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Facts
The assessee, a cooperative society registered under the Karnataka Souharda Sahakari Act, 1997, claimed deduction under Section 80P for interest income earned from nationalized banks. The Assessing Officer (AO) denied this deduction, stating the assessee was not registered under the Karnataka Co-operative Societies Act, 1959. The CIT(A) partly allowed the appeal, agreeing on the ineligibility for Section 80P but allowing some deduction for interest income from nationalized banks.
Held
The Tribunal noted that the assessee is registered under the Karnataka Souharda Sahakari Act, 1997. While agreeing with the CIT(A) that Section 80P(2)(a)(i) is not applicable for interest from nationalized banks as it's not operational income, the Tribunal remitted the issue of calculating the cost of funds and administrative expenses incurred in earning this income back to the AO for fresh computation.
Key Issues
Whether the assessee is eligible for deduction under Section 80P for interest income from nationalized banks, and if not, whether expenditure incurred for earning such income should be allowed.
Sections Cited
154, 56, 57(iii), 80P, 80P(2)(a)(i)
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member :
This appeal is filed by the assessee against the Order passed by the National Faceless Appeal Centre (NFAC), vide DIN and Order No.ITBA/NFAC/S/250/2023-24/1059862000(1) dated 18.01.2024.
At the outset of hearing, we noticed that the appeal filed by the assessee is time barred by 326 days. In this regard, the learned Counsel for the assessee submitted that the assessee filed application under section 154 of the Act and he was of the impression that the cost of fund will be allowed to the assessee and again the application under section 154 of the Act was filed which was also rejected by the AO which is evident from the affidavit filed by the assessee dated 19.02.2025. Accordingly, the assessee has sufficient cause for delay in Page 2 of 5 filing appeal before the Tribunal. Relying on the judgment of the Hon’ble Supreme Court in the case of Collector of Land Acquisition Vs. MST Katiji and Others, (1987) 2 SCC 107 : 1987 (2) SCthe delay in filing the appeal is condoned.
At the outset of hearing, the learned Counsel for the assessee argued only on ground No.6 regarding of cost of funds to earn interest income to be allowed on the interest received from nationalised banks and other grounds were not pressed.
Briefly stated, the facts of the case are that the assessee filed return of income on 22.12.2020 declaring gross total income of Rs.1,01,46,503/- and claimed deduction under Chapter VI A of Rs.97,90,443/- under section 80P of the Act and the balance amount was declared as total income of the assessee. Assessee is registered as a co-operative under section 5 and which has words “Karnataka Souharda Sahakari Act” (KSSA, 1997) in this name and not co- operative society registered under the Karnataka Co-operative Societies Act, 1959 (Karnataka Act 11 of 1959). Accordingly, deduction under section 80P(2)(a)(i) of the Act was not allowed to the assessee observing that assessee is not a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. Further, it was observed that the assessee has received interest from nationalized bank of Rs.21,35,844/- from different banks and on this amount deduction was also not granted to the assessee under section 80P of the Act. Accordingly, the entire deduction claimed by the assessee of Rs.97,90,443/- was denied to the assessee under section 80P(2)(a)(i) of the Act. The interest earned from nationalised banks was also offered for deduction under section 80P(2)(a)(i) of the Act treating it as a business income.
Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A), relying on its own judgment and relying Page 3 of 5 on various other judgments, allowed the deduction under section 80P(2)(a)(i) of the Act. Further, the learned CIT(A) held that in the case of interest received from nationalized banks of Rs.21,35,844/-, it is not allowable for deduction under section 80P(2)(a)(i) of the Act since it is not an operational income from business and partly allowed appeal of the assessee.
Aggrieved from the above Order, assessee filed appeal before the Tribunal. The learned Counsel for the assessee submitted that assessee should have been allowed cost of funds and administrative expenses towards earning of income which is offered as income under section 56 of the Act. Therefore, the assessee is eligible for deduction of expenditure incurred under section 57(iii) of the Act because the entire interest income cannot be taxed. The purpose of theory of real income has not been considered by both the authorities and requested that the matter may be sent back to AO for calculation of cost of funds and administrative expenses towards earning of interest income.
The learned DR relied on the Order of the lower authorities
Considering the rival submissions, we noted that the assessee is registered under the Karnataka Souharda Sahakari Act, 1997 and the AO held that the assessee is not registered under the Karnataka Co-operative Societies Act, 1959, and hence it is not eligible for deduction. This issue has been decided by learned CIT(A) in favour of the assessee by relying on the judgment of jurisdictional High Court. In the case of interest received from nationalized banks it has been held that it is not an operational income, hence, section 80P(2)(a)(i) of the Act cannot be granted to the assessee. We are also in agreement with the Order of the CIT(A) but as per ground No.6 taken by the assessee, necessary expenditure towards earning of income shall be granted to the assessee which has not been done. This issue has been decided by the Page 4 of 5 Co-ordinate Bench of the Tribunal in the case of Alankar Primary AgriculturalCredit Co-operative Society Vs. ITO in Order dated 26.06.2024 in which it has been held as under:
“14. We further note that the assessee has received interest from other co-operative banks/commercial banks on its investments. The revenue authorities have considered the entire interest as income from other sources u/s. 56 including the interest received from co-operative bank and expenses u/s. 57(iii) has been allowed to the assessee for earning of such income to the extent of Rs. 86,79,382/-. While calculating the income, the net income should be considered as taxable income after reducing the expenditure incurred towards earning of such income. Before us, the ld. AR of the assessee has produced a computation sheet in which he has calculated cost of funds showing loss from investments of Rs. 14,67,949/- but this has not been examined. Therefore relying on the judgment of Hon'ble Jurisdictional High Court in case of Totgars' Co-operative Sales Society Ltd. vs ITO Sirsi, reported in (2015) 58 taxmann.com 35 (Karnataka), the assessee is eligible for claim of its cost of funds on the interest income received from banks. Since in the case on hand the assessee has been allowed cost of funds to the extent of Rs.86,79,382 and taxable income under the head income from other sources is Rs.31,67,724, but the assessee has computed taxable income from investments of (-) 14.67,949. Therefore, we are remitting this issue to the file of AO for fresh computation of cost of funds. Accordingly, the assessee is directed to provide the details of cost of funds before the assessing officer.”
Respectfully following the above judgment, remitting the issue back to the file of AO for calculation of cost of funds and assessee is directed to provide cogent materials for expenditure incurred towards earning of income and not to seek unnecessary adjournment in the matter for early disposal of the case and AO is directed to provide reasonable opportunity of being heard to the assessee and decide the issue as per law.
Pronounced in the court on the date mentioned on the caption page.