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Facts
The assessee, a primary agricultural credit co-operative society, claimed deduction under Section 80P for AY 2017-18. The AO denied the deduction, citing failure to prove its status and lending for non-agricultural purposes, relying on Section 80P(4). The CIT(A) confirmed this, holding that the society lent money to non-members, making principles of mutuality inapplicable.
Held
The ITAT found no evidence of lending to non-members and clarified that lending for non-agricultural purposes does not imply lending to non-members. However, the assessee failed to discharge the onus of proving its status as a primary agricultural credit co-operative society before the AO. Thus, the matter was remanded to the AO for a de novo assessment with a fresh opportunity for the appellant to be heard.
Key Issues
Whether the appellant society is eligible for deduction under Section 80P of the Income Tax Act, considering its status as a primary agricultural credit co-operative society and allegations of lending to non-members or for non-agricultural purposes, and if it discharged the onus of proving its status.
Sections Cited
80P, 80P(2)(a)(i), 80P(2)(d), 80P(4)
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI GEORGE GEORGE K., VP & SHRI INTURI RAMA RAO, AM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)], dated 24.10.2023 for Assessment Year (AY) 2017-18.
Brief facts of the case are that the appellant is a co-operative society registered under the Kerala State Co-operative Societies Act, 1969 and classified as a primary agricultural credit society. It is engaged in the business of accepting deposits from members and lending money to it members. The return of income for AY 2017-18 Tirurangadi Service Co-op. Bank Ltd. was filed on 27.03.2018 disclosing Nil income after claiming deduction under the provisions of section 80P of the Income Tax Act, 1961 (the Act) of Rs. 1,64,06,940/-. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward -3, Tirur (hereinafter called "the AO") at a total income of Rs. 1,64,06,940/-. While doing so, the AO denied the claim for deduction u/s. 80P of the Act by holding that the appellant had failed to discharge the onus of proving that it is primary agricultural credit co-operative society and that it had lent money for non-agricultural purposes placing reliance on the provisions of section 80P(4) of the Act.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO after making a reference to the decision of the Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC).
Being aggrieved, the appellant is in appeal before us in the present appeal.
The learned counsel for the assessee submitted that the appellant co-operative society is classified as a primary agricultural credit co-operative society under the Kerala Societies Act and, therefore, it is not enjoying the banking licence from the Reserve Bank of India to carry on banking business. The ratio of the decision Tirurangadi Service Co-op. Bank Ltd. of the hon'ble apex court in the case Mavilayi Service Co-operative Bank Ltd. (supra) is squarely applicable to the facts of the case. It is further submitted that the interest income earned by the appellant society from the investments made with the co-operative bank qualifies for deduction u/s. 80P(2)(d) of the Act in view of the judgement of the Hon'ble Jurisdictional High Court in the case of Pr. CIT vs. Peroorkada Service Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker)
On the other hand, the learned Sr. DR submits that the CIT(A) passed a reasoned order after making reference to the Hon'ble Apex Court judgement in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC). Therefore, no interference is called for.
We have heard the rival contentions and perused the material available on record. The short issue that arises for our consideration is whether the appellant society is eligible for claiming deduction u/s. 80P(2)(a)(i) of the Act. On a mere perusal of the assessment order it would reveal that the AO had denied the claim for deduction u/s. 80P(2)(a)(i) of the Act merely because the appellant had failed to discharge the onus of proving the status as primary agricultural credit co-operative society and also swayed away by the fact that 97% of the money was lent for non-agricultural purposes. On appeal before the CIT(A), the CIT(A) had proceeded to hold that the appellant society had lent money to non members, therefore, the Tirurangadi Service Co-op. Bank Ltd. principles of mutuality had no application. The appellant is in further appeal before us challenging the correctness of the findings of the lower authorities. The Hon'ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. (supra) held as under: - “To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effect to. Section 80P of the Income- tax Act, being a benevolent provision enacted by Parliament to encourage and pro- mote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word "agriculture" into section 80P(2)(a) (i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now 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, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Co-operative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are 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, Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.”
We are of the considered opinion that there is no material on record to suggest that money was lent to non members. Merely because the money was lent for non agricultural purposes, does not lead to the conclusion that money was lent to non members. However, we find that the appellant had failed to discharge the onus of proving its status as primary agricultural credit co-operative society before the AO. In the circumstances, in order to meet the end Tirurangadi Service Co-op. Bank Ltd. of justice, we are of the considered opinion that the matter requires remand to the file of the AO for de novo assessment in accordance with law after affording reasonable opportunity of hearing to the appellant.
In the result, appeal filed by the assessee stands partly allowed.
Order pronounced in the open court on 13th May, 2025.