2017 (8) TMI 371 - AT - Income Tax

Disallowance of deduction claimed u/s 80P - income of interest from the permanent members - Held that - The assessee has claimed income of interest from the permanent members and also from the other Cooperative Societies only as deduction u/s 80P of the Act, the case is clearly covered by the above decision in Ranga Reddy Judicial Employees Mutually Aided Co-operative Credit Society Ltd 2015 (5) TMI 751 - ITAT HYDERABAD as held Section 80P(2)(d) is applicable to the assessee-society in respect of incomes by way of interest or dividends received by the co-operative society from its investments with any other co-operative society. Therefore, in the case of the assessee-society, sub-section (4) is not applicable and deduction under section 80P(2)(d) is certainly eligible to the assessee. In the assessment of a co-operative bank, the incomes may not be exempt after April 1, 2007 by virtue of sub-section (4), but the assessee is not a co-operative bank. Therefore, the Revenue ground is not only illogical but also not supported by the facts of the case. Moreover as seen, the recommendation made by the Assessing Officer to the learned Commissioner of Income-tax in their internal correspondence is extracted as a ground. This also indicates non-application of mind either by the Assessing Officer or by higher authority like Commissioner of Income-tax. - Decided in favour of assessee.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance of deduction claimed under Section 80P of the Income Tax Act.
3. Eligibility of cooperative society for deduction under Section 80P.
4. Acceptance of deposits from non-members and its impact on Section 80P deduction.
5. Principle of mutuality and its relevance to the case.
6. Calculation and quantification of eligible deduction under Section 80P.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an application for condonation of a 9-day delay in filing the appeals for the assessment years 2012-13 and 2013-14, supported by an affidavit stating that the delay was due to the misplacement of relevant papers in the counsel’s office. The Tribunal accepted the contentions and condoned the delay, allowing the appeal to proceed.

2. Disallowance of Deduction Claimed under Section 80P:
The assessee, a cooperative society providing credit facilities to its members, claimed a deduction under Section 80P of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction, arguing that the assessee admitted nominal members in violation of the A.P. Cooperative Societies Act, 1964, and did not follow the cooperative spirit by accepting deposits from nominal members without extending loans to them. The CIT (A) upheld the AO’s decision, leading to the present appeal.

3. Eligibility of Cooperative Society for Deduction under Section 80P:
The assessee argued that it is a registered cooperative society engaged in banking activities, allowing credit facilities to its members, which include permanent, associate, and nominal members. The nominal members are sureties for accused individuals facing trials and deposit surety amounts as fixed deposits. The interest income from permanent members and other cooperative societies was claimed as a deduction under Section 80P.

4. Acceptance of Deposits from Non-Members and Its Impact on Section 80P Deduction:
The Tribunal referred to a similar case, Ranga Reddy Judicial Employees Mutually Aided Cooperative Credit Society Ltd, where it was held that acceptance of deposits from non-members does not disqualify the society from Section 80P benefits. The Tribunal noted that Section 80P(2)(a)(i) only requires the society to provide credit facilities to its members, without specifying the source of funds. The principle of mutuality was deemed irrelevant as the exemption was not claimed on this basis.

5. Principle of Mutuality and Its Relevance to the Case:
The Tribunal dismissed the relevance of the principle of mutuality, as the assessee did not claim any exemption on this ground. The Tribunal reiterated that the acceptance of deposits from non-members does not prevent the cooperative society from claiming deductions under Section 80P(2)(a)(i), provided the income is from credit facilities to its members.

6. Calculation and Quantification of Eligible Deduction under Section 80P:
The Tribunal found that the assessee claimed deductions only on interest income from permanent members and other cooperative societies. The Tribunal noted that the CIT (A) should have examined whether the assessee claimed any deduction under Section 80P(2)(a)(i) on transactions with non-members. However, the Tribunal observed that the assessee’s case was covered by the decision in the Ranga Reddy case, where it was held that the society is eligible for deduction under Section 80P(2)(a)(i) on profits and gains attributable to providing credit facilities to its members.

Conclusion:
The Tribunal allowed the assessee’s appeals for the assessment years 2012-13 and 2013-14, holding that the assessee is eligible for deduction under Section 80P of the Income Tax Act. The order was pronounced in the open court on 31st July 2017.

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