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2023 (12) TMI 970 - AT - Income TaxEligibility for deduction u/s 80P(2)(a)(i)/80P(2)(d) - interest income received - income of cooperative society engaged in carrying on the business of banking and providing credit facilities to its members - assessee is primary agricultural cooperative society - CIT(A) allowed deduction u/s 80P(2)(a)(i) and no deduction has been allowed u/s 80P(2)(d) on the interest/dividend income earned by the assessee on the investments made with the cooperative banks/scheduled banks - HELD THAT - Assessee has received interest/dividend from cooperative societies and interest and dividend from cooperative banks - As per sec. 80P(2)(d) if the assessee has received interest/dividends from the cooperative society from its investments with any other cooperative society, the assessee is eligible for deduction, since, in this case the assessee had submitted statement of facts before the CIT(A) but the interest/dividend from cooperative society received by the assessee was not considered and examined. During the course of assessment proceedings, the assessee has also not brought into notice of the AO, therefore, for the limited purpose for determining the source issue is remitted back to the AO and if it is found that these income satisfies the requirement of sec. 80P(2)(d) of the Act, then it has to be allowed. Accordingly, this issue is remitted back for the verification to the AO and the assessee has to show the necessary proof of evidence for substantiating its case. We further note from the statement of facts that the assessee has received interest and dividend, from the cooperative banks. If the AO finds otherwise, the AO shall follow the judgment of Totgars Co-operative Sales Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT accordingly the assessee will not be eligible for deduction u/s 80P(2)(d) on such interest income received after giving necessary cost for earning interest income. The AO is directed to give reasonable opportunity of being heard to the assessee. The assessee is also directed to produce necessary documents for sustaining its case and avoid to unnecessary adjournments for early disposal of the case. Deduction u/s 80P(2)(a)(i) - deposits in the bank account in view of the interest received on deposits - As assessee has submitted detailed written submissions vide letter dated 25/11/2019, which has been incorporated by the AO at para No.7.4, in which it has been stated that as per Karnataka Cooperative Society Rules 1960 and the orders passed by the Registrar of Co-operative Society it is mandatory for cooperative societies to maintain as specified percentage of deposits received from the members in savings bank account and also to maintain specified percentage of such deposits as investments/deposits in banks and he has also relied on other rules, therefore, the amount has been deposited in the bank account in view of the interest received on such deposits should be treated as attributable to the business income of the assessee and allowed deduction on such interest u/s 80P(2)(a)(i). This argument of the ld. AR of the assessee is not acceptable because the interest income received by the assessee is not from the activity of carrying on the business of banking or providing credit facilities to its members as per section 80P(2)(a)(i) Disallowance under various heads towards provisions made in the profit and loss account - Since, we have noted that the assessee has been allowed deduction by the CIT(A) u/s 80P(2)(a)(i) of the Act on the profits earned from the business of the assessee. The ld.AR of the assessee relied on Circular/notification No.37/2016 dated 02/11/2016 for any disallowance made under the profit and loss account of business or profession and if the assessee is eligible for deduction under Chapter IVA, then the deduction should be allowable as per the eligibility of the Chapter VIA of the I. T. Act. However, the ld.AR of the assessee could not establish before us that these provisions made were out of the business profit earned by the assessee during the year, therefore, this issue is also remitted back to the AO for verification that the provisions made by the assessee are part of the business profit of the current year or not. If it is found in order then the assessee is to be given benefit of the Circular cited supra. Accordingly this issue is allowed for statistical purpose.
Issues Involved:
1. Deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961 2. Taxability of Interest Income 3. Disallowance of Provisions Summary of Judgment: Issue 1: Deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961 The assessee, a primary agricultural cooperative society, claimed deductions under Section 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961. The AO disallowed these deductions, noting that the interest/dividend income earned from investments in cooperative banks and scheduled banks should be taxed under the head 'income from other sources' and not 'business income.' The CIT(A) partially allowed the deduction under Section 80P(2)(a)(i) but denied it under Section 80P(2)(d). The ITAT remitted the issue back to the AO for verification, directing that if the interest/dividend income satisfies the requirements of Section 80P(2)(d), it should be allowed. The AO was also instructed to verify whether the cooperative bank falls within the definition of 'banking company' as per the Banking Regulation Act, 1949. Issue 2: Taxability of Interest Income The AO observed that the assessee received interest/dividend from investments in scheduled banks and cooperative banks, which should be taxed as 'income from other sources.' The ITAT directed the AO to verify the nature of the interest income and determine if it falls under Section 80P(2)(d) of the Act. If the interest is from cooperative banks that do not require a license under the Banking Regulation Act, 1949, the assessee is eligible for the deduction. Otherwise, the AO should follow the jurisdictional High Court's decision and deny the deduction. Issue 3: Disallowance of Provisions The AO disallowed provisions made for NPA, staff leave encashment, and interest subsidy, totaling Rs. 21,34,129/-, as they were not considered actual expenditures. The ITAT remitted this issue back to the AO for verification, directing that if the provisions are part of the business profit of the current year, the assessee should be given the benefit of the Circular/Notification No.37/2016 dated 02/11/2016. Conclusion: The appeal filed by the assessee was allowed for statistical purposes, with the ITAT directing the AO to carry out necessary verifications and provide reasonable opportunities for the assessee to substantiate its claims.
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