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claim of deduction u/s 80P of the I.T.Act was denied, by relying on the judgment of the Larger Bench of the Hon’ble jurisdictional High Court in thecaseofThe Mavilayi Service Co-operative Bank Ltd. v. CIT (supra).The CIT(A) ought not to have rejected the claim of deduction u/s 80P(2) of the I.T.Act without examining the activities of the assessee society. The Full Bench of the Hon’ble jurisdictional High Court in thecaseofThe Mavilayi Service Co-operative Bank Ltd. V. CIT (supra)had held that the A.O. has to conduct an inquiry into the factual situation as to the activities of the assessee society to determine the eligibility of deduction u/s 80P of the I.T.Act. In view of the dictum laid down by the Full Bench of the Hon’ble jurisdictional High Court (supra), we restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Kerala Co-operative Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act. 7.3 As regards the interest on the investments with Co-operative Banks and other Banks, the co-ordinate Bench order of the Tribunal in thecaseofKizhathadiyoor Service Co-operative Bank Limited in ITA No.525/Coch/2014 (order dated 20.07.2016),had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as 'income from business’ instead of 'income from other sources’. However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down by the Larger Bench of the Hon’ble jurisdictional High Court in thecaseofThe Mavilayi Service Co-operative Bank Ltd. V. CIT (supra)and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It is ordered accordingly

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Sec. 80P(2) of Income Tax Act, 1961—Deduction — The assessee was a co-operative society registered under the Kerala Co-operative Societies Act, 1969. For the assessment year 2014-15, the return of income was filed after claiming deduction u/s 80P of the I.T.Act. The Assessing Officer passed an order, disallowing the claim of deduction u/s 80P of the I.T.Act. The reasoning of the Assessing Officer to disallow the claim of deduction u/s 80P(2) of the I.T.Act was that the assessee was doing the business of banking, and therefore, in view of insertion of section 80P(4) of the I.T.Act with effect from 01.04.2007, the assessee will not be entitled to the deduction u/s 80P(2) of the I.T.Act. The Assessing Officer also disallowed the claim of deduction with regard to interest income received by the assessee on investments made with District Co-operative Banks and other Banks. The CIT(A) allowed the appeal by holding that the assessee was eligible for deduction u/s 80P of the I.T.Act. The interest income received from other banks and treasury also was allowed as deduction u/s 80P(2)(a)(i) of the I.T.Act. Subsequently, the CIT(A) issued notice u/s 154 of the I.T.Act proposing to rectify his order passed, in view of the subsequent judgment of the Full Bench of the Hon’ble jurisdictional High Court. However, the CIT(A) rejected the objections raised by the assessee and passed an order u/s 154 of the I.T.Act, disallowing the claim of the assessee u/s 80P(2) of the I.T.Act. The assessee has filed the appeal before the Tribunal against the order of CIT(A).
Tribunal restore the issue of deduction u/s 80P(2) to the files of the Assessing Officer. The Assessing Officer shall examine the activities of the assessee and determine whether the activities are in compliance with the activities of a co-operative society functioning under the Societies Act, 1969 and accordingly grant deduction u/s 80P(2) of the I.T.Act.
As regards the interest on the investments with Co-operative Banks and other Banks, had held that interest income earned from investments with treasuries and banks is part of banking activity of the assessee, and therefore, the said interest income was eligible to be assessed as 'income from business’ instead of 'income from other sources’. However, as regards the grant of deduction u/s 80P of the I.T.Act on such interest income, the Assessing Officer shall follow the law laid down and examine the activities of the assessee-society before granting deduction u/s 80P of the I.T.Act on such interest income. It was ordered accordingly.
Tribunal have disposed of the appeal of the assessee, the Stay Petition filed by the assessee has become infructuous and was dismissed. The appeal filed by the assessee was allowed for statistical purposes and the Stay Petition filed by the assessee was dismissed. --- ARYANAD SERVICE COOPERATIVE BANK LIMITED vs. ITO. [2020] 23 ITCD Online 73 (COCHIN)