2025 (4) TMI 779 - AT - Income Tax

Deduction u/s 80P - assessee is a co-operative society engaged in the business of banking and providing credit facilities to its members and earning interest income and income from other sources - HELD THAT - Before the CIT(A) in the present proceedings the assessee made exhaustive submission on the legal point and strongly relied upon the judgment in case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT . However the CIT(A) has failed to appreciate that in the case of Mavilayi Service Co-operative Bank Ltd.(supra) ultimately the Hon ble Supreme Court had restored the matters to the file of the A.O. for verifying as to whether the co-operative banks have dealt with the members or the outsiders. The Hon ble Apex Court has held that the deductions to the petitioners would be allowed after verification by the Assessing Officer. Be that as it may we deem it fit to restore the issue of deduction u/s.80P once again to the file of the A.O. for examining afresh and also direct the assessee to produce all the relevant material in order to establish its claim of deduction u/s.80P of the Income-tax Act. The assessee has to provide all the details vis- -vis income earned from its members and other income also. Appeals filed by the assessee are allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is the eligibility of the assessee, a co-operative society, to claim a deduction under Section 80P of the Income-tax Act. The specific questions include whether the activities of the society qualify for the deduction under the statutory framework and whether the Assessing Officer (A.O.) correctly denied the deduction based on the society's failure to provide sufficient evidence of its activities being limited to its members.

ISSUE-WISE DETAILED ANALYSIS

1. Eligibility for Deduction under Section 80P

Relevant Legal Framework and Precedents: Section 80P of the Income-tax Act provides deductions to co-operative societies engaged in specified activities, primarily those serving their members. The legal precedents include the Full Bench decision of the Kerala High Court in CIT v. Mavilayi Service Co-operative Bank Ltd., which initially guided the A.O.'s decision-making process. However, this was later modified by the Supreme Court, which emphasized verification of whether the co-operative banks dealt exclusively with members.

Court's Interpretation and Reasoning: The Tribunal noted that the initial assessment by the A.O. was influenced by the Kerala High Court's decision, which was subsequently altered by the Supreme Court. The Tribunal emphasized the need for a detailed examination of the society's activities to determine compliance with Section 80P.

Key Evidence and Findings: The A.O. had issued notices to the assessee to provide evidence of its activities, specifically whether loans were disbursed to members only. The assessee failed to respond adequately, leading to the denial of the deduction. The Tribunal highlighted this lack of response as a critical factor in the A.O.'s decision.

Application of Law to Facts: The Tribunal applied the legal principles established by the Supreme Court, which required verification of the society's dealings with its members. The Tribunal found that the A.O. did not conduct a comprehensive examination as directed in the earlier round of litigation.

Treatment of Competing Arguments: The assessee argued for another opportunity to present evidence in light of the Supreme Court's decision, which was not adequately considered by the CIT(A). The Departmental Representative supported the A.O.'s and CIT(A)'s decisions, emphasizing the lack of evidence from the assessee.

Conclusions: The Tribunal concluded that the matter should be remanded to the A.O. for a fresh examination, allowing the assessee to present relevant evidence to substantiate its claim for deduction under Section 80P.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal reiterated the need for a "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."

Core Principles Established: The judgment reinforced the principle that eligibility for deductions under Section 80P requires a thorough verification of the society's activities, specifically its dealings with members, as guided by the Supreme Court's interpretation.

Final Determinations on Each Issue: The Tribunal allowed the appeals for statistical purposes, remanding the case to the A.O. for a detailed re-examination of the society's activities. The Tribunal directed the assessee to provide comprehensive evidence of its income sources and dealings with members to substantiate its deduction claim. The stay petitions filed by the assessee were dismissed as infructuous due to the remand.

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