Section 80P deduction for disallowed provisions upheld for a co-operative society under the Income-tax Act.

A co-operative society's disallowed provisions for bad and doubtful debts and service tax were treated as not forming part of the expenditure of the business activity. On that basis, the Tribunal held that the corresponding amount formed part of business profits eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. CBDT Circular No. 37/2016 dated 02.11.2016 was applied to the facts, and the assessee was found entitled to the deduction on the amount of the disallowed provisions.

---

---

Issues: Whether the assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on the disallowance of provisions made in the profit and loss account towards bad debts and service tax.

Analysis: The assessee, being a co-operative society, had debited provisions for non-performing assets as bad and doubtful debts and for service tax. Those provisions were disallowed by the tax authorities. The Tribunal noted that the disputed provisions were not part of the assessee's business activity and were not allowed as expenditure. On that footing, the corresponding amount formed part of the business profits eligible for deduction under the relevant provisions. The CBDT Circular No. 37/2016 dated 02.11.2016 was held applicable to the facts of the case.

Conclusion: The assessee was held entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on the amount of the disallowed provisions, and the appeal was allowed.

---