2018 (4) TMI 1931 - AT - Income Tax

Exemption u/s 80P(2)(a)(vi) - interest earned on fixed deposits on accrual basis - CIT(A) had restricted the addition to 50% of interest earned on the ground that some fixed deposits were required to be kept by the assessee co-operative society being bank guarantee to procure the business - HELD THAT - Applying the principle laid down by the Tribunal in assessee s own case 2016 (12) TMI 297 - ITAT PUNE , which in turn, has been given effect to by the Assessing Officer in assessment year 2011-12 also, it is held that interest earned by the assessee on fixed deposits is entitled to deduction claimed under section 80P(2)(a)(vii) of the Act. Accordingly, the Assessing Officer is directed to allow the same. The grounds of appeal raised by the assessee are thus, allowed.

Summary

Issues Involved:
1. Claim of exemption u/s 80P(2)(a)(vi) of the Income-tax Act, 1961.
2. Treatment of interest income on fixed deposits as business income under section 80P(2)(a)(vii) of the Act.

Issue 1: Claim of exemption u/s 80P(2)(a)(vi) of the Income-tax Act, 1961:

The appeal was filed against the order of CIT(A) relating to the assessment year 2005-06 under section 143(3) r.w.s. 254 of the Income-tax Act, 1961. The assessee contended that the CIT(A) did not properly follow the directions of the Tribunal after remand in the case, leading to the failure to appreciate that the assessee was entitled to exemption u/s 80P(2)(a)(vi) of the Act. The Authorized Representative highlighted that the issue was covered by Tribunal orders in the assessee's own case in earlier years, where the Assessing Officer had accepted the claim of deduction under section 80P(2) of the Act. The Departmental Representative for the Revenue relied on the orders of the authorities below.

Issue 2: Treatment of interest income on fixed deposits as business income under section 80P(2)(a)(vii) of the Act:

The assessee, a Co-operative society engaged in the collective disposal of its members' labor, claimed deduction under section 80P(2)(a)(vii) of the Act for its activities and interest received on fixed deposits. The Assessing Officer allowed the claim for activities but denied it for interest earned on fixed deposits. The CIT(A) upheld the disallowance, restricting it to 50% of the interest earned due to the fixed deposits serving as bank guarantees for business purposes. The issue of disallowance on fixed deposits income had arisen in the Tribunal before in the assessee's case for earlier assessment years. The Tribunal directed the Assessing Officer to adjudicate in line with earlier directions, leading to the allowance of the deduction under section 80P(2)(a)(vii) of the Act on the entire interest on fixed deposits. The Tribunal held that the interest earned on fixed deposits was utilized for business purposes, entitling the assessee to the deduction claimed. Consequently, the grounds of appeal raised by the assessee were allowed, and the appeal was allowed in favor of the assessee.

In conclusion, the judgment addressed the issues of claiming exemption under section 80P(2)(a)(vi) of the Act and the treatment of interest income on fixed deposits as business income under section 80P(2)(a)(vii) of the Act. The Tribunal ruled in favor of the assessee, allowing the appeal and directing the Assessing Officer to allow the deduction claimed under section 80P(2)(a)(vii) of the Act for interest earned on fixed deposits utilized for business purposes.