2009 (3) TMI 650 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under Section 80P of the Income-tax Act, 1961.
2. Classification and treatment of income from investments.
3. Admissibility of deductions for provisions and expenses.
4. Jurisdiction of CIT(A) to direct re-opening of past assessments.

Detailed Analysis:

1. Eligibility for Deduction under Section 80P:

* Grounds of Appeal: The assessee contested the CIT(A)'s decision that the entire income is outside the purview of Section 80P due to engagement in other businesses and transactions with non-members.
* Tribunal's Findings: The Tribunal upheld the CIT(A)'s finding that the assessee is not a co-operative bank and thus not entitled to deductions under Section 80P(2)(a)(i) as a bank. However, as a primary co-operative credit society, the assessee may still be eligible for deductions on income earned from transactions with its members.
* Relevant Provisions: Section 80P(2)(a) lists various activities eligible for deductions, including banking or providing credit to members, marketing agricultural produce, and others. The Tribunal emphasized that deductions under Section 80P(2)(d) and (e) are also applicable, contrary to the CIT(A)'s findings.

2. Classification and Treatment of Income from Investments:

* Grounds of Appeal: The assessee argued that income from investments with other co-operative banks/societies should be considered part of its banking business and eligible for deductions under Section 80P.
* Tribunal's Findings: The Tribunal rejected the notion that the assessee is a co-operative bank, thus negating the need for SLR & CRR reserves. However, it allowed deductions under Section 80P(2)(d) for income from investments with other co-operative banks, confirming that such income is exempt.
* Specific Investments: The Tribunal noted that the assessee's investments with M/s. B.C.C.B. Ltd. and M/s. W.B.S.C. Bank Ltd. qualify for deductions under Section 80P(2)(d).

3. Admissibility of Deductions for Provisions and Expenses:

* Provision for Bad and Doubtful Debts: The CIT(A) upheld the disallowance of Rs. 6,11,440 as the assessee was not engaged in banking activities.
* Interest Suspense Account: The CIT(A) confirmed the disallowance of Rs. 2,33,331.
* Income-tax Fine: The CIT(A) upheld the disallowance of Rs. 1,05,000 due to lack of a valid explanation from the assessee.
* Tribunal's Direction: The Tribunal directed the Assessing Officer to determine the gross total income and assess allowable deductions as per Section 80P, considering the Tribunal's observations.

4. Jurisdiction of CIT(A) to Direct Re-opening of Past Assessments:

* Grounds of Appeal: The assessee contested the CIT(A)'s direction to re-open past assessments.
* Tribunal's Findings: The Tribunal held that the CIT(A) exceeded his jurisdiction by directing the Assessing Officer to re-open past assessments, thus allowing this ground of appeal.

Conclusion:
The Tribunal allowed the appeals to the extent that the assessee is entitled to deductions under Section 80P(2)(d) for income from investments with other co-operative banks and societies. It also directed the Assessing Officer to re-assess the gross total income and allowable deductions. The Tribunal confirmed that the CIT(A) exceeded his jurisdiction in directing the re-opening of past assessments and upheld the disallowance of certain provisions and expenses. The appeals for both assessment years 2003-04 and 2004-05 were allowed to the extent mentioned.