Cooperative society gets fresh hearing opportunity for section 80P(2)(a)(i) deduction after failing to appear before CIT(Appeals)

ITAT Bangalore remitted the appeal to CIT(Appeals) for fresh consideration regarding deduction of interest income under section 80P(2)(a)(i). The assessee cooperative society was denied deduction under Chapter VIA as it was registered under Karnataka Souharda Sahakari Act, 1997 rather than Karnataka Co-operative Societies Act, 1959. Since the assessee failed to represent before CIT(Appeals), ITAT directed fresh hearing with conditions that assessee update contact details, respond to notices, avoid unnecessary adjournments, and warned against future defaults. Appeal allowed for statistical purposes.

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Issues Involved:
1. Delay in filing the appeal.
2. Deduction of interest income under Section 80P(2)(a)(i).
3. Classification of interest income as income from other sources under Section 56.

Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 158 days. The assessee attributed the delay to the fact that the return was filed with the help of an Income Tax Practitioner (ITP), and the contact details in the income tax portal belonged to the ITP, leading to the assessee being unaware of the order passed by the CIT(Appeals). The delay was condoned following the judgment of the Hon'ble Apex Court in the case of Collector, Land Acquisition Vs. MST. Katiji and Others (1987) 167 ITR 471, as there were sufficient reasons for the delay.

2. Deduction of Interest Income under Section 80P(2)(a)(i):
The primary issue was whether the interest income earned by the assessee, a Souharda cooperative registered under the Karnataka Souharda Sahakari Act, 1997, qualifies for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The AO disallowed the deduction on the grounds that the assessee was not registered under the Karnataka Co-operative Societies Act, 1959.

The assessee argued that Souharda cooperatives should be considered as cooperative societies for the purposes of Section 80P, citing various judgments:
- The High Court of Karnataka in the case of Swabhimani Souharda Co-operative Ltd. ruled that entities registered under the Souharda Act are eligible for Section 80P benefits.
- ITAT Bangalore in cases like Halapur Pattina Souharda Sahakari Niyamitha vs. The Income Tax Officer and Siddartha Pattina Souharda Sahakari Niyamitha, Manvi, held that Souharda cooperatives are eligible for deductions under Section 80P(2)(a)(i).

The Tribunal noted that the issue requires proper adjudication by the AO, considering all relevant aspects and judgments cited by the assessee. Therefore, the matter was remanded back to the AO for re-examination and passing a reasoned order.

3. Classification of Interest Income as Income from Other Sources under Section 56:
The AO had classified the interest income as income from other sources under Section 56, rather than business income eligible for deduction under Section 80P. The assessee contended that the interest income was earned from statutory investments made in the ordinary course of business, and thus, should be considered business income.

The Tribunal referred to various judgments, including:
- The High Court of Karnataka in the case of Tumkur Merchants Souharda Credit Co-operative Ltd vs. The ITO, which distinguished the Supreme Court's decision in the case of Totagars Co-operative Sale Society Ltd.
- ITAT Bangalore in cases like The West Coast Paper Mill Employees Souhardha Credit Co-op. Ltd., which held that only net interest income after deducting the cost of funds is taxable under Section 56.

The Tribunal directed the AO to re-examine whether the interest income qualifies for deduction under Section 80P(2)(a)(i) or Section 80P(2)(d), considering the latest judgments and the nature of the investments. The AO was also instructed to allow the assessee to provide details of the cost of funds for determining the net taxable interest income.

Conclusion:
The appeal was allowed for statistical purposes, with the matter remanded back to the AO for fresh adjudication, considering all relevant judgments and providing the assessee with a reasonable opportunity to present their case. The Tribunal emphasized the importance of the assessee updating their contact details in the departmental portal and responding to notices promptly to avoid unnecessary delays.

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