2021 (2) TMI 578 - AT - Income Tax

Disallowance of deduction u/s. 80P(2)(d) - adjustment done to the returned income filed by the appellant without giving any intimation for making any adjustments either in writing or in electronic mode as per the provisions of Section 143(1)(a) - CIT(A) rejected the contention regarding disallowance made u/s. 80P(2)(d) being interest receipt from cooperative bank - HELD THAT - The adjustment done by denial of deduction u/s. 80P(2)(d) and 80P(2)(c)(ii) in this case does not fall in any of the above. That a cooperative society will not get exemption on the interest earned on deposits in cooperative bank is not something which is a subject matter of adjustment under section 143(1)(a) - despite noting that there are tribunal decisions in favour of assessee, the learned CIT(A) has chosen not to follow the same by referring to some other decisions.Further find that learned CIT(A) has completely erred in treating the assessee as cooperative bank and invoking the provisions of section 80P(4). Honourable Supreme Court in the case of Citizen Cooperative Society Ltd. 2017 (8) TMI 536 - SUPREME COURT has settled the law that for being considered as a cooperative bank licence from RBI in this regard is a sine qua non. In absence of the RBI licence as such the assessee cannot be treated as cooperative bank. Hence disallowing the deduction by referring to the provisions of section 80P(4) is completely unsustainable. Moreover section 80P(2)(d) provides exemption to interest earned on fixed deposit in cooperative societies. It is nobody's case that cooperative bank are not cooperative societies. Hence on merits also the order of learned CIT(A) denying the deduction u/s. 80P(2)(d) is not sustainable. As regards the statutory deduction u/s. 80P(2)(c)(ii) of the Act, there is no reason why the same should be denied. Moreover, the said adjustment is not falling in any of the adjustment permitted by 143(1)(a) of the Act. Hence, assessee's claim of deduction u/s. 80P(2)(c)(ii) has also been wrongly denied in the processing done u/s. 143(1)(a) of the Act. The learned CIT(A) has failed to decide the same despite assessee's ground in this regard. The same is directed to be allowed in favour of assessee.

Summary

Issues involved:
1. Denial of deduction under section 80P(2)(d) by the Commissioner of Income Tax (Appeals).
2. Failure to adjudicate the denial of deduction under section 80P(2)(c)(ii) by the Commissioner of Income Tax (Appeals).

Issue 1: Denial of deduction under section 80P(2)(d)
The appellant, a cooperative housing society, filed a return of income claiming deductions under sections 80P(2)(d) and 80P(2)(c)(ii). The Centralized Processing Centre, Bengaluru, processed the return under section 143(1) of the Income Tax Act, denying the claimed deductions. The Commissioner of Income Tax (Appeals) upheld the denial of deduction under section 80P(2)(d) for interest income earned from cooperative banks. The Commissioner cited the decision of the Karnataka High Court and disallowed the claimed deduction. However, the Appellate Tribunal found the denial of deduction unjustified. The Tribunal highlighted that the appellant was not a cooperative bank as defined under section 80P(4) and referred to the Supreme Court's ruling emphasizing the liberal interpretation of section 80P to promote the cooperative sector. The Tribunal set aside the Commissioner's order and allowed the deduction under section 80P(2)(d).

Issue 2: Failure to adjudicate the denial of deduction under section 80P(2)(c)(ii)
The Commissioner of Income Tax (Appeals) did not address the denial of deduction under section 80P(2)(c)(ii) amounting to ?50,000. The Appellate Tribunal noted that this denial was also unjustified and not falling under the adjustments permitted by section 143(1)(a) of the Act. Despite the appellant's ground for this deduction, the Commissioner failed to provide a decision. The Tribunal directed the allowance of the deduction under section 80P(2)(c)(ii) in favor of the appellant.

In conclusion, the Appellate Tribunal allowed the appeal filed by the appellant, setting aside the Commissioner's order and deciding both issues in favor of the appellant. The Tribunal emphasized the liberal interpretation of section 80P to support the growth of the cooperative sector and highlighted the incorrect denial of deductions under sections 80P(2)(d) and 80P(2)(c)(ii) by the authorities.