2021 (12) TMI 986 - AT - Income Tax

Deduction u/s 80P(2)(d) denied - As argued appellant is an Cooperative housing society not carrying on the business of banking or credit facilities to its members - main contention of the assessee is that the interest income received from co-operative banks ought to be granted deduction u/s 80P(2(a)(i) - HELD THAT - The instant case arises out of the order passed u/s 143(3) r.w.s. 263 - assessee has not raised the plea before the lower authorities that investments are made with co-operative banks out of statutory compulsion, and therefore, interest income arising from such investments are to be assessed as business income. The assessee before the Tribunal also has not furnished the details of investments. Therefore, we are not in a position to examine whether the investments are made to maintain the statutory liquidity reserve. The assessee without furnishing the necessary details cannot expect the Tribunal to restore the issue to the A.O. for de novo consideration, especially when this case as its origin from the order of the CIT passed u/s 263 - As mentioned earlier, the assessee s prayer before the Income Tax Authorities as well as the ground raised before the Tribunal is only regarding non-granting of deduction u/s 80P(2)(d) and not u/s 80P(2)(a)(i) - the main contention of the assessee (without raising any ground before the Tribunal) that it is entitled to deduction u/s 80P(2)(a)(i) of the I.T.Act is rejected. 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 - We find an identical issue was considered by the Hon ble jurisdictional High Court in the case of Totagars Cooperative Sale Society Ltd. v. ITO 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 case of Totagars Sale Co- operative Society supra Accordingly, the case is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head income from other sources . If so, the same shall be allowed as deduction u/s 57. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Interpretation of deduction u/s 80P(2)(d) for a cooperative housing society.
2. Applicability of the judgment of Totagar Co-operative Sale Society Limited (2017) 395 ITR 611 (Kar.) on interest from banks.
3. Allowance of deduction u/s 80P(2)(d) for interest earned on deposits from cooperative banks.
4. Claim for deduction u/s 80P(2)(d) on interest received from a cooperative bank.
5. Entitlement to deduction u/s 80P(2)(a)(i) for interest income from cooperative banks.
6. Consideration of expenditure for earning interest income under deduction u/s 57 of the I.T. Act.

Analysis:
1. The case involved the interpretation of deduction u/s 80P(2)(d) for a cooperative housing society. The Assessing Officer (A.O.) denied the deduction for interest income/dividend from investments made with cooperative banks, citing the judgment of Tatagars Co-operative Sale Society Ltd. v. ITO. The CIT(A) upheld the A.O.'s decision. The Tribunal noted the assessee's argument that interest income from cooperative banks should be allowed as a deduction u/s 80P(2)(a)(i) of the I.T. Act. However, as the plea was not raised before lower authorities, the Tribunal rejected this contention.

2. The issue of the applicability of the judgment of Totagar Co-operative Sale Society Limited (2017) 395 ITR 611 (Kar.) on interest from banks was raised. The Tribunal considered the argument that interest income should be assessed as income from other sources, and the expenditure for earning such income should be allowed as a deduction u/s 57 of the I.T. Act. The Tribunal referred to the judgment in Totagars Cooperative Sale Society Ltd. v. ITO [2015] 58 Taxmann.com 35 (Kar.) and held that if interest income is assessed as income from other sources, the expenditure incurred for earning such income should be allowed as a deduction u/s 57.

3. The Tribunal directed the A.O. to examine whether the assessee had incurred any expenditure for earning interest income assessed under the head 'income from other sources.' If so, the same should be allowed as a deduction u/s 57 of the I.T. Act. The case was restored to the files of the A.O. for this purpose, with the assessee instructed to cooperate and furnish necessary evidence for the matter's expeditious disposal.

4. Ultimately, the Tribunal allowed the appeal filed by the assessee for statistical purposes, indicating that the case was decided in favor of the assessee. The order was pronounced on November 30, 2021.