Disallowance of Deduction Claim u/s 80P(2)(a)(i) of Income Tax Act without Following Precedence: Kerala HC sets aside Assessment order [Read Order]

The Kerala  High Court set aside the income tax assessment order as the department failed to consider the precedent while disallowing the claim of deduction under section 80O (a)(i) of the Income Tax Act, 1961.

Vallapuzha Service Co-Operative Bank Ltd , the petitioner challenged the order of assessment under Section 143(3) of the Income Tax Act, 1961 ( 'the Act'). The Petitioner is a Primary Agricultural Credit Society carrying on various activities including providing of credit facilities to its members. For the assessment year 2023-24, a return was filed declaring 'Nil' taxable income. However, the return was selected for scrutiny, and an order of assessment was issued dated 17.02.2025, imposing an amount of Rs.1,59,63,972/- as tax due from the petitioner.

The assessment order has been issued in total disregard of the binding precedent of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. and Others vs.Commissioner of Income Tax and Another [(2021)] and therefore, the impugned order is liable to be set aside.

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Sri. V. P. Narayanan Menon, the counsel  apperaed for the petitioner as well as Sri. P. G. Jayashankar, the Standing Counsel appeared for the Income Tax department.

On a perusal of the impugned order of assessment, the single bench of Justice Bechu Kurian Thomas found that the assessing authority has come to the conclusion that the deduction claimed under Section 80P(2)(a)(i) of the Act has to be disallowed. However, in the decision in Mavilayi Service Co-operative Bank Ltd.'s case , the Supreme Court had categorically entered several findings in favour of Primary Agricultural Credit Societies and the said binding precedent has not even been referred to in the impugned order. When an assessment has been carried out ignoring a binding precedent, the jurisdiction under Article 226 of the Constitution of India can be invoked in appropriate cases, to interfere with such orders of assessment, and the assessee need not be relegated to pursue his statutory remedies.

The assessing officer had proceeded to consider the decision of the Karnataka High Court in Principal Commissioner of Income Tax vs. Totgars Co-operative Society (2017)to render a finding against the petitioner.

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The court observed that an erroneous assessment occasioned by ignoring a binding judgment of the Supreme Court cannot be trivialized as an order against which an appellate remedy lies which would provide justice to an assessee.The bench held that such orders ignoring binding precedents are in violation of the doctrine of precedent and cannot be countenanced under any circumstances.

While allowing the appeal, the bench  directed a fresh consideration in the light of specific principles laid down in Mavilayi Service Co-operative Bank Ltd. 's case and set aside the assessment order.

To Read the full text of the Order CLICK HERE

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