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2018 (2) TMI 511 - AT - Income TaxEligibility of deduction u/s. 80P - assessee claimed interest income under the head profit and gains from its business - whether assessee is entitled to claim deduction under section 80P(2)(a)(i) on the amount of interest received u/s. 244A of the Act and interest earned on FDs from bank should be assessed under the profit & gains of business ? - Held that - In the present case, the AO found that the assessee earned interest from SBI and treated the same as income from other sources. We find that in the aforementioned decision, the Hon ble High Court of Calcutta directed the AO to work out the interest expenses that might have been incurred by the assessee in earning the impugned amount under the head interest from SBI. Thus remand the issue to the file of the AO, to verify the expenses that may have been incurred in earning the impugned amount i.e. ₹ 39,30,537/- and whether such investments were made out of its own surplus fund or out of the amount payable to its members. Accordingly, the grounds raised by the revenue are allowed for statistical purpose.
Issues Involved:
1. Whether the CIT-A is justified in allowing the deduction under Section 80P of the Income Tax Act in the facts and circumstances of the case. Issue-wise Detailed Analysis: 1. Deduction under Section 80P of the Income Tax Act: The primary issue in this case is whether the CIT-A was correct in allowing the deduction under Section 80P of the Income Tax Act. The assessee, a co-operative credit society, filed its return declaring a gross total income of Rs. Nil. The AO issued notices under Sections 143(2) and 142(1) for scrutiny. Upon examination, the AO found that the assessee had claimed interest income under 'profit and gains' from its business. The AO issued a show-cause notice questioning why the interest income received on investments should not be treated as 'income from other sources.' The assessee argued that the funds were kept liquid to meet members' loan demands and thus should be considered as business income. The AO was not satisfied with the assessee's explanation and concluded that the interest income from investments with SBI and W.B. State Co-operative Bank Ltd., amounting to Rs. 44,92,235, was not immediately required for the business and should be treated as 'income from other sources.' Consequently, the AO allowed a deduction of Rs. 5,61,698 under Section 80P(2)(d) for interest received from a co-operative bank but added Rs. 39,30,537 to the total income under 'income from other sources.' CIT-A's Decision: The assessee appealed to the CIT-A, arguing that the society's main objective was to provide immediate loans to its members, and the surplus funds were not kept idle but utilized for the society's credit needs. The assessee cited the ITAT Mumbai Special Bench decision in Maharashtra State Co-op Bank Ltd Vs. ACIT, which held that 'profits and gains of business' under Section 80P(2) include other incomes related to the business, even if not directly arising from it. The CIT-A, after considering the submissions and the case laws, allowed the assessee's claim, referencing the Hon'ble Jurisdictional Kolkata High Court's decision in SE, SEC & E.Co. Railways Employees' Cooperative Credit Society Vs ACIT. Appellate Tribunal's Analysis: The Revenue appealed to the ITAT, arguing that the CIT-A wrongly relied on the Karnataka High Court's decision in Tumkur Merchants Souharda Credit Co-operative Society Ltd, which did not consider the Supreme Court's decision in Totgars Co-op. Society Ltd. The Revenue contended that the surplus funds invested in FDs in nationalized banks should not qualify for deduction under Section 80P(2). The Tribunal examined the relevant judgments, including the Hon'ble Calcutta High Court's decision in the South Eastern Employees’ Co-op. Credit Society case, which held that interest income from surplus funds invested in short-term deposits and securities is 'income from other sources.' The Tribunal noted that the Hon'ble High Court of Calcutta remanded the issue to the AO to verify whether the assessee incurred any expenditure in connection with earning the interest income and whether the investments were made from surplus funds or amounts payable to members. Conclusion: The Tribunal concluded that the issue required further verification by the AO to determine whether the investments were made from surplus funds or amounts payable to members and to ascertain any related expenditure. Therefore, the Tribunal remanded the issue to the AO for fresh consideration, allowing the Revenue's appeal for statistical purposes. Final Order: The appeal of the Revenue is allowed for statistical purposes, and the matter is remanded to the AO for verification and fresh adjudication. Order Pronounced: The order was pronounced in the open court on 07-02-2018.
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