2019 (2) TMI 518 - AT - Income Tax

Deduction u/s 80P - Held that - Hon ble High Court of Kerala has categorically held in assessee s own case for the assessment year 2007-08 2011 (2) TMI 1422 - ITAT COCHIN that the assessee is not a primary agricultural credit society and it is a co-operative bank. The Hon ble High Court further held that the assessee is not entitled to deduction u/s 80P(2) of the Act, in view of introduction of section 80P(4) with effect from 01.04.2007. Staff Retirement Benefit Fund - as submitted that when the employees withdraw the amount from such fund, to the extent of withdrawals, it should be allowed as deduction u/s. 37(1) - Held that - We notice that for the assessment year 2009-10 the assessee has accepted the CIT(A) s order and no further appeal was preferred to the Tribunal. The assessee s contention that to the extent of withdrawals made by the employees from unrecognized provident fund should be allowed as deduction u/s. 37 was never raised before any of the authorities below nor the assessee was able to prove fresh facts are not required to be examined. Hence, this plea of the assessee is rejected. Therefore, the order of the CIT(A) on this issue is confirmed. TDS u/s 195 - Disallowance of expenditure for non-deduction of TDS of commission to PCARDB - Held that - The assessee having failed to deduct tax at source, the commission payment was rightly disallowed as per the provisions of section 40(a)(ia). In the interest of justice and equity, we are of the view that the assessee should be given an opportunity to prove that the deductees / payees have duly paid the tax on receipt of commission. The matter is restored to the AO. The assessee shall produce such proof as mandated by second proviso to section 40(a)(ia) read with 1st proviso to section 201 to prove that payees have duly paid taxes on the commission received by it from assessee. If the assessee is able to prove that the deductees / payees paid the tax on the commission that it had received from the assessee, such commission expenses shall not be disallowed.

Summary

Issues Involved:
1. Disallowance of deduction claimed under section 80P(2)(a)(i).
2. Disallowance of contribution to Staff Retirement Benefit Fund.
3. Disallowance of commission payment under section 40(a)(ia) for non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(a)(i):
The assessee claimed deductions under section 80P(2)(a)(i) for the assessment years 2012-2013 and 2014-2015. The Assessing Officer disallowed these claims, referencing a prior judgment by the Kerala High Court in the assessee's own case, which held that the assessee is a "co-operative bank" and thus not eligible for the deduction under section 80P(4). The CIT(A) upheld this disallowance. The Tribunal also affirmed the CIT(A)’s decision, referencing the Kerala High Court's judgment that the assessee is not a primary agricultural credit society and falls under the definition of a "co-operative bank" as per the Banking Regulation Act, 1949. Consequently, the Tribunal rejected the grounds related to the disallowance of deduction under section 80P(2)(a)(i).

2. Disallowance of Contribution to Staff Retirement Benefit Fund:
The assessee contributed to a Staff Retirement Benefit Fund, which was disallowed by the Assessing Officer under section 40A(9) read with section 36(1)(v) of the Act. The CIT(A) confirmed this disallowance, citing a decision by the ITAT, Cochin in the assessee’s case for previous assessment years, which held that the fund was neither a recognized provident fund nor an approved gratuity fund as required by sections 36(1)(iv) and 36(1)(v). The Tribunal upheld the CIT(A)’s decision, noting that the assessee did not raise any new facts or arguments that would warrant a different outcome. Thus, the disallowance was confirmed.

3. Disallowance of Commission Payment under Section 40(a)(ia):
For the assessment year 2014-2015, the assessee paid commission to PCARDB for mobilizing deposits but did not deduct tax at source. The Assessing Officer disallowed the commission payment under section 40(a)(ia) due to the failure to deduct TDS. The CIT(A) upheld this disallowance, stating that the payment was covered by the provisions of section 194H. The Tribunal agreed with the CIT(A) but allowed the assessee an opportunity to prove that the payees had paid the requisite tax on the commission received. The matter was remitted to the Assessing Officer to verify if the payees had paid the tax, in which case the disallowance would be reversed.

Separate Judgments:
- ITA No.566/Coch/2018: The appeal was dismissed.
- ITA No.567/Coch/2018: The appeal was partly allowed, permitting the assessee to provide proof of tax payment by the payees.
- Stay Applications: Dismissed as infructuous.

Conclusion:
The Tribunal upheld the disallowance of deductions under section 80P(2)(a)(i) and contributions to the Staff Retirement Benefit Fund. However, it provided the assessee an opportunity to prove that the payees had paid tax on the commission, potentially reversing the disallowance under section 40(a)(ia).