Income Tax Appellate Tribunal - CochinM/S.Ramapuram Service Co-Op Bank Ltd, ... vs The Ito, Tirur on 14 September, 2020IN THE INCOME TAX APPELLATE TRIBUNAL\n                COCHIN BENCH, COCHIN\n\nBefore Shri Chandra Poojari, AM & Shri George Mathan, JM\n\n      ITA No.172/Coch/2020 : Asst.Year 20 14-2015\n\nM/s. The Ramapuram Service Co-             The Income Tax Officer\noperative Bank Limited            Vs.      Ward 4\nPost Ramapuram\n                                           Tirur.\nMalapuram - 679 321.\nPAN : AACAT7644J.\n        (Appellant)                                (Respondent)\n\n           Appellant by : Sri.Hamid Hussain K.P., CA\n         Respondent by : Sri.Mritunjaya Sharma, Sr.DR\n\n                                        Date of\nDate of Hearing : 14.09.2020            Pronouncement : 14.09.2020\n\n                            ORDERPer Bench :This appeal at the instance of the assessee is directed\nagainst the order of the CIT(A), dated             30.01.2020. The\nrelevant assessment year is 2014-2015.2.    The solitary issue that is raised is whether the CIT(A) is\njustified in confirming the Assessing Officer's order in denying\nthe claim of deduction u/s 80P(2)(a)(i) of the I.T.Act.3.    The brief facts of the case are as follow:The assessee is a co-operative society registered under\ntheKerala    Co-operative   Societies    Act,   1969.   For    the\nassessment year 2014-2015, return was filed after claiming\ndeduction u/s 80P of the I.T.Act. The assessment order was\npassed    for   assessment     year     2014-2015,    wherein     the\nAssessing Officer disallowed the claim of deduction u/s 80P of2                    ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.the I.T.Act. The reasoning of the Assessing Officer to disallow\nthe claim of deduction u/s 80P(2)(a)(i) of the I.T.Act was that\nthe assessee was essentially doing the business of banking,\nand therefore, in view of insertion of section 80P(4) of the\nI.T.Act with effect from 01.04.2007, the assessee will not be\nentitled to deduction u/s 80P of the I.T.Act.4.      Aggrieved by the order passed by the Assessing Officer\ndisallowing the claim of deduction u/s 80P(2) of the I.T.Act,\nthe assessee preferred appeal before the first appellate\nauthority for assessment year 2014-2015. The CIT(A) placing\nreliance on the judgment of the Full Bench of the Hon'ble\njurisdictional High Court in the case ofThe Mavilayi Service\nCo-operative Bank Ltd. v. CIT[(2019) 414 ITR 67 (Ker.) (FB)\n(HC)]     held that the Assessing Officer had made elaborate\nfindings and has come to a factual finding that agricultural\ncredit provided by the assessee is only minuscule and\nassessee cannot be termed as primary agricultural credit\nsociety. Accordingly disallowance of claim of deduction u/s\n80P of the I.T.Act made by the Assessing Officer was upheld\nby the CIT(A). In the result the appeal filed by the assessee\nwas rejected by the CIT(A) for assessment year 2014-2015.5.      Aggrieved by the order passed by the CIT(A), the\nassessee has preferred this appeal before the Tribunal, raising\nfollowing grounds:-"1.    The Order of the learned Commissioner of Income Tax\n        Appeals is opposed to facts and against law. The learned\n        officer ought to have seen that deduction u/s 80P has been\n        validly claimed in the Return of Income filed.3                      ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.2.     The learned Commissioner of Income Tax Appeals ought\nto have seen that the assessee is a Primary Agricultural Credit\nsociety and has been certified as such by the Registrar, under\ntheKerala State Co-operative Societies Act1969 and so there\nis no need for independent evaluation of the objectives or even\notherwise the objects are of agricultural nature and not\notherwise. The Kerala every year and it has not been objected\nby the Kerala Co-Operative Department warranting to the\ncancellation or suspension of its registration.3.    The learned Commissioner of Income Tax Appeals\nfurther failed to see that, As per Section 2(1) of KCS Act, a\nmember includes a nominal or associate member. Hence, for\nthe cooperative societies registered under KCS Act,\ntransactions with nominal members is not in violation of the\nKCS Act.4.     The learned Commissioner of Income Tax Appeals\nfurther failed to see that, Assessee is a primary agricultural\ncredit society as defined and registered with the Registrar of\nCo-operative Societies Kerala. Assessee is classified as\nPrimary Agricultural Credit Society vide rule 15 of the Kerala\nCo-op Societies Rules. The main object and activities assessee\ncarrying are the credit facilities to our members. The area\nincluded in assessee's area of operation is predominantly an\nagricultural area and the members of our society are mainly\nagriculturists. The bylaw of assessee Co-op society has\nclearly mentioned that, assessee is a primary agricultural\ncredit society and the main object is to provide financial\naccommodation to assessee members for agricultural\npurposes or purposes connected with the agricultural\nactivities. So there is no need for independent evaluation of\nthe objectives or even otherwise the objects are of agricultural\nnature and not otherwise. A major portion of loans included in\nmedium terms, ordinary loans, others (long term), gold loan\nare also agricultural in nature.5.      The learned Commissioner of Income Tax Appeals\nfurther failed to see that, assessee is a co-operative society\nregistered with the object of providing credit facilities to its\nmembers. As per Section 80P(2)(a)(i), a cooperative society\nengaged in the business of banking or providing credit'\nfacilities to its members is eligible for deduction of the whole of\nthe profits and gains of business attributable to such\nactivities. Hence the assessee is equally eligible to get the\nclaim under Section 80P(2)(a)(i).6.    The learned commissioner of income Tax Appeals erred\nis deciding that, the assessee is become an AOP doing\nbanking business to stating that, the assessee had violated its4                     ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.charter for it was registered. The Co-Operative department\n      being the registering authority had no where objected that, the\n      assessee had violated the charter for which it had registered.7.   It is submitted that without prejudice to the above\n      grounds other grounds may be allowed at the time of hearing.5.1   The learned AR relied on the grounds raised. The learned\nDepartmental Representative, on the other hand, strongly\nsupported the orders passed by the Income Tax Authorities.6.    We have heard the rival submissions and perused the\nmaterial on record. The Hon'ble jurisdictional High Court in\nthe case ofChirakkal Service Co-operative Co-operative Bank\nLtd. v. CIT[(2016) 384 ITR 490 (Ker.)] had held that when a\ncertificate has been issued to an assessee by the Registrar of\nCo-operative      Societies     characterizing       it    as     primary\nagricultural credit society, necessarily, the deduction u/s\n80P(2) of the I.T.Act has to be granted to the assessee.However, the Full Bench of the Hon'ble Kerala High Court in\nthe case of The Mavilayi Service Co-operative Bank Ltd. v. CIT\n(supra) had reversed the above findings of the Hon'ble Kerala\nHigh Court in the case of Chirakkal Service Co-operative Co-operativeBank Ltd. v. CIT(supra).The Larger Bench of the\nHon'ble Kerala High Court in the case ofThe Mavilayi Service\nCo-operative Bank Ltd. v. CIT(supra) held that the Assessing\nOfficer has to conduct an inquiry into the factual situation as\nto the activities of the assessee society to determine the\neligibility of deduction u/s 80P of the I.T.Act. It was held by\nthe Hon'ble High Court that the Assessing Officer is not\nbound by the registration certificate issued by the Registrar of\nKerala Co-operative Society classifying the assessee-society as5                     ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.a co-operative society. The Hon'ble High Court held that each\nassessment year is separate and eligibility shall be verified by\nthe Assessing Officer for each of the assessment years. The\nfinding of the Larger Bench of the Hon'ble High Court reads\nas follows:-"33.In view of the lawlaid down bythe Apex Court in\n     Citizen Co-operative Society [397 ITR 1] it cannot be\n     contended that, while considering the claim made by an\n     assessee society for deduction underSection 80Pof the IT\n     Act, after the introduction of sub-section (4) thereof, the\n     Assessing Officer has to extend the benefits available,\n     merely looking at the class of the society as per the\n     certificate of registration issued under the Central orState\n     Co-operative Societies Actand the Rules made thereunder.\n     On such a claim for deduction underSection 80Pof the IT\n     Act, the Assessing Officer has to conduct an enquiry into the\n     factual situation as to the activities of the assessee society\n     and arrive at a conclusion whether benefits can be extended\n     or not in the light of the provisions under sub-section (4) of\n     Section 80P.33. In Chirakkal [384 ITR 490] the Division Bench held\n     that the appellant societies having been classified as\n     Primary Agricultural Credit Societies by the competent\n     authority under the KCS Act, it has necessarily to be held\n     that the principal object of such societies is to undertake\n     agricultural credit activities and to provide loans and\n     advances for agricultural purposes, the rate of interest on\n     such loans and advances to be at the rate to be fixed by the\n     Registrar of Co-operative Societies under the KCS Act and\n     having its area of operation confined to a Village, Panchayat\n     or a Municipality and as such, they are entitled for the\n     benefit of sub-section (4) ofSection 80Pof the IT Act to ease\n     themselves out from the coverage ofSection 80Pand that,\n     the authorities under theIT Actcannot probe into any issues\n     or such matters relating to such societies and that, Primary\n     Agricultural Credit Societies registered as such under the\n     KCS Act and classified so, under the Act, including the\n     appellants are entitled to such exemption.34.In Chirakkal [384 ITR 490] the Division Bench\n     expressed a divergent opinion, without noticing the lawlaid\n     down inAntony Pattukulangara [2012 (3) KHC 726] and\n     Perinthalmanna [363 ITR 268]. Moreover, the lawlaid down\n     bythe Division Bench in Chirakkal [384 ITR 490] is not good6                     ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.law, since, in view of the lawlaid down bythe Apex Court in\n      Citizen Co-operative Society [397 ITR 1], on a claim for\n      deduction underSection 80Pof the Income Tax Act, by\n      reason of sub-section (4) thereof, the Assessing Officer has to\n      conduct an enquiry into the factual situation as to the\n      activities of the assessee society and arrive at a conclusion\n      whether benefits can be extended or not in the light of the\n      provisions under sub-section (4) ofSection 80Pof the IT Act.In view of the law laid down by the Apex Court in Citizen Co-\n      operative Society [397 ITR 1] the law laid down by the\n      Division Bench Perinthalmanna [363 ITR 268] has to be\n      affirmed and we do so.35. In view of the lawlaid down bythe Apex Court in Ace\n      Multi Axes Systems' case (supra), since each assessment\n      year is a separate unit, the intention of the legislature is in\n      no manner defeated by not allowing deduction underSection\n      80Pof the IT Act, by reason of sub-section (4) thereof, if the\n      assessee society ceases to be the specified class of societies\n      for which the deduction is provided, even if it was eligible in\n      the initial years."6.1   In the instant case, the Assessing Officer had denied the\nclaim of deductionu/s 80Pof the I.T.Act for the reason that\nassessee was essentially doing the business of banking and\ndisbursement of agricultural loans by the assessee was only\nminuscule. Therefore, the Assessing Officer concluded that\nthe assessee cannot be treated as co-operative society. The\nAssessing Officer after perusing the narration of the loan\nextracts in the statutory audit report for assessment year\n2014-2015, came to the conclusion that out of the total loan\ndisbursement, only a minuscule portion has been advanced\nfor agricultural purposes. We are of the view that the\nnarration in loan extracts in the audit reports by itself may\nnot conclusive to prove whether loan is a agricultural loan or\na non-agricultural loan. The gold loans may or may not be\ndisbursed     for    the    purpose      of   agricultural      purposes.\nNecessarily, the A.O. had to examine the details of each loan7                   ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.disbursement and determine the purpose for which the loans\nwere disbursed, i.e., whether it is for agricultural purpose or\nnon-agricultural purpose.In these cases, such a detailed\nexamination has not been conducted by the A.O. At the time\nof assessment, the judgment of the Hon'ble jurisdictional High\nCourt in the case ofChirakkal Service Cooperative Bank Ltd.(supra) was ruling the roost and the certificate issued by the\nRegistrar of Co-operative Society terming the assessee as a\nprimary agricultural credit society would be sufficient for\ngrant of deductionu/s 80Pof the I.T.Act.In the light of the\ndictumlaid down bythe Full Bench of the Hon'ble Kerala\nHigh Court in the case ofThe Mavilayi Service Co-operative\nBank Ltd. v. CIT(supra), we are of the view that there should\nbe fresh examination by the Assessing Officer as regards the\nnature of each loan disbursement and purpose for which it\nhas been disbursed, i.e., whether it for agricultural purpose\nor not. The A.O. shall list out the instances where loans have\ndisbursed for non-agricultural purposes etc. and accordingly\nconclude that the assessee's activities are not in compliance\nwith the activities of primary agricultural credit society\nfunctioning under theKerala Co-operative Societies Act,\n1969, before denying the claim of deductionu/s 80P(2)of the\nI.T.Act. For the above said purpose, the issue raised in these\nappeals is restored to the files of the Assessing Officer.The\nAssessing Officer shall examine the activities of the assessee-\nsociety by following the dictumlaid down bythe Full Bench of\nthe Hon'ble jurisdictional High Court in the case ofThe\nMavilayi Service Co-operative Bank Ltd. v. CIT(supra) and8                   ITA No.172/Coch/2020M/s.The Ramapuram SCB Ltd.shall take a decision in accordance with law. It is ordered\naccordingly.7.     In the result, the appeal filed by the assessee is allowed\nfor statistical purposes.Order pronounced on this 14th day of September, 2020.Sd/-                              Sd/-\n      (George Mathan)                    (Chandra Poojari)\n     JUDICIAL MEMBER                   ACCOUNTANT MEMBER\n\nCochin, dated 14th September, 2020\nDevadas G*\n\nCopy to :\n1.  The Appellant\n2.  The Respondent\n3.  The CIT(A), Kozhikode.\n4.  The Pr.CIT, Kozhikode.\n5.  The DR, ITAT, Kochi\n6.  Guard File.\n\n\n                                 Asst.Registrar/ITAT/Kochi