DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1, MANGALURU, MANGALURU vs. DAKSHINA KANNADA CO OPERATIVE MILK PRODUCERS UNION LIMITED, KULASEKHARA
Facts
The revenue is in appeal against an order of the NFAC concerning assessment year 2020-21. The assessee had claimed deduction under section 80P(2)(d) of the Income Tax Act, 1961, on interest income earned from deposits with a cooperative bank. The Assessing Officer disallowed this deduction, but the NFAC deleted the addition, allowing the assessee's appeal.
Held
The Tribunal directed the AO to verify if the interest income was earned from investments made with Cooperative Societies. If so, the assessee is entitled to deduction under section 80P(2)(d) of the IT Act, following the Supreme Court's decision. If the interest is considered 'income from other sources', relief under section 57 of the Act should be granted.
Key Issues
Whether interest income earned by the assessee from deposits with cooperative banks is eligible for deduction under Section 80P(2)(d) of the Income Tax Act, and if not, whether it qualifies for relief under Section 57.
Sections Cited
80P(2)(d), 57(iii), 56
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI KESHAV DUBEY
PER KESHAV DUBEY, JUDICIAL MEMBER:
This appeal by revenue is directed against order of NFAC for the assessment year 2020-21 dated 30.11.2023. The revenue has raised following grounds of appeal: On the relief given by CIT(A) to addition made u/s 80P(2)(d) of Income Tax Act, 1961 by the AO: 1. Whether CIT(A) has erred in allowing 100% deduction u/s 80P(2)(d) of IT Act, 1961 in respect of whole of its income by way of interest earned by it on the deposits or investments made by it during these years with a Cooperative Bank M/s. South Canara District Central Co-operative Bank Ltd. 2. Whether CIT(A) has erred in concluding that M/s. South Canara District Central Co-operative Bank Ltd., is not governed by RBI Banking Regulation Act even when Section 56 of RBI Banking Regulation Act is applicable to this bank. Total tax effect Rs.5,40,66,937/-
ITA No.49/Bang/2024 Dakshina Kannada Cooperative Milk Producers Union Limited, Mangaluru Page 2 of 4 2. Brief facts of the case are that the assessee had filed its return of income for the AY 2020-21 on 16.01.2021 declaring total income of Rs.26,30,41,470/-. Subsequently, the case was selected for scrutiny under CASS. Accordingly, notice u/s 143(2) of the Income Tax Act, 1961 (in short “The Act”) was issued by the AO on 29.06.2021 to the assessee. Assessee had submitted its reply before the AO during the assessment proceedings. While concluding the assessment, the Assessing Officer had disallowed the interest of Rs. 5,40,66,937/- received from South Canara Distt. Central Co- operative Bank u/s 80(2)(d) of the Act and also disallowed Rs. 50,000/- as deduction claimed u/s 80P(2)(c)(ii) of the Act by passing the order u/s 143(3) of the Act dated 21.09.2022. Being aggrieved by the above action of AO, the assessee went in appeal against the impugned order before NFAC. NFAC deleted the addition made by the ld. AO and allowed the appeal of the assessee. Against this revenue is in appeal before us by way of above grounds. 3. The main crux of the aforesaid grounds is with regard to the ground relating to deduction claimed under section 80P(2)(d) of the Act, which has been allowed by the NFAC. Against this revenue is in appeal before us. 3.1 The ld. D.R. argued that the assessee earned interest income from deposit with scheduled banks and co-operative banks. Facts regarding this ground are that the assessee earned interest income from deposits with Scheduled banks and Co-operative banks, which has been assessed as “income from other sources” and no deduction u/s 80P(2)(d) of the Act could be granted to the assessee. Now the contention of the revenue is that this income is not to be assessed as “business income” and deduction u/s 80P(2)(d) of the Act cannot be granted. Without prejudice to this, it was submitted that the assessee is not entitled for deduction u/s 57(iii) of the Act with regard to cost of funds incurred if the income is assessed as “income
ITA No.49/Bang/2024 Dakshina Kannada Cooperative Milk Producers Union Limited, Mangaluru Page 3 of 4 from other sources” u/s 56 of the Act. On the other hand, ld. A.R. relied on the order of NFAC and prayed that it is to be confirmed. 4. We have heard the rival submissions and perused the materials available on record. As regards the claim of deduction u/s 80P(2)(d) of the I.T. Act, we direct the A.O. to verify whether interest / dividend is received by the assessee out of investments made with Cooperative Societies. If the assessee earns interest / dividend income out of investments with co-operative society, as observed by Hon’ble Supreme Court in the case of Kerala State Co-operative Agricultural and Rural Development Bank Ltd. in Civil Appeal No.10069 of 2016, order dated 14.09.2023, the same is entitled to deduction u/s 80P(2)(d) of the I.T. Act. 4.1 Without prejudice to the above, we make it clear that if the interest earned by assessee from the banks is considered under the head “Income from other sources”, relief to be granted to the assessee u/s 57 of the Act in accordance with law. Accordingly, the issue is restored to the file of ld. AO for de-novo consideration with the above observations. 4.2 Accordingly, the issue in dispute in this appeal is remitted to the file of ld. AO for fresh consideration. 5. In the result, appeal of the revenue is partly allowed for statistical purposes. Order pronounced in the open court on 23rd Apr, 2024
Sd/- Sd/- (Chandra Poojari) (Keshav Dubey) Accountant Member Judicial Member
Bangalore, Dated 23rd Apr, 2024. VG/SPS
ITA No.49/Bang/2024 Dakshina Kannada Cooperative Milk Producers Union Limited, Mangaluru Page 4 of 4 Copy to:
The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order
Asst. Registrar, ITAT, Bangalore.
