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Facts
The assessee, Avinissery Service Co-operative Bank Ltd., a primary agricultural credit society, claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act for AY 2016-17. The Assessing Officer and the CIT(A) disallowed the deduction, amounting to INR 1,63,05,247/-, on the grounds that the society was performing functions akin to a co-operative bank and its loans to members/nominal members were not solely for agricultural purposes, applying Section 80P(4).
Held
The Tribunal, relying on the Supreme Court's judgment in Mavilayi Services Co-operative Bank Limited Vs. CIT, held that Section 80P is a benevolent provision to be interpreted liberally. It clarified that Section 80P(4) excludes only co-operative banks with an RBI banking license, which the assessee, as a primary agricultural credit society, does not possess. Therefore, the deduction under Section 80P(2)(a)(i) cannot be denied, even if loans are given to members or nominal members for non-agricultural purposes, unless profits attributable to loans to non-members are found.
Key Issues
Whether a primary agricultural credit society is entitled to claim deduction under Section 80P(2)(a)(i) of the Income Tax Act, and if the provisions of Section 80P(4) apply to disallow such deduction when loans are provided to members and nominal members for non-agricultural purposes.
Sections Cited
Section 143(3), Section 250, Section 80P, Section 80P(2)(a)(i), Section 80P(4), Section 2(19), Section 133(6)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “DB BENCH, COCHIN
Per Rahul Chaudhary, Judicial Member:
These are two appeals preferred by the Assessee pertaining to the Assessment Year 2016-2017, both challenging the order, dated 27/09/2024, passed by National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as 'the NFAC′] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as `the Act'] whereby the NFAC had dismissed the appeal preferred by the Assessee against the Assessment Order, dated 21/12/2018, passed under Section 143(3) of the Act for the Assessment Year 2016-2017. We would first take up ITA No.569/COCH/2025 which is accompanied by application seeking condonation of delay and affidavit supporting the same.
We note that the impugned Order was passed by NFAC on 27/09/2024. The specified period for filing appeal expired on 26/11/2024. The present appeal was filed after a delay of around 8 months. We have heard both the sides of application seeking condonation of delay and after considering the same, we are inclined the condonation of delay in filing the appeal. On perusal of the impugned Order we find that at Page No. 1 of the said order bears the expression “Draft order”. The Assessee has explained that delay in filing the present appeal occurred as the Assessee was under the apprehension that the Final Order shall be received. Since, final order was not received after passing the reasonable time the Assessee preferred the present appeal. Given the facts and circumstances of the present appeal, we have no reasons to doubt the bonafides of the explanation offered by the Assessee which is also supported by an affidavit sworn by Secretary of the Assessee/Co-operative Society. Accordingly, we condone the delay in filing the present appeal and proceeded to adjudicated the following grounds of appeal raised by the Assessee:
"1. 2. 3. This is an Appeal by the assessee against the assessment order passed u/s 143(3) by the Ld. AO on 21/12/2018 and disallowed the deduction u/s 80 P. The appellant Avinissery Service Co-operative Bank Limited R No 400 is a Primary Agricultural Credit Society registered under the Kerala Co- operative Societies Act 1969. The Appellant is not agreeing with the disallowance of the deduction u/s 80 P of the Act and the classification of us as a Co-operative Bank instead of a Primary Agricultural Credit Society made by the learned assessing officer. The order of the Assessing Officer is erroneous, arbitrary and against settled principles of law. The Appellant is a primary agricultural credit society in terms of clause (cciv) of section 5 of the BR Act, having regard to our primary object and principal business. The State Government and the RBI do not consider the activities of the Appellant as a co-operative bank. In such circumstances, the learned officer is not having any authority in categorizing us as a co-operative bank. Based on above, Assessing Officer erred in holding that the appellant is not a Primary Agricultural Credit Society and not eligible for deduction under section 80P without appreciating the facts and the circumstances of the case and the decision of the Kerala High Court.
That, on the facts and in the circumstances of the case and in law, the impugned order dated 2710912024 passed by the Learned CIT (A) uls 250 of the Income Tax Act, 1961 is only a 'draft order' and not a valid, or conclusive order. Section 250 of the Act confers the powers on the Commissioner (Appeals) to hear and decide appeals as the final adjudicating authority of the first appellate level against orders of the Assessing Officer. Such an order uls 250 is expected to represent a conclusive adjudication on merits or at least the appellate authority's decision resolving the issues raised in the appeal. However, in the present case, the order in question being only a draft lacks finality and conclusiveness, thereby suffering from a fundamental procedural defect and is, therefore, void ab initio. Consequently, the impugned order deserves to be quashed and set aside, and the appeal be disposed of accordingly.
The Appellant is a Primary Agricultural Co-operative Society is operating different activities connected to agricultural and is not limiting our activities to just extending credit facilities alone. In fact, we are instrumental in procuring fertilizers, manures, pesticides, seeds and other agricultural instruments at economic prices and distributing the same to our members for a very nominal rate. We are also distributing plants, sourcing the agricultural produces by our members and enabling a trade platform also. The same can be verified from our trading account and sales tax registration certificates and returns. Also, Panchayath licenses for the same is available.
The order passed by the CIT(A) is erroneous, arbitrary, and contrary to established legal principles. The CIT(A) dismissed
the appeal disallowing the deduction under Section 80P.
That the Ld. AO has primarily disallowed deduction by taking in to the proportion of agri-loans loans out of the total loans disbursed, which constitute to less than 1% of the total loans. Hence, it may be reasonably inferred that the Ld. AO had admitted that the loans advanced were only to the members of the Appellant. In this regard the Appellant wishes to rely on the Judgment by the Hon'ble Supreme Court of India (Hon'ble SC) in the Civil Appeal Nos. 7343-7350 of 2019 between the Mavilayi Service Cooperative Bank Ltd. and Ors VS Commissioner of Income Tax, Calicut and Anr. that the Co- operative Societies providing credit facilities 10 its members including for purposes other than agriculture are entitled to deductions under Section 80P(2)(a)(i) of the Income-Tax Act, 1961. The Hon'ble SC held that the impugned Full Bench judgment was wholly incorrect in its reading the judgment of the Hon'ble SC. Clearly, therefore, once Section 80P(4) was out of harms way, all the appellants in the present case were entitled to the benefit of the deduction contained in Section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture.
The Appellant prays that the deduction under section 80P be allowed and the income tax demanded Rs.81,20,796 - be deleted.
The relevant facts in brief are that for the relevant assessment year, the Assessee, a primary agricultural credit society registered under Kerala Cooperative Society Act, 1969, claimed deduction under Section 80P(2)(a)(i) of the Act. The Assessing Officer rejected the aforesaid claim for deduction and made addition of INR.1,63,05,247/- by restricting the deduction of INR. 1,64,15,229/- claimed by the Assessee to INR. 1,09,982/-. In appeal, the CIT(A) concurred with Assessing Officer and declined to grant any relief. Hence, the present appeal has been preferred by the Assessee challenging the denial of the aforesaid deduction on the grounds reproduced in paragraph 3 above.
We have heard both the sides, have perused the material on record and analysed the position in law after taking into consideration the submission made by both the sides.
On perusal of the orders passed by the Assessing Officer and the CIT(A), we find that while disallowing deduction claimed by the Assessee under 80P(2)(a)(i) of the Act reliance was placed upon the provisions contained in Section 80P(4) of the Act and the fact that the Assessee was giving loans to its members/nominal members which were not related to agriculture. Therefore, the issue that arises for consideration is whether in the aforesaid facts and circumstances, the Assessee (a primary agricultural credit society registered under Kerala Cooperative Society Act, 1969) is entitled to claim deduction under Section 80P(2)(a)(i) of the Act. In our view, the aforesaid issue is no longer res integra and stands decided in favour of the Assessee by the judgment of the Hon'ble Supreme Court in the case of Mavilayi Services Co-operative Bank Limited Vs. CIT, Calicut: [2021] 431 ITR 1 (SC) [12/01/2021]. In that case, the Hon'ble Supreme Court had rejected identical stand/contentions of the Revenue and held, inter alia, as under: (a) Section 80P(4) of the Act is to be read as a proviso to Section 80P(2)(a)(i) of the Act which specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public and have a licence in this behalf issued by Reserve Bank of India. In absence of such license, the provisions of Section 80P(4) of the Act would not be attracted in case of co-operative society classified by the