The Income Tax Appellate Tribunal (ITAT), Bangalore recently examined the scope of services that can be provided by a Souharda Cooperative Society, while adjudicating the Revenue’s denial of deductions claimed by the Assessee under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The deductions claimed by the Assessee were denied by the Department alleging the society’s provision of banking services to both associate and nominal members.
An Income Tax Appeal was filed before the Bangalore Tribunal by Shri Saraswathi Credit Souharda Sahakari Sangha Ltd., a souharda cooperative society registered under the Karnataka Souharda Sahakari Act, 1997, engaged in the business of accepting deposits from and lending credit facilities to its members.
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The Assessee filed their returns for the Assessment Year (A.Y.) 2018-19 declaring their total income at Nil after claiming deduction of Rs.3,37,91,925/- under Section 80P(2)(a)(i) of the Income Tax Act, 1961 while having an interest income of Rs.4,17,99,567/- from investments in fixed deposits with other cooperative societies. The Appellant had also claimed deductions under Section 57(iii) of the Act against such interest income as well.
The Assessee’s case was shortlisted for scrutiny by the Assessing Officer (AO) who deemed the Assessee’s business to not be a cooperative society, but that of finance institution as it rendered banking facilities not only to its associate members but to members of the general public as well.
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The AO proceeded to restrict the deductions claimed under Section 57(iii) of the Act, till the cost of funds invested to earn interest income, while disallowing the claim of Rs.35,63,408/- made towards the proportionate costs incurred towards employees and administrative overheads.
V. Srinivasan, appearing for the Souharda Society contested the stance of the Revenue, averring that under the Karnataka Souharda Sahakari Act, 1997, loans provided to nominal and associate members are deemed loans to members, thereby qualifying the income from such supply of loans to be eligible for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
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The counsel for the Appellant further submitted that the Commissioner of Income Taxes (Appeals) ( CIT(A) ) had failed to consider additional documents including name and address of
borrowers, membership number, type of facility granted, PAN and Aadhar number while adjudicating the Assessee’s matter; the submissions were wholly contested by Departmental Representative Neha Sahay, who acceded to the impugned decision of the CIT(A).
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Padmavathy S., Accountant Member and Shri Prakash Chand Yadav, Judicial Member considering the submissions on record observed that the AO had failed to consider the assessee’s submissions that the disputed income had been earned from doing business with its members only.
The Bench referred to the observations of a coordinate bench in the multiple appeals pertaining to Basaveshwaranagara Co-opera society vs ITO (2024) where the Bench remitted the case back to the file of the AO in respect of the decision of the Supreme Court in Mavilayi Service Co-operative Bank Ltd. v. CIT (2021)
Read More: Co-operative Society involved in Banking Business Not eligible for deduction u/s 80P(2)(a)(i): ITAT
Considering the facts and circumstances of the Assessee’s case, the Bench proceeded to remand the case back to the AO for re-examination of the submissions and documents afresh with specific regard to the allowability of deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961.
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Additionally, the ITAT directed the AO to examine whether the proportionate expenses claimed by the Assessee are being earned through interest “income from other sources”, taking into account all relevant evidence that may be called for by the AO, and adduced by the Assessee to substantiate their claim of deduction under Section 57(iii) of the Income Tax Act, 1961.
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