative society or whether it should be treated as a cooperative bank, disentitled to the benefits under section 80P(2)(a)(i)? - HELD THAT - First, the Assessee has all these years continued with the same set of activities. And this has been accepted by AO. On earlier occasions, until the Assessment Year we are considering (2012-13), this Court has consistently declared that the Assessee continues to be a cooperative credit society entitled to the benefits under section 80P of the IT Act. We see no reason for the AO to take a different stand this Assessment Year. That apart, the Apex Court has put a quietus to the controversy whether the Revenue could go behind the registration certificate of cooperative society and examine its activities to determine its true nature, if any. In Mavilayi 2019 (9) TMI 782 - SC ORDER the enunciation of law is emphatic the authorities under the IT Act cannot go behind the certificate. Here, indisputably, all the Assessee have been registered as cooperative credit societies. Banking, as understood by the Revenue, has never been its core activity. Their accepting deposits from non-members does not disqualify them from claiming benefits under section 80P of the IT Act. - Decided in favour of assessee.
Issues Involved:
1. Whether the Assessee is a cooperative society or a primary cooperative bank under Section 5(ccv) of the Banking Regulation Act, 1949. 2. Eligibility for deductions under Section 80P(2)(a)(i) of the Income-Tax Act, 1961. 3. Disallowance of expenditure under Section 40(a)(ia) of the IT Act. 4. Disallowance of audit fees under Section 194J of the IT Act. 5. Jurisdiction and powers of the Tribunal under the IT Act. Issue-wise Detailed Analysis: 1. Cooperative Society vs. Primary Cooperative Bank: The core issue is whether the Assessee, a cooperative credit society, qualifies as a cooperative society or a primary cooperative bank. The AO held that the Assessee is a primary cooperative bank, thus ineligible for deductions under Section 80P(2)(a)(i) of the IT Act. The Tribunal and CIT(A) previously ruled in favor of the Assessee, stating it is a cooperative society and not a cooperative bank. The High Court reiterated that the Assessee’s principal business is not banking, and its transactions with non-members are insignificant. The court referenced the Mavilayi Service Co-operative Bank Ltd. case, which clarified that authorities under the IT Act cannot go behind the registration certificate of a cooperative society to determine its true nature. 2. Eligibility for Deductions under Section 80P(2)(a)(i): The Assessee claimed deductions under Section 80P(2)(a)(i), which the AO disallowed, considering it a primary cooperative bank. The High Court emphasized that the Assessee’s activities and registration as a cooperative society entitle it to deductions. The court cited the Supreme Court's ruling in Mavilayi SC, which held that Section 80P(2)(a)(i) should be interpreted liberally to encourage the cooperative sector. The court concluded that the Assessee’s acceptance of deposits from non-members does not disqualify it from claiming deductions under Section 80P. 3. Disallowance of Expenditure under Section 40(a)(ia): The AO disallowed ?94,38,864/- under Section 40(a)(ia) for non-compliance with Section 194A. The CIT(A) deleted this addition, stating the Assessee’s case is covered by clause (v) to Section 194A(3) of the IT Act. The High Court upheld this view, confirming that the Assessee is not liable for disallowance under Section 40(a)(ia). 4. Disallowance of Audit Fees under Section 194J: The AO disallowed audit fees of ?2,34,222/- for non-compliance with Section 194J. The CIT(A) upheld this disallowance, and the High Court did not find any reason to overturn this decision, thus maintaining the disallowance of audit fees. 5. Jurisdiction and Powers of the Tribunal: The Revenue questioned whether the Tribunal exercised its powers correctly under the IT Act. The High Court affirmed that the Tribunal acted within its jurisdiction and upheld the Tribunal's decision, which was consistent with the legal precedents and statutory provisions. Conclusion: The High Court ruled in favor of the Assessee on all substantial questions of law, confirming that: - The Assessee is a cooperative society, not a primary cooperative bank. - The Assessee is entitled to deductions under Section 80P(2)(a)(i). - The disallowance under Section 40(a)(ia) was incorrect. - The disallowance of audit fees under Section 194J was upheld. - The Tribunal exercised its powers correctly under the IT Act. Result: All substantial questions of law were answered against the Revenue and in favor of the Assessee.
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