RAILWAYMENS COOPERATIVE CREDIT SOCIETY,VADODARA, GUJARAT vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), VADODARA, VADODARA, GUJARAT

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ITA 1143/AHD/2025Status: DisposedITAT Ahmedabad15 July 2025AY 2018-196 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal addressed the issues by first considering the treatment of interest income from nationalised banks. It acknowledged the grounds related to treating interest income as business income and the eligibility for deduction under Section 80P(2)(a)(i) were dismissed as per the decision of the Hon’ble Apex Court in Totagar’s Co-operative Sale Society Ltd. (supra). However, regarding the disallowance of proportionate expenses, the Tribunal held that proportionate business expenditure for earning interest income should be considered, even if the income is derived from national banks. The Assessing Officer was directed to verify the calculation of proportionate expenditure provided by the assessee and allow allowable components as per the Income Tax Act. Consequently, the grounds relating to proportionate expenses were partly allowed for statistical purposes. The appeals for both assessment years were disposed of on this basis.

What were the facts?

The assessee, Railwaymens Cooperative Credit Society, filed appeals for Assessment Years (AY) 2018-19 and 2020-21 against the orders of the National Faceless Appeal Centre (NFAC), Delhi. The assessee, a cooperative society engaged in finance intermediation, declared a total income of nil for AY 2018-19 after claiming a deduction of Rs. 79,17,847/- under Section 80P(2)(a)(i). The Assessing Officer (AO) noted interest income of Rs. 48,09,143/- from deposits in nationalized banks and treated it as income from other sources taxable under Section 56, relying on the Supreme Court decision in Totagar’s Co-operative Sale Society Ltd. vs. ITO. The AO also disallowed proportionate expenses. The CIT(A) dismissed the assessee's appeal. For AY 2020-21, a similar issue arose concerning disallowance of proportionate expenses of Rs. 38,70,456/-.

What were the issues?

1. Whether the interest income of Rs. 48,09,143/- (AY 2018-19) and Rs. 46,69,656/- (AY 2020-21) earned from nationalised banks is to be treated as business income or income from other sources taxable under Section 56 of the Income Tax Act, 1961. 2. Whether the assessee is eligible for deduction under Section 80P(2)(a)(i) of the Act on the interest income earned from nationalised banks. 3. Whether proportionate expenses incurred for earning the interest income are allowable as a deduction. Assessee's contentions: The assessee argued that the interest income is business income and eligible for deduction under Section 80P(2)(a)(i). It also contended that proportionate expenses should be allowed. The assessee relied on its audit report stating its business is finance intermediation services. Revenue's contentions: The revenue, through the AO and CIT(A), treated the interest income as income from other sources based on the Apex Court's decision in Totagar’s Co-operative Sale Society Ltd. vs. ITO and disallowed proportionate expenses.

Which sections of the Income-tax Act were involved?

Section 56,Section 80P,Section 234B,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH

Before: Dr. BRR Kumar & Ms. Suchitra Kamble

For Appellant: Ms. Amrin Pathan, A.R
For Respondent: Shri Suresh Chand Meena, Sr. D.R

आदेश/ORDER Per Suchitra Kamble, Judicial Member:

1.

These are two appeals filed against the order dated 28- 03-2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment years 2018-19 & 2020-21.

2.

The grounds of appeals are as under:-

A.Y. 2018-19 “All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other. Deduction U/s. 8OP Rs. 48,09,143

1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (NFAC) [the CIT(A)"] erred in fact & 1144/Ahd/2025 Railwaymens Cooperative Credit Society, A.Y. 2018-19 & 2020-21 and in law in confirming the action of the learned Assessment Unit, National Faceless Assessment Centre ("the AO") in treating income of Rs. 48,09,143 as income from other sources taxable u/s. 56 of the Income Tax Act, 1961 (the Act) instead of business income.

2. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in not allowing deduction u/s 80P(2)(a)(1) of the Act on interest income of Rs 48,09,143.

Disallowance of Proportionate Expense:

3. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing proportionate expense from interest income.

4. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in computing taxable income of the Appellant at Rs. 48,09,143 instead of Rs. 6,13,216, thereby disallowing the proportionate business expenditure earned for earning interest income.

5. The learned CIT(A) erred in fact and in law in treating the interest income from nationalised banks as income from other sources instead of business income.

6. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing the expense without appreciating the facts on record in proper perspective.

7. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance of proportionate expense on assumptions and presumptions.

8. The learned CIT(A) erred in fact and in law in confirming the disallowance by holding that no details were filed by the Appellant for claiming the expenses.

9. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing the expense without granting proper opportunity of being heard.

Other Grounds:

10. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying interest u/s 234B of the Act.

11. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty u/s 270A of the Act.

& 1144/Ahd/2025 Railwaymens Cooperative Credit Society, A.Y. 2018-19 & 2020-21 12. Your Appellant craves the right to add to or to alter, amend, substitute, delete or modify all or any of the above grounds of appeal.” A.Y. 2020-21 “All the grounds of appeal in this appeal are mutually exclusive and without prejudice to each other.

Disallowance of Proportionate Expense - Rs.38,70,456:

1. The learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (NFAC).["CIT (A)"] erred in fact and in law in confirming the disallowance of Rs. 38,70,456 made by the Assessment Unit, National Faceless Assessment Centre ("the AO").

2. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in computing taxable business income of the Appellant at Rs. 46,69,656 instead of Rs. 7,99,200, thereby disallowing the proportionate business expenditure of Rs. 38,70,456.

3. The learned CIT(A) erred in fact and in law in treating the interest income of Rs. 46,69,656 as income from other sources instead of business income.

4.

The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing proportionate expenditure of Rs. 38,70,456 from interest income earned from nationalised bank.

5. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance of expense of Rs. 38,70,456 by invoking the provisions of section 80P of the Income Tax Act, 1961 ("the Act") despite the fact that deduction on interest income from nationalised banks was not claimed u/s 80P of the Act.

6. The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing the expense without appreciating the facts on record in proper perspective.

7.

The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in making disallowance of proportionate expense on assumptions and presumptions.

8.

The learned CIT(A) erred in fact and in law in confirming the disallowance by holding that no details were filed by the Appellant for claiming the expenses. 3 & 1144/Ahd/2025 Railwaymens Cooperative Credit Society, A.Y. 2018-19 & 2020-21

9.

The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing the expense without granting proper opportunity of being heard. Other Grounds:

10.

The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying interest u/s 234B of the Act.

11.

The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty u/s 270A of the Act.

12.

Your Appellant craves the right to add to or to alter, amend, substitute, delete or modify all or any of the above grounds of appeal.”

3.

The assessee’s case was selected for complete scrutiny relating to the issue of expenditure of personal nature, investment/advance/loans and deduction from total income under Chapter-VIA. The assessee filed its return of income on 27-07-2018 declaring total income of Rs. nil after claiming deduction u/s. 80P(2)(a)(i) of the Income Tax Act amounting to Rs. 79,17,847/-. The assessee is a co- operative society and as per the audit report of the assessee, the assessee is in the business of finance intermediation services. The assessee has shown total income interest income of Rs.6,69,44,095/-. The Assessing Officer observed that the assessee has invested the said sum and deposited in nationalized bank and received interest of Rs. 48,09,143/-. The Assessing Officer treated it as income from other sources u/s. 56 of the Act based on the decision of Hon’ble Apex Court in case of Totagar’s Co-operative Sale Society Ltd. vs. ITO 322 ITR 283.

& 1144/Ahd/2025 Railwaymens Cooperative Credit Society, A.Y. 2018-19 & 2020-21 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.

5.

As regards ground nos. 1 and 2, the same are against the assessee and hence dismissed as per the decision of Hon’ble Apex Court in case of Totagar’s Co-operative Sale Society Ltd. (supra). Hence, ground nos. 1 & 2 are dismissed.

6.

As regards ground nos. 3 to 8 relating to disallowance of proportion expenses as regards to proportionate business for earning interest income has to be taken into consideration even if interest income is derived from national banks. Thus, to that extent, the Assessing Officer is directed to verify the calculation of proportionate expenditure given by the assessee and reproduced by the CIT(A) at page no. 20 be taken into consideration and the component which are allowable as per Income Tax Act be given to the assessee. Thus, ground nos. 3 to 8 are partly allowed for statistical purposes. Hence, 2018-19 is partly allowed for statistical purposes. for assessment year 2020-21, the same is identical to the appeal filed by the assessee for assessment year 2018-19 and hence the said appeal is also partly allowed for statistical purposes to the extent of ground nos. 1 to 8.

& 1144/Ahd/2025 Railwaymens Cooperative Credit Society, A.Y. 2018-19 & 2020-21 8. In the result, both the appeals of the assessee are partly allowed for statistical purpose.

Order pronounced in the open court on 15-07-2025 Sd/- Sd/- (Dr. BRR Kumar) (Suchitra Kamble) Vice President Judicial Member Ahmedabad : Dated 15/07/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,

उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद

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