ADARSHA MULI TIRPURPOSE CO-OPERATIVE SOCIETY LIMITED,PUTTUR vs. ACIT, CENTRAL CIRCLE-2, MANGALORE

As against the said order, the assessee preferred an appeal before the Ld.CIT(A). The assessee contended that disallowance of the claim of interest u/s. 80P(2)(a)(i) against the statutory requirement of investment is not taxable and eligible for deduction u/s. 80P(2)(a)(i) of the Act. The assessee also contended that earning of interest is attributable to the business of the assessee and eligible for deduction u/s. 80P(2)(a)(i) of the Act. The assessee also disputed the addition by disallowing the provision for bad and doubtful debts. The Ld.CIT(A) had confirmed the addition of the provision for bad and doubtful debts. The Ld.CIT(A) not accepted the plea that the interest earned by the assessee from the co-operative banks are not eligible for deduction u/s. 80P(2)(d) of the Act. The Ld.CIT(A) further observed that the interest received and claimed deduction u/s. 80P(2)(a)(i) is not allowable since the assessee is dealing with the nominal / non-members. The Ld.CIT(A) further held that the assessee is not a primary agricultural credit society and therefore not eligible for deduction u/s. 80P(2)(a)(i) of the Act. However the Ld.CIT(A) had directed the AO to verify the portion of profits

As against the said order, the present appeal has been filed by the assessee before this Tribunal.

At the time of hearing, the Ld.AR pointed out so many infirmities in the orders of the lower authorities. The Ld.AR submitted that the claim u/s. 80P(2)(a)(i) is an admissible one as per the judgment of the Hon’ble High Court in the case of Tumkur Merchants Souharda Credit Co-operative Ltd. The Ld.AR further submitted that the deposits are statutory deposits and therefore the interest income earned is attributable to the business of the assessee and hence eligible for deduction u/s. 80P(2)(a)(i) of the Act. The Ld.AR further submitted the presence of nominal members are permitted under the Karnataka Co-operative Societies Act and therefore the disallowance on that basis is against the judgment of the Hon’ble Supreme Court reported in 431 ITR 1 in the case of Mavilayi Service Co-operative Bank Ltd. The Ld.AR submitted that the Ld.CIT(A) had not considered the specific ground and therefore liable to be set aside. The Ld.AR further submitted that the assessee had earned interest income from the deposits with MASS Ltd. which is a co-operative society and therefore eligible for deduction u/s. 80P(2)(d) of the Act.

The Ld.DR relied on the judgment reported in 395 ITR 611 (Karnataka) in the case of Totgars Co-operative Sales Society wherein the deduction u/s. 80P(2)(d) is not available to the deposits made with co- operative banks.

We have heard the arguments of both sides and perused the materials available on record.

In this appeal, the assessee submits that the interest income earned from the deposits made with co-operative banks are statutory deposits and

Further, the Ld.CIT(A) had also held that the assessee is not a Primary Agricultural Credit Society but a multipurpose co-operative society engaged in general credit activities and therefore the deduction u/s. 80P(2)(a)(i) of the Act is not available. This finding is also not correct in view of the provision 80P(2) of the Act. Nowhere such restriction has been placed by the Statue and therefore on that basis, deduction u/s. 80P(2)(a)(i) could not be denied.

When we considered the above settled principle of law, we are of the view that the order of the lower authorities need to be revisited since the issues are not clear. If the assessee had deposited the funds in a co- operative bank out of compulsion of the Karnataka Co-operative Societies Act, then they are eligible for deduction u/s. 80P(2)(a)(i) of the Act. Further, if the deposits are made with MASS Ltd., a co-operative society, then the interest earned could be granted deduction u/s. 80P(2)(d) of the Act. In the former case, the interest income could be treated as income attributable to the business and therefore eligible for deduction u/s. 80P(2)(a)(i) of the Act. Otherwise only the income could be treated as income from other sources.

It is also the case of the assessee that in respect of the earlier years, similar deduction was allowed by the AO and no further proceedings were

Therefore, in the interest of justice, we are inclined to set aside the orders of the lower authorities and remit these issues to the JAO for passing appropriate orders pursuant to the findings given by us in the preceding paragraphs of the order. We also direct the JAO to consider the earlier assessment years orders before coming to a conclusion in the present year. We also made it clear that if the assessee was able to demonstrate that the interest income earned could be attributable to the business income and the interest income was earned from a co-operative society irrespective of the fact that the assessee is having nominal members, deduction should be granted u/s. 80P(2)(a)(i). With the above direction, we remit this issue to the JAO for denovo consideration, after granting an opportunity to the assessee.

In the result, all the appeals filed by the assessee are allowed for statistical purposes.