2020 (6) TMI 207 - AT - Income Tax

ITAT directs re-examination of cooperative society's activities for tax deduction eligibility

M/s. The Sholayoor Service Co-operative Bank Limited Versus The Income Tax Officer Ward 4 Palakkad

The ITAT allowed the appellant's appeal and directed the Assessing Officer to re-examine the cooperative society's activities to determine its eligibility ... Deduction u/s 80P(2)(a)(i) - as per AO assessee was essentially doing the business of banking, and therefore, in view of insertion of section 80P(4) of the I.T.Act with effect from 01.04.2007, the assessee will not be entitled to deduction u/s 80P - AO concluded that the assessee cannot be treated as co-operative society - HELD THAT:- Narration in loan extracts in the audit reports by itself may not conclusive to prove whether loan is a agricultural loan or a non-agricultural loan. The gold loans may or may not be disbursed for the purpose of agricultural purposes. Necessarily, the A.O. had to examine the details of each loan disbursement and determine the purpose for which the loans were disbursed, i.e., whether it is for agricultural purpose or non-agricultural purpose. In this case, such a detailed examination has not been conducted by the A.O. At the time of assessment, the judgment of Chirakkal Service Cooperative Bank Ltd. [2016 (4) TMI 826 - KERALA HIGH COURT]was ruling the roost and the certificate issued by the Registrar of Co-operative Society terming the assessee as a primary agricultural credit society would be sufficient for grant of deduction u/s 80P of the I.T.Act. In the light of the dictum laid down by the Full Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [2019 (3) TMI 1580 - KERALA HIGH COURT] we are of the view that there should be fresh examination by the Assessing Officer as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not - issue raised in this appeal is restored to the files of the Assessing Officer - Decided in favour of assessee for statistical purposes. Issues:Whether the CIT(A) was justified in confirming the Assessing Officer's order denying the claim of deduction u/s 80P(2)(a)(i) of the I.T. Act.Analysis:The case involves a cooperative society registered under the Kerala Co-operative Societies Act, 1969, disputing the denial of deduction u/s 80P of the I.T. Act by the Assessing Officer. The Assessing Officer contended that since the society was primarily engaged in banking activities, it did not qualify for the deduction under section 80P(2)(a)(i) of the I.T. Act. The CIT(A) upheld this decision based on the factual finding that the society's agricultural credit activities were minimal, thus not meeting the criteria of a primary agricultural credit society. The appellant challenged this decision before the ITAT, Kochi.The appellant argued that it should be considered a primary agricultural credit society and be eligible for the deduction u/s 80P. The ITAT referred to conflicting judgments by the Kerala High Court, specifically mentioning the Chirakkal Service Co-operative Bank Ltd. case and The Mavilayi Service Co-operative Bank Ltd. case. The ITAT noted that the Full Bench of the Kerala High Court in The Mavilayi case emphasized the need for the Assessing Officer to conduct a detailed inquiry into the society's activities to determine eligibility for the deduction u/s 80P. The ITAT highlighted the requirement for a fresh examination by the Assessing Officer to ascertain the nature and purpose of each loan disbursement, particularly whether they were for agricultural purposes, in line with the activities of a primary agricultural credit society under the Kerala Co-operative Societies Act, 1969.Consequently, the ITAT allowed the appeal for statistical purposes, directing the Assessing Officer to re-examine the society's activities in accordance with the Full Bench judgment of the Kerala High Court. The case was remanded to the Assessing Officer for a detailed assessment based on the nature of the loan disbursements to determine the society's eligibility for the deduction u/s 80P(2)(a)(i) of the I.T. Act.This comprehensive analysis of the legal judgment showcases the intricate details of the case, the arguments presented by the parties, and the reasoning behind the ITAT's decision to remand the case for further examination by the Assessing Officer in line with the Full Bench judgment of the Kerala High Court.