2020 (10) TMI 362 - AT - Income Tax

Tribunal remands case for further inquiry after allowing appeals. Stay applications dismissed as infructuous.

The Tribunal allowed the appeals for statistical purposes and remanded the case to the Assessing Officer for a detailed inquiry into the activities of the ... Deduction u/s 80P - CIT(A) rejected the objections raised by the assessee and passed orders u/s 154 disallowing the claim of the assessee u/s 80P(2) - HELD THAT:- CIT(A) had initially allowed the appeals of the assessee and granted deduction u/s 80P(2) of the I.T.Act. Subsequently, the CIT(A) passed orders u/s 154 wherein the claim of deduction u/s 80P was denied, by relying on the judgment of The Mavilayi Service Co-operative Bank Ltd. v. CIT [2019 (3) TMI 1580 - KERALA HIGH COURT] CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) of the I.T.Act without examining the activities of the assesseesociety. The Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. In view of the dictum laid we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer to examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. Interest on the investments with Co-operative Banks and other Banks - Tribunal in the case of Kizhathadiyoor Service Co-operative Bank Limited [2016 (7) TMI 1405 - ITAT COCHIN] had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as `income from business’ instead of `income from other sources’. However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. V. CIT (supra) and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. Appeals filed by the assessee are partly allowed. Issues Involved:1. Deduction under Section 80P(2) of the Income Tax Act.2. Interest income from investments with District Co-operative Banks.3. Application of the Full Bench judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT.4. Rejection of the assessee's objections to the notice under Section 154 of the Income Tax Act.5. Classification and eligibility of the assessee as a Primary Agricultural Credit Society.Issue-wise Detailed Analysis:1. Deduction under Section 80P(2) of the Income Tax Act:The primary issue revolves around the assessee's eligibility for deduction under Section 80P(2) of the Income Tax Act. The Assessing Officer initially disallowed the deduction on the grounds that the assessee was engaged in the business of banking, thereby invoking Section 80P(4). However, the CIT(A) initially allowed the deduction, referencing the judgment in Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT, which held that a certificate from the Registrar of Co-operative Societies suffices to grant the deduction. This was later reversed based on the Full Bench judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT, which mandated an inquiry into the actual activities of the society to determine eligibility.2. Interest Income from Investments with District Co-operative Banks:The Assessing Officer disallowed the deduction for interest income received from investments with District Co-operative Banks, treating it as income from other sources. The CIT(A), following the initial judgment in Chirakkal, allowed this as a deduction under Section 80P(2)(a)(i). However, the Tribunal noted that the interest income from such investments should be considered part of the business income, as per the co-ordinate Bench order in Kizhathadiyoor Service Cooperative Bank Limited. The Tribunal directed the Assessing Officer to follow the Full Bench judgment in Mavilayi and examine the activities of the society before granting the deduction.3. Application of the Full Bench Judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT:The Full Bench judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT overturned the earlier decision in Chirakkal, stating that the Assessing Officer must conduct a factual inquiry into the activities of the society to determine its eligibility for deduction under Section 80P. The Tribunal emphasized that the CIT(A) should not have rejected the claim without such an examination and remanded the case back to the Assessing Officer for a detailed inquiry.4. Rejection of the Assessee's Objections to the Notice under Section 154 of the Income Tax Act:The CIT(A) issued notices under Section 154 to rectify the orders based on the Full Bench judgment in Mavilayi. The assessee's objections to these notices were rejected, and the CIT(A) disallowed the deduction. The Tribunal found that the CIT(A) erred in rejecting the claim without a proper examination of the society's activities, as mandated by the Full Bench judgment, and remanded the issue to the Assessing Officer for fresh adjudication.5. Classification and Eligibility of the Assessee as a Primary Agricultural Credit Society:The assessee argued that it should be classified as a Primary Agricultural Credit Society, eligible for deduction under Section 80P(2)(a)(i), based on its registration under the Kerala Co-operative Societies Act. The Tribunal noted that the Full Bench judgment in Mavilayi requires a factual inquiry into the activities of the society, rather than relying solely on the registration certificate. The Tribunal directed the Assessing Officer to conduct this inquiry and determine the eligibility for the deduction accordingly.Conclusion:The Tribunal allowed the appeals for statistical purposes and remanded the case to the Assessing Officer to conduct a detailed inquiry into the activities of the assessee society, in line with the Full Bench judgment in Mavilayi Service Co-operative Bank Ltd. v. CIT. The Stay Applications filed by the assessee were dismissed as infructuous.