Co-operative credit facility deductions protect member-based interest income, while provisions and deposit evidence require verification before tax treatment.

Co-operative societies providing credit facilities to members may claim deduction for profits attributable to that eligible business where no sustainable basis exists to assess interest income otherwise. Unsupported disallowance of interest deductions and denial of the statutory residual-income deduction were unsustainable. Audit-fee provisions require verification of whether the liability had accrued rather than remained contingent. Leave-encashment claims require evidence of actual payment to employees before the return-filing due date. Eligibility for deduction and additions concerning member deposits and related interest require evidence-based examination of the society's activities, deposit genuineness, and member and Know Your Customer records; lack of members' PANs alone is insufficient where members do not possess them.

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Issues: (i) Whether the disallowance of deduction on interest income of Rs.10,13,923 and Rs.1,28,311 under section 80P(2)(a)(i) was sustainable; (ii) Whether deduction of Rs.50,000 under section 80P(2)(c) could be denied; (iii) Whether the provision for audit fees of Rs.45,552 was allowable; (iv) Whether the leave-encashment provision of Rs.1,32,013 was allowable; (v) Whether deduction under section 80P(2)(a)(i) and additions for member deposits and related interest for assessment year 2020-21 required fresh adjudication.

Issue (i): Whether the disallowance of deduction on interest income of Rs.10,13,923 and Rs.1,28,311 under section 80P(2)(a)(i) was sustainable.

Analysis: The addition of Rs.10,13,923 lacked reasons in both the assessment and appellate orders and was outside the matters addressed in the revisionary order. As to interest of Rs.1,28,311, the assessee carried on the eligible activity of providing credit facilities to members, and there was no finding establishing that the interest was assessable as income from other sources. Profits attributable to that eligible business qualified for deduction under section 80P(2)(a)(i).

Conclusion: The deductions on both interest amounts were allowable in favour of the assessee.

Issue (ii): Whether deduction of Rs.50,000 under section 80P(2)(c) could be denied.

Analysis: The assessment order contained no discussion supporting denial of the statutory deduction. The deduction was directed to be allowed if income remained after allowing deduction under section 80P.

Conclusion: The deduction was allowable to the stated extent in favour of the assessee.

Issue (iii): Whether the provision for audit fees of Rs.45,552 was allowable.

Analysis: A deduction cannot be denied merely because an amount is provided for; the material question is whether the liability is accrued or contingent. The claim requires verification of supporting evidence and any applicable requirement governing provision for audit fees.

Conclusion: The allowability of the audit-fee provision was restored for verification.

Issue (iv): Whether the leave-encashment provision of Rs.1,32,013 was allowable.

Analysis: Under section 43B, the claim depends on proof that the amount was actually paid to employees before the due date for filing the return under section 139. The required payment evidence was not on record.

Conclusion: The claim was restored for verification of timely actual payment.

Issue (v): Whether deduction under section 80P(2)(a)(i) and additions for member deposits and related interest for assessment year 2020-21 required fresh adjudication.

Analysis: The lower authorities did not properly examine the society's activities, its claim of providing credit facilities only to members, or the material concerning member deposits. Absence of PANs of members who do not possess them could not alone justify additions, provided the society maintains requisite member and Know Your Customer details under applicable requirements. Eligibility for deduction and the genuineness and compliance of member deposits require examination on evidence.

Conclusion: The deduction claim and additions relating to member deposits and associated interest were restored for fresh adjudication in favour of the assessee.

Final Conclusion: The unsupported interest disallowances and the section 80P(2)(c) denial could not stand, while the remaining claims and the assessment-year 2020-21 matters require evidence-based determination.

Ratio Decidendi: A co-operative society carrying on the eligible business of providing credit facilities to members is entitled to deduction of profits attributable to that business under section 80P(2)(a)(i), unless the Revenue records a sustainable basis for treating the income otherwise.

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