2017 (3) TMI 1822 - AT - Income Tax

ITAT Upholds Deduction for Agricultural Credit Society, Dismissing Revenue's Appeal and Cross Objections.

The ITAT dismissed the Revenue's appeal and the assessee's Cross Objections, affirming the CIT(A)'s decision to grant the deduction under section ... Deduction under section 80P(2)(a)(i) - application of section 80P(4) - classification as Primary Agricultural Credit Society - relevance of certificate issued under the Kerala Co-operative Societies Act, 1969 - scope of inquiry by tax authorities into the objects of a cooperative society - precedential effect of a later High Court decision over an earlier decision addressing a different issueDeduction under section 80P(2)(a)(i) - application of section 80P(4) - classification as Primary Agricultural Credit Society - relevance of certificate issued under the Kerala Co-operative Societies Act, 1969 - scope of inquiry by tax authorities into the objects of a cooperative society - Entitlement of the assessee to deduction under section 80P(2)(a)(i) in view of its classification as a Primary Agricultural Credit Society and the Assessing Officer's invocation of section 80P(4) on the ground that the society was carrying on banking business. - HELD THAT: - The Assessing Officer disallowed the claim under section 80P(2)(a)(i) by treating the assessee as carrying on banking business and invoking section 80P(4). The assessee had produced a certificate from the competent authority under the Kerala Co-operative Societies Act, 1969 classifying it as a Primary Agricultural Credit Society. The CIT(A) accepted the certificate and relied on the decision of the Hon'ble Kerala High Court in Chirakkal Service Co-operative Bank Ltd. v. CIT holding that where a society is so classified by the competent authority under the state cooperative law, its principal object must be taken to be agricultural credit activity and tax authorities cannot probe into that classification or principal object. Applying that principle, the Tribunal held that section 80P(4) could not be invoked to deny the deduction once the certificate of classification was produced. The Tribunal distinguished the earlier Perithalmanna decision relied on by Revenue on the basis that it dealt with the exercise of revisionary powers under section 263 and preceded the Chirakkal decision; it did not persuade interference with the CIT(A)'s order. The Tribunal found no infirmity in the CIT(A)'s acceptance of the classification certificate and consequently upheld the allowance of the deduction. [Paras 4, 5]Revenue's disallowance under section 80P(4) set aside; deduction under section 80P(2)(a)(i) allowed as assessee is a Primary Agricultural Credit Society by certificate of the competent authority.Final Conclusion: Appeals of the Revenue and cross objections of the assessee dismissed; CIT(A)'s order allowing deduction under section 80P(2)(a)(i) upheld on the ground that the assessee's classification as a Primary Agricultural Credit Society by the competent authority precludes invocation of section 80P(4). Issues:Appeal by Revenue against CIT(A) order granting deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961 based on the classification of the assessee as a Primary Agricultural Credit Society under the Kerala Co-operative Societies Act, 1969.Analysis:The Revenue contended that the assessee did not pursue its principal object of providing agricultural credits to its members, losing the characteristics of a Primary Agricultural Credit Society. The Revenue argued that a factual inquiry was necessary to determine the nature of the assessee's business. The CIT(A) relied on the judgment in a similar case to support the assessee's claim.The CIT(A) upheld the assessee's claim based on the classification as a Primary Agricultural Credit Society under the Kerala Co-operative Societies Act, 1969. The judgment cited emphasized that such classification determined the society's principal object of providing agricultural credit activities and loans for agricultural purposes, limiting its area of operation. The CIT(A) correctly applied this legal principle to grant the deduction.The ITAT noted that the assessee had produced a certificate classifying it as a primary agricultural credit society, making the invocation of section 80P(4) to deny the deduction inappropriate. The ITAT supported the CIT(A)'s decision and distinguished a previous judgment cited by the Revenue, emphasizing the timing and context of the cases. The ITAT found no reason to interfere with the CIT(A)'s order.The Cross Objections filed by the assessee were deemed unnecessary as they aligned with the CIT(A)'s decision. Consequently, both the Revenue's appeals and the assessee's Cross Objections were dismissed by the ITAT, upholding the CIT(A)'s order granting the deduction u/s. 80P(2)(a)(i) to the assessee.In conclusion, the ITAT upheld the CIT(A)'s decision based on the classification of the assessee as a Primary Agricultural Credit Society, emphasizing the significance of such classification in determining the eligibility for the deduction under the Income Tax Act.