Deduction Under Section 80P(2)(a)(i) Restored to Primary Agricultural Credit Society: ITAT Cochin Follows Supreme Court Ruling

Background of the Dispute

The matter in Avinissery Service Co-operative Bank Ltd Vs Income Tax Department (ITAT Cochin) concerned the eligibility of a primary agricultural credit society for deduction under Section 80P(2)(a)(i) of the Income Tax Act 1961 for Assessment Year 2016–17.

The assessee, Avinissery Service Co-operative Bank Ltd, is a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969. In its return for the relevant year, the assessee claimed deduction under Section 80P(2)(a)(i) in respect of income arising from its activities of providing credit facilities to its members.

The Assessing Officer, however, substantially curtailed the deduction claim and made an addition of INR 1,63,05,247, restricting the deduction of INR 1,64,15,229 to a mere INR 1,09,982. The core allegation was that the assessee:

  • Had extended a significant portion of its loans for non-agricultural purposes, and
  • Was therefore not entitled to deduction under Section 80P(2)(a)(i), in view of Section 80P(4), on the footing that it functioned akin to a co-operative bank.

The CIT(A) (NFAC) confirmed this disallowance, prompting the assessee to approach the ITAT Cochin.

Two appeals were filed by the assessee:

  • ITA No.569/COCH/2025 – the main appeal on merits, filed with a delay.
  • ITA No.556/COCH/2025 – later acknowledged as a duplicate appeal.

The Tribunal first addressed the delay in filing, then proceeded to adjudicate the substantive issue of deduction under Section 80P(2)(a)(i) in light of the Supreme Court’s decision in Mavilayi Service Co-operative Bank Ltd. and Ors vs Commissioner of Income Tax, Calicut and Anr.

Condonation of Delay in Filing the Appeal

Reason for Delay

The impugned appellate order by NFAC was dated 27/09/2024, and the normal time limit for filing an appeal expired on 26/11/2024. The assessee, however, filed the appeal with a delay of roughly eight months.

An application for condonation of delay, supported by an affidavit sworn by the Secretary of the co-operative society, was filed explaining the cause:

  • The first page of the NFAC order was marked as “Draft order”.
  • The assessee believed this was not the final operative order and was awaiting a conclusive order under Section 250.
  • On realising that no further order was forthcoming and that sufficient time had elapsed, the assessee proceeded to file the appeal.

Tribunal’s Findings on Delay

After hearing both sides on the condonation petition, the Tribunal held:

  • The explanation of the assessee was bona fide and supported by a sworn affidavit.
  • The presence of the term “Draft order” on the NFAC order reasonably caused confusion about its finality.
  • In the given circumstances, the delay was neither intentional nor contumacious.

The Tribunal therefore condoned the delay and proceeded to decide the appeal in ITA No.569/COCH/2025 on merits.

Assessee’s Grounds Before the Tribunal

The assessee raised several grounds, which can be summarised as follows: