2025 (2) TMI 1226 - AT - Income Tax

Deduction under Section 80P(2)(d) allowed for cooperative society's interest income; Section 68 additions deleted for regular business loans

The Income Tax Officer, Mehsana Ward 5, Kadi Versus The Gozaria Peoples Co operative Credit Society Limited.

The Income Tax Officer, Mehsana Ward 5, Kadi Versus The Gozaria Peoples Co operative Credit Society Limited. - TMI ISSUES: Whether interest income received from various cooperative banks qualifies for deduction under section 80P(2)(d) of the Income Tax Act.Whether an addition under section 68 of the Income Tax Act can be made in respect of increase in loans and advances shown as an asset in the balance sheet without supporting evidence from the assessee.Whether additional evidence filed by the assessee can be admitted by the appellate authority without remand to the Assessing Officer for verification, especially when no reply was filed during assessment proceedings despite statutory notices. RULINGS / HOLDINGS: Deduction under section 80P(2)(d) is available for interest income earned from cooperative banks, as cooperative banks are treated as cooperative societies for this purpose; exclusion of cooperative banks under section 80P(4) does not disentitle the assessee from claiming deduction under section 80P(2)(d) in absence of any amendment in that section.The addition under section 68 regarding increase in loans and advances was rightly deleted since the assessee is a cooperative society engaged in providing credit facilities and accepting deposits from members, with audited accounts maintained as per the Registrar of Co-operative Societies, and the amounts cannot be treated as unexplained cash credits under section 68.The appellate authority was justified in admitting additional evidence without remand to the Assessing Officer, notwithstanding the assessee's failure to file replies during assessment proceedings. RATIONALE: The Court applied the legal framework established by the jurisdictional High Court ruling which held that cooperative banks are cooperative societies registered under the Gujarat State Cooperative Societies Act, thereby entitling interest income from such banks to deduction under section 80P(2)(d); the Court distinguished this from the exclusion under section 80P(4) which applies only when the cooperative bank is liable to pay tax under the Act.Precedents from the jurisdictional High Court and the Supreme Court were relied upon to clarify that the amendment in section 194A(3)(v) excluding cooperative banks from TDS applicability does not exclude them from the definition of cooperative societies for section 80P purposes.The deletion of addition under section 68 was based on the recognition that loans and advances are primary activities of a cooperative society, supported by statutory audit and proper accounting, thus not constituting unexplained credits.The appellate authority's discretion to admit additional evidence without remand was upheld despite procedural defaults by the assessee, emphasizing the importance of substantive justice over procedural technicalities.