2018 (8) TMI 1063 - AT - Income Tax

Tribunal sets aside CIT(A) order, remands case for reexamination of Section 80P eligibility

M/s. Udaya Souharda Credit Cooperative Society Limited Versus The Income Tax Officer, Ward - 5 (2) (4), Bengaluru.

M/s. Udaya Souharda Credit Cooperative Society Limited Versus The Income Tax Officer, Ward - 5 (2) (4), Bengaluru. - TMI Issues Involved:1. Entitlement to deduction under Section 80P(2) of the Income Tax Act.2. Classification and registration of the appellant as a Co-operative Society or Co-operative under the Karnataka Souharda Sahakari Act, 1997.3. Validity of the assessment order and registration certificate.4. Principles of natural justice and opportunity of hearing.Issue-wise Detailed Analysis:1. Entitlement to Deduction under Section 80P(2):The primary issue revolves around the appellant's claim for deduction under Section 80P(2) of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction, asserting that the appellant's principal business was banking, and it qualified as a primary co-operative bank rather than a co-operative credit society. The AO relied on the Supreme Court judgment in Totgars Co-operative Sale Society Ltd. vs. ITO, which held that interest earned on surplus funds invested in short-term deposits and government securities is not eligible for deduction under Section 80P. The CIT(A) upheld this disallowance, referencing the Apex Court's judgment in Citizen Co-operative Society Ltd. vs. ACIT, where it was held that a co-operative society advancing loans to the general public without Registrar approval violates the Co-operative Societies Act and is not entitled to deduction under Section 80P(2)(i)(a).2. Classification and Registration:The appellant's classification and registration under the Karnataka Souharda Sahakari Act, 1997, were contested. The Departmental Representative (DR) argued that the appellant was registered as a Co-operative, not a Co-operative Society, and thus ineligible for Section 80P deduction. The DR highlighted that the Karnataka Souharda Sahakari Act registers Co-operatives, while the Karnataka Co-operative Societies Act registers Co-operative Societies, and these are distinct entities. The appellant contended that this objection was not raised by lower authorities and that it had been assessed as a Co-operative Society in previous years. The appellant also argued that the scope and objectives of both Acts are similar, and thus, it should be eligible for the deduction.3. Validity of the Assessment Order and Registration Certificate:The Tribunal noted discrepancies in the registration details. The assessment order was issued in the name of Udaya Souharda Credit Co-operative Society Ltd., while the registration certificate was for Udaya Souhardha Pattina Co-operative Ltd. The Tribunal emphasized that without proper registration under the Karnataka Co-operative Societies Act, the appellant could not claim to be a Co-operative Society eligible for Section 80P deduction. The Tribunal found the creation of the Co-operative Society under the Co-operative Societies Act to be doubtful and required proper adjudication by the AO.4. Principles of Natural Justice and Opportunity of Hearing:The appellant argued that it was not given a reasonable opportunity to present its case, which violated the principles of natural justice. The Tribunal acknowledged this concern and decided that the AO must reexamine the issues, conduct necessary inquiries, and provide a reasoned order. The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for fresh adjudication, ensuring that the appellant is given a fair opportunity to present its case.Conclusion:The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and remanding the case to the AO for reexamination of the appellant's eligibility for Section 80P deduction, proper classification, and registration status, ensuring adherence to principles of natural justice. The AO is directed to conduct necessary inquiries and investigations and issue a reasoned order based on the findings.