SALEM STARCH AND SAGO MFRS. SERVICE INDL. CO-OP. SOCIETY LTD.,SALEM vs. ACIT, CIRCLE-2, SALEM

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ITA 1441/CHNY/2025Status: DisposedITAT Chennai03 August 2026AY 2013-146 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the lower authorities did not properly examine the nexus between common administrative expenses and godown rental income. The matter was restored to the Assessing Officer for fresh adjudication after verifying accounts and judicial precedents.

What were the facts?

The assessee, a cooperative society, claimed deduction under Section 80P(2)(e) for income from letting of godowns. The Assessing Officer disallowed a portion of this deduction by allocating common administrative expenses, which was upheld by the CIT(A).

What were the issues?

Whether common administrative expenses can be allocated to reduce deduction under Section 80P(2)(e) without establishing a direct nexus with the eligible income.

Which sections of the Income-tax Act were involved?

Section 80P(2)(e),Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI INTURI RAMA RAO & SHRI MANU KUMAR GIRI

Hearing: 03.08.2026

आदेश / O R D E R

PER MANU KUMAR GIRI, JM:

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), NFAC, Delhi [CIT(A) in short]dated 18.08.2023 for Assessment Year 2013-14 of the Income Tax Act, 1961.

ITA No. 1441/Chny/2025 (AY 2013-14) Salem Starch Ltd. Vs ACIT :: 2 :: 2. In the present appeals, the Registry observed a delay of 567 days in filing the captioned appeal. Upon perusal of the condonation petition and the accompanying affidavit and judgment of the Hon’ble Jurisdictional High Court (CMP No.2121 of 2026 in TCA SR No.7204 of 2026 dated 24.06.2026) filed by the assessee, we are satisfied that the reasons stated constitute sufficient cause for the delay in filing the appeal. Accordingly, the delay is condoned and the appeal is admitted for adjudication.

2.1 The brief facts of the case are that the assessee is a co- operative society engaged in the business of marketing of members' produce of sago and starch, godown keeping, providing credit facilities to its members and earning interest and dividend from investments in other co-operative societies. For the assessment year under consideration, the assessee filed its return of income declaring a total income of ₹29,01,780/-. The assessment was completed under section 143(3) of the Income-tax Act, 1961, wherein the Assessing Officer restricted the deduction claimed under section 80P(2)(e) by allocating proportionate general administrative expenses to the income derived from letting of godowns, resulting in a disallowance of ₹1,58,38,438/-. During the course of assessment proceedings, the Assessing Officer noticed that while computing deduction under section 80P(2)(e), the assessee had reduced only the direct expenses attributable to the godown activity and had not allocated any portion of the common/general administrative expenses. According to the Assessing Officer, the common administrative expenses were incurred for carrying on the overall activities of the society and, therefore, an appropriate proportion thereof was required to be allocated to the income

ITA No. 1441/Chny/2025 (AY 2013-14) Salem Starch Ltd. Vs ACIT :: 3 :: eligible for deduction under section 80P(2)(e). Accordingly, the Assessing Officer apportioned the common expenses and restricted the deduction claimed by the assessee.

3.

Aggrieved by the assessment order, the assessee preferred an appeal before the CIT(A), who confirmed the action of the Assessing Officer. The CIT(A), after considering the submissions of the assessee, upheld the action of the Assessing Officer. The CIT(A) observed that the assessee had incurred general administrative expenses amounting to ₹6,56,39,770/- and the same could not be considered as relatable exclusively to the godown service charges. According to the CIT(A), such expenditure was incurred for the overall functioning of the society and, therefore, a proportionate allocation thereof while computing deduction under section 80P(2)(e) was justified. Accordingly, the disallowance made by the Assessing Officer was confirmed. Aggrieved by the order of the CIT(A), the assessee is in further appeal before the Tribunal.

4.

The ld. Authorised Representative submitted that the authorities below erred in reducing the deduction under section 80P(2)(e) by allocating common administrative expenses without establishing any nexus between such expenditure and the income derived from letting of godowns. It was submitted that the assessee had claimed deduction only in respect of the net rental income from godowns after reducing all direct expenses such as godown rent, guards' salary, electricity charges and depreciation attributable to the godown buildings. It was further submitted that no deduction was claimed in respect of godown service charges, which were

ITA No. 1441/Chny/2025 (AY 2013-14) Salem Starch Ltd. Vs ACIT :: 4 :: separately offered and against which the common administrative expenses had been absorbed.

5.

The ld. Authorised Representative further submitted that in the earlier assessment years, after prolonged litigation, the Department had accepted the same methodology for computing deduction under section 80P(2)(e). Reliance was placed on the decision of the Hon'ble Gujarat High Court in CIT v. Jamnagar Jilla Sahakari (283 ITR 116) and the subsequent decision in Surat VankarSahakari Sangh Ltd., wherein it was held that common expenditure having no direct nexus with the eligible income could not be apportioned for reducing the deduction available under section 80P. It was therefore submitted that the disallowance deserved to be deleted.

6.

Per contra, the ld. Departmental Representative supported the orders of the lower authorities. It was submitted that the common administrative expenses were incurred for carrying on the overall business activities of the society and, therefore, a reasonable portion thereof was liable to be allocated while computing the profits eligible for deduction under section 80P(2)(e). Accordingly, the order of the CIT(A) confirming the assessment order was liable to be upheld.

7.

We have heard the rival submissions, perused the orders of the authorities below and examined the material placed on record. The short issue arising for consideration is whether the Assessing Officer was justified in allocating proportionate common administrative expenses while computing deduction admissible to the assessee under section 80P(2)(e) of the Act.

ITA No. 1441/Chny/2025 (AY 2013-14) Salem Starch Ltd. Vs ACIT :: 5 :: 8. We find that the Assessing Officer (AO) has proceeded to allocate common administrative expenses without bringing on record any detailed analysis regarding the nature of such expenditure or establishing its nexus with the income derived from letting of godowns. Likewise, the claim of the assessee that the common administrative expenses stood absorbed against the godown service charges and that only direct expenditure was attributable to the godown rental income has not been examined with reference to the books of account or other supporting records.

9.

We further notice that the assessee has specifically contended that a similar method of computation had been accepted by the Department in the earlier assessment years and has also placed reliance upon judicial precedents in support of its claim. However, neither the Assessing Officer nor the CIT(A) has examined these contentions in detail or recorded any reasoned finding thereon.

10.

In our considered opinion, the issue requires proper factual verification before arriving at a conclusion regarding the quantum of deduction admissible under section 80P(2)(e). The question whether any portion of the common administrative expenditure has a direct nexus with the eligible godown rental income can only be decided after examining the books of account, the nature of expenditure incurred and the basis of allocation, if any. Such an exercise has not been undertaken by the authorities below.

11.

Therefore, in the interest of justice, we deem it appropriate to set aside the orders of the lower authorities on this issue and restore the matter to the file of the Assessing Officer. The Assessing

ITA No. 1441/Chny/2025 (AY 2013-14) Salem Starch Ltd. Vs ACIT :: 6 :: Officer is directed to examine the books of account and all relevant records, verify the nature of the receipts and expenditure, examine the nexus between the common administrative expenses and the income eligible for deduction under section 80P(2)(e), consider the judicial precedents relied upon by the assessee, and thereafter pass a reasoned and speaking order in accordance with law after affording adequate opportunity of being heard to the assessee. 12. Accordingly, this ground of appeal is allowed for statistical purposes. Order pronounced in the open court on the 03rd day of August, 2026 in Chennai.

Sd/- Sd/- (इंतूरी रामा राव) (मनु कुमार िग�र) (INTURI RAMA RAO) (MANU KUMAR GIRI) लेखा सद*य/ACCOUNTANT MEMBER �या�यक सद*य/JUDICIAL MEMBER

चे�नई/Chennai, Digitally signed +दनांक/Dated: 03rd August, 2026. SANDEE by SANDEEP SNDP, Sr. PS KUMAR P KUMAR Date: 2026.08.05 आदेश क! ��त,ल-प अ.े-षत/Copy to: 1. अपीलाथ�/Appellant 16:43:56 +05'30' 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF

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