2022 (10) TMI 1045 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - addition in respect of collection from members @ 2.5% of the loan account which is attributable to the activity of the credit co-operative society of providing credit facilities to its members - HELD THAT - The provisions of section 80P(2)(a)(i) of the Act allows deduction to the amount earned from the profits and gains of business attributable to the business activity of the assessee, which in this case is providing credit facilities to its members. The interest rate charged @ 2.5% of the loan amount as development fund, this has been passed in the Resolution of the Board of Directors of the assessee, but as rightly submitted by the DR, the nature and characterization of the term development fund is not clear on record whether this fund is something which can be said to be attributable to the business activity of giving credit facilities to its members of the assessee or is it something outside the purview that has to be examined. In the interest of justice, therefore, set aside the order of NFAC and remand the matter to the file of the AO for adjudication as per law to conduct the detailed verification regarding interest of 2.5% of the loan amount taken as development fund by the assessee and whether it is attributable to the business activity of the assessee. That after examination of the facts and circumstances, if the AO finds that such calculation of the amount can be said as attributable to the business of the assessee, in such case, he shall allow deduction u/s 80P(2)(a)(i) of the Act. Needless to say, the AO shall provide reasonable opportunity of hearing to the assessee. Appeal of assessee is allowed for statistical purposes.

Summary

Issues:
1. Condonation of delay in filing appeal before the Tribunal.
2. Allowability of deduction u/s 80P(2)(a)(i) of the Income-tax Act, 1961 for interest collected from members @ 2.5% of the loan amount as development fund.

Issue 1: Condonation of Delay
The appeal involved a delay of 2 days in filing before the Tribunal. The Assessee filed a condonation petition citing circumstantial and unintentional delay, which was not objected to by the Departmental Representative (DR). The Judicial Member (JM) considered the reasons provided and condoned the delay, allowing the case to proceed on merits.

Issue 2: Allowability of Deduction u/s 80P(2)(a)(i)
The Assessing Officer (AO) disallowed a portion of the income received by the Assessee under the head 'Vikas Nidhi' for not aligning with the main objective of the society. The Assessee contended that the amount represented interest collected from members @ 2.5% of the loan, approved by a Board of Directors' Resolution. The National Faceless Appeal Centre (NFAC) upheld the addition, stating that only income directly related to providing credit facilities to members was eligible for deduction u/s 80P(2)(a)(i). The Assessee argued that the interest was part of a development fund and allowable under the Act. The Departmental Representative (DR) questioned the nature of the development fund and requested verification. The JM set aside the NFAC order, remanding the matter to the AO for detailed examination to determine if the interest amount was attributable to the business activity, emphasizing a fair hearing for the Assessee.

In conclusion, the Tribunal allowed the Assessee's appeal for statistical purposes, emphasizing the importance of verifying whether the interest amount charged as a development fund was genuinely attributable to the business activity, as required by section 80P(2)(a)(i) of the Income-tax Act, 1961.