2024 (5) TMI 1554 - AT - Income Tax

Deduction u/s 80P - interest received from cooperative banks - HELD THAT - We find the issue now stands decided in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee s own case for assessment years 2010-11 2017 (5) TMI 1655 - ITAT PUNE 2011-12 2016 (7) TMI 1484 - ITAT PUNE 2012-13 2018 (1) TMI 1432 - ITAT PUNE and 2013-14 2019 (1) TMI 2066 - ITAT PUNE wherein identical issue has been decided in favour of the assessee and the appeal filed by the Revenue challenging the order of CIT(A) in allowing the claim of deduction u/s 80P of the Act made by the assessee has been dismissed. Appeal filed by the Revenue is dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the CIT(A), NFAC erred in deleting the disallowance made by the Assessing Officer (AO) of Rs.4,80,14,438/-.

2. Whether the CIT(A), NFAC erred in deleting the addition without appreciating that the interest received from cooperative banks was disallowed under section 80P(2)(d) of the Income Tax Act.

3. Whether the CIT(A), NFAC erred in deleting the disallowance without recognizing that the interest earned by the assessee society was from surplus funds and not operational income, thus taxable as income from other sources.

4. Whether the CIT(A), NFAC erred in not justifying the decision of the Supreme Court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO, which held that income for which deduction is sought must constitute operational income and not other income.

5. Whether additional evidence should be permitted.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deletion of Disallowance by CIT(A), NFAC

The relevant legal framework involves Section 80P of the Income Tax Act, which allows deductions for income earned by cooperative societies. The AO had disallowed the deduction claimed by the assessee under Section 80P(2)(a)(i) and 80P(2)(d), arguing that the interest income was not operational income but rather income from other sources. The CIT(A), NFAC, however, allowed the deduction, relying on the Tribunal's consistent decisions favoring the assessee in similar cases.

Issue 2: Interest from Cooperative Banks

The AO contended that the interest income from cooperative banks should not qualify for deduction under Section 80P(2)(d). The CIT(A), NFAC, disagreed, citing the Tribunal's decision that cooperative banks are considered cooperative societies, and therefore, interest income from them qualifies for the deduction. The Tribunal's interpretation aligns with the Karnataka High Court's decision in Totgars Cooperative Sale Society Ltd., which distinguished between operational income and income from investments.

Issue 3: Interest from Surplus Funds

The AO argued that the interest was earned from surplus funds and not operational income, thus taxable as income from other sources. The CIT(A), NFAC, and subsequently the Tribunal, found that the interest income, even if from surplus funds, qualifies for deduction under Section 80P(2)(a)(i) and 80P(2)(d) based on the Tribunal's precedent and the interpretation that cooperative banks are cooperative societies.

Issue 4: Application of Supreme Court Decision in Totgars

The AO relied on the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. vs. ITO, which emphasized that deductions under Section 80P should apply to operational income. However, the Tribunal found that the decision in Totgars was not applicable in this context, as the Tribunal had consistently held that interest from cooperative banks qualifies for deduction under Section 80P(2)(d).

Issue 5: Additional Evidence

The request for additional evidence was not substantively addressed in the judgment, as the primary focus was on the legal interpretation of Section 80P and the applicability of existing precedents.

SIGNIFICANT HOLDINGS

The Tribunal upheld the CIT(A), NFAC's decision to allow the deduction under Section 80P, emphasizing the following principles:

- Interest income from cooperative banks qualifies for deduction under Section 80P(2)(d) because cooperative banks are considered cooperative societies.

- The Tribunal consistently favored the interpretation that interest income from cooperative banks is eligible for deduction, even if derived from surplus funds.

- The Supreme Court's decision in Totgars was distinguished on the basis that it dealt with different factual circumstances, and the Tribunal's precedent was more directly applicable.

The final determination was to dismiss the Revenue's appeal, affirming the CIT(A), NFAC's order and allowing the deduction claimed by the assessee under Section 80P.