TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 93
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....der section 80P of Rs. 21,69,578/-. The case was selected for limited scrutiny under CASS. The Assessing Officer noted that the assessee is engaged in the business of providing credit facilities to its members only from the deposits received from them. The assessee declared net profit of Rs. 20,00,000/- for the year, and after adjustments claimed deduction under section 80P resulting in Nil income in the computation, though the return declared Rs. 140/- as taxable income. 3. During the course of assessment, the Assessing Officer issued a show cause notice dated 14.06.2019 proposing to tax interest income earned from deposits with banks. Though the show cause referred to a figure of Rs. 30,34,533/-, the assessee clarified that the interest relatable to co-operative and nationalised banks during the year aggregated to Rs. 16,88,927/-, and that a small interest of Rs. 144/- from Bank of India had already been offered to tax. The assessee explained that its claim under section 80P comprised two limbs, namely Rs. 4,80,651 under section 80P(2)(a)(i) being income from members for providing credit facility, and Rs. 16,88,927 under section 80P(2)(d) being interest from co-operative banks....
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....diture was laid out wholly and exclusively for earning the impugned interest. He therefore added Rs. 16,88,927/- and computed the assessed income at Rs. 16,89,067/-, rounded to Rs. 16,89,070/-, with consequential interest under sections 234A, 234B, 234C and 234D, and initiated penalty proceedings under section 270A for underreporting or misreporting. 6. The assessee preferred an appeal before CIT(A), who dismissed the appeal. The learned CIT(A) reproduced the statutory text of section 80P(1) and section 80P(2)(d) and recorded that the assessee's deposits were with co-operative banks and not with cooperative societies. Reliance was placed on judicial precedent, and reference was made to the ratio laid down by the Hon'ble Supreme Court in Totgars Co-operative Sale Society Ltd. wherein it was propounded that interest earned on surplus funds is assessable under section 56 and not under section 80P(2)(a)(i). Reference was also made to the decision of the Hon'ble Karnataka High Court reported in 395 ITR 611, and it was noted in the words extracted in the order that "The words 'co-operative banks' are missing in clause (d) of sub-section (2) of section 80P of the Act. Even though a co-....
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....rieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal: 1. The learned CIT(A) erred in law and on facts in not allowing deduction of Rs. 16,88,927 u/s 80P (2)(d) of the Income Tax Act, 1961 for the interest received by the appellant from the Cooperative Societies/Banks. 2. The learned CIT(A) erred in law and on facts in not considering the submission made by the appellant during the appellate proceedings on 02-12-2024 and thereby violated the principle of equality and justice and hence the Order should be treated as bad in law. 3. The learned CIT(A) erred in law and on facts in not allowing deduction of Rs. 12,38,996 u/s 57 of the Income Tax Act, 1961 for the expenditure incurred for the earning of the income of Rs. 16,88,927/-. In view of the above the appellant prays to delete the additions and allow the deduction of Rs. 16,88,927/- u/s 80P(2)(d) of the Income Tax Act, 1961 as claimed in the return of income, treat the Appeal Order bad in law and allowing deduction of Rs. 12,38,996 u/s 57 of the Income Tax Act, 1961 for the expenditure incurred for the earning of income of Rs. 16,88,927/-. ....
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....as reiterated that a co-operative credit society is distinct from a co-operative bank for the purposes of section 80P(4). Strong reliance was also placed on the jurisdictional Gujarat High Court in PCIT v. Ashwinkumar Arban Co-op Society Ltd. (Tax Appeal No. 538 of 2024, decided on 24.09.2024), where deduction under section 80P(2)(d) on interest from co-operative banks was allowed after considering Totgars and other decisions. Reference was made to earlier Gujarat High Court decisions including CIT v. Sabarkantha Dist. Coop. Milk Producers Union Ltd. (Tax Appeal No. 473 of 2014, dated 16.06.2014), Surat Vankar Sahakari Sangh Ltd. v. ACIT [(2019) 72 taxmann.com 169], and various ITAT Ahmedabad decisions, all of which allowed deduction under section 80P(2)(d) in respect of interest earned from co-operative banks. 13. It was further contended that the assessee's additional written submissions dated 02.12.2024, containing the above judgments, were not considered by the learned CIT(A). Only the earlier submissions dated 18.11.2024 were referred to. This amounted to violation of principles of equality and justice, rendering the appellate order bad in law. Without prejudice, it was arg....
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....ative society" used in section 80P(2)(d). The judgment in Ashwinkumar Arban Co-op. Society Ltd. (supra) dated 24.09.2024 has further clarified this position by considering both strands of precedent and resolving the issue in favour of the assessee. Being the jurisdictional High Court, these decisions are binding on us. 18. We further note that the assessee had, without prejudice to its primary claim under section 80P(2)(d), raised an alternate plea for deduction of expenditure amounting to Rs. 12,38,996/- under section 57(iii) of the Act against the interest income assessed under "Income from Other Sources." The working placed on record was based on the ratio of total expenditure to total income, applying a proportion of 73.36% to the interest income of Rs. 16,88,927/-. 19. It is a settled principle that deduction under section 57(iii) is admissible only in respect of such expenditure (not being capital expenditure) which is laid out wholly and exclusively for the purpose of making or earning such income. In the present case, it is evident that the funds placed in deposits with banks were sourced from interest-bearing deposits collected from members. The management of such fu....