2024 (2) TMI 329 - AT - Income Tax

Enhanced profit as eligible for deduction u/s 80P(2) - While the NFAC fully granted the deduction claimed u/s 80P(2)(a)(i) of the Act, it did not accord approval to the assessee s claims pertaining to provisions for interest, NPA, Employee Retirement benefits, and leave encashment - assessee contended that the said interest provision is in line with accounting policies as per the Karnataka Co-operative Societies Act and even assuming that the interest provision is to be added back to the profits of the assessee, such enhanced profits should be subjected to deduction u/s 80P(2)(a)(i) HELD THAT - The issue is squarely covered in favour of the assessee in view of the decision of the coordinate Bench of this Tribunal in case of Sharavathi Pathina Sahakara Sangha Niyamitha 2022 (8) TMI 292 - ITAT BANGALORE , wherein deduction u/s 80P(2)(a)i) of the Act on the income derived by the assessee from providing credit facilities to its members as enhanced by the sum disallowed u/s 40(a)(ia) of the Act was quashed and necessary relief to the assessee was directed. We do not find any reason to devoid from the stand taken by the Co-ordinate Bench on the identical issue itself and therefore, respectfully relaying upon the same, we allow this appeal preferred by the assessee by directing the ld. AO to grant relief on the enhanced profit as eligible for deduction u/s 80P(2) of the Act.

Summary

Issues Involved:

1. Incorrect additions of expenditures.
2. Applicability of deduction under Section 80P on enhanced profits.

Summary:

Issue 1: Incorrect Additions of Expenditures

The learned NFAC erred in treating certain expenditures as falling within the ambit of Section 43B, thereby disallowing their deduction merely based on the timing of the payment and not considering their inherent nature related to the appellant's activities. However, this ground was not pressed at the time of hearing and was dismissed as not pressed.

Issue 2: Applicability of Deduction under Section 80P on Enhanced Profits

The appellant, a Co-operative Society, filed returns and claimed deductions under Section 80P(2) of the Income Tax Act, 1961. The AO made additions which were partly confirmed by the NFAC. The NFAC allowed the deduction claimed under Section 80P(2)(a)(i) but disallowed claims related to provisions for interest, NPA, Employee Retirement benefits, and leave encashment, holding that these fall under Section 43B and are allowable only if paid before filing the tax return.

The assessee contended that these provisions are in line with accounting policies mandated by the Karnataka Co-operative Societies Act and should be eligible for deduction under Section 80P(2)(a)(i). The NFAC disregarded this claim, stating that the provisions of other Acts do not prevail over the Income Tax Act. The enhanced profits from disallowed expenses should still qualify for deduction under Section 80P(2).

The Tribunal, referencing the decision in Sharavathi Pathina Sahakara Sangha Niyamitha and other relevant cases, concluded that the assessee is entitled to deduction under Section 80P(2)(a)(i) on the enhanced profits. The Tribunal directed the AO to grant relief on the enhanced profit as eligible for deduction under Section 80P(2).

Conclusion:

Both appeals of the assessee are allowed, and the AO is directed to grant relief on the enhanced profit as eligible for deduction under Section 80P(2) of the Act.