Primary Agricultural Credit Society Entitled To Benefit Section 80P(2)(i) For Providing Credit Facilities For Non-Agricultural Purposes To Its Members: ITAT

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) has held that Primary Agricultural Credit Society is entitled to benefit under Section 80P(2)(i) of the Income Tax Act for providing credit facilities for non-agricultural purposes to its members.

The bench of Rajpal Yadav (Vice President) and Manish Borad (Accountant Member) has observed that the appellant society is eligible for deduction u/s 80P(2)(i) of the Act, but only to the extent of the income that has been earned from the facilities extended to its members.

The appellant/assessee is a Primary Agricultural Credit Society, and the return of income declares NIL income after claiming deduction under Section 80P of the Income Tax Act. The case was selected for scrutiny under CASS, and the assessment order was finally passed. The AO has withdrawn the deduction claimed by the appellant society under Section 80P for the reason that it is not a co-operative society meant for its members, and it has also provided credit facilities to non-members.

The AO also observed that it has failed to establish that its primary objective is to provide financial assistance to its members for agricultural purposes or for purposes connected with agricultural activities. In the first appeal, CIT(A) dismissed the appeal of the assessee society by concurring with the findings given in the assessment order without making any comments on the submissions made by the appellant society during the appellate proceedings.

The appellant society contended that the assessee is a society registered under the West Bengal Co-operative Societies Act, 2006, is a primary agricultural credit society (PACS), and is engaged in providing financial assistance to its members for agricultural activities. The assessee society is a PACS and is entitled to deduction in terms of the provisions of Section 80P(4). The appellant society is providing credit facilities to its members and also provided the details of the persons to whom credit facilities were provided. It stated that lower authorities were wrong in observing that the appellant society had provided credit facilities to non-members. Since the appellant society is PACS and is providing credit facilities to its members, it has rightly claimed the deduction under Section 80P and requested the restoration of the same.

The issue raised was whether the assessee is eligible for deduction u/s. 80P of the Act on the income earned from providing credit facilities to its members, profit from trading activities of fertilizer sales, and income from other related activities.

Section 80P(2)(i) of the Income Tax Act provides that where a co-operative society is engaged in providing credit facilities to its members, the whole of the amount is entitled to deduction.

The tribunal noted that though the assessee has provided the list of persons to whom the credit facilities were provided, it failed to establish to the satisfaction of the AO that all such persons are its members. The appellant society has income from trading activity and some other income as well.

“The appellant society has failed to satisfy the lower authorities whether those credit facilities were provided to its members only and not to non-members; therefore, the assessee is directed to file the necessary details with the AO, and the AO is directed to allow deduction u/s 80P(2)(i) to the assessee for the income earned through or from its members as per the directions given hereinabove, needless to mention that the assessee should be provided with a with a reasonable and proper opportunity of being heard,” the ITAT ruled.

Counsel For Appellant: Siddarth Agarwal

Counsel For Respondent: P.P. Barman

Case Title: Enayetpur S K U S Ltd Vs. ACIT

Case No.: I.T.A. No.: 712/KOL/2022

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