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2025 (5) TMI 1496 - AT - Income TaxDeduction u/s 80P(2)(a)(i) - Assessee being an employees co-operative society formed for the welfare of employees of Kerala Police department of Thrissur District and is registered under Kerala Co-operative Societies Act 1969 - Assessee is providing credit facilities only to its members - whether the Net profit as declared in the profit and loss account will be treated as the amount eligible for deduction or the adjusted Net Profit declared as gross total income? Whether the entire net profit as claimed to be from providing the credit facilities to its members treated as profits and gains of business or profession or whether interest Income from House property is to be excluded treated under respective heads? - HELD THAT - It is undisputed fact that the net profit as per profit and loss account after adjusting the loss from the trading activity is Rs. 99, 73, 924.49. The assessee has added back the reserves and provisions created during the year amounting to Rs. 2, 22, 64, 406.60 and deducted reserves and provisions released during the year as well as depreciation allowable as per IT rules amounting to Rs. 1, 68, 78, 654.05 in order to arrive at the net profit of Rs. 1, 53, 59, 677.04 as per the provisions of the income tax act and also declared as gross total income. CIT(A)/NFAC by observing that nothing has been brought on record in assessment proceedings remand report/appellate proceedings to establish allowability of such excess amount under section 80P(2)(a)(i) of the act and hence the addition of Rs. 53, 85, 753/- was sustained. However ongoing through the statement of total income submitted by the assessee before the learned CIT(A)/NFAC we find the same as self-explanatory. Therefore we have no hesitation in holding that the net profit declared as a gross total income amounting to Rs. Rs. 1, 53, 59, 677.04 is the actual net profit of the cooperative Society as per the provisions of the income tax act since it is in compliance with the co-operative societies act. Whether the entire gross total income as declared by the assessee is profits and gains from business or profession and deductible under section 80P(2)(a)(i)? - Before us the assessee furnished neither the audited statement of accounts nor the details of Interest House property income. In view of the above as well as in the interest of justice fair play we are remitting this limited issue back to the file of AO for determining the actual Income from House Property Income from other Sources to be taxed separately under the respective head in accordance with Law.
1. ISSUES PRESENTED and CONSIDERED
(a) Whether the net profit declared by the co-operative society as per the profit and loss account or the adjusted gross total income after adding back and deducting certain reserves, provisions, and depreciation should be considered for the purpose of deduction under section 80P(2)(a)(i) of the Income Tax Act, 1961. (b) Whether the entire income declared by the co-operative society is eligible for deduction under section 80P(2)(a)(i) as income from the business of providing credit facilities to members, or whether certain heads of income such as interest income from statutory deposits, interest on investments, and income from house property must be excluded and taxed under their respective heads. (c) Whether the unexplained cash deposits in the bank accounts of the co-operative society constitute undisclosed income under section 69A read with section 115BBE of the Act. (d) Whether the delay of 96 days in filing the appeals before the Tribunal should be condoned. (e) Whether the rectification order under section 154 read with section 250 of the Act incorrectly mentioned the addition figure and requires correction. 2. ISSUE-WISE DETAILED ANALYSIS (a) Net Profit vs. Adjusted Gross Total Income for Deduction under Section 80P(2)(a)(i) Relevant Legal Framework and Precedents: Section 80P(2)(a)(i) of the Income Tax Act provides deduction to co-operative societies on income derived from providing credit facilities to their members. The deduction is available only on profits and gains from such business activity. The CBDT Circular No. 37/2016 dated 02.11.2016 clarifies that disallowances made under various sections that enhance profits of the eligible business do not affect the eligibility of deduction under Chapter VI-A, including section 80P. Court's Interpretation and Reasoning: The Tribunal examined the profit and loss account of the co-operative society, which showed a net profit of Rs. 99,73,924 from the business of providing credit facilities to members after adjusting losses from trading activities. However, the society had created various reserves and provisions, which were debited to the profit and loss account but did not represent actual expenses. Corresponding opening reserves were credited back, and depreciation as per IT rules was adjusted. The society computed a gross total income of Rs. 1,53,59,677 after adding back these reserves and provisions and deducting the reversals and depreciation. The Tribunal accepted the assessee's contention that the gross total income so computed is the actual net profit in accordance with the provisions of the Income Tax Act and the Kerala Co-operative Societies Act. The reserves and provisions created and reversed are compliance requirements under the Co-operative Societies Act and do not represent income or expenses for the year. Therefore, the adjusted gross total income figure is the correct measure of income eligible for deduction. Key Evidence and Findings: The detailed working of the statement of total income, audited accounts, and remand report from the cooperative audit department supported the assessee's position. The CIT(A)/NFAC had partially accepted the claim but sustained disallowance of Rs. 53,85,753 due to lack of evidence on allowability under section 80P(2)(a)(i). Application of Law to Facts: The Tribunal found that the gross total income of Rs. 1,53,59,677 is entirely from providing credit facilities to members and hence eligible for deduction under section 80P(2)(a)(i), overruling the CIT(A)/NFAC's disallowance. Treatment of Competing Arguments: The Revenue argued that only the net profit as per P&L account should be considered. The Tribunal rejected this, holding that the adjustments for reserves and provisions are necessary for correct income computation under the Act and do not alter the nature of income. Conclusion: The entire gross total income of Rs. 1,53,59,677 is profits and gains from business of providing credit facilities to members and eligible for deduction under section 80P(2)(a)(i). (b) Treatment of Interest Income and Income from House Property Relevant Legal Framework and Precedents: Income under different heads such as income from house property (sections 22-27) and income from other sources must be segregated and taxed accordingly. Interest income earned from investments not related to the core business may not qualify for deduction under section 80P(2)(a)(i). The Madras High Court decision in Pr. CIT v. Peroorkada Service Co-Operative Bank Ltd. (2022) supports deduction under section 80P(2)(d) for interest income from investments in cooperative banks. Court's Interpretation and Reasoning: The Tribunal noted that the assessee did not furnish detailed audited accounts or breakups of interest and house property income. It remitted the matter to the Assessing Officer (AO) to determine the actual income under the respective heads in accordance with law, with directions:
Key Evidence and Findings: The remand report and submissions lacked detailed breakup; hence the Tribunal directed AO to verify and classify income correctly. Application of Law to Facts: The Tribunal emphasized the need for proper segregation of income heads to ensure correct taxation and deduction claims. Treatment of Competing Arguments: The Revenue contended that interest income not arising from credit facilities should be excluded from deduction; the Tribunal agreed but required proper evidence and computation. Conclusion: The issue of segregation of income is remitted to the AO for determination in accordance with law, ensuring only eligible income is allowed deduction under section 80P. (c) Unexplained Cash Deposits and Addition under Section 69A r.w.s. 115BBE Relevant Legal Framework: Section 69A deals with unexplained cash credits, and section 115BBE imposes tax on such undisclosed income. The burden of proof lies on the assessee to explain the source of deposits. Court's Interpretation and Reasoning: The CIT(A)/NFAC accepted the remand report which established that the cash deposits were from members' receipts related to loan repayments and payments for gas cylinders, not income of the society itself. The burden of proof was discharged by the assessee. Key Evidence and Findings: Remand report findings and documentary evidence supported the explanation of cash deposits. Application of Law to Facts: Since the assessee discharged the burden of proof, the addition under section 69A was deleted. Treatment of Competing Arguments: The Revenue initially contended that deposits were unexplained income; the Tribunal upheld the CIT(A)/NFAC's acceptance of explanations. Conclusion: The addition of Rs. 5,15,83,314/- under section 69A r.w.s. 115BBE was deleted. (d) Condonation of Delay of 96 Days in Filing Appeals Relevant Legal Framework: Section 253(5) of the Income Tax Act allows condonation of delay if sufficient cause is shown. The principles laid down by the Apex Court in Collector, Land Acquisition v. Mst. Katiji emphasize preference for substantial justice over technicalities. Court's Interpretation and Reasoning: The Tribunal found the delay was due to awaiting the rectification order under section 154 and was neither intentional nor deliberate. No mala fide or negligence was found. The delay was reasonable and did not cause prejudice to the Revenue. Key Evidence and Findings: Affidavit and grounds of petition explained the cause of delay; no counter-affidavit from Revenue. Application of Law to Facts: Applying the six principles from the Apex Court, the Tribunal held that substantial justice demands condonation of delay. Treatment of Competing Arguments: Revenue urged dismissal on limitation; Tribunal rejected this on merits. Conclusion: Delay of 96 days in filing appeals is condoned and appeals admitted for adjudication. (e) Correction of Addition Figure in Rectification Order Relevant Legal Framework: Section 154 allows rectification of mistakes apparent from record. Accuracy in recording addition figures is essential. Court's Interpretation and Reasoning: The assessee pointed out that the rectification order incorrectly mentioned addition as Rs. 1,61,41,520 instead of the correct figure Rs. 53,85,753. The Tribunal acknowledged this error and directed correction. Key Evidence and Findings: The rectification order and assessment orders showed discrepancy in figures. Application of Law to Facts: The Tribunal found it appropriate to correct the figure to avoid confusion and injustice. Treatment of Competing Arguments: No objection from Revenue recorded. Conclusion: Rectification order to be corrected to reflect the correct addition figure of Rs. 53,85,753. 3. SIGNIFICANT HOLDINGS "The net profit declared as a gross total income amounting to Rs. 1,53,59,677.04 is the actual net profit of the cooperative Society as per the provisions of the income tax act since it is in compliance with the co-operative societies act." "The interest received exclusively from the credit facilities provided to its members will be treated as operating profit of the Co-operative society and eligible for deduction u/s 80P(2)(a)(i) of the Act." "Interest income earned out of the statutory deposits (Required as per RBI guidelines or Co-operative Societies Act) are attributable to the business activity of the co-operative society and hence eligible for deduction u/s 80P(2)(a)(i) of the Act." "Interest received out of surplus fund invested in commercial Banks as well as Interest on I. Tax Refund will be treated as 'Income from Other Sources'. However, the cost of fund and related administrative expenses in respect of earning such interest income should also be allowed as deduction u/s 57 of the I.T.Act, 1961." "When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of non-deliberate delay." "The burden of proof had been discharged by the assessee in the remand report proceedings, and the addition under section 69A r.w.s. 115BBE was deleted." Final determinations:
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