2022 (3) TMI 75 - AT - Income Tax

Tribunal grants deductions for interest and dividend income, remands other issues for re-evaluation.

Gramin Sewa Sahakari Samiti Maryadit, Sewa Sahakari Samiti Maryadit Rajnandgaon Versus The Income Tax Officer- 1 (3) Raipur (C.G.)

The Tribunal allowed the assessee's appeal for deduction under Section 80P(2)(a)(i) for interest income and under Section 80P(2)(d) for dividend income. ... Disallowance of deduction of interest income u/s. 80P(2)(a)(i) - Interest income that was earned on the surplus funds which were deposited by it with Jila Sahakari Kendriya Bank, i.e, a co-operative bank - whether or not the interest income earned by it on its surplus funds which were parked as deposits in the normal course of its business of providing credit facilities to its members, i.e., at the point of time when there were no takers for the said funds, was eligible for deduction u/s. 80P(2)(a)(i)? - HELD THAT:- As in the case of the assessee before us the surplus funds parked by way of short-term deposit with the co-operative bank, viz. Jila Sahakari Kendriya Bank are inextricably interlinked, or in fact interwoven with its business of providing credit facilities to its members, therefore, the same as claimed by the Ld. AR, and rightly so, would duly be eligible for deduction u/s. 80P(2)(a)(i) - We, thus, in terms of our aforesaid observations, direct the AO to allow deduction u/s. 80P(2)(a)(i) of the Act on the interest income earned by the assessee society on its deposits with the co-operative bank. Deduction of the income earned from paddy procurement business u/s 80P(2)(a)(iii) - Scaling down 35% of its claim - HELD THAT:- We find substantial force in the claim of the Ld. AR that now when only a small fraction of the procurement of paddy was made by the assessee-society in the course of its paddy procurement business from non-members, therefore, restricting of its claim for deduction u/s. 80P(2)(a)(iii) of the Act to 35% of the profits earned from theee said business activity was not justified. Be that as it may, we are of the considered view that as the compilation of the paddy procurement by the assessee-society has been filed before us as additional documentary evidence, and the same was not there before the lower authorities, therefore, the matter in all fairness requires to be re-visited by the AO - In terms of the aforesaid observation set-aside the matter to the file of the AO, with a direction to re-adjudicate the same after considering the additional documentary evidence that had been filed by the assessee before us - AO shall after determining as to what extent the assessee society had facilitated the marketing of the agricultural produce grown by non-members, therein, restrict the assessee’s claim for deduction u/s. 80P(2)(a)(iii) of the Act only to the extent of the profit relatable thereto. Addition of gross profit earned by the assessee-society from its public distribution activity during the year under consideration, viz. distributing essential commodities to the ration card holders through fair price shop - HELD THAT:- Before us, it is the claim of the assessee that as the profit from PDS activities after considering the proportionate expenses amounted therefore, its claim for deduction u/s.80P(2)(c)(i) of the Act was liable to be restricted only to the said extent. After having given a thoughtful consideration to the claim of the Ld. AR, we though principally concur with his aforesaid claim, but then, the same cannot be accepted on the very face of it and would require factual verification. Therefore, for the said limited purpose, we restore the matter to the file of the AO for doing the needful. Rejection of the assessee’s claim for deduction u/s. 80P(2)(d) - deduction of the dividend income received on the shares of Jila Sahakari Kendriya Bank, Raipur, i.e a co-operative bank - HELD THAT:- In our considered view, as a Co-operative bank falls within the realm of the definition of “Co-operative Society” as contemplated in Section 2(19) of the Act, therefore, the view taken by the lower authorities that dividend income received by the assessee from Jila Sahakari Kendriya Bank, Raipur, i.e a Co-operative Bank, would not eligible for deduction u/s. 80P(2)(d) of the Act cannot be sustained. Our aforesaid view is fortified by the order of the ITAT, Mumbai in the case of M/s Solitaire CHS Ltd [2019 (12) TMI 80 - ITAT MUMBAI] - Decided in favour of assessee. Issues Involved:1. Deduction under Section 80P(2)(a)(i) for interest income from banking business.2. Deduction under Section 80P(2)(a)(iii) for income from paddy procurement business.3. Deduction under Section 80P(2)(c)(i) for profit from Public Distribution System (PDS) business.4. Deduction under Section 80P(2)(d) for dividend income from a co-operative bank.Detailed Analysis:1. Deduction under Section 80P(2)(a)(i) for Interest Income from Banking Business:The assessee, a cooperative society engaged in various businesses including banking, claimed a deduction of Rs. 7,98,705 under Section 80P(2)(a)(i) for interest income earned from deposits with Jila Sahakari Kendriya Bank, a cooperative bank. The lower authorities denied this deduction, but the assessee argued that the interest income was an integral part of its business of providing credit to its members. The assessee cited the Supreme Court judgment in Mavilayi Service Cooperative Bank Ltd. vs. CIT, which supports a liberal interpretation of Section 80P for cooperative societies. The Tribunal agreed with the assessee, distinguishing the case from Totgars Co-operative Sale Society Ltd. vs. ITO, and held that the interest income from surplus funds deposited with the cooperative bank was eligible for deduction under Section 80P(2)(a)(i).2. Deduction under Section 80P(2)(a)(iii) for Income from Paddy Procurement Business:The assessee claimed a deduction of Rs. 16,21,218 under Section 80P(2)(a)(iii) for profit from paddy procurement business. The Assessing Officer (AO) restricted the deduction to 35% of the profit, arguing that paddy was also procured from non-members. The assessee contended that transactions with non-members were minimal and did not exceed 25% of the total transactions. The Tribunal admitted additional evidence provided by the assessee and remanded the matter back to the AO to re-adjudicate the claim, directing the AO to determine the extent of paddy procurement from non-members and restrict the deduction accordingly.3. Deduction under Section 80P(2)(c)(i) for Profit from PDS Business:The assessee claimed a deduction for the profit earned from the Public Distribution System (PDS) business. The AO disallowed the deduction, stating that Section 80P(2)(c)(i) applies only to consumer cooperative societies. The assessee argued that the net profit after considering proportionate expenses was Rs. 3,08,338. The Tribunal agreed with the assessee's claim in principle but remanded the matter to the AO for factual verification to determine the net profit after proportionate expenses and restrict the deduction accordingly.4. Deduction under Section 80P(2)(d) for Dividend Income from a Co-operative Bank:The assessee claimed a deduction of Rs. 1,16,224 under Section 80P(2)(d) for dividend income received from Jila Sahakari Kendriya Bank, a cooperative bank. The AO denied the deduction, citing that the bank was not a cooperative society and referring to Section 80P(4), which excludes cooperative banks from the benefits of Section 80P. The Tribunal disagreed, stating that a cooperative bank falls within the definition of a 'cooperative society' under Section 2(19) of the Act. The Tribunal cited the ITAT Mumbai decision in M/s Solitaire CHS Ltd vs. Principal Commissioner of Income Tax and concluded that the dividend income from the cooperative bank was eligible for deduction under Section 80P(2)(d).Conclusion:The Tribunal allowed the assessee's appeal for deduction under Section 80P(2)(a)(i) for interest income and under Section 80P(2)(d) for dividend income. It remanded the issues related to deductions under Section 80P(2)(a)(iii) for paddy procurement business and Section 80P(2)(c)(i) for PDS business back to the AO for re-adjudication based on additional evidence and factual verification. All appeals were allowed or allowed for statistical purposes in terms of the Tribunal's observations.