2018 (12) TMI 1912 - AT - Income Tax

Deduction u/s 80P - interest income earned from Co-operative banks - Nexus between expenditure factually incurred to earn income of dividend - HELD THAT - We find that there is not direct specific or definite expenditure factually incurred to earn income of dividend and or intent from investments with other co-operative societies eligible for deduction u/s.80P(2)(d) of the Act. hence the action of the AO in assuming expenditure alleged to have incurred or deemed to have incurred for earning dividend without bring any evidence or record to prove the nexus between expenditure disallowed and dividend/interest income earned from investment with other co-operative societies in wholly arbitrary imaginary hence not sustainable in law. It is seen that the assessee has been statutorily investing its surplus fund from the year 1992 with other co-operative societies including co-operative banks. On such investment the assessee is receiving interest and dividend which has been claimed as deduction u/s.80P(2)(d) of the Act. It is evident that there is no direct nexus between such expenses and interest and dividend. The prorate allocation of interest expenditure resulting its part disallowance of deduction has been done without examined the issue in details. Therefore in absence of any expenses directly or indirectly co-related to such income the part disallowance of deduction is not satisfied. In view of this matter we do not find any fault in the order of CIT(A) hence same is upheld. Claim of deduction u/s. 80P(2)(d) of the Act on the interest income earned from Co-operative banks - The assessee is a Credit Co-operative Society and received advances and loans from its members on which interest was being received and paid. We find that the Surat Bench of the Tribunal (camp at Surat) on the similar issue in assessee s own case 2017 (4) TMI 1545 - ITAT SURAT for the A. Y. 2009-10 held the issue in favour of the assessee . We find that there is no direct nexus between expenditure related to part disallowance hence findings of CIT(A) are upheld. It is further apparent that the assessee is entitled to deduction u/s.80P(2)(d) in respect of the interest income earned from Co-operative Societies are eligible for deduction. Therefore we do not find any infirmity in the order of ld. CIT(A) and we upheld the same accordingly the above ground Nos. 1 to 6 raised by the Revenue are dismissed.

Summary

Issues Involved:
1. Deduction under Section 80P of the Income-tax Act, 1961.
2. Classification of interest income from nationalized banks as business income or income from other sources.
3. Eligibility for deduction under Section 80P(2)(d) of the Income-tax Act, 1961.
4. Validity of the Assessing Officer's order versus the CIT(A)'s decision.

Issue-wise Detailed Analysis:

1. Deduction under Section 80P of the Income-tax Act, 1961:
The Revenue challenged the CIT(A)'s decision allowing a deduction under Section 80P amounting to Rs. 71,07,151. The CIT(A) found that the assessee, a Co-operative credit society, had shown a Gross Total Income of Rs. 2,60,99,821, which included Rs. 71,07,151 as interest income from nationalized banks. The CIT(A) noted that the assessee had claimed deductions under Sections 80P(2)(d) and 80P(2)(c) of Rs. 4,96,37,547 and Rs. 50,000, respectively, which exceeded the Gross Total Income. Consequently, the deduction was restricted to the Gross Total Income, and the CIT(A) concluded that the assessee did not claim any deduction under Section 80P(2)(a)(i) or 80P(2)(d) for the Rs. 71,07,151 interest income from nationalized banks. The Tribunal upheld this decision, noting the absence of any taxable income after allowable deductions.

2. Classification of Interest Income from Nationalized Banks:
The AO classified the interest income of Rs. 71,07,151 from nationalized banks as income from other sources, not as business income. The AO cited decisions in CIT v. Secunderabad Club Picket and Bangalore Club v. CIT, arguing that interest income on Bank FDs is taxable and lacks mutuality. The CIT(A) and the Tribunal, however, found that the assessee did not claim this interest income as a deduction under Section 80P(2)(d), supporting the classification as non-business income but not affecting the overall deduction.

3. Eligibility for Deduction under Section 80P(2)(d):
The AO contended that the interest income from nationalized banks was not eligible for deduction under Section 80P(2)(d), which applies to income from investments with other co-operative societies. The Tribunal referenced its previous rulings in similar cases, affirming that the assessee was entitled to deductions for interest income from co-operative societies. The Tribunal found no direct nexus between the expenses and the interest income from co-operative societies, supporting the CIT(A)'s decision to allow the deduction.

4. Validity of the Assessing Officer's Order versus the CIT(A)'s Decision:
The Tribunal reviewed the AO's order and the CIT(A)'s decision, ultimately siding with the CIT(A). The Tribunal cited previous judgments, including those in the assessee's own cases for earlier assessment years, which consistently supported the CIT(A)'s interpretation of Section 80P(2)(d) and the rightful deductions. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision and the assessee's eligibility for the claimed deductions.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, confirming that the assessee's deductions under Section 80P were valid and that the interest income from nationalized banks, while classified as income from other sources, did not affect the overall deductions claimed. The Revenue's appeal was dismissed, and the CIT(A)'s order was restored.