2023 (9) TMI 592 - AT - Income Tax

Deduction u/s 80P - assessee is a credit cooperative society and claim to have engaged in the providing credit facilities to the members of the society - assessee claimed deduction u/s 80P on the entire income of the assessee including interest income - AO denied this claim u/s 80P for want of any explanation - HELD THAT - As per the provisions of section 80P the business income of the Co-operative Society is eligible for deduction u/s 80P - In case of credit Cooperative Society engaged in providing credit facilities to its members the interest income from the credit facility provided to the members would be a regular business income of the society eligible for deduction u/s 80P. As per the section 80P(2)(d) the interest received on the deposit with other cooperative society is also eligible for deduction u/s 80P of the Act. If the deposit is made with a Cooperative Bank then the said bank would be considered as a Cooperative Society for the purpose of section 80P(2)(d) so far as the income is eligible for deduction u/s 80P(1) of the Act. AO has made the addition of the entire interest income has shown in profit and loss account without even considering the facts as to how much interest income received by the assessee from its members. The dispute may be regarding eligibility of deduction u/s 80P in respect of the interest income earned from the deposit made in the Schedule Banks or other than members. Therefore, the interest income received from the members against the credit facility provided by the assessee society is eligible for deduction u/s 80P(2)(a)(i). As the interest received from its investment from other cooperative society is also eligible for deduction under section 80P(2)(d) - Since neither the AO nor the CIT(A) has examined the relevant facts regarding the amount of interest received from the members for providing credit facility being a regular business income of the assessee as well as the interest income received from other then members of the assessee society. Therefore we set aside the impugned order of CIT(A) and matter is remanded to the record of the AO for deciding the same afresh - Appeal of assessee is allowed for statistical purposes.

Summary

Issues Involved:
The issues involved in this case are the disallowance of deduction claimed under section 80P of the Income Tax Act, 1961 by the Assessing Officer, confirmation of the disallowance by the CIT(A), and the eligibility of the interest income earned by a credit cooperative society for deduction under section 80P.

Issue 1: Disallowance of Deduction under Section 80P:
The appellant, a credit cooperative society, filed its return of income claiming a deduction under section 80P of the Act. However, the Assessing Officer disallowed the deduction for lack of explanation from the appellant in response to show cause notices. The CIT(A) upheld this disallowance based on a judgment of the Supreme Court. The appellant contended that the interest income earned is attributable to the business of banking as the society accepts deposits and provides loans to members.

Issue 2: Eligibility of Interest Income for Deduction under Section 80P:
The appellant argued that the interest income earned from advances to members is the primary objective of the credit cooperative society and should be eligible for deduction under section 80P. The appellant highlighted that the interest earned from cooperative societies with banking licenses and the absence of fixed deposits with scheduled banks support the claim for deduction. The appellant relied on legal precedents to support the eligibility of interest income for deduction under section 80P.

Judgment Summary:
The ITAT remanded the matter to the Assessing Officer for fresh consideration after setting aside the CIT(A)'s order. The ITAT emphasized that the interest income received from members against credit facilities provided by the society is eligible for deduction under section 80P(2)(a)(i). Additionally, interest received from investments in other cooperative societies is also eligible for deduction under section 80P(2)(d). The ITAT noted that the lower authorities had not examined the relevant facts regarding the interest income received from members versus other sources. The ITAT directed the AO to verify records, consider the appellant's explanations, and provide a hearing opportunity before passing a fresh order. The appeal was allowed for statistical purposes.