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Income Tax Appellate Tribunal, COCHIN “SMC” BENCH, COCHIN
Before: SHRI CHANDRA POOJARI
This appeal at the instance of the assessee is directed against the order of the CIT(A), Thrissur dated 13/11/2019 passed u/s. 154 r.w.s. 250 of the I.T. Act. The relevant assessment year is 2012-13.
The brief facts of the case are as follow: The assessee is a co-operative society registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2012-13, the return of income was filed after claiming deduction u/s 80P of the I.T.Act. The Assessing Officer passed an order u/s 143(3) of the I.T.Act, disallowing the claim of deduction u/s 80P of the I.T.Act. The reasoning of the Assessing Officer to disallow the claim of deduction u/s 80P(2) of the I.T.Act was that the assessee was doing the business of banking, and therefore, in view of insertion of M/s.Sholayur SCB Ltd. section 80P(4) of the I.T.Act with effect from 01.04.2007, the assessee will not be entitled to the deduction u/s 80P(2) of the I.T.Act.
3. Aggrieved by the order of assessment denying the claim of deduction u/s 80P(2) of the I.T.Act, the assessee preferred an appeal to the first appellate authority. The CIT(A) allowed the appeal by holding that the assessee was eligible for deduction u/s 80P of the I.T.Act. In allowing the appeal of the assessee, the CIT(A) followed the judgment of 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.).
4. Subsequently, the CIT(A) issued notice u/s 154 of the I.T.Act proposing to rectify his order passed, in view of the subsequent 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 [ITA No.97/2016 order dated 19th March, 2019]. The assessee objected to the issuance of notice. However, the CIT(A) rejected the objections raised by the assessee and passed an order u/s 154 of the I.T.Act, disallowing the claim of the assessee u/s 80P(2) of the I.T.Act.
Aggrieved by the order of the CIT(A), the assessee has filed this appeal before the Tribunal raising the following grounds:-
1. The order of the Learned Commissioner of Income Tax(Appeals), as far as it is prejudicial to the interests of the appellant is opposed to law, facts and circumstances of the case.
2. It is submitted that provisions of section 154 is not applicable in the facts and circumstances of the case and hence the impugned order is illegal and is liable to be quashed.
It is submitted that the appellant is clearly eligible for deduction u/s 80P(2)(a)(i) of the Income Tax Act 1961 and the observation or finding to the contrary by the lower authorities are illegal and unsustainable. It is further submitted that on a harmonious and combined reading of all the applicable provisions of law in this connection along with the scheme of the Act, the appellant is clearly eligible for the deduction. A detailed note in support of this ground shall be filed on or before the hearing of this appeal.
It is submitted that the denial of deduction u/s. 80P(4) of the Act by the lower authorities is illegal and unsustainable in law on a harmonious and combined reading of all the applicable provisions of law in this connection. A detailed note in support of this ground shall be filed on or before the hearing of this appeal.
5. The learned CIT(A) had passed the order based on the decisions of Chirakkal and Perinthalmanna case alone and failed to consider the other important grounds raised by the appellant. The CIT(A) is duty bound to decide all the issues/grounds raised in the appeal. Therefore the said order violates the natural justice principles besides being illegal.
6. In the facts and circumstances of the case, the appellant is clearly eligible for deduction of the whole profit attributable to the activities of giving credit facilities to its members under section 80P. The denial of the said deduction by the CIT(A) is illegal, unwarranted and unreasonable..
The order suffers from serious legal infirmities in so far as the learned officer failed to deal with many important objections raised against the denial of deduction u/s 80P(4) of the Act. The predisposition and the lack of application of mind are plain and glaring. There is a clear violation of natural justice in this case.
8. The learned Commissioner of Income Tax(Appeals) acted illegally while ignoring the submission of the appellant that the society falls under the definition of Co-operative credit society u/s 5 (CCii) of the Banking Regulation Act 1949.
It is submitted that if the department is treating the appellant as a Cooperative Bank then all the other deductions and reliefs provided to the said banks should also be made available to the appellant.
The appellant is eligible for complete exemption from tax on application of doctrine of mutuality.
M/s.Sholayur SCB Ltd. 11. The status of the appellant is AOP as fixed by the Assessing Officer is not correct with the result that the order passed in the status of AOP is liable to be quashed. 13. For these amongst other grounds that may be permitted to be raised and evidences adduced at the time of hearing, it is prayed that the justice be done to the appellant by quashing or modifying the impugned order of assessment.
The learned AR filed detailed written submission challenging the order of the CIT(A) passed u/s. 154 of the I.T. Act. The Ld. AR relied on the following case laws:
i) T.S. Balaram, Income-tax Officer vs. Volkart Brothers (1974) 82 ITR 50 (SC) ii) Pr.CIT vs. Ekta Co-op Credit Society Ltd. (2018) 91 taxmann.com 42 (Gujarat) iii) CIT vs. Jafari Momin Vikas Co-op Credit Society Ltd. (2014) 49 taxmann.com 571 (Gujarat) iv) CIT vs. Surat Vankar Sahakari Sangh Ltd. (2014) 43 taxmann.com 431 (Gujarat) v) ACIT vs. People’s Co-op Credit Society Ltd. (2019) 107 taxmann.com 53 (Ahmedabad – Trib) (SB) vi) M.V. Rajendran vs. ITO (2003) 128 taxman 385 (Ker.)
6.1 The learned Departmental Representative, apart from strongly supporting the orders of the Income-tax authorities, submitted that in Mavilayi Service Co-op Bank Lt. vs. CIT the Larger Bench of the Hon. High Court of Kerala held that Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee-society to determine the eligibility of deduction u/s. 80P. It was held by M/s.Sholayur SCB Ltd. the Hon. High Court that the Assessing Officer is not bound by the registration certificate issued by the Kerala Co-op Society classifying the assessee-society as a co-op society. The Ld. DR submitted that while disposing of society cases by the ITAT recently, it was directed that the Assessing Officer shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-op society functioning under the Kerala Co-op Societies Act, 1969 and accordingly grant deduction u/s. 80P(2). (Ref: AYs 2010-11 to 2014-15 dated 11-12-2019 in the case of Umayanalloor SCB Ltd., Kollam). The Ld. DR submitted that the Assessing Officers would be in a dilemma whether they have to follow the direction of the High Court or the direction of the Tribunal as whether the Department has to consider the PACS certificate issued by the co-op Dept also/alone. The Ld. DR prayed that the Tribunal may bring clarity in this regard.
7. I have heard the rival submissions and perused the material on record. The Ld. AR submitted that the issue in this appeal dealt by the CIT(A) in his order is debatable. As such, the judgment of the Larger Bench of the Jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra) does not cover his decision so as to rectify the earlier order of the CIT(A) u/s. 154 of the I.T. Act. In our opinion, this argument of the Ld. AR is misconceived and the subsequent judgment of the Jurisdictional High Court could be the reason to rectify the order of the CIT(A) as held by the Hon’ble Kerala High Court in the case of Kil Kotagiri
M/s.Sholayur SCB Ltd. Tea & Coffee Estates Co. Ltd. v. ITAT reported in 174 ITR 579. In this case, the Jurisdictional High Court had held that when an authority has decided on the basis of a decision of the High Court which is subsequently reversed, there would be a rectifiable mistake coming within the section 154 of the Income-tax Act. The Larger Bench of the Hon’ble Kerala High Court has reversed the dictum laid down by the judgment of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Ltd. (supra) by holding that the activities of the assessee has to be examined to determine whether the assessee is Co-operative society or cooperative bank. In the light of the Larger Bench judgment of the Hon’ble Kerala High Court, the earlier CIT(A) order’s granting deduction u/s. 80P(2) of the I.T. Act have been rightly recalled by the CIT(A). Therefore the grounds raised by the assessee that the CIT(A) has erred in passing order u/s. 154 of the I.T. Act are dismissed 7.1 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 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.
In Chirakkal [384 ITR 490] the Division Bench held that the appellant societies having been classified as Primary Agricultural Credit Societies by the competent authority under the KCS Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Co-operative Societies under the KCS Act and having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of Section 80P of the IT Act to ease M/s.Sholayur SCB Ltd. themselves out from the coverage of Section 80P and that, the authorities under the IT Act cannot probe into any issues or such matters relating to such societies and that, Primary Agricultural Credit Societies registered as such under the KCS Act and classified so, under the Act, including the appellants are entitled to such exemption.
In Chirakkal [384 ITR 490] the Division Bench expressed a divergent opinion, without noticing the law laid down in Antony Pattukulangara [2012 (3) KHC 726] and Perinthalmanna [363 ITR 268]. Moreover, the law laid down by the Division Bench in Chirakkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1], on a claim for deduction under Section 80P of the Income Tax Act, by reason of sub-section (4) thereof, 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 of the IT Act. In view of the law laid down by the Apex Court in Citizen Co- operative Society [397 ITR 1] the law laid down by the Division Bench Perinthalmanna [363 ITR 268] has to be affirmed and we do so.
In view of the law laid down by the Apex Court in Ace Multi Axes Systems’ case (supra), since each assessment year is a separate unit, the intention of the legislature is in no manner defeated by not allowing deduction under Section 80P of the IT Act, by reason of sub-section (4) thereof, if the assessee society ceases to be the specified class of societies for which the deduction is provided, even if it was eligible in the initial years.”
7.2 The CIT(A) had initially allowed the appeal of the assessee and granted deduction u/s 80P(2) of the I.T.Act. Subsequently, the CIT(A) passed order u/s 154 of the I.T.Act, wherein the claim of deduction u/s 80P of the I.T.Act was denied, by relying on the judgment of the Larger Bench of the Hon’ble jurisdictional High Court in the case of The Mavilayi Service Co-operative Bank Ltd. v. CIT (supra). The 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 assessee-
M/s.Sholayur SCB Ltd. society. 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 down by the Full Bench of the Hon’ble jurisdictional High Court (supra), I restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. The Assessing Officer shall 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, subject to jurisdiction granted to the assessee as per the certificate of registration issued by the Registrar of Co- operative Societies, and accordingly, consider the allowabillity of deduction u/s 80P(2) of the I.T.Act.
In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced on this 12th February, 2020.