2021 (4) TMI 914 - AT - Income Tax

Rejection of deduction claimed u/s 80P(2)(a)(i) - HELD THAT - We notice that an identical issue has been considered by the co-ordinate bench in the case of Karkala Co-op S Bank Ltd 2021 (2) TMI 854 - ITAT BANGALORE wherein an identical issue has been restored to the file of AO for examining it afresh. Rejection of deduction u/s 80P(2)(d) of the Act in respect of interest income earned on fixed deposits - HELD THAT - In the instant case, the assessee has earned both interest income and dividend income. In view of the decision rendered by the jurisdictional Hon ble High Court of Karnataka in M/S THE TOTGARS' CO-OPERATIVE SALE SOCIETY LTD. VERSUS THE INCOME TAX OFFICER, WARD-1, SIRSI 2015 (4) TMI 829 - KARNATAKA HIGH COURT the assessee is entitled for deduction of proportionate cost, administrative and other expenses. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO with similar directions. Appeal of the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Rejection of deduction claimed u/s 80P(2)(a)(i) of the Income-tax Act,1961.
2. Rejection of deduction u/s 80P(2)(d) of the Act in respect of interest income earned on fixed deposits.

Analysis:
1. Issue 1 - Deduction u/s 80P(2)(a)(i) of the Act:
The assessee, a Primary Agricultural Co-operative Society, claimed deduction u/s 80P for the assessment year 2016-17. The AO rejected the claim based on the mutuality principle due to dealing with nominal/associate members. The Ld A.R argued that the issue is covered by a co-ordinate bench decision citing the case of Karkala Co-op S. Bank Ltd. The Tribunal agreed with the Ld D.R. that the issue requires fresh examination in light of the Supreme Court's decision in Mavilayi Service Co-operative Bank Ltd. Consequently, the order passed by Ld CIT(A) was set aside, and the issue was restored to the AO for reevaluation.

2. Issue 2 - Deduction u/s 80P(2)(d) of the Act - Interest Income:
The AO assessed interest income from bank deposits as 'Income from other sources' and denied deduction u/s 80P(2)(d) of the Act. The Ld A.R. argued for deduction based on the proportionate cost of funds and expenses, citing the case of Totgars Co-operative Sale Society Ltd. The Tribunal found merit in the argument and directed the AO to allow deduction of proportionate costs and expenses. The decision was based on the High Court's ruling in the Totgars case. As the assessee earned both interest and dividend income, the Tribunal set aside the Ld CIT(A)'s order and restored the issue to the AO with similar directions.

In conclusion, the appeal of the assessee was treated as allowed for statistical purposes, and the order was pronounced on 21st April 2021 by the Appellate Tribunal ITAT Bangalore, comprising SHRI B. R. BASKARAN, ACCOUNTANT MEMBER, and SMT. BEENA PILLAI, JUDICIAL MEMBER.