2019 (7) TMI 1731 - AT - Income Tax

Entitled for deduction u/s 80P on account of addition u/s. 68 - HELD THAT - Since the assessee s business is to accept deposits and lend advance inter alia with other activities, we are inclined to hold that income resulting on account of addition made u/s. 68 cannot be considered as income derived from business though it is income of the assessee. Even if the addition is made u/s. 68, it does not necessarily follow that such credit represents business income of the assessee as a general practice unless there is clear evidence that it represents business receipts. In the present case, it relates to granting of deduction with regard to profit/grain derived from business and unless it is proved that it is from business, deduction u/s. 80P cannot be granted. The contention of the assessee is not acceptable in view of the clear provisions of section 80P of the Act and the impugned additions cannot be said to be business receipts. Merely because the assessee is running a business in which are found certain unexplained cash credits, it does not necessarily follow that such credits represent suppressed business receipts and there would be no error of law in regarding the unexplained cash credits as income of the assessee from some independent and unknown sources unless there are strong reasons for connecting the unexplained cash credits with known sources of income of the assessee, there would be no alternative to treating them as income from other sources. Reliance is also placed on the judgment of Deviprasad Viswanath Prasad 1968 (8) TMI 5 - SUPREME COURT wherein it was held that when the assessee pleads that the impugned cash credits came out of suppressed profit, it is for him to prove that it is so. If these receipts are allowed by treating as business receipts, then the assessee will be entitled to set off of business expenditure against these receipts which is not permissible. The assessee's business is to accept deposits and lend advance inter alia with other activities. Being so, we are inclined to hold that the assessee is not entitled for deduction under section 80P of the Act on account of addition u/s. 68 of the Act. Thus, this ground of appeal of the assessee is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Entitlement of deduction under Section 80P for interest earned from deposits.
2. Estimation of income as unexplained income taxable under Section 68.
3. Levy of interest under Sections 234A and 234B.

Detailed Analysis:

1. Entitlement of Deduction under Section 80P for Interest Earned from Deposits:
The primary issue was whether the interest income earned by the assessee from deposits with district co-operative banks qualifies for deduction under Section 80P of the Income Tax Act. The Assessing Officer (AO) treated the interest income of ?23,83,514 as "income from other sources," relying on the Supreme Court judgment in Totgar's Co-operative Sales Society Ltd vs ITO, which held that interest earned from surplus funds invested in short-term deposits does not qualify for deduction under Section 80P(2)(a)(i). The CIT(A) upheld this view, stating that the interest income from district co-operative banks is not operational income but other income, thus not eligible for deduction under Section 80P(2)(d) either. The Tribunal, however, referred to a co-ordinate bench decision in Kizhathadiyoor Co-operative Bank Limited vs. ITO, which held that such interest income should be assessed as "income from business" instead of "income from other sources." The Tribunal remitted the issue back to the AO to examine the actual activities of the assessee and grant deduction under Section 80P(2)(i)(a) accordingly.

2. Estimation of Income as Unexplained Income Taxable under Section 68:
The AO noticed an increase in fixed deposits received in cash amounting to ?2,95,51,858 and treated it as unexplained cash credits under Section 68 due to the assessee's failure to furnish details of the depositors. The CIT(A) confirmed the addition, stating that the assessee did not discharge the burden of proving the identity, genuineness, and creditworthiness of the depositors. The Tribunal held that while the assessee, being a Co-operative Society, need not prove the creditworthiness and genuineness of the deposits, it must prove the identity of the depositors by furnishing proof of address and PAN details. The issue was remitted to the AO for fresh consideration with a direction to the assessee to furnish the identity of the depositors. The Tribunal also clarified that the addition made under Section 68 cannot be considered as business income for deduction under Section 80P.

3. Levy of Interest under Sections 234A and 234B:
The assessee challenged the levy of interest under Sections 234A and 234B as unsustainable. However, the Tribunal did not provide a detailed analysis or separate ruling on this issue, implying that the primary focus was on the main grounds of appeal related to Sections 80P and 68.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal remitting the issues related to Sections 80P and 68 back to the AO for fresh consideration. The Stay Petition was dismissed as infructuous.