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2015 (9) TMI 603 - AT - Income TaxDisallowance of deduction u/s 80P in respect of interest receivable on standard asset - Held that - Assessee had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. If the interest amount of ₹ 19,06,609/- on the standard assets representing the loan given to the members of the assessee society, than the said income is eligible for the deduction u/s 80P being the income from the activity of credit facility to the member of the society. Therefore, subject to the verification of this fact that the interest income of ₹ 19, 06,609/- is earned by the assessee on the loan to the members of the society, the claim of the assessee is allowed. See CIT Vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha 2015 (1) TMI 821 - KARNATAKA HIGH COURT and Tumkur Merchants Souharda Credit Co-operative Ltd. Case 2015 (2) TMI 995 - KARNATAKA HIGH COURT - Decided in favour of assessee.
Issues Involved:
1. Validity of CIT(A) order. 2. Disallowance of deduction under Section 80P in respect of interest receivable on standard assets. 3. Applicability of the Supreme Court judgment in Totgars Co-operative Sale Society Ltd Vs ITO. 4. Deduction under Section 80P(2)(a)(i) on excess depreciation. 5. Deduction under Section 80P(2)(a)(i) on provision towards gratuity. Issue-wise Detailed Analysis: 1. Validity of CIT(A) Order: The first ground raised by the assessee was that the order of the CIT(A) is bad in law. However, this ground was general in nature, and no specific arguments were advanced by the assessee on this point. Therefore, the tribunal did not provide any specific findings on this issue. 2. Disallowance of Deduction under Section 80P in Respect of Interest Receivable on Standard Assets: The primary issue in this appeal was the disallowance of the deduction under Section 80P of the Income Tax Act, 1961, in respect of interest receivable on standard assets. The assessee, a Cooperative Society registered under the Karnataka State Co-operative Act, 1959, provides credit facilities and financial services to its members. The assessee filed its return of income for the assessment year 2010-11, declaring NIL income after claiming deduction under Section 80P. The Assessing Officer (AO) disallowed the deduction for interest receivable on standard assets amounting to Rs. 19,16,609, treating the assessee as a Co-operative Bank engaged in banking business. The CIT(A) partially accepted the assessee's claim under Section 80P but confirmed the disallowance for interest receivable on standard assets. The tribunal noted that the assessee followed the cash method of accounting and did not account for interest receivable on loans to members. The tribunal held that since the CIT(A) accepted the assessee as a cooperative society and not a banking cooperative society, the interest earned on loans to members should not be treated differently from other interest income received during the year. The tribunal relied on several judicial precedents, including the Karnataka High Court's decision in CIT Vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, which held that a cooperative society providing credit facilities to members and not registered with the RBI as a bank is entitled to exemption under Section 80P(2)(a)(i). 3. Applicability of the Supreme Court Judgment in Totgars Co-operative Sale Society Ltd Vs ITO: The assessee contended that the CIT(A) erred in following the Supreme Court's judgment in Totgars Co-operative Sale Society Ltd Vs ITO, which was not applicable to the facts of the case. The tribunal noted that the Supreme Court's decision was confined to the specific facts of that case, where the interest income was derived from short-term deposits of amounts retained from marketing agricultural produce. In the present case, the interest income was earned on loans given to members, not from short-term deposits. Therefore, the tribunal held that the Supreme Court's judgment in Totgars was not applicable to the assessee's case. 4. Deduction under Section 80P(2)(a)(i) on Excess Depreciation: The fourth ground raised by the assessee was regarding the deduction under Section 80P(2)(a)(i) on excess depreciation amounting to Rs. 41,578. However, the tribunal did not provide any specific findings or analysis on this issue, as it was not argued in detail by the assessee. 5. Deduction under Section 80P(2)(a)(i) on Provision Towards Gratuity: The fifth ground raised by the assessee was regarding the deduction under Section 80P(2)(a)(i) on provision towards gratuity amounting to Rs. 1,10,000. Similar to the fourth ground, the tribunal did not provide any specific findings or analysis on this issue, as it was not argued in detail by the assessee. Conclusion: The tribunal allowed the appeal filed by the assessee, holding that the interest income of Rs. 19,16,609 on standard assets, representing loans given to members, is eligible for deduction under Section 80P. The tribunal directed the AO to verify that the interest income was earned on loans to members and allowed the claim of the assessee subject to this verification. The appeal was pronounced in the open court on June 26, 2015.
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