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2021 (7) TMI 453 - AT - Income TaxDeduction u/s 80P(2) - income earned by the assessee from investment in SBI mutual fund - HELD THAT - AO in the assessment order itself, the assessee-society was carrying on business of banking and providing credit facilities to its members and also taking deposits from its farmer members. Therefore, accepting deposits on interest is one of the activities of the assessee-society. In the business of banking or credit facilities, not only accepting deposits but also investment of the deposits is also the part of the business activity of such an entity. To invest the deposits accepted from the members or the surplus funds available with it, is part of the banking/credit business of the assessee-society. Therefore, the investment of the surplus amount in the mutual funds by the assessee-society cannot be said to be not related to the business activity of the assessee-society. Therefore, the interest/dividend income earned by the assessee for such investment, in my view, will be eligible for deduction u/s 80P(2) - AO is directed to allow the deduction on the income earned by the assessee from investment in SBI mutual fund. Not allowing TDS - assessee has submitted that he mistakenly registered itself as local authority with the Income Tax department (PAN) and not as association of persons , therefore, the TDS amount claimed in the return of income has been denied to the assessee - HELD THAT - We are not convinced with the above observation of the CIT(A). If the assessee by mistake has wrongly registered itself under a wrong category that does not mean that the said mistake is not curable or that the assessee is to be punished for its bona fide mistakes. Therefore we restore this issue to the file of the Assessing Officer with a direction that an opportunity may be given to the assessee to cure the defects, if any, in its registration and thereafter, to allow to the assessee the eligible claims/TDS refund etc. if otherwise so admissible to the assessee under the provisions of the Income Tax Act.
Issues:
1. Denial of deduction under section 80P(2) for dividend income from SBI mutual fund. 2. Disallowance of TDS amounting to &8377; 2,19,211. Analysis: Issue 1: Denial of deduction under section 80P(2) for dividend income from SBI mutual fund - The assessee, a primary agricultural credit society, invested surplus funds in mutual funds and earned dividend income from SBI mutual fund. - The Assessing Officer disallowed the deduction claimed by the assessee under section 80P(2) of the Income Tax Act for the dividend income. - The CIT(A) upheld the disallowance stating that the dividend income was not generated from the business activity of the assessee. - The Tribunal noted that as per section 80P(2), income of a cooperative society engaged in banking or providing credit facilities to members is exempt from taxation. - Since the assessee was engaged in banking activities and investment of surplus funds is part of banking business, the dividend income from the mutual fund was held to be eligible for deduction under section 80P(2). - The Tribunal set aside the CIT(A) order and directed the Assessing Officer to allow the deduction for the income earned from the investment in SBI mutual fund. Issue 2: Disallowance of TDS amounting to &8377; 2,19,211 - The assessee claimed TDS amounting to &8377; 2,19,211, but the claim was denied as the assessee mistakenly registered as a 'local authority' instead of 'association of persons'. - The Assessing Officer did not discuss this issue in the assessment order, and it was raised for the first time before the CIT(A). - The CIT(A) declined to interfere, stating that no appellate remedy lies for the mistake made by the assessee in registration. - The Tribunal disagreed with the CIT(A) and held that the mistake in registration should not prevent the assessee from claiming eligible benefits. - The Tribunal directed the Assessing Officer to allow the assessee to rectify the registration category and avail the eligible claims and TDS refund under the Income Tax Act. - The appeal of the assessee was treated as allowed for statistical purposes, and the appeal was allowed accordingly. In conclusion, the Tribunal allowed the appeal of the assessee on both issues, directing the Assessing Officer to allow the deduction for dividend income and permit the rectification of registration category for claiming TDS benefits.
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