2022 (3) TMI 1283 - AT - Income Tax

Tribunal emphasizes natural justice in tax appeal, upholds disallowance under section 80P(2)(a).

The Tribunal allowed the appeal for statistical purposes, directing the appellant to appear before the ld. CIT(A) for a fair hearing. The judgment ... Claim of deduction u/s 80P(2)(a)(i) - appellant/assessee is co-operative society, engaged in the business of providing credit facilities to its members - AO has disallowed the claim of deduction u/s 80P(2)(a)(i) treating the assessee “co-operative society” as a “co-operative bank” - HELD THAT:- It is an admitted fact that the ld. CIT(A) has passed an ex-parte order qua the assessee. CIT(A) has mentioned several dates on which the case was fixed for hearing, where the assessee failed to appear before the CIT(A). As seen that the ld. CIT(A) has mentioned the dates of fixation of hearing but he has not mentioned the date of service of notice on the assessee. In the absence of the factum of service of notice, the contentions raised by the assessee has substance and in our view, the request of the assessee is justified that he ought to have been heard by the ld. CIT(A) before any adverse inference was drawn by not only issuing notice but by way of bringing the acknowledgment of service of notice on record. We are of the considered opinion that the appeal should be set aside to the file of the CIT(A) as there is violation of principles of natural justice. The assessee is directed to appear before the ld. CIT(A), take notice and thereafter co-operate in disposal of the appeal - Appeal of the assessee is allowed for statistical purposes. Issues:Claim of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961 - Disallowance of deduction - Income earned from regular members vs. non-regular members - Treatment of income from investments and deposits - Ex-parte order passed by the ld. CIT(A) - Violation of principles of natural justice.Analysis:1. Claim of Deduction u/s 80P(2)(a)(i):The appellant, a cooperative society providing credit facilities to its members, challenged the disallowance of the claim of deduction u/s 80P(2)(a)(i) of the Income Tax Act, 1961. The AO disallowed the claim, assessing the income at a higher amount than the returned income. The ld. CIT(A) confirmed this disallowance, stating that income earned from non-regular members is not eligible for deduction under section 80P(2)(a). The ld. CIT(A) allowed deduction only for income earned from business activities with regular members having equal rights. Income from investments and deposits other than in cooperative societies was held as taxable under 'Income from other sources.'2. Treatment of Income from Investments and Deposits:The ld. CIT(A) held that income from investments and deposits, excluding those in savings accounts or cooperative societies, should be taxed as 'Income from other sources' and not eligible for deduction u/s 80P. The appellant failed to provide details of income earned through investments, and the AO determined interest income from fixed deposits with banks. Expenditure directly linked to earning income from other sources was deemed allowable, distinct from expenditure related to business income.3. Ex-parte Order and Violation of Principles of Natural Justice:The appellant contended that the ld. CIT(A) passed an ex-parte order due to medical reasons preventing their appearance. The Tribunal noted the absence of specific mention regarding the service of notice to the appellant by the ld. CIT(A). Considering the principles of natural justice, the Tribunal set aside the appeal to the file of the ld. CIT(A) for proper hearing and cooperation from the appellant, emphasizing the importance of providing an opportunity to be heard before drawing adverse inferences.In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the appellant to appear before the ld. CIT(A) for a fair hearing. The judgment highlighted the significance of adherence to natural justice principles in tax proceedings, ensuring parties have the opportunity to present their case effectively.