Tribunal orders reassessment for cooperative societies' tax deduction eligibility under Income Tax Act.

The Tribunal remanded the case back to the Assessing Officer for a fresh examination to determine if the cooperative societies were eligible for deduction under section 80P(2)(a)(i) of the Income Tax Act. The Tribunal found that the Assessing Officer had not adequately investigated the nature and purpose of the loan disbursements, specifically regarding agricultural activities and loans to non-members. The appeals were allowed for statistical purposes, and the assessees were directed to cooperate with the Assessing Officer for further assessment.

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

Issue-wise Detailed Analysis:

1. Justification of CIT(A) in Denying Deduction u/s 80P(2)(a)(i):
The primary issue in the appeals is whether the CIT(A) was justified in confirming the Assessing Officer’s decision to deny the claim of deduction under section 80P(2)(a)(i) of the Income Tax Act. The assessees, co-operative societies registered under the Kerala Co-operative Societies Act, 1969, had their claims for deduction u/s 80P disallowed by the Assessing Officer on the grounds that they were engaged in the business of banking. The Assessing Officer cited section 80P(4) of the I.T. Act, effective from 01.04.2007, which excludes co-operative banks from claiming deduction under section 80P.

The CIT(A) upheld the Assessing Officer'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. The CIT(A) concluded that the agricultural credit provided by the assessees was minimal and that they could not be classified as primary agricultural credit societies. Consequently, the disallowance of the deduction claim u/s 80P was upheld.

Appeal to Tribunal:
The assessees appealed to the Tribunal, arguing that they were eligible for the deduction under section 80P(2)(a)(i) and that the CIT(A)’s reliance on specific cases without considering all grounds raised was erroneous. They contended that the denial of deduction u/s 80P(4) was illegal and unsustainable, and that their classification as co-operative credit societies should entitle them to the deduction. They also argued for the application of the doctrine of mutuality and raised objections to their classification as an Association of Persons (AOP) by the Assessing Officer.

Tribunal's Findings:
The Tribunal examined the submissions and referenced the Hon’ble jurisdictional High Court’s decisions in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT and The Mavilayi Service Co-operative Bank Ltd. v. CIT. The Tribunal noted that the Full Bench of the Hon’ble Kerala High Court in Mavilayi had reversed the findings in Chirakkal, emphasizing that the Assessing Officer must conduct an inquiry into the factual activities of the assessee society to determine eligibility for deduction u/s 80P. The Tribunal observed that the Assessing Officer had not conducted a detailed examination of the nature and purpose of each loan disbursement, nor had they sufficiently investigated the extent of loans disbursed to non-members.

Conclusion and Remand:
The Tribunal concluded that a fresh examination by the Assessing Officer was necessary to determine the nature of each loan disbursement and whether it was for agricultural purposes. The Assessing Officer was directed to list instances where loans were disbursed to non-members and for non-agricultural purposes before denying the deduction claim u/s 80P(2). The appeals were allowed for statistical purposes, and the stay applications were dismissed as infructuous. The Tribunal ordered that the assessees cooperate with the Assessing Officer and provide necessary details without seeking unnecessary adjournments.

Order Pronouncement:
The order was pronounced on the 07th day of July, 2020.

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