Tribunal grants appeals, dismisses stay applications, orders re-examination by Assessing Officer.

The Tribunal allowed the appeals for statistical purposes and dismissed the stay applications. The Assessing Officer (AO) was directed to re-examine the activities of the assessee-society in accordance with the Full Bench judgment of the Hon'ble jurisdictional High Court.

---

---

Issues Involved:
1. Whether the CIT(A) is justified in confirming the Assessing Officer’s order in proportionately denying the claim of deduction u/s 80P(2)(a)(i) of the I.T. Act.
2. Whether the activities of the assessee-society qualify it for deduction u/s 80P(2) of the I.T. Act.

Detailed Analysis:

Issue 1: Justification of CIT(A) in Confirming the AO's Order
The core issue in these appeals is whether the CIT(A) was justified in confirming the Assessing Officer's (AO) decision to proportionately deny the claim of deduction under section 80P(2)(a)(i) of the Income Tax Act. The assessee, a co-operative society registered under the Kerala Co-operative Societies Act, 1969, filed 'Nil' returns for the assessment years 2010-2011 and 2014-2015 after claiming deductions u/s 80P. The AO disallowed part of the deduction, allowing it only to the extent of agricultural loans disbursed, reasoning that the assessee was essentially engaged in banking activities. The AO cited section 80P(4) of the I.T. Act, which denies deductions to co-operative banks, and various judicial pronouncements to support his decision.

The CIT(A) upheld the AO's decision, relying on the Full Bench judgment of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT, which mandated that the AO must conduct a factual inquiry into the activities of the assessee to determine eligibility for deduction u/s 80P.

Issue 2: Activities of the Assessee-Society and Eligibility for Deduction
The Tribunal examined whether the assessee's activities qualify for the deduction under section 80P(2). The Hon’ble jurisdictional High Court in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT had previously held that a certificate from the Registrar of Co-operative Societies characterizing the entity as a primary agricultural credit society suffices for granting the deduction. However, this was overturned by the Full Bench in The Mavilayi Service Co-operative Bank Ltd. v. CIT, which ruled that the AO must independently verify the nature of the society's activities each assessment year.

In the present case, the AO denied a portion of the deduction because the assessee was primarily engaged in banking activities, with only a minuscule portion of loans disbursed for agricultural purposes. The AO’s assessment was based on loan extracts and audit reports, which were deemed insufficient without a detailed examination of each loan’s purpose and the membership status of the borrowers.

The Tribunal noted that the AO must conduct a thorough investigation into the nature of each loan disbursement to determine if it was for agricultural purposes and whether loans were given to non-members. This detailed examination was not performed, and the AO’s decision was influenced by the then-prevailing judgment in Chirakkal, which has since been overturned.

Conclusion:
The Tribunal concluded that the issue requires a fresh examination by the AO. The AO is instructed to investigate the nature of each loan disbursement and the membership status of the borrowers, following the guidelines laid down by the Full Bench in The Mavilayi Service Co-operative Bank Ltd. v. CIT. The appeals were allowed for statistical purposes, and the stay applications were dismissed as infructuous.

Order:
The appeals filed by the assessee are allowed for statistical purposes, and the stay applications are dismissed. The AO is directed to re-examine the activities of the assessee-society in compliance with the Full Bench judgment of the Hon’ble jurisdictional High Court.

---