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

ITA 364/COCH/2024

AI Insights

The case involves M/s. Karimkunnam Service Co-operative Bank Ltd., which appealed against the order of the CIT (Appeals), NFAC, Delhi, concerning the assessment year 2017-18. The primary contention was the denial of deductions under section 80P of the Income Tax Act, which the AO initially denied based on the premise that the assessee was a co-operative bank and thus fell under the restrictions of section 80P(4). However, the CIT (Appeals) acknowledged the assessee's eligibility for deductions on profits attributable to its members but did not address incomes from other co-operative societies and banks. The Tribunal's decision to remit the matter back to the AO was influenced by relevant Supreme Court and High Court judgments, which clarified the applicability of section 80P deductions to incomes from various co-operative entities.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 31197 (ITAT-COCHIN)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2024
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2017-2018
• Other Referred Cases: Mavilayi Service Co-operative Bank Ltd V CIT [431 ITR 1 (SC)], PCIT Vs Peroorkada Service Co-operative Bank Ltd [2022] 134 taxmann.com 380 (Kerala)
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRLY ALBERT; SNR
• Assessee Lawyers: ARUN RAJ S
• Keywords: Set aside
• Section: 80P

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH : COCHIN BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI SOUNDARARAJAN K., JUDICIAL MEMBER ITA No. 364/Coch/2024 Assessment Year : 2017-18 M/s. Karimkunnam Service Co- operative Bank Ltd. No. 2670 IX/73, Karimkunnam SCB Building, Pala Road, Karimkunnam P.O., Thodupuzha. Kerala – 685 586. PAN: AAAAK5906C Vs. The Income Tax Officer, Ward – 1 & TPS, Thodupuzha. APPELLANT RESPONDENT Assessee by : Shri Arun Raj S, Advocate Revenue by : Smt. Girly Albert, Snr. DR Date of Hearing : 01-10-2024 Date of Pronouncement : 17-12-2024 ORDER PER BENCH This is an appeal filed by the assessee challenging the orders of the NFAC, Delhi dated 27/02/2024 in respect of the A.Y. 2017-18. 2. 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 Page 2 of 8 ITA No. 364/Coch/2024 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. 3. 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. 4. As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal and raised the following grounds: Grounds of Appeal 1. The order dated 27-2-2024 passed by the CIT (Appeals), NFAC, Delhi, to the extent challenged in this appeal, for the AY 2017-18 is illegal, erroneous and unjustified. 2. The CIT (Appeals) erred in not considering the issue of eligibility and entitlement of deduction under section 80P (2) (d) of the Income Tax Act on interest/dividend income received from the Co-operative societies/Co-operative Bank for the AY 2017-18. The CIT (Appeals) ought to have held that the appellant is eligible and entitled for deduction under section 80P (2) (d) of the Income Tax Act on interest/dividend income received/earned from the investments with Co-operative societies/Co-operative Bank for the AY 2017-18. Page 3 of 8 ITA No. 364/Coch/2024 3. The CIT (Appeals) ought to have taken note of the fact that the claim of Rs 3,05,49,081/- u/s 80P(2)(a)(i) of the Income Tax Act was made on the net profit from business of Rs 3,05,49,081/- while filing the return. In the return, the appellant had shown interest earning of Rs 12,37,38,116/-, which includes interest aggregating to Rs 3,45,63,797/- earned from the investments made by the appellant in Thodupuzha Urban Co-operative Ban Ltd, Idukki District Co- operative Bank Ltd, Idukki District Police C operative Society Ltd, Idukki District Co-operative Hospital Society Ltd Idukki District Co-operative Department Staff Co-operative Society Ltd., Thodupuzha Taluk Co-operative Rubber Marketing and Processing Society Ltd., Thodupuzha Taluk Private School Teachers o-operative Society and ICICI Bank. The entire interest earning of Rs 12,37,38,116/- was treated and claimed as income from business as the appellant was engaged in the business of providing credit facilities to its members and therefore to the extent of net profit from business, claimed the deduction under section 80P(2)(a)(i) of the Income Tax. 4. The CIT (Appeals) ought to have noted that the appellant/asseesee vide its reply dated 10-12-2019 in response to the questions raised in the notice dated 5-10- 2019 u/s 142 (1) issued by the Assessing officer had given the breakup of the interest received by the appellant including the interest/dividend earned from investments with various co-operative societies/Co-operative bank and banks. However, the assessing officer completed the assessment disallowing the deduction on a total misconception of the law and fact holding that the appellant is not a primary agricultural credit society but a co-operative bank providing banking facilities to its members and therefore no eligible for claim under section 80P (2)(a)(i) after the introduction of sub-section (4) to section 80P of the Act. The CIT (Appeals) ought to have noted that as the assessing officer disallowed the claim of deduction on the above reasoning, the AO did not separately consider whether the interest/dividend received by the appellant from investments with Co-operative societies/C operative Banks are eligible/ entitled for deduction under section 80P(2)(a)(i) or 80P(2)(d) of the Act. Page 4 of 8 ITA No. 364/Coch/2024 5. The Appellant had specifically brought to the notice of the CIT (Appeals) the judgment of the jurisdictional High Court of Kerala in the case of CIT Vs Peroorkada reported in [2022] 134 taxmann.com 380 (Kerala), wherein the Kerala High Court has categorically held that interest/dividend earned from investment in a co-operative society is eligible for deduction under section 80P (2) (d) of the Income Tax Act further holding that the interest/dividend earned from District Co-operative Bank is eligible and entitled for deductio under section 80P (2) (d) of the IT Act. The assessing officer did not go int • any of these aspects as the claim of deduction under section 80P of IT Ac was disallowed on the reasoning that the appellant society is engaged banking business and the agricultural credits are not substantial, that the appellant is using the term 'bank' and therefore hit by section 80P(4) of the IT Act. In view of the subsequent developments including the judgment o' the Hon'ble Supreme Court in the case of Mavilayi Service Co- operative Bank Ltd V CIT [431 ITR 1 (SC)] and also the judgment of jurisdiction High Court of Kerala in the case of PCIT Vs Peroorkada Service C operative Bank Ltd reported in [2022] 134 taxmann.com 380 (Kerala), th CIT (Appeals) ought to have remanded to the assessing officer the issue o claim of deduction under section 80P of the Act and the eligibility an entitlement of deduction both under section 80P (2) (1) (a) and 80P (2) (d) o the Income Tax Act for the AY 2017-18. The CIT (A) failed to consider the matter in the right perspective. 6. The CIT(Appeals) ought to have remanded to the assessing officer the issue of eligibility and entitlement of deduction under section 80 P (2) (d) on the interest/ dividend received from co-operative societies/co-operative Bank as well in view of the judgment of jurisdictional High Court of Kerala in the case of PCIT Vs Peroorkada Service Co-operative Bank Ltd reported in [2022] 134 taxmann.com 380 (Kerala) while allowing and remanding to the assessing officer, the claim of deduction under section 80P(2)(a)(i) of the IT Act on the interest received from providing credit facilities to its members. 7. The CIT (Appeals) ought to have considered the issue of eligibility and entitlement of deduction under section 80P (2) (d) of the IT Act as an additional ground and ought to have adjudicated the issue. Page 5 of 8 ITA No. 364/Coch/2024 8. For these and other grounds to be urged at the time of hearing, it is mast respectfully prayed that this Hon'ble Tribunal may be pleased to set aside the order of the CIT(Appeals), NFAC, Delhi to the extent challenged in this appeal for the AY 2017-18 and to allow the appeal and render justice to the appellant. 5. 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. 6. We have heard the arguments of both sides and perused the materials available on record. 7. 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 Page 6 of 8 ITA No. 364/Coch/2024 the assessee is a co-operative bank which is hit by section 80P(4) of the Act.” 8. 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.” 9. 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- Page 7 of 8 ITA No. 364/Coch/2024 operative societies and banks are also entitled for deduction u/s. 80P(2)(d) of the Act. 10. 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. 11. 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. 12. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 17th December, 2024. Sd/- Sd/- (WASEEM AHMED) (SOUNDARARAJAN K.) Accountant Member Judicial Member Bangalore, Dated, the 17th December, 2024. /MS / Page 8 of 8 ITA No. 364/Coch/2024 Copy to: 1. Appellant 2. Respondent 3. CIT 4. DR, ITAT, Cochin 5. Guard file 6. CIT(A) By order Assistant Registrar, ITAT, Cochin "