The Bangalore Bench of Income Tax Appellate Tribunal (ITAT) remitted the matter back to the Assessing Officer (AO) to verify the eligibility of interest income for deduction under Section 80P(2)(a)(i) of the Income Tax Act,1961.
The Naragund Taluka Prathamika Shiksa Shiksakiyar Co-op. Credit Society Ltd., appellant-assessee,is a co-operative society that provides credit facilities to its members. It filed its return and claimed a deduction under Section 80P(2)(a)(i) of the Act. The case was selected for scrutiny, and the AO added Rs. 3,09,103/- as interest income from savings and other sources, taxing it under “Income from Other Sources.”
In the assessment order for AY 2018-19, the AO assessed the total income at Rs. 3,09,103/-, but mistakenly used Rs. 50,51,034/- to calculate tax and made a demand of Rs. 23,68,586/-.
The assessee challenged the order before the Commissioner of Income Tax(Appeals)[CIT(A)], arguing that the interest income was from its banking business, and the rent income was from its house property. It also pointed out the mistake in the computation sheet and stated that there was no delay in filing the return.
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The assessee aggrieved by the order of the CIT(A) appealed before the tribunal.
A delay of 41 days occurred in filing the appeal, as the assessee was unfamiliar with online assessment procedures and did not initially receive the order via email. The delay was explained in an affidavit, and the tribunal found the reasons convincing. The delay was condoned, and the appeal proceeded on merits.
The assessee’s counsel stated that the return was filed on 18.07.2019, within the extended deadline of 31/10/2019, making it eligible for the deduction under Section 80P. The counsel also argued that invoking Section 80AC was incorrect since the return was timely filed and pointed out that neither the AO nor the CIT(A) addressed the addition of Rs. 47,33,962/- in the assessment order.
The two member bench comprising Soundararajan.K(Judicial Member) and Waseem Ahmed(Accountant Member) reviewed the arguments and noted that in the assessment order dated 13/04/2021, the assessing officer disallowed Rs. 3,09,103/- of income, stating that interest income from banks wasn’t eligible for deduction under Section 80P(2)(a) of the Act.
The officer also disallowed other incomes like entrance and share fees, claiming they weren’t related to the assessee’s business. However, the officer mistakenly included Rs. 47,33,962/- in the computation sheet, which wasn’t mentioned in the assessment order, leading to incorrect tax calculations.
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The CIT(A) remitted the issue, invoking Section 80AC due to the late filing of the return, but the ITAT found this incorrect. The officer had not disputed the Rs. 47,33,962/- interest income, implying its likely acceptance.
The tribunal followed a previous ruling by the Jurisdictional High Court, allowing deductions on interest earned by co-operative societies from banking activities, and remitted the Rs. 3,09,103/- addition back to the AO to confirm if it related to the society’s business.
Regarding the Rs. 47,41,931/- interest income, the appellate tribunal found the CIT(A) was wrong to consider it, as it was not raised by the officer or assessee. The bench set aside the CIT(A)’s findings, noting that the CIT(A) should have obtained a remand report before making a decision.
The ITAT questioned whether the CIT(A) had the authority to remand or enhance the assessment without hearing the appellant, deeming the CIT(A)’s order unsustainable.
In short,the appeal filed by the assessee was partly allowed.
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