2018 (3) TMI 1616 - AT - Income Tax

Section 80P deduction - sums received in the nature of interest income derived from parking of surplus funds in the payer/co-operative banks - Held that - As decided in CIT vs. Sabarkantha District Cooperative Milk Producers Union Ltd. 2014 (6) TMI 977 - GUJARAT HIGH COURT declining Revenue s identical question of law challenging tribunal s decision allowing Section 80P deduction in respect of interest earned on fixed deposits with a cooperative bank in assessment year 2009-10 i.e. post Section 80P(4) amendment w.e.f. 01.04.2007 Considering Section 80(P)(2)(d) of the Act when the only requirement was that the income should be received from investment in Cooperative Societies and the Cooperative Bank which in the present case has been fulfilled it cannot be said that the learned Tribunal has committed any error in deleting disallowance under section 80(P)(2)(d) of the Act. - Decided in favour of assessee. Section 14A disallowance - Held that - Hon ble apex court s latest judgment in Maxopp Investment Ltd. vs. CIT 2018 (3) TMI 805 - SUPREME COURT OF INDIA settling the law that the impugned disallowance has to be made in case an assessee has derived any exempt income regardless of its purpose test. We thus accept Revenue s instant substantive ground in principle and direct the Assessing Officer to frame consequential computation as per law after affording adequate opportunity of hearing to the assessee.

Issues Involved:

1. Section 80P deduction eligibility for interest income from parking surplus funds in cooperative banks.
2. Disallowance of Section 80P(2)(a)(i) deduction.
3. Disallowance of Section 80P(2)(d) deduction.
4. Applicability of Section 80P(4).
5. Classification of Banas Bank as a cooperative society.
6. Section 14A disallowance in relation to dividend income.

Issue-Wise Detailed Analysis:

1. Section 80P Deduction Eligibility for Interest Income:
The primary issue across the appeals was the eligibility of Section 80P deduction for interest income derived from parking surplus funds in cooperative banks. The Tribunal treated the appeal ITA No. 1891/Ahd/2014 as the lead case. The CIT(A) had directed the Assessing Officer (AO) to verify whether any interest was received on short-term deposits and government securities, and to treat such income as "income from other sources" if affirmative. The Tribunal found no reason to interfere with CIT(A)’s directions and upheld this decision.

2. Disallowance of Section 80P(2)(a)(i) Deduction:
The assessee challenged the disallowance of ?6,65,683 out of its total claim of ?34,62,700 under Section 80P(2)(a)(i). The CIT(A) had quoted the Supreme Court decision in Totagars Co-operative Sale Society Ltd. vs. ITO (2010) and directed the AO to verify the nature of the income. The Tribunal upheld this approach, finding no distinction on facts or law, thereby declining the assessee’s second substantive ground.

3. Disallowance of Section 80P(2)(d) Deduction:
The Tribunal addressed the disallowance of ?27,97,019 in respect of interest income from deposits with Banas Co-operative Bank. The lower authorities had cited the legislative amendment via Finance Act, 2006, and CBDT’s explanatory notes, holding such income ineligible for deduction. However, the Tribunal followed the jurisdictional Gujarat High Court’s judgment in CIT vs. Sabarkantha District Cooperative Milk Producers Union Ltd., which allowed Section 80P deduction for interest earned on fixed deposits with a cooperative bank post the 2007 amendment. Consequently, the Tribunal deleted the impugned disallowance.

4. Applicability of Section 80P(4):
The Tribunal noted that the Revenue’s contention based on the Karnataka High Court’s decision in PCIT vs. Totagars Co-operative Sale Society and the Supreme Court’s decision in Citizen Co-operative Society Ltd. vs. ACIT did not align with the jurisdictional Gujarat High Court’s ruling. Therefore, the Tribunal adhered to the Gujarat High Court’s judgment, which was binding, and allowed the deduction.

5. Classification of Banas Bank as a Cooperative Society:
The Tribunal found that the CIT(A) had erred in stating that Banas Bank was not a cooperative society without corroborative evidence. The Tribunal concluded that the status of a cooperative bank as a cooperative society was established, and thus, the deduction under Section 80P(2)(d) was admissible.

6. Section 14A Disallowance in Relation to Dividend Income:
The Revenue’s cross appeal involved the disallowance of ?3,91,35,065 under Section 14A related to dividend income. The CIT(A) had deleted the disallowance, noting that the assessee had sufficient interest-free funds and had not used borrowed funds for investments. The Tribunal acknowledged the Revenue’s reliance on the Punjab & Haryana High Court’s judgment and the Supreme Court’s decision in Maxopp Investment Ltd. vs. CIT, which mandated disallowance when exempt income was derived. The Tribunal accepted the Revenue’s ground in principle and directed the AO to recompute the disallowance after providing the assessee an opportunity for a hearing.

Conclusion:
The Tribunal partly allowed the former assessee’s appeal ITA Nos. 1891/Ahd/2014, allowed its appeal ITA No. 2987/Ahd/2015, and the latter assessee’s appeal ITA No. 1090/Ahd/2015. The Revenue’s appeal ITA No. 1582/Ahd/2015 was allowed for statistical purposes.

← Previous Next →