2017 (6) TMI 438 - AT - Income Tax

Deduction under section 80P - income by way of interest earned from its members on the loan advanced to them - Held 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). Since the CIT(A) decided the issue following the judgment of Hon ble jurisdictional High Court, find no infirmity therein - Decided against revenue

Summary

Issues:
1. Appeal against CIT(A)'s order.
2. Granting relief on interest earned from non-members under section 80P(2)(a)(i).
3. Distinction between cooperative societies and cooperative banks under section 80P(2)(a)(i).
4. Reversal of CIT(A)'s order and restoration of AO's order.
5. Necessity of further appeal based on legal and factual grounds.
6. Categorization of final decision by CIT.

Issue 1: Appeal against CIT(A)'s order
The revenue filed an appeal against the CIT(A)'s order, challenging the decision on the addition made on interest earned from non-members under section 80P(2)(a)(i). The revenue contended that the CIT(A) erred in granting relief to the assessee and deleting the additions made under section 80P(2)(a)(i) by relying on the decision of the Hon'ble High Court of Karnataka. The revenue highlighted that the CIT(A) did not discuss non-member transactions, and argued that the section only allows deduction for income earned from members. The revenue sought to reverse the CIT(A)'s order and restore that of the Assessing Officer (AO).

Issue 2: Granting relief on interest earned from non-members under section 80P(2)(a)(i)
The CIT(A) allowed the assessee's appeal on the issue of interest earned from non-members under section 80P(2)(a)(i). The CIT(A) based the decision on the judgment of the jurisdictional High Court, which held that income earned in the course of providing credit facilities to members is eligible for deduction under section 80P(2)(a)(i). The CIT(A) rejected the AO's disallowance of the deduction under section 80P, emphasizing that the assessee is a cooperative society providing credit facilities to its members. The CIT(A) found no defect in the order and confirmed the decision.

Issue 3: Distinction between cooperative societies and cooperative banks under section 80P(2)(a)(i)
The issue of whether cooperative societies are distinct from cooperative banks under section 80P(2)(a)(i) was raised. The CIT(A) held that the assessee, a cooperative society, is entitled to claim deduction under section 80P(2)(a)(i) for income derived from providing credit facilities to its members. The CIT(A) referred to various judgments, including that of the Hon'ble High Court, to support the decision. The CIT(A) concluded that the income earned by the assessee from providing credit facilities to members qualifies for the deduction under section 80P(2)(a)(i).

Issue 4: Reversal of CIT(A)'s order and restoration of AO's order
The revenue sought the reversal of the CIT(A)'s order and the restoration of the AO's order concerning the deduction under section 80P(2)(a)(i). The revenue argued that the CIT(A) erred in allowing the deduction for income earned from non-members, contrary to the provisions of the section. The revenue emphasized the need to adhere to the specific requirements of section 80P(2)(a)(i) and challenged the CIT(A)'s interpretation of the law.

Issue 5: Necessity of further appeal based on legal and factual grounds
The decision on whether to file a further appeal was based on legal and factual grounds. The revenue contended that the issue of deduction under section 80P(2)(a)(i) involved a question of law, especially regarding income earned from non-members. The revenue highlighted the need for a further appeal to clarify the application of the section and ensure compliance with the law. The decision to file a second appeal was deemed necessary to address the unresolved legal issues.

Issue 6: Categorization of final decision by CIT
The final decision by the CIT categorized the appeal as not to be filed based on the merits of the order and compliance with monetary limits. The decision emphasized that the CIT(A)'s order was acceptable on merits and aligned with legal interpretations. The categorization clarified the grounds for not filing an appeal and highlighted the considerations for determining the necessity of further legal action.

This judgment highlights the dispute over the deduction under section 80P(2)(a)(i) concerning income earned from non-members by a cooperative society. The CIT(A) allowed the deduction based on legal interpretations and judgments of the jurisdictional High Court, while the revenue sought to reverse the decision, citing non-compliance with the section's requirements. The necessity of a further appeal was emphasized to address the unresolved legal issues and clarify the application of the law. Ultimately, the appeal of the revenue was dismissed, upholding the CIT(A)'s decision on the deduction under section 80P(2)(a)(i).