PANNIVIZHA SERVICE CO OPERATIVE BANK LTD.,ADOOR vs. ITO WARD 2, KOLLAM, KOLLAM

From the record, it could be seen that the assessee is registered as primary agricultural credit society under Kerala State Cooperative Registration Act, 1969. The Ld. AO, relying on the decision of Hon’ble High Court of Kerala in The Mavilayi Service Cooperative Bank Ltd. & ors. (414 ITR 67), denied the deduction to the assessee. The interest income earned by the assessee from district coop. banks, treasuries and other financial institutions (tabulated in para 9 of assessment order) for Rs.347.51 Lacs was assessed as income from other sources since surplus funds as available with the assessee were invested. The deduction u/s 80P(2)(d) was not allowed on this interest income since the same would be available only if the interest was received from cooperative society which was not the case. Finally, the business income was computed at loss of Rs.251.75 Lacs. After inter- head adjustment, net income was computed as Rs.95.76 Lacs. The Ld. CIT(A) examined the claim of the assessee at the threshold of Sec.80P(2)(d) and upheld the action of Ld. AO. No findings have been rendered with respect to assessee’s claim u/s 80P(2)(a)(i). Aggrieved, the assessee is in further appeal before us.

We find that that aforesaid decision of Hon’ble High Court of Kerala, which has led Ld. AO to deny the deduction u/s 80P(2)(a)(i), stood reversed by Hon’ble Supreme Court in The Mavilayi Service & 421/Coch/2022 - 3 - Cooperative Bank Ltd. (431 ITR 1). The concluding part of the decision read as under: - 45. To sum up, therefore, the ratio decidendi of Citizen Co-operative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote 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 Cooperative 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.

The aforesaid decision would have material bearing to the claim of the assessee. It could also be seen that Ld. CIT(A) has not delved into the issue of deduction u/s 80P(2)(a)(i). Therefore, considering the factual matrix, we direct Ld. AO to make denovo assessment in the light of aforesaid decision of the Hon’ble Supreme Court. The issue of interest income including the head under which it would be assessable would also be adjudicated afresh thereafter in the light of latest legal position. The assessee is directed to provide the requisite details and information. The appeal stand allowed for statistical purposes.

In AY 2019-20, the return of income has been processed u/s 143(1) and deduction u/s 80P(2)(a)(i) has been denied due to the fact that the assessee has filed return of income on 26-12-2019 as against extended due date of 31-10-2019. The assessee was saddled with & 421/Coch/2022 - 4 - disallowance u/s 36(1)(va) since employees’ contribution to PF / ESI was deposited belatedly. The Ld. CIT(A), applying the provisions of Sec.80AC, clause (ii), as applicable from AY 2018-19, upheld the denial of deduction. The disallowance was also confirmed on merits. Aggrieved, the assessee is in further appeal before us.

It is undisputed fact that the assessee has filed return of income belatedly in violation of the provisions of Sec.80AC clause (ii) which is applicable from AY 2018-19. As per the statutory requirement, the assessee is obligated to file return of income within due date as specified u/s 139(1) to claim deduction under the heading “C- Deductions in respect of certain incomes”. The provisions of Sec.80(P)(2) fall under this heading. Thus, in view of clear statutory mandate, the deduction has rightly been denied to the assessee. The disallowance made u/s 36(1)(va) stand confirmed in view of the recent decision of Hon’ble Apex Court in bunch of appeals titled as Checkmate Services P. Ltd. Vs CIT (Civil Appeal No.2833 of 2016 dated 12.10.2022) which has taken a view against the assessee. Therefore, this issue as well as the appeal stands dismissed.

The appeal for AY 2017-18 stand allowed for statistical purposes whereas the appeal for AY 2019-20 stand dismissed. Order pronounced on 30th November, 2022.