ITAT: Tax Deduction U/S 80P Can’t Claim If Income Made Via Commercial Activity

The Income Tax Appellate Tribunal (ITAT), the Ahmedabad bench has ruled that income generated from commercial activity cannot be deducted under Section 80P of the Income Tax Act, 1961.

The assessee, Jetalpur Seva Sahkari Mandali Ltd., filed an income tax return for the assessment year 2017-18, declaring an aggregate income of Rs. 21,52,910/-. The return was done under Section 143(1) of the Income Tax Act, and the case was selected for scrutiny due to a significant deduction claim under Chapter VI.

It was noted by the Assessing Officer that the assessee had claimed a deduction of Rs. 33,21,232/- under Section 80P, including interest income of Rs. 9,43,000/- from its Petrol Pump branch business. The officer requested an explanation from the assessee regarding the eligibility of the interest income for deduction under Section 80P of the Income Tax.

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In response, the assessee stated that the primary function of the head office division was to provide financing, and thus, the interest income of Rs. 9,43,000 from the Pump Division qualified for deduction under Section 80P(2)(a) of the Income Tax Act.

According to the authorised representative (AR), the appeal was delayed by 103 days, but it was considered legitimate and accepted.

Furthermore, it was stated that the head office division engaged in various activities for its members, such as selling fertilisers, seeds, and agricultural equipment, as well as providing exclusive access to credit financing. Section 80P of the Income Tax Act allows for deductions in various types of such activities.

The Departmental Representative argued that the interest income was clearly associated with the commercial operation of the Pump Division and should not be exempt from taxation under Section 80P.

Additionally, it was argued that the taxpayer did not qualify as a Consumer Cooperative Society since its members did not use the products it provided, such as petrol and diesel. The Commissioner of Income Tax (Appeal) upheld the order of the Assessing Officer of denying the deduction under Section 80P(2)(a)(i) of the Income Tax Act.

The bench, consisting of a single member, Suchitra Kamble (Judicial Member), concluded that the activities carried out by the Pump Division were fully taxable and did not fall under Section 80P of the Income Tax Act.

Therefore, the assessee’s claim for deduction under Section 80P in relation to the Pump Division was rightfully denied by both the Assessing Officer and the Commissioner of Income Tax (Appeal). As a result, the assessee’s appeal was dismissed.