2022 (10) TMI 850 - AT - Income Tax

Tribunal orders deduction under Section 80P(2)(d) and Section 57, remands cash deposit issue for verification

The Tribunal directed the Assessing Officer to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and related ... Deduction u/s 80P(2)(a)(i) - AO denied the claim of the assessee on the ground that interest income earned by making investment of surplus funds has to be assessed under the head 'Income from Other Sources' and not income from business and since interest income is not assessed as business income, the claim for deduction u/s 57 of the Act cannot be allowed - HELD THAT:- We find that co-operative society is a broad and larger umbrella under which the co-operative banks do perform. We also note that all co-operative societies may not be banks, but all co-operative banks are deemed to be cooperative societies. According to banking Regulations Act, a cooperative society bank as the same meaning of the co- operative society. On a plain reading of section 80P(2)(d), there is no such stipulation or prerequisite as to the nature of the funds. We also find that Section 80P(2)(d) of the Act, allows whole deduction of an income by way of interest or dividends derived by the cooperative society from its investment with any other co-operative society. Section 80P(2)(d) provides additional benefit of deduction under section 80P for those co-operative societies, which has surplus funds even unrelated to its main business activity, which are invested with other co-operative societies. Thus, Clause (d) of section 80P applies to all co-operative societies, whether or not, their main businesses banking and credit facilities to the members. Therefore, in our view, the section envisages deduction in respect of any income derived by the co-operative society from any investment with a co-operative society. Thus we hold that the assessee is eligible for deduction under section 80P(2)(d) in respect of interest earned from deposits made on other Co-operative banks. However, we deem it appropriate on the facts of the instant case, to restore the issue of claim of deduction u/s 80P(2)(d) of the Act, to the files of the Ld.AO to allow the claim as indicated herein above, by granting proper opportunity of being heard to the assessee. We direct the Ld.AO to allow the expenditure incurred while computing income under the head, ‘Income from Other Sources’, in relation to earning of interest from the commercial banks. Unaccounted money of the assessee in old currency notes (SBN) have been pumped into as unaccounted money - Not granting sufficient time to the assessee for representing its case before the Ld.PCIT - HELD THAT:- The instruction dated 21/02/2017 that the assessing officer basic relevant information e.g. monthly sales summary, relevant stock register entries and bank statement to identify cases with preliminary suspicion of back dating of cash and is or fictitious sales. The instruction is also suggested some indicators for suspicion of back dating of cash else or fictitious sales where there is an abnormal jump in the cases during the period November to December 2016 as compared to earlier year. It also suggests that, abnormal jump in percentage of cash trails to on identifiable persons as compared to earlier histories will also give some indication for suspicion. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases is also some indication for suspicion of fictitious sales. Transfer of deposit of cash to another account or entity, which is not in line with the earlier history. Therefore, it is important to examine whether the case of the assessee falls into any of the above parameters are not. The assessee is directed to establish all relevant details to substantiate its claim in line with the above applicable instructions. We are aware of the fact that not every deposit during the demonetisation period would fall under category of unaccounted cash. However the burden is on the assessee to establish the genuineness of the deposit in order to fall outside the scope of unaccounted cash. AO shall verify all the details / evidences filed by the assessee based on the above direction and to consider the claim in accordance with law. Needless to say that proper opportunity of being heard must be granted to the assessee. The assessee may be granted physical hearing in order to justify its claim. Issues Involved:1. Disallowance of deduction claimed under Section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act.2. Disallowance of cash deposits during the demonetisation period.Issue-Wise Detailed Analysis:Assessment Year 2015-16:1. Disallowance of Deduction under Section 80P(2)(a)(i) and 80P(2)(d):- The assessee, a cooperative credit society, filed a return declaring NIL income after claiming a deduction under Section 80P(2)(a)(i) amounting to Rs. 60,70,430/-. The Assessing Officer (AO) disallowed the deduction.- The CIT(A) upheld the AO's decision, stating that the interest income of Rs. 21,56,028/- from investments with various banks was not eligible for deduction under Section 80P(2)(a) or 80P(2)(d) as the banks were neither members of the society nor cooperative societies/banks.- The Tribunal noted that the CIT(A) relied on the Supreme Court decision in Totgar's Cooperative Sale Society Ltd. v. ITO, which held that interest earned on surplus funds is 'Income from Other Sources' and not business income, thus not eligible for deduction under Section 80P(2)(a)(i).- The Tribunal also considered whether cooperative banks qualify as cooperative societies under Section 80P(2)(d), concluding that they do, thus making interest earned from deposits in cooperative banks eligible for deduction.- The Tribunal restored the issue to the AO for fresh consideration, directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57.Assessment Year 2017-18:1. Disallowance of Deduction under Section 80P(2)(a)(i) and 80P(2)(d):- The assessee declared total income of Rs. 1,17,760/- after claiming a deduction of Rs. 72,23,512/- under Section 80P(2)(a)(i). The AO disallowed Rs. 73,41,272/- from the exemption claimed, stating that the interest was earned from investments in scheduled banks and cooperative banks other than cooperative societies.- The CIT(A) upheld the AO's disallowance.- The Tribunal applied the same reasoning as for the assessment year 2015-16, restoring the issue to the AO for fresh consideration and directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57.2. Disallowance of Cash Deposits during Demonetisation:- The assessee accepted cash deposits during the demonetisation period, which the AO did not verify according to CBDT Circulars.- The Tribunal noted a violation of natural justice due to insufficient time granted to the assessee for representation.- The Tribunal remanded the issue to the AO to verify the cash deposits in accordance with CBDT instructions, directing the AO to grant the assessee a proper opportunity to substantiate its claim.Assessment Year 2019-20:1. Disallowance of Deduction under Section 80P(2)(a)(i) and 80P(2)(d):- The assessee declared total income of Rs. 6,09,700/- after claiming a deduction of Rs. 1,03,11,674/-. The CPC disallowed the deductions under Section 80P(2)(a)(i) and 80P(2)(d).- The CIT(A) directed the AO to verify the claim.- The Tribunal applied the same reasoning as for the assessment year 2015-16, restoring the issue to the AO for fresh consideration and directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57.Conclusion:In all three assessment years, the Tribunal restored the issues to the AO for fresh consideration, directing the AO to allow the deduction under Section 80P(2)(d) for interest earned from cooperative banks and to allow related administrative expenses under Section 57. For the assessment year 2017-18, the Tribunal also remanded the issue of cash deposits during demonetisation to the AO for verification in accordance with CBDT instructions. All appeals filed by the assessee were allowed for statistical purposes.