2019 (7) TMI 798 - AT - Income Tax

Tribunal Remands Income Classification Issue for Fresh Adjudication

The Tribunal allowed the appeal for statistical purposes, remanding both issues to the AO for fresh adjudication. The AO is directed to differentiate ... Deduction u/s 80P(a)(i) - interest income attributable to its business - AO’s rejection of the assessee’s claim for deduction in respect of interest received from other investments and deposits which was to be assessed under the head ‘Income from Other Sources’ - HELD THAT:- On the similar issue, the ITAT, Bangalore Bench, in the case of Jyoti Co-operative Credit Society Ltd., Vs. ITO [2019 (5) TMI 1654 - ITAT BANGALORE], after considering the decision of the Hon’ble Apex Court in the case of Citizens Co-operative Society Ltd., [2017 (8) TMI 536 - SUPREME COURT] has restore matter back to his tile for a fresh decision with the direction that sufficient opportunity should be provided by him to both sides and the assessee should provide complete detail with cogent evidence in respect of business carried out by the assessee with nominal members and general public, if any. The assessee should also demonstrate about the difference in facts of the present case and facts in the case of Citizen Co -Operative Society Limited vs. ALIT (Supra). Respectfully following the decision of the ITAT, Bangalore Bench, (supra) restoring the matter to the file of the AO for fresh examination and adjudication Eligible of persons to be members under the Karnataka State Co-operative Societies Act, 1959 - classification / restriction under the Act - HELD THAT:- On similar facts, the Co-ordinate Bench of this Tribunal in its decision in the case of Chatrapati Sivaji Co-operative Credit Society Ltd., Vs. ITO [2018 (12) TMI 1662 - ITAT BANGALORE] restored this issue back to the file of the AO O for fresh adjudication after examination / verification of the facts in the light of the judgments of Totgars Co-operative Sale Society Ltd., Vs. ITO [2010 (2) TMI 3 - SUPREME COURT] and case of Tumkur Merchants Souharda Co-operative Ltd. [2015 (2) TMI 995 - KARNATAKA HIGH COURT] - the assessee’s appeal is allowed for statistical purposes. Issues Involved:1. Deduction under section 80P(2)(a)(i) of the Income Tax Act for income from regular members vs. associate members.2. Classification of interest earned from cooperative banks as 'Income from Other Sources' and its eligibility for deduction under section 80P(2)(a)(i).Issue-wise Detailed Analysis:1. Deduction under section 80P(2)(a)(i) of the Income Tax Act for income from regular members vs. associate members:The assessee, a Co-operative Society, filed its return for Assessment Year 2012-13, declaring NIL income after claiming a deduction under section 80P(2)(a)(i). The AO disallowed this deduction, referencing the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. The CIT(A) partially upheld this decision, allowing deductions for income from regular members but not for income from associate members.The assessee appealed, arguing that the CIT(A) incorrectly applied the Supreme Court's decision in Citizen Co-operative Society Ltd. The Tribunal noted that the CIT(A) did not adequately compare the facts of the current case with those in Citizen Co-operative Society Ltd. The Tribunal referenced a similar case, Jyoti Co-operative Credit Society Ltd., where the matter was remanded for fresh consideration.The Tribunal decided to set aside the CIT(A)'s order and remand the issue to the AO for fresh adjudication, ensuring both parties have the opportunity to present their cases. The AO is directed to consider the specifics of the business conducted with associate members and to differentiate the facts from the Citizen Co-operative Society Ltd. case before making a decision.2. Classification of interest earned from cooperative banks as 'Income from Other Sources' and its eligibility for deduction under section 80P(2)(a)(i):The assessee contended that the CIT(A) erred in treating interest earned from cooperative banks as 'Income from Other Sources' and disallowing the deduction under section 80P(2)(a)(i). The assessee argued that the deposits were made from regular business funds, and thus, the interest should be eligible for deduction.The Tribunal referenced the decision in Chatrapati Sivaji Co-operative Credit Society Ltd., which dealt with similar facts and restored the issue to the AO for fresh adjudication. The Tribunal noted that the Karnataka High Court's decision in Tumukur Merchants Souharda Credit Cooperative Ltd. and the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. should be considered.The Tribunal decided to remand this issue to the AO for fresh examination, directing the AO to verify the facts in light of the relevant judicial decisions. The AO must provide the assessee with an opportunity to present evidence and arguments before making a final decision.Conclusion:The Tribunal allowed the appeal for statistical purposes, remanding both issues to the AO for fresh adjudication, ensuring that the assessee is given adequate opportunity to be heard and to present necessary details and evidence. The AO is instructed to consider relevant judicial precedents and to issue a reasoned and speaking order based on the findings.