2021 (6) TMI 503 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - AO disallowed the claim on the ground that the assessee is not engaged in the business of banking, is not providing credit facility to its members and also on the ground that interest was earned on surplus funds - Since the assessee earned incomes on the investments made from cooperative sector, the AO had calculated the proportionate incomes earned from cooperative banks - CIT(A) disallowed the assessee s claim of deduction u/s 80P(2)(a)(i) and allowed the deduction claimed u/s 80P(2)(d) - HELD THAT - We observe that the CIT(A) confirmed the AO s decision in respect of claim of deduction u/s 80P(2)(a)(i) relying on the judgment of the Hon ble Supreme Court in the case of Citizen Cooperative Society Ltd., 2017 (8) TMI 536 - SUPREME COURT the decision of which was followed by the AO while confirming the disallowance. As regards the assessee s claim of deduction u/s 80P(2)(d) of the Act, the CIT(A) relying on the decision of the coordinate bench of this Tribunal in assessee s own case 2015 (3) TMI 317 - ITAT HYDERABAD directed the AO to delete the disallowance made under the said section. On perusal of the orders of authorities below, we observe from the order of the Assessing Officer that various allegations have been made by the AO regarding the activity of the assessee , without obtaining licence from RBI the assessee carrying out the banking business activity, giving loan to Members and to others and kinds of Members etc which is clear from the assessment order. It is interesting to note here that both the authorities below alleged that the assessee is providing loans to others, but , it is clear from the order of the CIT(A) at para No. 4.3 of his order, the assessee has given loans to only shareholder members. The issue of deduction claimed U/s 80P(2)(d) has been decided by the coordinate bench of Tribunal in assessee s own case as cited supra and in which the decision of Hon ble Supreme Court Totgars Cooperative Sales Society Ltd. 2010 (2) TMI 3 - SUPREME COURT has been discussed. TDS u/s 194A - Addition u/s 40(a)(ia) - HELD THAT - Issue is covered by section 194A(3)(v) in assessee s favour being a payment made by society to its members. This disallowance is deleted.

Summary

Issues Involved:
1. Disallowance of deduction under section 80P(2)(a)(i) of the Income Tax Act.
2. Disallowance under section 40(a)(ia) of the Income Tax Act.
3. Deduction under section 80P(2)(d) of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Deduction under Section 80P(2)(a)(i):

The assessee, a cooperative society, claimed deductions under section 80P(2)(a)(i) for providing credit facilities to its members. The AO disallowed this claim on several grounds:
- The society was not providing credit facilities to its members.
- The society had different categories of members, some without voting rights.
- The principle of mutuality was missing as only permanent members availed loans.

The AO relied on the Supreme Court's decision in Citizen Cooperative Society Limited, Hyderabad. However, the CIT(A) upheld the AO’s decision, leading to the assessee's appeal to the ITAT.

The ITAT noted that the CIT(A) and AO alleged the society provided loans to non-members, but the CIT(A)’s order showed loans were only given to shareholder members. The ITAT referenced its own previous decisions and the Supreme Court's judgment in Mavilayi Service Cooperative Bank Ltd. vs. CIT, which emphasized that section 80P(2)(a)(i) does not require the society to be a primary agricultural credit society for deduction eligibility. The ITAT concluded that the assessee was entitled to the deduction under section 80P(2)(a)(i), as it was engaged in providing credit facilities to its members.

2. Disallowance under Section 40(a)(ia):

For the AY 2014-15, the AO disallowed ?1,06,658 under section 40(a)(ia), contending that the assessee failed to deduct TDS. However, the ITAT found that the payment was made by the society to its members, covered under section 194A(3)(v), which exempts such payments from TDS requirements. Consequently, the ITAT deleted the disallowance.

3. Deduction under Section 80P(2)(d):

The assessee claimed deductions under section 80P(2)(d) for interest earned on surplus funds deposited with cooperative banks. The AO disallowed this, arguing that the interest was earned on surplus funds, not from providing credit facilities to members. The CIT(A), however, allowed the deduction, following the ITAT’s earlier decisions in the assessee’s favor.

The ITAT upheld the CIT(A)'s decision, referencing its previous rulings and the Supreme Court’s decision in Totgars Cooperative Sales Society Ltd. vs. ITO, which allowed deductions under section 80P(2)(d) for interest earned from investments in cooperative banks. The ITAT emphasized that section 80P(4) does not apply to cooperative societies like the assessee, thus affirming the deduction under section 80P(2)(d).

Conclusion:

The ITAT allowed the assessee's appeals, granting deductions under sections 80P(2)(a)(i) and 80P(2)(d), and deleted the disallowance under section 40(a)(ia). The revenue’s appeals were dismissed, affirming the assessee’s entitlement to the claimed deductions.