2019 (12) TMI 502 - AT - Income Tax

Tribunal directs inquiry into co-op society's activities for tax deduction eligibility

The Tribunal directed the Assessing Officer to conduct an inquiry into the activities of the co-operative society to determine eligibility for deduction ... Deduction u/s 80P(2) - CIT(A) passed order u/s 154 of the I.T.Act, wherein the claim of deduction u/s 80P of the I.T.Act was denied - HELD THAT:- In the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT [2016 (4) TMI 826 - KERALA HIGH COURT] had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) has to be granted to the assessee. Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT [2016 (4) TMI 826 - KERALA HIGH COURT] had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P. In view of the dictum laid down by the Full Bench of the Hon’ble jurisdictional High Court (supra), we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. AO shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Cooperative Banks and other Banks, the co-ordinate Bench order of the Tribunal in the case of Kizhathadiyoor Service Cooperative Bank Limited [2016 (7) TMI 1405 - ITAT COCHIN] had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as `income from business’ instead of `income from other sources’. However, as regards the grant of deduction u/s 80P on such interest income, the Assessing Officer shall follow the law laid down in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It is ordered accordingly. Issues:1. Disallowance of deduction u/s 80P of the Income Tax Act by Assessing Officer.2. Appeal to CIT(A) and subsequent issuance of notice u/s 154 proposing rectification.3. Rejection of deduction u/s 80P by CIT(A) and subsequent appeal to the Tribunal.4. Interpretation of judgments by Hon'ble jurisdictional High Court regarding eligibility for deduction u/s 80P.5. Examination of activities of the assessee society to determine eligibility for deduction u/s 80P.Analysis:1. The Assessing Officer disallowed the claim of deduction u/s 80P of the Income Tax Act for the assessment year 2011-2012, stating that the assessee, a co-operative society, was engaged in banking activities. This disallowance included interest income received from investments made with District Co-operative Banks.2. The assessee appealed to the CIT(A), who initially allowed the deduction u/s 80P based on the judgment of the Hon'ble jurisdictional High Court in a similar case. However, the CIT(A) later issued a notice u/s 154 proposing rectification based on a subsequent judgment by the Full Bench of the Hon'ble jurisdictional High Court.3. The CIT(A, despite objections from the assessee, passed an order disallowing the deduction u/s 80P. Subsequently, the assessee filed an appeal before the Tribunal challenging this decision, raising various grounds including procedural irregularities and misinterpretation of the law by the authorities.4. The Tribunal considered the conflicting judgments of the Hon'ble jurisdictional High Court regarding the eligibility for deduction u/s 80P. While the initial judgment favored the assessee, the subsequent Full Bench judgment required an inquiry into the activities of the assessee society to determine eligibility for the deduction.5. In light of the conflicting judgments and the requirement to examine the activities of the assessee society, the Tribunal directed the Assessing Officer to conduct an inquiry and determine the eligibility of the deduction u/s 80P based on compliance with the activities of a co-operative society under the Kerala Co-operative Societies Act, 1969.6. Regarding interest income from investments with Cooperative Banks and other Banks, the Tribunal directed the Assessing Officer to follow the law laid down by the Full Bench of the Hon'ble jurisdictional High Court and examine the activities of the assessee-society before granting deduction u/s 80P on such income.7. The Tribunal allowed the appeal for statistical purposes, dismissed the Stay Application as infructuous, and pronounced the order in December 2019, emphasizing the need for a detailed examination of the activities of the assessee society to determine eligibility for deduction u/s 80P of the Income Tax Act.