UDAYA SOUHARD CO-OPERATIVE SOCIETY ,BANGALORE vs. INCOME TAX OFFICER, WARD-5(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA No. 2665/Bang/2025 Assessment Year: 2018-19

Udaya Souharda Co-operative Society Vs. The Income Tax Officer, Limited, Ward – 5(1)(1), No.29/11, 1st Main Road, Bengaluru. Mount Joy Road, Hanumanthanagar, Bengaluru. – 560 019. PAN – AAAAU 0472 H APPELLANT RESPONDENT

Assessee by : Ms. Ema Bindu S.V, Advocate Revenue by : Ms. Shruthi B.L, Addl.CIT (DR)

Date of hearing : 04.06.2026 Date of Pronouncement : 15.06.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal, filed by the assessee for A.Y. 2018-19, is directed against the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] under section 250 of the Income Tax Act, 1961, dated 14/10/2025.

ITA No.2665/Bang/2025 Page 2 of 5 3. In the present case, the assessee is a cooperative society. The assessment was completed under section 143(3) of the Act. During the assessment proceedings, the Assessing Officer (AO) made disallowances on account of non-deduction of TDS, differences in interest payments, and unapproved expenses amounting to a total of Rs. 1,06,52,331, which was added to the total income of the assessee.

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ITA No.2665/Bang/2025 Page 3 of 5 section 80P(2)(a)(i) of the Act. In this regard, we find support from CBDT Circular No. 37/2016. The extract of the circular is reproduced as under:

Chapter VI-A of the Income-tax Act, 1961 ("the Act"), provides for deductions in respect of certain incomes. In computing the profits and gains of a business activity, the Assessing Officer may make certain disallowances, such as disallowances pertaining to sections 32, 40(a)(ia), 40A(3), 43B etc., of the Act. At times disallowance out of specific expenditure claimed may also be made. The effect of such disallowances is an increase in the profits. Doubts have been raised as to whether such higher profits would also result in claim for a higher profit- linked deduction under Chapter VI-А. 2. The issue of the claim of higher deduction on the enhanced profits has been a contentious one. However, the courts have generally held that if the expenditure disallowed is related to the business activity against which the Chapter VI-A deduction has been claimed, the deduction needs to be allowed on the enhanced profits. Some illustrative cases upholding this view are as follows: (i) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessee's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: Income-tax Officer - Ward 5(1) vs. Keval Construction, Tax Appeal No. 443 of 2012, December 10, 2012, Gujarat High Court.1 Commissioner of Income-tax-IV, Nagpur vs. Sunil Vishwambharnath Tiwari, IT Appeal No. 2 of 2011, September 11, 2015, Bombay High Court.2 (ii) If deduction under section 40A(3) of the Act is not allowed, the same would have to be added to the profits of the undertaking on which the assessee would be entitled for deduction under section 80-IB of the Act. This view was taken by the court in the following case: Principal CIT, Kanpur vs. Surya Merchants Ltd., I.T. Appeal No. 248 of 2015, May 03, 2016, Allahabad High Court.3 The above views have attained finality as these judgments of the High Courts of Bombay, Gujarat and Allahabad have been accepted by the Department. 1 NJRS-2012-LL-1210-45 2 NJRS-2015-LL-0911-22 3 NJRS-2016-LL-0503-77 Page 1 3. In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. 4. Accordingly, henceforth, appeals may not be filed on this ground by officers of the Department and appeals already filed in Courts/ Tribunals may be withdrawn/ not pressed upon. The above may be brought to the notice of all concerned.

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ITA No.2665/Bang/2025 Page 4 of 5 7.1 In view of the above, we find that the amount of disallowance increases the profit of the assessee, and consequently, the assessee is entitled to a higher deduction under section 80P of the Act.

7.2 Before parting, we note that the claim for deduction on the enhanced profit was admittedly not raised by the assessee before the Assessing Officer or the learned CIT(A). However, the issue raised before us goes to the root of the computation of the assessee's taxable income and the consequential deduction available under section 80P of the Act. It is a settled principle that a legitimate claim arising from the facts already available on record cannot be denied merely because it was not specifically claimed before the lower authorities. Once the disallowances made by the Revenue result in enhancement of the business income of the assessee, the consequential benefit available under the statute has to be granted in accordance with law. The right conferred by the statute cannot be denied merely on the ground that the assessee failed to raise such a claim at an earlier stage of the proceedings. The authorities under the Act are duty- bound to determine the correct taxable income and allow all deductions legally available to the assessee. Therefore, in the interest of justice and fair computation of income, we deem it appropriate to admit the assessee's claim. Accordingly, we direct the AO to examine the claim and allow the enhanced deduction under section 80P of the Act on the increased profit arising from the disallowances, after carrying out the necessary verification and in accordance with law. This ground of appeal raised by the assessee is, therefore, allowed for statistical purposes.

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ITA No.2665/Bang/2025 Page 5 of 5 8. In the result, the appeal of the assessee is allowed for statistical purposes.

Order pronounced in court on 15th day of June, 2026

Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 15th June, 2026 / vms /

Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

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