2023 (10) TMI 37 - AT - Income Tax

Rectification of mistake - Deduction u/s 80P - interest earned on savings bank account is not taxable in terms of provisions of Section 80P - HELD THAT - The objection of learned DR regarding the issue makes beyond scope of section 154 of the Act is not emanating from the impugned order. Moreover, the Revenue has not filed any cross-objection in this regard. Therefore, the objection of learned D.R. cannot be sustained. Regarding chargeability of interest on savings bank account, held by the assessee, the issue is covered by the judgment of Totagars Cooperative Sales Society ( 2010 (2) TMI 3 - SUPREME COURT - Therefore, no reason to interfere in the finding of learned CIT(A). The ground raised by the assessee are dismissed.

Summary

Issues:
The issues involved in the judgment are related to the denial of deduction claimed by the appellant u/s 80P, treatment of interest earned on savings bank account, and the eligibility of the appellant for deduction under section 80P.

Deduction u/s 80P:
The appellant raised grounds of appeal against the denial of deduction claimed u/s 80P, contending that their primary business is granting loans to members and creating funds for lending, activities covered under section 80P. The AO erred in not considering this fact and making an addition to the returned income. The appellant also argued that investing idle funds with other cooperative banks is eligible for deduction u/s 80P(2)(d). Additionally, the appellant stated that investing funds in FDR or savings deposits when unable to give advances to members is conducive to their normal course of business. However, the appeal was dismissed as no one attended the proceedings, and the appeal was decided based on the available record.

Interest Earned on Savings Bank Account:
The appellant, a cooperative society, sought rectification of a mistake regarding the addition of interest earned on a savings bank account. The AO allowed depreciation but rejected the rectification application concerning interest earned. The learned CIT(A) sustained the addition, citing a judgment of the Hon'ble Supreme Court in Totagars Cooperative Sales Society case, stating that interest earned by a cooperative credit society is taxable under section 56 and does not qualify for deduction as business income u/s 80P(2)(a)(i). The judgment emphasized that income for which deduction is sought must constitute operational income, not other income accruing to the society. The appellant's objection regarding the issue being beyond the scope of section 154 was dismissed, and the appeal was rejected based on the Supreme Court's precedent.

Eligibility for Deduction under Section 80P:
The appellant's eligibility for deduction under section 80P was challenged by the AO and the learned CIT(A), who held that the interest earned on funds not required for business purposes is taxable under section 56, not qualifying for deduction under section 80P(2)(a)(i). The judgment referred to the Punjab and Haryana High Court case, where a society was not entitled to deduction under section 80P(2)(d) for interest received on advances to member societies, as it was not carrying on the business of banking or providing credit facilities. The appellant's grounds were dismissed, and the appeal was ultimately rejected based on the precedent set by the Hon'ble Supreme Court.