ITAT Orders AO to Allow Deduction u/s 80P for Disallowed Expenses, Including Bad Debts & Commissions.

The ITAT partly allowed the appeal, directing the AO to grant the deduction under Section 80P for the disallowed expenses and additions, including bad debts and commission payments, as they are attributable to the profits and gains of the assessee society. Consequently, other grounds of the appeal were deemed academic.

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Issues Involved:
1. Deduction under Section 80P of the Income Tax Act.
2. Addition of Rs. 3,95,032/- by the Assessing Officer.
3. Disallowance of Daily Deposit Agents’ Commission expenses of Rs. 95,032/-.

Detailed Analysis:

1. Deduction under Section 80P of the Income Tax Act:
The assessee contended that the CIT(A) erred in not allowing the deduction under Section 80P despite it being claimed in the return of income. The Tribunal considered the decision of the coordinate bench in the case of ACIT Circle-4 Vs. Buldana Urban Co-operative Credit Society Ltd., which established that a co-operative society engaged in providing credit facilities to its members is eligible for deduction under Section 80P(2)(a)(i). The Tribunal noted that the CIT(A) had denied the deduction on the grounds that the expenses claimed were not allowable. However, the Tribunal emphasized that Section 80P(2) allows deductions for profits and gains attributable to the activities prescribed in the section, including providing credit facilities to members. The Tribunal concluded that the disallowances made for bad debts and commission payments should qualify for deduction under Section 80P, as they are attributable to the profits and gains of the assessee society. Therefore, the Tribunal directed the Assessing Officer to grant the deduction under Section 80P.

2. Addition of Rs. 3,95,032/- by the Assessing Officer:
The assessee challenged the addition of Rs. 3,95,032/- made by the Assessing Officer, arguing that the income initially believed to have escaped assessment was not found to have escaped assessment, and thus, a fresh notice under Section 148 was necessary for assessing other income. The Tribunal noted that the case was reopened based on AIR information regarding cash deposits and that the Assessing Officer had made various additions, including Rs. 50,000 under Section 43B, Rs. 95,032 as commission paid, and Rs. 3 lakhs for disallowance of provision for bad debt. Since the Tribunal allowed the deduction under Section 80P, the issue of sustaining the addition became academic and did not require separate adjudication.

3. Disallowance of Daily Deposit Agents’ Commission expenses of Rs. 95,032/-:
The assessee contended that the CIT(A) erred in confirming the disallowance of Rs. 95,032/- as Daily Deposit Agents’ Commission expenses. The Tribunal considered this issue in light of the decision to allow the deduction under Section 80P. The Tribunal noted that the commission expenses, being business expenditures deducted from the profit and loss account, are attributable to the profits and gains of the assessee society. Therefore, these expenses should also qualify for the deduction under Section 80P. Consequently, the Tribunal directed the Assessing Officer to allow the deduction for these expenses as well.

Conclusion:
The Tribunal partly allowed the appeal, directing the Assessing Officer to grant the deduction under Section 80P for the disallowed expenses and additions, thereby rendering the other grounds of the appeal academic. The order was pronounced in the open court on 26.12.2019.

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