Koteshwara V.S.S. Bank Vs ITO (ITAT Bangalore)
Deduction u/s 80P Allowed on Assessed Income Including Disallowance of NPA & Farmers’ Reserve Provisions -ITAT Bangalore
The appeal was filed by Koteshwara VSS Bank, Udupi, a primary agricultural credit cooperative society, against NFAC’s order for AY 2017-18. The dispute concerned disallowance of ₹42.80 lakh being provisions for NPA (₹12.80 lakh) & Farmers’ Reserve (₹30 lakh).
AO disallowed the provisions on the ground that they were unascertained liabilities, thereby increasing taxable income. NFAC confirmed the disallowance, holding that such provisions are not allowable under MAT computation and hence would impact tax neutrality.
Assessee argued that:
- Provisions are mandated under the Karnataka State Cooperative Societies Act for true determination of profits.
- Even if disallowed, the enhanced income must still qualify for deduction u/s 80P(2)(a), in line with CBDT Circular No. 37/2016 which clarifies that additions/disallowances enhancing business profits remain eligible for Chapter VI-A deductions.
Tribunal noted that:
- The disallowance increased the business income of the society.
- Once income is so enhanced, deduction u/s 80P(2)(a) must be granted on the assessed income, not merely on returned income.
- Reliance was placed on CIT v. Gem Plus Jewellery India Ltd (330 ITR 175, Bom HC) and the recent coordinate bench ruling in Kome Koravadi Vividoddesha Sahakari Sangha Niyamitha (ITA No.982/Bang/2024, dated 24.06.2024).
Accordingly, AO was directed to recompute the deduction u/s 80P(2)(a) on the assessed income including the disallowance of provisions.
