The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) remanded the case back to AO to reconsider his decision of rejecting the deduction claim made by the assessee under Section 80P(2)(d) of the Income Tax Act.
The assessee, Belve Vyavasaya Seva Sahakari Sangha Ltd, is a Primary Agricultural Credit Society (PACS) engaged in providing credit facilities to its members for agricultural activities, selling fertilisers and PDS distribution. The assessee had filed its income tax return for the assessment year (AY) 2020-21, declaring a total income pf NIL after claiming a deduction of ₹1.2 Crores under the provisions laid out in Section 80P(2)(a)(i).
During a scrutiny assessment, the AO observed that the cooperative society had earned interest income of ₹1.3 Crores from the South Canara District Central Co-operative Bank (SCDCC) and ₹23,925 from Vijaya Bank. This income was classified as income from other sources instead of business income, so the deduction under Section 80P was disallowed.
Aggrieved by the order made by the AO, the assessee filed an appeal to the CIT(A) where the CIT(A) upheld the AO’s decision stating that interest income from cooperative banks does not qualify as “business income” under Section 80P(2)(a)(i). The CIT(A) asserted that interest earned from cooperative banks cannot be claimed under Section 80P(2)(d), as the deduction applies only to interest or dividends earned from investments in cooperative societies and not banks.
The CIT(A) also pointed out that proper details did not support the society’s claim of business loss of ₹28 Lakhs. This led the appellate authority to direct the AO to verify and compute the total income again.
The CIT(A) order further disappointed the assessee, who filed an appeal with the ITAT and argued that the interest earned on deposits with cooperative banks should be treated as business income, as maintaining liquid funds is mandatory under the governing statutes.
After reviewing the submissions, the ITAT partially allowed the appeal and remanded the case to the AO’s file. The ITAT directed the AO to verify whether the interest or dividend income was earned from investments with a cooperative society. The deduction under Section 80P(2)(d) will be allowed if so. The ITAT further directed the AO to allow proportionate expenses under Section 57 if the interest income is classified as income from other sources and recompute the income according to such data. The tribunal consisting of Waseem Ahmed (Accountant Member) and Keshav Dubey(Judicial Member) noted that as the penalty proceedings under Section 271(1)(c) depended on the quantum of appeal and remanded the penalty issue back to the AO for reconsideration.
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