2023 (2) TMI 918 - AT - Income Tax

Deduction u/s 80P(2)(d) - interest received by the co-operative society from co-operative bank - HELD THAT - The view taken was that the interest received by the co-operative society from co-operative bank is eligible for deduction u/s 80P(2)(d) - assessee in that case was also a sugar co-operative society like that of the present assessee. DR before us could not bring any evidences/documents supporting Revenue contrary to the facts existing on record. Therefore, on the same parity of reasoning, the relief granted already to the assessee on this issue is sustained. Ground No.1 of Revenue is dismissed. Disallowance of ceremony expenses - AO had disallowed ceremonial expenditure on the ground that it is not related to the business purpose of the assessee or exclusively for commercial expediency in functioning of the assessee s business - HELD THAT - These functions give a moral boost to the working efficiency of the employees. At the same time, they cannot be expected to contribute for these functions. The expenses for the ceremony and functions are borne by the assessee and in so much as they are intrinsically weaved within the basic functioning of the assessee's business, hence should be allowable as business expenses. CIT(A) of his order while providing relief on this issue to the assessee directed the AO to delete the addition stating that such kind of functions create harmony amongst the workers and management. These ceremonies are required to be performed on account of tradition and to certain extent as compulsion since these functions are followed in every sugar factory. The expenses have to come from the account of assessee only. It cannot be expected to be collected from the employees. These expenses take the colour and character of business expenses. We are in conformity with the finding of learned CIT(A) and the same is upheld. Ground of Revenue is dismissed.

Summary

Issues:
1. Deduction u/s 80P(2)(d) of the Income-tax Act, 1961.
2. Disallowance of ceremony expenses.

Analysis:

Issue 1: Deduction u/s 80P(2)(d) of the Income-tax Act, 1961:
The appeal by the Revenue challenges the relief granted to the assessee by the CIT(A) regarding the deduction u/s 80P(2)(d) of the Act. The Tribunal referred to a previous decision for assessment year 2013-14 where it was held that interest income derived by a co-operative society from investments with another co-operative society is eligible for deduction under Sec. 80P(2)(d). The Tribunal emphasized that as long as the interest income is derived from investments made with another co-operative society, the deduction under Sec. 80P(2)(d) is applicable. The Tribunal also clarified that despite the insertion of sub-section (4) to Sec. 80P, co-operative banks registered under the Co-operative Societies Act are considered co-operative societies, making interest income from investments with them eligible for deduction under Sec. 80P(2)(d). The CIT(A) relied on a similar judgment to provide relief to the assessee, sustaining the deduction for interest and dividend income earned from a co-operative bank. The Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.

Issue 2: Disallowance of ceremony expenses:
The Revenue contended that the CIT(A) erred in allowing relief to the assessee regarding the disallowance of ceremony expenses. The Assessing Officer had disallowed these expenses, claiming they were not related to the business purpose or exclusively for commercial expediency. However, the assessee argued that these expenses were essential for the welfare of the factory workers and contributed to their morale and efficiency. The CIT(A) agreed, stating that such functions create harmony among workers and management, and are necessary due to tradition and industry norms. The expenses were deemed to be intrinsic to the basic functioning of the business and were allowed as business expenses. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal on this issue.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the relief granted to the assessee on both issues. The judgment clarified the eligibility of deduction u/s 80P(2)(d) for interest income from investments with co-operative societies and affirmed the allowability of ceremony expenses as business expenses essential for maintaining harmony and tradition within the industry.