2023 (5) TMI 417 - AT - Income Tax

Deduction u/s 80P - Addition of interest received from Co-operative Bank to the extent the same was directly credited to the Reserves and Surplus in the balance sheet - assessing is a co-operative housing society, a non-profit making entity, formed with the objective of maintaining and protecting building occupied by its members - HELD THAT - In the present case, the interest which was directly credited to the Reserve and Surplus in the balance sheet by the assessee, as per the statutory requirement, at the first instance is not only treated as income by the assessee. The question of claim of deduction against such income does not arise. In any case, from Schedule-7 forming part of the audited financials of the assessee, it has been duly substantiated that the interest income, which was transferred to the Reserves and Surplus in the balance sheet, is interest earned from Co-operative Bank which is of the same nature as has already been allowed u/s 80P(2)(d) of the Act. In the assessment year 2014-15, similar accounting treatment pursuant to the Maharashtra State Co-operative Societies Act, 1960 was made by the assessee, and part of the interest income received from Co-operative Bank was directly credited to the respective Repair Fund and Sinking Fund. CIT(A) while allowing the interest credited to the profit and loss account and claimed in the return of income under section 80P(2)(d) did not extend the similar relief in respect of interest credited to the balance sheet, which was added as income by the AO, but vide rectification order passed u/s 154 of the Act, forming part of the paper book from pages 41-42, the learned CIT(A) granted the relief to the assessee allowing deduction under section 80P(2)(d) of the Act on the entire interest income received by the assessee from the Co-operative Bank, including the amount credited to the balance sheet. There is no material available on record to show that the aforesaid findings of the learned CIT(A) have been overruled. Therefore assessee is entitled to deduction under section 80P(2)(d)on the entire amount of interest income received from the Co-operative Bank - Appeal by the assessee is allowed.

Summary

Issues:
The judgment involves the challenge against the impugned order passed under section 250 of the Income Tax Act, 1961 by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, for the assessment year 2016-17.

Grounds Raised by Assessee:
1. The appellant contested the restriction of deduction under section 80P(2)(d) in respect of interest received from Co-operative Bank.
2. The appellant argued that interest directly credited to the Balance sheet should be eligible for deduction under section 80P(2)(d).
3. The appellant claimed that total interest received from the Co-operative Bank should be allowed as a deduction under section 80P(2)(d).

Assessee's Grievance:
The sole issue in the appeal was the addition of interest received from Co-operative Bank directly credited to the Reserves and Surplus in the balance sheet.

Facts of the Case:
The assessing entity is a co-operative housing society formed for maintaining and protecting buildings. The Assessing Officer disallowed the deduction claimed under section 80P(2)(d) for interest income received from the Co-operative Bank, both directly credited to the Reserves and disclosed in the return of income.

Decision on Grounds:
- The learned CIT(A) upheld the deduction for interest income claimed in the return, citing that cooperative banks remain cooperative societies eligible for deduction under section 80P(2)(d).
- However, the appeal regarding interest income transferred to repair and sinking funds was dismissed as it was not claimed in the return or under section 80P(2)(d).

Appellate Tribunal's Ruling:
- The Tribunal found that the interest credited to specific funds in the balance sheet, as per statutory requirements, should also be eligible for deduction under section 80P(2)(d).
- Previous rulings and statutory compliance supported the assessee's claim for deduction on the entire interest income from the Co-operative Bank.
- The Tribunal allowed the appeal, granting the assessee the deduction under section 80P(2)(d) on the total interest income received from the Co-operative Bank.

Conclusion:
The appeal by the assessee was allowed, and the judgment was pronounced on 08/05/2023.