PRATHAMIK KRISHI PATTIN SAHAKARI SANGH NIYAMIT ALBAL,ALBAL, JAMKHANDI V. ITO WARD-1 AND TPS, BAGALKOT, BAGALKOT

ITA 1538/BANG/2024

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The case involves Prathamik Krishi Pattin Sahakari Sangh Niyamit, a cooperative society, appealing against the order of the National Faceless Appeal Centre (NFAC), which denied them a deduction under section 80P of the Income Tax Act, 1961, for interest income amounting to Rs. 14,84,672 from cooperative and nationalized banks. The Assessing Officer had disallowed this deduction, stating the interest income did not arise from financial activities with members. The Commissioner of Income Tax (Appeals) upheld this decision. The Tribunal, referencing a Supreme Court judgment, noted that if the deposits were compulsory, the interest income should be exempt from tax under section 80P(2)(a)(i). The matter was remanded back to the AO for verification of the nature of the deposits and appropriate deductions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470760 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2018-2019
• Other Referred Cases: CIT versus Karnataka State cooperative apex bank reported in 251 ITR 194
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GANESH R GHALE; STANDING COUNSEL
• Assessee Lawyers: G. ARALIKATTI
• Section: 119; 251; 80P

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “SMC’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA No. 1538/Bang/2024 Assessment Year: 2018-19 Prathamik Krishi Pattin Sahakari Sangh Niyamit Albal 1, Jamakhandi Taluk Alabal 587 119 Karnataka PAN No.: AABAP6756A Vs. ITO Ward-1 & TPS Bagalkote APPELLANT RESPONDENT Appellant by : Sri G. Aralikatti, A.R. Respondent by : Sri Ganesh R Ghale, Standing counsel for department Date of Hearing : 04.02.2025 Date of Pronouncement : 07.03.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: Present appeal of the assessee is arising from the order of NFAC, Delhi dated 18.06.2024 having DIN & Order No. ITBA/NFAC/S/250/2024-25/1065696869(1) for AY 2018-19. 2. The only inter-connected issue raised by the assessee is that the ld. CIT(A) erred in denying the benefit of deduction claimed u/s 80P of the Income Tax Act, 1961 (in short “The Act”) for Rs. 14,84,672/- representing the interest income from the Co-operative bank/nationalized bank. 3. Briefly stated facts are that the assessee in the present case is a Co-operative Society and engaged in the activity of providing financial facilities to its members. The assessee filed its return of ITA No.1538/Bang/2024 Page 2 of 4 income declaring income of Rs. Nil after claiming the deduction u/s 80P of the Act for Rs. 31,75,664/- only. The AO during the assessment proceedings found that the assessee has also claimed deduction u/s 80P of the Act to the tune of Rs. 14,84,672/- representing the gross amount of interest from the Co- operative/nationalized bank. As per the AO, such interest income was not arising to the assessee from the financial activities carried out with the members. Accordingly, the AO disallowed the same and added to the income of the assessee. 4. The assessee carried the matter before the ld. CIT(A), who upheld the finding of the AO. 5. Being aggrieved by the order of ld. CIT(A), the assessee is in appeal before me. 6. The ld. A.R. before us submitted that the deposits were made with Bagalkot District Central Co-operative Bank under the guidelines of Karnataka Co-operative Societies Act. As such, the deposits with the Bagalkot District Central Co-operative Bank were made on account of restrictions imposed under the Karnataka Co- operative Societies Act and therefore, the same is eligible for deduction u/s 80P(2)(a)(i) of the Act. 6.1 The ld. A.R., alternatively contended that if the interest received by the assessee from the Bagalkot District Central Co- operative Bank does not arise on account of compulsory deposit, then the benefit of deduction u/s 57 of the Act should be granted to the assessee. 6.2 On the other hand, the ld. D.R. could not controvert the arguments advanced by the ld. A.R. for the assessee but prayed to ITA No.1538/Bang/2024 Page 3 of 4 restore the issue to the file of AO for necessary computation of interest income whether it represents out of compulsory deposits with the bank. Further, the ld. D.R. submitted that the interest on the Axis bank does not represent on account of compulsory deposit, therefore, the same should not be considered for the purpose of deduction u/s 80P of the Act. However, the ld. D.R. fairly agreed for the benefit of deduction u/s 57 of the Act which can be granted to the assessee upon furnishing the necessary details against the income from cooperative banks/ Axis bank. 7. I have heard the rival contentions of both the parties and perused the materials available on record. As regards the compulsory deposit with the Co-operative bank, in my considered view, the issue is squarely covered in favour of the assessee by the judgement of Hon’ble Supreme Court in the case of CIT versus Karnataka State cooperative apex bank reported in 251 ITR 194 wherein it was held as under: There is no doubt, and it is not disputed, that the assessee-co-operative bank is required to place a part of its funds with the State Bank or the Reserve Bank of India to enable it to carry on its banking business. This being so, any income derived from funds so placed arises from the business carried on by it and the assessee has not, by reason of section 80P(2)(a)( i), to pay income-tax thereon. The placement of such funds being imperative for the purposes of carrying on the banking business, the income derived therefrom would be income from the assessee's business. We are unable to take the view that found favour with the Bench that decided the case of M.P. Co-operative Bank Ltd. (supra) that only income derived from circulating or working capital would fall within section 80P(2)(a)( i). There is nothing in the phraseology of that provision which makes it applicable only to income derived from working or circulating capital. 7.1 In view of the above, I hold that the assessee cannot be denied the benefit of deduction u/s 80P(2)(a)(i) of the Act for the interest income out of the compulsory deposit with the banks. However, this aspect has not been verified by the authorities below. 7.2 It is also not out of the dispute that if the impugned interest income does not arise from the compulsory deposits, then the ITA No.1538/Bang/2024 Page 4 of 4 assessee is entitled for the benefit of deduction u/s 57 of the Act. In simple words, the amount of interest income which is not eligible for deduction u/s 80P(2)(a)(i) of the Act, the same cannot be reduced from the gross total income of the assessee on gross basis. As such, only it is the net amount of interest income, which should be considered for the purpose of disallowance u/s 80P(2)(a)(i) of the Act. However, I find that the entire issue discussed above needs to be revisited at the level of the AO as the necessary verification with respect to the compulsory deposit and the amount of deduction u/s 57 of the Act has not been verified. Accordingly, I am inclined to set aside the issue to the file of AO for fresh adjudication as per the provisions of law after considering the discussion stated above. Hence, the grounds of appeal of the assessee are hereby partly allowed for statistical purposes. 8. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 7th March, 2025 Sd/- (Waseem Ahmed) Accountant Member Bangalore, Dated 7th March, 2025. Vms Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore "