2022 (4) TMI 395 - AT - Income Tax

Revision u/s 263 by CIT - Admissibility of deduction u/s.80P(2)(d) - As per CIT AO has erred in not allowing deduction u/s.80P(2)(d) of the Income Tax Act, 1961 without properly verifying the details of investee - HELD THAT - We are unable to concur with the view taken by the lower authorities in so far the declining of the assessee s society claim for deduction u/s 80P(2)(d) qua the interest received on its investments with co-operative banks. In our considered view as a Cooperative bank falls within the realm of the definition of a Co-operative Society as contemplated in Section 2(19) of the Act, therefore, the view taken by the lower authorities that interest income received by the assessee from Belgaum Industrial Co-Op Bank Ltd; and Belgaum District Central Co-Op Bank Ltd. i.e co-operative Banks, would not be eligible for deduction u/s. 80P(2)(d) cannot be sustained. We not being able to persuade ourselves to subscribe to the view taken by the lower authorities, thus, vacate the disallowance of the assessee s claim for deduction u/s.80P(2)(d) Whether the lower authorities had erred in declining the assessee s claim for deduction u/s. 80P(2)(e) i.e., without properly verifying the lease deeds and wrongly construing the purpose for which the godowns and sheds had been let out? - On a perusal of the confirmations of the aforementioned parties that have been filed by the assessee before the lower authorities, we find that it has specifically been stated by the respective parties that the premises in question were being used by them as godowns for storing/stocking various materials. Backed by the aforesaid facts, we are of the considered view that the lower authorities had grossly erred in loosing sight of the aforesaid material documentary evidence while adjudicating the issue in hand. We, thus, in all fairness restore the issue to the file of the Assessing Officer with a direction to re-adjudicate the assessee s claim for deduction u/s.80P(2)(e) after taking due cognizance of the documentary evidence i.e. confirmations of the respective tenants - Ground raised by the assessee is allowed for statistical purposes in terms of our aforesaid observations.

Summary

Issues Involved:
1. Deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
2. Interpretation of "cooperative society" under Section 2(19) of the Income Tax Act, 1961.
3. Deduction under Section 80P(2)(e) of the Income Tax Act, 1961.
4. Verification of lease deeds and purpose of letting out godowns and sheds.

Issue-wise Detailed Analysis:

1. Deduction under Section 80P(2)(d) of the Income Tax Act, 1961:
The assessee, a cooperative society, claimed a deduction under Section 80P(2)(d) for interest income earned from investments with cooperative banks. The AO disallowed this deduction, citing an amendment to Section 80P(4) effective from 01.04.2007, which excluded cooperative banks from the definition of cooperative societies for the purpose of this deduction. The CIT(A) upheld this disallowance. However, the Tribunal found that cooperative banks still fall within the definition of "cooperative society" under Section 2(19) of the Act. Therefore, the interest income from cooperative banks is eligible for deduction under Section 80P(2)(d). The Tribunal referred to various judicial pronouncements, including the ITAT Mumbai's decision in M/s Solitaire CHS Ltd. and the Karnataka High Court's decision in Totagars Cooperative Sale Society, which supported the assessee's claim. Consequently, the Tribunal vacated the disallowance of ?3,83,047/- under Section 80P(2)(d).

2. Interpretation of "cooperative society" under Section 2(19) of the Income Tax Act, 1961:
The Tribunal emphasized that cooperative banks are registered under the Cooperative Societies Act, 1912, or any other state law for the registration of cooperative societies. Therefore, they qualify as "cooperative societies" under Section 2(19) of the Act. This interpretation aligns with the Tribunal's view that the interest income from cooperative banks is eligible for deduction under Section 80P(2)(d).

3. Deduction under Section 80P(2)(e) of the Income Tax Act, 1961:
The assessee claimed a deduction under Section 80P(2)(e) for rent received from letting out industrial sheds. The AO disallowed this deduction, stating that the sheds were used as workshops, not as godowns or warehouses for storage or processing of commodities. The CIT(A) upheld this disallowance. The Tribunal found that the assessee had provided confirmations from tenants stating that the sheds were used as godowns for storing materials. The Tribunal restored the issue to the AO for re-adjudication, directing the AO to consider the documentary evidence provided by the assessee.

4. Verification of lease deeds and purpose of letting out godowns and sheds:
The Tribunal noted that the lower authorities had not adequately verified the lease deeds and the purpose for which the sheds were let out. The assessee provided confirmations from tenants indicating that the sheds were used for storage. The Tribunal directed the AO to re-examine the evidence and re-adjudicate the assessee's claim for deduction under Section 80P(2)(e).

Conclusion:
The Tribunal partly allowed the assessee's appeal. It vacated the disallowance of ?3,83,047/- under Section 80P(2)(d) and restored the issue of deduction under Section 80P(2)(e) to the AO for re-adjudication based on the documentary evidence provided by the assessee. The appeal was allowed for statistical purposes in terms of the Tribunal's observations.