2021 (6) TMI 460 - AT - Income Tax

Deduction u/s 80P - interest income earned on fixed deposits - 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. Since the facts are identical, following the decision rendered by the co-ordinate bench, we restore this issue to the file of the AO with similar directions. In the instant case, the assessee has earned both interest income and dividend income. 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 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.

Issue 1 - Rejection of deduction u/s 80P(2)(a)(i) of the Act:
The assessee, a cooperative society, claimed deduction u/s 80P of the Act, but the AO rejected it citing failure in mutuality principles due to dealing with nominal/associate members. The AO also denied deduction u/s 80P(2)(d) for interest/dividend income earned. The Ld A.R. argued that the issues were covered by a co-ordinate bench decision and should be decided based on the Supreme Court's ruling in Mavilayi Service Co-operative Bank Ltd. vs. CIT. The Tribunal agreed, setting aside the CIT(A)'s order and directing a fresh examination by the AO.

Issue 2 - Rejection of deduction u/s 80P(2)(d) of the Act:
The AO assessed interest income from bank deposits under "Income from other sources," denying deduction u/s 80P(2)(d). The Ld. A.R. contended that deduction under section 57 should be allowed for cost of funds and expenses, citing the Totgars Co-operative Sale Society Ltd. case. The Tribunal agreed with the A.R., directing the AO to allow deduction for proportionate costs and expenses. The Tribunal set aside the CIT(A)'s decision, following the Karnataka High Court's ruling. Consequently, the appeal was treated as allowed for statistical purposes.

In conclusion, the Tribunal's decision in this case revolved around the interpretation of deductions under sections 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961. The Tribunal relied on relevant legal precedents and directed the AO to reexamine the issues in light of the Supreme Court and High Court decisions cited by the parties. The Tribunal emphasized the need for a fresh assessment based on the principles established in the aforementioned cases, ensuring that the assessee's entitlement to deductions was appropriately considered.