2021 (12) TMI 554 - AT - Income Tax

Revision u/s 263 by CIT - interest income received from investments with Cooperative banks is entitled to deduction u/s 80P(2)(a)(i) - Alternatively as contended that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest income ought to be allowed as deduction u/s 57 - HELD THAT - As we find in the case of Totagars Co-operative Sale Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT had categorically held that interest income received on investment of surplus funds with Co-operative banks is to be assessed as income from other sources and not income from business (Thereby denying the claim of deduction u/s 80P(2)(a)(i) of the Act) - as further held by the Hon ble High Court that only those interest income received from Co-operative Societies alone (not from Co-operative Banks) is entitled to deduction u/s 80P(2)(d) of the Act. For alternative claim of the assessee, we find an identical issue was considered by the Hon ble jurisdictional High Court in the case of Totagars Co-operative Sale Society Ltd. 2015 (4) TMI 829 - KARNATAKA HIGH COURT The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the Act prescribes for taxing only the net income (i.e. total income minus the expenses incurred for earning such income), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon ble jurisdictional High Court in the case of Totagars Sale Co-operative Society supra . Claim of deduction u/s 80P(2)(c) - W e noticed that the assessee is having income from distribution of food grains and kerosene under PDS scheme. The net profit arrived from PDS scheme is ₹ 1,08,554, which does not qualify for deduction u/s 80P(2)(a)(i) of the Act. However, the said income is allowable for deduction u/s 80P(2)(c) of the Act (u/s 80P(2)(c) the amount of deduction is restricted to ₹ 50,000). In the instant case, the A.O. had granted deduction u/s 80P(2)(c) of the Act by restricting it to ₹ 50,000. Therefore, the CIT(A) is not justified in directing the A.O. to deny the benefit of deduction u/s 80P(2)(c) of the Act (which the A.O. correctly granted deduction of ₹ 50,000). Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Jurisdiction under section 263 of the IT Act invoked by CIT.
2. Claim of deduction under section 80P(2)(d) of the Act disallowed.
3. Claim of deduction under section 80P(2)(c) of the Act challenged.
4. Assessment order revised by CIT under section 263 of the Act.
5. Appeal filed by the assessee against CIT's order.

Issue 1: Jurisdiction under section 263 of the IT Act invoked by CIT:
The appeal was against the CIT's order under section 263 of the IT Act, challenging the grounds raised by the appellant. The CIT held that the assessment completed under section 143(3) of the Act was erroneous and prejudicial to the revenue's interest due to the incorrect grant of deduction under section 80P(2) of the Act. The CIT directed the AO to disallow the claimed deductions under sections 80P(2)(d) and 80P(2)(c) of the Act, leading to the appeal before the Tribunal.

Issue 2: Claim of deduction under section 80P(2)(d) of the Act disallowed:
The CIT disallowed the claim of deduction under section 80P(2)(d) amounting to a specific sum, based on the finding that income earned from institutions other than members was not eligible for the deduction. Citing a High Court decision, the CIT directed the AO to revise the assessment order accordingly. The Tribunal upheld this disallowance, emphasizing that only interest income from Co-operative Societies, not Co-operative Banks, qualified for this deduction.

Issue 3: Claim of deduction under section 80P(2)(c) of the Act challenged:
The appellant contested the disallowance of the deduction claimed under section 80P(2)(c) of the Act. The Tribunal found that the AO had correctly granted the deduction, limiting it to the specified amount, and disagreed with the CIT's direction to deny this benefit. The Tribunal held that the AO's decision on this deduction was appropriate, and the appeal was allowed for statistical purposes.

Issue 4: Assessment order revised by CIT under section 263 of the Act:
The CIT, after issuing a notice under section 263, set aside the assessment order completed under section 143(3) of the Act, citing errors in granting deductions under section 80P(2) of the Act. Despite objections raised by the assessee, the CIT passed an order directing the AO to disallow specific deductions. The Tribunal reviewed the CIT's decision and provided detailed reasoning based on legal precedents to support its findings.

Issue 5: Appeal filed by the assessee against CIT's order:
The assessee filed an appeal challenging the CIT's order, presenting arguments regarding the entitlement to deductions under relevant sections of the Act. The Tribunal carefully considered the submissions from both parties, analyzed legal interpretations, and ultimately allowed the appeal for statistical purposes, disagreeing with the CIT's direction to deny the deduction under section 80P(2)(c) of the Act.

This comprehensive analysis of the judgment addresses the key issues involved and the Tribunal's detailed findings on each aspect of the appeal.