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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: SHRI SANJAY ARORA, AM & SHRI ABY T. VARKEY, JM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. CIT(A)/NFAC dated 30.08.2022 for AY. 2016-17.
The main grievance of the assessee is against the action of the Ld. CIT(A) denying the deduction claimed by the assessee u/s 80P of the Income Tax Act, 1961 (hereinafter “the Act”). 3. Brief facts of the case is that the assessee is a Primary Rural Agricultural Co-operative Credit Society duly registered u/s 7(1) of Kerala Co-operative Society Act, 1969 (Act 21 of 1969) as per Registration No. K1119 dated 10.02.2012. The assessee filed nil income tax return u/s 139 of the Act. The same was processed u/s 143(1) of the Act denying deduction u/s 80P of the Act and the assessee’s income was assessed at Rs.9,39,719/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to Changanacherry Co-op confirm the action of the AO/CPC u/s 143(1) of the Act by noting that even though assessee had claimed exemption of Rs.9,39,719/- under Schedule BP (business and profit), the assessee did not show any exempt income in the Schedule EI. Therefore, the deduction u/s 80P of the Act has been rightly disallowed by the CPC. Aggrieved by the aforesaid action of the Ld. CIT(A), the assessee is before us.
We have heard both the parties and perused the records. It was brought to our notice that the assessee is a Primary Rural Agricultural Co-operative Credit Society duly registered u/s 7(1) of Kerala Co- operative Society Act, 1969 (Act 21 of 1969) as per Registration No. K1119 dated 10.02.2012; and had filed its return of income by declaring nil income. The CPC while processing the return u/s 143(1) of the Act, disallowed the deduction claimed u/s 80P of the Act and assessed the income of the assessee at Rs.9,39,719/-. The Ld. CIT(A) has confirmed the action on the ground that the assessee had not shown the income exempt in the Schedule EI. On this issue, the Ld. AR of the assessee, Shri Abraham K. Thomas took us through the return of income filed by the assessee and especially to page number 11, a perusal of it reveals that assessee has claimed in column no. 5 under the Schedule BP (computation of income from business or profession) especially under clause ‘C’ subtitled “Any other exempt income” has specified the same as “exempted income of Co-operative” Society u/s 80P(2) of the Act at Rs.9,39,719/’-; therefore, we note that the assessee has shown to have claimed deduction u/s 80P2 of the Act an amount of Rs.9,39,719/- (as exempt) as per the format given in the return of income. In the light of the same, the impugned observation
Changanacherry Co-op made by the Ld. CIT(A) that because assessee didn’t file details of exempt income at Schedule EI, CPC denied deduction cannot be accepted. According to us, mere typographical error or an omission to make a claim in one of the columns, when assessee has claimed it in any other column in the same return, cannot be the sole ground on which the disallowance ought to have been made. Since we note that in the instant case, the assessee had in its return claimed the deduction of income u/s 80P(2) of the Act (supra), the CPC ought to have issued notice as contemplated by proviso to section 143(1)(a) of the Act. Without doing so, the adjustment could not have been made because the assessee anyway has claimed 80P(2)(a)(i) of the Act deduction as noted by us (supra) [i.e, in the computation of business income at Schedule BP]. Therefore, the CPC was aware that the assessee had claimed Rs.9,39,719/- as deduction its income of Co-operative Society u/s 80P(2) of the Act. In such a scenario, without giving notice to the assessee as contemplated u/s 143(1)(a) of the Act, the adjustment/addition cannot be sustained being bad in law. And since we have taken note that the assessee is a Primary Rural Agricultural Co-operative Credit Society it need be allowed deduction u/s 80P of the Act as held that the Hon’ble Supreme Court decision in the case of Malvilayi Services Co-operative Bank Ltd. & Ors Vs. CIT (431 ITR 1) and in the light of the decision of the Hon’ble Jurisdictional High Court in the case of Chirakkal Service Co-operative Bank Ltd. Vs. CIT (2016) (384 ITR 490) while answering the question of law i.e. question no. A “(A) Whether on the facts and in the circumstances of the case under consideration, the Tribunal is correct in law in deciding against
Changanacherry Co-op the assessee, the issue regarding entitlement for exemption under section 80P, ignoring the fact that the assessee is a primary agricultural credit society.”; and the Hon’ble High Court answered the question of law as under: - “5. Appellants in these different appeals are indisputably societies registered under the Kerala Co-operative Societies Act, 1969, for short, KCS Act and the bye-laws of each of them, as made available to this Court as part of the paper books, clearly show that they have been classified as primary agricultural credit societies by the competent authority under the provisions of that Act. The Parliament, having defined the term 'co-operative society' for the purposes of the BR Act with reference to, among other things, the registration of a society under any State law relating to co- operative societies for the time being; it cannot but be taken that the purpose of the societies so registered under the State Law and its objects have to be understood as those which have been approved by the competent authority under such State law. This, we visualise as due reciprocative legislative exercise by the Parliament recognising the predominance of decisions rendered under the relevant State Law. In this view of the matter, all the appellants 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 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. This is the consequence of the definition clause in section 2 (oaa) of the Changanacherry Co-op KCS Act. The authorities under the IT Act cannot probe into any issue or such matter relating to such applicants.
The position of law being as above with reference to the statutory provisions, the appellants had shown to the authorities and the Tribunal that they are primary agricultural credit societies in terms of clause (cciv) of section 5 of the BR Act, having regard to the primary object or principal business of each of the appellants. It is also clear from the materials on record that the bye-laws of each of the appellants do not permit admission of any other co-operative society as member, except may be, in accordance with the proviso to sub-clause 2 of section 5(cciv) of the BR Act. The different orders of the Tribunal which are impeached in these appeals do not contain any finding of fact to the effect that the bye-laws of any of the appellant or its classification by the competent authority under the KCS Act is anything different from what we have stated herein above. For this reason, it cannot but be held that the appellants are entitled to exemption from the provisions of section 80P of the IT Act by virtue of sub-section 4 of that section. In this view of the matter, the appeals succeed.
In the light of the aforesaid, we answer substantial question 'A' in favour of the appellants and hold that the Tribunal erred in law in deciding the issue regarding the entitlement of exemption under section 80P against the appellants. We hold that the primary agricultural credit societies registered as such under the KCS Act; and classified so, under that Act, including the appellants are entitled to such exemption.”
Changanacherry Co-op 5. Therefore, taking note of the certificate issued by the assistant Registrar of Co-operative Society that the assessee is a Primary Rural Agricultural Co-operative Credit Society duly registered u/s 7(1) of Kerala Co-operative Society Act, 1969 (Act 21 of 1969), we hold that it is eligible for exemption/deduction and no adjustment could have been made under section 143(1)(a) of the Act, unless notice was issued proviso to section 143(1)(a) of the act and in the light of the fact that assessee has made the claim u/s 80P(2) of the Act albeit in Schedule BP clearly filing up the column of exempted income of Co-operative Society u/s 80P2 of the Act to the tune of Rs.9,39,719/-, the deduction ought to have been allowed; and since adjustment has been made by disallowing the same u/s 143(1) of the Act, without intimation, and failure to consider the response to it as provided by proviso to sub- section (1) of section 143 of the Act cannot be sustained and directed to be deleted.