2016 (11) TMI 1614 - AT - Income Tax

Tribunal upholds deduction for Primary Agri Coop Society under section 80P(2)(a)(i)

The Tribunal upheld the CIT(A)'s decision, allowing the deduction under section 80P(2)(a)(i) for the Primary Agricultural Cooperative Society. The ... Deduction u/s 80P(2)(a)(i) - assessee is a primary agricultural credit societies registered under the Kerala Cooperative Societies Act, 1969 - HELD THAT:- In the instant case, the assessee is a primary agricultural credit society registered under the Kerala Cooperative Societies Act, 1969. The certificate, which has been issued by the Registrar of Cooperative Societies, to the above effect, is placed on record. The Hon’ble jurisdictional High Court in assessee own case and other batch of cases had held that primary agricultural credit societies registered under the Kerala Cooperative Societies Act, 1969 are entitled to the benefit of deduction u/s 80P(2)(i)(a) of the Act. Since there is a certificate issued by the Registrar of Cooperative Societies stating that the assessee is a primary agricultural credit society, we hold that the assessee is entitled to the benefit of deduction u/s 80P(2)(a) of the I T Act. Ad-hoc disallowance of 5% out of the total interest paid by the assessee on the deposits received from its members - AO while making the ad-hoc disallowance of interest paid had brought the same to tax under the head “income from business” - HELD THAT:- AO while making the ad-hoc disallowance of interest paid had brought the same to tax under the head “income from business”. Once the same is brought to tax as ‘income from business’, the said income is entitled to the benefit of deduction u/s 80P(2)(i)(a) of the Act. The CBDT, in the recent circular no.37/2016 dated 2nd Nov 2016 has considered higher deduction u/s 80P on the enhanced profit as a result of disallowance of expenditure. The CBDT had clarified that, as a result of expenditure disallowance, there is a enhanced profit and the same is brought to tax as business income, deduction under Chapter VI-A need to be allowed on the enhanced profit. We hold that the CIT(A) is justified in granting benefit of deduction u/s 80P(2)(i)(a) as regard to interest that was disallowed. Accordingly, ground is rejected. Issues:1. Disallowance of deduction claimed under section 80P(2)(a)(i) of the Act.2. Consideration of judgments by Kerala High Court and jurisdictional High Court.3. Disallowance of interest expense and adequacy of evidence.Analysis:Issue 1: Disallowance of deduction under section 80P(2)(a)(i) of the ActThe appeal was against the CIT(A)'s order, where the assessee, a Primary Agricultural Cooperative Society, claimed deduction under section 80P for the assessment year 2012-13. The Assessing Officer disallowed the deduction, leading to an appeal. The CIT(A) allowed the deduction based on previous judgments favoring the assessee and the society's classification as a primary agricultural credit society. The Tribunal upheld the CIT(A)'s decision, emphasizing the society's entitlement to the deduction under section 80P(2)(a)(i) of the Act.Issue 2: Consideration of judgments by Kerala High Court and jurisdictional High CourtThe Hon'ble jurisdictional High Court, in the case of The Chirakkal Service Cooperative Bank Ltd, held that primary agricultural credit societies registered under the Kerala Cooperative Societies Act, 1969, are entitled to the benefit of deduction under section 80P(2). The Court emphasized that societies classified as primary agricultural credit societies by the competent authority under the State law are entitled to exemption under section 80P. The Tribunal, in line with these judgments, allowed the deduction for the assessee, considering the society's classification and the certificate issued by the Registrar of Cooperative Societies.Issue 3: Disallowance of interest expense and adequacy of evidenceThe Assessing Officer made an ad-hoc disallowance of interest paid by the assessee on deposits received from members, adding it under 'business income.' The CIT(A) upheld the disallowance but granted deduction under section 80P on the enhanced income due to the disallowance. The Tribunal supported the CIT(A)'s decision, citing relevant case laws and a CBDT circular allowing deduction under Chapter VI-A on enhanced profit resulting from expenditure disallowance. Consequently, the Tribunal rejected the revenue's appeal, affirming the benefit of deduction under section 80P(2)(i)(a) for the disallowed interest amount.In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order granting the deduction under section 80P(2)(a)(i) and allowing the benefit of deduction on the disallowed interest expense. The judgments by the Kerala High Court and the jurisdictional High Court played a crucial role in establishing the assessee's entitlement to the deductions claimed.