2020 (3) TMI 44 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest earned as other income , in the light of introduction of RERA - HELD THAT - As decided in M/S. SINDHU CREDIT SOUHARDA SAHAKARI NIYAMITA 2019 (12) TMI 1277 - ITAT BANGALORE Assessee s claim regarding deduction u/s. 80P(2)(a)(i) cannot be rejected on this basis that assessee is a Souharda Sahakari and therefore, cannot be regarded as a co-operative society. But after holding so, set aside the order of CIT(A) and restore the matter back to the AO for fresh decision regarding allowability of deduction u/s. 80P(2)(a)(i) after examining other conditions for allowing such deduction because those conditions are not examined by the AO till now. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Classification of interest earned as "other income" in light of RERA.
2. Denial of deduction under section 80P(2)(d) of the Income Tax Act.
3. Protective addition based on pending SLP before the Supreme Court.
4. Eligibility of interest income from deposits in co-operative banks for deduction under section 80P(2)(d).

Detailed Analysis:

1. Classification of Interest Earned as "Other Income" in Light of RERA:
The assessee argued that the interest earned should not be classified as "other income" in light of the introduction of RERA. However, the Tribunal did not specifically address this issue in the judgment, focusing instead on the broader eligibility for deduction under section 80P(2)(d).

2. Denial of Deduction Under Section 80P(2)(d) of the Income Tax Act:
The primary contention was the denial of deduction under section 80P(2)(d) of the Act by the Assessing Officer (AO), which was upheld by the CIT(A). The AO's decision was based on the interpretation that interest earned from deposits with co-operative banks did not qualify for deduction under section 80P(2)(d) as co-operative banks were not considered co-operative societies. This interpretation was supported by the Karnataka High Court's decision in CIT v. Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha, which distinguished between co-operative banks and co-operative credit societies.

3. Protective Addition Based on Pending SLP Before the Supreme Court:
The AO added a sum of ?40,30,479 on a protective basis, referencing a Special Leave Petition (SLP) filed by the Department before the Supreme Court in the case of CIT vs. Shri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha. This protective addition was contested by the assessee, but the Tribunal did not provide a specific ruling on this protective addition in the judgment, focusing instead on the broader issue of eligibility for deduction under section 80P(2)(d).

4. Eligibility of Interest Income from Deposits in Co-operative Banks for Deduction Under Section 80P(2)(d):
The Tribunal referred to its previous decision in the case of M/s. Sindhu Credit Souharda Sahakari Niyamita v. ITO, which held that souharda co-operatives are a form of co-operative societies registered under state law. The Tribunal concluded that the denial of deduction under section 80P(2)(d) on the grounds that the assessee was a souharda sahakari and not a co-operative society was incorrect. The Tribunal remitted the matter back to the AO for fresh adjudication, instructing the AO to examine the fulfilment of other conditions for allowing the deduction under section 80P(2)(d).

Conclusion:
The Tribunal allowed the appeal for statistical purposes, remitting the matter back to the AO for fresh adjudication on the eligibility of the deduction under section 80P(2)(d), while also addressing the broader issue of whether souharda sahakaris can be considered co-operative societies for the purposes of section 80P(2)(d). The Tribunal's decision emphasized the need for the AO to examine other conditions for allowing the deduction, in line with the principles laid out in previous Tribunal decisions.