2017 (12) TMI 1420 - HC - Income Tax

High Court directs reassessment of Co-operative Society's appeal, emphasizing factual scrutiny for Income Tax Act deductions.

The Pr. Commissioner Of Income Tax Versus M/s. Laxmi Narcinva Urban Co-op. Credit Society Ltd.

The High Court set aside the decisions of the CIT(Appeals) and the Tribunal, directing the CIT(Appeals) to reassess the appeal filed by the Co-operative ... Eligibility for deduction u/s 80P(2)(a)(i) and 80P(2)(c)(ii) - Tribunal allowed claim - Held that:- CIT(Appeals) has simply referred to the order of the Assessing Officer and to the decision of this Court in Quepem Urban [2015 (6) TMI 573 - BOMBAY HIGH COURT]. There is no scrutiny on facts, which was necessary since the CIT was reversing the decision of the Assessing Officer denying the benefit to the Respondent/ Assessee. When the Revenue filed an appeal to the Tribunal challenging a decision adverse to them, the Tribunal was expected to scrutinize the decision of the CIT(Appeals). Here again, we find that the Tribunal has not done so. In paragraph 4 the Tribunal has simply reproduced the decision of the CIT(Appeals)and thereafter referred to the decision of this Court in case of Quepem Urban and has dismissed the Appeal. Thus the inquiry into the factual position, which the learned Counsel for the parties agree is necessary before the legal principle is to be considered, is not done by the CIT(Appeals) as well as the Tribunal. Therefore, before we consider what is the effect of the admission of the Special Leave Petition against the decision of this Court in Quepem Urban and the legal position enumerating from Quepem Urban, the factual foundation must be established as regards the nature of the business of the Respondent. Thus the appropriate course of action would be to set aside the order passed by the CIT(Appeals) and the Tribunal and to direct the CIT(Appeals) to consider the appeal filed by the Respondent against the order passed by the Assessing Officer dated 31 December 2014. Issues involved:1. Eligibility of a Co-operative Society for deduction under Sections 80P(2)(a)(i) and 80P(2)(c)(ii) of the Income Tax Act.2. Applicability of the decision in the case of Quepem Urban Co-operative Credit Society.3. Effect of a Special Leave Petition admitted by the Apex Court.4. Lack of factual scrutiny by the CIT(Appeals) and the Tribunal.Issue 1: Eligibility for deduction under Sections 80P(2)(a)(i) and 80P(2)(c)(ii):The Respondent, a Co-operative Society, filed returns of income declaring total income as nil. The Assessing Officer determined the Respondent to be a Primary Co-operative Bank, not eligible for deductions under Sections 80P(2)(a)(i) and 80P(2)(c)(ii) of the Act. The CIT(Appeals) accepted the Respondent's case, directing deletion of an addition of &8377; 32,84,449. The Tribunal dismissed the Revenue's appeal, citing the decision in Quepem Urban Co-operative Credit Society case. The Division Bench in the Quepem Urban case clarified the applicability of Section 80P, restricting benefits to income earned by providing credit facilities to members. The legal position mandates an inquiry into the nature of business carried out by the Society for eligibility under these provisions.Issue 2: Applicability of Quepem Urban Co-operative Credit Society case:The decision in the Quepem Urban case emphasized that the benefits under Section 80P are limited to income earned by providing credit facilities to members. The Respondent's case was allowed based on this interpretation, leading to the dismissal of the Revenue's appeal by the Tribunal. The legal principle from the Quepem Urban case requires a factual adjudication specific to each Co-operative Society to determine eligibility for deductions under Section 80P.Issue 3: Effect of Special Leave Petition admitted by the Apex Court:The Revenue contended that the decision in Quepem Urban case is challenged through a Special Leave Petition admitted by the Apex Court. However, the Respondent argued that the law laid down in the Quepem Urban case remains valid until a final decision by the Apex Court. The legal position is supported by a precedent emphasizing that the pendency of a Special Leave Petition does not automatically suspend the existing legal interpretation.Issue 4: Lack of factual scrutiny by the CIT(Appeals) and the Tribunal:The CIT(Appeals) and the Tribunal failed to conduct a detailed factual scrutiny before deciding on the eligibility of the Respondent for deductions under Section 80P. The CIT(Appeals) merely referred to the Assessing Officer's order and the decision in the Quepem Urban case without independent analysis. Similarly, the Tribunal did not scrutinize the CIT(Appeals) decision, leading to a lack of factual foundation for the legal considerations. The judgment highlights the necessity of establishing a factual basis before delving into the legal implications.In conclusion, the High Court set aside the orders of the CIT(Appeals) and the Tribunal, directing the CIT(Appeals) to reconsider the appeal filed by the Respondent against the Assessing Officer's order. The judgment underscores the importance of factual scrutiny in determining the eligibility of Co-operative Societies for deductions under the Income Tax Act, emphasizing the need for a case-specific inquiry into the nature of business conducted by each Society.