ITAT: CO-OPS Doing Banking Business, Can’t Claim for a Deduction U/S 80P(2)(a)(I)

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the Co-operative society engaged in banking businesses does not fall under the category for deduction under Section 80P (2) (a) (i) of the Income Tax Act, 1961.

Nil return had been filed by the assessee, M/s. Shri Basaveswar Credit Cooperative Society Ltd. under Karnataka State Co-operative Societies Act, 1959. The assessee had filed a Nil return after claiming a deduction U/s 80P(2 )(a)(i) under chapter VIA of the Income Tax Act, 1961.

The case was under scrutiny. The assessee argued that because its primary goals are to accept the deposits and offer credit to members, so it qualifies for a deduction under Section 80P(2)(a)(i) of the Income Tax Act of 1961.

The assessee, M/s. Shri Basaveswar Credit Co-op Society Ltd. asserted that the order of the Commissioner of Income Tax (Appeals) (CIT(A)) is subject to be set aside because it denies the assessee the right to be assessed a total income of Rs. 10,02,282/- as opposed to the Nil income stated in its returns. The assessee was represented by Shri. Ravi Shankar S. V.

The claim of a deduction for interest earned from associate members was not allowed under Section 80P of the Income Tax Act of 1961 by the Assessing Officer, instructed by the CIT(A). The aggrieved assessee has filed an appeal questioning this decision made by the CIT (A), Hubballi.

The assessee argued that since the interest income could be attributed to the company, it should have been regarded as a business receipt.

The assessee vigorously disagreed, claiming that CIT (A)’s order was wholly incorrect. He, therefore, asked that the case be sent back to CIT (A) for fresh consideration in light of the arguments he had presented and the actual issue that had been brought up before CIT(A).

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As per the revenue presented by Shri. Ganesh R. Ghaler, who relied on the direction of lower authorities, claimed that the assessee was running a co-operative bank.

The AO accurately observed that the co-operative society engaged in banking activities is not eligible for a deduction under Section 80P(2)(a)(i) of the Income Tax Act of 1961 because it engages in banking activities.

The assessee is not eligible for a claim of deduction under Section 80P(2) of the Act, and the interest income received shall be considered as income from other sources since it is not attributable to the assessee’s business, the revenue contended that under the amendment made to Section 80P(4) of the Act read with Section 2(24)(viia).

The matter was sent back to the CIT (A) for further consideration by the single bench of Shri Laxmi Prasad Sahu (Accountant Member). The assessee is free to offer the supporting documentation it requires, and the CIT (A) is also ordered to allow the assessee a fair opportunity to be heard. For statistical purposes, the assessee’s appeal is accepted.