KARIMKUNNAM SERVICE CO-OP BANK LTD,THODUPUZHA vs. THE ITO, THODUPUZHA

These appeals at the instance of the assessee are directed against common order of the CIT(A), dated 07.11.2019. The assessee has also preferred stay applications seeking to stay the recovery of outstanding tax arrears. The relevant assessment years are 2013-2014 and 2014-2015.

3. The solitary issue that is raised is 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.

5. Aggrieved by the orders passed by the Assessing Officer disallowing the claim of deduction u/s 80P(2) of the I.T.Act, the assessee preferred appeals before the first appellate authority for assessment years 2013-2014 and 2014-2015. The CIT(A) placing reliance on the judgment of the Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT [(2019) 414 ITR 67 (Ker.) (FB) (HC)] held that the Assessing Officer had made elaborate findings and has come to a factual finding that agricultural credit provided by the assessee is only fifty per -122/Coch/2020 3 SA Nos.66-67/Coch/2020 M/s.Karimkunnam SCB Ltd.

cent of total loan disbursement and assessee cannot be termed as primary agricultural credit society. Accordingly disallowance of claim of deduction u/s 80P of the I.T.Act made by the Assessing Officer was upheld by the CIT(A). In the result the appeals filed by the assessee were rejected by the CIT(A) for assessment years 2013-2014 and 2014-2015.

“1. The order dated 7-11-2019 passed by the Commissioner of Income Tax (Appeals)-II Kochi confirming the order dated 25-11-2015 of the Assessing officer disallowing the deduction claimed under section 80 P of the Act for the AY 2013-14 by the appellant who is a Primary Agricultural Credit Society is illegal, arbitrary and unjustified.

2. The CIT (Appeals) ought not to have confirmed the disallowance of deduction under section 80 P of the Act made by the assessing officer.

4. The CIT (Appeals) failed to consider that the Full Bench of the Kerala High Court in the case of Mavilayi Service Co- operative Bank Ltd Vs CIT has held that the assessing officer has to look into the transaction and the assessee can produce documents before the assessing officer to support / substantiate the claim of 80 P deduction.

6. The CIT (Appeals) ought to have held that the finding of the assessing officer that the appellant is not a Primary Agricultural Credit Society but a Co-operative Bank is illegal, arbitrary and baseless. The CIT (Appeals) ought to have considered the fact that the appellant is not a Co-operative Bank and there is no licence issued by RBI.

8. The assessing officer thoroughly erred in holding that the appellant is providing facilities to non-members also. The finding of the assessing officer that the assessee accepts deposits from both members and non-members is totally erroneous and factually incorrect. The AO without any basis has made this false and incorrect finding. The assessee is not accepting any deposits from non-members. The appellant is providing credit facility only to its member. The CIT(Appeals) ought to have noted that the assessing officer has not considered the issue of 80P in the right perspective.

9. The CIT(Appeals) ought to have noted that the assessing officer erred in holding that the appellant is doing banking business and therefore the appellant is a co-operative Bank. The lower authorities failed to note that banking business is different from providing credit facility to members and the appellant is not doing banking business. The CIT(Appeals) failed to consider the matter in the right perspective.

For these and other grounds that may be urged at the time of hearing it is most respectfully prayed that this Honourable Tribunal may be pleased to set aside the order dated 7.11.2019 passed by the CIT(Appeals)-II, Kochi and the order dated 25.11.2015 passed by the ITO, Non-Corporate Ward-1, Thozupuzha for the AY 2013-14 and to allow the appeal.”

6.1 The learned AR relied on the grounds raised

. The learned Departmental Representative, on the other hand, strongly supported the orders passed by the Income Tax Authorities. -122/Coch/2020 5 SA Nos.66-67/Coch/2020 M/s.Karimkunnam SCB Ltd.

7. We have heard the rival submissions and perused the material on record. The Hon’ble jurisdictional High Court in the case of Chirakkal Service Co-operative Co-operative Bank Ltd. v. CIT [(2016) 384 ITR 490 (Ker.)] had held that when a certificate has been issued to an assessee by the Registrar of Co-operative Societies characterizing it as primary agricultural credit society, necessarily, the deduction u/s 80P(2) of the I.T.Act has to be granted to the assessee. However, the Full Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) had reversed the above findings of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Co- operative Bank Ltd. v. CIT (supra). The Larger Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) held that the Assessing Officer 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. It was held by the Hon’ble High Court that the Assessing Officer is not bound by the registration certificate issued by the Registrar of Kerala Co-operative Society classifying the assessee-society as a co-operative society. The Hon’ble High Court held that each assessment year is separate and eligibility shall be verified by the Assessing Officer for each of the assessment years. The finding of the Larger Bench of the Hon’ble High Court reads as follows:-

“33. In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] it cannot be contended that, while considering the claim made by an -122/Coch/2020 6 SA Nos.66-67/Coch/2020 M/s.Karimkunnam SCB Ltd. assessee society for deduction under Section 80P of the IT Act, after the introduction of sub-section (4) thereof, the Assessing Officer has to extend the benefits available, merely looking at the class of the society as per the certificate of registration issued under the Central or State Co-operative Societies Act and the Rules made thereunder. On such a claim for deduction under Section 80P of the IT Act, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of Section 80P.

7.1 In the instant case, the Assessing Officer had denied the claim of deduction u/s 80P of the I.T.Act for the reason that assessee was essentially doing the business of banking and disbursement of agricultural loans by the assessee was only minuscule. Therefore, the Assessing Officer concluded that the assessee cannot be treated as co-operative society. The Assessing Officer after perusing the narration of the loan extracts in the statutory audit report for assessment years 2013-2014 and 2014-2015, came to the conclusion that out of the total loan disbursement, only fifty per cent of total loan disbursement has been advanced for agricultural purposes. We are of the view that the narration in loan extracts in the audit reports by itself may not conclusive to prove whether loan is a agricultural loan or a non-agricultural loan. The gold loans may or may not be disbursed for the purpose of agricultural purposes. Necessarily, the A.O. had to examine the details of each loan disbursement and determine the purpose for which the loans were disbursed, i.e., whether it is for agricultural purpose or non-agricultural purpose. In these cases, such a detailed examination has not been conducted by the A.O. At the time of assessment, the judgment of the Hon’ble jurisdictional High Court in the case of Chirakkal -122/Coch/2020 8 SA Nos.66-67/Coch/2020 M/s.Karimkunnam SCB Ltd. Service Cooperative Bank Ltd. (supra) was ruling the roost and the certificate issued by the Registrar of Co-operative Society terming the assessee as a primary agricultural credit society would be sufficient for grant of deduction u/s 80P of the I.T.Act. In the light of the dictum laid down by the Full Bench of the Hon’ble Kerala High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra), we are of the view that there should be fresh examination by the Assessing Officer as regards the nature of each loan disbursement and purpose for which it has been disbursed, i.e., whether it for agricultural purpose or not. The A.O. shall list out the instances where loans have disbursed for non-agricultural purposes etc. and accordingly conclude that the assessee’s activities are not in compliance with the activities of primary agricultural credit society functioning under the Kerala Co- operative Societies Act, 1969, before denying the claim of deduction u/s 80P(2) of the I.T.Act. For the above said purpose, the issue raised in these appeals is restored to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee-society by following the dictum laid down by the Full Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) and shall take a decision in accordance with law. Needless to state, the assessee shall cooperate with the A.O. and shall furnish the necessary details called for. Further, the assessee shall not seek unnecessary adjournment. It is ordered accordingly. -122/Coch/2020 9 SA Nos.66-67/Coch/2020 M/s.Karimkunnam SCB Ltd.

Order pronounced on this 23rd day of June, 2020.