2019 (5) TMI 1052 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest income earned on deposits with banks - HELD THAT - As decided in the assessee s own case for Assessment Years 2009-10 2019 (1) TMI 1564 - ITAT BANGALORE the assessee s claim for deduction under section 80P(2)(a) in respect of interest income earned from out of bank deposits is restored to the file of the AO for denovo adjudication after examining the facts in the light of the judgments in the case of The Totagars Cooperative Sale Society Ltd., 2010 (2) TMI 3 - SUPREME COURT and in the case of Tumkur Merchants Souharda Co-operative Ltd., 2015 (2) TMI 995 - KARNATAKA HIGH COURT - AO shall afford the assessee adequate opportunity of being heard and to file submissions / details required, which shall be duly considered before deciding the issue. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
- Disallowance of interest income earned by the appellant as income assessable under the head 'Income from other sources'
- Consideration of judgments of the Hon'ble High Court of Karnataka
- Applicability of the decision of the Hon'ble High Court of Karnataka in the case of Totagars Co-operatives Sale Society
- Arbitrariness and unreasonableness of the disallowance
- Confirmation of interest u/s.234B of the Act

Analysis:

Issue 1: Disallowance of Interest Income
The assessee, an AOP engaged in providing credit facilities/finance, filed its return for Assessment Year 2014-15 declaring NIL income after claiming a deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer disallowed the deduction, resulting in the determination of the assessee's income at the claimed amount. On appeal, the CIT(A) allowed partial relief to the assessee. The Tribunal noted that a similar issue was considered in the assessee's own case for previous assessment years, where the matter was set aside for de novo adjudication. Following the precedent, the Tribunal restored the claim for deduction under section 80P(2)(a)(i) to the file of the Assessing Officer for fresh consideration in light of relevant judicial pronouncements.

Issue 2: Consideration of High Court Judgments
The assessee contended that the CIT(A) erred in upholding the disallowance without considering the judgment of the Hon'ble High Court of Karnataka, which held that interest earned by credit co-operative societies on deposits with banks is attributable to business and eligible for deduction. The Tribunal acknowledged the relevance of the High Court's judgments and directed the Assessing Officer to re-examine the facts in light of these judicial decisions to ensure a fair and informed decision.

Issue 3: Applicability of Specific High Court Decision
The assessee argued that the CIT(A) incorrectly relied on a specific High Court decision, contending it was not directly applicable to their case. The Tribunal, after detailed consideration of the judgments cited by both parties, emphasized the need for a fresh assessment based on the specific facts and legal principles outlined in the relevant judicial decisions to determine the applicability to the present case.

Issue 4: Arbitrariness of Disallowance
The assessee raised concerns about the arbitrary and unreasonable nature of the disallowance, seeking its deletion entirely. The Tribunal, while not directly addressing the issue of arbitrariness, decided to allow the appeal for statistical purposes, indicating a need for a more thorough review of the disallowance in the reassessment process.

Issue 5: Confirmation of Interest u/s.234B of the Act
The assessee contested the confirmation of interest under section 234B of the Act. While the Tribunal did not provide a detailed analysis of this specific issue in the judgment, it allowed the appeal for statistical purposes, suggesting that the matter may require further examination during the reassessment process.

In conclusion, the Tribunal allowed the assessee's appeal for Assessment Year 2014-15 for statistical purposes, directing a fresh assessment by the Assessing Officer in consideration of the relevant legal precedents and specific facts of the case.