2023 (2) TMI 267 - AT - Income Tax

Deduction u/s 80P - interest earned from investments made in any bank, not being a co-operative society - HELD THAT - Tribunal in the case of M/s. Krishnarajapet Taluk Agri Pro Coop Marketing Society Ltd. 2022 (2) TMI 489 - ITAT BANGALORE held that the ratio laid down by the Hon ble Karnataka High Court in the case of Totagars Cooperative Sales Society 2017 (7) TMI 1049 - KARNATAKA HIGH COURT is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a cooperative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Act. The Assessee would therefore be not entitled to deduction u/s.80P(2)(a)(i) or Sec.80P(2)(d) of the Act on the interest income in question. Assessee would not be entitled to deduction under section 80P(2)(d) of the Act in respect of interest received from another Co-operative Bank. The assessee would also not be entitled to deduction under section 80P(2)(a)(i) of the Act. Deduction of expenses earned in earning interest income - In so far as deduction u/s 57 of the Act is concerned, in terms of paragraph 16 of the Tribunal s order referred to above, the assessee will be entitled to deduction on account of expenses. The issue with regard to deduction u/s.57 of the Act is accordingly restored to the file of the AO to decide the same afresh in accordance with law after affording the assessee opportunity of being heard and in the light of the decisions referred to above. Appeal of the assessee is treated as partly allowed for statistical purposes.

Summary

Issues:
1. Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Rejection of alternative claim for deduction under section 80P(2)(d) of the Act.
3. Delay in filing appeal by the Assessee.
4. Deduction of expenses earned in earning interest income.

Deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961:
The appeal was filed by the assessee against the rejection of the claim for deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. The AO and CIT(A) rejected the claim based on precedents set by the Hon'ble Karnataka High Court. The Tribunal referred to a previous decision involving a cooperative society engaged in providing credit facilities, stating that income from investments made in banks does not fall under section 80P(2)(a). It was clarified that interest earned from investments in cooperative societies is exempt under section 80P(2)(d), but interest from non-cooperative society banks is not deductible under this section. Consequently, the assessee was not entitled to deduction under either section 80P(2)(a)(i) or section 80P(2)(d) for the interest income in question.

Rejection of alternative claim for deduction under section 80P(2)(d) of the Act:
The alternative claim for deduction under section 80P(2)(d) of the Act was also rejected by the AO and confirmed by the CIT(A). The Tribunal held that interest earned from investments made in banks, not being cooperative societies, is not deductible under section 80P(2)(d) of the Act. The assessee was deemed not entitled to deduction under this section for the interest income in question.

Delay in filing appeal by the Assessee:
There was a delay of 112 days in filing the appeal by the Assessee, which was explained as due to the ill health of the chief executive officer. The Tribunal, considering the reason provided in the affidavit and the principle of not denying substantive justice on technicalities, condoned the delay in filing the appeal.

Deduction of expenses earned in earning interest income:
Regarding the deduction of expenses earned in earning interest income, the Tribunal referenced a case involving a cooperative bank where it was held that the assessee should be allowed expenses, and the entire gross interest cannot be taxed. The Tribunal directed the AO to allow deduction of proportionate cost, administrative, and other expenses if assessing the interest income earned from bank deposits as income under "other sources." The Tribunal set aside the order passed by the CIT(A) on this issue and restored it to the AO with similar directions. The decision concluded that the assessee was entitled to deduction under section 57 of the Act for expenses, which was restored to the AO for fresh consideration.

In conclusion, the appeal of the assessee was treated as partly allowed for statistical purposes, with various issues addressed and decisions made based on the relevant provisions of the Income Tax Act and precedents set by the higher courts.