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TMI Blog2024 (10) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... ramework, justifying the tax relief. Jurisdictional precedents from the Gujarat High Court and Co-ordinate bench consistently support the view that income earned from cooperative banks should be deductible under Section 80P(2)(d) of the Act. The assessee, being a cooperative society engaged in collecting and marketing milk, primarily falls under activities that are not directly specified in Section 80P(2)(a) or (b) of the Act. Therefore, the assessee qualifies for the standard deduction of Rs. 50,000/- under Section 80P(2)(c)(ii) of the Act. The CIT(A) denied the deduction of Rs. 50,000/- claimed under Section 80P(2)(c)(ii) without providing any substantive reasoning or analysis of the statutory provisions. The provision clearly mandates a deduction for cooperative societies engaged in activities other than those specified under Section 80P(2)(a) or (b) of the Act. The statutory language does not impose additional conditions or exclusions that would disqualify the assessee from this benefit. The disallowance of this deduction by the AO and CIT(A) is hereby set aside, and the deduction is allowed in full. Characterization of income - government grant receipt under the Rashtriya Kris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration Ltd. (GCMMF Ltd.): Rs. 40,25,100/-. Dividend from Ahmedabad District Co-Op Bank: Rs. 8,250/-. 2.1. The AO concluded that the phrase Co-operative Society in Section 80P(2)(d) of the Act does not include cooperative banks. Since the income in question was earned from cooperative banks and not directly from cooperative societies, the AO disallowed the deduction. The AO emphasized that cooperative banks are distinct entities engaged in banking business governed by the Banking Regulation Act, 1949, and are explicitly excluded from Section 80P benefits by virtue of Section 80P(4) of the Act. The AO relied on the decision of the Karnataka High Court in Principal Commissioner of Income-tax, Hubballi vs. Totagars Co-operative Sale Society [2017] 83 taxmann.com 140 (Karnataka) , which held that cooperative banks are not equivalent to co-operative societies for the purpose of claiming deductions under Section 80P(2)(d) of the Act. 2.2. The AO observed that the grant of Rs. 50,00,000/- was deposited in a joint account in the name of the project but had not been utilized during the year. The AO held that the grant was intended to make the assessee s business more profitable and should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the impugned order. The action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 7. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of the Ld. AO in levying interest u/s. 234A/B/C/D of the Act. 8. The Ld. CIT(A) has erred in law and on facts of the case in confirming action of Ld. AO in levying penalty u/s. 270A of the Act. 9. The Appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal. 5. During the course of hearing before us, the Authorised Representative (AR) of the assessee argued that under Section 80P(2)(d) of the Act, income earned by a cooperative society from its investments with other co-operative societies, including cooperative banks, qualifies for deduction. He further argued that both the AO and the CIT(A) erroneously disallowed the deduction by treating cooperative banks as distinct from cooperative societies. 5.1. The AR relied on several judicial pronouncements that support the eligibility of income from cooperative banks for deduction under Section 80P(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordance with section Sub-Clause (xviii) in Section 2(24) of the Act. In rebuttal, the AR stated that the question is not whether it is taxable or not but the timing when it is taxed in the hands of recipient and the same is decided by the term of MOU. 6. We have heard the rival contentions and perused the material available on records. The primary issues in this appeal involve the disallowance of deductions under Sections 80P(2)(d) and 80P(2)(c) of the Act and the treatment of a government grant as revenue income. 6.1. Ground numbers 1,2,3 and 5 deal with deduction u/s 80P of the Act. The main contention in this set of grounds pertain to the disallowance of deductions claimed by the assessee under Section 80P(2)(d) of the Act and Section 80P(2)(c) of the Act. We have carefully reviewed the submissions, facts, judicial precedents, and findings of the AO and the CIT(A) to reach its conclusions. The assessee claimed deductions for interest and dividend income earned from the Ahmedabad District Co-Op Bank Rs. 1,04,14,746/-) and GCMMF Ltd. Rs. 40,25,100/-). The income was earned from investments made with cooperative banks and societies. The AO disallowed the deduction, relying on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that income earned from cooperative banks should be deductible under Section 80P(2)(d) of the Act. 6.3. Section 80P(2)(c) of the Act provides a standard deduction for cooperative societies engaged in activities that are not specifically covered under Section 80P(2)(a) or (b). Specifically, it allows a deduction of up to Rs. 50,000/- for any co-operative society other than those involved in banking, providing credit facilities to members, or the other activities explicitly listed under clauses (a) or (b). The assessee, being a cooperative society engaged in collecting and marketing milk, primarily falls under activities that are not directly specified in Section 80P(2)(a) or (b) of the Act. Therefore, the assessee qualifies for the standard deduction of Rs. 50,000/- under Section 80P(2)(c)(ii) of the Act. The CIT(A) denied the deduction of Rs. 50,000/- claimed under Section 80P(2)(c)(ii) without providing any substantive reasoning or analysis of the statutory provisions. The provision clearly mandates a deduction for cooperative societies engaged in activities other than those specified under Section 80P(2)(a) or (b) of the Act. The statutory language does not impose additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reated as income and was not reflected in the Profit Loss Account. Clause 13(f) and Clause 16(e) of the Tax Audit Report specifically mentioned that the grant is a Capital Receipt, and it will be recognised as revenue when it becomes due. In both the decisions of Co-ordinate bench in case of Gujarat State Road Development Corporation Ltd. and Gujarat Rural Industries Marketing Corporation Ltd., it was held that government grants received for specific purposes and unutilized at the end of the financial year are not recognized as income and it will gain the character of income only when they are put to intended use. 7.2. Considering the detailed discussions and findings above, we conclude that the government grant of Rs. 50,00,000/- received by the assessee under the RKVY did not confer an unconditional economic benefit to the assessee and, as such, did not qualify as income under Section 2(24)(xviii) of the Act, at the time of receipt. Judicial precedents consistently support the position that grants restricted by purpose and subject to refund obligations are to be treated as capital receipts until they are actually utilized for the designated purposes. The addition made by the AO a ..... 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