2014 (4) TMI 306 - AT - Income Tax

Appeal Granted: Deduction under Section 80P(2)(a)(i) restored for cooperative society

The Tribunal allowed the appeal, restoring the original assessment order and granting the deduction under Section 80P(2)(a)(i) to the assessee society. ... Justification of invoking section 263 of the Act – Denial of deduction u/s 80P(2)(a)(i) of the Act - Whether the CIT is justified in invoking the revisionary jurisdiction u/s 263 of the Act directing the AO to deny the benefit of deduction u/s 80P(2)(a)(i) of the Act to the assessee society – Held that:- The decision in CIT vs. Jafari Momin Vikas Co-Op Credit Society Ltd. [2014 (2) TMI 28 - GUJARAT HIGH COURT] followed - sub-section (4) of section 80P will not apply to an assessee which is not a co-operative bank - CBDT Circular No. 133 of 2007 dated 9.5.2007 clarified that the entity not being a cooperative bank, section 80P(4) of the Act would not apply to it – thus, the Revenue's contention that section 80P(4) would exclude not only the cooperative banks other than those fulfilling the description contained therein but also credit societies, which are not cooperative bankscannot be accepted - assessee is not a credit co- operative bank but a credit co-operative society - Exclusion clause of sub-section (4) of section 80P would not apply – thus, the CIT is not justified in denying the benefit of section 80P(2) to the assessee society – Decided in favour of Assessee. Issues Involved:1. Justification of CIT invoking revisionary jurisdiction under Section 263 of the Income Tax Act.2. Denial of deduction under Section 80P(2)(a)(i) to the assessee society.Issue-wise Detailed Analysis:1. Justification of CIT invoking revisionary jurisdiction under Section 263 of the Income Tax Act:The primary issue for consideration is whether the CIT was justified in invoking the revisionary jurisdiction under Section 263 of the Income Tax Act and setting aside the assessment order dated 20.12.2011. The CIT issued a show cause notice on 06.12.2013 proposing to disallow the benefit of deduction under Section 80P(2) of the Act. Despite the assessee society filing detailed objections, the CIT rejected these objections and passed an order under Section 263 on 20.01.2014. The CIT concluded that the assessee was engaged in activities akin to banking business and thus, should be treated as a primary cooperative bank, making it ineligible for the deduction under Section 80P(2)(a)(i) due to the overriding provisions of Section 80P(4) read with Section 2(24)(viia).2. Denial of deduction under Section 80P(2)(a)(i) to the assessee society:The CIT's findings included:- The assessee's activities were similar to those of a banking business.- The inclusive definition of income under Section 2(24)(viia) includes profits from providing credit facilities by a cooperative society.- The assessee society met the conditions to be treated as a primary cooperative bank under the Banking Regulation Act, 1949.- The provisions of Section 80P(4) override Section 80P, making the assessee ineligible for the deduction claimed.The assessee appealed against this decision, citing judgments from the Hon'ble Karnataka High Court and the Hon'ble Gujarat High Court, which supported the view that Section 80P(4) applies only to cooperative banks and not to cooperative societies. The Karnataka High Court, in the case of CIT vs. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, held that Section 80P(4) is not applicable to cooperative societies and is restricted to cooperative banks licensed by the RBI. Similarly, the Gujarat High Court in CIT vs. Jafari Momin Vikas Co-op Credit Society Ltd, clarified that Section 80P(4) excludes only cooperative banks from the deduction, not cooperative societies.The Tribunal, after considering the rival submissions and the material on record, concluded that the CIT was not justified in denying the benefit of Section 80P(2) to the assessee society. The Tribunal restored the assessment order dated 20.12.2011, which granted the deduction under Section 80P(2)(a)(i) to the assessee. The Tribunal's decision was influenced by the binding judgments of the jurisdictional High Court and the Gujarat High Court, which clarified that Section 80P(4) does not apply to cooperative societies.Conclusion:In conclusion, the Tribunal allowed the appeal filed by the assessee, restoring the original assessment order and granting the deduction under Section 80P(2)(a)(i). The stay application filed by the assessee was dismissed as infructuous. The order was pronounced in the Open Court on 4th April, 2014.