2019 (12) TMI 303 - AT - Income Tax

Tribunal restores disallowed Section 80P(2)(a)(i) deduction, directs netting of interest income/expenses.

ITO, Ward-35 (3), Kolkata. Versus M/s. Kolkata Reserve Bank Employees Co-operative Credit Society Ltd.

ITO, Ward-35 (3), Kolkata. Versus M/s. Kolkata Reserve Bank Employees Co-operative Credit Society Ltd. - TMI Issues Involved:1. Eligibility for Section 80P(2)(d) deduction.2. Interpretation of interest income from fixed deposits.3. Applicability of judicial precedents and consistency principle.4. Computation of the deduction on a netting basis.Issue-wise Detailed Analysis:1. Eligibility for Section 80P(2)(d) Deduction:The primary issue in this case is whether the assessee is eligible for a Section 80P(2)(d) deduction amounting to Rs. 6,97,20,658/-. The Assessing Officer disallowed this deduction, citing the Supreme Court's decision in Totgars Co-operative Sale Society Ltd. vs. ITO (2010), which held that interest income from deposits in non-cooperative banks aimed at earning interest income does not qualify for the deduction. The CIT(A), however, allowed the deduction, relying on the Tribunal's order in the assessee's own case for the Assessment Year 2012-13, which distinguished the facts from the Totgars case and found the interest income eligible for deduction under Section 80P(2)(a)(i).2. Interpretation of Interest Income from Fixed Deposits:The core of the dispute revolves around whether the interest income derived from fixed deposits in nationalized banks can be considered as income from the business of providing credit facilities to members, thereby qualifying for the Section 80P(2)(a)(i) deduction. The CIT(A) and Tribunal's earlier decisions favored the assessee, distinguishing the facts from the Totgars case. However, the Revenue argued that the jurisdictional High Court's decision in CIT vs. South Eastern Railway Employees Co-op Credit Society Ltd. (2017) 390 ITR 524 (Calcutta) should prevail, which held that such interest income does not qualify for the deduction.3. Applicability of Judicial Precedents and Consistency Principle:The Tribunal noted that the jurisdictional High Court's decision in the South Eastern Railway Employees Co-op Credit Society case should be followed for consistency, as mandated by the Supreme Court in CIT vs. Excel Industries 358 ITR 295. The Tribunal also referenced its own decision in ITA No.1868/Kol/2017, which aligned with the High Court's view that interest income from fixed deposits in nationalized banks is not eligible for Section 80P(2)(a)(i) deduction. Thus, the Tribunal treated its earlier orders favoring the assessee as per incuriam (not taking into consideration the settled law).4. Computation of the Deduction on a Netting Basis:The Tribunal acknowledged the assessee's submission that the Section 80P deduction disallowance should be computed on a netting basis, considering both interest income from fixed deposits and corresponding interest expenses. The Tribunal directed the Assessing Officer to recompute the deduction using the netting method, ensuring the assessee is given adequate opportunity of hearing in the consequential proceedings.Conclusion:The Tribunal allowed the Revenue's appeal in principle, restoring the disallowance of the Section 80P(2)(a)(i) deduction made by the Assessing Officer. However, it directed the Assessing Officer to recompute the deduction on a netting basis, considering both interest income and corresponding interest expenses, within three effective opportunities of hearing. The appeal was partly allowed for statistical purposes.