2021 (10) TMI 268 - AT - Income Tax

Disallowance being deduction claimed u/s. 80P - Whether assessee is carrying on banking business and is a cooperative bank not entitled to deduction u/s. 80P(2)(a)(2)? - HELD THAT - As the foundation facts are required to be ascertained by the lower authorities like definition of members, nominal members and non members, whether the assessee was caring on banking activities for the members only or for non members and whether the assessee was having the approval from Reserve Bank of India for doing banking activities. We remand back appeal to the file of Ld. CIT(A) for denovo passing of the appellate order with the following directions CIT(A) shall decide the appeal on the basis of the findings recorded by the Hon'ble Supreme Court more particularly in the matter of Mavilayi Service Cooperative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT While deciding the issue on the basis of the above said judgment, the Ld. CIT(A) shall examine the rules of assessee-society as well as the Act under which the society was formed. For the purpose of ascertaining the scope of the activities of the assessee, the CIT(A) shall examine whether its activities were restricted to members or non members or both. Whether the assessee was having any license for carrying out the banking activities for the members and non members. Based on the above said factual findings the CIT(A) shall decide the matter after finding opportunity of hearing to the assessee as well as to the AO and passed a reasoned and speaking order. Needless to say the assessee had liberty to file any other document which it deem necessary for due disposal of the appeal and may rely upon any of the Judgment referred before us. - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance of deduction claimed under section 80P of the Income Tax Act.
2. Classification of the assessee as a cooperative bank and its entitlement to deduction under section 80P(2)(a)(2) of the Act.
3. Application of judgments by the CIT(A) in confirming disallowance of deductions.
4. Determination of whether the assessee's business activities involved nominal members and non-members without Registrar of Societies' approval.
5. Dismissal of the appeal based on the assessee's dealings with the general public.
6. Consistency in treating the assessee as a cooperative bank.
7. Addition confirmed under section 40(a)(ia) of the Act.
8. Addition confirmed for taxes paid to local authorities.

Analysis:

1. The appeal primarily contested the disallowance of a deduction claimed under section 80P of the Income Tax Act for the assessment year 2013-14. The assessee challenged the order of the Ld. CIT(A) on the grounds that it was against the law and facts of the case. The CIT(A) confirmed the disallowance of the deduction, citing the judgment of the Hon'ble Supreme Court in a specific case.

2. The issue of whether the assessee should be classified as a cooperative bank and its entitlement to deduction under section 80P(2)(a)(2) of the Act was a key point of contention. The CIT(A) held that the assessee was carrying on banking business and, therefore, was not entitled to the deduction under the relevant section. The appellant argued that the CIT(A) erred in this classification, especially in light of the specific geographical area and nature of the cooperative society.

3. The CIT(A) relied on the judgment of the Hon'ble Supreme Court in a particular case to confirm the disallowance of deductions claimed by the assessee. The appellant contended that this judgment was not applicable to their case as it pertained to multistate cooperative credit societies, unlike the appellant, which operated within a limited geographical area.

4. Another issue raised was whether the assessee's business activities involved nominal members and non-members without the necessary approval from the Registrar of Societies. The CIT(A) concluded that the principles of mutuality were missing in the case, leading to an adverse decision against the assessee.

5. The dismissal of the appeal by the CIT(A) was based on the assertion that the assessee dealt with the general public, which the appellant disputed by highlighting the limited jurisdiction of the society restricted to three villages only.

6. The issue of consistency in treating the assessee as a cooperative bank was raised, emphasizing that in previous and subsequent assessment years, the society had not been classified as such. The CIT(A) was criticized for departing from established principles of consistency in this regard.

7. The addition confirmed under section 40(a)(ia) of the Act and the subsequent addition for taxes paid to local authorities were also contested by the appellant. The CIT(A) upheld these additions, prompting further arguments from the assessee challenging the basis and legality of these decisions.

In conclusion, the ITAT Amritsar remanded the appeal back to the CIT(A) for a fresh decision, directing a thorough examination of the relevant facts and legal provisions as outlined by the Hon'ble Supreme Court. The appeal was allowed for statistical purposes, providing the assessee with an opportunity to present additional documents for consideration.