2024 (7) TMI 217 - AT - Income Tax

ITAT rules adjustment under section 143(1) cannot disallow section 80P deduction for cooperative societies

The ITAT Mumbai held that adjustment u/s 143(1) disallowing deduction u/s 80P was not permissible as such disallowance can only be made for non-filing of ... Adjustment provided u/s 143 (1) - denial of Deduction u/s 80P - interest income received from Co- operative Banks - whether interest income received by a Co-operative Society from Co-operative Bank is allowable u/s 80P(2)(d)? - HELD THAT:- The disallowance of deduction under chapter VI A can only be made u/s 143(1)(a) (v) of the act only on account of non-furnishing of return of income within the due date of filing of the return. This is not the reason. It is not the case that deduction u/s 80P(2)(d) is a deduction provided by any monitoring limit or percentage ratio or fraction. Thus, claim of deduction under section 80P(2)(d) is also not classified as incorrect claim. Thus, the adjustment of disallowance of deduction under that section is not permissible adjustment provided under section 143 (1) of the act. Therefore the intimation passed under section 143 (1) is not sustainable. Deduction u/s 80P - On the merits of the case, provisions of section 2 (19) define a co-operative society as under:- 'co-operative society' 97 means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies' Thus, for the definition of the cooperative society whether covers the cooperative banks are not one has to look at the respective cooperative societies act is applicable. Thus it is apparent that cooperative banks are also a co-operative society. Only difference is that those cooperative societies are doing the business of banking as per the banking companies act 1949. Therefore, merely because these cooperative societies cooperative bank they do not lose their status as a co-operative society. According to the provisions of section 80P(2)(d) of the income tax act (d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income. Thus, the assessee’s investment of earning interest income from such cooperative banks which are also cooperative societies whole of such income is deductible under this section.It is not in dispute that assessee is not a cooperative bank and therefore provisions of section 80 P (4) of the act does not apply to it. Thus the assessee is eligible for deduction u/s 80P(2)(d) of the act on its income received from all the above cooperative banks. Hence assessee is eligible for that deduction on fixed deposit interest and savings bank interest. Assessee is not eligible for deduction of bank interest from bank of Baroda. Appeal of the assessee is partly allowed. Issues Involved:1. Disallowance of deduction under section 80P(2)(d) of the Income Tax Act.2. Interpretation of provisions related to cooperative societies and cooperative banks.3. Applicability of section 143(1)(a) adjustments to disallow deductions.4. Eligibility of a cooperative society for deduction under section 80P(2)(d).5. Relevance of judicial precedents in determining deductions for cooperative societies.Issue 1: Disallowance of deduction under section 80P(2)(d) of the Income Tax Act:The appeal was filed against the order disallowing the deduction under section 80P(2)(d) of the Income Tax Act on interest income received from cooperative banks. The appellant argued that interest income from cooperative banks is allowable under this section, citing various judicial decisions. The tribunal noted that the appellant had earned interest from fixed deposits and savings accounts of cooperative banks, claiming deduction under section 80P(2)(d). It was established that the appellant was a cooperative society and had filed the return of income within the due date. The tribunal found that the disallowance under section 143(1)(a) was not applicable as the deduction claimed was not an incorrect claim. Ultimately, the tribunal allowed the deduction under section 80P(2)(d) for the interest income earned from cooperative banks, except for a specific bank's interest.Issue 2: Interpretation of provisions related to cooperative societies and cooperative banks:The tribunal analyzed the definitions of cooperative societies and cooperative banks under relevant acts. It was clarified that cooperative banks are also considered cooperative societies, as long as they conduct banking business as per the Banking Companies Act, 1949. The provisions of section 80P(2)(d) allow for deduction of interest income derived by a cooperative society from its investments with other cooperative societies, including cooperative banks. As the appellant was not a cooperative bank, section 80P(4) did not apply, making them eligible for the deduction under section 80P(2)(d).Issue 3: Applicability of section 143(1)(a) adjustments to disallow deductions:The tribunal determined that the disallowance of deductions under chapter VI A can only be made under specific circumstances outlined in section 143(1)(a), none of which applied to the appellant's case. The claim for deduction under section 80P(2)(d) was not considered an incorrect claim, as it did not exceed any specified statutory limit or percentage ratio. Therefore, the adjustment of disallowance of deduction under this section was deemed impermissible under section 143(1).Issue 4: Eligibility of a cooperative society for deduction under section 80P(2)(d):The tribunal emphasized that the appellant, being a cooperative society, was entitled to claim deductions under section 80P(2)(d) for interest income earned from cooperative banks, as long as they were not a cooperative bank themselves. The appellant's compliance with the provisions and definitions of cooperative societies further supported their eligibility for the deduction.Issue 5: Relevance of judicial precedents in determining deductions for cooperative societies:The appellant presented various judicial precedents to support their claim for deduction under section 80P(2)(d). The tribunal considered these precedents and relevant legal provisions to ascertain the eligibility of the appellant for the deduction. It was concluded that the appellant met the criteria for claiming the deduction, except for a specific bank's interest income, leading to the partial allowance of the appeal.This comprehensive analysis of the judgment addresses all the issues involved, providing a detailed breakdown of the tribunal's decision and the legal reasoning behind it.