Section 80P deduction requires factual verification of accounts and income streams; assessment remitted for fresh consideration.

Section 80P deduction must be tested on the factual nature of the assessee's activities, not merely on its registration or classification as a society. The assessing authority must examine the books of account and identify which income is eligible for deduction and which income, if any, falls outside the deductible activity. Applying the Supreme Court's interpretation in Mavilayi, the prior assessment and appellate orders were set aside because the accounts had not been properly verified. The matter was remitted for fresh assessment after examining the books and return in accordance with law.

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Issues: Whether the assessee's claim for deduction under Section 80P required factual verification of its accounts and income streams in the light of the Supreme Court ruling in Mavilayi, and whether the assessment orders therefore had to be set aside and remanded for fresh consideration.

Analysis: The governing principle is that Section 80P of the Income-tax Act, 1961 is a beneficial provision, but entitlement to deduction cannot be decided merely by the society's classification or registration status. The assessing authority must verify the factual nature of the assessee's activities, examine the books of account, and determine what income is eligible for deduction and what income, if any, is not attributable to the deductible activity. The earlier orders had not dealt with the objection that the books were not properly examined, and the matter had to be reconsidered strictly on the basis of the Supreme Court's interpretation of Section 80P(2) and Section 80P(4).

Conclusion: The assessment and appellate orders were set aside and the matter was remitted to the Income Tax Officer for fresh assessment after examining the books of account and the return in accordance with law.

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