Appeal Allowed for Statistical Purposes, AO to Recalculate Deductions per Legal Standards

The Tribunal allowed the appeal for statistical purposes, directing the AO to follow the principles laid down in the cited judgments and to compute the deductions in accordance with the law.

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Issues Involved:
1. Legality of the authorities' orders.
2. Deduction of interest on surplus funds u/s 80P(2)(a)(i).
3. Deduction of interest earned from investments with co-operative banks u/s 80P(2)(d).
4. Allowance of proportionate expenditure if interest is considered income from other sources.
5. Legality of the orders in light of ITAT Mumbai judgment in Manickpur Urban Coop. Society Ltd.
6. Legality of the orders in light of Karnataka High Court judgments in Guttigedarara Credit Co-op. Society Ltd. and Tumkur Merchants Souharda Credit Co-op. Ltd.

Summary:

1. Legality of the authorities' orders:
The assessee contended that the orders of the authorities were opposed to law, equity, and the weight of evidence. The Tribunal noted the grounds and proceeded to examine the specific issues raised.

2. Deduction of interest on surplus funds u/s 80P(2)(a)(i):
The assessee claimed exemption u/s 80P(2)(a)(i) for interest earned on surplus funds. The AO disallowed this, stating that generating surplus from member deposits and reinvesting in banks to earn interest falls outside the purview of sec. 80P(2)(a)(i). The CIT(A) upheld this decision, relying on the Supreme Court judgment in Totgar Cooperative Sales Society Vs. ITO.

3. Deduction of interest earned from investments with co-operative banks u/s 80P(2)(d):
The assessee argued that interest earned from investments with co-operative banks should be eligible for deduction u/s 80P(2)(d). The Tribunal referred to various judgments, including those of the Karnataka High Court and ITAT, and noted that co-operative banks are considered co-operative societies. Therefore, interest earned from such banks qualifies for deduction u/s 80P(2)(d).

4. Allowance of proportionate expenditure if interest is considered income from other sources:
The Tribunal acknowledged the assessee's plea that if interest is considered income from other sources, proportionate expenditure should be allowed u/s 57. The Tribunal directed the AO to allow the expenditure incurred in earning such interest while computing income under the head "Income from Other Sources."

5. Legality of the orders in light of ITAT Mumbai judgment in Manickpur Urban Coop. Society Ltd.:
The assessee cited the ITAT Mumbai judgment in Manickpur Urban Coop. Society Ltd. to argue that the authorities' orders were illegal. The Tribunal considered this judgment and other relevant case laws, directing the AO to follow the principles laid down in these judgments.

6. Legality of the orders in light of Karnataka High Court judgments in Guttigedarara Credit Co-op. Society Ltd. and Tumkur Merchants Souharda Credit Co-op. Ltd.:
The Tribunal referred to the Karnataka High Court judgments in Guttigedarara Credit Co-op. Society Ltd. and Tumkur Merchants Souharda Credit Co-op. Ltd., which supported the assessee's claim for deduction u/s 80P(2)(d). The Tribunal directed the AO to compute the deduction in accordance with these judgments.

Conclusion:
The Tribunal allowed the appeal for statistical purposes, directing the AO to follow the principles laid down in the cited judgments and to compute the deductions in accordance with the law. The appeal was pronounced in court on 19th July, 2023.

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