2024 (8) TMI 253 - AT - Income Tax

Denial of deduction u/s 80P(2)(d) with respect to interest income earned from FD kept with Co-operative banks - HELD THAT - We decide this issue in favour of the assessee that interest income earned from deposits with Co-operative Banks shall be allowed as deduction u/s 80P(2)(d). However, similar directions as were given by Division Bench in the appellate order in the case of Sardar Patel Co-operative Credit Society Limited 2024 (4) TMI 1161 - ITAT AHMEDABAD are now given by me to the AO to verify that the four entities from whom the interest income is claimed to have been earned by the assessee namely Kadi Nagarik Co-operative Bank, Mehsana Urban Co-operative Bank, Rajkot Nagarik Co-operative Bank and Kalol Nagarik Co-operative Bank are Cooperative Banks which are Co-operative societies duly registered under the Co-operative Societies Act or under the State Act, and to this limited extent directed AO to verify the facts before granting relief to the assessee. Disallowability of expenses incurred against commission and other income - Since, there is prima-facie alleged discrepancy in the disallowance by the AO u/s 80P itself to the tune of Rs. 11,12,839/- as against the claim of the assessee that it earned interest income of Rs. 16,89,753/- from the amount deposited in FDR and saving bank with Co-operative Banks, it became necessary to verify this aspect also. Deduction u/s 80P(2)(d) - As observed that one of the plea taken by Revenue that the assessee has claimed deduction u/s 80P(2)(a)(i) and now deduction u/s 80P(2)(d) cannot be allowed to the assessee as the assessee has not filed revised return of income and time for filing revised return of income has already expired, and in this context it will be relevant and suffice here to refer to department circular No. 14(XL-35) dated 11.04.1955. Reference is also drawn to the decision of Hedrick and Struggles Inc 2023 (8) TMI 159 - DELHI HIGH COURT The appeal of the assessee is allowed as indicated above. We order accordingly.

Summary

Issues Involved:
1. Jurisdiction and validity of the assessment order under Section 143(3) of the Income-tax Act, 1961.
2. Denial of deduction under Section 80P of the Income-tax Act, 1961.
3. Disallowance of expenses incurred against commission income.
4. Allowability of deduction under Section 80P(2)(d) for interest income earned from deposits with Co-operative Banks.

Detailed Analysis of the Judgment:

1. Jurisdiction and Validity of the Assessment Order:
The assessee challenged the jurisdiction and validity of the assessment order passed under Section 143(3) of the Income-tax Act, 1961, contending that it was based on misleading, misconception, arbitrary, and perverse observations. The Tribunal did not find merit in this contention and upheld the validity of the assessment order.

2. Denial of Deduction under Section 80P:
The primary issue was the denial of deduction under Section 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961. The assessee argued that it was a registered co-operative society engaged in providing credit facilities exclusively to its members and was thus eligible for the deduction. The Assessing Officer (AO) denied the deduction for interest income received from investments in banks, relying on the Supreme Court's decision in M/s. Totgar Co-operative Sale Society. The Tribunal, however, noted that the interest income from deposits with Co-operative Banks should be allowed under Section 80P(2)(d), following the Gujarat High Court's decisions in Surat Vankar Sahakari Sangh Ltd. and State Bank of India. Consequently, the Tribunal allowed the deduction under Section 80P(2)(d) for interest income earned from deposits with Co-operative Banks, subject to verification that the banks were indeed co-operative societies registered under the relevant acts.

3. Disallowance of Expenses Incurred Against Commission Income:
The assessee raised an additional ground regarding the disallowance of expenses incurred against commission income, which was not originally disputed with the AO. The Tribunal observed that the CIT(A) disallowed these expenses without giving notice of enhancement to the assessee, which was procedurally incorrect. The Tribunal directed the AO to verify the assessment records and determine if the disallowance was justified. If the AO had not considered the disallowance, the CIT(A)'s action would be quashed.

4. Allowability of Deduction under Section 80P(2)(d) for Interest Income Earned from Deposits with Co-operative Banks:
The Tribunal addressed the issue of whether interest income earned from deposits with Co-operative Banks qualifies for deduction under Section 80P(2)(d). The Tribunal relied on its own previous decisions and the Gujarat High Court's rulings, which supported the assessee's claim. The Tribunal directed the AO to verify that the entities from which the interest income was earned were Co-operative Banks registered under the Co-operative Societies Act or the State Act. The Tribunal also addressed the Revenue's contention that the deduction could not be allowed because the assessee did not file a revised return, citing departmental circulars and judicial precedents to support the assessee's claim.

Conclusion:
The Tribunal allowed both appeals, directing the AO to verify specific details before granting relief. The appeals were decided in favor of the respective assessees, allowing the deduction under Section 80P(2)(d) for interest income earned from deposits with Co-operative Banks, and addressing procedural errors in the disallowance of expenses against commission income.