2021 (9) TMI 235 - AT - Income Tax

Tribunal reverses deduction disallowance, orders reassessment under section 80P, stresses cooperative society compliance.

The Primary Co-op. Agricultural And Rural Development Bank Ltd. Versus ITO Ward-1 Puttur

The Tribunal set aside the disallowance of deduction under section 80P(2)(a)(i) by the assessing officer and CIT(A) due to the violation of mutuality ... Deduction claimed by the cooperative society u/s 80P(2)(a)(i) - assessee is having nominal/associate members and accordingly took the view that the assessee has violated the principles of mutuality - HELD THAT:- Since the issue of deduction u/s 80P(2)(a)(i) of the Act requires fresh examination in the light of decision rendered by Hon’ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. [2021 (1) TMI 488 - SUPREME COURT], we set aside the order passed by Ld. CIT(A) on this issue and restore the same to the file of the A.O for examining it afresh as discussed above. Deduction claimed u/s 80P(2)(d) - interest earned on deposits kept as SLR - A.R. submitted that the assessee is required to maintain deposits with banks to meet the requirement of Statutory liquidity ratio (SLR), which is 28% of total deposits and since these deposits have been made under legal obligation, it is incidental activity of business intricately connected with the main business of providing credit to the members - HELD THAT:- An identical issue was restored to the file of the A.O. by the coordinate bench in the case of Thannirupantha Primary Agricultural Credit Co-operative Society Ltd. [2021 (8) TMI 68 - ITAT BANGALORE] - Following the above said decision we restore this issue to the file of the A.O. for examining it afresh in the light of discussions made. Alternative claim that the expenses incurred to earn the interest income should be allowed u/s 57(iii) of the Act, if it claim for deduction u/s 80P(2)(a)(i) or 80P(2)(d) is not allowed - Since we have already restored the issue of claim of deduction u/s 80P(2)(d) of the Act, we restore this alternative contention also to the file of the A.O., since the claim of the assessee gets support from the decision rendered by Hon’ble High Court of Karnataka in the case of Totgars Co-operative Sales Society Ltd [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] Issues:1. Disallowance of deduction claimed under section 80P(2)(a)(i)2. Treatment of interest received from SCDCC Bank as income from other sources3. Violation of mutuality principle and eligibility for deduction u/s 80P(2)(a)(i)4. Eligibility for deduction u/s 80P(2)(d) for interest received from cooperative banks5. Denial of benefits under section 80P without legal provision6. Restoration of issues to the Assessing Officer for fresh examinationIssue 1: Disallowance of deduction claimed under section 80P(2)(a)(i)The assessee challenged the disallowance of deduction under section 80P(2)(a)(i) by the assessing officer and the CIT(A). The AO held that the assessee violated mutuality principles by having nominal/associate members. The Tribunal set aside the order and restored it to the AO for fresh examination in light of a Supreme Court decision.Issue 2: Treatment of interest received from SCDCC Bank as income from other sourcesThe AO treated interest income from SCDCC Bank as income from other sources instead of business income, disallowing deduction under section 80P(2)(a)(i). The Tribunal restored this issue to the AO for reevaluation based on previous decisions and legal provisions.Issue 3: Violation of mutuality principle and eligibility for deduction u/s 80P(2)(a)(i)The AO found the assessee violated mutuality principles due to nominal/associate members, denying deduction under section 80P(2)(a)(i). The Tribunal directed a fresh examination considering the Supreme Court's decision on a similar issue.Issue 4: Eligibility for deduction u/s 80P(2)(d) for interest received from cooperative banksThe AO disallowed deduction u/s 80P(2)(d) for interest income from cooperative banks, following a High Court decision. The Tribunal restored this issue to the AO for reevaluation based on relevant judgments and legal provisions.Issue 5: Denial of benefits under section 80P without legal provisionThe appellant argued that as a cooperative society, all benefits under section 80P cannot be denied without a legal provision. The Tribunal noted this argument and directed the AO to consider it during reexamination.Issue 6: Restoration of issues to the Assessing Officer for fresh examinationThe Tribunal restored various issues to the AO for fresh examination in light of relevant legal decisions and provisions. The Tribunal considered the nuances of cooperative society operations and the applicability of deductions under section 80P, emphasizing the need for a thorough reassessment by the AO.