2019 (1) TMI 282 - AT - Income Tax

Deduction u/s.80P(2)(a)(i) - supply of food grain seeds was done under Public Distribution System (PDS) and not to its members and therefore the deduction claimed cannot be allowed - Held that - The claim of the Assessee was that Co-operative Bank is essentially a Co-operative Society and therefore deduction has to be allowed under Clause (d) of Sec.80P(2). The Hon ble Karnataka High Court followed the decision in The Totgars Co-operative Sales Society Ltd. 2017 (7) TMI 1049 - KARNATAKA HIGH COURT held that interest earned from Schedule bank or cooperative bank is assessable under the head income from other sources and therefore the provisions of Sec.80P(2)(d) of the Act was not applicable to such interest income. Clear that the source of funds out of which investments were made remained the same in AY 2007-08 to 2011-12 and in AY 1991-92 to 1999-2000 decided by the Hon ble Supreme Court 2010 (2) TMI 3 - SUPREME COURT . Therefore, whether the source of funds were Assessee s own funds or out of liability was not subject matter of the decision of the Hon ble Karnataka High Court in the decision cited by the learned DR. To this extent the decision of the Hon ble Karnataka High Court in the case of Tumukur Merchants Souharda Co-operative Ltd. 2015 (2) TMI 995 - KARNATAKA HIGH COURT still holds good. - Hence, on this aspect, the issue should be restored back to the AO for a fresh decision after examining the facts in the light of these judgment Claim for deduction on a sum u/s.80P(2)(a)(iv) income derived from purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying them to its members, will be eligible for deduction - CIT(A) did not allow the claim of the Assessee for the reason that the Assessee made a prayer for remand to the AO and submitted that not all income that was claimed as deduction u/s.80P(2(a)(iv) of the Act was income from public distribution system and to the extent it was trading with members, the deduction claimed should be allowed. DR submitted that in any event the deduction claimed cannot be over and above what is allowed u/s.80P(2)(c). We are of the view that the prayer made is reasonable and accordingly, we set aside the order of CIT(A) on this issue for the limited purpose of examining the claim of the Assessee u/s.80P(2)(a)(iv) to the extent of profits derived from dealing with members alone. Appeals by the assessee are treated as allowed for statistical purpose.

Summary

Issues:
1. Delay in filing appeal for AY 2013-14.
2. Claim for deduction under section 80P(2)(a)(i) of the Income Tax Act.
3. Appeal against the CIT(A)'s decision.
4. Interpretation of judgments by the Hon'ble Karnataka High Court.
5. Consideration of claim for deduction under section 80P(2)(a)(iv) of the Act.

1. Delay in filing appeal for AY 2013-14:
There was a delay of 4 days in filing the appeal for AY 2013-14, attributed to confusion in reckoning the date of receipt of the order of CIT(A). The delay was deemed reasonable and genuine, and thus, condoned.

2. Claim for deduction under section 80P(2)(a)(i) of the Income Tax Act:
The primary issue revolved around the claim for deduction under section 80P(2)(a)(i) of the Act concerning interest income earned on deposits by the assessee, a cooperative society. Revenue authorities disallowed the deduction, citing that interest income should be categorized as 'income from other sources,' not derived from the business of the cooperative society. The plea regarding compliance with legal requirements for maintaining statutory reserves was not addressed. The CIT(A) upheld the AO's decision, prompting the assessee to appeal before the Tribunal.

3. Appeal against the CIT(A)'s decision:
During the appeal, the learned AR referenced a Karnataka High Court decision supporting the eligibility of interest income for deduction under section 80P(2)(a)(i) of the Act. The learned DR countered with a subsequent High Court decision. The Tribunal analyzed the judgments and decided to remand the issue back to the AO for a fresh decision based on the precedents cited, allowing the assessee to present additional evidence.

4. Interpretation of judgments by the Hon'ble Karnataka High Court:
The Tribunal scrutinized the High Court decisions to differentiate between claims made under section 80P(2)(d) and 80P(2)(a) of the Act, emphasizing the source of funds for investments. The Tribunal concluded that the issue required further examination by the AO in light of the legal precedents cited.

5. Consideration of claim for deduction under section 80P(2)(a)(iv) of the Act:
In the appeal for AY 2014-15, the deduction claim under section 80P(2)(a)(iv) was contested due to the nature of income derived from supplying agricultural items. The Tribunal set aside the CIT(A)'s decision to reevaluate the claim concerning profits from dealing with members, directing the AO to consider the specific aspects raised by the assessee.

In conclusion, the appeals by the assessee were treated as allowed for statistical purposes, with the Tribunal providing detailed directions for the AO to reexamine the deduction claims in both AYs, emphasizing the need for a thorough assessment based on legal interpretations and factual evidence.