Claim for deduction u/s. 80P(2)(a)(i) of Income Tax Act cannot be disallowed solely on ground of lending money to non-members : ITAT Allows Appeal of Cooperative society [Read Order]

In a recent ruling the ITAT Cochin bench of the Income Tax Appellate Tribunal (ITAT) allowed the appeal of cooperative society by holding that the claim for deduction under section 80P(2)(a)(i) of Income Tax Act, 1961 cannot be disallowed solely on ground of lending money to non-members

Chittur Service Co-op. Bank Ltd, the assessee challenged the different orders of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 04.12.2024 for Assessment Years (AY) 2016-17 & 2017-18. The appellant is a co-operative society registered under the KeralaState Co-operative Societies Act, 1969. The return of income for AY 2016-17 was filed on 24.03.2018 declaring Nil income after claiming deduction u/s. 80P of the Act. Against the said return of income, the assessment was completed by the Income Tax Officer, Ward-1, Palakkad ( "the AO") denying the claim by holding that the appellant is not a co-operative society.

An appeal was filed before the CIT(A), who placing reliance on the decision of the Jurisdictional High Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] held that the appellant is not entitled for deduction us 80P of the Act. On further appeal before the Tribunal, vide order the Tribunal set aside the matter to the file of AO with a direction to examine the nature of each loan disbursement for which it was disbursed, whether it is agricultural or not. However, pursuant to the order of the Tribunal the AO passed assessment order u/s. 143(3) r.w.s. 254 & 144B of the Income Tax Act, 1961 (the Act) at a total income of Rs. 2,24,84,244/- by disallowing by disallowing the claim under section . 80P of the Act.

An appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO for the failure of the appellant to substantiate the claim for deduction under section 80P of the Act. The issue that arises for our consideration is whether the appellant co-operative society is entitled for deduction under section 80P(2)(a)(i) of the Act or not. Admittedly, the appellant is a cooperative society registered under the Kerala State Co-operative Societies Act, 1969.

It is formed with the object of accepting deposits from members and lending money to its members. In the original round of assessment proceedings, the claim for deduction under section 80P(2)(a)(i) was disallowed solely on the ground that the appellant is engaged in lending money to non-members also, placing reliance on the Full Bench decision of the Jurisdictional High Court in the case Mavilayi Service Co-operative Bank Ltd. v. CIT [2019].

On appeal the Tribunal remanded the matterback to the file of the AO with a direction to examine whether the loans were provided for non-agricultural purposes or not.

A two member bench of Inturi Rama Rao, AM and Prakash Chand Yadav, JM found that the Full Bench judgement of the High Court in the case Mavilayi Service Co-operative Bank Ltd. v. CIT [2019] was overruled by the Supreme Court in the case of 431 ITR 1 (SC). In the light of the judgement of the Supreme Court, the tribunal ruled that the appellant society is entitled for deduction u/s. 80P(2)(i)(a) of the Act.

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