Cooperative society gets deduction under Section 80P(2)(a)(i) for bank deposit interest income, delayed PF-ESI payments reviewed

ITAT Raipur allowed deduction u/s 80P(2)(a)(i) for interest income received by cooperative society from deposits in commercial banks, following precedents from Karnataka HC and Andhra Pradesh HC. The tribunal held that interest on surplus funds deposited in banks qualifies for deduction. Regarding delayed PF-ESI payments, ITAT directed AO to verify if payments were made within prescribed time including 5-day grace period, following coordinate bench decision in Dilip Construction Company case. If payments were timely including grace period, disallowance should be vacated; otherwise sustained.

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Issues Involved:
1. Disallowance of claim under section 80P(2)(d) regarding interest income from deposits in commercial banks.
2. Disallowance on account of delayed payment of PF-ESI under section 36(1)(va).

Summary:

Issue 1: Disallowance of Claim under Section 80P(2)(d)
The common issue pertains to the disallowance of the claim under section 80P(2)(d) regarding interest income received by the assessee society from deposits in saving bank accounts maintained with commercial banks such as SBI. The amounts disallowed for various assessment years are detailed as follows: AY 2013-14: Rs. 2,22,700/-, AY 2017-18: NIL, AY 2018-19: Rs. 75,31,489/-, AY 2020-21: Rs. 87,67,427/-.

The assessee argued that the disallowance was an erroneous application of law, citing various judicial decisions, including the Supreme Court's ruling in the case of Kerala State Co-Operative Agricultural & Rural Development Bank Ltd. vs. Assessing Officer, which emphasized that section 80-P is a benevolent provision intended to promote the growth of the co-operative sector and should be read liberally in favor of the assessee.

The Tribunal referred to the decision in the case of Gramin Seva Sahkari Samiti Maryadit, where it was held that interest earned on surplus funds deposited with a co-operative bank is eligible for deduction under section 80P(2)(a)(i). The Tribunal concluded that the interest income from deposits in commercial banks is also eligible for deduction under section 80P(2)(a)(i), as it is attributable to the business of providing credit facilities to its members.

Issue 2: Disallowance on Account of Delayed Payment of PF-ESI
Another issue raised was the disallowance made in AY 2017-18 on account of delayed payment of PF-ESI. The assessee contended that all EPF payments were made within the extended grace period of 5 days, which was not considered by the lower authorities.

The Tribunal referred to the decision in the case of Dilip Construction Company vs. DCIT, where it was held that the grace period for depositing EPF contributions should be considered. The Tribunal directed the Assessing Officer to verify whether the payments were made within the stipulated time, including the grace period, and to vacate the disallowance if the payments were made in time.

Conclusion:
The appeals filed by the assessee in ITA No 284, 286 & 287/RPR/2023 were allowed, and ITA No 285/RPR/2023 was partly allowed, subject to verification of the payment details of EPF. The order was pronounced in the open court on 30/11/2023.

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