2023 (1) TMI 647 - AT - Income Tax

Cooperative society qualifies for deduction under Section 80P; reassessment valid, disallowance upheld

The Tribunal partly allowed the assessee's appeal, recognizing them as a cooperative society eligible for deduction under Section 80P. The reassessment ... Deduction u/s 80P(2a)(i) - Assessee is a cooperative society - applicability of provisions of sec.80P(4) - HELD THAT:- As relying on case Baroda Uttar Pradesh Gramin Bank 2022 (3) TMI 848 - ALLAHABAD HIGH COURT we hold that the assessee is a cooperative society for the purpose of Income-tax Act and assessee is eligible for claiming deduction as per sec. 80P(2)(a)(i) of the Act. The provisions of sec.80P(4) will not apply in the case of the assessee. Accordingly, the additional ground Nos.1 and 2 raised by the assessee is allowed. Assessee is an AOP or cooperative society - The assessee has himself obtained PAN No. in the capacity of AOP and from the alphabets of PAN, it is clear that the assessee is an AOP, the arguments taken by the assessee does not survive. therefore, the issue raised by the assessee is dismissed. However, for the purpose of claiming deduction u/s 80P of the Act as per the Regional Rural Bank Act we have uphold that it is a cooperative society. therefore, the ground No.4 is premature. Issues Involved:1. Validity of the assessment order and reassessment proceedings.2. Disallowance of provision for bad and doubtful debts under Section 36(1)(viia).3. Levy of interest under sections 234B, 234D, and 244A.4. Eligibility of the assessee, a Regional Rural Bank (RRB), for deduction under Section 80P.5. Status of the assessee as a Cooperative Society or Association of Persons (AOP).Detailed Analysis:1. Validity of the Assessment Order and Reassessment Proceedings:The assessee argued that the assessment order under Section 143(3) read with Section 147 was bad in law as the mandatory conditions for reopening were not met. The reassessment was based on a TDS survey revealing non-submission of Form No. 15G/H. The assessee contended that the Assessing Officer (AO) mechanically relied on recommendations without independent application of mind. The Tribunal found that the TDS issue was dropped during reassessment, and the reopening was primarily based on incorrect claims under Sections 36(1)(viia) and 36(1)(viii). The Tribunal accepted the additional ground raised by the assessee, citing the Supreme Court's decision in National Thermal Power Company Ltd. v. CIT, allowing the assessee to challenge the validity of the reassessment.2. Disallowance of Provision for Bad and Doubtful Debts:The assessee challenged the disallowance of Rs. 492,74,01,516 under Section 36(1)(viia), arguing that the provision for bad and doubtful debts is governed by this section, and the deduction should be allowed as long as the provision is made in the books of accounts. The Tribunal noted that the issue was decided in favor of the Revenue by the jurisdictional High Court of Karnataka in CIT v. Syndicate Bank, and hence upheld the disallowance.3. Levy of Interest under Sections 234B, 234D, and 244A:The assessee contested the levy of interest under Sections 234B, 234D, and 244A, arguing that the period, rate, quantum, and method of calculation were incorrect. The Tribunal did not provide a specific ruling on this issue, considering it consequential to the main issues.4. Eligibility for Deduction under Section 80P:The primary contention was whether the assessee, being a Regional Rural Bank (RRB), is eligible for deduction under Section 80P. The Tribunal referred to Section 22 of the Regional Rural Bank Act, 1976, which deems RRBs as cooperative societies for income tax purposes, and Section 32, which overrides other laws. The Tribunal relied on the Allahabad High Court's decision in PCIT v. Baroda Uttar Pradesh Gramin Bank, which held that RRBs are eligible for deduction under Section 80P. The Tribunal concluded that the assessee is deemed a cooperative society and eligible for the deduction, thus allowing the additional grounds raised by the assessee.5. Status as Cooperative Society or AOP:The assessee argued that it should be assessed as a cooperative society, not an AOP. The Tribunal noted that the assessee had obtained a PAN in the capacity of an AOP, but for the purpose of claiming deduction under Section 80P, it is considered a cooperative society as per the Regional Rural Bank Act. The Tribunal dismissed the ground related to the status of AOP but upheld the cooperative society status for income tax purposes.Conclusion:The Tribunal partly allowed the assessee's appeal, recognizing the assessee as a cooperative society eligible for deduction under Section 80P and dismissing the Revenue's appeal. The reassessment proceedings were deemed valid, but the disallowance under Section 36(1)(viia) was upheld. The issue of interest levy under Sections 234B, 234D, and 244A was considered consequential.