2025 (7) TMI 169 - AT - Income Tax

Disallowance of claim pf bad debt which ultimately form part of profits eligible for deduction u/s 80P(2)(a)(i) - HELD THAT - AO as well as the CIT were not correct in appreciating the fact that the assessee is entitled for deduction u/s. 80P (2)(a)(i) of the Act and hence whatever disallowance has been made by them would ultimately increase the profit eligible for deduction u/s. 80P(2)(a)(i) of the Act a reference can be made to the decision of Bangady Cooperative Society 2024 (7) TMI 1654 - ITAT BANGALORE wherein deduction u/s 80P(2)(a)(i) of the Act on the income derived by the assessee from providing credit facilities to its members has been enhanced by including the sum disallowed u/s 40(a)(ia) of the Act. Appeal filed by the assessee is allowed.

Summary

The Appellate Tribunal (ITAT Cochin) allowed the assessee's appeal for AY 2012-13 concerning disallowance of bad debts claimed by a co-operative society under the Income-tax Act, 1961. The Assessing Officer (AO) disallowed Rs. 1.22 crore claimed as bad debts, which arose after the society waived penal interest on loans to members as directed by the Kerala Government. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the AO's disallowance, rejecting the assessee's argument that disallowed amounts ultimately form part of profits eligible for deduction under section 80P(2)(a)(i).The ITAT noted that both AO and CIT(A) erred in not recognizing that "whatever disallowance has been made by them would ultimately increase the profit eligible for deduction u/s. 80P(2)(a)(i) of the Act." Citing the coordinate bench decision in Bangady Cooperative Society Vs ITO (ITA No. 739/Bang/2024), the Tribunal held that deduction under section 80P(2)(a)(i) applies to income derived from credit facilities to members, including sums disallowed under section 40(a)(ia). Accordingly, the Tribunal allowed the appeal on this ground without delving into other issues.Key holding: The disallowance of bad debts does not preclude the assessee from claiming deduction under section 80P(2)(a)(i), as the disallowed amount ultimately enhances profits eligible for such deduction.