KARIKUNNAM SERVICE CO-OPERATIVE BANK LTD,THODUPUZHA vs. ITO, WARD-1& TPS, THODUPUZHA

The brief facts of the case are that the assessee is a co-operative society registered under the provisions of the Kerala Co-operative Society Act, 1969 and they filed their return of income on 17/10/2017 and claimed deduction u/s. 80P of the Act of Rs. 3,05,49,081/-. The case was selected for scrutiny under CASS and the AO issued notices for which the assessee filed their detailed reply. But the AO had denied the claim of deduction u/s. 80P for the reason that the assessee is a co-operative bank and hit by section 80P(4) of the Act.

As against the said order, the assessee filed appeal before the Ld.CIT(A) and raised several grounds. The Ld.CIT(A) after considering the Hon’ble Supreme Court judgement as well as the Hon’ble Jurisdictional High Court judgement, held that the assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act on the profits earned from the members and in order to verify the facts, he directed the AO to verify whether the income is attributable to members alone and if so, grant the deduction u/s. 80P(2)(a)(i) of the Act. Insofar as the claim u/s. 80P(2)(d) of the Act, the Ld.CIT(A) had dismissed the same for the reason that no such ground and no discussion is available in the impugned order.

As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal and raised the following grounds:

At the time of hearing, the Ld.AR submitted that the assessee is giving various loan to its members for agricultural and other activities and received interest and treated the same as profits and gains from business. Similarly, the assessee has also received interest from co-operative banks and co- operative societies which is also eligible for deduction u/s. 80P(2)(a)(i) of the Act in view of the Hon’ble Jurisdictional High Court judgement in the case of PCIT vs. Peroorkada Service Co-operative Bank Ltd. reported in 442 ITR 141. The Ld.AR further submitted that the full details were given before the AO and therefore the finding of the Ld.CIT(A) is not correct. The Ld.AR further submitted that the claim u/s. 80P(2)(d) was also made in the reply to the show cause notice but the AO had not discussed anything about the same while passing the order and therefore the entire assessment should be set aside and the AO may be directed to redo the assessment denovo. The Ld.DR relied on the order of the lower authorities and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

As seen from the finding given in page 4 of the assessment order, which reads as follows: “Therefore, as per section 2(24)(viia) of the Income Tax Act,1961 inserted by the Finance Act, 2006, w.e.f. 1-4- 2007, the profits and gains of assessee's business is chargeable to tax for the year. Section 80P(2) of the Income Tax Act.1961 stipulates certain activities of co-operative societies. the profits attributable to which shall be given deduction under that section. However, in assessee's case, no profit attributable to any of such activities can be allowed deduction u/s.80P of the Income Tax Act,1961 as the assessee is a co-operative bank which is hit by section 80P(4) of the Act.”

As seen from the above said findings, the AO was under the impression that the assessee is a co-operative bank and therefore they are excluded from claiming deduction u/s. 80P of the Act. Similarly the Ld.CIT(A) also in his order in page 10 had given the following findings: “In the same breath it is reiterated that based on the decision of the Hon'ble Apex Court in the case Mavilayi Service Co-operative Bank (supra) it is clear that there is distinction between (i) ascertaining the eligibility-per se- of an assessee for claiming deduction u/s 80P and (ii) quantification of such deduction, if found eligible therefor and that it has also been held that profits and gains from credit facilities given to non-members cannot be said to be attributable to the activity of providing credit facilities to its members hence such amount cannot be considered for deduction u/s 80P of the Act. Thus, in view of the above detailed discussion and considering the totality of facts and circumstances of the matter the Ld. AO is directed to allow deduction u/s 80P(2)(a)(i) for the year under consideration to the extent of profits attributable to members only [members to be considered as per the relevant provisions of the KeCS Act, 1969 read with the decision of the Hon'ble Apex Court in the case Mavilayi Service Co-operative Bank (dated 12th January 2021) (supra)]-after affording opportunity to the assessee for this simple factual verification, if so required. Resultantly, the corresponding grounds/contentions relating to deduction u/s 80P(2)(a)(i) are to be treated as ALLOWED as per these directions.”

Even though, the Ld.CIT(A) had accepted that the assessee is not a co- operative bank and not hit by the provisions of section 80P(4) of the Act, the Ld.CIT(A) had given a finding that the assessee is eligible for deduction on the incomes received from its members but has not discussed anything about the other incomes received by the assessee i.e. from the other co- operative societies or co-operative banks. We are also in agreement with the argument advanced by the Ld.AR that apart from the income received from the members, the other incomes earned by the assessee from the other co- operative societies and banks are also entitled for deduction u/s. 80P(2)(d) of the Act.

Since the Hon’ble Jurisdictional High Court had decided that the incomes earned by the society from the deposits made with the other co- operative societies and co-operative banks are entitled for deduction u/s. 80P(2)(a)(iv) of the Act in the judgment reported in 442 ITR 141, We are of the view that the issue requires denovo consideration by the assessing officer in the light of the judgment by the Hon’ble Supreme Court in case of Mavilayi Service Co-operative Bank Ltd. vs. CIT reported in 431 ITR 1 and also the judgment of the Hon’ble Jurisdictional High Court in case of PCIT vs. Peroorkada Service Co-operative Bank Ltd. reported in 442 ITR 141. Since the entire issue has been remitted to the file of the AO, the assessee can raise all objections including under what provision they can claim deduction u/s. 80P(2) of the Act. The AO is also directed to consider the issue in detail in the light of the details given by the assessee and pass a detailed speaking order after hearing the assessee.

Since we have already set aside the findings of the lower authorities and directed the AO to pass a denovo assessment we have not discussed each and every ground raised by the assessee.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.