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Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE
Before: DR.MANISH BORAD
आदेश / ORDER
PER DR.MANISH BORAD, ACCOUNTANT MEMBER:
This appeal filed by the assessee pertaining to the Assessment Year (in short "AY") 2019-20 is directed against the order passed u/s.250 of the Income Tax Act, 1961 [in short “the Act"] by ld. Commissioner of Income-tax (Appeals)/Addl/JCIT(A)- 1, Siliguri [in short ld."CIT(A)"] dated 12.08.2024 arising out of the Intimation order passed u/s.143(1)(a) of the Act dated 01.05.2020.
Assessee has raised following grounds of appeal :
“The following grounds are taken without prejudice to each other –
On facts and in law,
1] The Learned ADDL/JCIT (A) erred in upholding the action of learned AO CPC-Bangalore, of restricting the deduction u/s.80P at Rs.2,20,01,139/- only instead of Rs.2,38,12,727/- and thereby erred in confirming the addition of Rs.18,11,590/- made by the learned CPC- Bangalore.
2] The Learned ADDL/JCIT (A) failed to appreciate that once the Gross Total Income has been assessed at a higher amount, the corresponding deduction u/s 80P should also be allowed at such higher amount i.e. equal to the amount of Gross Total Income so assessed.
3] The Learned ADDL/JCIT (A) erred in not following the directions issued by Hon'ble CBDT vide Circular 37/2016 which states that-
In view of the above, the Board has accepted the settled position that the disallowances made under sections 32, 40(a)(ia), 40A(3), 43B, etc. of the Act and other specific disallowances, related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible on the profits so enhanced by the disallowance. (Para 3 of circular).
4] The Learned ADDL/JCIT (A) erred in not following the judgement of Hon'ble Bangalore Tribunal in case of Sharavathi Pathina Sahakara Sangha Niyamitha vs Income-tax Officer [2022] 144 taxmann.com 170 (Bangalore - Trib.), relied upon by the appellant in its submission.
5] The appellant requests for admission of additional evidences in support of its case.
6] The appellant craves leave to add, alter, amend or delete any of the above grounds of appeal.”
3. At the outset, ld. counsel for the assessee referring to the CBDT Circular No.37/2016, dated 02.11.2016 and also placing reliance on the decision of Coordinate Bench, Bangalore in the case of Sharavathi Pathina Sahakara Sangha Niyamitha Vs. ITO (2022) 144 taxmann.com 170 (Bangalore-Trib.) and that of this Tribunal in the case of Nashik Road Nagari Sahkari Patsanstha dated 27.12.2021, stated that the assessee is a Cooperative Society and enjoys the benefit of deduction u/s.80P of the Act and the ld. Assessing Officer (AO) allowed the claim of the assessee u/s.80P of the Act at Rs.2,20,01,139/-. He further submitted that there were certain disallowances which the Tax Auditor has indicated in the Tax Audit report u/s.44AB of the Act amounting to Rs.18,11,590/- and the CPC while processing the return u/s.143(1)(a) of the Act has added back the disallowance to the income but had not given the benefit of deduction u/s.80P of the Act. He submitted that in light of aforesaid CBDT circular and the decisions of Coordinate Benches referred (supra), after adding back the disallowances ‘business income’ of the society would increase and the enhanced business income would be entitled for deduction u/s.80P of the Act.
4. On the other hand, ld. DR submitted that the disallowances referred by the Tax Auditor are in the nature of ‘income from other sources’ and not ‘business income’ and therefore, deduction u/s.80P of the Act is not allowable.
5. I have heard the rival contentions and perused the record placed before me. The disallowance referred by the Tax Auditor in the Tax Audit report has been captured by the computer system of CPC and the same has been added back to the income of assessee but deduction u/s.80P of the Act has not been given on the said disallowance. I observe that the assessee has shown ‘business income’ of the society at Rs.2,20,01,139/- and claimed deduction under Chapter VI u/s.80P of the Act at Rs.2,20,01,139/- and the same has been allowed by CPC. Only the disallowance at Rs.18,11,590/- have been added back to the income but deduction u/s.80P has not been given. I note that the alleged disallowance are part of the profit and loss account and includes the following :
(1) Scholarship and gifts – Rs.8,65,400/- (2) Festival Advance – Rs.13,373/- (3) Funds for Members – Rs.6,00,000/- (4) Delay in PF/ESI u/s.36(1)(va) – Rs.3,32,817/-
In the above list of disallowances, so far as first three are concerned, i.e. Scholarship and Gifts, Festival Advance and Funds for Members totaling to Rs.14,78,773/- these are all part of the business expenditure claimed by the assessee and even if they are disallowed, it will increase the business income which is eligible for deduction u/s.80P of the Act. However, for the remaining amount of disallowance u/s.36(1)(va) of the Act which is regarding delay in deposit of employees contribution to PF/ESI, I note that the same has to be read along with the provisions of section 2(24)(x) of the Act. If an assessee receives the employees contribution towards PF/ESI, it is to be treated as ‘income’ until and unless the same is deposited with the prescribed authority governing PF/ESI within the prescribed due date as provided in the relevant Acts. In other words, section 36(1)(va) provides that prior to the deduction for such amount, initially, it has to be treated as ‘income’ u/s.2(24)(x) and if the assessee fulfils the condition of depositing the same before the due date, then it is eligible to claim it as deduction u/s.36(1)(va) of the Act. However, in the instant case, there is delay in deposit of sum received from the employees towards PF/ESI. So there is no scope left for the assessee to claim it as deduction u/s.36(1)(va) of the Act and what remains is the income u/s.2(24(x) of the Act.
Now going through the provisions of section u/s.2(24) of the Act which defines the income, and the same includes profits and gains at sub-clause (i), dividend at sub-clause (ii) and so on and then sub-clause (x) which is for any sum received by the assessee from its employees as contribution to any PF or superannuation fund setup under the provisions of Employees State Insurance Act, 1948 or any other fund for the welfare of such employees.
From the perusal of section 2(24), I observe that the ‘business income’, i.e. profits and gains are specifically mentioned at 2(24)(i) and the issue before us is relating to sum received from employees towards deposit of PF/ESI as mentioned at section 2(24)(x) which indicates that such amount received by the assessee from its employees is not in the nature of any ‘business income’ and therefore, if such income is added in the hands of assessee it is to be treated as ‘income from other sources’.
I therefore observe that out of the alleged sum Rs.18,11,590, the sum of Rs.14,78,773/- being allegedly claimed as business expenditure, even after being disallowed would only increase the business income and the increased business income would again be available for deduction u/s.80P of the Act in light of CBDT Circular No.37/2016, dated 02.11.2016 as well as the decisions of the Coordinate Bench, Bangalore in case of Sharavathi Pathina Sahakara Sangha Niyamitha (supra) and Coordinate Bench, Pune in case of Nashik Road Nagari Sahkari Patsanstha Limited (supra) where it has been held that if any disallowance made by the assessee u/s.32, section 40(a)(ia), section 40A(3) and section 43B etc., and other specific disallowances which relate to the business activity against which Chapter VIA deduction has been claimed, enhancement of the profits of the eligible business on account of any such disallowance, shall increase the ‘business income’ which inturn are eligible for deduction u/s.80P of the Act.
So far as the remaining amount of Rs.3,32,817/- which is the income of the assessee u/s.2(24)(x) of the Act the same cannot be treated as a business receipt and is purely ‘Income from other sources’ and the same cannot be correlated to the activity of the assessee Cooperative Society and therefore will not be eligible for any deduction u/s.80P of the Act. To conclude I hold that the assessee gets relief to the extent of Rs.14,78,773/- as it is allowable as deduction u/s.80P of the Act and the remaining amount of disallowance of Rs.3,32,817/- stands confirmed. Effective grounds of appeal raised on merits are partly allowed.
In the result, appeal of the assessee is partly allowed.
Order pronounced on this 12th day of November, 2024.