2013 (5) TMI 1010 - AT - Income Tax

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Entitlement to deduction u/s 80P of the Income-tax Act, 1961.
3. Validity of the CIT's exercise of power u/s 263 of the Act.
4. Alternative claim for deduction u/s 57(iii) of the Act.

Summary:

1. Delay in filing the appeal:
The assessee filed the appeal with a delay of 14 days, justified by the Chairman's affidavit citing personal reasons. The Tribunal condoned the delay, considering it a reasonable cause.

2. Entitlement to deduction u/s 80P of the Income-tax Act, 1961:
The assessee, a credit co-operative society, claimed a deduction of Rs. 5,94,879 u/s 80P, which included Rs. 2,43,342 as interest earned from bank deposits. The AO initially denied this deduction, treating the interest as taxable under "Income from Other Sources" u/s 56, following the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. vs. ITO. However, upon revision u/s 264, the AO allowed the deduction u/s 80P(2)(a)(i), considering the society's activities and the nature of transactions.

3. Validity of the CIT's exercise of power u/s 263 of the Act:
The CIT invoked u/s 263, deeming the AO's order erroneous and prejudicial to the revenue, as it failed to apply the Supreme Court's decision in Totgars. The Tribunal upheld the CIT's action, stating that the interest income from bank deposits did not have a direct nexus with the society's business of providing credit facilities to its members. The Tribunal emphasized that the AO's view was unsustainable in light of the Supreme Court's ruling.

4. Alternative claim for deduction u/s 57(iii) of the Act:
The assessee's alternative claim for deduction of interest paid to depositors u/s 57(iii) was rejected. The Tribunal held that the deposits collected from members were for providing credit, not for earning interest from bank deposits. Thus, the interest income was independent of the deposits collected, and the claim could not be accepted.

Conclusion:
The Tribunal dismissed the appeal, affirming the CIT's order u/s 263 and rejecting the alternative claim for deduction u/s 57(iii). The decision was pronounced in the open court on May 10, 2013.