2025 (1) TMI 1180 - AT - Income Tax

Denial of deduction u/s 80P(2)(a)(i) - interest income under the head income from other sources received from cooperative banks - interest on FDs with scheduled banks interest from cooperative banks and interest on savings bank account used by the assessee in scheduled banks for day to day business operations - HELD THAT - Assessee cooperative society is not eligible for deduction u/s 80P(2)(a) in respect of interest earned from fixed deposits with scheduled banks. Contention of the assessee that if the income is assessed u/s 57 proportionate deduction towards expenditure u/s 57 is to be allowed was neither examined by the AO nor by the CIT(Appeals). Thus we consider it appropriate to restore this aspect of the matter back to the AO for redetermination of taxable income for considering the appropriate deductions u/s 57 of the Act in the light of the decision of Mantola Cooperative Thrift Credit Society Ltd. 2014 (9) TMI 833 - DELHI HIGH COURT . Interest earned by the assessee from cooperative banks - We observe that recently in the case of PCIT Vs. Ashwin Kumar Urban Cooperative Society Ltd. 2024 (11) TMI 971 - GUJARAT HIGH COURT held that deduction u/s 80P(2)(d) is allowable to cooperative societies on income earned on investments made with cooperative banks. Delhi Bench of the Tribunal is consistently took the same view in the cases of Mantola Cooperative Thrift Credit Society Ltd. 2016 (6) TMI 1499 - ITAT DELHI Janta Adarsh Cooperative Thrift Credit Society Ltd. 2024 (8) TMI 275 - ITAT DELHI We also find that in the case of M/s Veer Cooperative Group Housing Society 2018 (9) TMI 287 - ITAT DELHI the cooperative bench of the Delhi Tribunal held that the interest earned by the assessee a cooperative society from its investment with other cooperative societies would be entitled for deduction u/s 80P(2)(d). Thus assessee is entitled for deduction u/s 80P(2)(d) in respect of interest income earned by the assessee from cooperative bank/societies other than scheduled and nationalized banks. Interest income earned by the assessee on the savings bank accounts which were operated for day to day operations of the assessee is concerned in one view Assessee is entitled for deduction u/s 80P since such interest income was earned by the assessee from out of day to day operations of its business activities and not from any fixed deposits out of surplus funds. Thus we direct the Assessing Officer to allow deduction u/s 80P on the interest income earned by the assessee on its regular savings bank accounts which were used for day to day business activities. Disallowance made towards ESI and PF - contribution as paid beyond the due date - It is the submission of assessee itself had added back this PF ESI contribution which was paid beyond the due date - HELD THAT - As we direct the Assessing Officer to examine the contention of the assessee and make appropriate correction while passing consequential orders.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the interest income earned by the assessee from fixed deposits with scheduled banks and cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, 1961.
Whether the assessee is entitled to deduction under Section 80P(2)(a)(i) for interest income from savings accounts used for day-to-day business operations.
Whether expenses incurred for earning interest income should be allowed as a deduction under Section 57 of the Act.
Whether the disallowance of late deposit of PF/ESI contributions constitutes a double disallowance.
Whether the assessed income exceeds the profit as per the profit and loss account, even after denial of Section 80P deduction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deduction under Section 80P(2)(d) for Interest Income

Legal Framework and Precedents: Section 80P(2)(d) allows deductions for income earned by cooperative societies from investments with other cooperative societies. The Gujarat High Court in PCIT Vs. Ashwin Kumar Urban Cooperative Society Ltd. and the Karnataka High Court in PCIT Vs. Totagars Cooperative Sale Society supported this interpretation.
Court's Interpretation and Reasoning: The Tribunal held that interest from cooperative banks qualifies for deduction under Section 80P(2)(d) as cooperative banks are considered cooperative societies.
Key Evidence and Findings: The Tribunal referenced decisions from the Gujarat and Karnataka High Courts and the Delhi Bench of the Tribunal.
Application of Law to Facts: The Tribunal determined that the assessee is entitled to Section 80P(2)(d) deduction for interest income from cooperative banks.
Treatment of Competing Arguments: The Tribunal dismissed the Revenue's argument by aligning with higher court precedents.
Conclusions: Deduction under Section 80P(2)(d) is allowable for interest income from cooperative banks.

Issue 2: Deduction under Section 80P(2)(a)(i) for Savings Account Interest

Legal Framework and Precedents: Section 80P(2)(a)(i) pertains to income from cooperative societies engaged in certain specified activities.
Court's Interpretation and Reasoning: The Tribunal found that interest from savings accounts used for business operations is eligible for deduction under Section 80P.
Key Evidence and Findings: The Tribunal considered the nature of the savings account interest as arising from business operations.
Application of Law to Facts: The Tribunal directed the Assessing Officer to allow deductions for interest from savings accounts used for business activities.
Treatment of Competing Arguments: The Tribunal favored the assessee's argument that the interest was not from surplus funds.
Conclusions: Deduction under Section 80P is allowed for interest from savings accounts used for business operations.

Issue 3: Deduction of Expenses under Section 57

Legal Framework and Precedents: Section 57 allows deductions for expenses incurred in earning income from other sources.
Court's Interpretation and Reasoning: The Tribunal restored the issue to the Assessing Officer to consider proportionate expenses under Section 57.
Key Evidence and Findings: The Tribunal relied on the decision in Mantola Cooperative Thrift & Credit Society Ltd. Vs. CIT.
Application of Law to Facts: The Tribunal directed the Assessing Officer to examine and allow appropriate expenses.
Treatment of Competing Arguments: The Tribunal acknowledged the lack of discussion by the Assessing Officer on this issue.
Conclusions: The matter was remitted to the Assessing Officer for examination and allowance of expenses under Section 57.

Issue 4: Double Disallowance of PF/ESI Contributions

Legal Framework and Precedents: Contributions to PF/ESI are governed by specific provisions for timely deposit.
Court's Interpretation and Reasoning: The Tribunal directed the Assessing Officer to verify and correct any double disallowance.
Key Evidence and Findings: The assessee had already added back the late payment in its computation.
Application of Law to Facts: The Tribunal instructed the Assessing Officer to make necessary corrections.
Treatment of Competing Arguments: The Tribunal accepted the assessee's claim of double disallowance.
Conclusions: The issue was remanded for verification and correction of double disallowance.

Issue 5: Assessed Income Exceeding Profit and Loss Account

Legal Framework and Precedents: The computation of income should reflect accurate taxable income.
Court's Interpretation and Reasoning: The Tribunal restored the issue for the Assessing Officer to examine the correct computation of income.
Key Evidence and Findings: The Tribunal noted discrepancies in the assessed income versus the profit and loss account.
Application of Law to Facts: The Tribunal directed the Assessing Officer to reassess the income computation.
Treatment of Competing Arguments: The Tribunal found the assessee's claim of incorrect computation plausible.
Conclusions: The issue was remanded for reassessment of the income computation.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes: "The deduction u/s 80P of the Act on interest income earned from deposits placed with the Banks, other than Banks in the nature of Co-op. Society is under question."
Core Principles Established: Interest from cooperative banks is eligible for deduction under Section 80P(2)(d); expenses related to earning interest income should be considered under Section 57.
Final Determinations: The Tribunal allowed partial relief to the assessee by granting deductions for interest from cooperative banks and savings accounts used for business operations, while remanding other issues for further examination by the Assessing Officer.

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