KHERALU TALUKA PRIMARY TEACHERS CO. OP. CREDIT SOCIETY NIYAMIT,MEHSANA V. NFAC, DELHI PRESENT JURISDICTION -THE ITO, WARD-1, PATAN

ITA 1235/AHD/2025

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The case involves Kheralu Taluka Primary Teachers Co. Op. Credit Society Niyamit appealing against the order of the Commissioner of Income Tax (Appeals), which upheld the disallowance of deductions claimed under Section 80P(2)(a)(i) and Section 80P(2)(d) of the Income Tax Act. The society had claimed deductions for interest income received from nationalized and cooperative banks, which were disallowed by the Assessing Officer and upheld by the CIT(A). The Tribunal found merit in the assessee's claim for deduction of proportionate expenses under Section 57 related to earning interest income and remitted the matter back to the Assessing Officer for fresh adjudication.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 771850 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: Balwa Group Coop Society vs. ITO
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENKUMAR M VASAVDA
• Assessee Lawyers: ADJOURNMENT APPLICATION FILED
• Keywords: Opportunity of being heard

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE DR. BRR KUMAR, VICE PRESIDENT & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I.T.A. No.1235/Ahd/2025 (Assessment Year: 2018-19) Kheralu Taluka Primary Teachers Co. Op. Credit Society Niyamit, Moti Fali, Nr. Cinema-Kheralu, Gujarat-384325 Vs. National Faceless Appeal Centre, (Now Present Income Tax Officer), Ward-1, Patan [PAN No.AAAAK1394C] (Appellant) .. (Respondent) Appellant by : Adjournment Application filed Respondent by: Shri Rajenkumar M Vasavda, Sr. DR Date of Hearing 12.08.2025 Date of Pronouncement 25.08.2025 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi vide order dated 20.06.2025 passed for A.Y. 2018-19. 2. The assessee has raised the following grounds of appeal: “1. In law and on the facts and in the circumstances of the case, the order u/s 250 of the Act passed by the Ld. CIT(A) is bad in law and deserves to be quashed. 2. In law and in the facts and circumstances of the case of the Appellant, the Ld. CIT(A) has grossly erred in upholding disallowance of deduction claimed u/s 80P(2)(a)(i) of the Act amounting Rs.3,66,426/- without appreciating that fact that any income received from the investment held with a Nationalized Bank is eligible for deduction under section 80P(2)(a)(i) of the Act. Printed from counselvise.com ITA No. 1235/Ahd/2025 Kheralu Taluka Primary Teachers Co. Op. Society Niyamit vs. ITO Asst. Year –2018-19 - 2– 3. The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or at the time of hearing of the appeal.” 3. At the outset, we note that the present appeal is time barred by 271 days. However, in the interest of justice and looking into the totality of facts, we are inclined to condone the present delay in the interests of justice 4. The brief facts of the case are that the assessee is a credit co- operative society engaged in providing credit facilities to its members. The assessee filed its original return of income declaring “Nil” income after claiming deduction of ₹36,99,361/- under section 80P of the Income Tax Act (Act). During the assessment proceedings, the Assessing Officer (AO) noted that the assessee had claimed deduction of ₹3,66,426 under section 80P(2)(a)(i) of the Act in respect of interest received from nationalized banks and ₹2,98,042 under section 80P(2)(d) of the Act towards interest earned from cooperative banks. Subsequently, the assessee submitted a revised computation offering the ₹3,66,426/- interest from nationalized banks under the head \"Income from Other Sources\" instead of \"Profits and Gains from Business,\" and claimed proportionate administrative expenses of ₹3,16,873 under section 57 of the Act. The assessee offered only the net income of ₹49,552/- to tax in the revised computation. However, the AO rejected this revised computation and did not allow the expenditure claimed under section 57 of the Act, and disallowed the entire deduction of ₹6,64,468 claimed by the assessee, under both sections 80P(2)(a)(i) and 80P(2)(d) of the Act. Printed from counselvise.com ITA No. 1235/Ahd/2025 Kheralu Taluka Primary Teachers Co. Op. Society Niyamit vs. ITO Asst. Year –2018-19 - 3– 5. Aggrieved by the assessment order, the assessee filed an appeal before Ld. CIT(A). The assessee submitted before Ld. CIT(A) that, even if the deduction under section 57 of the Act was not allowed, the same expenditure should have been allowed as a business expense. However, the CIT(A) pointed out that the Hon'ble Supreme Court, in the Totgars Co- operative Sale Society case, had clearly ruled that only operational income from business activities with members qualifies for deduction under Section 80P(2)(a) of the Act., and not income from investments such as interest from banks. Since the interest income in this case arose from investments made with nationalized banks and other institutions who are not members of the society, the assessee did not meet the conditions for deduction under Section 80P(2)(a)(i) of the Act. With respect to the assessee’s claim regarding deduction of ₹3,16,874 under Section 57 of the Act, the CIT(A) held that no documentary evidence was provided to prove that these expenses were directly and exclusively incurred for earning that interest income. The calculation of proportionate expenses, which was computed merely on a percentage basis, without any substantiating documents, was not eligible for deduction under Section 57 of the Act. Accordingly, the CIT(A) upheld the AO’s disallowance of deduction under Section 80P(2)(a)(i) and the claim of expenses under Section 57 of the Act. 6. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the counsel for the assessee reiterated the submissions made before Ld. CIT(A) to the Printed from counselvise.com ITA No. 1235/Ahd/2025 Kheralu Taluka Primary Teachers Co. Op. Society Niyamit vs. ITO Asst. Year –2018-19 - 4– effect that the assessee should have been allowed set-off of interest expenses against interest income earned from nationalized banks u/s 57 of the Act. In response, the Ld. DR placed reliance on the observations made by the Assessing Officer and Ld. CIT(Appeals) in their respective orders. 7. We have heard the rival contentions and perused the material on record. We note that a similar issue came up before Ahmedabad ITAT in the case of Balwa Group Coop Society vs. ITO for the Assessment Year 2018-19 (ITA No. 1636/Ahd/2024), wherein the ITAT dealt with the issue of taxability of interest income earned from nationalized banks. The brief facts of the case were that the assessee, a credit co-operative society, had filed its return declaring NIL income after claiming deduction under Section 80P(2)(a)(i) of the Act. However, the Assessing Officer disallowed this claim, treating the interest income of ₹26,31,656 from various banks as not eligible for deduction under Section 80P, and taxed the same under the head \"Income from Other Sources.\" Before ITAT, the assessee submitted that the interest earned was from surplus funds which were deposited to meet the objectives of the society and should therefore qualify for deduction under Section 80P. Alternatively, the assessee requested that if the income is taxable under Section 56, then proportionate expenses related to earning this income should be allowed under Section 57. The assessee further submitted that administrative and other operational expenses such as interest paid to members, salaries, and member welfare expenses were incurred in the process of managing funds and earning interest from bank deposits. The Printed from counselvise.com ITA No. 1235/Ahd/2025 Kheralu Taluka Primary Teachers Co. Op. Society Niyamit vs. ITO Asst. Year –2018-19 - 5– Department, however, opposed this, arguing that the interest income from nationalized banks was from surplus or idle funds and had no direct connection to the society’s main business of providing credit to its members. The Departmental Representative contended that most of the expenses, especially the interest paid to members were directly related to the core lending activities and could not be deducted from income earned from other sources like bank deposits, to avoid double deduction. After hearing both sides, the Tribunal upheld the CIT(A)'s decision on the first ground, confirming that the interest income earned from nationalized banks is not eligible for deduction under Section 80P(2)(a)(i) of the Act. However, regarding the alternative claim of deduction of proportionate expenses under Section 57 of the Act, the Tribunal found merit in the assessee’s submission and noted that whether proportionate expenses could be allowed or not required further verification. The ITAT accordingly remanded this specific issue back to the Assessing Officer for fresh adjudication after examining the working of the proportionate expenses, with instructions to give the assessee an opportunity to be heard. 8. We are of the considered view that the facts of the case before us are similar to above decision of jurisdictional Ahmedabad ITAT. We concur with the view taken in the aforesaid decision that the assessee should be allowed proportionate expenditure against interest income subject to the assessee establishing connection between incurring of such expenditure towards earning of interest income from nationalized banks, Printed from counselvise.com ITA No. 1235/Ahd/2025 Kheralu Taluka Primary Teachers Co. Op. Society Niyamit vs. ITO Asst. Year –2018-19 - 6– which is a specific requirement for claim of such expenditure u/s section 57 of the Act. Accordingly, the appeal of the assessee is allowed for statistical purposes and matter with respect to claim of deduction of proportionate expense under Section 57 of the Act is remitted to the Assessing Officer for fresh consideration. 9. In the result, the appeal of the assessee is allowed for statistical purposes. This Order pronounced in Open Court on 25/08/2025 Sd/- Sd/- (DR. BRR KUMAR) (SIDDHARTHA NAUTIYAL) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 25/08/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 25.08.2025(Dictated on dragon software) 2. Date on which the typed draft is placed before the Dictating Member 25.08.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .08.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement 25.08.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 25.08.2025 7. Date on which the file goes to the Bench Clerk 25.08.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "