2021 (2) TMI 854 - AT - Income Tax

Deduction under 80P(2)(a)(i) - assessee is a cooperative society providing credit facilities to its members - HELD THAT - Since the Hon ble Supreme Court has settled many issues in the decision rendered by it in the case of Mavilayi Service Co-operative Bank Ltd. 2021 (1) TMI 488 - SUPREME COURT and since the facts prevailing in the instant case needs to be examined afresh in the light of the principles enunciated by Hon ble Supreme Court in the above said case, we are of the view that the issue of deduction u/s 80P(2)(a)(i) of the Act requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by Ld. CIT(A) on this issue in both the years under consideration and restore them to the file of the A.O. in both the years for examining it afresh as discussed above. Deduction claimed u/s 80P(2)(d) in respect of interest income earned from fixed deposits kept with bank - AO assessed the interest income received on bank deposits under the head Income from other sources and denied deduction claimed u/s 80P(2)(d) - HELD THAT - Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of proportionate cost, administrative expenses incurred in respect of such deposits. Accordingly, the Ld. A.R. prayed that the A.O. may be directed to allow deduction of proportionate cost, administrative and other expenses, if the A.O. proposes to assess the interest income earned from bank deposits as income under the head other sources . We find merit in the prayer of the assessee, since it is supported by the decision rendered by Hon ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd. Vs. ITO 2015 (4) TMI 829 - KARNATAKA HIGH COURT . Accordingly, we direct the A.O. to allow deduction of proportionate cost, administrative and other expenses, if the A.O. proposes to assess the interest income earned from bank deposits as income under the head other sources . Disallowance of provision for bad debts and provision for centenary fund - Admission of additional evidence - HELD THAT - We notice that the A.O. had made the above said disallowances in assessment year 2015-16, but the assessee had omitted to challenge the above said additions before Ld. CIT(A). Hence the assessee has raised the above said issues before us by way of additional grounds. We are of the view that both the above said issues require fresh consideration at the end of the A.O., since the main issues have been restored to the file of the A.O. and the decision taken on them may have impact on the above said two additions. Accordingly, we restore both the above said issues to the file of the A.O. for examining them afresh.

Summary

Issues:
1. Rejection of claim of deduction under 80P(2)(a)(i) of the Income-tax Act,1961.
2. Rejection of deduction claimed under 80P(2)(d) of the Act for interest income earned from fixed deposits kept with banks.
3. Disallowance of provision for bad debts and provision for centenary fund in assessment year 2015-16.

Analysis:

Issue 1:
The appellant, a cooperative society, claimed deduction under section 80P of the Income-tax Act in both the years under consideration. The Assessing Officer (A.O.) rejected the deduction under 80P(2)(a)(i) of the Act, stating that the appellant extended credit facilities to nominal members who were deemed as "non-members." The A.O. also denied the deduction based on the decision of the Hon'ble Supreme Court in a specific case. The appellant argued that the expression "Members" should be interpreted in the light of the concerned co-operative societies Act, as per the Supreme Court's ruling in another case. The Appellate Tribunal found merit in the argument and set aside the order of the Ld CIT(A), directing a fresh examination by the A.O. in both years.

Issue 2:
The next common issue was the rejection of deduction claimed under 80P(2)(d) of the Act for interest income earned from fixed deposits with banks. The A.O. assessed the interest income under the head "Income from other sources" and denied the deduction. The appellant contended that they were entitled to claim deduction under section 57 of the Act for administrative expenses. Citing a decision by the Hon'ble High Court of Karnataka, the Tribunal agreed with the appellant's submission and directed the A.O. to allow deduction for administrative and other expenses related to the interest income.

Issue 3:
In assessment year 2015-16, the A.O. disallowed provisions for bad debts and centenary fund, which the appellant challenged as additional grounds. As the main issues were being reconsidered by the A.O., the Tribunal deemed it necessary to restore these issues for fresh consideration as well, to assess their impact based on the outcome of the main issues. Consequently, both issues were restored to the A.O. for reevaluation.

In conclusion, the Appellate Tribunal allowed the appeals of the assessee for statistical purposes, emphasizing the need for a fresh examination of the issues related to deduction claims and additional provisions disallowed by the A.O. The Tribunal's decision aimed at ensuring a fair and comprehensive assessment in accordance with the relevant legal provisions and judicial precedents.