2018 (6) TMI 1787 - AT - Income Tax

Tribunal upholds full deduction under Section 80P(2)(d) for co-op society income.

Assistant Commissioner of Income Tax, Circle –6, Surat Versus Bardoli Vibhag Gram Vikas Co- Operative Credit Society Ltd.

Assistant Commissioner of Income Tax, Circle –6, Surat Versus Bardoli Vibhag Gram Vikas Co- Operative Credit Society Ltd. - TMI Issues Involved:1. Deduction claimed by the assessee under Section 80P(2)(d) of the Income Tax Act.2. Nexus between interest/dividend income earned from co-operative societies and interest expenditure incurred by the assessee on borrowed funds.Detailed Analysis:Issue 1: Deduction Claimed by the Assessee under Section 80P(2)(d)The Revenue challenged the CIT(A)'s decision allowing the assessee's deduction claim under Section 80P(2)(d) amounting to Rs. 1,40,52,159/-. The assessee, a Co-operative credit society, claimed deductions on interest and dividend income earned from investments with other co-operative societies. The AO had reduced the allowable deduction to Rs. 22,24,361/- after excluding interest received from Surat Dist. Co-operative Bank Ltd. and prorating expenses. The CIT(A) observed that the assessee's investments were long-standing and not directly linked to any current year's expenses. Consequently, the CIT(A) allowed the full deduction as claimed by the assessee.Issue 2: Nexus Between Interest/Dividend Income and Interest ExpenditureThe AO contended that the interest expenses incurred by the assessee were directly connected to the interest income earned, thus warranting a proportionate disallowance of deductions. However, the CIT(A) found no direct or indirect nexus between the interest expenses and the income from investments. It was noted that the interest expenses were related to member deposits and not to the investments generating the interest and dividend income. The Tribunal upheld this view, emphasizing that the assessee’s investments were made long back and no new investments were made during the relevant year. Therefore, the interest expenses could not be linked to the income earned from these investments.Judgment Summary:The Tribunal confirmed the CIT(A)'s order, which allowed the assessee's deduction claim under Section 80P(2)(d) on the net income of Rs. 1,40,52,159/-. The Tribunal found no evidence of direct or indirect expenses related to the income from co-operative society investments, thus rejecting the AO's prorated disallowance. The Tribunal also referenced its previous decisions and other judicial pronouncements, affirming that the assessee's claim was in accordance with the law. Consequently, the Revenue's appeal was dismissed.Conclusion:The Tribunal upheld the CIT(A)'s decision, allowing the full deduction claimed by the assessee under Section 80P(2)(d) and dismissing the Revenue's appeal. The judgment emphasized the lack of direct nexus between the interest expenses and the income from investments with other co-operative societies, validating the assessee's deduction claim on net income.