Tribunal allows appeal for deduction under section 80P, rejects alternative claim.

The Tribunal partly allowed the appeals for statistical purposes, directing the Assessing Officer to examine the activities of the assessee society and determine the eligibility for deduction under section 80P. The Tribunal upheld the CIT(A)'s rejection of the alternative claim under section 80P(2)(d) in the rectification proceedings.

---

---

Issues Involved:
1. Legality of the CIT(A)'s order under section 154 read with section 250 of the Income Tax Act, 1961.
2. Entitlement to deduction under section 80P(2)(a)(i) and section 80P(2)(d) of the Income Tax Act.
3. Examination of the activities of the assessee society for eligibility of deduction under section 80P.

Detailed Analysis:

1. Legality of the CIT(A)'s order under section 154 read with section 250 of the Income Tax Act, 1961:

The appeals were directed against the orders of the CIT(A), Thrissur, passed under section 154 read with section 250 of the Income Tax Act. The CIT(A) initially allowed the deduction under section 80P based on the judgment of the Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd. However, the CIT(A) subsequently issued notices under section 154 proposing to rectify his orders in light of the Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. CIT. The CIT(A) rejected the objections raised by the assessees and passed orders disallowing the deduction under section 80P(2).

2. Entitlement to deduction under section 80P(2)(a)(i) and section 80P(2)(d) of the Income Tax Act:

The assessees claimed deductions under section 80P(2)(a)(i) for their income and under section 80P(2)(d) for interest on investments. The CIT(A) had initially allowed these deductions but later rectified his orders based on the Full Bench decision, which required a detailed examination of the activities of the assessee society. The Tribunal noted that the CIT(A) should not have rejected the deduction claim without examining the activities of the assessee society. The Tribunal restored the issue to the Assessing Officer to examine the activities and determine the eligibility for deduction under section 80P.

3. Examination of the activities of the assessee society for eligibility of deduction under section 80P:

The Tribunal emphasized that, as per the Full Bench decision in Mavilayi Service Co-operative Bank Ltd. v. CIT, the Assessing Officer must conduct an inquiry into the factual situation of the assessee society's activities to determine eligibility for deduction under section 80P. The Tribunal directed the Assessing Officer to examine whether the activities of the assessee society comply with the Kerala Co-operative Societies Act, 1969, and to determine the allowability of the deduction accordingly.

Interest on Investments:

The Tribunal referred to the co-ordinate Bench order in the case of Kizhathadiyoor Service Co-operative Bank Limited, which held that interest income from investments with treasuries and banks is part of the banking activity and eligible for deduction under section 80P(2)(a)(i). However, the Tribunal directed the Assessing Officer to follow the law laid down in the Full Bench decision and examine the activities of the assessee society before granting the deduction on such interest income.

Alternative Claim under Section 80P(2)(d):

The Tribunal noted that the assessees made an alternative claim for deduction under section 80P(2)(d) during the proceedings under section 154. The Tribunal held that such claims cannot be entertained in rectification proceedings if the related documents were not filed during the assessment or appellate proceedings. The Tribunal found no infirmity in the CIT(A)'s order rejecting the claim under section 80P(2)(d).

Conclusion:

The Tribunal partly allowed the appeals for statistical purposes, directing the Assessing Officer to examine the activities of the assessee society and determine the eligibility for deduction under section 80P. The Tribunal upheld the CIT(A)'s rejection of the alternative claim under section 80P(2)(d) in the rectification proceedings. The order was pronounced on 13th February 2020.

---