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Facts
The assessee, a co-operative society, claimed deduction u/s. 80P for interest income earned from a non-co-operative bank. The AO disallowed the deduction on this interest, and the CIT(A) upheld the disallowance, dismissing the assessee's appeal.
Held
The Tribunal held that even if interest is earned from a non-co-operative society, it is deductible u/s. 80P(2)(a)(i) if it is attributable to the business of banking. The matter was restored to the AO to ascertain this attribution.
Key Issues
Whether interest income earned from a non-cooperative bank is eligible for deduction u/s. 80P(2)(a)(i) if it is attributable to the business of banking and not to other sources.
Sections Cited
143(3), 147, 80P, 80P(2)(a)(i), 80P(2)(d), 57, 234-A, 234-B, 58, 148
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI
This appeal is filed by Kotak Mahindra Bank Employees Co-operative Society Ltd. (the assessee/appellant) for the assessment year 2011-12 against the appellate order passed by the CIT(Appeals)-3, Delhi [ld. CIT(A)] dated 20.12.2024 wherein the appeal of the assessee against the reassessment order passed u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 [the Act] dated 27.12.2018 was dismissed.
The assessee has raised the following grounds of appeal :-
“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.
2. The learned CIT[A] is not justified in disposing off the appeal ex parte without allowing sufficient and real opportunity to the appellant to represent the case under the facts and in the circumstances of the appellant's case, 3. The learned CIT[A] is not justified in upholding the disallowance Rs.8,05,987/- from out of the deduction claimed u/s 80P[2][a][i] of the Act on the ground that the said income was not earned from co-operative banks and hence, the said income was not eligible for deduction u/s. 80P[2][a][i] of the Act.
4. Without prejudice to the above, the learned CIT[A] ought to have allowed deduction u/s. 57 of the Act for cost of funds and he ought not to have taxed the gross interest income and therefore, the income assessed is excessive and liable to be reduced substantially.
Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234-A and 234-B of the Act, which under the facts and in the circumstances of the appellant's case deserves to be cancelled.
6. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”
The brief facts of the case show that assessee is the employees co- operative society assessed as a co-operative society, filed its return of income on 26.9.2011 at Rs.Nil. In the return of income, the assessee claimed deduction u/s. 80P of the Act of Rs 85,77,066/- including
also on Rs.8,05,987 of income received as interest from ING Vysya bank Limited.
Notice u/s. 148 of the Act was issued on 31.3.2018, served on the assessee on 31.3.2018, which was responded by the assessee by letter dated 25.9.2018 reiterating the return of income filed on 26.9.2011. The ld. AO found that assessee has earned interest income of Rs.19,83,170 from the Nationalised/Co-operative Banks on which assessee has claimed deduction u/s. 80P of the Act. Out of the interest of Rs.19,83,170, interest of Rs.8,05,987 was received from ING Vysya Bank Ltd., now Kotak Mahindra Bank Ltd., which is not a c-operative bank, but a nationalised bank. The ld. AO noted that the above interest is received by the assessee on reserve fund, as it is received from a non- co-operative bank, deduction u/s. 80P is not allowable. Accordingly, it was held that on the interest income of Rs.8,05,987 received from Kotak Mahindra Bank is neither eligible for deduction u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. Therefore, the claim of deduction u/s. 80P of Rs.85,77,066 is restricted to Rs.77,71,079. Accordingly the assessment order was passed on 27.12.2018.
5. Assessee being aggrieved with the above order preferred appeal before the ld. CIT(A). The ld. CIT(A) issued 5 notices out of which on 4 occasions, none appeared and on one occasion, the assessee sought an adjournment. Therefore as the assessee did not comply with any of the notices, the ld. CIT(A) decided the issue on its merits. The ld. CIT(A) held that assessee is not entitled to deduction u/s. 80P on the amount of Rs.8,05,987 received from Kotak Mahindra Bank u/s. u/s. 80P(2)(a)(i) or u/s. 80P(2)(d) of the Act. The ld. CIT(A) also distinguished the decision of Hon’ble Karnataka High Court in the case of CIT v. Sri Biluru Guru Basaa Pathina Sahakari Sangha Niyamitha, Bagalkot. Accordingly, the appeal of the assessee was dismissed.
On appeal before us, the ld. AR for the assessee vehemently submitted that the issue is squarely covered in favour of the assessee by the above decision of the Hon’ble jurisdictional High Court. It was further stated that the amount of fund deposited in the Kotak Mahindra Bank Ltd. which is where the members of the society are employees, is attributable to the business of the assessee and therefore deduction u/s. 80P(2)(a)(i) of the Act on the same is available. It was further stated that adequate cost of funds, alternatively, should also be granted to the assessee as deduction. It was also argued that to recompute the income from other sources in the hands of the assessee, the matter may be restored to the file of the ld. AO.
The ld. DR vehemently supported the orders of ld. lower authorities. It was submitted that the assessee did not furnish any information before the ld. CIT(A) and further the issue is covered by the decision of Hon’ble Karnataka High Court as mentioned by the AO.
I have carefully considered the rival contentions and perused the orders of ld. lower authorities. In this case, the assessee co-operative society earned interest from Kotak Mahindra Bank. The above bank is not a co-operative bank and therefore the assessee is not entitled to any deduction on the above sum under the provisions of section u/s. 80P(2)(d) of the Act. However, assessee is a members co-operative society carrying on banking business, therefore under the provisions of section 80P(2)(a)(i) of the Act, the assessee is entitled to deduction on the whole amount of the profits & gains of business attributable to the activity of carrying on the business of banking or providing credit facilities to its members. Therefore, even if the assessee has earned interest from a non-co-operative society, if such interest is attributable to the profits & gains of business of banking and if such interest is assessable to tax as business income, the whole of the amount is deductible in the hands of the assessee u/s. 80P(2)(a)(i) of the Act. Therefore, it needs to be ascertained first that whether the interest earned by the assessee of Rs.8,05,970 is attributable to the business of banking and is part of the profits & gains of the business of banking with the members or not. It is for the assessee to demonstrate before the ld. AO that such interest income is attributable and therefore is eligible for deduction u/s. 80P(2)(a)(i) of the Act. As these facts are not forthcoming, the claim of assessee for deduction u/s. 80P(2)(a)(i) of the Act cannot be decided. The lower authorities also, before rejecting the claim of assessee for deduction under this sub-section, have not examined from this aspect. Therefore, I restore ground Nos.3 & 4 of the appeal back to the ld. AO with a direction to the assessee to substantiate its claim u/s. 80P(2)(a)(i) of the Act and alternatively show the cost of funds available for deduction u/s. 58 of the Act. Thus
ground Nos. 3 & 4 of the appeal of the assessee are allowed with the above directions.
No other grounds are pressed before me and therefore these are dismissed.
In the result, the appeal by the assessee is partly allowed for statistical purposes.