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Income Tax Appellate Tribunal, ‘A’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI ANIKESH BANERJEE
ORDER PER ANIKESH BANERJEE, JUDICIAL MEMBER This appeal of the assessee was filed against the order of the ld. Commissioner of Income-tax (Appeals) NFAC, Delhi [in brevity CIT(A)], date of order passed u/s. 250 of the Income Tax Act, 1961 (in brevity of Act) for assessment year 2017-18. The impugned order was originated `from the order of ld. Income Tax Officer, Ward -3, Tumkur (in brevity the AO) order passed u/s. 143(3) date of order 29.11.2019.
The assessee taken the following grounds:
Grounds Raised “1) The impugned order is opposed to law and facts of the case insofar as it is prejudicial to the interest of the Appellant.
2) The Ld. CIT(A) erred in not adjudicating all the grounds of appeal raised by the Appellant.
3) The action of the Ld. CIT(A) in directing the Ld. AO to verify and examine whether the appellant is eligible to claim deduction u/s. 80P(2)a)(i) is invalid and bad in law inasmuch as it is outside the purview of section 250 and the Ld. CIT(A) ought to have passed an order giving an unambiguous decision.
4) Without prejudice to ground 2 and 3 the disallowance u/.s 40(a)(ia) us untenable and unwarranted inasmuch as the Ld. CIT(A) failed to appreciate that the Tax on the audit fees and commission paid had been duly deducted and deposited.”
The brief fact of the case is that assessee is a Credit Cooperative Society registered under Karnataka Cooperative Society Act, 1959. The assessee claimed deduction u/s. 80P and also disallowance was made u/s. 40(a)(ia) on account of allege of non-deduction of tax at source. The ld. CIT(A) vide disposing of the appeal not adjudicated the issue relating to section 40(a)(ia) of the Act and with regard to deduction u/s 80P of the Act, he relied on the order of the Hon’ble Supreme Court in the case of Mavilayi Service Co-op Bank Ltd. (2021), 123 taxmann.com 161 and has directed to AO to verify the applicability of the provisions of Karnataka
Cooperative Society Act to assessee. The Cooperative society has earned interest from Bank and 80P is no more res integra in view of the decision of Hon’ble Apex Court. The assessee prayed that the interest is to be taxed under the head “Income from Other sources” and the assessee would be entitled to expenditure incurred to earn the interest income u/s. 57 of the Act. The claim is also supported by the Hon’ble jurisdictional High Court. The assessee further claimed that the tax was deposited within stipulated time in relation to deduction of tax at source. The section 40(a)(ia) will no more be applicable for the assessee. The assessment was completed with an addition of deduction amount to Rs. 1,22,330,068/- u/s. 80P(2)(a)(i) and disallowance amount of Rs. 2,47,36,787/- u/s. 80P(2)(d). Further, the disallowance of expenses u/s. 40(a)(ia) amount to Rs.9,01,767/- for non-deduction of tax at sources. Aggrieved assessee file an appeal before CIT(A). The CIT(A) in his order upheld the disallowance of the ld. AO. Aggrieved assessee filed an appeal before us by challenging the order of the CIT(A).
The ld. Counsel for assessee has filed a paper book before the Bench which is kept in the record. As per the counsel of the assessee, the claim of deduction u/s 80P(2)(a)(i) is no more res integra with the directions of the Hon’ble Supreme Court in the case of Mavilayi Service Co-op Bank Ltd. The claim of deduction related to bank interest U/s 80P(2)(d) is no more allowed. The assessee claimed that the interest income should be allowed after adjustment of expenditure. The assessee respectfully relied on the decision of Hon’ble High Court of Karnataka in the case of Totgars Co-operative Sale Society Ltd., 231 Taxman 794. The Counsel has submitted a calculation for adjustment of interest which reproduced as below:-
Particulars Interest from Income from Total Banks dealing with members and other Income Gross Income 2,47,36,787.00 16,07,18,079.17 18,54,54,866.17 Proportionate 1,97,89,877.55 12,85,77,373.75 14,83,67,251.30 Expenses Balance 49,46,909.45 3,21,40,705.42 3,70,87,614.87 Less: Commission income from E- - 85,380,.00 85,380.00 Stamping 49,46,909.45 3,20,55,325.42 3,70,02,234.87 Less: Deduction u/s. - 3,20,55,325.42 3,20,55,325.42 80P Taxable 49,46,909.45 - 49,46,909.45 Income In Ground No- 2 & 3 the assessee placed that the ld. CIT(A) had set aside the issue to the AO which is beyond jurisdiction U/s 250 of the Act. The verification of claim of deduction U/s 80P(2)(a)(i) was set aside to the AO by the ld. CIT(A). We adjudicate the issue. The ld. Counsel has prayed to reconsider the issue of a Cooperative Society having transaction with nominal member is no more ineligible for deduction U/s 80P of the Act. The ld. CIT(A) had acted beyond the jurisdiction by setting aside the issue to AO and adjudicated the ground in incomplete manner. The counsel further argued that TDS challan is enclosed with the Paper Book as proof of deduction of tax at source related to expenses which were disallowed u/s. 40(a)(ia). The Counsel mentioned that the challan was never be filed before any of the authority. So prayed for setting aside the matter before the AO.
The ld. DR argued vehemently and relied on the order of the Revenue Authority.
We heard the rival submissions and perused the documents available in the record. In section 80P(2)(a)(i), the assessee is entitled to deduction related interest earned from nominal member. The verification is required related to investment to nominal member as per the activity of the trust in purview of Karnataka Co-op Society Act. We remit back the issue to the AO for adjudication in light of the observation of the bench. The assessee is not more eligible for u/s. 80P related to interest income. But the assessee is eligible for the deduction related to proportionate expenditure on income, which was earned u/s. 57 of the Act. The assessee shall be entitled for proportionate expenditure cost incurred in mobilising the deposit placed in the bank. We fully relied on the Jurisdictional High Court in the case of Totgars Co-operative Sale Society Ltd, supra. Related to the submissions of challan for deduction of tax at source is also liable for verification before the lower authority. In our considered view, we remit back the matter to the AO for further verification and allow the assessee for legitimate claim of expenses related to the income earned u/s. 57 of the Act. The ground relating to deduction u/s 80P(2)(a)(i) of the Act is remitted back to the file of AO for fresh consideration. 7. With regard to disallowance u/s 40(a)(ia) of the Act, the assessee has already filed necessary proof for withholding the taxes at sources, this requires examination at the end of AO. Accordingly, the issue is remitted back to the file of AO for reconsideration.
In result, the appeal of the Assessee is partly allowed for statistical purposes. Order pronounced in the open court on 10th March, 2023.