2021 (12) TMI 405 - AT - Income Tax

Deduction u/s 80P - profits and gains attributable to non-members arising as a result of advancement of loans - assessee's (cooperative societies) engaged in the providing credit facilities to the non-members along with its members - HELD THAT - As decided in case THE MAVILAYI SERVICE COOPERATIVE BANK LTD. ORS. 2021 (1) TMI 488 - SUPREME COURT absolute denial of deduction under Section 80P(2)(a)(i) of the Act to the assessee's (cooperative societies) engaged in the providing credit facilities to the non-members along with its members is not warranted under the Act and only that part of profit and gains that is attributable and/or pertains to the non-members shall not be allowed as deduction under Section 80P(2)(a)(i). Thus, the profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. - Appeal of the assessee is dismissed.

Summary

Issues:
Appeal against CIT(A)'s order confirming addition of ?16,80,845 as interest income; Interpretation of Section 80P for cooperative societies; Deduction eligibility for interest income from nationalized banks; Comparison with judgments of Gujarat High Court and Supreme Court.

Analysis:
1. The appellant, a Co-operative Society, appealed against the CIT(A)'s order confirming the addition of ?16,80,845 as interest income for Assessment Year 2016-17. The Assessing Officer disallowed the claim of exemption under Section 80P for interest income earned from banks, stating it does not qualify for deduction.

2. The CIT(A) partly confirmed the disallowance, relying on the Gujarat High Court judgment in State Bank of India vs. CIT. The CIT(A) differentiated between interest income from Co-operative Bank (allowed under Section 80P(2)(d)) and nationalized banks (not eligible under Section 80P(2)). The appellant argued citing Jafari Momin Vikas Co.op. Credit Society Limited case, but the CIT(A) upheld the disallowance based on the Gujarat HC judgment.

3. The appellant referred to the Supreme Court's judgment in Mavilayi Service Cooperative Bank Ltd vs. CIT, asserting entitlement to deduction for interest income from nationalized banks. However, the Tribunal found the CIT(A)'s decision aligned with the Gujarat HC ruling. The Supreme Court judgment clarified that deduction under Section 80P(2)(a)(i) is available, but profits from loans to non-members are not deductible.

4. The Tribunal dismissed the appeal, affirming the CIT(A)'s order and rejecting the appellant's arguments. It held that denial of deduction for profits attributable to loans to non-members is justified under Section 80P(2)(a)(i). The Tribunal's decision was based on the Gujarat HC precedent and the Supreme Court's interpretation of Section 80P(2). The appeal was thus dismissed on 2nd December 2021 in Ahmedabad.