2025 (1) TMI 161 - AT - Income Tax

Cooperative society gets Section 80P(2)(d) deduction for bank interest but tax payments remain non-deductible under Section 40(a)(ii)

Naveen Beej Utpadak Sahkari Samiti Maryadit Versus The Income Tax Officer, Ward-4 (1), Raipur (C.G.)

ITAT Raipur allowed the assessee society's claim for deduction under Section 80P(2)(d) for interest received from Raipur Central Co-operative Bank, ... Deduction u/s. 80P(2)(d) - Interest received by the assessee society from Raipur Central Co-operative Bank - HELD THAT:- AO is directed to allow the assessee’s claim for deduction u/s. 80P(2)(d) interest received by the assessee society from Raipur Central Co-operative Bank. Thus, the Ground of appeal No.1 raised by the assessee society is allowed. Deduction of Income Tax Paid - As per the mandate of Section 40(a)(ii) of the Act, any sum paid on account of any rate or tax levied on the profits or gains of any business or profession or assessed at a proportion of or otherwise on the basis of any such profits or gains is not deductible while computing the business income, therefore, we find no infirmity in the view taken by the lower authorities, and thus, approve the same. Thus, the Ground of appeal No.2 raised by the assessee society is dismissed in terms of our aforesaid observations. 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment primarily revolves around the following core issues:Whether the disallowance of the deduction claimed under Section 80P(2)(d) of the Income-tax Act, 1961, for interest received from a cooperative bank was justified.Whether the deduction of income tax paid amounting to Rs. 9,20,364/- was permissible, given the claim that the entire income of the appellant is exempt.Whether the failure to merge or consolidate two appeals filed against the same assessment order was erroneous.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Deduction under Section 80P(2)(d)Relevant legal framework and precedents: Section 80P(2)(d) allows a deduction for income by way of interest or dividends derived by a cooperative society from its investments with any other cooperative society. The Tribunal referenced prior decisions, including ITAT, Raipur in the case of Gramin Sewa Sahkari Samiti Maryadit, which supported the eligibility of such deductions.Court's interpretation and reasoning: The court noted that a cooperative bank falls within the definition of a 'cooperative society' as per Section 2(19) of the Act. Thus, interest income from a cooperative bank qualifies for deduction under Section 80P(2)(d).Key evidence and findings: The Tribunal found that the interest income from Raipur Central Cooperative Bank was wrongly disallowed by the Assessing Officer based on an incorrect interpretation of Section 80P(4).Application of law to facts: The Tribunal applied the legal definition of 'cooperative society' and found that the interest income was eligible for deduction.Treatment of competing arguments: The Tribunal rejected the Revenue's argument that the interest income was not deductible, citing consistent judicial precedents supporting the assessee's position.Conclusions: The Tribunal allowed the deduction of Rs. 24,29,559/- under Section 80P(2)(d) for interest received from the cooperative bank.Issue 2: Deduction of Income Tax PaidRelevant legal framework and precedents: Section 40(a)(ii) of the Act prohibits deduction of any sum paid on account of any rate or tax levied on profits or gains of business or profession.Court's interpretation and reasoning: The Tribunal upheld the Assessing Officer's view that income tax paid is not deductible as per Section 40(a)(ii).Key evidence and findings: The Tribunal found no legal basis to allow the deduction of income tax paid, as it is explicitly disallowed by the Act.Application of law to facts: The Tribunal applied Section 40(a)(ii) to the facts and concluded that the deduction claimed was not permissible.Treatment of competing arguments: The Tribunal dismissed the assessee's argument for deduction, citing statutory provisions.Conclusions: The Tribunal denied the deduction of Rs. 9,20,364/- paid towards income tax.Issue 3: Merger of AppealsRelevant legal framework and precedents: The procedural aspect of filing appeals and their consolidation is governed by the rules of the appellate tribunal.Court's interpretation and reasoning: The Tribunal noted that the failure to consolidate the appeals was an oversight and rendered one appeal infructuous.Key evidence and findings: The Tribunal found that two appeals were filed against the same assessment order, and the CIT(Appeals) did not address the request for consolidation.Application of law to facts: The Tribunal dismissed the second appeal as infructuous, acknowledging the procedural error.Treatment of competing arguments: The Tribunal accepted the assessee's request to dismiss the redundant appeal.Conclusions: The Tribunal dismissed the second appeal as infructuous and directed the consolidation of the appeals.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'As long as it is proved that the interest income is being derived by a co-operative society from its investments made with any other co-operative society, the claim of deduction under the aforesaid statutory provision, viz. Sec. 80P(2)(d) would be duly available.'Core principles established: The Tribunal reaffirmed that interest income from investments in cooperative banks qualifies for deduction under Section 80P(2)(d), and income tax paid is not deductible under Section 40(a)(ii).Final determinations on each issue: The Tribunal allowed the deduction under Section 80P(2)(d), denied the deduction of income tax paid, and dismissed the redundant appeal as infructuous.