2022 (12) TMI 793 - AT - Income Tax

Deduction u/s 80P(2)(a)(i) - interest from Cooperative Banks in respect of availing facility to take cash from the said banks - HELD THAT - From the perusal of Profit Loss account the said receipts of dividend are shown to the extent of Rs. 12,660/- of bank share and thus the total receipt from Cooperative Banks come to Rs. 19,14,547/-. The reliance of the Hon ble Supreme Court s decision that of Totgars Cooperative Sale Society Ltd. 2010 (2) TMI 3 - SUPREME COURT is not justifiable in the present case as the interest income had on the surplus of its funds not immediately required for its business was declared as not income from business by the Hon ble Supreme Court in the said case. But in the present case the assessee claim deduction on interest from Cooperative Banks in respect of availing facility to take cash from the said banks which is directly related to the business of the assessee society. Thus, the CIT(A) as well as the AO was not right in disallowing the interest component claimed by the assessee under Section 80P(2)(a)(i) of the Act. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Disallowance of interest amount received from bank accounts and bank share dividend under Section 56 of the Income Tax Act, 1961.
2. Claim for deduction under Section 80P(2)(a)(i) of the Act for interest income from cooperative banks.

Analysis:

Issue 1: Disallowance of Interest Amount
The assessee, a Credit Co-operative Society, filed an appeal against the order passed by the Ld. CIT-(Appeals), NFAC, Delhi, disallowing the interest amount received from bank accounts and bank share dividend under Section 56 of the Income Tax Act, 1961. The Assessing Officer observed that the assessee claimed deduction under Section 80P(2)(a)(i) of the Act for the interest income, leading to an addition of Rs. 19,14,547. The CIT(A) dismissed the appeal of the assessee. The Ld. A.R. argued that the deposits were made in a Scheduled Bank, not in Cooperative Banks, and the interest income was from short-term deposits, not other sources. The Ld. A.R. contended that the funds were used for short-term advances related to the business of the society. The Tribunal noted that the interest income was directly related to the business activities of the society, and thus, the disallowance was unjustified. The Tribunal allowed the appeal of the assessee.

Issue 2: Claim for Deduction under Section 80P(2)(a)(i)
The assessee claimed deduction under Section 80P(2)(a)(i) of the Act for the interest income from Cooperative Banks, arguing that it was related to the activity of the society and should be allowed as a deduction. The Ld. A.R. highlighted that the Fixed Deposit made in a Cooperative Bank was for short-term advances to pay its members, establishing a direct business connection. The Tribunal observed that the interest income from Cooperative Banks was in relation to availing facilities for cash requirements, essential for the business operations of the society. The Tribunal found that the interest component claimed by the assessee under Section 80P(2)(a)(i) was justified and allowed the appeal.

In conclusion, the Appellate Tribunal ITAT Ahmedabad allowed the appeal of the assessee, holding that the interest income from Cooperative Banks was directly related to the business activities of the society and should be allowed as a deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.