Section 80P deduction remains available on enhanced profits arising from PF and ESI disallowance.

A co-operative society eligible for deduction under section 80P can claim that deduction on enhanced profits arising from a disallowance of delayed employees' PF/ESI contributions under section 36(1)(va) read with section 2(24)(x). The added back amount was treated as increasing the society's business profits, and the principle reflected in CBDT Circular No. 37/2016 was applied that Chapter VI-A deductions remain available on such enhanced profits. Deduction under section 80P was therefore allowable on the revised income, and the disallowance was deleted.

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Issues: Whether a co-operative society is entitled to deduction under section 80P of the Income-tax Act, 1961 on enhanced profits resulting from disallowance of delayed employees' contribution to PF/ESI under section 36(1)(va) read with section 2(24)(x) of the Income-tax Act, 1961.

Analysis: The assessee's eligibility for deduction under section 80P was not in dispute. The disallowance arose only because delayed remittance of employees' PF/ESI contribution was added back to income under the specific disallowance provisions. The resulting increase in profits nevertheless arose from the activity of the eligible co-operative society itself. Reliance was placed on CBDT Circular No. 37/2016 dated 02.11.2016, which accepts that where specific disallowances enhance the profits of an eligible business, Chapter VI-A deductions remain allowable on such enhanced profits.

Conclusion: Deduction under section 80P was allowable on the enhanced profits, and the disallowance was deleted in favour of the assessee.

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