Loading judgment…
Facts
The assessee, a cooperative society, declared NIL income after claiming a deduction of Rs. 43,87,271/- under section 80P. The AO disallowed the deduction on interest income of Rs. 1,72,339/- earned from deposits with commercial and cooperative banks, holding it was not from the eligible activity of providing credit facilities.
Held
The Tribunal noted that the CIT(A) passed an ex-parte order. In the interest of justice, the Tribunal set aside the CIT(A)'s order and restored the matter to the CIT(A) for a fresh adjudication after giving the assessee an adequate opportunity to be heard.
Key Issues
Whether interest income earned by a cooperative society from deposits with banks is eligible for deduction under section 80P, and whether the CIT(A) order passed ex-parte was justified.
Sections Cited
80P, 80P(2)(d), 80P(2)(a)(i), 57(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 06/05/2024 in DIN No. ITBA/NFAC/S/250/2024-25/1064669032(1) for the assessment year 2021-22.
The only issue raised by the assessee is that the learned CIT(A)/NFAC erred in confirming the disallowance of deduction claimed under section 80P of the Act on the amount of interest income.
The facts in brief are that the assessee, a cooperative society, is registered under the Karnataka Cooperative Societies Act 1959. The assessee is engaged in the business of providing credit facilities to the members. The assessee in the return filed for the year under consideration declared total income at Rs. NIL after claiming deduction under section 80P of the Act for Rs. 43,87,271/- only.
The case of the assessee was selected for complete scrutiny under CASS. During the assessment proceedings, the AO collected details such as copy of registration certificate, byelaws, P&L Account, Balance sheet, bank statements, audit report etc. through the verification unit as the assessee failed to submit responses to the numerous notices issued to it (the assessee). Based on the materials collected, the AO found that the gross total includes the following income: S. Bank name Nature of Interest received No. investment 1. KCC Bank RFD A/c Rs. 1,22,983/- 2. KCC Bank FD A/c Rs. 21,251/- 3. Corporation Bank SB A/c Rs. 18,657/- 4. Indian Bank FD A/c Rs. 9448.55/- Total Rs. 1,72,339/-
The AO held the interest income earned from the deposit of surplus fund with commercial bank as well as with the cooperative bank is not eligible for deduction undersection 80P of the Act as it was not earned from the eligible activity of providing credit facility to the members. Hence, the AO disallowed the claim of deduction to the extent . of interest income of Rs. 1,72,339/- and treated the same income from other sources.
The aggrieved assessee preferred an appeal before the learned CIT(A)/NFAC. The assessee in the 1st grounds of appeal raised before the learned CIT(A) contended that KCC Bank is a cooperative bank, hence interest earned from the said bank is eligible for deduction under section 80P(2)(d) of the Act. Likewise, the assessee in the second ground stated that the deposit was made in compliance of section 57(2) of the Karnataka Cooperative Societies Act 1959 which requires transfer of 25% of the net profit every year to the reserve found.
The learned CIT(A) during the appellate proceeding issue several notices but not responded by the assessee. Therefore, the learned CIT(A) proceeded to adjudicate the assessee appeal based on materials on record. The learned CIT(A) confirmed the disallowance made by the AO on the merit and in doing, so the learned CIT(A) placed reliance on the order of coordinate bench of this tribunal in the case of M/s Vasamba Cooperatives Society Ltd vs. CIT bearing ITA No. 453/Bang/2020. The Tribunal in the said case following the judgment of Hon’ble Karnataka High Court in case of Pr. CIT v.Totgars’ Co-operative Sale Society [2017] 83 taxmann.com 140/395 ITR 611 has held that the assessee is not entitled to deduction under section 80P(2)(d) nor under section 80P(2)(a)(i) with regard to the interest income earned from investments made with cooperative banks.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before me.
The learned AR of the assessee before me contended that the interest income earned from the deposits made in a nationalized bank or with cooperative bank should be eligible for deduction under section 80P(2)(a)(i) of the Act. It was submitted that the said deposits were made from surplus funds which arose out of the business activities of the assessee, specifically the business of providing credit facilities to its members. Relying on the judgment in the case of Tumkur Merchant Souharda Credit Cooperative Ltd. vs. ITO, rerpoted in 230 Taxman 309 the learned AR argued that the income earned is “attributable” to the business of banking and therefore falls within the ambit of section 80P(2)(a)(i) of the Act. The ld. AR further argued that the above judgment of the Hon’ble High Court was given after considering and distinguishing the Ratio of the Hon’ble Supreme court in the case of Totgars Co-operative Sale Society Ltd. vs. ITO, reported in 322 ITR 21. Emphasis was also laid on the Hon’ble Karnataka High Court's interpretation in the case of Tumkur Merchant Souharda Credit Cooperative Ltd (supra) that the term “attributable to” should be given a broader meaning, encompassing income derived from the temporary parking of surplus funds. Supporting precedents like Guttigedarara Credit Co-operative Society Ltd. vs. ITO [2015] 377 ITR 464 (Karnataka) were cited to affirm the claim that such interest income is a part of the operational income and eligible for deduction under the said provision.
9.1 On the other hand, the learned DR before me vehemently supported the order of the authorities below.
I have carefully considered the submissions of the learned Authorized Representative (AR) for the assessee as well as the . contentions of the Departmental Representative (DR), and have examined the relevant facts and judicial precedents. The primary issue under consideration is the eligibility of the assessee, a cooperative society, for deduction under section 80P(2)(a)(i) and/or 80P(2)(d) of the Income Tax Act, 1961 with respect to interest income earned from deposits made with cooperative and commercial banks.
10.1 On perusal of the records, it is observed that the Ld. CIT(A) passed the impugned order ex parte without hearing the contentions of the assessee or its authorized representative. It appears that the assessee failed to appear or submit requisite details during the appellate proceedings before the Ld. CIT(A), which led to the dismissal of the appeal.
10.2 Having heard both parties and in the interest of justice, I am of the considered opinion that one more opportunity should be given to the assessee to present its case before the Ld. CIT(A). Accordingly, I set aside the impugned order and restore the matter back to the file of the Ld. CIT(A) for adjudication afresh after providing adequate opportunity of being heard to the assessee.
10.3 However, I also direct the assessee to make necessary compliance before the Ld. CIT(A) and not to seek unwarranted adjournments. In the event of further default, the Ld. CIT(A) shall be at liberty to pass an order on merits based on the materials available on record.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in court on 5th day of May, 2025