Balwa Group Coop Vs ITO (ITAT Ahmedabad)
Income Tax Appellate Tribunal (ITAT) Ahmedabad heard an appeal filed by Balwa Group Cooperative Society against an order by the National Faceless Appeal Centre (NFAC), Delhi, concerning assessment year 2018-19. The society, a credit cooperative, had declared nil income in its return, which was later selected for scrutiny. A key point of contention was the society’s claim for deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961, for interest income received from various banks, including nationalized banks. The Assessing Officer disallowed the deduction, adding the interest income back to the society’s income.
The society argued that the interest income, even from nationalized banks, was eligible for deduction under Section 80P(2)(a)(i) as the funds were ultimately used for the society’s objectives. They also contended that if the interest income was treated as taxable under Section 56 (Income from Other Sources), they should be allowed a deduction for proportionate expenditure incurred to earn that income, as per Section 57. The society provided a detailed breakdown of these expenses, including interest paid to members, staff salaries, and member benefits, arguing that these were necessary for managing funds and overall operations. They cited several precedents, including Chansama Taluka ni Prath Sala, Patan Vs. DCIT, Gandhinagar, M/s. The Bharathi Co-operative Credit Society Vs. The Income Tax Officer, Balasinor Vikas Co-op Credit Society Ltd. Vs. ITO, and M/s. Bharath Credit Co-operative Society Ltd. Vs. ITO, Bengaluru, to support their claims.
The Departmental Representative (DR) argued that the interest income from nationalized banks stemmed from surplus funds, not the society’s core business activity, and therefore, the expenses claimed were not wholly and exclusively incurred for earning this particular income, as required by Section 57(iii). The DR also pointed out that including interest paid to members in the proportionate expenditure calculation would amount to double deduction.
The ITAT upheld the disallowance of the deduction under Section 80P, confirming that interest from nationalized banks is not eligible for this deduction. However, regarding the proportionate expenditure claim, the ITAT observed discrepancies in the calculations presented by both the society and the DR. The tribunal noted that the society had included the entire expenditure debited to its profit and loss account in its calculation. Given these discrepancies and the need for proper verification, the ITAT set aside this specific issue back to the Assessing Officer. The AO was directed to re-examine the society’s expenditure claims, ensuring that only eligible expenses directly related to earning the interest income from nationalized banks are considered, and after providing the society with a fair hearing. The appeal was partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
