2017 (5) TMI 1399 - AT - Income Tax

Addition on account of Interest earned from Non-members of the Society U/s 80P(2)(a)(i) - Held that - We find that the assessee is a cooperative society registered under cooperative societies Act which claimed deduction under section 80P on an income by way of interest earned from its members on the loan advanced to them. The AO denied the deduction under section 80P(2)(a)(i) of the Act claimed by the assessee on the ground that the assessee is engaged in banking activities. But the CIT(A) re-examined the claim of the assessee and was of the view that the assessee s income earned in the course of providing credit facilities to its members is eligible for deduction under section 80P(2)(a)(i) of the Act. During the course of hearing, the learned DR could not specifically point out any specific defect in the order of the CIT(A). See Tumkur Merchants Souharda Credit Cooperative Ltd., vs ITO, 2015 (2) TMI 995 - KARNATAKA HIGH COURT - Decided against revenue

Summary

Issues Involved:
1. Appeal against CIT(A) order on grounds of law and facts.
2. Granting relief to assessee on interest earned from non-members under section 80P(2)(a)(i).
3. Distinction between Cooperative Societies and Cooperative Banks for deduction under section 80P(2)(a)(i).
4. CIT(A) decision to delete additions under section 80P(2)(a)(i).
5. Need for further appeal based on legal issues and non-member transactions.
6. Appeal grounds raised before ITAT.
7. Categorization of final decision by CIT.

Analysis:

1. Appeal against CIT(A) Order:
The appeal was filed by the revenue against the CIT(A) order, challenging its validity based on law and facts. The CIT(A) had granted relief to the assessee on the addition made on interest earned from non-members under section 80P(2)(a)(i) of the Income-tax Act, 1961.

2. Interest Earned from Non-Members:
The issue revolved around whether the CIT(A) was correct in granting relief to the assessee on the interest earned from non-members of the society under section 80P(2)(a)(i). The CIT(A) had relied on legal precedents and held that the assessee, a Co-op Society, was entitled to claim deduction under this section for income derived from providing credit facilities to its members.

3. Distinction between Cooperative Societies and Banks:
The CIT(A) had erred in deleting the additions made under section 80P(2)(a)(i) by distinguishing between Cooperative Societies and Cooperative Banks. The CIT(A) concluded that the deduction under this section applied to both Cooperative Societies and Cooperative Banks, leading to a need for further appeal based on legal grounds and pending cases in the Supreme Court.

4. Deletions under Section 80P(2)(a)(i):
The CIT(A) had deleted the additions made under section 80P(2)(a)(i) based on interpretations of legal provisions and judgments of High Courts. The decision was made after considering the nature of the assessee's activities and the income earned in the course of providing credit facilities to its members.

5. Need for Further Appeal:
The need for a further appeal was emphasized due to legal complexities and the involvement of non-member transactions. The CIT(A) was criticized for not addressing the issue of transactions with non-members adequately, leading to a recommendation for a second appeal to ensure a logical conclusion to the matter.

6. Appeal Grounds Before ITAT:
The grounds of appeal raised before the ITAT included challenging the CIT(A) order, questioning the relief granted on interest earned from non-members, and seeking a reversal of the CIT(A) decision to restore that of the Assessing Officer.

7. Final Decision Categorization by CIT:
The final decision categorization by the CIT involved considerations on whether to file an appeal based on the merits of the order and the tax effect. The decision-making process was outlined to determine whether the order was acceptable on merits or required further appeal based on legal grounds and exceptions specified in CBDT instructions.

In conclusion, the ITAT upheld the CIT(A) decision, confirming the relief granted to the assessee and dismissing the revenue's appeal. The judgment was pronounced on 26th May 2017, highlighting the importance of legal interpretations and precedents in tax matters.