Lower Authorities passed Orders Overlooking SC Precedents: ITAT directs AO to Reconsider 80P deduction under Income Tax [Read Order]

In a recent ruling, the Banglore bench of the Income Tax Appellate Tribunal ( ITAT ) set aside orders passed by lower authorities noting that while passing the said orders, the lower authorities overlooked relevant principles laid out in Supreme Court precedents. The assessee/appellant is M/s. Arjuna Souhardha Pathina Sahakari Niyamitha, a cooperative society. In the case under consideration, the ground for appeal pertains to the deduction claim made by the assessee under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (ITA), which relates to the income of cooperative societies engaged in providing credit facilities to their members. This issue arose during the second round of litigation between the assessee and the revenue authorities. Initially, the ITAT had remitted the matter back to the Assessing Officer (AO) with specific instructions to reassess the claim of the assessee regarding the deduction under Section 80P(2)(a)(i) of the tax statute in accordance with the law. The AO, however, upon reevaluation, once again disallowed the claim.The disallowance was primarily based on the Supreme Court’s decision in the case of Citizen Co-operative Society Ltd. vs. ACIT. Get a Copy of Handbook To Income Tax Rules, Click here The AO contended that the facts of the assessee's case were similar to those in the Citizen Co-operative Society Ltd. case, which led to the rejection of the deduction claim. Aggrieved, the assessee appealed against this decision before the Commissioner of Income Tax (Appeals) . However, the CIT ( A) upheld the AO’s order. Aggrieved again, the assessee appealed before ITAT. Before the tribunal, the Authorized Representative (AR) of the assessee contested the decision, arguing that the AO and the lower authorities failed to consider a more recent Supreme Court decision in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT(reported in 431 ITR 1), which had clarified the applicability of Section 80P(2)(a)(i) of ITA The AR asserted that the facts of the assessee’s case were distinct from those in the Citizen Co-operative Society Ltd. case and were more aligned with the facts in the Mavilayi Service Co-operative Bank Ltd. case. The AR further argued that the authorities below did not consider the principles laid down in the Mavilayi case, which would have supported the assessee’s claim for deduction. The Departmental Representative (DR), however, defended the orders of the lower authorities, maintaining that the AO had correctly applied the law as per the Supreme Court’s ruling in the Citizen Co-operative Society Ltd. case. The bench of Smt Beena Pillai and Mr Laxmi Prasad Sahu, after examining the case facts, observed that the decisions of the Supreme Court in the Mavilayi Service Co-operative Bank Ltd. case and the recent case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. vs. AO were not taken into account by the AO or the CIT(A). These decisions were crucial, as they provided clarifications and guidelines on the application of Section 80P(2)(a)(i) of the tax statute concerning cooperative societies, noted the bench. The Tribunal further noted that the CIT(A) did not address the issues on their merits. It was also noted that given the legal developments since the Tribunal's earlier order, remanding the matter back to the CIT(A) would serve no purpose. Instead, the Tribunal decided that the matter should be remitted back to the AO once more. Get a Copy of Handbook To Income Tax Rules, Click here Thus, the AO was directed to reexamine the assessee's claim in light of the principles laid down by the Supreme Court in the Mavilayi Service Co-operative Bank Ltd. case and the Kerala State Co-operative Agricultural and Rural Development Bank Ltd case. Additionally, the AO was instructed to consider relevant decisions of the Tribunal, particularly those related to the allowance of interest on fixed deposits under Income tax Section 80P(2)(d), ensuring that such claims are considered under the appropriate legal provisions, including Section 57 of the income tax legislature for expenditure. In result, the Tribunal allowed the assessee’s appeal for statistical purposes, remitting the case back to the AO for fresh consideration in accordance with the Supreme Court's rulings and the Tribunal’s directions. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates