2024 (8) TMI 807 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest earned from investment with cooperative societies from other banks - business income which is increased due to disallowance made u/s 40(a)(ia) - HELD THAT - We find that the definition of member as per Maharashtra State Cooperative Societies Act includes nominal members also therefore the interest earned from nominal members also covered under business income which qualifies for deduction under section 80P(2)(a)(i). It is also observed that during the course of its business the assessee society has made deposits with other banks therefore the interest earned from such deposit also qualifies for deduction u/s 80P(2)(a)(i) being business income. Disallowance u/s 40A(ia) - Even if the disallowance u/s 40(a)(ia) is maintained it will simply increase the business income of the cooperative society which is already deductible u/s 80P(2)(a)(i) - As relying on case of Nashik Road Nagri Sahkari Patsanstha Limited . 2021 (12) TMI 1259 - ITAT PUNE we are of the considered opinion that the appellant assessee is entitled for deduction u/s 80P(2)(a)(i) of the IT Act. Direct the assessing authority to allow deduction u/s 80P(2)(a)(i) of the IT Act in respect of interest income earned from members nominal members further directs to allow deduction u/s 80P(2)(a)(i) of the IT Act in respect of interest earned from investments/deposit made during the course of business in other cooperative society/banks. Disallowances, if any, made, shall increase the business profits of the assessee cooperative society. And the business profits so increased shall equally qualify for deduction u/s 80P(2)(a)(i) - we hold that the enhanced income on account of disallowances made u/s 40(a)(ia) by the AO should qualify for deduction u/s 80P(2)(a)(i) of the IT Act. We therefore also directs the AO to allow deduction u/s 80P(2)(a)(i) on the business income which is increased due to disallowance made u/s 40(a)(ia) of the IT Act. Thus, the grounds raised in the appeal filed by the assessee are allowed.

Summary

Issues:
- Violation of principle of natural justice in passing appellate order without granting effective opportunity for hearing
- Disallowance of deduction u/s 80P(2)(a)(i)/80P(2)(d)
- Violation of principle of consistency/res judicata in not appreciating past allowance of deductions u/s 80P(2)(a) and 80P(2)(d)
- Disallowance u/s 40A(ia) on rent payments exceeding threshold limit
- Entitlement of deduction u/s 80P(2)(a)(i) for interest income earned from members and nominal members
- Entitlement of deduction u/s 80P(2)(a)(i) for interest earned from investments in cooperative societies and banks
- Impact of disallowances u/s 40(a)(ia) on business profits and eligibility for deduction u/s 80P(2)(a)(i)

Analysis:
The appeal was filed against an order passed by the Ld CIT(A)/NFAC for the assessment year 2018-19. The appellant raised various grounds of appeal, including the violation of the principle of natural justice due to lack of an effective opportunity for hearing. The appellant contended that notices of hearing were not received due to communication challenges. Additionally, issues were raised regarding the disallowance of deductions u/s 80P(2)(a)(i)/80P(2)(d) and u/s 40A(ia) on rent payments. The appellant also argued for the application of the principle of consistency/res judicata in past allowance of deductions. The facts revealed that the appellant, a cooperative society, failed to respond to queries during assessment proceedings, leading to disallowances by the Assessing Officer.

The appeal before the Tribunal highlighted the appellant's eligibility for deductions under section 80P(2)(a)(i) for interest income earned from members, nominal members, and investments in cooperative societies and banks. The appellant's counsel argued for the deletion of additions made by the AO and upheld by the Ld CIT(A)/NFAC. The Tribunal considered the nature of the appellant's business as a cooperative society providing credit facilities and accepting deposits. It noted that interest earned from nominal members and investments with other banks qualified as business income eligible for deduction under section 80P(2)(a)(i) of the IT Act.

The Tribunal, after hearing both parties, found that the issues raised were covered in favor of the appellant by decisions of the coordinate bench of the Tribunal. It cited a specific case to support its decision. The Tribunal held that the appellant was entitled to deductions under section 80P(2)(a)(i) for various income sources. It directed the assessing authority to allow the deductions and set aside the order of the Ld CIT(A)/NFAC. The Tribunal emphasized that any disallowances made by the AO would increase the business profits of the appellant, which would still qualify for deduction under section 80P(2)(a)(i) of the IT Act. Therefore, the grounds raised in the appeal were allowed, and the appeal filed by the appellant was ultimately allowed.

In conclusion, the Tribunal ruled in favor of the appellant, granting the requested deductions under section 80P(2)(a)(i) for interest income and business profits, overturning the decision of the Ld CIT(A)/NFAC.