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2013 (9) TMI 558 - AT - Income TaxDisallowance of Deduction u/s 80P(2)(a)(i) - granting the status of Cooperative Society - providing credit facilities to its members - Spcial auditor u/s 142A concluded that the assessee was not a primary agricultural credit society and was also not a cooperative bank. - Held that:- the assessee is primary co-op agriculture and rural development bank, entitled to benefit of deduction u/s 80P(2)(a)(i) of the Act. Merely because certain deficiencies were noted in not holding the meetings on periodic intervals or the membership number of members were not available in particular list, etc., does not make the activities under taken by the assessee society to be not in the nature of providing credit facilities to its members. The basic activity carried on the assessee society as enshrined in its bye laws was to provide long term loans to its members for specified purposes and the assessee admittedly is doing so. Once the primary activity of providing loans to its members has been undertaken by the assessee society, its entitlement for exemption u/s 80P(2)(a)(i) of the Act merits to be allowed. Commissioner Of Income-Tax Versus Pondicherry Co-operative Housing Society Limited [1990 (11) TMI 132 - MADRAS High Court] - various objects of the society were distinct and independent objects - A perusal of clause 2(j) of the bye-laws of the society showed that to obtain a loan from the society, it was not necessary that the member should have constructed the house through the society or under its supervision - The restriction imposed on the user of the credit facilities extended by the assessee-society for house building could not be construed as means intended to secure one of the objects of the society, viz., house building - At best it could be regarded as imposition of a condition for obtaining credit facilities - The activity of the assessee-society in making funds available to its members had to be regarded as one of providing credit facilities to its members - the assessee was entitled to the benefit of special deduction under section 80P(2)(a)(i).” The object of the assessee-society was to give long term loans to its members for its utilization for specific purposes and the assessee was carrying on such activities and had earned interest income on such loans provided to its members under various schemes - The Special Auditors have also admitted to the above said facts that the assessee had generally given credit to the members for agriculture and rural development activities - Once the assessee was found to be carrying on its primary activity and similar activity was being carried on in earlier years and accepted by the department from year to year, we find no merit in rejecting the claim of the assessee vis-à-vis its status under section 80P(2)(a)(i) of the Act - The deficiencies pointed out by the Special Auditors and even the Auditors of Govt. of Punjab which have been complied with by the assessee, does not justify the rejection of exemption under section 80P of the Act - Thus we direct the Assessing Officer to allow deduction under section 80P(2)(a)(i) of the Act – Decided in favour of Assessee. Disallowance u/s 14A – Held that:- Following CIT Vs Kings Exports 2009 (8) TMI 54 - PUNJAB AND HARYANA HIGH COURT] - Where the income had not been claimed as exempt, we find no merit in applying the provisions of section 14A of the Act in computing the disallowance of expenses which were attributable to the earning of dividend income – Assessing Officer was directed to delete the disallowance made in view of the provisions of section 14A of the Act – Decided in favour of Assessee.
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