Tribunal remits compliance issue under Karnataka Souharda Sahakari Act for Income Tax deductions

The Tribunal partly allowed both appeals for statistical purposes, remitting the issue back to the AO to demonstrate compliance with statutory requirements under the Karnataka Souharda Sahakari Act, 1997 for claiming deductions under the Income Tax Act, 1961. The Tribunal emphasized the importance of maintaining funds as per statutory requirements, directing the AO to determine net income after set off of cost of funds/interest expenditure for taxability u/s. 56 of the Act.

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Issues involved:
The judgment involves appeals against the orders of the CIT(Appeals) for the AYs 2017-18 & 2018-19 related to disallowance of deduction u/s. 80P(2)(a)(i) of the Income Tax Act, 1961 and interest income received from investments with a Co-operative Bank.

AY 2017-18:
The assessee, a Souharda Co-operative Society registered under Karnataka Souharda Sahakari Act, 1997, claimed deduction u/s. 80P(2)(a)(i) for interest income received from investments with a Co-operative Bank. The AO disallowed the deduction due to the absence of registration under Karnataka Co-op. Societies Act, 1959, leading to disallowance of Rs. 63,48,443. The CIT(Appeals) upheld the disallowance of Rs. 9,93,255. The Tribunal remitted the issue back to the AO to demonstrate the mandatory requirement for maintaining funds under the Karnataka Souharda Sahakari Act, 1997. The Tribunal allowed the deduction if the funds were maintained as per statutory requirements, partly allowing the appeal.

AY 2018-19:
The decision for AY 2017-18 was applied mutatis mutandis for AY 2018-19. The Tribunal partly allowed both appeals for statistical purposes. The Tribunal also directed the AO to determine the net income after set off of cost of funds/interest expenditure for taxability u/s. 56 of the Act, following the judgment of the Hon'ble High Court of Karnataka. This issue was remitted to the AO for further determination. The assessee was instructed to produce relevant documents for substantiating its claim.

Conclusion:
Both appeals by the assessee were partly allowed for statistical purposes, with the issues for AY 2017-18 and 2018-19 being addressed similarly. The Tribunal emphasized the need for the assessee to comply with statutory requirements under the Karnataka Souharda Sahakari Act, 1997 for claiming deductions under the Income Tax Act, 1961.

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