ITAT overturns CIT(A) disallowance under sec 80P(2) for Co-op Milk Producers Society

The ITAT set aside the CIT(A)'s order disallowing deduction under section 80P(2) of the Income Tax Act for a Co-operative Milk Producers society. Emphasizing the importance of analyzing the source of funds deposited in the bank, the ITAT remanded the case for a fresh decision. The ITAT directed a comparison with relevant legal precedents and ordered a detailed examination of facts to determine eligibility for the deduction. Both parties were granted an opportunity to be heard, and the appeal was allowed for statistical purposes.

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Issues:
Assessment of deduction under section 80P(2) of the Income Tax Act for a Co-operative Milk Producers society providing credit facilities to its members.

Analysis:
The appellant, a Co-operative Milk Producers society registered under The Karnataka Souharda Sahakari Act, 1997, appealed against the order of the Ld. CIT(A) disallowing the deduction under section 80P(2) of the Income Tax Act for the assessment years 2015-16 and 2016-17. The Ld. AO disallowed the deduction, stating that section 80P(2)(d) does not include the word "bank," and the scope of the section is limited to co-operative societies. The Ld. CIT(A) confirmed this view, leading to the appeal before the ITAT.

The appellant argued that the authorities did not compare the facts of the present case with relevant judgments, including the decision of the Hon'ble Karnataka High Court in the case of PCIT and Another Vs. Totagtarts Co-Operative Sale Society. The appellant contended that the judgment in the case of Tumkur Merchants Souharda Credit Co-Operative Ltd., vs. ITO was more applicable. The senior DR opposed granting the deduction under section 80P(2), citing the observations of the Hon'ble Karnataka High Court in a recent judgment.

The ITAT, after examining the submissions, decided to set aside the order of the CIT(A) and remand the matter for a fresh decision. The ITAT emphasized the need to determine whether the funds deposited in the bank, on which interest income was earned, were from the society's own funds or liabilities. The ITAT directed the CIT(A) to pass a reasoned order after comparing the facts with relevant judgments, including The Citizen Co-Operative Society Ltd., vs. ACIT. The ITAT allowed the appeal for statistical purposes, providing both parties with an opportunity to be heard.

In conclusion, the ITAT's decision highlighted the importance of analyzing the source of funds deposited in the bank to determine the eligibility for deduction under section 80P(2) of the Income Tax Act. The case was remanded for a fresh decision, emphasizing the need for a detailed examination of facts and a comparison with relevant legal precedents.

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