2016 (11) TMI 1615 - AT - Income Tax

Benefit of deduction u/s 80P(2) - assessee is a primary agricultural credit society - HELD THAT - In the instant case, the assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The certificate, which has been issued by the Registrar of Cooperative Societies, to the above effect, is placed on record. CHIRAKKAL SERVICE CO-OPERATIVE BANK LTD. VERSUS THE COMMISSIONER OF INCOME TAX 2016 (4) TMI 826 - KERALA HIGH COURT held that primary agricultural credit societies registered under the Kerala Cooperative Societies Act, 1969 are entitled to the benefit of deduction u/s 80P(2)(i)(a) of the Act. Since there is a certificate issued by the Registrar of Cooperative Societies stating that the assessee is a primary agricultural credit society, we hold that the assessee is entitled to the benefit of deduction u/s 80P(2)(a). Granting deduction u/s 80P(2) for the addition made u/s 68 - HELD THAT - We notice that the Assessing Officer while making the addition u/s 68 of the Act had brought the same to tax under the head income from business . Once the same is brought to tax as income from business , the said income is entitled to the benefit of deduction u/s 80P(2)(i)(a) of the Act . See THE KARAD MERCHANT SAH. CREDIT 2011 (2) TMI 1543 - ITAT PUNE and BULDANA URBAN CO-OPERATIVE CREDIT SOCIETY LTD. 2013 (12) TMI 237 - ITAT NAGPUR The CBDT, in the recent circular no.37/2016 dated 2nd Nov 2016 has considered higher deduction u/s 80P on the enhanced profit as a result of disallowance of expenditure. The CBDT had clarified that, as a result of expenditure disallowance, there is a enhanced profit and the same is brought to tax as business income, deduction under Chapter VI-A need to be allowed on the enhanced profit. Thus we hold that the CIT(A) is justified in granting benefit of deduction u/s 80P(2)(i)(a) of the Act, as regard to addition u/s 68

Summary

Issues:
1. Allowance of deduction under section 80P(2)(a)(i) for unexplained cash credit assessed u/s 68 of the Act.
2. Entitlement of exemption under section 80P for a primary agricultural credit society.
3. Allowance of deduction u/s 80P for the addition made u/s 68 of the Act.

Issue 1: Allowance of deduction under section 80P(2)(a)(i) for unexplained cash credit assessed u/s 68 of the Act:
The Assessing Officer denied the deduction claimed under section 80P by the assessee, treating them as a primary cooperative bank instead of a primary agricultural credit society. An addition of ?2,96,19,669 was made u/s 68 of the IT Act due to incomplete details provided by the assessee regarding deposits. The CIT(A) upheld the addition under section 68 but allowed a deduction u/s 80P to the extent of the enhanced income. The Tribunal held that once income is taxed as 'income from business,' it is eligible for deduction u/s 80P(2)(i)(a) of the Act. The CBDT circular also supported allowing deductions on enhanced profits resulting from expenditure disallowance.

Issue 2: Entitlement of exemption under section 80P for a primary agricultural credit society:
The Hon'ble High Court, in the case of The Chirakkal Service Cooperative Bank Ltd, established that societies classified as primary agricultural credit societies under the Kerala Cooperative Societies Act, 1969, are entitled to the benefit of deduction u/s 80P(2). The court emphasized that the IT authorities cannot question the classification or objects approved under the State Law. As the assessee was certified as a primary agricultural credit society by the Registrar of Cooperative Societies, they were held entitled to the deduction u/s 80P(2)(i)(a) of the Act.

Issue 3: Allowance of deduction u/s 80P for the addition made u/s 68 of the Act:
The CIT(A) allowed a deduction u/s 80P for the addition made u/s 68 based on precedents where ITATs in Nagpur and Pune ruled in favor of the assessee in similar cases. The Tribunal also referred to a CBDT circular allowing deductions on enhanced profits resulting from expenditure disallowance. Consequently, the Tribunal upheld the CIT(A)'s decision to grant the benefit of deduction u/s 80P(2)(i)(a) for the addition made u/s 68 of the Act amounting to ?2,96,19,669.

In conclusion, the appeal filed by the revenue and the cross objection by the assessee were dismissed based on the above analysis and legal interpretations.