ITO Vs. Edarikode Service Co-operative Bank Ltd. (ITAT Cochin)
In this case assessments were completed under section 143(3) read with section 147 of the Income Tax Act for the above mentioned assessment years, by denying the claim of deduction under section 80P(2) of the Income Tax Act. The reason for the assessing officer to deny the benefit of deduction under section 80P(2) of the Act was that the assessee was primarily engaged in the business of banking and in view of the provisions of section 80P(4), the co-operative society doing business of banking is not entitled to the benefit of deduction under section 80P(2) of the Act.
ITAT held that as the assessee had produced a certificate showing that it was registered as Primary Agricultural Credit Society under the provision of Co-operative Societies Act, therefore, the assessee was entitled to the benefit of deduction under section 80P(2).
Full Text of the ITAT Order is as follows:-
These appeals at the instance of the Revenue and the Cross Objections preferred by the assessee are directed against the consolidated order of the Commissioner (Appeals)-III, Kochi dated 23-6-2016. The relevant assessment year are 2009-10 to 2011-12.
2. Since common issue is raised in these appeals and they pertain to the same assessee, these appeals and Cross Objections were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity.
3. We shall first take up for adjudication revenue’s appeals. In the revenue’s appeals, identical grounds are raised and they read as follows :–
1. The order of the learned Commissioner (Appeals) is against law, facts and circumstances of the case.
2. Whether on the facts and in the circumstances of the case, the Commissioner (Appeals) is right in law in holding that the assessee is eligible for claiming deduction under section 80P of the Income Tax Act when the assessee failed to fulfill the principal objective of providing agricultural credits to members?
3. The Kerala Co-operative Societies Act (Amendment) Act, 2010, Act 7 of 2010 stipulates that if the principal objective of providing agricultural credits to members is not fulfilled, such society shall lose all characteristics of a Primary Agricultural Credit Society. In view of this, is not the decision of the Commissioner (Appeals) is against law?
4. The Hon’ble High Court of Kerala had in the case of M/s. Perinthalmanna Service Co-operative Bank v. CIT in ITA No. 4 of 2014 held that “an inquiry has to be conducted into the factual situation whether co-operative bank is conducting the business as Primary Agricultural Credit Society or a Primary Co-operative agricultural and rural development bank and depending upon the transactions, the assessing officer has to extend the benefits available and not merely looking at the registration certificate by the Kerala Co-operative Societies Act or the nomenclature”.
5. In view of the above, the reliance placed by the Commissioner (Appeals) in the decision of the Hon’ble High Court of Kerala in the case of M/s. Chirakkal Service Co-operative Bank & Ors. in ITA No. 212 of 2013 is not correct, especially when a contrary view was taken by another division bench of the High Court in the case of M/s. Perinthalmanna Service Co-operative Bank in ITA No. 4 of 2014.
6. The decision of the Hon’ble High Court of Kerala in the case of M/s. Chirakkal Service Co-operative Bank & Ors. in ITA No. 212 of 2013 , relied on by the Commissioner (Appeals) has not become conclusive as the decision was not accepted by the department and SLP is being filed in the Supreme Court.
7. For these and other grounds that may be urged at the time of hearing, it is requested that the order of the Commissioner (Appeals) may be set aside and that of the assessing officer restored.
4. Briefly stated, the facts in relation to the revenue’s appeals are as follows :–
The assessee is a co-operative society registered under the Kerala Cooperative Societies Act, 1969. It is engaged in providing credit facilities to its members. For the assessment years 2009-10 to 2011-12, no returns of income were filed by the assessee. The assessing officer issued notices under section 148 of the Income Tax Act for the above mentioned assessment years on 16-7-2013. Pursuant to the notices issued under section 148 of the Act, the assessee filed its returns of income, declaring income of Rs. 1,77,550, 2,53,760 and Rs. 82,650 for the assessment years 2009-10 to 2011-12 respectively. The assessments were completed under section 143(3) read with section 147 of the Income Tax Act for the above mentioned assessment years, by denying the claim of deduction under section 80P(2) of the Income Tax Act. The reason for the assessing officer to deny the benefit of deduction under section 80P(2) of the Act was that the assessee was primarily engaged in the business of banking and in view of the provisions of section 80P(4), the co-operative society doing business of banking is not entitled to the benefit of deduction under section 80P(2) of the Act.
5. Aggrieved by the action of the assessing officer in denying the claim of deduction under section 80P(2) for the assessment years 2009-10 to 2011-12, the assessee filed the appeals before the first appellate authority. The Commissioner (Appeals) partly allowed the appeals of the assessee. The Commissioner (Appeals) directed the assessing officer to grant deduction under section 80P(2) of the Act for the assessment years 2009-10 to 2011-12. The Commissioner (Appeals), In taking the above view, relied on the judgment of the Hon’ble Kerala High Court in the case of Chirakkal Service Co-operative Bank Limited v. CIT 284 ITR 490. As regards the assessee’s challenge to the re-opening of the assessments by issuance of notices under section 148 of the Act, the Commissioner (Appeals) confirmed the validity of the opening of the assessments.
6. Aggrieved by the order of the Commissioner (Appeals) in granting the benefit of deduction under section 80P(2) of the Act, the Revenue has filed the present appeals before the Tribunal. The learned Departmental Representative apart from relying on the grounds of appeal, has filed a brief argument note. The argument note submitted by the learned Departmental Representative reads as follows :–
“In the case of ESCB Ltd., out of the total loan sanctioned, only negligible percentage given for agricultural purpose.
